Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Exchange Act of 1934 (Amendment No. )
Filed by a Party other than the Registranto
o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
þ | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material Pursuant to §240.14a-12 |
þ | No fee required. | |
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
(1) | Title of each class of securities to which transaction applies: | ||
(2) | Aggregate number of securities to which transaction applies: | ||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | ||
(4) | Proposed maximum aggregate value of transaction: | ||
(5) | Total fee paid: | ||
o | Fee paid previously with preliminary materials. | |
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: | ||
(2) | Form, Schedule or Registration Statement No.: | ||
(3) | Filing Party: | ||
(4) | Date Filed: | ||
Table of Contents
![]() | ![]() |
Sincerely, ![]() | Sincerely, ![]() | |
John E. Jackson | Stephen A. Snider | |
President and Chief Executive Officer | President and Chief Executive Officer | |
Hanover Compressor Company | Universal Compression Holdings, Inc. |
Table of Contents
![Hanover Logo](https://capedge.com/proxy/DEFM14A/0000950129-07-003320/h44610dah4461000.gif)
• | adopt the Agreement and Plan of Merger, dated as of February 5, 2007, among Hanover Compressor Company, Universal Compression Holdings, Inc., Exterran Holdings, Inc. (formerly known as Iliad Holdings, Inc.), Hector Sub, Inc. and Ulysses Sub, Inc., as amended, a composite copy of which is attached asAnnex A to this joint proxy statement/prospectus; |
• | approve the Holdings 2007 Stock Incentive Plan, a copy of which is attached asAnnex D to this joint proxy statement/prospectus, to be used by Holdings following the consummation of the mergers; | |
• | approve the Holdings Employee Stock Purchase Plan, a copy of which is attached asAnnex E to this joint proxy statement/prospectus, to be used by Holdings following the consummation of the mergers; | |
• | elect eleven directors to serve as members of Hanover’s board of directors until Hanover’s next Annual Meeting of Stockholders or until their successors are duly elected and qualified; | |
• | ratify the reappointment of PricewaterhouseCoopers LLP as Hanover’s independent registered public accounting firm for fiscal year 2007; and | |
• | transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
![-s- Gary M. Wilson](https://capedge.com/proxy/DEFM14A/0000950129-07-003320/h44610dah4461070.gif)
Table of Contents
Hanover Compressor Company | Universal Compression Holdings, Inc. | |
12001 N. Houston Rosslyn | 4444 Brittmoore | |
Houston, Texas 77086 | Houston, Texas 77041 | |
(281) 447-8787 | (713)335-7000 | |
Attention: Investor Relations | Attention: Investor Relations | |
www.hanover-co.com | www.universalcompression.com |
D.F. King & Co., Inc. 48 Wall Street New York, New York 10005 (800) 859-8508 | Georgeson Inc. 17 State Street New York, New York 10004 (877) 278-9673 |
i
Table of Contents
Page | ||||
1 | ||||
1 | ||||
9 | ||||
10 | ||||
14 | ||||
16 | ||||
17 | ||||
20 | ||||
21 | ||||
22 | ||||
22 | ||||
25 | ||||
33 | ||||
34 | ||||
34 | ||||
35 | ||||
43 | ||||
44 | ||||
48 | ||||
51 | ||||
54 | ||||
59 | ||||
65 | ||||
74 | ||||
75 | ||||
75 | ||||
77 | ||||
77 | ||||
77 | ||||
78 | ||||
78 | ||||
78 | ||||
78 | ||||
78 | ||||
79 | ||||
80 | ||||
81 | ||||
81 | ||||
81 | ||||
82 | ||||
82 | ||||
83 | ||||
84 | ||||
92 | ||||
93 | ||||
95 |
ii
Table of Contents
Page | ||||
95 | ||||
96 | ||||
97 | ||||
97 | ||||
97 | ||||
97 | ||||
98 | ||||
98 | ||||
99 | ||||
99 | ||||
99 | ||||
100 | ||||
100 | ||||
106 | ||||
108 | ||||
108 | ||||
111 | ||||
112 | ||||
113 | ||||
115 | ||||
116 | ||||
116 | ||||
118 | ||||
124 | ||||
138 | ||||
139 | ||||
148 | ||||
152 | ||||
152 | ||||
152 | ||||
153 | ||||
154 | ||||
155 | ||||
155 | ||||
155 | ||||
156 | ||||
156 | ||||
158 | ||||
158 | ||||
160 | ||||
161 | ||||
161 | ||||
163 | ||||
165 | ||||
168 | ||||
169 |
iii
Table of Contents
Page | ||||
178 | ||||
179 | ||||
187 | ||||
189 | ||||
189 | ||||
194 | ||||
194 | ||||
195 | ||||
195 | ||||
196 | ||||
199 | ||||
208 | ||||
210 | ||||
218 | ||||
218 | ||||
219 | ||||
F-1 | ||||
F-2 | ||||
F-3 |
ANNEXES: | ||||||
Agreement and Plan of Merger | A-1 | |||||
Exhibit 2.1.1 — Restated Certificate of Incorporation of Universal | A-49 | |||||
Exhibit 2.1.2 — Certificate of Incorporation of Hanover | A-50 | |||||
Exhibit 2.2.1 — Second Restated Bylaws of Universal | A-51 | |||||
Exhibit 2.2.2 — Second Amended and Restated Bylaws of Hanover | A-60 | |||||
Exhibit 2.3.1 — Restated Certificate of Incorporation of Holdings | A-69 | |||||
Exhibit 2.3.2 — Amended and Restated Bylaws of Holdings | A-73 | |||||
Exhibit 7.11 — Form of Rule 145 Affiliate Letter | A-87 | |||||
Exhibit 8.1(i) — Consents | A-89 | |||||
Opinion of Credit Suisse Securities (USA) LLC | B-1 | |||||
Opinion of Goldman, Sachs & Co. | �� | C-1 | ||||
Holdings 2007 Stock Incentive Plan | D-1 | |||||
Holdings Employee Stock Purchase Plan | E-1 | |||||
Excerpt from Hanover’s Governance Principles Concerning Shareholder Election of Directors | F-1 | |||||
Excerpt from Hanover’s Governance Principles Concerning Independence Standards for Hanover Directors | G-1 | |||||
Universal Compensation Committee Charter | H-1 |
iv
Table of Contents
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? |
1
Table of Contents
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 |
2
Table of Contents
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 theHart-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 certainnon-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. |
3
Table of Contents
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. |
4
Table of Contents
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 asAnnex 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. |
5
Table of Contents
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. |
6
Table of Contents
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) |
7
Table of Contents
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. |
8
Table of Contents
9
Table of Contents
• | 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. |
10
Table of Contents
• | 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. |
11
Table of Contents
12
Table of Contents
• | 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 applicablenon-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 |
13
Table of Contents
• | 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. |
• | to adopt the merger agreement; | |
• | to approve the Holdings 2007 Stock Incentive Plan, a copy of which is attached asAnnex 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 asAnnex 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. |
14
Table of Contents
• | to adopt the merger agreement; | |
• | to approve the Holdings 2007 Stock Incentive Plan, a copy of which is attached asAnnex 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 asAnnex 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. |
15
Table of Contents
• | 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. |
16
Table of Contents
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 | ) |
17
Table of Contents
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 | ) |
18
Table of Contents
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. |
19
Table of Contents
• | 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 |
20
Table of Contents
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. |
21
Table of Contents
• | integrating Hanover’s and Universal’s existing businesses; | |
• | combining diverse product and service offerings and sales and marketing approaches; | |
• | preserving customer, supplier and other important relationships and resolving potential conflicts that may arise as a result of the mergers; | |
• | consolidating and integrating duplicative facilities and operations, including back-office systems such as Hanover’s and Universal’s different enterprise resource planning (“ERP”) systems; and | |
• | addressing differences in business cultures, preserving employee morale and retaining key employees, while maintaining focus on providing consistent, high quality customer service and meeting the operational and financial goals of the combined company. |
22
Table of Contents
23
Table of Contents
• | being required to pay the other company a termination fee of up to $70 million in certain circumstances, as described under “The Merger Agreement — Expenses and Termination Fees” beginning on page 95; | |
• | having had the focus of management of each of the companies directed toward the mergers and integration planning instead of on each company’s core business and other opportunities that could have been beneficial to the companies; and | |
• | incurring substantial transaction costs related to the mergers. |
24
Table of Contents
• | borrow money; | |
• | create liens; | |
• | make investments; |
25
Table of Contents
• | declare dividends or make certain distributions; | |
• | sell or dispose of property; or | |
• | merge into or consolidate with any third party or sell or transfer all or substantially all of its property. |
• | difficulties in managing international operations, including the ability of Holdings to timely and cost effectively execute projects; | |
• | training and retaining qualified personnel in international markets; | |
• | inconsistent product regulation or sudden policy changes by foreign agencies or governments; | |
• | the burden of complying with multiple and potentially conflicting laws; |
26
Table of Contents
• | tariffs and other trade barriers that may restrict the ability of Holdings to enter new markets; | |
• | governmental actions that result in the deprivation of contract rights and other difficulties in enforcing contractual obligations; | |
• | foreign exchange rate risks; | |
• | difficulty in collecting international accounts receivable; | |
• | potentially longer payment cycles; | |
• | changes in political and economic conditions in the countries in which Holdings will operate, including the nationalization of energy related assets, civil uprisings, riots, kidnappings and terrorist acts, particularly with respect to operations in Nigeria and Venezuela; | |
• | potentially adverse tax consequences; | |
• | restrictions on repatriation of earnings or expropriation of property without fair compensation; | |
• | the geographic, time zone, language and cultural differences among personnel in different areas of the world; and | |
• | difficulties in establishing new international offices and risks inherent in establishing new relationships in foreign countries. |
27
Table of Contents
28
Table of Contents
Substitution | ||||||||||||||||||||
Value of | Percentage of | Limitation as | ||||||||||||||||||
Substituted | Termination | Termination | Percentage of | Lease | ||||||||||||||||
Lease | Equipment | Value(1) | Value(1) | Termination Value | Termination Date | |||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
2001A compression equipment lease | $ | 20.2 | 14.7 | % | $ | 137.1 | 25 | % | September 2008 | |||||||||||
2001B compression equipment lease | 55.4 | 21.5 | % | 257.7 | 25 | % | September 2011 | |||||||||||||
Total | $ | 75.6 | $ | 394.8 | ||||||||||||||||
(1) | Termination value assumes all accrued rents paid before termination. |
29
Table of Contents
30
Table of Contents
31
Table of Contents
32
Table of Contents
• benefits, effects or results of the proposed mergers; • cost reductions, operating efficiencies or synergies resulting from the proposed mergers; • operations and results after the proposed mergers; • integration of operations; • business strategies; • growth opportunities; • competitive position; • market outlook; • expected financial position; • expected value of our compression equipment; • expected results of operations; | • future cash flows; • financing plans; • budgets for capital and other expenditures; • plans and objectives of management; • timing of the consummation of the proposed mergers; • ability to convey assets to the Universal Partnership; • tax treatment of the proposed mergers; • accounting treatment of the proposed mergers; • costs in connection with the proposed mergers; and • any other statements regarding future growth, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts. |
• | our ability to renew our short-term equipment contracts with our customers so as to fully recoup our cost of the equipment; | |
• | conditions in the oil and gas industry, including any prolonged substantial reduction in oil and natural gas prices, which could cause a decline in the demand for our compression and oil and natural gas production and processing equipment; | |
• | competition among the various providers of natural gas compression services, including any introduction of any competing technologies by other companies; | |
• | economic or political conditions in the countries in which we do business, including civil uprisings, riots, terrorism, kidnappings, the taking of property without fair compensation and legislative changes; | |
• | currency exchange rate fluctuations; | |
• | employment workforce factors, including the loss of key employees; | |
• | changes in safety and environmental regulations pertaining to the production and transportation of natural gas; | |
• | our ability to implement certain business objectives, such as international expansion and the ability to timely and cost-effectively execute integrated projects; |
33
Table of Contents
• | the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters; | |
• | our ability to obtain components used to fabricate our products; | |
• | changes in governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; | |
• | liability related to the use of our products and services; and | |
• | our ability to successfully complete merger, acquisition or divestiture plans (including the proposed mergers), regulatory or other limitations imposed as a result of a merger, acquisition or divestiture, and the success of the business following a merger, acquisition or divestiture. |
34
Table of Contents
35
Table of Contents
36
Table of Contents
37
Table of Contents
38
Table of Contents
39
Table of Contents
40
Table of Contents
41
Table of Contents
42
Table of Contents
• | Complementary Strengths. The mergers will combine Hanover’s strength in international contract compression and Hanover’s expertise as a provider of service, fabrication and equipment for oil and natural gas production, processing and transportation applications with Universal’s expectation that it can achieve a lower cost of capital in U.S. contract compression through the Universal Partnership. Hanover’s and Universal’s international businesses complement one another well, as they primarily operate in different countries with minimal overlapping locations. | |
• | Shared Vision. We share a common vision of the future of the natural gas compression and production and processing equipment industry. We believe this shared vision will better enable the combined company to effectively implement its business plan following consummation of the mergers. This vision includes transferring our U.S. contract compression business to the Universal Partnership over time and investing substantial capital in expanding our international business. Both companies are focused on expanding the combined company’s natural gas compression services, compressor fabrication business and production and processing equipment fabrication businesses in international markets. | |
• | Impact on Customers. We believe the mergers will have a favorable impact on our customers. Specifically, the mergers should benefit customers through improved operating efficiencies and reliability as well as a broader and deeper array of experienced and skilled technicians and service specialists who can serve the needs of our customers. Further, the mergers will strengthen each company’s ability to offer a full range of compression products and services to its customers. The combined company will also benefit from each company’s commitment to customer service. | |
• | Cost-of-Capital Advantage of Universal Partnership. The mergers will result in a larger pool of U.S. compression contracts and assets available for transfer to the Universal Partnership over time to take advantage of a lower cost of capital than Hanover’ and Universal’s current corporate structures. Over time, the combined company expects to transfer a substantial portion of its U.S. compression contracts and assets to the Universal Partnership. | |
• | Financial Position. We believe the combined company initially will have increased earnings and cash flow as a result of its size and business line diversification, with improved access to capital markets. | |
• | Expanded International Platform. The mergers will create a combined company with greater international reach and a broader geographic diversification of its compression business than either company |
43
Table of Contents
would have by itself. We believe that international compression, combined with production processing capabilities, will become increasingly significant given the rapid expansion of natural gas infrastructure in international locations, and that the combined company’s more geographically balanced business will be better positioned to take advantage of future opportunities in the worldwide energy services market. |
• | Significant Cost Savings and Synergies. We believe that the synergies expected to be captured through the integration of the operations of the two companies, combined with the increased size, breadth and depth of the combined company, will allow for greater future profitability than either company could achieve on a stand-alone basis. Not including implementation and transaction costs, the mergers are expected to generate approximately $50 million in annual gross synergies, when fully realized in 2009. These cost savings will result from elimination of duplicate spending (including, but not limited to, overhead costs and general and administrative expense relating to executive officers) and overlapping functions and modifications to our processes to become more efficient, including potentially standardizing our equipment. Following the completion of the mergers, the combined company plans to undertake a comprehensive review of its operations, particularly in the United States, to determine which facilities and functions are duplicative and can be eliminated or converted to a different use. These expected cost savings and synergies are estimates that may change, and achieving the expected cost savings and synergies is subject to a number of risks and uncertainties. |
• | 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 meeting of stockholders of Hanover. |
• | Mutual Benefits. The Hanover board considered the expected benefits to both companies and their stockholders described above under “— Strategic and Financial Rationale for the Mergers.” | |
• | Interest in Master Limited Partnership. The Hanover board considered that the mergers would combine Hanover with Universal, which already has formed a master limited partnership that provides a lower cost of capital than Hanover’s corporate structure. The Hanover board believes that the mergers will allow Hanover to capture the benefits of the master limited partnership structure more quickly and cost-effectively than if Hanover itself attempted to sponsor and complete an initial public offering by a master limited partnership. | |
• | Financial Flexibility. The Hanover board considered the expected financial condition of the combined company after the mergers, including its expected market capitalization, balance sheet, revenues, profits and earnings per share, and noted that the combined company should provide Hanover stockholders |
44
Table of Contents
with increased liquidity and provide the combined company with a potentially lower cost of capital from future equity and debt transactions than Hanover as a stand-alone entity. The Hanover board also considered a projection that the mergers are expected to be accretive to estimated earnings per share of Holdings in 2007 compared to estimated earnings per share of Hanover in 2007, after factoring in synergies and excluding the one-time costs related to the mergers, by approximately $0.23. |
• | Ownership of Holdings. The Hanover board noted that the stockholders of Hanover would own approximately 53% of the combined company based on the application of the negotiated exchange ratios used in the mergers and the number of shares of Hanover and Universal common stock outstanding as of the date of the merger agreement. Because of the various elements that were considered in the relative negotiated valuations of the two companies, including that Hanover was contributing slightly more assets and revenue than Universal, it was important to the Hanover board that the application of the exchange ratios result in stockholders of Hanover owning a slight majority of the combined company. | |
• | Board Composition. The Hanover board considered that, upon consummation of the mergers, one-half of the board of Holdings will consist of members of Hanover’s board, and that the Chairman of the Board of Hanover will serve as the Chairman of the Board of Holdings. The Hanover board believed that because the transaction was structured as a merger of equals, the board of Holdings initially should be balanced between legacy Hanover directors and Universal directors. In addition, because several members of the senior management team of Universal will serve as members of the senior management team of Holdings, the Hanover board believed it was important that the initial Chairman of the Board of Holdings be a current member of the Hanover board in order to maintain this balance. The Hanover board believed that this balance would enable the combined company to take advantage of the expertise and leadership of both companies. | |
• | Composition of Management. The Hanover board considered that, upon consummation of the mergers, the senior management team of Holdings will be balanced between former executives of Hanover and Universal. For example, Stephen A. Snider will serve as President and Chief Executive Officer while Brian A. Matusek will serve as Chief Operating Officer. The Hanover board believed that this balance was important for many of the same reasons that it believed it was important to maintain a balance on the board of directors of Holdings as described above. | |
• | Increased Operational Scale. The Hanover board considered the potential benefits to the combined company and Hanover’s employees from the expanded opportunities available as a result of being part of a larger organization with increased operational scale. This increased operational scale should allow the combined company to take advantage of the benefits of increased size, an expanded customer base, a more diversified product and service offering, increased geographic presence and greater resources to service the needs of Holdings’ customers. The additional scale may also provide additional options for future potential strategic alternatives and will enable the combined company to increase the diversity of its risk portfolio. It should also allow the combined company to provide its employees with improved benefits associated with a larger organization as well as giving them greater opportunities to advance their careers in different fields and in more regions of the world. | |
• | No Cash Outlay. The Hanover board noted that the consideration in the mergers consists of common stock of Holdings rather than cash (other than cash paid in lieu of fractional shares of Holdings common stock), which does not require the combined company to make any additional borrowings or cash outlays (other than to pay expenses associated with the mergers). | |
• | Reciprocity of Merger Agreement. The Hanover board considered the largely reciprocal nature of the terms of the merger agreement, including the representations and warranties, obligations and rights of the parties under the merger agreement, such as the provisions that permit either party to respond to an unsolicited superior proposal and change its recommendation of the mergers, the conditions to each party’s obligation to complete the mergers, the instances in which each party is permitted to terminate the merger agreement and the related termination fees payable by each party in the event of termination of the merger agreement under specified circumstances. |
45
Table of Contents
• | Fairness Opinion Presented to the Hanover Board. The Hanover board considered the financial analysis reviewed and discussed with the Hanover board by representatives of Credit Suisse as well as the oral opinion as of February 3, 2007 of Credit Suisse to the Hanover board (which was subsequently confirmed in writing by delivery of Credit Suisse’s written opinion dated the same date) as to the fairness from a financial point of view to the holders of Hanover common stock of the Hanover exchange ratio in the mergers. The full text of Credit Suisse’s written opinion, setting forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Credit Suisse in preparing its opinion is attached as Annex B to this joint proxy statement/prospectus. | |
• | Tax-Free Exchange. The Hanover board also took into account that the mergers are intended to be tax-free to the holders of Hanover common stock and that the closing of the Hanover merger is conditioned upon the receipt of a favorable opinion from tax counsel to Hanover. | |
• | Stock Market Prices. The Hanover board considered the historical and current market prices of Hanover’s common stock and Universal’s common stock. The overall equity values of Hanover and Universal based on the market prices of their common stock were relatively equal, which provided the basis for the companies to negotiate a merger agreement that is relatively balanced between the two companies. | |
• | Corporate Governance Provisions. The Hanover board considered the corporate governance provisions contained in the proposed certificate of incorporation and bylaws of Holdings and believed that such provisions reflect an appropriate balance between good corporate governance and necessary protections to conduct the business of Holdings in an orderly fashion. | |
• | Location of Headquarters. The Hanover board considered that both Hanover and Universal are headquartered in Houston, Texas and the headquarters of the combined company will remain in Houston, Texas, thus reducing the disruption caused by the mergers to Hanover employees who work at Hanover’s current headquarters. |
• | Fixed Exchange Ratio. The Hanover board considered the fact that the fixed exchange ratio would not adjust downwards to compensate for changes in the price of Hanover’s or Universal’s common stock prior to the consummation of the mergers, and that the terms of the merger agreement did not include termination rights triggered expressly by a decrease in the value of Universal relative to the value of Hanover. The Hanover board determined this structure was appropriate and the risk acceptable due to the directors’ focus on the relative intrinsic values and performance of Hanover and Universal and the inclusion in the merger agreement of other structural protections, such as the board’s ability to change its recommendation in favor of the merger agreement or to terminate the merger agreement in certain other circumstances. | |
• | Regulatory Approvals. The Hanover board considered the extensive regulatory approvals required to complete the mergers and the risk that governmental authorities might seek to impose unfavorable terms or conditions on the required approvals or that such approvals may not be obtained at all. The Hanover board further considered the potential length of the regulatory approval process and the period of time Hanover may be subject to the merger agreement without assurance that the mergers will be completed. | |
• | Restrictions of Interim Operations. The Hanover board considered the provisions in the merger agreement placing restrictions on Hanover’s operations until completion of the mergers, and the extent of those restrictions as negotiated between the parties. These restrictions could have the effect of preventing Hanover from pursuing other strategic transactions during the pendency of the merger agreement, including certain material acquisitions and divestitures. In addition, these restrictions limit the ability of Hanover to raise capital through the issuance of equity securities or the incurrence of certain indebtedness. In considering the potential risks imposed by the merger agreement, the Hanover board determined that the potential benefits of the mergers outweighed these risks. See “The Merger |
46
Table of Contents
Agreement — Covenants and Agreements — Interim Operations” beginning on page 84 for further information. |
• | Personnel. The Hanover board considered the adverse impact that business uncertainty pending completion of the mergers could have on the ability to attract, retain and motivate key personnel until the consummation of mergers. The Hanover board determined, however, to address this risk by implementing a retention program designed to retain key employees during the pendency of the merger agreement. See “— Interests of Hanover and Universal Directors and Executive Officers in the Mergers — Interests of Hanover Directors and Executive Officers in the Mergers — Retention Plan” beginning on page 70. The Hanover board also considered the level and impact of job reductions as a result of transaction-related synergies and whether the possibility of those further job reductions also could make it more difficult for Holdings to attract, retain and motivate key personnel. In considering the potential risks associated with employee morale and retention issues, the Hanover board determined that the potential benefits that the mergers could afford to the employees of Hanover outweighed these risks. |
• | Non-Solicitation and Related Provisions. The Hanover board considered the provisions of the merger agreement that, subject to certain exceptions, prohibit Hanover from soliciting, entering into or participating in discussions regarding any takeover proposal and the provisions of the agreement that require Hanover to conduct a stockholder meeting to consider adoption of the merger agreement whether or not the board of that company continues to recommend in favor of the mergers. See “The Merger Agreement — Covenants and Agreements — No Solicitation” beginning on page 90 for further information. | |
• | Termination Fee. The Hanover board considered the risk of the provisions in the merger agreement relating to the potential payment of a termination fee of up to $70 million under certain circumstances and determined that those provisions were customary and appropriate. See “The Merger Agreement — Expenses and Termination Fees” beginning on page 95 for further information. | |
• | Universal Business Risks. The Hanover board considered certain risks inherent in Universal’s business and operations and other contingent liabilities. Many of these risks are described under the heading “Risk Factors” in Universal’s Annual Report onForm 10-K, which is incorporated by reference herein. Based on reports of management and outside advisors regarding the due diligence process and the representations and warranties made by Universal in the merger agreement, the Hanover board determined that these risks were manageable as part of the ongoing business of the combined company. | |
• | Integration and Synergies. The Hanover board considered the challenges inherent in the combination of two business enterprises of the size and scope of Hanover and Universal, including the possibility the anticipated cost savings and synergies and other benefits sought to be obtained from the mergers might not be achieved in the time frame contemplated or at all. |
47
Table of Contents
• | 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. |
• | Mutual Benefits. The Universal board considered the expected benefits to both companies and their stockholders described above under “— Strategic and Financial Rationale for the Mergers.” | |
• | Enhanced Universal Partnership Growth Opportunities. Universal intends for the Universal Partnership to be the primary vehicle for the growth of Universal’s domestic contract compression business because the Universal Partnership’s structure provides a lower cost of capital than Universal’s corporate structure. The Universal board considered that the mergers will provide a greater number of compressor units and customers that can be transferred to the Universal Partnership over time, thereby enhancing the value of the Universal Partnership, as well as the value of Universal’s general partner interest in the Universal Partnership. | |
• | Regional and Operational Scale and Diversification. The Universal board considered that the combined company should benefit from increased operational scale. The Universal board also considered that the combined company will be engaged in production and processing equipment fabrication, a complementary line of business in which Universal is not currently engaged. | |
• | Financial Flexibility. The Universal board noted a projection that the mergers are expected to be accretive to estimated earnings per share of Holdings in the second half of 2007 as compared to estimated earnings per share of Universal in the second half of 2007, after factoring in synergies and excluding the one-time costs related to the mergers, by approximately 12%. The Universal board noted that the transaction is expected to provide greater liquidity to Universal’s stockholders because of the increased size of the combined company’s market capitalization resulting from the all-stock transaction. This increase in market capitalization is also expected to provide the combined company with better access to capital markets than either company could achieve by itself. |
48
Table of Contents
• | Impact on Credit Profile. The Universal board considered certain selected credit metrics of the combined company on a pro forma basis as compared to those of Universal on a stand-alone basis. The Universal board noted that there was not a material change in the consolidated metrics as compared to the projected stand-alone metrics and therefore did not expect a material change in the credit profile of the combined company. | |
• | Debt Arrangements. The Universal board considered their expectation that, to the extent required upon the completion of the mergers, refinancing of the companies’ existing debt can be obtained on suitable terms. | |
• | Tax-Free Exchange. The Universal board also took into account the fact that the mergers are intended to be tax-free to the holders of Universal common stock and that the closing of the transaction is conditioned upon the receipt of favorable opinions from tax counsel to each of the companies. | |
• | No Cash Outlay. The Universal board considered the fact that Holdings common stock rather than cash will be the form of consideration to be paid to both parties’ stockholders, which does not require either company to make any additional borrowings or cash outlays (other than to pay transaction costs and in lieu of any fractional shares). |
• | Fairness Opinion Presented to the Universal Board. The Universal board considered the financial analysis of Goldman, Sachs & Co. presented to the Universal board on February 3, 2007 and the oral opinion of that firm on that date (subsequently confirmed in a written opinion dated February 5, 2007) to the Universal board as to the fairness, from a financial point of view, to Universal’s stockholders of the Universal exchange ratio in the mergers as of the date of the opinion, as more fully described below under the caption “— Opinion of Universal’s Financial Advisor” beginning on page 59. The full text of this opinion, setting forth the assumptions made, procedures followed, matters considered and limitations on the reviews undertaken in connection with such opinion, is attached asAnnex C to this joint proxy statement/prospectus. |
• | Holdings Governance. The Universal board considered the corporate governance provisions of the proposed certificate of incorporation and by-laws of Holdings. The Universal board believes that those provisions reflect an appropriate balance between good corporate governance and necessary protections to allow the business of Holdings to be conducted in an orderly fashion. | |
• | Board Composition. The Universal board considered that the Holdings board will be composed of five former Universal directors and five former Hanover directors upon consummation of the mergers. The Universal board believed that because the transaction is structured as a merger of equals, it is appropriate that the board of Holdings initially be balanced between legacy Universal directors and legacy Hanover directors. | |
• | Employment Matters. The Universal board considered the management composition of Holdings after the consummation of the mergers, which will include Mr. Snider as the President and Chief Executive Officer. | |
• | Recommendation of Management. The Universal board considered management’s recommendation in support of the mergers. | |
• | Stockholder Approval. The Universal board took into account the requirement that stockholder approval be obtained as a condition to the consummation of the mergers. |
• | Hanover Business Risks. The Universal board considered certain risks inherent in Hanover’s business and operations. Many of these risks are described under the heading “Risk Factors” in Hanover’s annual report onForm 10-K, which is incorporated by reference herein. Based on reports of management and outside advisors regarding the due diligence process, the Universal board determined that these risks were manageable as part of the ongoing business of the combined company. |
49
Table of Contents
• | Regulatory Approvals. The Universal board considered the regulatory approvals required to complete the mergers and the risk that governmental authorities and third parties might seek to impose unfavorable terms or conditions on the required approvals or that such approvals may not be obtained at all. The Universal board further considered the potential length of the regulatory approval process and the period of time Universal may be subject to the merger agreement without assurance that it will be completed. | |
• | Integration. The Universal board evaluated the possibility that the anticipated cost savings and synergies and other benefits sought to be obtained from the mergers might not be achieved in the time frame contemplated. | |
• | Personnel. The Universal board considered the adverse impact that uncertainty pending consummation of the mergers could have on the ability to attract, retain and motivate key personnel until the mergers are completed. The Universal board also considered the level and impact of job reductions as a result of transaction-related synergies and whether the possibility of those further job reductions also could make it more difficult for the combined company to attract, retain and motivate key personnel. | |
• | Debt Arrangements. The Universal board considered the impact of the mergers on the existing debt arrangements of both Hanover and Universal and the companies’ potential need to refinance their existing debt. The Universal board concluded that the impact of the mergers on the existing debt arrangements was manageable as part of the business of the combined company. |
• | Fixed Exchange Ratio. The Universal board considered the fact that the fixed exchange ratio will not adjust upward or downward to compensate for changes in the price of either Hanover or Universal common stock prior to the consummation of the mergers, and that the terms of the merger agreement do not include termination rights triggered expressly by a decrease in value of either company due to a decline in the market price of that company’s common stock. The Universal board determined that this structure was appropriate and the risk acceptable in view of the reciprocal nature of the fixed exchange ratio, the Universal board’s focus on the relative intrinsic values and financial performance of Hanover and Universal and the percentage of the combined company to be owned by former holders of Universal common stock, and the inclusion in the merger agreement of other structural protections such as the board’s ability to change its recommendation in favor of the merger agreement or to terminate the merger agreement in the event of a material adverse change in the other company’s business. |
• | Restrictions on Interim Operations. The Universal board considered the provisions of the merger agreement placing restrictions on each company’s operations until completion of the mergers and the extent of those restrictions as negotiated between the parties. See “The Merger Agreement — Covenants and Agreements — Interim Operations” beginning on page 84 for further information. |
• | Non-Solicitation and Related Provisions. The Universal board considered the provisions of the merger agreement that, subject to certain exceptions, prohibit each company from soliciting, entering into or participating in discussions regarding any takeover proposal and the provisions of the agreement that require each company to conduct a stockholder meeting to consider adoption of the merger agreement whether or not the board of that company continues to recommend in favor of the mergers. See “The Merger Agreement — Covenants and Agreements — No Solicitation” beginning on page 90 for further information. | |
• | Termination Fee. The Universal board considered the provisions of the merger agreement relating to the potential payment or receipt of a termination fee of up to $70 million under certain circumstances |
50
Table of Contents
and determined that those provisions were customary and appropriate. See “The Merger Agreement — Expenses and Termination Fees” beginning on page 95 for further information. |
• | the scope of the due diligence investigation conducted by management and Universal’s outside advisors and the results thereof; | |
• | the provisions of Holdings’ organizational documents, including those that are different from Universal’s, such as Holdings’ lack of a classified board of directors; | |
• | the earnings, cash flow and balance sheet impact of the mergers; | |
• | the relative financial performance, businesses, risks and prospects of Hanover and Universal; | |
• | the historical and then-current stock price information of Hanover and Universal; and |
• | the interests that certain Universal executive officers and directors may have with respect to the mergers in addition to their interests as Universal stockholders. See “— Interests of Hanover and Universal Directors and Executive Officers in the Mergers” beginning on page 65 for further information. |
51
Table of Contents
52
Table of Contents
2007 | ||||
Revenue and Other Income | $ | 1,889 | ||
Gross Profit and Equity in Earnings | 676 | |||
EBITDA(1) | 457 | |||
Net Income | 79 | |||
Earnings per Share (diluted) | $ | 0.72 |
(1) | EBITDA consists of consolidated income (loss) from continuing operations before interest expense, provision for (benefit from) income taxes, and depreciation and amortization. EBITDA is a commonly used measure of operating performance for valuing companies in Hanover’s industry. EBITDA should not be considered as an alternative to measures prescribed by generally accepted accounting principles and may not be comparably calculated from one company to another. |
53
Table of Contents
2007 | ||||
Revenue | $ | 1,152 | ||
Gross Profit | 498 | |||
EBITDA, as Adjusted(1) | 357 | |||
Net Income | 100 | |||
Earnings per Share (diluted) | $ | 3.19 |
(1) | EBITDA, as adjusted, is defined as net income plus income taxes, interest expense (including debt extinguishment costs and gain on the termination of interest rate swap agreements), operating lease expense, depreciation and amortization, foreign currency gains or losses, minority interest, excluding non-recurring items (including facility consolidation costs). EBITDA is a commonly used measure of operating performance for valuing companies in Universal’s industry. EBITDA should not be considered as an alternative to measures prescribed by generally accepted accounting principles and may not be comparably calculated from one company to another. |
• | reviewed a draft dated February 3, 2007 of the merger agreement; | |
• | reviewed certain publicly available business and financial information relating to Hanover and Universal; |
54
Table of Contents
• | reviewed certain other information relating to Hanover and Universal, including financial forecasts (and adjustments thereto based on discussions with the management of Hanover) relating to Hanover and Universal, provided to or discussed with Credit Suisse by Hanover and Universal; | |
• | met with the managements of Hanover and Universal to discuss the business and prospects of Hanover and Universal, respectively; | |
• | considered certain financial and stock market data of Hanover and Universal and compared that data with similar data for other publicly held companies in businesses Credit Suisse deemed similar to those of Hanover and Universal; | |
• | considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which had recently been effected; and | |
• | considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which Credit Suisse deemed relevant. |
55
Table of Contents
• | Enterprise Value — generally the value as of a specified date of the relevant company’s outstanding equity securities (taking into account its outstanding options, warrants and convertible securities) plus the value of its net debt (the value of its outstanding indebtedness and capital lease obligations less the amount of cash on its balance sheet), preferred stock and minority interests as of a specified date. | |
• | EBITDA — generally the amount of the relevant company’s earnings before interest, taxes, depreciation, and amortization for a specified time period. | |
• | After-Tax Cash Flow — generally the amount of the relevant company’s net income plus the amounts of depreciation and amortization and deferred taxes for a specified time period. |
56
Table of Contents
• | Enterprise value as a multiple of estimated 2007 EBITDA; and | |
• | Equity value as a multiple of estimated 2007 After-Tax Cash Flow. |
• | Weatherford International | |
• | National Oilwell Varco | |
• | Smith International | |
• | BJ Services | |
• | Cameron International | |
• | Grant Prideco |
• | Superior Energy | |
• | Complete Production | |
• | Tetra Technologies | |
• | Oil States International | |
• | W-H Energy Services |
• | FMC Technologies | |
• | Dresser Rand Group | |
• | Oceaneering International | |
• | Core Laboratories | |
• | Hydril | |
• | Dril-Quip |
57
Table of Contents
• | The calculated multiples included enterprise value as a multiple of latest 12 months, or LTM EBITDA. |
Acquirer | Target | |
Compagnie Générale de Géophysique | Veritas DGC Inc. | |
Tenaris S.A. | Maverick Tube Corporation | |
Schlumberger Limited | Western Geco | |
Weatherford International Ltd. | Precision Drilling Corporation’s Drilling Business | |
First Reserve Corporation | Dresser Rand Unit of Ingersoll-Rand Company | |
National-Oilwell, Inc. | Varco International Inc. | |
Enerflex Systems Ltd. | EnSource Energy Services Inc. | |
First Reserve Corporation, Odyssey Investment Partners, Dresser Equipment Group management | Dresser Equipment Group (Halliburton Company) | |
Tuboscope Inc. | Varco International Inc. | |
Precision Drilling Corporation | Computalog Ltd. | |
Schlumberger Limited | Camco International Inc. | |
Baker Hughes Inc. | Western Atlas Inc. | |
Halliburton Company | Dresser Industries, Inc. | |
EVI, Inc. | Weatherford Enterra, Inc. |
58
Table of Contents
Hanover Implied | ||||||||||||
Hanover | Universal | Exchange Ratio | ||||||||||
2006E EBITDA | 58 | % | 42 | % | 0.387 | |||||||
2007E EBITDA | 57 | % | 43 | % | 0.359 | |||||||
2006E Net Income | 48 | % | 52 | % | 0.246 | |||||||
2007E Net Income | 46 | % | 54 | % | 0.227 | |||||||
2006E After Tax Cash Flow | 55 | % | 45 | % | 0.326 | |||||||
2007E After Tax Cash Flow | 55 | % | 45 | % | 0.326 |
59
Table of Contents
• | the merger agreement; | |
• | annual reports to stockholders and annual reports on Form10-K of Universal for the four fiscal years ended March 31, 2005 and the nine months ended December 31, 2005, and of Hanover for the five years ended December 31, 2005; | |
• | certain interim reports to stockholders and Quarterly Reports onForm 10-Q of Universal and Hanover; | |
• | certain other communications from Universal and Hanover to their respective stockholders; | |
• | certain internal financial analyses and forecasts for Universal prepared by Universal’s management; | |
• | certain financial analyses and forecasts for Hanover prepared by Universal’s management; and | |
• | certain cost savings and operating synergies projected by Universal’s management to result from the mergers (hereinafter the “Synergies”). |
60
Table of Contents
Time Period | Exchange Ratio | |||
5 Year Average | 0.4177x | |||
3 Year Average | 0.3487x | |||
1 Year Average | 0.3296x | |||
6 Month Average | 0.3240x | |||
90 Trading Day Average | 0.3181x | |||
60 Trading Day Average | 0.3111x | |||
45 Trading Day Average | 0.3113x | |||
At February 2, 2007 | 0.3175x |
• | National Oilwell / Varco International, Inc. (2004) | |
• | PanCanadian Energy Corp. / Alberta Energy Company Ltd. (2002) | |
• | Phillips Petroleum Company / Conoco Inc. (2001) | |
• | Santa Fe International Group / Global Marine Inc. (2001) | |
• | Pride International Inc. / Marine Drilling Co., Inc. (2001) | |
• | BHP Ltd. / Billiton PLC (2001) | |
• | Chevron Corp. / Texaco Inc. (2000) |
Board | ||||||||||||||||||
Premium to Market | Representation | |||||||||||||||||
% Market | New % | (over1-day | in New | Senior Management | ||||||||||||||
Merger | Capitalization | Ownership | Pre-Announcement) | Company | in New Company | |||||||||||||
National Oilwell | 53 | % | 51 | % | 50 | % | President / CEO | |||||||||||
Varco International | 47 | % | 49 | % | 9 | % | 50 | % | Chairman / COO | |||||||||
PanCanadian Energy | 54 | % | 54 | % | 50 | % | Chairman | |||||||||||
Alberta Energy | 46 | % | 46 | % | 0 | % | 50 | % | President / CEO | |||||||||
Phillips Petroleum | 57 | % | 57 | % | 50 | % | President / CEO | |||||||||||
Conoco | 43 | % | 43 | % | 0 | % | 50 | % | Chairman |
61
Table of Contents
Board | ||||||||||||||||||
Premium to Market | Representation | |||||||||||||||||
% Market | New % | (over1-day | in New | Senior Management | ||||||||||||||
Merger | Capitalization | Ownership | Pre-Announcement) | Company | in New Company | |||||||||||||
Santa Fe International | 53 | % | 50 | % | 50 | % | President / CEO | |||||||||||
Global Marine | 47 | % | 50 | % | 17 | % | 50 | % | Chairman | |||||||||
Pride International | 56 | % | 56 | % | 50 | % | President / CEO | |||||||||||
Marine Drilling | 44 | % | 44 | % | 3 | % | 50 | % | Chairman | |||||||||
BHP | 68 | % | 64 | % | 50 | % | Interim CEO | |||||||||||
Billiton | 32 | % | 36 | % | 21 | % | 50 | % | CEO | |||||||||
Chevron | 64 | % | 61 | % | 60 | % | Chairman / CEO | |||||||||||
Texaco | 36 | % | 39 | % | 18 | % | 40 | % | Vice Chairman |
Relative Contribution to the Combined Company | ||||||||||||
Hanover | Universal | Implied Exchange Ratio | ||||||||||
Market Capitalization | 54 | % | 46 | % | 0.3175x | |||||||
EBITDA | ||||||||||||
2006E | 54 | % | 46 | % | 0.3032x | |||||||
2007E | 56 | % | 44 | % | 0.3301x | |||||||
2008E | 55 | % | 45 | % | 0.3218x | |||||||
Cash Flow | ||||||||||||
2006E | 56 | % | 44 | % | 0.3334x | |||||||
2007E | 56 | % | 44 | % | 0.3343x | |||||||
2008E | 55 | % | 45 | % | 0.3294x | |||||||
Net Income | ||||||||||||
2006E | 50 | % | 50 | % | 0.2667x | |||||||
2007E | 51 | % | 49 | % | 0.2761x | |||||||
2008E | 50 | % | 50 | % | 0.2615x |
62
Table of Contents
Terminal Value of 2015E EBITDA | ||||||||||||||||||||||
Discount Rate | 5.5x | 6.5x | 7.5x | 8.5x | 9.5x | |||||||||||||||||
8.0 | % | 0.334x | 0.335x | 0.336x | 0.337x | 0.338x | ||||||||||||||||
9.0 | % | 0.332x | 0.334x | 0.335x | 0.336x | 0.337x | ||||||||||||||||
10.0 | % | 0.330x | 0.332x | 0.334x | 0.335x | 0.336x | ||||||||||||||||
11.0 | % | 0.328x | 0.330x | 0.332x | 0.333x | 0.334x |
Terminal Value of 2015E EBITDA | ||||||||||||||||||||||
Discount Rate | 5.5x | 6.5x | 7.5x | 8.5x | 9.5x | |||||||||||||||||
8.0 | % | 0.6 | % | 0.9 | % | 1.1 | % | 1.3 | % | 1.5 | % | |||||||||||
9.0 | % | (0.1 | )% | 0.3 | % | 0.6 | % | 0.9 | % | 1.1 | % | |||||||||||
10.0 | % | (0.8 | )% | (0.3 | )% | 0.1 | % | 0.4 | % | 0.7 | % | |||||||||||
11.0 | % | (1.6 | )% | (1.0 | )% | (0.5 | )% | (0.1 | )% | 0.2 | % |
63
Table of Contents
Terminal Value of 2015E EBITDA | ||||||||||||||||||||||
Discount Rate | 5.5x | 6.5x | 7.5x | 8.5x | 9.5x | |||||||||||||||||
8.0 | % | 8.7 | % | 8.5 | % | 8.3 | % | 8.2 | % | 8.1 | % | |||||||||||
9.0 | % | 8.3 | % | 8.2 | % | 8.0 | % | 8.0 | % | 7.9 | % | |||||||||||
10.0 | % | 7.9 | % | 7.8 | % | 7.7 | % | 7.7 | % | 7.6 | % | |||||||||||
11.0 | % | 7.5 | % | 7.4 | % | 7.4 | % | 7.4 | % | 7.3 | % |
$25 Million | $50 Million | $75 Million | ||||||||||
Synergies | Synergies | Synergies | ||||||||||
EPS Accretion / (Dilution) | ||||||||||||
2H 2007E | 4.8 | % | 12.3 | % | 19.7 | % | ||||||
2008E | (3.2 | )% | 3.5 | % | 10.2 | % | ||||||
2009E | (4.7 | )% | 1.6 | % | 7.8 | % | ||||||
CFPS Accretion / (Dilution) | ||||||||||||
2H 2007E | 6.5 | % | 9.4 | % | 12.3 | % | ||||||
2008E | 3.2 | % | 5.9 | % | 8.5 | % | ||||||
2009E | 2.8 | % | 5.3 | % | 7.7 | % |
64
Table of Contents
65
Table of Contents
Unvested Restricted | Unvested Stock | |||||||
Stock(1) | Options | |||||||
Non-Employee Directors | ||||||||
I. Jon Brumley | 6,000 | 2,000 | ||||||
Ted Collins, Jr. | 6,000 | 2,000 | ||||||
Margaret K. Dorman | 7,000 | 3,000 | ||||||
Robert R. Furgason | 6,000 | 2,000 | ||||||
Victor E. Grijalva | 6,000 | 2,000 | ||||||
Gordon T. Hall | 6,000 | 2,000 | ||||||
Peter H. Kamin(2) | — | — | ||||||
William C. Pate(2) | — | — | ||||||
Stephen M. Pazuk | 7,000 | 3,000 | ||||||
L. Ali Sheikh | 4,333 | — | ||||||
Executive Officers | ||||||||
John E. Jackson | 247,792 | 10,000 | ||||||
Lee E. Beckelman | 55,838 | 5,667 | ||||||
Brian A. Matusek | 54,120 | 7,073 | ||||||
Norman A. Mckay | 47,400 | 4,333 | ||||||
Steven W. Muck | 55,800 | 4,333 | ||||||
Gary M. Wilson | 55,122 | 7,144 | ||||||
Anita H. Colglazier | 15,905 | 1,667 | ||||||
Peter G. Schreck | 18,192 | 1,667 | ||||||
Stephen P. York | 21,217 | 1,667 |
(1) | Includes 149,125, 36,738, 38,925, 30,800, 34,600, 41,200, 12,038, 14,925 and 17,350 shares of unvested restricted stock held by Messrs. Jackson, Beckelman, Matusek, Mckay, Muck and Wilson, Ms. Colglazier, Mr. Schreck and Mr. York, respectively, that are subject to Long-Term Incentive Plan performance awards described below under “— Long-Term Incentive Plan Performance Awards” the vesting of which will accelerate at the maximum award level as a result of the Hanover merger. | |
(2) | Elected to the Hanover board of directors effective as of January 1, 2007. |
66
Table of Contents
2004 LTIP | 2005 LTIP | 2006 LTIP | ||||||||||
Performance | Performance | Performance | ||||||||||
Award | Award | Award | ||||||||||
Executive Officer | (# of Shares) | ($) | (# of Shares) | |||||||||
John E. Jackson | 26,125 | 780,000 | 123,000 | |||||||||
Lee E. Beckelman | 5,938 | 180,000 | 30,800 | |||||||||
Brian A. Matusek | 8,125 | 180,000 | 30,800 | |||||||||
Norman A. Mckay | — | 140,000 | 30,800 | |||||||||
Steven W. Muck | 10,000 | 140,000 | 24,600 | |||||||||
Gary M. Wilson | 15,000 | 140,000 | 26,200 | |||||||||
Anita H. Colglazier | 3,438 | 50,000 | 8,600 | |||||||||
Peter G. Schreck | 8,125 | 50,000 | 6,800 | |||||||||
Stephen P. York | 8,750 | 50,000 | 8,600 |
67
Table of Contents
Norman A. Mckay | $ | 310,000 | ||
Gary M. Wilson | $ | 310,000 | ||
Steven W. Muck | $ | 250,000 | ||
Stephen P. York | $ | 200,000 | ||
Anita H. Colglazier | $ | 150,000 |
Estimated | ||||
Supplemental | ||||
Performance | ||||
Officer | Bonus | |||
John E. Jackson | $ | 390,000 | ||
Lee E. Beckelman | $ | 90,000 | ||
Brian A. Matusek | $ | 90,000 | ||
Norman A. Mckay | $ | 70,000 | ||
Steven W. Muck | $ | 70,000 | ||
Gary M. Wilson | $ | 70,000 | ||
Stephen P. York | $ | 25,000 | ||
Peter G. Schreck | $ | 25,000 | ||
Anita H. Colglazier | $ | 25,000 |
68
Table of Contents
• | the executive officer’s earned but unpaid base salary through the date of termination plus the executive officer’s target bonus for the current year (prorated to the date of termination); | |
• | any earned but unpaid actual bonus for the prior year; | |
• | that portion of the executive officer’s vacation pay accrued, but not used, for the current year to the date of termination; | |
• | the product of a designated multiple times the sum of the executive officer’s respective base salary and target bonus; and | |
• | amounts previously deferred by the executive officer, if any, or earned but not paid, if any, under any Hanover incentive and nonqualified deferred compensation plans or programs as of the date of termination. |
Executive Officer | Multiple | |||
John E. Jackson | 3.0x | |||
Lee E. Beckelman | 2.0x | |||
Brian A. Matusek | 2.0x | |||
Norman A. Mckay | 2.0x | |||
Steven W. Muck | 2.0x | |||
Gary M. Wilson | 2.0x | |||
Anita H. Colglazier | 1.5x | |||
Peter G. Schreck | 1.5x | |||
Stephen P. York | 1.5x |
• | a permanent change in the executive officer’s duties or responsibilities which are materially inconsistent with either the type of duties and responsibilities of the executive officer then in effect or with the executive officer’s title, but excluding any such change that is in conjunction with and consistent with a promotion of the executive officer; | |
• | a reduction in the executive officer’s base salary; | |
• | a reduction in the executive officer’s annual target bonus percentage of base salary as in effect immediately prior to the change of control; | |
• | a material reduction in the executive officer’s employee benefits (without regard to bonus compensation, if any) if such reduction results in the executive officer receiving benefits that are, in the aggregate, materially less than the benefits received by other comparable employees of Hanover or its successor generally; or | |
• | the willful failure by Hanover or its successor to pay any compensation to the executive officer when due. |
69
Table of Contents
• | the commission by the executive of an act of fraud, embezzlement or willful breach of a fiduciary duty to Hanover or an affiliate; | |
• | a conviction or a no contest plea in connection with a felony or a crime involving fraud, dishonesty or moral turpitude; | |
• | willful misconduct; or | |
• | failure of the executive to follow the written directions of the board of directors or to render services in accordance with an employment arrangement. |
70
Table of Contents
Named Executive Officer | Amount of Retention Bonus Award | |||
J. Michael Anderson | $ | 160,000 | ||
D. Bradley Childers | $ | 160,000 | ||
Kirk E. Townsend | $ | 125,000 | ||
Richard Leong | $ | 125,000 | ||
Donald C. Wayne | $ | 125,000 | ||
Kenneth Bickett | $ | 100,000 |
Number of | Number of Shares of | |||||||
Shares of | Common Stock | |||||||
Restricted Stock | Underlying | |||||||
Executive Officer | Granted | Options Granted | ||||||
Stephen A. Snider | 21,333 | 38,651 | ||||||
D. Bradley Childers | 6,000 | 10,871 | ||||||
J. Michael Anderson | 6,000 | 10,871 | ||||||
Kirk E. Townsend | 4,000 | 7,247 | ||||||
Donald C. Wayne | 2,667 | 4,831 | ||||||
Janet F. Clark | — | 3,000 | ||||||
Uriel E. Dutton | — | 3,000 | ||||||
J.W.G. “Will” Honeybourne | — | 3,000 |
71
Table of Contents
• | Stephen A. Snider; | |
• | J. Michael Anderson; | |
• | Ernie L. Danner; | |
• | Kirk E. Townsend; | |
• | D. Bradley Childers; | |
• | Richard Leong; and | |
• | Donald C. Wayne. |
• | an amount equal to the executive’s annual base salary through the date of termination and a pro rated annual bonus based upon the greater of the annual bonus that would be payable to the executive for that year or the executive’s highest annual bonus over the preceding three years; | |
• | an amount equal to two times the executive’s current annual base salary and two times the greater of the annual bonus that would be payable to the executive for that year or the executive’s highest annual bonus over the preceding three years; | |
• | for a period of two years following the executive’s date of termination, Universal will provide company medical and welfare benefits to the executive or the executive’s family equal to those benefits which would have been provided to such executive in accordance with the benefits if the executive’s employment had not been terminated; | |
• | Universal will pay the executive an amount equal to the amount forfeited by the executive under the deferred compensation plan or any similar plan; | |
• | all stock options, restricted stock, restricted stock units or other stock-based awards held by the executive that are not vested, will vest; and | |
• | in the event that any payment or distribution made by Universal to or for the benefit of the executive would be subject to a federal excise tax, then the executive is entitled to receive an additionalgross-up payment. |
• | the assignment to the executive officer of any duties inconsistent with his or her position, authority, duties or responsibilities during theninety-day period prior to the change of control, or any material diminution in his or her position, authority, duties or responsibilities; |
72
Table of Contents
• | the requirement that the executive officer be based at any location other than that required during theninety-day period prior to the change of control, or any substantially increased business travel relative to that required during theninety-day period prior to the change of control; or | |
• | any purported termination of the executive officer’s employment, other than as expressly permitted by the applicable change of control agreement. |
• | the willful and continued failure of the executive officer to perform substantially his or her duties (other than as a result of incapacity due to physical or mental illness), after a written demand for substantial performance has been delivered to the executive officer by the board of directors or the Chief Executive Officer of Universal or its successor; or | |
• | the willful engaging by the executive officer in illegal conduct or gross misconduct which is materially and demonstrably injurious to Universal or its successor. |
Vesting of Equity-Based Awards | ||||||||||||
Upon Completion of Merger | ||||||||||||
Options | Restricted | |||||||||||
Weighted Avg. | Shares | |||||||||||
Granted | Exercise Price | or RSUs | ||||||||||
Name | (#) | ($) | (#) | |||||||||
Mr. Anderson | 19,001 | $ | 41.83 | 24,000 | ||||||||
Mr. Childers | 19,001 | $ | 41.83 | 21,500 | ||||||||
Mr. Danner | 24,001 | $ | 41.79 | 30,000 | ||||||||
Mr. Leong | 11,001 | $ | 41.33 | 15,000 | ||||||||
Mr. Snider | 96,667 | $ | 42.85 | 22,500 | ||||||||
Mr. Townsend | 19,001 | $ | 41.83 | 20,000 | ||||||||
Mr. Wayne | — | — | 5,643 |
73
Table of Contents
Position or Area of | ||||
Name | Responsibility with Holdings | Prior Office | ||
J. Michael Anderson | Chief Financial Officer | Senior Vice President and Chief Financial Officer (Universal) | ||
Brian A. Matusek | Chief Operating Officer | Senior Vice President, Western Hemisphere (Hanover) | ||
Dan Newman | Manufacturing | Vice President, Manufacturing and Global Services (Hanover) | ||
D. Bradley Childers | Corporate Development | Senior Vice President and President, International Operations (Universal) | ||
Steven W. Muck | Human Resources | Vice President, Human Resources & Health Safety and Environment (Hanover) | ||
Donald C. Wayne | Legal | Vice President, General Counsel and Secretary (Universal) | ||
Kenneth R. Bickett | Corporate Controller | Vice President, Accounting and Corporate Controller (Universal) |
74
Table of Contents
75
Table of Contents
• | any reductions in the employee workforce of Holdings and its subsidiaries will be made in light of the circumstances and the objectives to be achieved. Holdings and its subsidiaries will give consideration to previous work history, job experience and qualifications and such other factors as Holdings and its subsidiaries consider appropriate, without regard to whether employment prior to the completion of the mergers was with Hanover and its subsidiaries or with Universal and its subsidiaries, and any employees whose employment is terminated or jobs are eliminated by Holdings or any of its subsidiaries during that period will be entitled to participate (as determined by Holdings and its subsidiaries) in the job opportunity and employment placement programs offered by Holdings or any of its subsidiaries for which they are eligible; and | |
• | employees of Holdings and its subsidiaries will be able to participate in all job training, career development and educational programs of Holdings and its subsidiaries for which they are eligible, and employees also will be entitled to fair and equitable consideration in connection with any job opportunities with Holdings and its subsidiaries, in either case without regard to whether the employment of those employees prior to the completion of the mergers was with Hanover and its subsidiaries or with Universal and its subsidiaries. |
76
Table of Contents
77
Table of Contents
78
Table of Contents
• | an individual who is a citizen or resident of the United States, | |
• | a corporation or other entity taxable as a corporation created or organized under the law of the United States, any State thereof, or the District of Columbia, | |
• | a trust, if a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or it has a valid election under applicable treasury regulations to be treated as a U.S. person, or | |
• | an estate that is subject to U.S. federal income tax on its income, regardless of its source. |
• | a financial institution or an insurance company, | |
• | a tax-exempt organization, | |
• | a pass through entity or an investor in such an entity, | |
• | a dealer or broker in securities or foreign currency, | |
• | a trader in securities who uses a mark to market method of accounting, | |
• | a small business investment company, | |
• | a mutual fund, | |
• | a real estate investment trust, | |
• | a person who has a functional currency other than the U.S. dollar, | |
• | a person who holds its Hanover common stock or Universal common stock as part of a straddle, a hedge against currency risk or a constructive sale or conversion transaction, or | |
• | a person who acquired its Hanover common stock or Universal common stock through the exercise of options, otherwise as compensation or through a tax-qualified retirement plan. |
79
Table of Contents
• | A holder of Hanover common stock will not recognize gain or loss upon the receipt of Holdings common stock in exchange for Hanover common stock in the Hanover merger except to the extent of cash, if any, received in lieu of a fractional share of Holdings common stock. | |
• | The aggregate basis of the Holdings common stock received in the Hanover merger will equal the aggregate basis of the Hanover common stock surrendered in the Hanover merger reduced by the tax basis allocable to a fractional share for which cash is received. | |
• | The holding period of Holdings common stock received in the Hanover merger (including any fractional shares deemed received and redeemed as described below) will include the holding period of the Hanover common stock surrendered in the Hanover merger in exchange therefor. | |
• | A person who receives cash in lieu of a fractional share of Holdings common stock will be treated as having received that fractional share of Holdings common stock and then as having received cash in exchange for that fractional share. Such a holder should generally recognize capital gain or loss equal to the difference between the amount of cash so received and the holder’s tax basis that is allocable to the fractional share. Any such capital gain or loss will be long-term capital gain or loss if the holding period of the Hanover share that is exchanged for such fractional share is more than one year when the Hanover merger occurs. |
• | furnish a correct taxpayer identification number and certify that you are not subject to backup withholding on the substituteForm W-9 or successor form included in the letter of transmittal to be delivered to you, or | |
• | are otherwise exempt from backup withholding. |
80
Table of Contents
• | A holder of Universal common stock will not recognize gain or loss upon the receipt of Holdings common stock in exchange for Universal common stock in the Universal merger. | |
• | The aggregate basis of the Holdings common stock received in the Universal merger will equal the aggregate basis of the Universal common stock surrendered in the Universal merger. | |
• | The holding period of Holdings common stock received in the Universal merger will include the holding period of Universal common stock surrendered in the Universal merger in exchange therefor. |
81
Table of Contents
82
Table of Contents
83
Table of Contents
• | a letter of transmittal (which will specify that delivery will be effected, and risk of loss and title to the certificates will pass, only upon delivery of the certificates to the exchange agent and will be in such form and have such other provisions as Holdings may reasonably specify); and | |
• | instructions for use in effecting the surrender of the certificates in exchange for certificates representing shares of the common stock of Holdings, any unpaid dividends and distributions on those shares and cash in lieu of any fractional shares. |
84
Table of Contents
• | conduct its operations and cause each of its subsidiaries to conduct its operations in the usual, regular and ordinary course in substantially the same manner as previously conducted; | |
• | use its reasonable best efforts, and cause each of its subsidiaries to use its reasonable best efforts, to: |
• | preserve intact its business organization and goodwill (except that any of its subsidiaries may be merged with or into, or be consolidated with or liquated into, it or any of its subsidiaries), | |
• | keep available the services of its officers and employees, and | |
• | maintain satisfactory business relationships; |
• | not amend or propose to amend its organizational documents, other than bylaw amendments that are not detrimental to the interests of stockholders; | |
• | not permit or allow Hector Sub or Ulysses Sub to amend their organizational documents; | |
• | promptly notify the other party of: |
• | any material change in its or any of its material subsidiaries’ condition (financial or otherwise) or business, | |
• | any termination, cancellation, repudiation or material breach of material contracts (or communications indicating that the same may be contemplated), or | |
• | any material litigation or proceedings (including arbitration and other dispute resolutions proceedings) or material governmental complaints, investigations, inquiries or hearings (or communications indicating that the same may be contemplated), or any material developments in any such litigation, proceedings, complaints, investigations, inquiries or hearings; |
• | not, and will not permit any of its subsidiaries to, issue any shares of its capital stock or other equity securities, effect any stock split or otherwise change its capitalization as it existed on the date of the merger agreement, except pursuant to the exercise of options or upon the settlement of restricted stock units existing on the date of the merger agreement, pursuant to the conversion of any of Hanover’s outstanding convertible notes in accordance with their terms or pursuant to the grant or exercise of awards granted after the date of the merger agreement and expressly permitted under the merger agreement; | |
• | not, and will not permit any of its subsidiaries to, grant any option, warrant, conversion right or other right not existing on the date of the merger agreement to acquire or otherwise with respect to shares of its capital stock or other equity securities, or grant or issue any restricted stock or securities, except for awards under the Hanover or Universal benefit plans in existence as of the date of the merger agreement to any newly hired employees or to existing officers, directors or employees in the ordinary course of business consistent with past practices, as long as the vesting or exercisability of any award made after the date of the merger agreement does not accelerate as a result of the pendency, approval or consummation of the transactions contemplated by the merger agreement; | |
• | not, and will not permit any of its subsidiaries to, amend or modify any option, warrant, conversion right or other right to acquire shares of its capital stock existing on the date of the merger agreement; | |
• | not, and will not permit any of its subsidiaries to, increase any compensation or benefits, award or pay any bonuses, establish any bonus plan or arrangement or enter into, amend or extend any employment or consulting agreement with any former, present or future officers, directors or employees, except in the ordinary course of business consistent with past practices or as required by law, and except that each of Hanover and Universal has retained the right to adopt a cash retention plan for some or all of their respective employees in an aggregate amount up to $10 million per company; |
85
Table of Contents
• | not, and will not permit any of its subsidiaries to, adopt any new employee benefit plan or agreement (including any stock option, stock benefit or stock purchase plan) or amend (except as required by law) any existing employee benefit plan in any material respect, except as expressly permitted by the merger agreement; | |
• | not, and will not permit any of its subsidiaries to, permit any holder of an option or other award to acquire shares of common stock of Hanover or Universal to have shares withheld upon exercise, vesting or payment for tax purposes, in excess of the number of shares needed to satisfy the minimum federal and state tax withholding requirements; | |
• | not declare, set aside or pay any dividend on or make other distributions or payment with respect to any shares of its capital stock and not redeem, purchase or otherwise acquire any shares of its shares of capital stock or the capital stock of any of its subsidiaries, or make any commitment for such action,except that: |
• | Hanover has reserved the right to (1) redeem its 7.25% Convertible Junior Subordinated Debentures due 2029 in accordance with their terms and (2) commencing on September 1, 2007, repurchase up to $100 million aggregate principal amount of its outstanding 4.75% Convertible Senior Notes due 2008, subject to certain limitations, and | |
• | Universal has reserved the right to (1) repurchase up to $75 million of its common stock in accordance with its previously announced stock repurchase program, (2) permit the Universal Partnership to make cash distributions in accordance with its partnership agreement, and (3) redeem its 71/4% Senior Notes due 2010; |
• | not, and will not permit any of its subsidiaries to, sell, lease, license, encumber or otherwise dispose of, any assets (including capital stock of subsidiaries) that are, individually or in the aggregate, material to it and its subsidiaries as a whole, except: |
• | sales of surplus or obsolete equipment, | |
• | sales of other assets in the ordinary course of business or sales of assets pursuant to contractual rights existing as of the date of the merger agreement that were entered into in the ordinary course of business consistent with past practices, | |
• | sales, leases or other transfers between itself and its wholly owned subsidiaries or between such subsidiaries, | |
• | sales or divestitures required by or in conformance with applicable laws in order to permit or facilitate the consummation of the mergers in accordance with the terms of the merger agreement, | |
• | arm’s-length sales or transfers for aggregate consideration not exceeding $25 million for each of Hanover and Universal, or | |
• | contributions by Universal of its domestic compression assets to Universal Compression Partners; |
• | not, and will not permit any of its subsidiaries to, acquire or agree to acquire by merging or consolidating with, or by purchasing an equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, except in each case for acquisitions approved in writing by both parties, acquisitions by Universal Compression Partners and acquisitions and agreements that, in each case for each of Hanover and Universal, involve an aggregate consideration of less than: |
• | $150 million for all acquisitions of the equity interests in or a substantial portion of the assets of businesses or entities whose principal assets are compression and related equipment, and | |
• | $50 million for all other acquisitions; |
86
Table of Contents
• | not, and will not permit any of its subsidiaries to, acquire or agree to acquire, directly or indirectly, any assets or securities that would require a filing or approval under the HSR Act or anynon-U.S. antitrust law; | |
• | not, and will cause its subsidiaries not to, change any material accounting principle or practice used by it except as required by a change in generally accepted accounting principles; | |
• | use, and will cause its subsidiaries to use, commercially reasonable efforts to maintain in full force without interruption its present insurance policies or comparable insurance coverage; | |
• | not, and will not permit any of its subsidiaries to: |
• | make or rescind any material tax election, | |
• | settle or compromise any material tax claim or controversy except to the extent of any reserve reflected on its consolidated balance sheet as of September 30, 2006, or | |
• | materially change its methods of reporting relating to taxes from those employed in the preparation of its tax return for the most recent taxable year for which a return has been filed, except as may be required by applicable law; |
• | not, and will not permit any of its subsidiaries to, incur any indebtedness for borrowed money in excess of $200 million, in the aggregate, or guarantee any such indebtedness, issue or sell any debt securities or warrants or rights to acquire any of its or its subsidiary’s debt securities, or guarantee any debt securities of others, except for borrowings from its credit facility in the ordinary course of business, borrowings to repay or repurchase its other indebtedness or borrowings in respect of intercompany debt; | |
• | not, and will not permit any of its subsidiaries to, enter into any material lease or create any material liens or encumbrances (other than certain permitted liens) on any of its property, except in the ordinary course of business or with or between its subsidiaries; | |
• | not, and will not permit any of its subsidiaries to, purchase or otherwise acquire any shares of common stock of Hanover or Universal, other than shares purchased solely to satisfy withholding obligations in connection with the vesting or exercise of equity-based awards by the grantees of such awards; | |
• | not take any action that could reasonably be expected to delay materially or adversely affect in a material respect the ability of any of the parties to obtain any consent, authorization, order or approval of any governmental commission, board or other regulatory body or the expiration of any applicable waiting period required to consummate the transactions contemplated by the merger agreement; | |
• | not terminate, amend, modify or waive any provision of any agreement containing a “standstill” covenant to which it is a party, and enforce, to the fullest extent permitted under applicable law, the provisions of any such standstill agreement, unless in the good faith opinion of its board of directors after consultation with its outside legal counsel restraining from taking or taking such action would be inconsistent with its fiduciary duties; | |
• | not take any action that would reasonably be expected to result in any condition to the consummation of the mergers not being satisfied; and | |
• | not, and will not permit any of its subsidiaries to, agree in writing or otherwise to take any of the prohibited actions described above. |
87
Table of Contents
• | promptly make their respective required filings and make any other required submissions under the HSR Act and any applicablenon-U.S. competition, antitrust or premerger notification laws with respect to the mergers; | |
• | use their reasonable best efforts to cooperate with one another in: |
• | determining which filings are required to be made with, and which consents, approvals, permits or authorizations are required to be obtained from, governmental or regulatory authorities, and | |
• | timely making all such filings and timely seeking all required consents, approvals, permits or authorizations without causing a material adverse effect on Hanover or Universal; |
• | promptly notify each other of any communication from any authority concerning the mergers and permit the other party to review in advance any proposed communication to any authority concerning the mergers; | |
• | not participate or agree to participate in any meeting or discussion with any authority in respect of any filing, investigation or other inquiry about the mergers unless the other party is consulted in advance and, to the extent allowed, given the opportunity to attend and participate; | |
• | furnish each other with copies of all correspondence, filings and communications with any authority about the mergers; | |
• | furnish each other with information and reasonable assistance that the other party reasonably requests in connection with the preparation of necessary filings, registrations or submissions of information to any authorities; | |
• | substantially comply and certify substantial compliance with any request for additional information issued pursuant to the HSR Act, as soon as reasonably practicable following the issuance of the request for additional information; | |
• | not take any action that would cause gain or loss to be recognized for U.S. federal income tax purposes upon the transfer that is deemed to occur of Hanover or Universal common stock to Holdings in exchange for Holdings common stock, in each case other than gain that is recognized upon the receipt of cash in lieu of a fractional share of Holdings common stock; and | |
• | use reasonable best efforts to: |
• | do all things necessary, proper or advisable to consummate the mergers, including using reasonable best efforts to satisfy the conditions precedent to the consummation of the mergers, | |
• | cause the expiration or termination of the applicable waiting period under the HSR Act and to obtain required clearances and approvals under any applicablenon-U.S. antitrust laws as soon as practicable, | |
• | avoid the entry of, or to have vacated, terminated or modified, any decree, order or judgment that would restrain, prevent or delay the consummation of the mergers, and | |
• | take any and all steps necessary to obtain any consents or eliminate any impediments to the mergers. |
88
Table of Contents
• | to the extent permitted by law, provide the other party reasonable access to its properties, records, files, correspondence, audits and other information; | |
• | to the extent permitted by law and applicable stock exchange listing arrangements, consult with one another and obtain the other party’s prior consent before issuing any press releases and other announcements regarding the mergers; | |
• | ensure that the information provided by each of them for inclusion in this proxy statement/prospectus will not include any untrue statement of material fact or omit a material fact required to make the statements therein, in light of the circumstances under which they were made, not misleading, at the time of the mailing of this proxy statement/prospectus and at the time of the respective annual meetings of the stockholders of Hanover and Universal; | |
• | use its reasonable best efforts to cause Holdings to promptly prepare and submit to the New York Stock Exchange a listing application covering the shares of Holdings common stock issuable in connection with the mergers and use its reasonable best efforts to obtain, before the effective time, the New York Stock Exchange’s approval for the listing of those shares; | |
• | use its reasonable best efforts to have timely delivered to the other party a “comfort” letter from its independent public accounting firm; | |
• | use its reasonable best efforts to obtain from each of its “affiliates,” as that term is used in Rule 145 promulgated by the SEC under the Securities Act of 1933, a written agreement not to transfer Holdings common stock issued to that person pursuant to the mergers except (1) pursuant to an effective registration statement, (2) in compliance with Rule 145 under the Securities Act of 1933 or (3) pursuant to an exemption from the registration requirements under the Securities Act of 1933; | |
• | pay all costs and expenses incurred by them in connection with the merger agreement, regardless of whether the mergers are consummated, other than costs that are specified to be shared or reimbursed under the merger agreement; | |
• | promptly notify the other party if any representation or warranty made by it or contained in the merger agreement becomes untrue or inaccurate in any material respect or if it fails to comply with or satisfy in any material respect any covenant, condition or agreement under the merger agreement; and | |
• | take all action necessary to cause, as of the effective time of the mergers: |
• | the board of directors of Holdings to consist of ten members, half of whom will consist of current members of the Hanover board of directors designated by the Hanover board of directors and half of whom will consist of current members of the Universal board of directors designated by the Universal board of directors, | |
• | Gordon T. Hall to serve as the Chairman of the board of directors of Holdings, and | |
• | Stephen A. Snider to serve as President and Chief Executive Officer of Holdings. |
• | for a period of six years after the effective time of the mergers, to indemnify, hold harmless and advance expenses to, to the greatest extent permitted by law as of the date of the merger agreement, each person who is, or has been at any time prior to the effective time of the mergers, an officer or director of Hanover, Universal or their respective subsidiaries, with respect to all acts or omissions by them in their capacities as such or taken at the request of Hanover, Universal or any of their respective subsidiaries at any time prior to the effective time of the mergers; |
89
Table of Contents
• | to honor all indemnification agreements, expense advancement and exculpation provisions with any of such officers or directors of Hanover, Universal or their respective subsidiaries (including under Hanover’s or Universal’s certificate of incorporation or by-laws) in effect as of the date of the merger agreement; | |
• | for a period of six years after the effective time of the mergers, to maintain officers’ and directors’ liability insurance covering the individuals who are, or at any time prior to the effective time of the mergers were, covered by Hanover’s or Universal’s existing officers’ and directors’ liability insurance policies on terms substantially no less advantageous to such individuals, provided that Holdings will not be required to pay annual premiums in excess of 200% of the last annual premium paid by Hanover or Universal, as applicable, prior to the date of the merger agreement, but in such case will purchase as much coverage as reasonably practicable for such amount; | |
• | to the extent required in any change in control agreement between Universal and any employee of Universal and any change in control and severance agreement between Hanover and any employee of Hanover, to assume and agree to perform such agreement and agree that such employee may enforce such agreement against it; and | |
• | to assume the Hanover stock incentive plans and the Universal stock incentive plans other than the Universal employee stock purchase plan. |
• | solicit, initiate or knowingly encourage or take any other action designed to facilitate or that could reasonably be expected to facilitate any inquiry or the making of any proposal or offer that constitutes, or that could reasonably be expected to lead to a “takeover proposal” with respect to such party as described below; or | |
• | enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any confidential information in connection with, any takeover proposal. |
• | any direct or indirect acquisition or purchase, in one transaction or a series of transactions, of: |
• | assets or businesses that constitute 20% or more of the revenues, net income or the assets of Hanover and its subsidiaries or Universal and its subsidiaries (in each case, taken as a whole), or | |
• | 20% or more of any class of equity securities of Hanover or Universal or any of their respective significant subsidiaries; |
• | any tender offer or exchange offer that if consummated would result in any person beneficially owning 20% or more of any class of equity securities of Hanover or Universal or any of their respective significant subsidiaries; or | |
• | any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving Hanover, Universal or any of their respective subsidiaries pursuant to which any person or the stockholders of any person would own 20% or more of any class of equity securities of Hanover or Universal or any of their respective significant subsidiaries or of any resulting parent company of Hanover or Universal. |
• | at any time prior to that party’s stockholders adopting the merger agreement, in response to a bona fide written takeover proposal that was made after the date of the merger agreement and did not otherwise |
90
Table of Contents
result from a breach of the merger agreement and that the party’s board of directors determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) constitutes or is reasonably likely to lead to a “superior proposal” (as defined below), if that party’s board of directors determines in good faith (after consultation with outside counsel) that the failure to do so would be inconsistent with its fiduciary duties to its stockholders under applicable laws: |
• | after giving the other party written notice of the determinations described above, furnishing information with respect to that party and its subsidiaries to the person making the takeover proposal pursuant to a customary confidentiality agreement not less restrictive of such person than the confidentiality agreement between Hanover and Universal, and | |
• | participating in discussions or negotiations with the person making the takeover proposal regarding the takeover proposal; |
• | taking and disclosing to its stockholders a position contemplated byRule 14d-9 orRule 14e-2(a) promulgated under the Securities Exchange Act of 1934; or | |
• | making any required disclosure to the stockholders of Hanover or Universal, as the case may be, if, in the good faith judgment of the board of directors of such party (after consultation with outside counsel) failure to so disclose would constitute a violation of applicable law or fiduciary duty, except as described in the following paragraph. |
• | make an “adverse recommendation change,” which is defined as: |
• | a withdrawal (or modification in a manner adverse to the other party), or proposal to withdraw (or modify in a manner adverse to the other party), the approval, recommendation or declaration of advisability by such board of directors or any committee thereof of the merger agreement, the Hanover merger or the Universal merger, as the case may be, or the other transactions contemplated by the merger agreement, | |
• | a recommendation, adoption or approval, or proposal to recommend, adopt or approve, any takeover proposal, or | |
• | the failure to reaffirm within a reasonable period of time upon request by the other party (publicly, if so requested) its recommendation of the merger agreement, the Hanover merger or the Universal merger, as the case may be, and the other transactions contemplated by merger agreement; or |
• | approve or recommend, or propose to approve or recommend, or allow Hanover or Universal, as the case may be, or any of their respective subsidiaries to execute or enter into, any letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement constituting or related to, or that is intended to or could reasonably be expected to lead to, a takeover proposal with respect to such party (other than certain permitted confidentiality agreements). |
91
Table of Contents
• | more favorable to the stockholders of such party from a financial point of view than the mergers, taking into account all the terms and conditions of such proposal and the merger agreement (including any changes to the financial terms of the merger agreement proposed by the other party in response to such offer or otherwise); and | |
• | reasonably capable of being financed and completed, taking into account all financial, legal, regulatory, timing and other aspects of such proposal. |
• | keep the other party fully informed of the status and material terms and conditions (including any change therein) of any takeover proposal or inquiry as to such party; and | |
• | provide to the other party as soon as practicable after receipt or delivery thereof with copies of all correspondence and other written material sent or provided to such party or any of its subsidiaries from any person that describes any of the material terms and conditions of any takeover proposal. |
• | the organization, good standing and foreign qualification of the parties and the corporate authority to own, operate and lease their respective properties and to carry on their respective businesses as currently conducted; | |
• | the authorization, execution, delivery and enforceability of the merger agreement and related matters; | |
• | capitalization; | |
• | subsidiaries; | |
• | compliance with laws and possession of permits; | |
• | whether each party’s execution and delivery of the merger agreement or consummation of the transactions contemplated thereby causes any: |
• | conflict with such party’s charter documents, | |
• | “change of control” under any material agreements or any employee benefit plans of such party, | |
• | breach or default, or the creation of any liens, under any agreements of such party, or | |
• | any violation of applicable law; |
• | the documents and reports that the parties have filed with the SEC; | |
• | litigation; | |
• | whether certain events, changes or effects have occurred from January 1, 2006 to the date of the merger agreement; |
92
Table of Contents
• | taxes; | |
• | employee benefit plans; | |
• | labor matters; | |
• | environmental matters; | |
• | intellectual property matters; | |
• | court orders and decrees; | |
• | maintenance of insurance; | |
• | broker’s fees and similar fees; | |
• | receipt of opinions from financial advisors; | |
• | beneficial ownership of the other party’s capital stock; | |
• | the stockholder votes required in connection with the adoption of merger agreement; | |
• | material contracts; | |
• | capital expenditure programs; | |
• | improper payments; | |
• | takeover statutes and rights plans; and | |
• | title and ownership of property and equipment and related matters. |
• | Each of Hanover and Universal has obtained the approval of its stockholders to adopt the merger agreement. | |
• | Any waiting period applicable to the completion of the mergers under the HSR Act has expired or been early terminated. This condition has been satisfied. | |
• | Any approval or expiration of a mandatory waiting period under applicablenon-U.S. antitrust laws has been obtained or expired, as the case may be, if the failure to satisfy this condition is in the reasonable judgment of Hanover or Universal reasonably likely to have a material adverse effect on Holdings after the completion of the mergers. | |
• | There is no final or preliminary administrative order denying approval of or prohibiting the mergers issued by a regulatory authority ornon-U.S. court with jurisdiction to enforce applicablenon-U.S. antitrust laws, if that order is in the reasonable judgment of Hanover or Universal reasonably likely to have a material adverse effect on Holdings after the merger. | |
• | None of the parties to the merger agreement is subject to any decree, order or injunction of a U.S. court of competent jurisdiction that prohibits the consummation of the mergers. | |
• | The SEC has declared the registration statement, of which this joint proxy statement/prospectus forms a part, to be effective, and no stop order concerning the registration statement is in effect. | |
• | The New York Stock Exchange has authorized for listing the shares of Holdings common stock to be issued pursuant to the mergers, subject to official notice of issuance. |
93
Table of Contents
• | The parties have obtained necessary relief from the application of provisions of their credit agreements that operate to constitute an event of default under such credit agreement if the mergers are consummated, except where the failure to obtain relief has not had and is not reasonably likely to have a material adverse effect on Holdings after the consummation of the mergers. This condition has been satisfied. | |
• | The parties are each reasonably satisfied that necessary commitment letters or other arrangements have been made or obtained to provide funds that will be sufficient to repay or repurchase any indebtedness of the parties that may be reasonably expected to be required to be repaid or repurchased as a result of the consummation of the mergers and, if it will have occurred at such time, any contemplated reorganization of the ownership of the subsidiaries of Holdings. | |
• | The parties have obtained all required consents, except where the failure to obtain any such consents has not had and is not reasonably likely to have a material adverse effect on Holdings after the consummation of the mergers. | |
• | The restated certificate of incorporation of Holdings included as an exhibit to the merger agreement has been filed with the Secretary of State of the State of Delaware and is effective in accordance with Delaware law. |
• | the business, assets, financial condition or results of operations of such person and its subsidiaries, taken as a whole, except for any such change or effect that arises or results from: |
• | changes in general economic, capital market, regulatory or political conditions or changes in law or the interpretation thereof that, in any case, do not disproportionately affect such person in any material respect, | |
• | changes that affect generally the industries in which Hanover or Universal are engaged and do not disproportionately affect such person in any material respect, | |
• | acts of war or terrorism that do not disproportionately affect such person in any material respect, | |
• | any change in the trading prices or trading volume of the common stock of Hanover or Universal (but not any change or effect underlying such change in prices or volume to the extent such change or effect would otherwise constitute a material adverse effect), or | |
• | the failure of a party or its subsidiaries to take any action prohibited by the interim operating covenants in the merger agreement due to the other party’s unreasonable withholding of consent or delaying its consent (see “— Covenants and Agreements — Interim Operations”); or |
• | the ability of the party to consummate the transactions contemplated by the merger agreement or to fulfill the conditions to closing. |
• | The other party has performed in all material respects its covenants and agreements under the merger agreement. | |
• | The representations and warranties of the other party are true and correct (without regard to qualifications as to materiality or a material adverse effect) as of the closing date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date), except where the failure of any such representations and warranties to be true and correct, |
94
Table of Contents
individually or in the aggregate, has not had and is not reasonably likely to have a material adverse effect on the party making the representation or warranty. |
• | Such party’s tax counsel has provided the tax opinion described under “Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page 79. | |
• | No change, event, occurrence, state of facts or development has occurred and is continuing that, individually or in the aggregate, has had or is reasonably likely to have a material adverse effect on the other party. |
• | the parties have not consummated the mergers by February 5, 2008, and the party desiring to terminate the merger agreement for this reason has not failed to perform or observe in any material respect any of its obligations under the merger agreement in any manner that caused or resulted in the failure of the mergers to occur on or before that date; | |
• | the stockholders of Hanover or Universal hold a meeting to consider the merger agreement but do not vote to adopt the merger agreement; | |
• | a U.S. federal, state ornon-U.S. court of competent jurisdiction or federal, state ornon-U.S. governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the merger agreement and such order, decree, ruling or other action shall have become final and nonappealable, as long as the party seeking to terminate the merger agreement for this reason has complied with the covenants in the merger agreement that relate to antitrust, tax and other governmental filings and approvals and, with respect to other matters not covered by such covenants, must have used its reasonable best efforts to remove such injunction, decree or order; | |
• | the other party has breached any representation or warranty or failed to perform any covenant or agreement in the merger agreement, or any representation or warranty of the other party has become untrue, in any case such that the condition to the closing of the merger agreement related to the performance of the covenants and agreements in the merger agreement by the other party and the accuracy of the representations and warranties of the other party would not be satisfied as of the date of the termination, and the breach is not curable or, if curable, is not cured within 90 days after the party desiring to terminate the merger agreement gives written notice of the breach to the other party, and the party desiring to terminate the merger agreement is not, at the time of the termination, in breach of any representation, warranty, covenant or agreement in the merger agreement that would give rise to the right of the other party to terminate the merger agreement; or | |
• | the board of directors of the other party has made an adverse recommendation change. |
95
Table of Contents
• | a takeover proposal is made to a party or is made directly to the stockholders of that party generally or otherwise becomes publicly known or any person publicly announces an intention (whether or not conditional) to make a takeover proposal with respect to such party; and | |
• | the merger agreement is terminated by either party because: |
• | the parties have not completed the mergers by February 5, 2008, and the party desiring to terminate the merger agreement for this reason has not failed to perform or observe in any material respect any of its obligations under the merger agreement in any manner that caused or resulted in the failure of the mergers to occur on or before that date, or | |
• | the stockholders of the party of which the takeover proposal was made or became publicly known or publicly announced do not adopt the merger agreement at a meeting called for that purpose, |
• | extend the time for the performance of any of the obligations or other acts of the other parties to the merger agreement; | |
• | waive any inaccuracies in the representations and warranties made to such party contained in the merger agreement or in any document delivered pursuant to the merger agreement; and | |
• | waive compliance with any of the agreements or conditions for the benefit of such party contained in the merger agreement. |
96
Table of Contents
97
Table of Contents
98
Table of Contents
• | 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. |
99
Table of Contents
Hanover | Universal | |||||||||||||||
Calendar Period | High | Low | High | Low | ||||||||||||
Twelve months ended December 31, 2005 | ||||||||||||||||
First Quarter | $ | 14.87 | $ | 11.35 | $ | 39.70 | $ | 32.90 | ||||||||
Second Quarter | $ | 12.32 | $ | 10.13 | $ | 39.40 | $ | 33.12 | ||||||||
Third Quarter | $ | 15.68 | $ | 11.45 | $ | 41.97 | $ | 35.54 | ||||||||
Fourth Quarter | $ | 14.80 | $ | 12.47 | $ | 43.84 | $ | 34.18 | ||||||||
Twelve months ended December 31, 2006 | ||||||||||||||||
First Quarter | $ | 18.81 | $ | 14.20 | $ | 51.22 | $ | 40.51 | ||||||||
Second Quarter | $ | 21.10 | $ | 15.57 | $ | 63.70 | $ | 49.83 | ||||||||
Third Quarter | $ | 19.75 | $ | 16.07 | $ | 65.21 | $ | 49.04 | ||||||||
Fourth Quarter | $ | 20.64 | $ | 17.04 | $ | 65.39 | $ | 50.00 | ||||||||
Twelve months ending December 31, 2007 | ||||||||||||||||
First Quarter | $ | 23.44 | $ | 17.40 | $ | 71.62 | $ | 56.69 | ||||||||
Second Quarter | $ | 27.00 | $ | 21.20 | $ | 81.44 | $ | 65.31 | ||||||||
Third Quarter (through July 5, 2007) | $ | 27.20 | $ | 23.85 | $ | 81.73 | $ | 72.46 |
100
Table of Contents
101
Table of Contents
102
Table of Contents
103
Table of Contents
104
Table of Contents
105
Table of Contents
106
Table of Contents
107
Table of Contents
108
Table of Contents
Proposal | Required Vote | |
Proposal 1 — Adoption of the merger agreement | Adoption of the merger agreement requires the affirmative vote of a majority of the shares of common stock outstanding and entitled to vote as of the record date. ‘‘Broker non-votes” and abstentions will have the same effect as a vote against the merger proposal. | |
Note: Approval of Proposal 1 is a condition precedent to implementation of Proposal 2 and Proposal 3. | ||
Proposal 2 — Approval of the Holdings 2007 Stock Incentive Plan Proposal 3 — Approval of the Holdings Employee Stock Purchase Plan | Approval of each of Proposal 2 and Proposal 3 requires the affirmative vote of a majority of the votes cast and the total number of votes cast must represent over 50% of the total shares outstanding as of the record date. Abstentions and ‘‘broker non-votes” will not be treated as votes cast. | |
Proposal 4 — Election of eleven members to the Hanover board of directors | A plurality of the votes of the shares present in person or by proxy and entitled to vote is required to elect each director nominee; 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 Hanover’s board of directors. For additional information on Hanover’s policy with regard to nominees who receive more votes ‘‘withheld” than ‘‘for” such nominee, please see the excerpt from Hanover’s Governance Principles concerning Shareholder Election of Directors included in this joint proxy statement/prospectus asAnnex F. | |
Proposal 5 — Ratification of the reappointment of PricewaterhouseCoopers LLC as Hanover’s independent registered public accounting firm for fiscal year 2007 | Ratification requires the affirmative vote of a majority of the shares of voting stock represented at the meeting. Abstentions will be treated as votes cast and will have the same effect as a vote against the proposal. |
109
Table of Contents
• | over the Internet, | |
• | by calling a toll-free telephone number, or | |
• | by completing the enclosed proxy card and mailing it in the postage-paid envelope provided in these materials. |
110
Table of Contents
FOR
ADOPTION OF THE MERGER AGREEMENT.
111
Table of Contents
FOR
APPROVAL OF THE HOLDINGS
2007 STOCK INCENTIVE PLAN.
112
Table of Contents
Weighted- | Number of Securities | |||||||||||
Average Exercise | Remaining Available for | |||||||||||
Number of Securities to be | Price of | Future Issuance Under | ||||||||||
Issued Upon Exercise of | Outstanding | Equity Compensation Plans | ||||||||||
Outstanding Options, | Options, Warrants | (Excluding Securities | ||||||||||
Warrants and Rights | and Rights | Reflected in Column (a)) | ||||||||||
Plan Category | (a) | (b) | (c) | |||||||||
Equity compensation plans approved by security holders(1)(2) | 1,964,368 | $ | 11.93 | 4,952,224 | ||||||||
Equity compensation plans not approved by security holders(3) | 396,288 | $ | 12.41 | — | ||||||||
Total | 2,360,656 | $ | 12.01 | 4,952,224 | (4) | |||||||
(1) | Composed of the 1997 Stock Option Plan, the 2001 Equity Incentive Plan, the 2003 Stock Incentive Plan and the 2006 Stock Incentive Plan. In addition to outstanding options, as of December 31, 2006, there were 1,899,024 shares of restricted stockand/or stock settled restricted stock units outstanding (including maximum payout of performance-based shares ) which were granted under the 2003 and 2006 Stock Incentive Plans. | |
(2) | Under the terms of the 2006 Stock Incentive Plan, in addition to incentive and non-qualified options, Hanover may grant restricted stock, restricted stock units, stock appreciation rights and performance-based awards. The following Hanover Equity Compensation Plans, although terminated as to future grants, provided for the following awards in addition to stock options: the 1997 Stock Option Plan (restricted stock); the 2001 Equity Incentive Plan (restricted stock, although no more than 1.0 million of the 1.5 million shares authorized under such plan could be issued pursuant to restricted stock awards); and the 2003 Stock Incentive Plan (restricted stock and performance awards). | |
(3) | Composed of the 1998 Stock Option Plan, the December 9, 1998 Stock Option Plan and the 1999 Stock Option Plan. | |
(4) | This reflects the number of securities remaining available for future issuance under equity compensation plans as of December 31, 2006. At December 31, 2005, Hanover had 1,167,715 of securities remaining available for future issuance under equity compensation plans. |
113
Table of Contents
Number of Shares | ||||||||||||||||||||
Shares Previously | Reserved for Issuance | Weighted- | Shares | |||||||||||||||||
Number of | Issued Pursuant to | Upon the Exercise of | Average | Available | ||||||||||||||||
Shares | Stock Option | Outstanding Stock | Exercise | for Future | ||||||||||||||||
Plan or Agreement Name | Issuable(#) | Exercises(#) | Options(#) | Price($) | Grants(#) | |||||||||||||||
1998 Stock Option Plan | 520,000 | 98,048 | 167,476 | $ | 13.47 | * | ||||||||||||||
December 9, 1998 Stock Option Plan | 700,000 | 469,664 | 138,534 | $ | 9.75 | * | ||||||||||||||
1999 Stock Option Plan | 600,000 | 50,428 | 90,278 | $ | 14.50 | * |
* | The Hanover board of directors terminated authority to make future grants under these plans on May 15, 2003. |
114
Table of Contents
FOR
APPROVAL OF THE HOLDINGS
EMPLOYEE STOCK PURCHASE PLAN.
115
Table of Contents
116
Table of Contents
FOR
THE DIRECTOR NOMINEES.
117
Table of Contents
and Committees of the Board
• | The Nominating and Governance Committee reviewed the business transactions between Hanover and Encore Acquisition Company (“Encore”), a New York Stock Exchange traded company engaged in the development of onshore North American oil and natural gas reserves. Jon Brumley, a director of Hanover, is the Chairman of the Board of Encore. During the twelve months ended December 31, 2006, 2005, and 2004, Hanover recorded revenue from sales to Encore of approximately $3.5 million, $0.0 million and $0.0 million. The Nominating and Governance Committee determined that Hanover’s commercial business with Encore, which falls well below 2% of either company’s revenues for fiscal year 2006, was immaterial to both companies. | |
• | Ted Collins, Jr., a director of Hanover, owns 100% of Azalea Partners, which owns approximately 15% of Energy Transfer Group, LLC, which is referred to herein as “ETG,” a privately held company engaged in power generation projects. In 2006, 2005 and 2004, Hanover recorded sales of approximately $46.9 million, $25.5 million and $7.7 million, respectively, related to equipment leases and sales |
118
Table of Contents
to ETG. In addition, Hanover and ETG are co-owners of a power generation facility in Venezuela. Under the agreement of co-ownership, each party is responsible for its obligations as a co-owner. As manager of the facility, Hanover received revenues related to the facility and distributed to ETG its net share of the operating cash flow of $0.7 million, $0.5 million, and $0.8 million during 2006, 2005 and 2004, respectively. |
• | The board determined that no charitable organizations with which any member of the board or their immediate family members were affiliated during 2006 received support from Hanover. |
Members. | ||
Margaret Dorman (Chair) Gordon Hall Stephen Pazuk Ali Sheikh (joined the committee in May 2006) Al Shoemaker (until his retirement in May 2006) |
119
Table of Contents
Members. | ||||
During 2006 Jon Brumley (joined the committee in May 2006) Ted Collins Gordon Hall Stephen Pazuk (Chair) Al Shoemaker (until his retirement in May 2006) | Effective January 26, 2007 Ted Collins Gordon Hall Peter Kamin William Pate Stephen Pazuk (Chair) |
Members. | ||||
During 2006 Jon Brumley (Chair) Robert Furgason Victor Grijalva Stephen Pazuk | Effective January 26, 2007 Jon Brumley (Chair) Robert Furgason Victor Grijalva Peter Kamin |
Members. | ||||
During 2006 Margaret Dorman Robert Furgason Victor Grijalva (Chair) Gordon Hall | Effective January 26, 2007 Margaret Dorman Robert Furgason Victor Grijalva (Chair) William Pate |
120
Table of Contents
Board | 5 | |||
Board Action by Unanimous Written Consent | 2 | |||
Audit Committee | 4 | * | ||
Finance Committee | 7 | |||
Management Development and Compensation Committee | 4 | |||
Nominating and Governance Committee | 4 |
* | Excludes quarterly telephonic conferences to review Hanover’s quarterly results and earnings releases. |
121
Table of Contents
Change in | ||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||
Fees Earned | Non-Equity | Deferred | ||||||||||||||||||||||||||
or Paid | Stock | Option | Incentive Plan | Compensation | All Other | Total | ||||||||||||||||||||||
Name | in Cash | Awards | Awards | Compensation | Earnings | Compensation | ($) | |||||||||||||||||||||
(a) | (b)(1) | (c)(2) | (d)(2) | (e) | (f) | (g) | (h) | |||||||||||||||||||||
I. Jon Brumley(3) | $ | 55,000 | $ | 65,047 | $ | 31,027 | $ | 151,074 | ||||||||||||||||||||
Ted Collins, Jr.(3) | $ | 44,000 | $ | 65,047 | $ | 31,027 | $ | 140,074 | ||||||||||||||||||||
Margaret K. Dorman(5) | $ | 56,500 | $ | 66,217 | $ | 26,790 | $ | 149,507 | ||||||||||||||||||||
Robert R. Furgason(3) | $ | 43,500 | $ | 65,047 | $ | 31,027 | $ | 139,574 | ||||||||||||||||||||
Victor E. Grijalva(6) | $ | 49,000 | $ | 87,867 | $ | 90,813 | $ | 227,680 | ||||||||||||||||||||
Gordon T. Hall(3) | $ | 150,000 | $ | 65,047 | $ | 31,027 | $ | 246,074 | ||||||||||||||||||||
Peter H. Kamin(4) | — | — | — | — | ||||||||||||||||||||||||
William C. Pate(4) | — | — | — | — | ||||||||||||||||||||||||
Stephen M. Pazuk(5) | $ | 58,000 | $ | 66,217 | $ | 26,790 | $ | 151,007 | ||||||||||||||||||||
L. Ali Sheikh(7) | $ | 32,500 | $ | 14,670 | — | $ | 47,170 | |||||||||||||||||||||
Alvin V. Shoemaker(8) | $ | 18,125 | $ | 80,665 | $ | 46,693 | $ | 145,483 |
(1) | Chair retainer fees reflect the following change in service: Stephen Pazuk and Al Shoemaker served as co-chairs of the Finance Committee from January to May. Upon Mr. Shoemaker’s retirement in May, Stephen Pazuk assumed sole chair of the Finance Committee. Chair retainer fees also reflect the following changes that became effective in July 2006: Audit and Compensation Committee chairs receive $15,000 annually, paid quarterly; Finance and Governance Committee chairs receive $10,000 annually, paid quarterly. Meeting fees reflect the following change that became effective in July 2006: $1,500 paid for all in-person and telephonic board and committee meetings. | |
(2) | The value of restricted stock and option awards are based on the dollar amount expensed for financial statement reporting purposes for the twelve months ended December 31, 2006, in accordance with FAS 123(R) (other than expected forfeitures are not considered in the above table), and includes amounts attributable to the vesting of awards granted each year from 2002 through 2006. Assumptions used in the calculation of these amounts are included in the footnotes to financial statements included in Hanover’s Annual Report onForm 10-K filed with the SEC. Except to the extent necessary to meet the tax obligation upon vesting, restricted stock must be retained by a director until service as a director concludes. The actual value of restricted stock ultimately realized by each director will vary based on fluctuations in the market price of Hanover’s common stock. If Hanover declares a dividend on shares of the common stock, |
122
Table of Contents
holders of restricted stock will be entitled to receive such dividends whether or not such shares of restricted stock have vested. | ||
(3) | Messrs. Brumley, Collins, Furgason and Hall have 22,185 stock options outstanding and 12,500 restricted stock awards outstanding. | |
(4) | Messrs. Kamin and Pate were elected January 1, 2007. | |
(5) | Mr. Pazuk and Ms. Dorman have 16,000 stock options outstanding and 12,500 restricted stock awards outstanding. | |
(6) | Mr. Grijalva has 147,000 stock options outstanding and 14,500 restricted stock awards outstanding. | |
(7) | Mr. Sheikh was elected March 20, 2006 and has 6,500 restricted stock awards outstanding. | |
(8) | Mr. Shoemaker retired in May 2006. All unvested stock options and restricted stock awards vested upon retirement. |
123
Table of Contents
124
Table of Contents
125
Table of Contents
126
Table of Contents
127
Table of Contents
Payout as a | ||||||||||||
Percentage of | ||||||||||||
Weight of | Performance | Performance | Cash Bonus | |||||||||
Performance Measure | Measure | Level | Goals | Opportunity | ||||||||
Corporate Performance Goals | 50% | |||||||||||
EBITDA — earnings before interest, tax, depreciation and amortization | Below Threshold | — | 0 | % | ||||||||
Threshold | $330 million | 7.5 | % | |||||||||
Target | $365 million | 15.0 | % | |||||||||
Maximum | $400 million | 22.5 | % | |||||||||
ROCE — return on capital employed | Below Threshold | — | 0 | % | ||||||||
Threshold | 6.20% | 7.5 | % | |||||||||
Target | 7.80% | 15.0 | % | |||||||||
Maximum | 9.30% | 22.5 | % | |||||||||
EPS — earnings per share | Below Threshold | — | 0 | % | ||||||||
Threshold | $0.10 | 10.0 | % | |||||||||
Target | $0.23 | 20.0 | % | |||||||||
Maximum | $0.35 | 30.0 | % | |||||||||
Individual Performance Goals | 50% | |||||||||||
Tailored to each individual’s responsibilities to reflect operational, strategic and financial objectives established as part of the annual planning process |
• | As indicated in the table above, the maximum payout if corporate and individual performance are both achieved at maximum, was 150% of the cash bonus opportunity amount, with half attributable to corporate performance and half attributable to individual performance; | |
• | A participant in the program has a base salary of $200,000; | |
• | It has been determined that 40% ($80,000) of such individual’s base salary is the cash bonus opportunity at target performance; | |
• | Hanover’s corporate goals (50% of the total bonus payable) were achieved at maximum performance (150%); | |
• | The participant met his individual goals (50% of the total bonus payable) at target performance (100%). |
128
Table of Contents
• | This is calculated as follows: |
• | EBITDA — $384.5 million | |
• | ROCE — 8.63% | |
• | EPS — $0.56 |
2006 Annual | ||||
Performance-Based | ||||
Incentive | ||||
Name | Compensation | |||
John E. Jackson | $ | 800,000 | ||
Lee E. Beckelman | $ | 200,000 | ||
Brian A. Matusek | $ | 215,000 | ||
Norman A. Mckay | $ | 215,000 | ||
Steven W. Muck | $ | 170,000 | ||
Gary M. Wilson | $ | 215,000 |
129
Table of Contents
• | Restricted Stock/Restricted Stock Units. 50% of the total LTI Award to executives and key employees in 2006 was in the form of time-vested restricted stock (or restricted stock units, in the case of executives and certain key employees subject tonon-U.S. tax regulations) that vest at the rate of one-third per year on each anniversary from the date of grant over a period of three years. Restricted stock aids in retention, which was identified in early 2006 as a key objective of Hanover’s compensation program. In addition, these awards were granted in order to build direct ownership of Hanover shares and to align employee and stockholder interests since the value of restricted stock moves in tandem with Hanover’s market value. | |
• | Performance-Based Restricted Stock/Restricted Stock Units. 50% of the total 2006 LTI Award to executives and key employees was in the form of performance-based restricted stock (or performance-based restricted stock units, in the case of executives and certain key employees subject tonon-U.S. tax regulations). The performance-based restricted stock and restricted stock unit awards cliff vest (meaning they fully vest at a specified time, rather than gradually over a period of time) at the end of a three-year performance period subject to the achievement of pre-determined corporate performance objectives with payouts that could range between 0% to 200% of the target payout. |
Threshold | Target | Maximum | ||||||||||
ROCE Performance Objective | 6.0 | % | 7.5 | % | 9.5 | % | ||||||
Payout (as a percentage of Target) | 50 | % | 100 | % | 200 | % |
130
Table of Contents
• | The delegation applies to grants of restricted stock and stock-settled restricted stock units only (no stock options may be granted); | |
• | The number of shares that can be awarded to any one individual is limited to 5,000 shares and the aggregate number of shares that may be awarded within a twelve-month period is limited to 100,000 shares; | |
• | No grants will be made to a Section 16 officer; | |
• | No grants will be made retroactively (i.e., they are considered effective on the date of hire or promotion); and | |
• | All grants are required to be regularly reported to the Compensation Committee. |
131
Table of Contents
• | Performance on corporate goals for EBITDA, ROCE and EPS comprised 50% of Mr. Jackson’s total annual incentive award (see “Annual Performance Goals — 2006” on page 128). Taken together, the corporate goals for 2006 were achieved at 136.5% of target. | |
• | Performance on personal goals comprised the remaining 50% of Mr. Jackson’s total annual incentive award. The Compensation Committee determined, with concurrence from the independent members of the board of directors, that Mr. Jackson achieved his personal goals at 150% of target. The following were Mr. Jackson’s individual performance goals for 2006, all of which were achieved at or, where indicated, above the original goal: |
• | Reduce selling, general and administrative expenses to 12.7% of revenue and other income in 2006 as compared to 13.3% in 2005 (selling, general and administrative expenses were reduced to 12.2% of revenue and other income in 2006); | |
• | Improve average margins for new installations (average margins were improved to within 3% of quoted margins); | |
• | Reduce Hanover’s total recordable incident rate, or “TRIR,” and serious incident rate, or “STIR,” by 10% (this goal was exceeded with a total reduction during 2006 of over 20%); | |
• | Institutionalize Hanover’s Trade Control Practices through new policies, procedures and management training (a manager of Trade Control was hired, formal policies have been implemented, and management undergoes routine training on Hanover’s policies and procedures); | |
• | Complete site visits to all international Geographical Business Units and meet with at least six international clients (Mr. Jackson traveled extensively during 2006 and exceeded this goal); | |
• | Engage in employee development activities and strengthen mid-level management through training and strategic hiring (Hanover has developed new training programs, piloted the Service Excellence Program designed to improve field operations and reduce turnover, and made a number of mid-level strategic hires and promotions over the past year in human resources, risk services, project management, manufacturing and international operations); | |
• | Analyze strategic options available to Hanover (this goal was satisfied by a number of discussions with the board of directors related, among other things, to potential mergers and acquisitions, asset sales or purchases, and the formation of an MLP); and |
132
Table of Contents
• | Develop Hanover’s Eastern Hemisphere oil and gas fabrication capabilities (the Dubai fabrication facility was completed by year end 2006 with orders booked). |
• | A grant of 61,500 shares of restricted stock, which represents 50% of Mr. Jackson’s total 2006 LTI Award. The restricted stock is subject to vesting at the rate of one-third per year on each anniversary from the date of grant over a period of three years. | |
• | A performance-based restricted stock award consisting of 61,500 shares if earned at target (or 123,000 shares if earned at maximum), which represents 50% of Mr. Jackson’s 2006 LTI Award. The performance-based award cliff vests at the end of a three-year performance period pursuant to the achievement of a pre-determined corporate objective with a payout that could range between 0 and 200% of target. The performance measure recommended by the Compensation Committee and approved by the Board of Directors is based upon Hanover’s average ROCE over the performance period as described under “— Long-Term Incentive Compensation” above. |
Amount of | ||||||||||||||||||||
Previous | Annual | Percentage | New | |||||||||||||||||
Name | Base Salary | Increase | Increase | Base Salary | ||||||||||||||||
John E. Jackson | $ | 565,000 | $ | 35,000 | 6 | % | $ | 600,000 | ||||||||||||
Lee E. Beckelman | $ | 300,000 | $ | 30,000 | 10 | % | $ | 330,000 | ||||||||||||
Brian A. Matusek | $ | 310,000 | $ | 30,000 | 10 | % | $ | 340,000 | ||||||||||||
Norman A. Mckay | $ | 310,000 | $ | 30,000 | 10 | % | $ | 340,000 | ||||||||||||
Steven W. Muck | $ | 250,000 | $ | 20,000 | 8 | % | $ | 270,000 | ||||||||||||
Gary M. Wilson | $ | 310,000 | $ | 25,000 | 8 | % | $ | 335,000 |
133
Table of Contents
Payout as a | ||||||||||||
Weight of | Performance | Performance | Percentage of Cash | |||||||||
Performance Measure | Measure | Level | Goals | Bonus Opportunity | ||||||||
Corporate Performance Goals | 50 | % | ||||||||||
EBITDA — earnings before interest, | Below | — | 0 | % | ||||||||
tax, depreciation and amortization | Threshold | $385 million | 7.5 | % | ||||||||
Target | $430 million | 15.0 | % | |||||||||
Maximum | $485 million | 30.0 | % | |||||||||
ROCE — return on capital employed | Below | — | 0 | % | ||||||||
Threshold | 7.2% | 7.5 | % | |||||||||
Target | 9.0% | 15.0 | % | |||||||||
Maximum | 11.3% | 30.0 | % | |||||||||
EPS — earnings per share | Below | — | 0 | % | ||||||||
Threshold | $0.31 | 10.0 | % | |||||||||
Target | $0.57 | 20.0 | % | |||||||||
Maximum | $0.87 | 40.0 | % | |||||||||
Individual Performance Goals | 50 | % | ||||||||||
Tailored to each individual’s responsibilities to reflect operational, strategic and financial objectives established as part of the annual planning process |
134
Table of Contents
Shares of | ||||
Restricted Stock / | ||||
Name | Restricted Stock Units | |||
John E. Jackson | - 0 - | |||
Lee E. Beckelman | - 0 - | |||
Brian A. Matusek | 22,400 | |||
Norman A. Mckay* | 22,400 | |||
Steven W. Muck | 17,920 | |||
Gary M. Wilson | 19,040 |
* | Mr. Mckay is based in Dubai and was awarded restricted stock units; all other grants are in the form of restricted stock. |
Name | Retention Bonus | |||
John E. Jackson | - 0 - | |||
Lee E. Beckelman | - 0 - | |||
Brian A. Matusek | - 0 - | |||
Norman A. Mckay | $ | 310,000 | ||
Steven W. Muck | $ | 250,000 | ||
Gary M. Wilson | $ | 310,000 |
135
Table of Contents
Estimated | ||||
Supplemental | ||||
Performance | ||||
Officer | Bonus | |||
John E. Jackson | $ | 390,000 | ||
Lee E. Beckelman | $ | 90,000 | ||
Brian A. Matusek | $ | 90,000 | ||
Norman A. Mckay | $ | 70,000 | ||
Steven W. Muck | $ | 70,000 | ||
Gary M. Wilson | $ | 70,000 |
136
Table of Contents
• | Chief Executive Officer and Chief Financial Officer — 50% of the net shares acquired (after taking into account the sale of shares to cover the option exercise priceand/or to pay taxes) must be held for a period of three years following an option exercise or vesting of restricted stock awards. | |
• | Section 16 officers and direct reports to the Chief Executive Officer — 33% of the net shares acquired (after taking into account the sale of shares to cover the option exercise priceand/or to pay taxes) must be held for one year following an option exercise or vesting of restricted stock awards. |
137
Table of Contents
Compensation Committee of the Board of Directors
138
Table of Contents
Change in | ||||||||||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||||||||||
and | ||||||||||||||||||||||||||||||||||||
Non-Equity | Nonqualified | |||||||||||||||||||||||||||||||||||
Incentive | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Option | Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | |||||||||||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($)(1) | ($)(1) | ($)(2) | ($) | ($) | ($) | |||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
John E. Jackson(3) | 2006 | 552,019 | 0 | 1,279,170 | 142,785 | 1,320,000 | 0 | 14,311 | 3,308,285 | |||||||||||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Lee E. Beckelman(4) | 2006 | 274,039 | 0 | 231,790 | 39,758 | 320,000 | 0 | 8,368 | 873,955 | |||||||||||||||||||||||||||
Senior Vice President — Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Brian A. Matusek(5) | 2006 | 291,827 | 0 | 289,633 | 35,027 | 335,000 | 0 | 6,505 | 957,992 | |||||||||||||||||||||||||||
Senior Vice President — Western Hemisphere | ||||||||||||||||||||||||||||||||||||
Norman A. Mckay(6) | 2006 | 291,827 | 8,400 | 124,908 | 22,017 | 308,333 | 0 | 76,233 | 831,718 | |||||||||||||||||||||||||||
Senior Vice President — Eastern Hemisphere | ||||||||||||||||||||||||||||||||||||
Steven W. Muck(7) | 2006 | 237,019 | 0 | 254,422 | 51,816 | 263,333 | 0 | 8,368 | 814,958 | |||||||||||||||||||||||||||
Vice President — Human Resources and HSE | ||||||||||||||||||||||||||||||||||||
Gary M. Wilson(8) | 2006 | 302,212 | 0 | 257,970 | 36,465 | 308,333 | 0 | 99,506 | 1,004,486 | |||||||||||||||||||||||||||
Senior Vice President, General Counsel & Secretary |
(1) | The value of restricted stock and option awards are based on the dollar amount expensed for financial statement reporting purposes for the twelve months ended December 31, 2006, in accordance with FAS 123(R) (other than estimated forfeitures, which are not considered in the above table), and includes amounts attributable to vesting of awards granted each year from 2002 through 2006. Assumptions used in the calculation of these amounts are included in the footnotes to the financials statements included in Hanover’s Annual Report onForm 10-K for the twelve months ended December 31, 2006. The actual value of restricted stock ultimately realized by each executive will vary based on fluctuations in the market price of Hanover’s common stock. If Hanover declares a dividend on shares of its common stock, holders of Hanover’s restricted stock will be entitled to receive dividends in an amount per share equal to those received by holders of Hanover’s common stock, without regard to whether the shares of restricted stock have vested. |
139
Table of Contents
(2) | This amount includes (i) a cash award paid in March 2007 under Hanover’s 2006 annual performance-based incentive program (the “Hanover 2006 Incentive Program”) and (ii) the amount accrued during 2006 pursuant to a cash performance-based award under the Hanover 2005 Long-Term Incentive Program (the “Hanover 2005 LTI Program”) as follows: |
Cash Payment Under | Accrual Under | |||||||
Named Executive Officer | 2006 Incentive Program | 2005 LTI Program | ||||||
John E. Jackson | $ | 800,000 | $ | 520,000 | ||||
Lee E. Beckelman | 200,000 | 120,000 | ||||||
Brian A. Matusek | 215,000 | 120,000 | ||||||
Norman A. Mckay | 215,000 | 93,333 | ||||||
Steven W. Muck | 170,000 | 93,333 | ||||||
Gary M. Wilson | 215,000 | 93,333 |
The conclusion of the Hanover 2005 LTI Program’s three-year performance period is July 2008, and the final amount of the award will be based on the achievement of corporate performance targets which will not be determined until the conclusion of the performance period. | ||
(3) | The amount set forth under “All Other Compensation” for 2006 includes (i) $13,443 company match in the Hanover 401(k) Plan (subject to vesting requirements applicable to all participants) and (ii) $868 in premiums paid by Hanover for group term life and accidental death and disability insurance. | |
(4) | The amount set forth under “All Other Compensation” for 2006 includes (i) $7,500 company match in the Hanover 401(k) Plan (subject to vesting requirements applicable to all participants) and (ii) $868 in premiums paid by Hanover for group term life and accidental death and disability insurance. | |
(5) | The amount set forth under “All Other Compensation” for 2006 includes (i) $5,637 company match in the Hanover 401(k) Plan (subject to vesting requirements applicable to all participants) and (ii) $868 in premiums paid by Hanover for group term life and accidental death and disability insurance. | |
(6) | The amount set forth under “All Other Compensation” for 2006 includes (i) $4,935 company match in the Hanover 401(k) Plan (subject to vesting requirements applicable to all participants), (ii) $3,018 in premiums paid by Hanover for group term life and accidental death and disability insurance, (iii) $4,511 auto allowance, (iv) $29,405 housing allowance, (v) $3,948 utilities, (vi) $10,000 relocation expense; (vii) $16,683 education allowance, (viii) $2,635 travel allowance and (ixi) $1,098 for club dues. Reimbursements for auto, housing, utilities education allowance, travel allowance and club dues reflect currency exchange rate adjustments from Arab Emirates dirham (AED) to U.S. dollars. The exchange rate is provided by Oanda.com and is based on the average exchange rate during 2006 of 3.67 U.S. dollars for each AED. | |
(7) | The amount set forth under “All Other Compensation” for 2006 includes (i) $7,500 company match in the Hanover 401(k) Plan (subject to vesting requirements applicable to all participants) and (ii) $868 in premiums paid by Hanover for group term life and accidental death and disability insurance. | |
(8) | The amount set forth under “All Other Compensation” for 2006 includes (i) $7,500 company match in the Hanover 401(k) Plan (subject to vesting requirements applicable to all participants, (ii) premiums paid by Hanover for group term life and accidental death and disability insurance in the amount of $868, (ii) reimbursement of children’s overseas tuition expense in the amount of $67,293 which includes a gross up amount of $19,277 and (iii) personal travel reimbursement in the amount of $23,845 which includes a gross up amount of $6,307. Tuition and travel expenses are grossed up to a maximum tax rate of 33% and also reflect currency exchange rate adjustments from Great Britain pounds to U.S. dollars. The exchange rate is provided by a U.K. bank and is based upon the rate in effect on the date services were invoiced. |
140
Table of Contents
All Other | All Other | |||||||||||||||||||||||||||||||||||||||||||
Stock | Option | |||||||||||||||||||||||||||||||||||||||||||
Awards: | Awards: | Exercise | ||||||||||||||||||||||||||||||||||||||||||
Number of | Number of | or Base | Grant Date | |||||||||||||||||||||||||||||||||||||||||
Estimated Future Payouts | Shares of | Securities | Price of | Fair Value | ||||||||||||||||||||||||||||||||||||||||
Under Non-Equity Incentive | Estimated Future Payouts Under Equity | Stock or | Underlying | Option | of Stock | |||||||||||||||||||||||||||||||||||||||
Plan Awards | Incentive Plan Awards(1) | Units | Options | Awards | and Option | |||||||||||||||||||||||||||||||||||||||
Name | Grant Date | Threshold | Target | Maximum | Threshold (#) | Target (#) | Maximum (#) | (#)(2) | (#) | ($/SH) | Awards(3) | |||||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) | (j) | |||||||||||||||||||||||||||||||||
John E. Jackson | 7/21/2006 | 30,750 | 61,500 | 123,000 | $ | 999,375 | ||||||||||||||||||||||||||||||||||||||
7/21/2006 | 61,500 | 999,375 | ||||||||||||||||||||||||||||||||||||||||||
$ | 1,998,750 | |||||||||||||||||||||||||||||||||||||||||||
Lee E. Beckelman | 7/21/2006 | 7,700 | 15,400 | 30,800 | $ | 250,250 | ||||||||||||||||||||||||||||||||||||||
7/21/2006 | 15,400 | 250,250 | ||||||||||||||||||||||||||||||||||||||||||
$ | 500,500 | |||||||||||||||||||||||||||||||||||||||||||
Brian A. Matusek | 7/21/2006 | 7,700 | 15,400 | 30,800 | $ | 250,250 | ||||||||||||||||||||||||||||||||||||||
7/21/2006 | 15,400 | 250,250 | ||||||||||||||||||||||||||||||||||||||||||
$ | 500,500 | |||||||||||||||||||||||||||||||||||||||||||
Norman A. Mckay | 7/21/2006 | 7,700 | 15,400 | 30,800 | $ | 250,250 | ||||||||||||||||||||||||||||||||||||||
7/21/2006 | 15,400 | 250,250 | ||||||||||||||||||||||||||||||||||||||||||
$ | 500,500 | |||||||||||||||||||||||||||||||||||||||||||
Steven W. Muck | 7/21/2006 | 6,150 | 12,300 | 24,600 | $ | 199,875 | ||||||||||||||||||||||||||||||||||||||
7/21/2006 | 12,300 | 199,875 | ||||||||||||||||||||||||||||||||||||||||||
7/28/2006 | 15,000 | 284,400 | ||||||||||||||||||||||||||||||||||||||||||
$ | 684,150 | |||||||||||||||||||||||||||||||||||||||||||
Gary M. Wilson | 7/21/2006 | 6,550 | 13,100 | 26,200 | $ | 212,875 | ||||||||||||||||||||||||||||||||||||||
7/21/2006 | 13,100 | 212,875 | ||||||||||||||||||||||||||||||||||||||||||
$ | 425,750 |
(1) | During 2006, the Compensation Committee recommended and the independent members of the board of directors approved as the long-term incentive performance measure the average return on capital employed (“ROCE”) achieved over the three-year performance period commencing in July 2006. ROCE is calculated as (1) earnings before interest and taxes (“EBIT”), divided by (2) the sum of short-term debt, current maturities of long-term debt, long-term debt, minority interest, stockholders’ equity, less cash. The method used in calculating ROCE for the three-year performance period computes the average annualized EBIT over the entire period and divides it by the average capital employed. The chart on page 128 sets forth the performance measures for ROCE and the associated payout at threshold, target and maximum levels. The actual payout will range from 0% to 200% of the performance-based restricted stock that would have been earned at target performance. The performance-based restricted stock is subject to cliff-vesting at the end of a three-year performance period, which is June 30, 2009. In the event of a change of control, the vesting of performance-based restricted stock will be accelerated and such awards will be payable at maximum. |
141
Table of Contents
(2) | Restricted stock awards were granted on July 21, 2006 and vest on each anniversary date of grant at the rate of one-third per year over a three-year period. In the event of a change of control, the vesting of restricted stock awards will be accelerated. If Hanover declares a dividend on shares of the common stock, holders of restricted stock will be entitled to receive such dividends whether or not such shares of restricted stock have vested. | |
(3) | The value of restricted stock awards is based on FAS 123(R) with performance-based restricted stock valued at target payout. The July 28, 2006 award to Mr. Muck was valued at $18.96 per share, the New York Stock Exchange closing price on the grant date; all other awards, granted on July 21, 2006, were valued at $16.25 per share on the date of grant. |
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Equity | ||||||||||||||||||||||||||||||||||||
Equity | Equity | Incentive Plan | ||||||||||||||||||||||||||||||||||
Incentive | Incentive | Awards: | ||||||||||||||||||||||||||||||||||
Plan | Market | Plan Awards: | Market or | |||||||||||||||||||||||||||||||||
Awards: | Value of | Number of | Payout Value | |||||||||||||||||||||||||||||||||
Number of | Number of | Number of | Number of | Shares or | Unearned | of Unearned | ||||||||||||||||||||||||||||||
Securities | Securities | Securities | Shares or | Units of | Shares, Units | Shares, Units | ||||||||||||||||||||||||||||||
Underlying | Underlying | Underlying | Units of | Stock | or Other | or Other | ||||||||||||||||||||||||||||||
Unexercised | Unexercised | Unexercised | Option | Stock That | That | Rights That | Rights That | |||||||||||||||||||||||||||||
Options | Options | Unearned | Exercise | Option | Have Not | Have Not | Have Not | Have Not | ||||||||||||||||||||||||||||
(#) | (#) | Options | Price | Expiration | Vested | Vested | Vested | Vested | ||||||||||||||||||||||||||||
Name | Exercisable | Unexercisable | (#) | ($) | Date | (#) | ($)(1) | (#) | ($)(1) | |||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
John E. Jackson | 50,000 | $ | 13.98 | 1/22/2012 | 157,614 | $ | 2,977,328 | 26,125 | (4) | $ | 493,501 | |||||||||||||||||||||||||
50,000 | $ | 14.55 | 5/14/2012 | 123,000 | (5) | $ | 2,323,470 | |||||||||||||||||||||||||||||
40,000 | $ | 9.81 | 12/10/2012 | |||||||||||||||||||||||||||||||||
28,432 | 9,478(2 | ) | $ | 11.43 | 7/16/2013 | |||||||||||||||||||||||||||||||
10,000 | 20,000(3 | ) | $ | 11.98 | 7/8/2015 | |||||||||||||||||||||||||||||||
Lee E. Beckelman | 5,000 | $ | 11.53 | 12/2/2012 | 33,422 | $ | 631,342 | 5,938 | (4) | $ | 112,169 | |||||||||||||||||||||||||
2,651 | 884(2 | ) | $ | 11.43 | 7/16/2013 | 30,800 | (5) | $ | 581,812 | |||||||||||||||||||||||||||
5,667 | 11,333(3 | ) | $ | 11.98 | 7/8/2015 | |||||||||||||||||||||||||||||||
Brian A. Matusek | 4,216 | 1,406(2 | ) | $ | 10.00 | 10/22/2013 | 32,994 | $ | 623,257 | 8,125 | (4) | $ | 153,481 | |||||||||||||||||||||||
5,667 | 11,333(3 | ) | $ | 11.98 | 7/8/2015 | 30,800 | (5) | $ | 581,812 | |||||||||||||||||||||||||||
Norman A. Mckay | 4,334 | 8,666(3 | ) | $ | 11.98 | 7/8/2015 | 28,066 | $ | 530,167 | 30,800 | (5) | $ | 581,812 | |||||||||||||||||||||||
Steven W. Muck | 5,456 | $ | 14.55 | 5/14/2012 | 38,010 | $ | 718,009 | 10,000 | (4) | $ | 188,900 | |||||||||||||||||||||||||
10,000 | $ | 10.20 | 11/8/2012 | 24,600 | (5) | $ | 464,694 | |||||||||||||||||||||||||||||
8,123 | 2,708(2 | ) | $ | 11.43 | 7/16/2013 | |||||||||||||||||||||||||||||||
4,334 | 8,666(3 | ) | $ | 11.98 | 7/8/2015 | |||||||||||||||||||||||||||||||
Gary M. Wilson | 5,622 | 5,622(2 | ) | $ | 10.38 | 5/20/2014 | 27,478 | $ | 519,059 | 15,000 | (4) | $ | 283,350 | |||||||||||||||||||||||
4,334 | 8,666(3 | ) | $ | 11.98 | 7/8/2015 | 26,200 | (5) | $ | 494,918 |
(1) | Stock awards are valued as of the New York Stock Exchange closing price on December 29, 2006, which was $18.89. | |
(2) | Stock options vest on each anniversary date of grant at the rate of 25% per year over a four-year period and have a term of ten years following the date of grant. In the event of a change of control, the vesting of stock options will be accelerated. | |
(3) | Stock options vest on each anniversary date of grant at the rate of one-third per year over a three-year period and have a term of ten years following the date of grant. In the event of a change of control, the vesting of stock options will be accelerated. | |
(4) | The performance-based restricted stock awards are reflected at a maximum payout of 125% of the target award based on performance as of December 31, 2006, relative to the following performance measures: |
142
Table of Contents
(a) cash flow from operations and (b) utilization. This three-year performance-based award was granted in July 2004 and will cliff vest in September 2007. In the event of a change of control, the vesting of performance-based restricted stock will be accelerated and such awards will be payable at maximum. | ||
(5) | The performance-based restricted stock awards are reflected at a maximum payout of 200% of the target award based on performance as of December 31, 2006, relative to the following performance measure: return on capital employed. This three-year performance-based award was granted in July 2006 and will cliff vest in July 2009. In the event of a change of control, the vesting of performance-based restricted stock will be accelerated and such awards will be payable at maximum. |
Option Awards | Stock Awards | |||||||||||||||
Number of | ||||||||||||||||
Shares | Number of Shares | |||||||||||||||
Acquired on | Value Realized on | Acquired on | Value Realized on | |||||||||||||
Exercise | Exercise | Vesting | Vesting | |||||||||||||
Name | (#) | ($) | (#) | ($)(1) | ||||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||||
John E. Jackson | 63,447 | $ | 1,099,223.10 | |||||||||||||
Lee E. Beckelman | 9,190 | $ | 157,212.10 | |||||||||||||
Brian A. Matusek | 13,761 | $ | 234,801.21 | |||||||||||||
Norman A. Mckay | 3,334 | $ | 59,211.84 | |||||||||||||
Steven W. Muck | 7,934 | $ | 140,003.60 | |||||||||||||
Gary M. Wilson | 9,189 | $ | 158,476.64 |
(1) | The value realized from the vesting of restricted stock awards was equal to the New York Stock Exchange closing price of Hanover’s common stock on the date of vesting multiplied by the number of vesting shares. |
• | “Good reason” includes but is not limited to, (a) a permanent change in the executive’s title; (b) a permanent change in the executive’s duties or responsibilities which are materially inconsistent with his |
143
Table of Contents
or her title, but excluding any such change that is in conjunction with and consistent with a promotion; (c) a reduction in the executive’s base salary; (d) a reduction in the executive’s eligible annual target bonus percentage; or (e) a material reduction in the executive’s employee benefits if materially less than the benefits received by Hanover’s other comparable employees. |
• | “Cause” includes but is not limited to (a) the commission by the executive of an act of fraud, embezzlement or willful breach of a fiduciary duty to Hanover or an affiliate, (b) a conviction or a no contest plea in connection with a felony or a crime involving fraud, dishonesty or moral turpitude, (c) willful misconduct, or (d) failure of the executive to follow the written directions of the board of directors or to render services in accordance with an employment arrangement. | |
• | “Qualifying Termination” means a termination of an executive’s employment either (a) by Hanover other than for “cause” or (b) by the executive for “good reason” within twelve months of a consummated change of control. The executive’s death or disability does not constitute a “qualifying termination” of employment. |
• | the executive’s earned but unpaid base salary through the date of termination plus the executive’s target bonus for the current year (prorated to the date of termination); | |
• | any earned but unpaid actual bonus for the prior year; | |
• | that portion of the executive’s vacation pay accrued, but not used, for the current year to the date of termination; | |
• | for John E. Jackson, the product of three times the sum of his base salary and target bonus, and for all other Named Executive Officers, the product of two times the sum of his respective base salary and target bonus; and | |
• | amounts previously deferred by the executive, if any, or earned but not paid, if any, under any Hanover incentive and nonqualified deferred compensation plans or programs as of the date of termination. |
144
Table of Contents
Change of Control | ||||||||||||||||
Qualifying | Death or | |||||||||||||||
Executive Benefits and Payments Upon Termination | Retirement | Termination(1) | Disability | Severance | ||||||||||||
Compensation | ||||||||||||||||
Earned Bonus(2) | — | $ | 565,000 | — | — | |||||||||||
Base Salary and Target Bonus | — | $ | 3,390,000 | — | $ | 1,130,000 | ||||||||||
Long-term Incentives (unvested and accelerated) | ||||||||||||||||
Stock Options(3) | $ | 208,906 | $ | 208,906 | $ | 208,906 | — | |||||||||
Restricted Stock(4) | ||||||||||||||||
Performance-Based | — | $ | 2,816,971 | $ | 1,556,536 | — | ||||||||||
Time Vested | — | $ | 2,977,328 | $ | 2,977,328 | — | ||||||||||
Cash Performance Award(5) | — | $ | 780,000 | $ | 780,000 | — | ||||||||||
Benefits and Perquisites | ||||||||||||||||
Health Care(6) | — | $ | 21,913 | — | $ | 21,913 | ||||||||||
Total | $ | 208,906 | $ | 10,760,118 | $ | 5,522,770 | $ | 1,151,913 | ||||||||
Change of Control | ||||||||||||
Qualifying | Death or | |||||||||||
Executive Benefits and Payments Upon Termination | Retirement | Termination(1) | Disability | |||||||||
Compensation | ||||||||||||
Earned Bonus(2) | — | $ | 150,000 | — | ||||||||
Base Salary and Target Bonus | — | $ | 900,000 | — | ||||||||
Long-term Incentives (unvested and accelerated) | ||||||||||||
Stock Options(3) | $ | 84,906 | $ | 84,906 | $ | 84,906 | ||||||
Restricted Stock(4) | ||||||||||||
Performance-Based | — | $ | 693,981 | $ | 380,634 | |||||||
Time Vested | — | $ | 631,342 | $ | 631,342 | |||||||
Cash Performance Award(5) | — | $ | 180,000 | $ | 180,000 | |||||||
Benefits and Perquisites | ||||||||||||
Health Care(6) | — | $ | 21,913 | — | ||||||||
Total | $ | 84,906 | $ | 2,662,142 | $ | 1,276,882 | ||||||
Change of Control | ||||||||||||
Qualifying | Death or | |||||||||||
Executive Benefits and Payments Upon Termination | Retirement | Termination(1) | Disability | |||||||||
Compensation | ||||||||||||
Earned Bonus(2) | — | $ | 155,000 | — | ||||||||
Base Salary and Target Bonus | — | $ | 930,000 | — | ||||||||
Long-term Incentives (unvested and accelerated) | ||||||||||||
Stock Options(3) | $ | 90,810 | $ | 90,810 | $ | 90,810 | ||||||
Restricted Stock(4) | ||||||||||||
Performance-Based | — | $ | 735,293 | $ | 413,691 | |||||||
Time Vested | — | $ | 623,257 | $ | 623,257 | |||||||
Cash Performance Award(5) | — | $ | 180,000 | $ | 180,000 | |||||||
Benefits and Perquisites | ||||||||||||
Health Care(6) | — | $ | 21,913 | — | ||||||||
Total | $ | 90,810 | $ | 2,736,273 | $ | 1,307,758 | ||||||
145
Table of Contents
Change of Control | ||||||||||||
Qualifying | Death or | |||||||||||
Executive Benefits and Payments Upon Termination | Retirement | Termination(1) | Disability | |||||||||
Compensation | ||||||||||||
Earned Bonus(2) | — | $ | 155,000 | — | ||||||||
Base Salary and Target Bonus | — | $ | 930,000 | — | ||||||||
Long-term Incentives (unvested and accelerated) | ||||||||||||
Stock Options(3) | $ | 59,882 | $ | 59,882 | $ | 59,882 | ||||||
Restricted Stock (Time Vested)(4) | — | $ | 239,261 | $ | 239,261 | |||||||
Restricted Stock Units(4) | ||||||||||||
Performance-Based | — | $ | 581,812 | $ | 290,906 | |||||||
Time Vested | — | $ | 290,906 | $ | 290,906 | |||||||
Cash Performance Award(5) | — | $ | 140,000 | $ | 140,000 | |||||||
Benefits and Perquisites | ||||||||||||
Health Care(6) | — | $ | 22,770 | — | ||||||||
Total | $ | 59,882 | $ | 2,419,631 | $ | 1,020,955 | ||||||
Change of Control | ||||||||||||
Qualifying | Death or | |||||||||||
Executive Benefits and Payments Upon Termination | Retirement | Termination(1) | Disability | |||||||||
Compensation | ||||||||||||
Earned Bonus(2) | — | $ | 125,000 | — | ||||||||
Base Salary and Target Bonus | — | $ | 750,000 | — | ||||||||
Long-term Incentives (unvested and accelerated) | ||||||||||||
Stock Options(3) | $ | 80,084 | $ | 80,084 | $ | 80,084 | ||||||
Restricted Stock(4) | ||||||||||||
Performance-Based | — | $ | 653,594 | $ | 383,467 | |||||||
Time Vested | — | $ | 718,009 | $ | 718,009 | |||||||
Cash Performance Award(5) | — | $ | 140,000 | $ | 140,000 | |||||||
Benefits and Perquisites | ||||||||||||
Health Care(6) | — | $ | 21,913 | — | ||||||||
Total | $ | 80,084 | $ | 2,488,600 | $ | 1,321,560 | ||||||
Change of Control | ||||||||||||
Qualifying | Death or | |||||||||||
Executive Benefits and Payments Upon Termination | Retirement | Termination(1) | Disability | |||||||||
Compensation | ||||||||||||
Earned Bonus(2) | — | $ | 155,000 | — | ||||||||
Base Salary and Target Bonus | — | $ | 930,000 | — | ||||||||
Long-term Incentives (unvested and accelerated) Stock Options(3) | $ | 107,725 | $ | 107,725 | $ | 107,725 | ||||||
Restricted Stock(4) | ||||||||||||
Performance-Based | — | $ | 778,268 | $ | 474,139 | |||||||
Time Vested | — | $ | 519,059 | $ | 519,059 | |||||||
Cash Performance Award(5) | — | $ | 140,000 | $ | 140,000 | |||||||
Benefits and Perquisites | ||||||||||||
Health Care(6) | — | $ | 21,913 | — | ||||||||
Total | $ | 107,725 | $ | 2,651,965 | $ | 1,240,923 | ||||||
(1) | See the definition of “Qualifying Termination” on page 144. | |
(2) | The amounts provided under “Earned Bonus” represent a full year bonus with an assumed payout at target performance. | |
(3) | All stock options automatically become fully vested upon a change of control or an executive’s termination of service due to his or her death, disability or retirement. The number of options unvested and outstanding |
146
Table of Contents
at year end for each Named Executive Officer is provided in column (c) of the table captioned “Outstanding Equity Awards at Fiscal Year-End” and the value of such awards has been calculated using the market closing price on December 29, 2006. Once vested, options are exercisable pursuant to the terms of the respective plans under which they were granted. | ||
(4) | Upon a change of control or an executive’s termination of service due to his or her death or disability, time-vested and performance-based restricted stock and restricted stock units become fully vested and the restrictions deemed lapsed. For performance-based restricted stock and restricted stock units, the performance criteria is deemed to be met at maximum performance and payout if due to a change in control, and at target performance and payout if termination is due to death or disability. The number of performance-based restricted stock/units and time-vested restricted stock/units that are unvested and outstanding at year end for each Named Executive Officer is provided in columns (i) and (g), respectively, of the table captioned “Outstanding Equity Awards at Fiscal Year-End” and the value of such awards has been calculated using the market closing price on December 29, 2006. | |
(5) | The cash performance award granted pursuant to the Hanover 2005 LTI Program will automatically become fully vested upon a change of control or an executive’s termination of service due to his or her death or disability at target performance. | |
(6) | Health care benefits are the reimbursement of COBRA monthly premiums for an 18 month period as stated in the executive’s COC Agreement with the exception of Norman Mckay who is an international employee and covered under another program. The calculations are based on 2007 COBRA premiums. |
147
Table of Contents
Number of Shares | Approximate | |||||||
Name and Address of Beneficial Owner | Beneficially Owned | Percent of Class | ||||||
Dimensional Fund Advisors Inc. | 6,419,310 | (1) | 5.9 | % | ||||
1299 Ocean Avenue, 11th Floor Santa Monica, California 90401 | ||||||||
EGI-HC, L.L.C. | 13,250,000 | (2) | 12.1 | % | ||||
Two North Riverside Plaza, Suite 600 Chicago, Illinois 60606 | ||||||||
T. Rowe Price Associates, Inc. | 6,580,100 | (3) | 6.0 | % | ||||
100 East Pratt Street Baltimore, Maryland 21202 | ||||||||
ValueAct Capital Master Fund, L.P. | 11,604,600 | (4) | 10.6 | % | ||||
435 Pacific Avenue, Fourth Floor San Francisco, California 94133 | ||||||||
FMR Corp. | 10,639,721(5 | ) | 9.8 | % | ||||
82 Devonshire Street Boston, Massachusetts 02109 |
(1) | Dimensional Fund Advisors Inc. (“Dimensional”) is an investment advisor registered under Section 203 of the Investment Advisors Act of 1940 and as such provides investment advice to certain investment companies and serves as investment manager to certain commingled group trusts and separate accounts (the “Funds”). In its role as investment advisor or manager, Dimensional possesses investmentand/or voting power over the securities of Hanover that are owned by the Funds and may be deemed to be the beneficial owner. All securities reported in the table above are owned by the Funds, and Dimensional disclaims beneficial ownership of such securities. | |
(2) | EGI-Fund(05-07) Investors, L.L.C., a Delaware limited liability company(“Fund 05-07”) is the managing member of EGI-HC, L.L.C., a Delaware limited liability company (“EGI-HC”). SZ Investments, L.L.C., a Delaware limited liability company (“SZI”) is the managing member of Fund05-07. SZI is indirectly owned by various trusts established for the benefit of Samuel Zell and his family (the “Trusts”). The trustee of each of the Trusts is Chai Trust Company, L.L.C., an Illinois limited liability company (“Chai Trust”).Fund 05-07, SZI, EGI-HC and Chai Trust share voting power and dispositive power over the shares owned beneficially by them. | |
(3) | T. Rowe Price Associates, Inc. (“TRP”) reports sole voting power with respect to 825,500 shares and sole investment power with respect to all shares. TRP serves as an investment advisor to individual and institutional clients and does not serve as custodian of the assets of any of its clients. With respect to securities owned by any one of the registered investment companies sponsored by TRP, only State Street Bank and Trust Company, as custodian, has the right to receive any dividends or proceeds from the sale of such securities. No other person is known to have such right, except that the shareholders of these funds participate proportionately in any dividends and distributions so paid. Any and all discretionary authority that has been delegated to TRP may be revoked in whole or in part at any time. Not more than 5% of the class of such securities is owned by any one client subject to TRP’s investment advice. | |
(4) | ValueAct Capital Master Fund III, L.P. directly owns 1,725,500 shares of Hanover common stock, and these shares may also be deemed to be beneficially owned by (i) VA Partners III, LLC as General Partner of ValueAct Capital Master Fund III, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund III, L.P. and (iii) ValueAct Capital Management, LLC as General Partner of |
148
Table of Contents
ValueAct Capital Management, L.P. Jeffrey W. Ubben, Peter H. Kamin and George F. Hamel, Jr. are Managing Members of VA Partners III, LLC and ValueAct Capital Management, LLC. The reporting persons share voting and dispositive power and disclaim beneficial ownership of the reported stock except to the extent of their pecuniary interest therein. | ||
ValueAct Capital Master Fund, L.P. directly owns 9,879,100 shares of Hanover common stock, and these shares may also be deemed to be beneficially owned by (i) VA Partners, LLC as General Partner of ValueAct Capital Master Fund, L.P., (ii) ValueAct Capital Management, L.P. as the manager of ValueAct Capital Master Fund, L.P. and (iii) ValueAct Capital Management, LLC as General Partner of ValueAct Capital Management, L.P. Jeffrey W. Ubben, Peter H. Kamin and George F. Hamel, Jr. are Managing Members of VA Partners, LLC and ValueAct Capital Management, LLC. The reporting persons share voting and dispositive power and disclaim beneficial ownership of the reported stock except to the extent of their pecuniary interest therein. | ||
(5) | Fidelity Management & Research Company (“Fidelity”), a wholly-owned subsidiary of FMR Corp., is the beneficial owner of 10,170,173 shares of Hanover common stock as a result of acting as investment adviser to various investment companies (the “Funds”). Edward C. Johnson III and FMR Corp. have sole dispositive power of such shares but not voting power. Fidelity carries out the voting of the shares under written guidelines established by the Funds’ Boards of Trustees. |
149
Table of Contents
Shares | Vested | Unvested | Percentage | |||||||||||||||||||||||||
Owned | Restricted | Restricted | Stock | Indirect | Total | of | ||||||||||||||||||||||
Name of Beneficial Owner | Directly | Stock(1) | Stock(2) | Options(3) | Ownership | Ownership | Ownership | |||||||||||||||||||||
Non-Employee Directors | ||||||||||||||||||||||||||||
I. Jon Brumley | 31,000 | 8,000 | 17,200 | 20,185 | — | 76,385 | * | |||||||||||||||||||||
Ted Collins, Jr. | 334,631 | 8,000 | 17,200 | 20,185 | 6,000 | (4) | 386,016 | * | ||||||||||||||||||||
Margaret K. Dorman | — | 8,000 | 17,200 | 13,000 | — | 38,200 | * | |||||||||||||||||||||
Robert R. Furgason | 13,600 | 8,000 | 17,200 | 20,185 | 400 | (5) | 59,385 | * | ||||||||||||||||||||
Victor E. Grijalva | 60,000 | 13,000 | 19,200 | 145,000 | — | 237,200 | * | |||||||||||||||||||||
Gordon T. Hall | 51,600 | 8,000 | 40,200 | 20,185 | — | 119,985 | * | |||||||||||||||||||||
Peter H. Kamin(elected1/1/2007) | — | — | 4,700 | — | 11,604,600 | (6) | 11,609,300 | 10.6 | % | |||||||||||||||||||
William C. Pate(elected1/1/2007) | — | — | 4,700 | — | — | (7) | 4,700 | * | ||||||||||||||||||||
Stephen M. Pazuk | — | 8,000 | 17,200 | 13,000 | — | 38,200 | * | |||||||||||||||||||||
L. Ali Sheikh | — | — | 11,200 | — | — | 11,200 | * | |||||||||||||||||||||
Officers | ||||||||||||||||||||||||||||
John E. Jackson | 1,649 | 104,987 | 306,739 | 197,910 | — | 611,285 | * | |||||||||||||||||||||
Lee E. Beckelman | 1,000 | 10,977 | 67,660 | 19,868 | — | 99,505 | * | |||||||||||||||||||||
Brian A. Matusek | 6,599 | 24,784 | 94,319 | 15,549 | — | 141,251 | * | |||||||||||||||||||||
Norman A. Mckay | — | 9,667 | 77,933 | 8,667 | — | 96,267 | * | |||||||||||||||||||||
Steven W. Muck | 121 | 15,362 | 90,530 | 34,954 | — | 140,967 | * | |||||||||||||||||||||
Gary M. Wilson | — | 12,168 | 87,718 | 17,100 | — | 116,986 | * | |||||||||||||||||||||
All directors and executive officers as a group (19 persons) | 13,968,522 | 12.8 | % |
* | Less than 1% | |
(1) | Pursuant to Hanover’s stock ownership guidelines, non-employee directors must retain restricted stock (except for sales to provide for the payment of taxes due upon vesting) until their service as a director concludes. | |
(2) | Awards of restricted stock and restricted stock units vest on the anniversary date of grant, have no less than a three-year vesting period from the original date of grant and are subject to the following terms: |
(a) | Non-employee directors have voting power, but not dispositive power (except to the extent necessary to meet the tax obligation upon vesting) until their service as a director concludes. | |
(b) | Officers have voting power and once vested, dispositive power (subject to Hanover’s stock ownership guidelines as described beginning on page 137 of this joint proxy statement/prospectus). | |
(c) | 68,600 of the reported outstanding stock awards reported for Mr. Mckay are in the form of restricted stock units. Restricted stock units have no voting or dividend rights until they vest. |
150
Table of Contents
(3) | Shares that can be acquired immediately or within 60 days of June 28, 2007 through the exercise of stock options (subject to Hanover’s stock ownership guidelines as described beginning on page 137 of this joint proxy statement/prospectus). |
(4) | Shares held in trust for the benefit of Mr. Collins’ two children; Mr. Collins is the trustee of such trust but disclaims beneficial ownership. | |
(5) | Shares held by Dr. Furgason’s wife. Dr. Furgason disclaims beneficial ownership of these shares. |
(6) | These are shares owned by ValueAct Capital Master Fund, L.P. Due to Mr. Kamin’s position as a Managing Member of VA Partners, LLC and ValueAct Capital Management, L.P., he may be deemed to beneficially own these shares. See footnote (4) of the “5% Stockholders” table on page 148. |
(7) | Mr. Pate is Chief Investment Officer of Equity Group Investments, L.L.C. (“EGI”), but disclaims beneficial ownership of the shares that are owned by EGI. See footnote (2) of the “5% Stockholders” table on page 148. |
151
Table of Contents
Types of Fees | FY 2006 | FY 2005 | ||||||
(In thousands) | ||||||||
Audit fees(a) | $ | 3,209 | $ | 3,724 | ||||
Audit-related fees(b) | 4 | 47 | ||||||
Tax fees(c) | 65 | 147 | ||||||
All other fees(d) | 2 | 2 | ||||||
Total fees: | $ | 3,280 | $ | 3,920 | ||||
(a) | Audit fees include fees incurred related to audits and reviews of financial statements that we are required to file with the SEC, audit of internal control over financial reporting, statutory audits of certain of our subsidiaries’ financial statements as required under local regulations and other services which PwC provides as our principal auditor, including issuance of comfort letters, and assistance with and review of documents filed with the SEC. | |
(b) | Audit-related fees include fees billed by PwC related to employee benefit plan consent issued for 2006 and audit performed for 2005. | |
(c) | Tax fees include fees billed by PwC primarily related to tax compliance and consulting services. | |
(d) | All other fees include fees billed by PwC related to software licensing agreements. |
152
Table of Contents
AS HANOVER’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
153
Table of Contents
of the Board of Directors
Gordon T. Hall
Stephen M. Pazuk
L. Ali Sheikh
154
Table of Contents
155
Table of Contents
• | voting over the telephone or Internet if eligible to do so, in which case a Universal stockholder’s latest dated vote before the annual meeting will be the vote counted; | |
• | delivering to Universal’s corporate secretary a signed notice of revocation or a new proxy card with a later date; or | |
• | voting in person at the annual meeting. |
156
Table of Contents
157
Table of Contents
ADOPTION OF THE MERGER AGREEMENT
(Item 1 on Proxy Card)
ADOPTION OF THE HOLDINGS 2007 STOCK INCENTIVE PLAN
(Item 2 on Proxy Card)
158
Table of Contents
159
Table of Contents
ADOPTION OF THE HOLDINGS EMPLOYEE STOCK PURCHASE PLAN
(Item 3 on Proxy Card)
160
Table of Contents
ELECTION OF DIRECTORS
(Item 4 on Proxy Card)
161
Table of Contents
Amount and | ||||||||
Nature | ||||||||
of Beneficial | Percent of | |||||||
Name and Address of Beneficial Owner | Ownership | Class(1) | ||||||
FMR Corp.(2) | 3,666,800 | 12.1 | % | |||||
82 Devonshire Street | ||||||||
Boston, MA 02109 | ||||||||
Magnetar Financial L.L.C., Magnetar Capital Partners | 2,329,275 | 7.7 | % | |||||
LP, Supernova Management LLC and Alec N. Litowitz(2) | ||||||||
1603 Orrington Avenue, 13th Floor | ||||||||
Evanston, IL 60201 | ||||||||
Dimensional Fund Advisors LP(2) | 2,327,763 | 7.7 | % | |||||
1299 Ocean Avenue, 11th Floor | ||||||||
Santa Monica, CA 90401 | ||||||||
TPG-Axon GP, LLC, TPG-Axon Partners GP, LP, TPG-Axon Partners, LP, TPG-Axon Capital Management, LP, TPG-Axon Partners (Offshore), Ltd. and Dinakar Singh(2) | 2,000,000 | 6.6 | % | |||||
888 Seventh Avenue, 38th Floor | ||||||||
New York, New York 10019 | ||||||||
TimesSquare Capital Management, LLC(2) | 1,853,961 | 6.1 | % | |||||
1177 Avenue of the Americas — 39th Floor | ||||||||
New York, New York 10036 | ||||||||
Thomas C. Case(3) | 47,834 | * | ||||||
Janet F. Clark(4) | 33,763 | * | ||||||
Uriel E. Dutton(3) | 48,201 | * | ||||||
William M. Pruellage(3) | 47,808 | * | ||||||
Lisa W. Rodriguez(5) | 22,500 | * | ||||||
J.W.G. Honeybourne(6) | 12,800 | * | ||||||
Stephen A. Snider(7) | 555,076 | 1.8 | % | |||||
Ernie L. Danner(8) | 185,044 | * | ||||||
Kirk E. Townsend(9) | 105,322 | * | ||||||
J. Michael Anderson(10) | 171,845 | * | ||||||
D. Bradley Childers(11) | 137,264 | * | ||||||
All directors and executive officers as a group (14 persons)(12) | 1,502,346 | 4.9 | % |
* | Less than 1% of our issued and outstanding shares of common stock. |
(1) | Reflects the shares beneficially owned as a percentage of common stock outstanding (30,324,138 shares, excluding 3,023,210 treasury shares) plus the beneficial owner’s shares of common stock subject to options that are or will become fully vested within 60 days, if any. |
(2) | This information is based solely on the most recent filings made by such beneficial owners with the SEC on Schedule 13G or 13G/A. | |
(3) | Includes 47,500 shares of common stock subject to options. | |
(4) | Includes 32,500 shares of common stock subject to options. | |
(5) | Includes 22,500 shares of common stock subject to options. | |
(6) | Includes 10,000 shares of common stock subject to options. | |
(7) | Includes 460,201 shares of common stock subject to options. | |
(8) | Includes 132,527 shares of common stock subject to options. | |
(9) | Includes 69,674 shares of common stock subject to options. | |
(10) | Includes 122,999 shares of common stock subject to options. |
162
Table of Contents
(11) | Includes 101,419 shares of common stock subject to options. |
(12) | Includes an aggregate of 1,186,485 shares of common stock subject to options. Also includes 134,889 shares of common stock owned by other executive officers not listed in the above table, of which 92,165 are shares of common stock subject to options. |
163
Table of Contents
164
Table of Contents
165
Table of Contents
• | integrity of Universal’s financial statements; | |
• | Universal’s compliance with legal and regulatory requirements; | |
• | Universal’s independent registered public accounting firm’s qualifications; | |
• | performance of the independent auditors and Universal’s internal audit function; and | |
• | Universal’s systems of disclosure controls and procedures, and internal control over financial reporting. |
• | identify and recommend individuals to Universal’s board of directors and its committees; | |
• | establish procedures for such committee to exercise oversight of the evaluation of Universal’s board of directors and management; and | |
• | develop and recommend to Universal’s board of directors a set of corporate governance principles applicable to Universal. |
166
Table of Contents
167
Table of Contents
Name | Age | Position | ||||
Stephen A. Snider | 59 | President, Chief Executive Officer and Chairman | ||||
Ernie L. Danner | 53 | Executive Vice President, Chief Operating Officer and Director | ||||
J. Michael Anderson | 45 | Senior Vice President and Chief Financial Officer | ||||
Kirk E. Townsend | 49 | Senior Vice President | ||||
D. Bradley Childers | 43 | Senior Vice President | ||||
Richard Leong | 57 | Senior Vice President | ||||
Donald C. Wayne | 40 | Vice President, General Counsel and Secretary | ||||
Kenneth R. Bickett | 45 | Vice President, Accounting and Corporate Controller |
168
Table of Contents
1. | In consultation with senior management, establish Universal’s general compensation philosophy and oversee the development and implementation of compensation programs. | |
2. | Review and approve corporate goals and objectives relevant to the compensation of the CEO, evaluate the performance of the CEO in light of those goals and objectives, and set the CEO’s compensation level based on this evaluation. In determining the long-term incentive component of CEO compensation, the Committee shall consider, among other factors, Universal’s performance and relative shareholder return, the value of similar incentive awards to CEOs at comparable companies and awards given to the CEO in past years. | |
3. | Review and approve compensation programs applicable to executive officers other than the CEO. | |
4. | Make recommendations to the board of directors with respect to Universal’s incentive compensation plans and equity-based plans, including Universal’s incentive stock option plan, restricted stock plan, directors’ stock plan, employee stock purchase plan, employees’ supplemental savings plan and 401(k) Retirement and Savings Plan, oversee the activities of the individuals and committees responsible for administering these plans, including Universal’s Investment Committee in respect of the 401(k) Retirement and Savings Plan, and discharge any responsibilities imposed on the Committee by any of these plans. | |
5. | In consultation with management, oversee regulatory compliance with respect to compensation matters, including overseeing Universal’s policies on structuring compensation programs to preserve tax deductibility and, as required, establishing performance goals and certifying that performance goals have been attained for purposes of Section 162(m) of the Internal Revenue Code. | |
6. | Review and approve any severance or similar termination payments proposed to be made to any current or former executive officers of Universal. | |
7. | In connection with Universal’s proxy statement for the annual meeting of its stockholders, annual report onForm 10-K or other applicable SEC filing: |
(a) | Review and discuss with management the CD&A required by SECRegulation S-K, Item 402. Based on such review and discussion, determine whether to recommend to the |
169
Table of Contents
board of directors that the CD&A in the form prepared by management be included in the proxy statement, annual report onForm 10-K or other applicable SEC filing. |
(b) | Prepare the Compensation Committee Report in accordance with all applicable rules and regulations of the SEC for inclusion above the names of the members of the Committee in the proxy statement or annual report onForm 10-K. This report shall state whether (i) the Committee reviewed and discussed with management the CD&A and (ii) based on such review and discussion, the Committee recommended to the board of directors that the CD&A be included in the proxy statement, annual report onForm 10-K or other applicable SEC filing. |
8. | Review and reassess the adequacy of the Compensation Committee’s Charter annually. If any revisions to the charter are deemed necessary or appropriate, submit such recommended changes to the board of directors for its consideration and approval. | |
9. | Prepare and issue the evaluations and reports described above. | |
10. | Any other duties or responsibilities expressly delegated to the Committee by the board of directors from time to time relating to Universal’s compensation programs. |
170
Table of Contents
• | analyses of executive officer compensation as provided by Hewitt, including analyses of data involving similarly sized oilfield service companies, as well as compensation information from other third party sources; | |
• | each executive’s performance compared to the goals and objectives established for the executive; | |
• | the nature, scope and level of the executive’s responsibilities; | |
• | each executive’s contribution to Universal’s financial results and effectiveness in exemplifying and promulgating Universal’s core values — safety, service and integrity; and | |
• | incentive bonus compensation recommendations for executive officers. |
171
Table of Contents
• | base salary; | |
• | short-term incentives (bonus); | |
• | long-term incentives (stock option, restricted stock and unit appreciation rights (“UARs”)); and | |
• | other compensation programs. |
172
Table of Contents
• | level of responsibility; | |
• | individual skills; | |
• | experience in current role and internal equity among other Universal executives; | |
• | performance; and | |
• | external factors involving competitive positioning and general economic conditions. |
2006 Bonus | ||||||
Executive Officer: | Title: | Target % | ||||
Mr. Snider | President & Chief Executive Officer | 100 | % | |||
Mr. Anderson | Senior Vice President & Chief Financial Officer | 70 | % | |||
Mr. Danner | Executive Vice President & Chief Operating Officer | 80 | % | |||
Mr. Childers | Senior Vice President | 70 | % | |||
Mr. Townsend | Senior Vice President | 70 | % |
173
Table of Contents
Corporate EPS | N. America Division EBT | International EBT | TRIR | |||||||||
$ | 2.04 | $71.50 Million | $ | 13.28 Million | 1.25 |
• | The weight of the objective financial measures, corporate EPS and division EBT, decreased from 45% of the total award formula each to 30% each (or a decrease from 90% to 60% in aggregate); and | |
• | Individual performance goals, or Key Business Activities (“KBAs”), were added to the factors Universal’s Compensation Committee will consider. |
174
Table of Contents
175
Table of Contents
176
Table of Contents
177
Table of Contents
Named Executive Officer | Amount of Retention Bonus Award | |||
J. Michael Anderson | $ | 160,000 | ||
D. Bradley Childers | $ | 160,000 | ||
Kirk E. Townsend | $ | 125,000 | ||
Richard Leong | $ | 125,000 | ||
Donald C. Wayne | $ | 125,000 | ||
Kenneth Bickett | $ | 100,000 |
• | appropriate in amount; | |
• | appropriately applied to Universal’s executive officers; and | |
• | necessary to retain the executive officers who are essential to the continued development and success of Universal, to compensate those executive officers for their contributions and to enhance stockholders’ value. |
178
Table of Contents
(4) | ||||||||||||||||||||||||||||||||
(2) | (3) | Non-Equity | (5) | |||||||||||||||||||||||||||||
(1) | Stock | Option | Incentive Plan | All Other | (6) | |||||||||||||||||||||||||||
Salary | Bonus | Awards | Awards | Compensation | Compensation | Total | ||||||||||||||||||||||||||
Name and Position | Year | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||
Stephen A. Snider | �� | 2006 | $ | 525,000 | $ | — | $ | 240,120 | $ | 1,018,793 | $ | 285,000 | $ | 39,080 | $ | 2,107,993 | ||||||||||||||||
President and Chief | ||||||||||||||||||||||||||||||||
Executive Officer | ||||||||||||||||||||||||||||||||
J. Michael Anderson | 2006 | 302,500 | — | 242,807 | 347,654 | 115,000 | 16,080 | 1,024,041 | ||||||||||||||||||||||||
Senior Vice President and | ||||||||||||||||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||||||||
Ernie L. Danner | 2006 | 337,500 | — | 270,353 | 392,118 | 147,000 | 25,486 | 1,172,457 | ||||||||||||||||||||||||
Executive Vice President and Chief Operating Officer | ||||||||||||||||||||||||||||||||
D. Bradley Childers | 2006 | 287,500 | — | 210,687 | 312,135 | 115,000 | 18,505 | 943,827 | ||||||||||||||||||||||||
Senior Vice President | ||||||||||||||||||||||||||||||||
Kirk E. Townsend | 2006 | 307,500 | — | 180,235 | 309,485 | 95,000 | 25,881 | 918,101 | ||||||||||||||||||||||||
Senior Vice President |
(1) | The amounts included in the “Salary” column represent the amounts paid in salary for the twelve months ended December 31, 2006. | |
(2) | The amounts included in the “Stock Awards” column represent the compensation cost recognized for the twelve months ended December 31, 2006 related to non-option stock awards, as described in Statement of Financial Accounting Standards No. 123R. For a discussion of valuation assumptions, see Note 8 to Universal’s consolidated financial statements in Universal’sForm 10-K for the twelve months ended December 31, 2006. Please see the “Grants of Plan-Based Awards Table” for more information regarding the stock awards granted by Universal and the Universal Partnership in 2006. | |
(3) | The amounts included in the “Option Awards” column represent the compensation cost recognized for the twelve months ended December 31, 2006 related to option awards, as described in Statement of Financial Accounting Standards No. 123R. For a discussion of valuation assumptions, see Note 8 to Universal’s consolidated financial statements in Universal’sForm 10-K for the twelve months ended December 31, 2006. Please see the “Grants of Plan-Based Awards Table” for more information regarding the option awards granted by Universal and the Universal Partnership in 2006. | |
(4) | The amount included in the “Non-Equity Incentive Plan Compensation” column represents the awards paid in 2007 under the 2006 OIP, which covered the nine-month compensation measurement and performance review period beginning April 1, 2006 and ending December 31, 2006. | |
(5) | The amounts shown in the “All Other Compensation” column are attributable to the following, which did exceed $10,000 in the aggregate: |
• | Mr. Snider: $7,005 for 2006 contribution for executive medical coverage under Universal’s Medical Expense Reimbursement Plan (“MERP”); $9,450 for matching contributions to his contributions under the Universal 401(k) Retirement and Savings Plan; $14,175 for matching contributions under the Universal employees’ supplemental savings plan; and $8,450 for tax assistance and executive wellness. | |
• | Mr. Anderson: $7,005 for 2006 contribution for executive medical coverage under MERP; $6,300 for matching contributions to his contributions under the Universal 401(k) Retirement and Savings Plan; and $2,775 for matching contributions under the Universal employees’ supplemental savings plan. | |
• | Mr. Danner: $7,005 for 2006 contribution for executive medical coverage under MERP; $9,450 for matching contributions to his contributions under the Universal 401(k) Retirement and Savings Plan; |
179
Table of Contents
$5,011 for matching contributions under the Universal employees’ supplemental savings plan; and $4,020 for tax assistance and executive wellness. |
• | Mr. Childers: $7,005 for 2006 contribution for executive medical coverage under MERP; $6,300 for matching contributions to his contributions under the Universal 401(k) Retirement and Savings Plan; $2,325 for matching contributions under the Universal employees’ supplemental savings plan; and $2,875 for tax assistance and executive wellness. | |
• | Mr. Townsend: $7,005 for 2006 contribution for executive medical coverage under MERP; $9,450 for matching contributions to his contributions under the Universal 401(k) Retirement and Savings Plan; $4,388 for matching contributions under the Universal employees’ supplemental savings plan; and $5,038 for tax assistance and club dues. |
(6) | The amount included in the “Total” compensation column represents the sum of all the other Summary Compensation Table columns. |
180
Table of Contents
(2) | (3) | |||||||||||||||||||||||||||||||
All Other | All Other | |||||||||||||||||||||||||||||||
Stock | Option | |||||||||||||||||||||||||||||||
Awards: | Awards: | Exercise or | (4) | |||||||||||||||||||||||||||||
(1) | Number | Number of | Base | Grant Date | ||||||||||||||||||||||||||||
Estimated Future Payouts Under | of Shares | Securities | Price of | Fair Value | ||||||||||||||||||||||||||||
Non-Equity Incentive Plan Awards | of Stock | Underlying | Option | of Stock | ||||||||||||||||||||||||||||
Threshold | Target | Max. | or Units | Options | Awards | and Option | ||||||||||||||||||||||||||
Name | Grant Date | ($) | ($) | ($) | (#) | (#) | ($/Sh) | Awards | ||||||||||||||||||||||||
Stephen A. Snider | $ | 110,000 | $ | 550,000 | $ | 1,100,000 | ||||||||||||||||||||||||||
President and Chief | 3/3/2006 | 130,000 | $ | 43.39 | $ | 2,338,700 | ||||||||||||||||||||||||||
Executive Officer | 12/13/2006 | 85,714 | 25.94 | 154,088 | ||||||||||||||||||||||||||||
12/13/2006 | 85,714 | 25.94 | 154,088 | |||||||||||||||||||||||||||||
$ | 2,646,876 | |||||||||||||||||||||||||||||||
J. Michael Anderson | $ | 43,400 | $ | 217,000 | $ | 434,000 | ||||||||||||||||||||||||||
Sr. Vice President and | 3/3/2006 | 20,000 | $ | 43.39 | $ | 359,800 | ||||||||||||||||||||||||||
Chief Financial Officer | 3/3/2006 | 9,000 | 390,330 | |||||||||||||||||||||||||||||
12/13/2006 | 64,286 | 25.94 | 115,567 | |||||||||||||||||||||||||||||
12/13/2006 | 64,286 | 25.94 | 115,567 | |||||||||||||||||||||||||||||
$ | 981,264 | |||||||||||||||||||||||||||||||
Ernie L. Danner | $ | 56,800 | $ | 284,000 | $ | 568,000 | ||||||||||||||||||||||||||
Executive Vice President | 3/3/2006 | 25,000 | $ | 43.39 | $ | 449,750 | ||||||||||||||||||||||||||
and Chief Operating Officer | 3/3/2006 | 15,000 | 650,550 | |||||||||||||||||||||||||||||
12/13/2006 | 64,286 | 25.94 | 115,567 | |||||||||||||||||||||||||||||
12/13/2006 | 64,286 | 25.94 | 115,567 | |||||||||||||||||||||||||||||
$ | 1,331,434 | |||||||||||||||||||||||||||||||
D. Bradley Childers | $ | 42,000 | $ | 210,000 | $ | 420,000 | ||||||||||||||||||||||||||
Senior Vice President | 3/3/2006 | 20,000 | $ | 43.39 | $ | 359,800 | ||||||||||||||||||||||||||
3/3/2006 | 9,000 | 390,330 | ||||||||||||||||||||||||||||||
12/13/2006 | 42,857 | 25.94 | 77,044 | |||||||||||||||||||||||||||||
12/13/2006 | 42,857 | 25.94 | 77,044 | |||||||||||||||||||||||||||||
$ | 904,218 | |||||||||||||||||||||||||||||||
Kirk E. Townsend | $ | 44,100 | $ | 220,500 | $ | 441,000 | ||||||||||||||||||||||||||
Senior Vice President | 3/3/2006 | 20,000 | $ | 43.39 | $ | 359,800 | ||||||||||||||||||||||||||
3/3/2006 | 10,000 | 433,700 | ||||||||||||||||||||||||||||||
12/13/2006 | 42,857 | 25.94 | 77,044 | |||||||||||||||||||||||||||||
12/13/2006 | 42,857 | 25.94 | 77,044 | |||||||||||||||||||||||||||||
$ | 947,588 | |||||||||||||||||||||||||||||||
(1) | The amounts shown reflect Universal’s 2006 OIP range of payouts. Universal’s Compensation Committee established target OIP awards, expressed as a percentage of the executive’s 2006 base salary, and individual and company performance measures for the purpose of determining the amount paid out under the 2006 OIP for each executive officer for the twelve months ended December 31, 2006. The amount shown in the “target” column represents the target percentage of each executive officer’s 2006 base salary. For 2006, the target percentages were: 100% for Mr. Snider; 80% for Mr. Danner and 70% for Messrs. Anderson, Childers and Townsend. The amount shown in the “maximum” column represents the maximum amount payable under the 2006 OIP, which is 200% of the target amount shown. The amount shown in the “threshold” column represents the amount payable under the 2006 OIP if only the minimum level of company performance of the 2006 OIP is attained, which is 20% of the target amount shown. See “Compensation Discussion and Analysis” for more information regarding Universal’s OIP. |
181
Table of Contents
(2) | Includes long-term incentive awards under the Universal restricted stock plan. See the table titled “Outstanding Equity Awards at Fiscal Year-End” for additional information on equity awards. | |
(3) | Includes long-term incentive awards under the Universal incentive stock option plan and Universal Partnership’s Long-Term Incentive Plan, and awards of UARs. See the table titled “Outstanding Equity Awards at Fiscal Year-End” for additional information on equity awards. | |
(4) | Represents the full grant date fair value of the awards computed in accordance with Statement of Financial Accounting Standards No. 123R. |
Stock Awards | ||||||||||||||||||||||||
(1) | ||||||||||||||||||||||||
Option Awards | Market Value | |||||||||||||||||||||||
Number of | Number of | Number of | of Shares | |||||||||||||||||||||
Securities | Securities | Shares or | or Units | |||||||||||||||||||||
Underlying | Underlying | Option | Units of Stock | of Stock | ||||||||||||||||||||
Unexercised | Unexercised | Exercise | Option | That Have Not | That Have | |||||||||||||||||||
Options | Options | Price | Expiration | Vested | Not Vested | |||||||||||||||||||
Name | (#) Exercisable | (#) Unexercisable | ($) | Date | (#) | ($) | ||||||||||||||||||
Stephen A. Snider | 90,523 | $ | 31.65 | 12/11/2010 | 11,250 | (2) | $ | 698,738 | ||||||||||||||||
President and Chief Executive | 97,024 | 33.60 | 4/20/2011 | 20,000 | (3) | 1,242,200 | ||||||||||||||||||
Officer | 145,306 | 21.30 | 2/19/2012 | |||||||||||||||||||||
29,015 | 16.71 | 3/10/2013 | ||||||||||||||||||||||
23,333 | (4) | 11,667 | (4) | 30.07 | 4/30/2014 | |||||||||||||||||||
10,000 | (5) | 20,000 | (5) | 38.15 | 3/9/2015 | |||||||||||||||||||
— | 130,000 | (6) | 43.39 | 3/3/2016 | ||||||||||||||||||||
85,714 | (7) | 25.94 | 3/15/2010 | |||||||||||||||||||||
85,714 | (8) | 25.94 | 3/15/2010 | |||||||||||||||||||||
395,201 | 333,095 | |||||||||||||||||||||||
J. Michael Anderson | 67,660 | $ | 17.30 | 3/31/2013 | 10,000 | (9) | $ | 621,100 | ||||||||||||||||
Senior Vice President and | 17,340 | 17.30 | 3/31/2013 | 6,000 | (2) | 372,660 | ||||||||||||||||||
Chief Financial Officer | 13,333 | (4) | 6,667 | (4) | 30.07 | 4/30/2014 | 8,000 | (3) | 496,880 | |||||||||||||||
5,666 | (5) | 11,334 | (5) | 38.15 | 3/9/2015 | 9,000 | (10) | 558,990 | ||||||||||||||||
— | 20,000 | (6) | 43.39 | 3/3/2016 | ||||||||||||||||||||
64,286 | (7) | 25.94 | 3/15/2010 | |||||||||||||||||||||
64,286 | (8) | 25.94 | 3/15/2010 | |||||||||||||||||||||
103,999 | 166,573 | |||||||||||||||||||||||
Ernie L. Danner | 50,523 | $ | 31.65 | 12/11/2010 | 9,000 | (2) | $ | 558,990 | ||||||||||||||||
Executive Vice President and | 17,024 | 33.60 | 4/20/2011 | 12,000 | (3) | 745,320 | ||||||||||||||||||
Chief Operating Officer | 20,306 | 21.30 | 2/19/2012 | 15,000 | (10) | 931,650 | ||||||||||||||||||
16,666 | (4) | 8,334 | (4) | 30.07 | 4/30/2014 | |||||||||||||||||||
7,333 | (5) | 14,667 | (5) | 38.15 | 3/9/2015 | |||||||||||||||||||
— | 25,000 | (6) | 43.39 | 3/3/2016 | ||||||||||||||||||||
64,286 | (7) | 25.94 | 3/15/2010 | |||||||||||||||||||||
64,286 | (8) | 25.94 | 3/15/2010 | |||||||||||||||||||||
111,852 | 176,573 |
182
Table of Contents
Stock Awards | ||||||||||||||||||||||||
(1) | ||||||||||||||||||||||||
Option Awards | Market Value | |||||||||||||||||||||||
Number of | Number of | Number of | of Shares | |||||||||||||||||||||
Securities | Securities | Shares or | or Units | |||||||||||||||||||||
Underlying | Underlying | Option | Units of Stock | of Stock | ||||||||||||||||||||
Unexercised | Unexercised | Exercise | Option | That Have Not | That Have | |||||||||||||||||||
Options | Options | Price | Expiration | Vested | Not Vested | |||||||||||||||||||
Name | (#) Exercisable | (#) Unexercisable | ($) | Date | (#) | ($) | ||||||||||||||||||
D. Bradley Childers | 38,420 | $ | 19.03 | 9/3/2012 | 2,500 | (11) | $ | 155,275 | ||||||||||||||||
Senior Vice President | 25,000 | 16.71 | 3/10/2013 | 6,000 | (2) | 372,660 | ||||||||||||||||||
13,333 | (4) | 6,667 | (4) | 30.07 | 4/30/2014 | 8,000 | (3) | 496,880 | ||||||||||||||||
5,666 | (5) | 11,334 | (5) | 38.15 | 3/9/2015 | 9,000 | (10) | 558,990 | ||||||||||||||||
— | 20,000 | (6) | 43.39 | 3/3/2016 | ||||||||||||||||||||
42,857 | (7) | 25.94 | 3/15/2010 | |||||||||||||||||||||
42,857 | (8) | 25.94 | 3/15/2010 | |||||||||||||||||||||
82,419 | 123,715 | |||||||||||||||||||||||
Kirk E. Townsend | 15,000 | $ | 22.00 | 5/23/2010 | 6,000(2 | ) | $ | 372,660 | ||||||||||||||||
Senior Vice President | 35,000 | 31.65 | 12/11/2010 | 8,000(3 | ) | 496,880 | ||||||||||||||||||
2,976 | 33.60 | 4/20/2011 | 10,000(10 | ) | 621,100 | |||||||||||||||||||
4,694 | 21.30 | 2/19/2012 | ||||||||||||||||||||||
13,333 | (4) | 6,667 | (4) | 30.07 | 4/30/2014 | |||||||||||||||||||
5,666 | (5) | 11,334 | (5) | 38.15 | 3/9/2015 | |||||||||||||||||||
— | 20,000 | (6) | 43.39 | 3/3/2016 | ||||||||||||||||||||
42,857 | (7) | 25.94 | 3/15/2010 | |||||||||||||||||||||
42,857 | (8) | 25.94 | 3/15/2010 | |||||||||||||||||||||
76,669 | 123,715 |
(1) | Based on the closing price of Universal common stock as of December 29, 2006 ($62.11). | |
(2) | Remainder of unvested portion of April 30, 2004 restricted stock grant vests ratably on April 30, 2007, April 30, 2008, and April 30, 2009. | |
(3) | March 9, 2005 restricted stock grant vests ratably on March 9, 2007, March 9, 2008, March 9, 2009 and March 9, 2010. | |
(4) | Options vest ratably and become exercisable on the first three anniversaries of the grant date and are fully vested on April 30, 2007. | |
(5) | Options vest ratably and become exercisable on the first three anniversaries of the grant date and are fully vested on March 9, 2008. | |
(6) | Options vest ratably and become exercisable on the first three anniversaries of the grant date and are fully vested on March 3, 2009. | |
(7) | Unit Option grant under the Universal Partnership’s Long-Term Incentive Plan vests on January 1, 2009. | |
(8) | UAR grant vests on January 1, 2009. | |
(9) | Remainder of unvested portion of March 31, 2003 restricted stock grant vests ratably on March 31, 2007 and March 31, 2008. | |
(10) | March 3, 2006 restricted stock grant vests ratably on March 3, 2008, March 3, 2009, March 3, 2010 and March 3, 2011. | |
(11) | Unvested portion of September 3, 2002 restricted stock grant vests on September 3, 2007. |
183
Table of Contents
Option Awards | Stock Awards | |||||||||||||||
Number of | (1) | Number of | (2) | |||||||||||||
Shares Acquired | Value Realized | Shares Acquired | Value Realized | |||||||||||||
on Exercise | on Exercise | on Vesting | on Vesting | |||||||||||||
Name | (#) | ($) | (#) | ($) | ||||||||||||
Stephen A. Snider | 111,384 | $ | 4,726,073 | 11,250 | (3) | $ | 518,025 | (3) | ||||||||
President and Chief Executive Officer | ||||||||||||||||
J. Michael Anderson | — | — | 7,000 | (4) | 365,150 | (4) | ||||||||||
Senior Vice President and Chief Financial Officer | ||||||||||||||||
Ernie L. Danner | 158,695 | 6,747,651 | 8,000 | (5) | 373,300 | (5) | ||||||||||
Executive Vice President and Chief Operating Officer | ||||||||||||||||
D. Bradley Childers | 1,580 | 70,120 | 4,500 | (6) | 251,550 | (6) | ||||||||||
Senior Vice President | ||||||||||||||||
Kirk E. Townsend | 53,998 | 2,090,751 | 4,500 | (7) | 214,600 | (7) | ||||||||||
Senior Vice President |
(1) | Amount in “Value Realized on Exercise” column represents the aggregate dollar value realized upon the exercise of options to purchase Universal common stock. | |
(2) | Amount in “Value Realized on Vesting” column represents the number of shares vested multiplied by the market price of a share of Universal common stock on the date of vesting. | |
(3) | The number of vested shares of Universal common stock reported for Mr. Snider is attributable to vesting of the following awards: |
(4) | The number of vested shares of Universal common stock reported for Mr. Anderson is attributable to vesting of the following awards: |
(5) | The number of vested shares of Universal common stock reported for Mr. Danner is attributable to vesting of the following awards: |
(6) | The amount of shares of Universal common stock reported for Mr. Childers is attributable to vesting of the following awards: |
(7) | The number of vested shares of Universal common stock reported for Mr. Townsend is attributable to vesting of the following awards: |
184
Table of Contents
(2) | (3) | (4) | ||||||||||||||
(1) | Registrant | Aggregate | Aggregate | |||||||||||||
Executive | Contributions | Earnings | Balance at | |||||||||||||
Contributions in | in Last | in Last | Last Fiscal | |||||||||||||
Last Fiscal Year | Fiscal Year | Fiscal Year | Year-End | |||||||||||||
Name | ($) | ($) | ($) | ($) | ||||||||||||
Stephen A. Snider | $ | 541,452 | $ | 14,175 | $ | 208,271 | $ | 2,176,653 | ||||||||
President and Chief Executive Officer | ||||||||||||||||
J. Michael Anderson | 12,836 | 2,775 | 24,957 | 145,307 | ||||||||||||
Senior Vice President and Chief Financial Officer | ||||||||||||||||
Ernie L. Danner | 59,654 | 5,011 | 222,824 | 1,617,893 | ||||||||||||
Executive Vice President and Chief Operating Officer | ||||||||||||||||
D. Bradley Childers | 16,265 | 2,325 | 12,248 | 77,747 | ||||||||||||
Senior Vice President | ||||||||||||||||
Kirk E. Townsend | 17,969 | 4,388 | 21,806 | 129,248 | ||||||||||||
Senior Vice President |
(1) | Amounts shown represent contributions made by each Named Executive Officer to Universal’s non-qualified deferred compensation plan, the Universal employees’ supplemental savings plan, during calendar year 2006. In addition, Mr. Snider elected to defer $429,629 of his incentive awarded in 2006 with respect to the 2005 compensation measurement and performance review period. | |
(2) | Amounts shown represent matching contributions made by Universal to each Named Executive Officer’s employees’ supplemental savings plan accounts. | |
(3) | Amounts shown represent earnings under the Universal employees’ supplemental savings plan considering historical balances, and Named Executive Officer and Universal’s contributions during 2006. | |
(4) | Amounts shown represent the aggregate employees’ supplemental savings plan balance for each Universal Named Executive Officer at December 31, 2006. |
• | An amount equal to the executive’s annual base salary through the date of termination and a pro rated annual bonus based upon the greater of the annual bonus that would be payable to the executive for that year or the executive’s highest annual bonus over the preceding three years; | |
• | An amount equal to two times the executive’s current annual base salary and two times the greater of the annual bonus that would be payable to the executive for that year or the executive’s highest annual bonus over the preceding three years; |
185
Table of Contents
• | An amount equal to two times the employee’s basic and matching contributions credited to the executive under Universal’s 401(k) Retirement and Savings Plan and any other Universal deferred compensation plan during the12-month period immediately preceding the month of the executive’s date of termination, such amount being grossed up so that the amount the executive actually receives after payment of any federal or state taxes payable equals the amount described above; | |
• | For a period of two years following the executive’s date of termination, Universal will provide company medical and welfare benefits to the executive or the executive’s family equal to those benefits which would have been provided to such executive in accordance with the benefits if the executive’s employment had not been terminated; | |
• | Universal will pay the executive an amount equal to the amount forfeited by the executive under its deferred compensation plan, 401(k) Retirement and Savings Plan or any similar plan; | |
• | All stock options, restricted stock, restricted stock units or other stock-based awards held by the executive that are not vested, will vest; and | |
• | In the event that any payment or distribution made by Universal to or for the benefit of the executive would be subject to a federal excise tax, then the executive is entitled to receive an additionalgross-up payment. |
Release of | Early | Universal | ||||||||||||||||||||||||||||||
Restricted | Universal | Partnership | ||||||||||||||||||||||||||||||
Cash | Universal | Option | Medical | Excise Tax | Unit | |||||||||||||||||||||||||||
Name | Severance | Stock | Vesting | Coverage | Reimbursement | Options | Other(1) | Total | ||||||||||||||||||||||||
Stephen A. Snider | $ | 2,818,500 | $ | 1,940,938 | $ | 3,286,611 | $ | 23,944 | $ | 22,906 | $ | 77,143 | $ | 47,250 | $ | 8,217,292 | ||||||||||||||||
J. Michael Anderson | 1,329,740 | 2,049,630 | 859,573 | 23,944 | 8,798 | 57,857 | 31,509 | 4,361,051 | ||||||||||||||||||||||||
Ernie L. Danner | 1,427,024 | 2,235,960 | 1,086,443 | 23,944 | 14,020 | 57,857 | 28,922 | 4,874,170 | ||||||||||||||||||||||||
D. Bradley Childers | 1,167,106 | 1,583,805 | 859,573 | 23,944 | 8,362 | 38,571 | 31,097 | 3,712,458 | ||||||||||||||||||||||||
Kirk E. Townsend | 1,386,000 | 1,490,640 | 859,573 | 23,944 | 13,416 | 38,571 | 27,675 | 3,839,819 |
186
Table of Contents
(1) | Amounts shown represent each Universal’s Named Executive Officer’s unvested account balance and Universal’s matching contributions under each of Universal’s 401(k) Retirement and Savings Plan and employees’ supplemental savings plan. |
• | an annual retainer of $30,000; | |
• | an annual retainer fee for the chairs of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of $10,000, $5,000 and $5,000, respectively; | |
• | a fee per board of directors meeting of $1,000 if attended in person or $500 if attended telephonically; | |
• | a fee per committee meeting for each committee member who is a chairperson of $1,500, whether attended in person or telephonically; and | |
• | a fee per committee meeting for each committee member who is a non-chairperson of $1,000 if attended in person or $500 if attended telephonically. |
187
Table of Contents
(1) | ||||||||||||
Fees Earned or | (2) | |||||||||||
Name | Paid in Cash | Option Awards | Total | |||||||||
Janet F. Clark | $ | 60,500 | $ | 133,463 | $ | 193,963 | ||||||
Thomas C. Case | 46,000 | 133,463 | 179,463 | |||||||||
Uriel E. Dutton | 48,500 | 133,463 | 181,963 | |||||||||
J.W.G. Honeybourne | 36,250 | 148,287 | 184,537 | |||||||||
William M. Pruellage | 41,000 | 133,463 | 174,463 | |||||||||
Lisa W. Rodriguez | 43,500 | 133,463 | 176,963 | |||||||||
Bernard J. Duroc-Danner(3) | 13,250 | 21,025 | 34,275 | |||||||||
Samuel Urcis(3) | 12,000 | 21,025 | 33,025 |
(1) | Amounts shown represent cash paid to directors during the twelve months ended December 31, 2006. | |
(2) | Amounts shown represent the compensation costs Universal recognized during the twelve months ended December 31, 2006 related to option awards, as described in Statement of Financial Accounting Standards No. 123R. For a discussion of valuation assumptions, see Note 8 to Universal’s consolidated financial statements in Universal’sForm 10-K for the twelve months ended December 31, 2006. | |
(3) | Messrs. Duroc-Danner and Urcis did not seek board reelection during 2006. |
Number of | Number of | |||||||
Securities | Securities | |||||||
Underlying | Underlying | |||||||
Unexercised | Unexercised | |||||||
Options | Options | |||||||
Name | (Exercisable) | (Unexercisable) | ||||||
Janet F. Clark | 25,000 | 7,500 | ||||||
Thomas C. Case | 40,000 | 7,500 | ||||||
Uriel E. Dutton | 40,000 | 7,500 | ||||||
J.W.G. Honeybourne | — | 10,000 | ||||||
William M. Pruellage | 40,000 | 7,500 | ||||||
Lisa W. Rodriguez | 15,000 | 7,500 | ||||||
Bernard J. Duroc-Danner | — | — | ||||||
Samuel Urcis | — | — | ||||||
160,000 | 47,500 | |||||||
188
Table of Contents
Number of Securities | ||||||||||||
Remaining Available for | ||||||||||||
Number of Securities to be | Future Issuance Under | |||||||||||
Issued Upon Exercise of | Weighted-Average Exercise | Equity Compensation Plans | ||||||||||
Outstanding Options, | Price of Outstanding Options | (Excluding Securities | ||||||||||
Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | ||||||||||
Plan category(1) | (a) | (b) | (c) | |||||||||
Equity compensation plans approved by security holders: | 1,902,952 | $ | 29.97 | 3,446,681 | (1) | |||||||
Equity compensation plans not approved by security holders: | Not applicable | Not applicable | Not applicable | |||||||||
Total | 1,902,952 | $ | 29.97 | 3,446,681 |
(1) | Includes 2,276,643, 16,229, 290,051, 852,713 and 11,145 shares available for issuance pursuant to the Universal incentive stock option plan, employees’ supplemental savings plan, employee stock purchase plan, restricted stock plan and directors’ stock plan, respectively. |
• | investments in competitors, customers and suppliers; | |
• | participation in specified outside business activities; and | |
• | taking certain business opportunities. |
189
Table of Contents
The consideration received by Universal and its subsidiaries for the contribution of the assets and liabilities to Universal Partnership on October 20, 2006 | • 825,000 common units of Universal Partnership, which were later redeemed by Universal Partnership using a portion of the aggregate net proceeds from the initial offering; | |
• 6,325,000 subordinated units of Universal Partnership; | ||
• 258,163 general partner units of Universal Partnership; | ||
• Universal Partnership’s general partner’s incentive distribution rights; and | ||
• Universal Partnership’s assumption of $228.4 million of Universal’s indebtedness. |
Distributions of available cash to Universal Partnership’s general partner and its affiliates | Universal Partnership will generally make cash distributions 98% to its unitholders on a pro rata basis, including Universal, as the holder of 6,325,000 subordinated units and 2% to Universal Partnership’s general partner. In addition, if distributions exceed the minimum quarterly distribution and other higher target distribution levels, then Universal is entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest target distribution level. | |
Assuming Universal Partnership has sufficient available cash to pay the full minimum quarterly distribution on all of Universal’s outstanding units for four quarters, Universal would receive an annual distribution of approximately $0.4 million on its general partner units and $8.9 million on its subordinated units. On February 14, 2007, Universal Partnership paid a prorated quarterly distribution on all its outstanding units with respect to the period from October 20, 2006 to December 31, 2006, including the following to Universal: approximately $0.1��million on Universal’s general partner units and $1.8 million on its subordinated units. | ||
Payments to Universal Partnership’s general partner and its affiliates | Subject to certain caps, Universal Partnership reimburses Universal for the payment of all direct and indirect expenses incurred on Universal Partnership’s behalf. For further information regarding the reimbursement of these expenses, please read “— Omnibus Agreement” below. |
190
Table of Contents
Withdrawal or removal of Universal Partnership’s general partner | If Universal withdraws or is removed in its general partner capacity, Universal’s general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. |
Liquidation | Upon liquidation of Universal Partnership, the partners of Universal Partnership, including Universal in its general partner capacity, will be entitled to receive liquidating distributions according to their respective capital account balances. |
191
Table of Contents
192
Table of Contents
193
Table of Contents
RATIFICATION OF REAPPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
(Item 5 on Proxy Card)
Twelve Months | Nine Months | |||||||
Ended | Ended | |||||||
December 31, | December 31, | |||||||
2006 | 2005 | |||||||
(In thousands) | ||||||||
Audit fees(1) | $ | 2,810.5 | $ | 675.4 | ||||
Audit-related fees(2) | 106.0 | 117.2 | ||||||
Tax fees(3) | 103.5 | 149.5 | ||||||
All other fees | — | — | ||||||
Total fees: | $ | 3,020.0 | $ | 942.1 | ||||
(1) | Audit fees consist of professional services rendered for the audit of Universal’s annual financial statements, the audit of the effectiveness of Universal’s internal control over financial reporting and the reviews of the quarterly financial statements. This category also includes fees for issuance of comfort letters, consents, assistance with and review of documents filed with the SEC, statutory audit fees and work done by tax professionals in connection with the audit and quarterly reviews. | |
(2) | Audit-related fees primarily include fees for audits of Universal’s benefit plans, operating lease facilities and consultations concerning financial accounting and reporting matters. | |
(3) | Tax fees include fees primarily related to tax compliance, tax advice and tax planning. |
194
Table of Contents
• | reviewed and discussed with management Universal’s audited financial statements for the twelve months ended December 31, 2006; | |
• | discussed with Deloitte & Touche LLP, Universal’s independent registered public accounting firm, the matters required to be discussed by Statement of Accounting Standards No. 61, as modified or supplemented; | |
• | received from and discussed with Deloitte & Touche LLP the written disclosures and letter from the independent accountants required by Independence Standards Board Standard No. 1, as modified or supplemented, regarding their independence; and | |
• | discussed with Deloitte & Touche LLP their independence and considered whether the provision of non-audit services provided by Deloitte & Touche LLP for Universal is compatible with maintaining their independence. |
195
Table of Contents
196
Table of Contents
• | specifically described in Universal’s notice to all stockholders of the meeting and the matters to be acted upon thereat; or |
• | the proposal shall have been submitted in writing to Universal’s Corporate Secretary at the facsimile number or mailing address set forth below and received no earlier than April 30 or later than May 29, 2008 or, if the date of Universal’s 2008 annual meeting of stockholders has changed more than 30 days from Universal’s 2007 annual meeting of stockholders, then on the later of (i) the 90th day prior to the date of Universal’s 2008 annual meeting of stockholders and (ii) the tenth day following the date of the public announcement of the date of Universal’s 2008 annual meeting of stockholders, and such proposal is, under law, an appropriate subject for stockholder action. |
197
Table of Contents
198
Table of Contents
199
Table of Contents
Number of shares of Universal common stock outstanding at March 31, 2007 | 30,287 | |||
Conversion ratio | X 1.0 | |||
Estimated number of shares of Holdings that will be issued | 30,287 | |||
Assumed market price of a Holdings share that will be issued(1) | $ | 66.18 | ||
Estimated aggregate value of the Holdings shares that will be issued | $ | 2,004,375 | ||
Estimated fair value of vested and unvested Universal stock options outstanding as of March 31, 2007, which will be converted into options to purchase Holdings common stock(2) | 67,958 | |||
Estimated capitalizable transaction costs | 12,100 | |||
Estimated purchase price | $ | 2,084,433 | ||
(1) | For purposes of this pro forma disclosure, the stock price is based on the average close price of Hanover’s stock for the two days before and through the two days after the announcement of the mergers on February 5, 2007, divided by the exchange ratio. | |
(2) | All of Universal’s stock options and stock-based compensation grants will immediately vest upon consummation of the mergers. |
Universal | ||||||||||||
Historical | ||||||||||||
Net Book | Purchase | |||||||||||
Value | Price | Preliminary | ||||||||||
March 31, 2007 | Adjustment | Fair Value | ||||||||||
Current assets | $ | 489,911 | (46,305 | ) | $ | 443,606 | ||||||
Property, plant and equipment | 1,479,058 | 274,800 | 1,753,858 | |||||||||
Goodwill | 432,896 | 779,894 | 1,212,790 | |||||||||
Intangible and other assets | 32,634 | 303,942 | 336,576 | |||||||||
Current liabilities | (305,544 | ) | 50,442 | (255,102 | ) | |||||||
Long-term debt | (841,504 | ) | (15,674 | ) | (857,178 | ) | ||||||
Deferred income taxes | (210,558 | ) | (198,522 | ) | (409,080 | ) | ||||||
Other long-term liabilities | (19,268 | ) | (19,268 | ) | ||||||||
Minority interests | (121,769 | ) | (121,769 | ) | ||||||||
$ | 935,856 | $ | 1,148,577 | $ | 2,084,433 | |||||||
200
Table of Contents
As Of March 31, 2007
Pro Forma | ||||||||||||||||||
Historical | Holdings | |||||||||||||||||
Hanover | Universal | Adjustments | Combined | |||||||||||||||
(In thousands) | ||||||||||||||||||
ASSETS | ||||||||||||||||||
Current assets | ||||||||||||||||||
Cash and cash equivalents | $ | 56,935 | $ | 42,895 | $ | $ | 99,830 | |||||||||||
Restricted cash | — | 3,738 | 3,738 | |||||||||||||||
Accounts receivable, net | 313,019 | 191,933 | 504,952 | |||||||||||||||
Inventory | 298,278 | 218,960 | (69,669 | ) | (A) | 447,569 | ||||||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 102,605 | — | 23,364 | (A) | 125,969 | |||||||||||||
Current deferred income taxes | 20,355 | 7,011 | 27,366 | |||||||||||||||
Other current assets | 92,128 | 25,374 | 117,502 | |||||||||||||||
Total current assets | 883,320 | 489,911 | (46,305 | ) | 1,326,926 | |||||||||||||
Property, plant and equipment, net | 1,874,865 | 1,479,058 | 274,800 | (B) | 3,628,723 | |||||||||||||
Goodwill, net | 181,098 | 432,896 | 779,894 | (C) | 1,393,888 | |||||||||||||
Investment in non-consolidated affiliates | 93,836 | — | 93,836 | |||||||||||||||
Intangible and other assets | 56,133 | 32,634 | 318,860 | (D) | 386,752 | |||||||||||||
(14,918 | ) | (E) | ||||||||||||||||
(4,518 | ) | (F) | ||||||||||||||||
(1,439 | ) | (G) | ||||||||||||||||
$ | 3,089,252 | $ | 2,434,499 | $ | 1,306,374 | $ | 6,830,125 | |||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
Current liabilities | ||||||||||||||||||
Current maturities of long-term debt | $ | 196,113 | $ | 15,078 | $ | 394,873 | (F) | $ | 606,064 | |||||||||
Accounts payable, trade | 126,670 | 94,895 | 221,565 | |||||||||||||||
Accrued liabilities | 139,740 | 71,136 | 210,876 | |||||||||||||||
Advance billings | 133,789 | 124,435 | (69,819 | ) | (A) | 188,405 | ||||||||||||
Billings on uncompleted contracts in excess of costs and estimated earnings | 84,916 | — | 19,377 | (A) | 104,293 | |||||||||||||
Total current liabilities | 681,228 | 305,544 | 344,431 | 1,331,203 | ||||||||||||||
Long-term debt | 1,169,556 | 841,504 | (383,000 | ) | (F) | 1,664,680 | ||||||||||||
15,674 | (E) | |||||||||||||||||
20,946 | (G) | |||||||||||||||||
Other obligations | 55,964 | 19,268 | 75,232 | |||||||||||||||
Deferred income taxes | 81,818 | 210,558 | 198,522 | (H) | 486,111 | |||||||||||||
(1,581 | ) | (F) | ||||||||||||||||
(3,206 | ) | (G) | ||||||||||||||||
Total liabilities | 1,988,566 | 1,376,874 | 191,786 | 3,557,226 | ||||||||||||||
Commitments and contingencies | ||||||||||||||||||
Minority interest | 11,991 | 121,769 | (11,873 | ) | (F) | 121,887 | ||||||||||||
Stockholder’s equity | ||||||||||||||||||
Common stock | 107 | 332 | (332 | ) | (I) | 648 | ||||||||||||
303 | (J) | |||||||||||||||||
238 | (K) | |||||||||||||||||
Additional paid-in capital | 1,156,832 | 793,619 | (793,619 | ) | (I) | 3,235,093 | ||||||||||||
2,072,030 | (J) | |||||||||||||||||
7,356 | (K) | |||||||||||||||||
(1,125 | ) | (J) | ||||||||||||||||
Accumulated other comprehensive income (loss) | 13,611 | (11,837 | ) | 11,837 | (I) | 13,611 | ||||||||||||
(Accumulated deficit) retained earnings | (77,885 | ) | 291,319 | (291,319 | ) | (I) | (98,340 | ) | ||||||||||
(11,564 | ) | (K) | ||||||||||||||||
(2,937 | ) | (F) | ||||||||||||||||
(5,954 | ) | (G) | ||||||||||||||||
Treasury stock common shares at cost | (3,970 | ) | (137,577 | ) | 137,577 | (I) | — | |||||||||||
3,970 | (K) | |||||||||||||||||
Total stockholders’ equity | 1,088,695 | 935,856 | 1,126,461 | 3,151,012 | ||||||||||||||
$ | 3,089,252 | $ | 2,434,499 | $ | 1,306,374 | $ | 6,830,125 | |||||||||||
201
Table of Contents
For the Three Months Ended March 31, 2007
Pro Forma | ||||||||||||||||||||
Historical | Holdings | |||||||||||||||||||
Hanover | Universal | Adjustments | Combined | |||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Revenues and other income | $ | 473,228 | $ | 239,363 | $ | 3,649 | (L | ) | $ | 720,343 | ||||||||||
4,103 | (A | ) | ||||||||||||||||||
Expenses: | ||||||||||||||||||||
Cost of sales (excluding depreciation and amortization) | 303,810 | 133,044 | 2,799 | (M | ) | 445,186 | ||||||||||||||
2,672 | (L | ) | ||||||||||||||||||
2,861 | (A | ) | ||||||||||||||||||
Selling, general and administrative | 51,794 | 35,741 | (2,799 | ) | (M | ) | 84,736 | |||||||||||||
Depreciation and amortization | 50,896 | 34,863 | 14,502 | (N | ) | 100,261 | ||||||||||||||
Interest expense | 26,865 | 14,039 | 728 | (O | ) | 41,632 | ||||||||||||||
Merger related expenses | 324 | 1,373 | (1,697 | ) | (P | ) | — | |||||||||||||
Minority interest | — | 1,324 | 1,324 | |||||||||||||||||
Currency translation and other | (308 | ) | (2,424 | ) | 977 | (L | ) | (1,755 | ) | |||||||||||
433,381 | 217,960 | 20,043 | 671,384 | |||||||||||||||||
Income before income taxes, from continuing operations | 39,847 | 21,403 | (12,291 | ) | 48,959 | |||||||||||||||
Provision for income taxes | 14,445 | 7,079 | (4,302 | ) | (Q | ) | 17,222 | |||||||||||||
Income from continuing operations before nonrecurring charges or credits directly attributable to the merger | $ | 25,402 | $ | 14,324 | $ | (7,989 | ) | $ | 31,737 | |||||||||||
Hanover | ||||||||||||||||||||
Historical | ||||||||||||||||||||
Weighted average common equivalent shares outstanding: | ||||||||||||||||||||
Basic | 103,405 | |||||||||||||||||||
Diluted | 117,619 | |||||||||||||||||||
Earnings per common share from continuing operations | ||||||||||||||||||||
Basic | $ | 0.25 | ||||||||||||||||||
Diluted (R) | $ | 0.23 |
Holdings | ||||||||||||||||
Hanover | Universal | Pro Forma | ||||||||||||||
Adjusted | Historical | Combined | ||||||||||||||
Weighted average common equivalent shares outstanding: | ||||||||||||||||
Basic | 33,607 | 29,820 | 63,427 | (R | ) | |||||||||||
Diluted | 38,227 | 30,881 | 69,108 | (R | ) | |||||||||||
Earnings per common share from continuing operations | ||||||||||||||||
Basic | $ | 0.77 | $ | 0.48 | $ | 0.50 | ||||||||||
Diluted (R) | $ | 0.71 | $ | 0.46 | $ | 0.48 |
202
Table of Contents
For the Twelve Months Ended December 31, 2006
Pro Forma | ||||||||||||||||||||
Historical | Holdings | |||||||||||||||||||
Hanover | Universal | Adjustments | Combined | |||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Revenues and other income | $ | 1,670,663 | $ | 947,707 | $ | 14,765 | (L | ) | $ | 2,640,284 | ||||||||||
7,149 | (A | ) | ||||||||||||||||||
Expenses: | ||||||||||||||||||||
Cost of sales (excluding depreciation and amortization) | 1,049,701 | 519,056 | 9,514 | (M | ) | 1,599,700 | ||||||||||||||
14,279 | (L | ) | ||||||||||||||||||
837 | (M | ) | ||||||||||||||||||
6,313 | (A | ) | ||||||||||||||||||
Selling, general and administrative | 204,247 | 118,762 | (10,351 | ) | (M | ) | 312,658 | |||||||||||||
Depreciation and amortization | 181,416 | 122,701 | 46,988 | (N | ) | 351,105 | ||||||||||||||
Interest expense | 118,006 | 57,349 | 2,913 | (O | ) | 178,268 | ||||||||||||||
Debt extinguishment costs | 5,902 | 1,125 | — | 7,027 | ||||||||||||||||
Minority interest | 1,354 | — | 1,354 | |||||||||||||||||
Currency translation and other | (3,113 | ) | (2,573 | ) | 486 | (L | ) | (5,200 | ) | |||||||||||
1,556,159 | 817,774 | 70,979 | 2,444,912 | |||||||||||||||||
Income before income taxes, from continuing operations | 114,504 | 129,933 | (49,065 | ) | 195,372 | |||||||||||||||
Provision for income taxes | 28,782 | 42,277 | (17,173 | ) | (Q | ) | 53,886 | |||||||||||||
Income from continuing operations before nonrecurring charges or credits directly attributable to the merger | $ | 85,722 | $ | 87,656 | $ | (31,892 | ) | $ | 141,486 | |||||||||||
Hanover | ||||||||||||||||||||
Historical | ||||||||||||||||||||
Weighted average common equivalent shares outstanding: | ||||||||||||||||||||
Basic | 101,178 | |||||||||||||||||||
Diluted | 112,035 | |||||||||||||||||||
Earnings per common share from continuing operations | ||||||||||||||||||||
Basic | $ | 0.85 | ||||||||||||||||||
Diluted (R) | $ | 0.80 |
Holdings | ||||||||||||||||
Hanover | Universal | Pro Forma | ||||||||||||||
Adjusted | Historical | Combined | ||||||||||||||
Weighted average common equivalent shares outstanding: | ||||||||||||||||
Basic | 32,883 | 29,911 | 62,794 | (R | ) | |||||||||||
Diluted | 36,411 | 31,032 | 67,443 | (R | ) | |||||||||||
Earnings per common share from continuing operations | ||||||||||||||||
Basic | $ | 2.62 | $ | 2.93 | $ | 2.25 | ||||||||||
Diluted (R) | $ | 2.46 | $ | 2.82 | $ | 2.17 |
203
Table of Contents
CONDENSED COMBINED FINANCIAL STATEMENTS
(A) | Reflects the adjustment to convert Universal’s accounting for compression fabrication operations from the completed contract method to thepercentage-of-completion method to conform to Hanover’s accounting methods. | |
(B) | Reflects the adjustment to record the difference between the preliminary estimate of the fair value and the historical amount of Universal’s property, plant and equipment. | |
(C) | Reflects the adjustment to record the difference between the preliminary estimate of goodwill of approximately $1.2 billion net of the historical amounts of Universal’s goodwill of approximately $432.9 million. The goodwill resulting from the allocation of the purchase price was associated primarily with Universal’s market presence in various geographic locations, favorable cost of capital as a result of Universal’s master limited partnership subsidiary, growth opportunities in the markets that the combined companies serve, the expected cost saving synergies, the expertise of Universal’s experienced workforces and its established operating infrastructure. | |
Universal owns a 49% limited partner interest and a 2% general partner interest in a master limited partnership. Effective with the consummation of the mergers, the limited partner and general partner interest owned by Universal will be owned by Holdings. The financial position and results of operations of the master limited partnership have been consolidated by Universal and will be consolidated by Holdings upon consummation of the mergers. Holdings believes it will benefit from a favorable cost of capital as a result of its master limited partnership subsidiary. Generally, master limited partnerships carry equity capital costs that are lower than that of corporations due to two primary reasons. First, the inherent tax advantages associated with a partnership structure allow master limited partnerships to generate higher levels of cash flows than would be the case should the same operations be operated in a corporate structure. Second, investors typically afford master limited partnerships incremental value over similar corporations due to the cash distributions that are paid to the unitholders of these partnerships. As a result of these yield-based valuations, the master limited partnership is afforded a cash flow multiple that is higher than that of Universal’s historical cash flow valuation multiples. After completion of the mergers, Holdings intends to offer to sell or contribute to the master limited partnership over time all of its United States-based contract compression business, including both that portion of Universal’s business that has not been transferred to date as well as all of Hanover’s business. The ultimate timing of these transfers has not been determined at this time. | ||
(D) | Reflects the adjustment to record the difference between the preliminary estimate of the fair value based upon the income approach and the historical amount of Universal’s finite-lived intangible assets. As a result of the mergers, $310.1 million was allocated to existing Universal customer contracts and the related underlying relationships, $11.5 million was allocated to Universal’s fabrication backlog and $0.8 million was allocated to non-compete agreements. The fair values of the intangible assets were determined using an income approach, which bases the fair value of an asset on the present value of estimated future economic benefits. The income approach is used to determine the fair value of the intangibles, which is defined as the amount at which they could be bought or sold in a current transaction between willing participants, that is, other than a forced or liquidation sale. The fair value of the customer contracts and related underlying customer relationship is based upon the established relationship Universal has with its customers and incorporates assumptions about future contract renewals that marketplace participants would use to estimate the fair value. | |
(E) | Reflects the adjustment to record a $2.2 million decrease to long-term debt for the difference between the preliminary estimate of the fair value and the historical amount of Universal’s long-term debt, the write-off of Universal’s deferred financing costs of $14.9 million and additional borrowings of $17.9 million to record the payment of Universal’s estimated remaining one-time professional and advisory fees related to the mergers. | |
(F) | As a result of the mergers, Hanover’s compression equipment lease notes holders have the right to put the notes to the issuing equipment trust 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 |
204
Table of Contents
been earlier satisfied and discharged. If the compression equipment lease note holders put the notes to the equipment trust, Hanover will be obligated to repurchase a corresponding amount of equity from trust participants. At the time of the consummation of the mergers, the outstanding balance of the notes and required equity repurchases of approximately $383.0 million and $11.9 million, respectively, will be classified to current obligations and the remaining unamortized debt issuance costs of $4.5 million will be expensed. The pro forma financial statements do not reflect the potential 1% premium above par that would be paid if the notes and related minority interest obligations were put. | ||
(G) | To record the borrowing related to the payment of Hanover’s estimated remaining transaction costs of approximately $20.9 million, including approximately $6.1 million in known change of control payments and $3.1 million in cash payments accelerated under long-term incentive plans as a result of the merger. Approximately $12.1 million of these items are capitalized as part of the cost of the acquisition and $1.1 million has been reflected in additional paid in capital as stock issuance costs (see note J below). The one-time costs that are not capitalized as part of the cost of the acquisition have been deducted from (accumulated deficit) retained earnings, net of tax, in the unaudited pro forma condensed combined balance sheet. Such costs are not reflected in the unaudited pro forma condensed combined statements of operations since the charges are non-recurring in nature. | |
Hanover and Universal also will incur integration costs associated with the mergers. The companies are in the early stages of assessing the magnitude of these costs. | ||
(H) | Reflects the adjustment to the proforma condensed combined balance sheet required underSFAS 109, Accounting for Income Taxesto record the estimated incremental deferred income taxes. The adjustment to the Pro Forma Combined Balance Sheet reflects the difference between the preliminary fair value of Universal’s assets, other than goodwill, and liabilities recorded under purchase accounting and the carryover tax basis of those assets and liabilities. A combined statutory federal and blended state income tax rate of 35% was used for these adjustments. | |
(I) | Reflects adjustments to eliminate the historical common stockholders’ equity of Universal. | |
(J) | To record the issuance of 30,286,723 shares of Holdings common stock, at an assumed market price of $66.18, which was based on the average close price of Hanover’s stock for the two days before through the two days after the announcement of the mergers on February 5, 2007, divided by the Hanover exchange ratio to acquire all of the outstanding shares at March 31, 2007 of Universal, the issuance of 1,764,000 options to purchase Holdings common stock with a weighted average exercise price of $30.43 per share and net of issuance cost of approximately $1.1 million. | |
(K) | Upon consummation of the mergers, all of Hanover’s outstanding stock options, restricted stock and restricted stock units will vest. Adjustment reflects the charge to retained earnings and corresponding increase to paid in capital for compensation expense, net of tax, to reflect acceleration of vesting. Also reflects the adjustment to adjust Hanover’s common stock to Holdings’ par value of $0.01, the exchange of Hanover’s common stock for Holdings shares at the exchange ratio of .325:1 and the retirement of Hanover���s treasury shares upon consummation of the mergers. As of March 31, 2007, Hanover had 106,258,244 shares of common stock outstanding and would receive 34,533,929 shares of Holdings as a result of the mergers. | |
(L) | Reflects the adjustment to reclassify Universal’s sales of used equipment from other income/expense to revenue and cost of sales to conform to Hanover’s reporting classifications. | |
(M) | Relates to the reclassification of a portion of Universal’s ad valorem tax expense from selling, general and administrative expenses to cost of sales to conform to Hanover’s reporting classifications. | |
(N) | Reflects the estimated adjustment to depreciation and amortization expense for the preliminary purchase price adjustment made to Universal’s property, plant and equipment and intangible assets. The fair valuestep-up for Universal’s property, plant and equipment will be depreciated using a straight-line approach over an estimated weighted average remaining life of approximately 19 years. Customer contracts and the related underlying relationships will be amortized based on each period’s estimated realization of the fair value established on the assumed acquisition date. The weighted average useful life of the customer contracts and related underlying relationships is approximately 7.2 years. Non-compete agreements will be amortized using a straight-line approach over an estimated weighted average remaining life of 11.3 years. |
205
Table of Contents
Backlog will be amortized using a straight-line approach over the remaining useful life of 15 months. The estimated adjustments are as follows (in thousands): |
Three Months | Twelve Months | |||||||
Ended | Ended | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
Pro forma estimated depreciation expense based on fair valuestep-up of Universal property, plant and equipment | $ | 3,786 | $ | 15,142 | ||||
Pro forma estimated amortization expense based on fair value step up of Universal’s finite-lived intangible assets | 10,716 | 31,846 | ||||||
Total pro forma adjustment | $ | 14,502 | $ | 46,988 | ||||
A ten percent increase or decrease in the fair value of property, plant and equipment and intangible assets would result in an increase or decrease in depreciation and amortization expense of approximately $11.5 million. | ||
Estimated future amortization of customer contracts and the related underlying customer relationships for the twelve months ended March 31 for the periods indicated are as follows (in thousands): |
2008 | $ | 34,300 | ||
2009 | 33,300 | |||
2010 | 29,500 | |||
2011 | 26,000 | |||
2012 | 22,900 |
(O) | Reflects interest expense for borrowings under Hanover’s credit facilities to fund Hanover’s estimated transaction costs (including known change of control payments of approximately $6.1 million and $3.1 million in accelerated cash payments under long-term incentive plans) of approximately $22.4 million as noted in (G) above and Universal’s estimated transaction costs (including known change of control payments of approximately $2.3 million) of approximately $19.2 million at 7.0%, the effective interest rate on Hanover’s credit facility at March 31, 2007. An increase or decrease of interest rates by ten percent would result in an increase or decrease in interest expense related to these transaction costs of $0.3 million per year. | |
(P) | Reflects the adjustment to reverse non-recurring merger related expenses incurred by Hanover and Universal during the three months ended March 31, 2007. | |
(Q) | Reflects the adjustment to the income tax provision for adjustments to the Pro Forma Condensed Combined Statements of Operations required under SFAS No. 109,Accounting for Income Taxes. The adjustment to the provision for income taxes in the Pro Forma Combined Statements of Operations is to reflect the tax impact related to notes A, N, O and P. A Combined statutory federal and blended state income tax rate of 35% was used for these adjustments. | |
(R) | Reflects the adjustment to convert shares of Hanover and Universal to shares of Holdings. The adjusted per share data for Hanover common stock has been determined by dividing Hanover historical per share data 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 |
206
Table of Contents
common stock the holder owns. Pro forma diluted and basic income per common share from continuing operations is calculated as follows (in thousands, except per share amounts): |
Three Months | Twelve Months | |||||||
Ended | Ended | |||||||
March 31, | December 31, | |||||||
2007 | 2006 | |||||||
Pro forma income from continuing operations | $ | 31,737 | $ | 141,486 | ||||
Pro forma basic weighted average common shares | 63,427 | 62,794 | ||||||
Pro forma basic earnings per share from continuing operations | $ | 0.50 | $ | 2.25 | ||||
Pro forma diluted weighted average common shares | 69,108 | 67,443 | ||||||
Pro forma diluted earnings per share from continuing operations | $ | 0.48 | $ | 2.17 |
Net income for the pro forma diluted earnings per share calculation for the three months ended March 31, 2007 is adjusted to add back interest expense and amortization of financing costs, net of tax, relating to Hanover’s convertible senior notes due 2014 and convertible subordinated notes due 2029 totaling $1.6 million, as conversion of such instruments was dilutive to earnings per share. Net income for the pro forma diluted earnings per share calculation for the twelve months ended December 31, 2006 is adjusted to add back interest expense and amortization of financing costs, net of tax, relating to Hanover’s convertible senior notes due 2014 totaling $4.7 million, as conversion of such instrument was dilutive to earnings per share. |
207
Table of Contents
208
Table of Contents
• | any breach of the director’s duty of loyalty to Holdings or its stockholders, | |
• | acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, | |
• | payments of unlawful dividends or unlawful stock repurchases or redemptions, or | |
• | any transaction from which the director derived an improper personal benefit. |
209
Table of Contents
Authorized Capital Stock | ||||
Hanover | Universal | Holdings | ||
203 million, of which (1) 200 million are shares of common stock, par value $0.001 per share, and (2) 3 million are shares of preferred stock, par value $0.01 per share. | 250 million, of which (1) 200 million are shares of common stock, par value $0.01 per share, and (2) 50 million are shares of preferred stock, par value $0.01 per share. | 300 million, of which (1) 250 million are shares of common stock, par value $0.01 per share, and (2) 50 million are shares of preferred stock, par value $0.01 per share. |
210
Table of Contents
Size of the Board of Directors | ||||
Hanover | Universal | Holdings | ||
The number of directors on the Hanover board of directors is seven or such other number as may be determined from time to time by the board of directors of Hanover. | Subject to the rights of the holders of any series of preferred stock to elect additional directors under specified circumstances, the number of directors is fixed from time to time exclusively by the board of directors of Universal pursuant to a resolution adopted by a majority of the whole board (which is defined to mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships). | Same as Universal. | ||
Hanover currently has 11 directors. | Universal currently has eight directors. | Initially, Holdings will have 10 directors. |
Removal of Directors | ||||
Hanover | Universal | Holdings | ||
Any director or the entire board of directors may be removed with or without cause by the holders of a majority of the shares then entitled to vote at an election of directors. | Subject to the rights of the holders of any series of preferred stock outstanding, any director, or the entire board of directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all of the then-outstanding shares of capital stock of Universal entitled to vote generally in the election of directors, voting together as a single class. | Subject to the rights of the holders of any series of preferred stock outstanding, any director, or the entire board of directors, may be removed from office at any time, with or without cause, by the affirmative vote of holders of a majority of the voting power of all of the then outstanding shares of capital stock of Holdings entitled to vote generally in the election of directors, voting together as a single class. |
Cumulative Voting | ||||
Hanover | Universal | Holdings | ||
None. | None. | None. |
Classes of Directors | ||||
Hanover | Universal | Holdings | ||
All directors serve until the next annual meeting of stockholders and until their successors are elected and qualified. | There are three classes of directors, designated Class A, Class B and Class C. One class of directors is elected each year, and the term of each class of directors expires at the third succeeding annual meeting of stockholders after their election by the stockholders. | Same as Hanover. |
211
Table of Contents
Vacancies on the Board | ||||
Hanover | Universal | Holdings | ||
Vacancies (unless they are the result of the action of stockholders) and newly created directorships may be filled by the vote of a majority of the remaining directors in office, even though less than a quorum, or by the sole remaining director. | Subject to the rights of the holders of any series of preferred stock outstanding, vacancies and newly created directorships will, unless otherwise required by law or by resolution of the board of directors, be filled only by a majority vote of the directors then in office, though less than a quorum (and not by stockholders). Directors will hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires and until successors have been duly elected and qualified. | Subject to the rights of the holders of any series of preferred stock, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled only by a majority vote of the whole board (which is defined in the bylaws to mean total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships). |
Board Quorum and Vote Requirements | ||||
Hanover | Universal | Holdings | ||
A majority of the entire number of directors constitutes a quorum. The affirmative vote of a majority of directors present at a meeting at which there is a quorum constitutes action by the board of directors. | Same as Hanover. | Same as both Hanover and Universal. |
Annual Meetings of Stockholders | ||||
Hanover | Universal | Holdings | ||
The annual meeting is held on the third Thursday of May each year or such other date determined by the board of directors. The time and place of the annual meeting is determined by the board of directors. Notice of the annual meeting must be mailed to stockholders no less than 10 and no more than 60 days prior to the meeting, except in the event of a merger or consolidation of the corporation requiring stockholder approval or a sale, lease or exchange of all or substantially all of the corporation’s assets, in which case notice must be mailed to stockholders no less than 20 and no more than 60 days prior to the meeting. | Date, time and place of the annual meeting is determined by the board of directors. Except as otherwise provided in the bylaws or required by the DGCL or the certificate of incorporation, notice must be mailed to stockholders no less than 10 and no more than 60 days prior to the meeting. | Same as Universal. |
212
Table of Contents
Special Meetings of Stockholders | ||||
Hanover | Universal | Holdings | ||
Special meetings of the stockholders may be called by the President, by the board of directors, or by a written request from the holders of not less than 10% of the issued and outstanding voting stock of Hanover. | Special meetings may be called only by the Chairman of the board of directors or the President or by a resolution approved by a majority of the whole board of directors. Stockholders may not call special meetings of stockholders. | Same as Universal. |
Quorum Requirements for Stockholder Meetings | ||||
Hanover | Universal | Holdings | ||
A majority of the outstanding shares of voting stock, represented in person or by proxy, constitutes a quorum at any meeting of stockholders. | The holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes or series is required, a majority of the shares of such class or classes or series present in person or represented by proxy constitute a quorum entitled to take action with respect to that vote on that matter. | Same as Universal. |
Voting Standards | ||||
Hanover | Universal | Holdings | ||
The affirmative vote of a majority of the shares of voting stock represented at a meeting of stockholders constitute the act of the stockholders in all matters other than the election of directors, who will be elected by a plurality of the votes of the shares present in person or by proxy and entitled to vote on the election of directors, unless the vote of a greater number or voting by classes is required by the DGCL, Hanover’s certificate of incorporation or these bylaws. | All elections of directors are determined by a plurality of the votes cast, and except as otherwise required by law, all other matters are determined by a majority of the votes cast affirmatively or negatively. | Same as Universal. |
213
Table of Contents
Stockholder Action by Written Consent | ||||
Hanover | Universal | Holdings | ||
Any action required to be taken at any annual or special meeting of the stockholders of Hanover, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, has been signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. | Stockholder action by written consent is not permitted. | Same as Universal. |
Notice Requirements for Stockholder Nominations and Other Proposals | ||||
Hanover | Universal | Holdings | ||
Hanover’s restated certificate of incorporation or bylaws do not contain advance notice provisions. | In general, to bring a matter before an annual meeting or to nominate a candidate for director, a stockholder must give notice of the proposed matter or nomination not less than 45 and not more than 75 days prior to the first anniversary date of the immediately preceding annual meeting. If the annual meeting is not within 30 days before or 30 days after the anniversary date of the preceding annual meeting or if no proxy materials were mailed, the stockholder notice must be received no later than the close of business on the later of (1) the 90th day prior to the anniversary date and (2) the close of business on the 10th day following the day on which notice of the annual meeting was announced publicly. | Same as Universal. |
214
Table of Contents
Takeover Restrictions | ||||
Hanover | Universal | Holdings | ||
Hanover’s restated certificate of incorporation does not contain any super-majority voting requirements governing mergers, consolidations, sales of substantially all of Hanover’s assets, liquidations, reclassifications or recapitalizations. Subject to certain exceptions, Section 203 of the DGCL generally prohibits public corporations from engaging in significant business transactions, including mergers, with a holder of 15% or more of the corporation’s stock, referred to as an interested stockholder, for a period of three years after the interested stockholder becomes an interested stockholder. Hanover has not elected to not be governed by Section 203. | Same as Hanover. | Same as both Hanover and Universal. |
Rights Plan | ||||
Hanover | Universal | Holdings | ||
Hanover has not adopted a rights plan. | Universal has not adopted a rights plan. | Holdings has not adopted a rights plan. |
215
Table of Contents
Amendments to the Certificate of Incorporation | ||||
Hanover | Universal | Holdings | ||
Hanover’s restated certificate of incorporation does not contain any special provisions regarding the approval of amendments to the restated certificate of incorporation. | Universal reserves the right to amend or repeal any provision in its restated certificate of incorporation in the manner prescribed by the laws of the State of Delaware. | Same as Hanover. | ||
Under Delaware law, approval of a majority of the outstanding stock entitled to vote is required to amend a corporations’ certificate of incorporation. | However, the affirmative vote of 80% of the voting power of all the then-outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, is required to amend or repeal the sections of Universal’s restated certificate of incorporation governing the following matters: | |||
• special meetings of stockholders, | ||||
• prohibition on action by written consent of stockholders, | ||||
• the number, classification and qualification of directors, | ||||
• procedures for filling vacancies on the board of directors, | ||||
• procedures for nomination of directors, | ||||
• procedures for removing directors, | ||||
• exculpatory provisions with respect to breaches of fiduciary duty by a director, | ||||
• procedures for amending the restated certificate of incorporation, | ||||
• procedures for amending the bylaws, and | ||||
• provisions authorizing rights plans. |
216
Table of Contents
Amendments to the Bylaws | ||||
Hanover | Universal | Holdings | ||
Hanover’s bylaws may be altered, amended or repealed, and new bylaws may be adopted, at any meeting of the board of directors by a majority of the whole board of directors then in office, or by the affirmative vote of a majority of the shares of voting stock of Hanover represented at a meeting of stockholders. | The board of directors is expressly empowered to adopt, amend or repeal Universal’s bylaws. Any adoption, amendment or repeal of Universal’s bylaws by its stockholders will require the affirmative vote of the holders of at least 80% of the voting power of all of the then outstanding shares of Universal’s capital stock entitled to vote generally in the election of directors, voting together as a single class. | The board of directors is expressly authorized to adopt, amend and repeal the bylaws by the approval of a majority of the whole board, subject to the power of the holders of capital stock of Holdings to adopt, amend or repeal the bylaws. Any adoption, amendment or repeal of the Holdings bylaws will require the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares entitled to vote generally in the election of directors, voting together as a single class, in addition to any affirmative vote of the holders of any particular class or series of the capital stock required by law or the restated certificate of incorporation. |
Limitation of Personal Liability of Directors, Officers and Employees | ||||
Hanover | Universal | Holdings | ||
No director will be liable to the company or its stockholders for breach of fiduciary duty as a director to the fullest extent permitted by the DGCL. | A director will not be personally liable to the company for monetary damages for breach of fiduciary duty as a director, except for liability: | Same as Universal. | ||
• for any breach of the director’s duty of loyalty to Universal or its stockholders, | ||||
• for acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law, | ||||
• for unlawful payment of dividends or unlawful redemptions or repurchases under Section 174 of the DGCL, or | ||||
• for any transaction from which the directors derived an improper personal benefit. | ||||
If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of Universal will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. |
217
Table of Contents
• | At least two-thirds of the directors must be “independent” directors as defined under applicable law, regulation and the rules of the New York Stock Exchange. | |
• | Hanover’s audit committee must recommend, for stockholder ratification, Hanover’s independent auditor. | |
• | The functions of Hanover’s Chairman of the Board and its Chief Executive Officer must be distinct and performed by separate individuals. | |
• | Directors must be elected each year by the stockholders at their annual meeting. | |
• | Directors may not be nominated for election or re-election to Hanover’s board of directors after their 72nd birthday. | |
• | A director will not be independent if the director or an immediate family member received in the past three years compensation in excess of $60,000 (or if to an entity, in excess of the lesser of $5 million or 5% of the entity’s gross revenues and that resulted in a material increase in the amount of compensation received by the director from that entity) from Hanover, directly or indirectly, as a result of service as, or compensation paid to an, entity affiliated with the director that serves as, (i) an advisor, consultant, or legal counsel to Hanover, an affiliate of Hanover or to a member of Hanover’s senior management, or (ii) a significant customer or supplier of Hanover or affiliate of Hanover. | |
• | A director will not be independent if the director or an immediate family member has any personal service contracts with Hanover, any affiliate of Hanover or any member of Hanover’s senior management. | |
• | A director will not be independent if the director or an immediate family member has been affiliated with anot-for-profit entity that receives significant contributions from Hanover or an affiliate of Hanover. | |
• | A director will not be independent if the director or an immediate family member has been employed by a public company at which an executive officer of Hanover or any affiliate of Hanover serves as a director. | |
• | At least 50% of a director’s annual fees must be paid in stock, provided that this amount may be reduced by any restricted stock award granted to that director. |
218
Table of Contents
219
Table of Contents
Hanover Compressor Company | ||
Filings (File No. 1-13071) | Period | |
Annual Report onForm 10-K, as amended byForm 10-K/A | Fiscal year ended December 31, 2006. | |
Quarterly Report onForm 10-Q | Quarter ended March 31, 2007 | |
Current Reports onForm 8-K | Filed January 8, 2007, February 5, 2007 (other than Item 2.02 thereof), March 2, 2007, March 21, 2007, March 28, 2007, May 14. 2007, June 4, 2007, June 25, 2007 and July 5, 2007. |
Universal Compression Holdings, | ||
Inc. Filings (File No. 1-15843) | Period | |
Annual Report onForm 10-K, as amended byForm 10-K/A | Fiscal year ended December 31, 2006. | |
Quarterly Report onForm 10-Q | Quarter ended March 31, 2007 | |
Current Reports onForm 8-K | Filed February 5, 2007 (other than Item 2.02 thereof), February 27, 2007, March 28, 2007, April 18, 2007, May 11, 2007, May 30, 2007 (other than Item 7.01 thereof, including Exhibit 99.1), June 18, 2007, June 25, 2007 and July 5, 2007. |
Hanover Compressor Company | Universal Compression Holdings, Inc. | |
12001 N. Houston Rosslyn | 4444 Brittmoore Road | |
Houston, Texas 77086 | Houston, Texas 77041 | |
(281) 447-8787 | (713)335-7000 | |
Attention: Investor Relations | Attention: Investor Relations |
D.F. King & Co., Inc. 48 Wall Street New York, New York 10005 (800) 859-8508 | Georgeson Inc. 17 State Street New York, New York 10004 (877) 278-9673 |
220
Table of Contents
221
Table of Contents
F-1
Table of Contents
Consolidated Balance Sheet
March 31, 2007
Current Assets | ||||
Cash | $ | 1 | ||
Total assets | $ | 1 | ||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||
Common stock | $ | 1 | ||
Total liabilities and stockholder’s equity | $ | 1 | ||
F-2
Table of Contents
NOTE TO CONSOLIDATED BALANCE SHEET
F-3
Table of Contents
among
HANOVER COMPRESSOR COMPANY,
UNIVERSAL COMPRESSION HOLDINGS, INC.,
EXTERRAN HOLDINGS, INC. (formerly Iliad Holdings, Inc.),
HECTOR SUB, INC.
and
ULYSSES SUB, INC.
Dated as of February 5, 2007
(As Amended as of June 25, 2007)
Table of Contents
ARTICLE 1 THE MERGERS | A-1 | |||||
Section 1.1 | The Universal Merger | A-1 | ||||
Section 1.2 | The Hanover Merger | A-1 | ||||
Section 1.3 | The Closing | A-2 | ||||
ARTICLE 2 CERTIFICATES OF INCORPORATION AND BYLAWS | A-2 | |||||
Section 2.1 | Certificates of Incorporation of the Surviving Entities | A-2 | ||||
Section 2.2 | Bylaws of the Surviving Entities | A-2 | ||||
Section 2.3 | Certificate of Incorporation and Bylaws of Holdco | A-2 | ||||
ARTICLE 3 DIRECTORS AND OFFICERS OF HOLDCO AND OF THE SURVIVING ENTITIES | A-3 | |||||
Section 3.1 | Board of Directors and Officers of Holdco | A-3 | ||||
Section 3.2 | Boards of Directors of the Surviving Entities | A-3 | ||||
Section 3.3 | Officers of the Surviving Entities | A-3 | ||||
ARTICLE 4 CONVERSION OF SECURITIES | A-3 | |||||
Section 4.1 | Conversion of Capital Stock of Universal, Hanover and Merger Subs | A-3 | ||||
Section 4.2 | Exchange of Certificates Representing Hanover Common Stock and Universal Common Stock | A-6 | ||||
Section 4.3 | Adjustment of Exchange Ratios | A-8 | ||||
Section 4.4 | Rule 16b-3 Approval | A-8 | ||||
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF HANOVER | A-8 | |||||
Section 5.1 | Existence; Good Standing; Corporate Authority | A-8 | ||||
Section 5.2 | Authorization, Validity and Effect of Agreements | A-9 | ||||
Section 5.3 | Capitalization | A-9 | ||||
Section 5.4 | Subsidiaries | A-9 | ||||
Section 5.5 | Compliance with Laws; Permits | A-10 | ||||
Section 5.6 | No Conflict | A-10 | ||||
Section 5.7 | SEC Documents | A-11 | ||||
Section 5.8 | Litigation | A-12 | ||||
Section 5.9 | Absence of Certain Changes | A-12 | ||||
Section 5.10 | Taxes | A-12 | ||||
Section 5.11 | Employee Benefit Plans | A-13 | ||||
Section 5.12 | Labor Matters | A-15 | ||||
Section 5.13 | Environmental Matters | A-15 | ||||
Section 5.14 | Intellectual Property | A-16 | ||||
Section 5.15 | Decrees, Etc. | A-16 | ||||
Section 5.16 | Insurance | A-16 | ||||
Section 5.17 | No Brokers | A-16 | ||||
Section 5.18 | Opinion of Financial Advisor and Board Approval | A-16 | ||||
Section 5.19 | Universal Stock Ownership | A-17 | ||||
Section 5.20 | Vote Required | A-17 | ||||
Section 5.21 | Certain Contracts | A-17 | ||||
Section 5.22 | Capital Expenditure Program | A-17 | ||||
Section 5.23 | Improper Payments | A-17 |
A-i
Table of Contents
Section 5.24 | Takeover Statutes; Rights Plans | A-17 | ||||
Section 5.25 | Title, Ownership and Related Matters | A-18 | ||||
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF UNIVERSAL, HOLDCO AND MERGER SUBS | A-18 | |||||
Section 6.1 | Existence; Good Standing; Corporate Authority | A-18 | ||||
Section 6.2 | Authorization, Validity and Effect of Agreements | A-18 | ||||
Section 6.3 | Capitalization | A-19 | ||||
Section 6.4 | Subsidiaries | A-19 | ||||
Section 6.5 | Compliance with Laws; Permits | A-20 | ||||
Section 6.6 | No Conflict | A-20 | ||||
Section 6.7 | SEC Documents | A-21 | ||||
Section 6.8 | Litigation | A-22 | ||||
Section 6.9 | Absence of Certain Changes | A-22 | ||||
Section 6.10 | Taxes | A-22 | ||||
Section 6.11 | Employee Benefit Plans | A-23 | ||||
Section 6.12 | Labor Matters | A-25 | ||||
Section 6.13 | Environmental Matters | A-25 | ||||
Section 6.14 | Intellectual Property | A-25 | ||||
Section 6.15 | Decrees, Etc. | A-26 | ||||
Section 6.16 | Insurance | A-26 | ||||
Section 6.17 | No Brokers | A-26 | ||||
Section 6.18 | Opinion of Financial Advisor and Board Approvals | A-26 | ||||
Section 6.19 | Hanover Stock Ownership | A-27 | ||||
Section 6.20 | Vote Required | A-27 | ||||
Section 6.21 | Certain Contracts | A-27 | ||||
Section 6.22 | Capital Expenditure Program | A-27 | ||||
Section 6.23 | Improper Payments | A-27 | ||||
Section 6.24 | Takeover Statutes; Rights Plans | A-27 | ||||
Section 6.25 | Title, Ownership and Related Matters | A-27 | ||||
ARTICLE 7 COVENANTS | A-28 | |||||
Section 7.1 | Conduct of Business | A-28 | ||||
Section 7.2 | No Solicitation by Hanover | A-30 | ||||
Section 7.3 | No Solicitation by Universal | A-32 | ||||
Section 7.4 | Meetings of Stockholders | A-34 | ||||
Section 7.5 | Filings; Reasonable Best Efforts, Etc. | A-35 | ||||
Section 7.6 | Inspection | A-36 | ||||
Section 7.7 | Publicity | A-37 | ||||
Section 7.8 | Registration Statement onForm S-4 | A-37 | ||||
Section 7.9 | Listing Application | A-37 | ||||
Section 7.10 | Letters of Accountants | A-38 | ||||
Section 7.11 | Agreements of Rule 145 Affiliates | A-38 | ||||
Section 7.12 | Expenses | A-38 | ||||
Section 7.13 | Indemnification and Insurance | A-38 | ||||
Section 7.14 | Antitakeover Statutes | A-39 |
A-ii
Table of Contents
Section 7.15 | Notification | A-39 | ||||
Section 7.16 | Employee Matters | A-39 | ||||
Section 7.17 | Holdco Board of Directors; Executive Officers | A-40 | ||||
ARTICLE 8 CONDITIONS | A-40 | |||||
Section 8.1 | Conditions to Each Party’s Obligation to Effect the Mergers | A-40 | ||||
Section 8.2 | Conditions to Obligation of Hanover to Effect the Mergers | A-41 | ||||
Section 8.3 | Conditions to Obligation of Universal, Holdco and the Merger Subs to Effect the Mergers | A-42 | ||||
ARTICLE 9 TERMINATION | A-42 | |||||
Section 9.1 | Termination by Mutual Consent | A-42 | ||||
Section 9.2 | Termination by Universal or Hanover | A-43 | ||||
Section 9.3 | Termination by Hanover | A-43 | ||||
Section 9.4 | Termination by Universal | A-43 | ||||
Section 9.5 | Effect of Termination | A-44 | ||||
Section 9.6 | Extension; Waiver | A-45 | ||||
ARTICLE 10 GENERAL PROVISIONS | A-45 | |||||
Section 10.1 | Nonsurvival of Representations, Warranties and Agreements | A-45 | ||||
Section 10.2 | Notices | A-45 | ||||
Section 10.3 | Assignment; Binding Effect; Benefit | A-46 | ||||
Section 10.4 | Entire Agreement | A-46 | ||||
Section 10.5 | Amendments | A-46 | ||||
Section 10.6 | Governing Law | A-46 | ||||
Section 10.7 | Counterparts | A-46 | ||||
Section 10.8 | Headings | A-46 | ||||
Section 10.9 | Interpretation | A-46 | ||||
Section 10.10 | Waivers | A-47 | ||||
Section 10.11 | Incorporation of Disclosure Letters and Exhibits | A-47 | ||||
Section 10.12 | Severability | A-47 | ||||
Section 10.13 | Enforcement of Agreement | A-47 | ||||
Section 10.14 | Consent to Jurisdiction and Venue | A-47 |
Exhibit Number | Document | |||
2.1.1 | Restated Certificate of Incorporation of Universal | |||
2.1.2 | Certificate of Incorporation of Hanover | |||
2.2.1 | Second Restated Bylaws of Universal | |||
2.2.2 | Second Amended and Restated Bylaws of Hanover | |||
2.3.1 | Certificate of Incorporation of Holdco | |||
2.3.2 | Bylaws of Holdco | |||
7.11 | Affiliate Letter | |||
8.1(i) | Consents |
A-iii
Table of Contents
Defined Terms | Where Defined | |||
Affected Employee | Section 7.16(b) | |||
Agreement | Preamble | |||
Antitrust Laws | Section 7.5(c) | |||
Applicable Laws | Section 5.5(a) | |||
Average Price | Section 4.2(e) | |||
Certificates of Merger | Section 1.2(b) | |||
Certificates | Section 4.2(b) | |||
Closing | Section 1.3 | |||
Closing Date | Section 1.3 | |||
Code | Recitals | |||
Confidentiality Agreement | Section 7.6 | |||
Convertible Notes | Section 4.1(f) | |||
Credit Suisse | Section 5.17 | |||
Cut-off Time | Section 5.3 | |||
DGCL | Section 1.1(a) | |||
Effective Time | Section 1.2(b) | |||
Environmental Laws | Section 5.13(a) | |||
ERISA | Section 5.11(a) | |||
ERISA Affiliate | Section 5.11(b) | |||
Exchange Act | Section 4.4 | |||
Exchange Agent | Section 4.2(a) | |||
Exchange Fund | Section 4.2(a) | |||
Form S-4 | Section 7.8(a) | |||
Former Hanover Directors | Section 7.17 | |||
Former Universal Directors | Section 7.17 | |||
Hanover | Preamble | |||
Hanover Adverse Recommendation Change | Section 7.2(b) | |||
Hanover Benefit Plans | Section 5.11(a) | |||
Hanover Certificate of Merger | Section 1.2(b) | |||
Hanover Common Stock | Section 4.1(b) | |||
Hanover Disclosure Letter | Article 5 | |||
Hanover Exchange Ratio | Section 4.1(b) | |||
Hanover Material Adverse Effect | Section 10.9(c) | |||
Hanover Material Contracts | Section 5.21(a) | |||
Hanover Merger | Section 1.2(a) | |||
Hanover Merger Sub | Preamble | |||
Hanover Notice of Adverse Recommendation | Section 7.2(b) | |||
Hanover Options | Section 4.1(e) | |||
Hanover Permits | Section 5.5(b) | |||
Hanover Preferred Stock | Section 5.3 | |||
Hanover Real Property | Section 5.5(c) | |||
Hanover Reports | Section 5.7(a) | |||
Hanover Stock Plans | Section 4.1(e) |
A-iv
Table of Contents
Defined Terms | Where Defined | |||
Hanover Stockholder Approval | Section 5.20 | |||
Hanover Superior Proposal | Section 7.2(a) | |||
Hanover Surviving Entity | Section 1.2(a) | |||
Hanover Takeover Proposal | Section 7.2(a) | |||
Hazardous Materials | Section 5.13(b) | |||
Holdco | Preamble | |||
Holdco Bylaws | Section 2.3 | |||
Holdco Charter | Section 2.3 | |||
Holdco Common Stock | Section 4.1(a) | |||
HSR Act | Section 5.6(b) | |||
Incentive Stock Options | Section 7.16(b) | |||
Initial Effective Time | Section 1.1(a) | |||
Letter of Transmittal | Section 4.2(b) | |||
Liens | Section 5.4 | |||
Material Adverse Effect | Section 10.9(c) | |||
Mergers | Section 1.2(a) | |||
Merger Subs | Preamble | |||
Non-U.S. Antitrust Laws | Section 7.5(a) | |||
Permitted Liens | Section 5.25(a) | |||
Proxy Statement/Prospectus | Section 7.8(a) | |||
Regulatory Filings | Section 5.6(b) | |||
Representatives | Section 7.2(a) | |||
Returns | Section 5.10 | |||
Rule 145 Affiliates | Section 7.11 | |||
Sarbanes-Oxley Act | Section 5.7(b) | |||
SEC | Section 4.1(d) | |||
Securities Act | Section 4.2(d) | |||
Subsidiary | Section 10.9(d) | |||
Supplemental Indentures | Section 4.1(f) | |||
Surviving Entities | Section 1.2(a) | |||
Takeover Statute | Section 5.24 | |||
taxes | Section 5.10(d) | |||
Termination Date | Section 9.2(a) | |||
Universal | Preamble | |||
Universal Adverse Recommendation Change | Section 7.3(b) | |||
Universal Benefit Plans | Section 6.11(a) | |||
Universal Certificate of Merger | Section 1.1(b) | |||
Universal Charter Amendment | Section 2.3 | |||
Universal Common Stock | Section 4.1(a) | |||
Universal Disclosure Letter | Article 6 | |||
Universal ESPP | Section 4.1(d) | |||
Universal Exchange Ratio | Section 4.1(a) | |||
Universal Material Adverse Effect | Section 10.9(c) | |||
Universal Material Contracts | Section 6.21(a) |
A-v
Table of Contents
Defined Terms | Where Defined | |||
Universal Merger | Section 1.1(a) | |||
Universal Merger Sub | Preamble | |||
Universal Notice of Adverse Recommendation | Section 7.3(b) | |||
Universal Options | Section 4.1(d) | |||
Universal Partnership | Section 6.3 | |||
Universal Partnership LTIP | Section 6.3 | |||
Universal Permits | Section 6.5(b) | |||
Universal Preferred Stock | Section 6.3 | |||
Universal Real Property | Section 6.5(c) | |||
Universal Reports | Section 6.7(a) | |||
Universal Stock Plans | Section 4.1(d) | |||
Universal Stockholder Approval | Section 6.20 | |||
Universal Superior Proposal | Section 7.3(a) | |||
Universal Surviving Entity | Section 1.1(a) | |||
Universal Takeover Proposal | Section 7.3(a) |
A-vi
Table of Contents
A-1
Table of Contents
A-2
Table of Contents
A-3
Table of Contents
A-4
Table of Contents
A-5
Table of Contents
A-6
Table of Contents
A-7
Table of Contents
A-8
Table of Contents
A-9
Table of Contents
A-10
Table of Contents
A-11
Table of Contents
A-12
Table of Contents
A-13
Table of Contents
A-14
Table of Contents
A-15
Table of Contents
A-16
Table of Contents
A-17
Table of Contents
A-18
Table of Contents
A-19
Table of Contents
A-20
Table of Contents
A-21
Table of Contents
A-22
Table of Contents
A-23
Table of Contents
A-24
Table of Contents
A-25
Table of Contents
A-26
Table of Contents
A-27
Table of Contents
A-28
Table of Contents
A-29
Table of Contents
A-30
Table of Contents
A-31
Table of Contents
A-32
Table of Contents
A-33
Table of Contents
A-34
Table of Contents
A-35
Table of Contents
A-36
Table of Contents
A-37
Table of Contents
A-38
Table of Contents
A-39
Table of Contents
A-40
Table of Contents
A-41
Table of Contents
A-42
Table of Contents
A-43
Table of Contents
A-44
Table of Contents
Houston, Texas 77086
Attention: General Counsel
Facsimile:(281) 405-6203
1001 Fannin Street, Suite 2500
Houston, Texas77002-6760
Attention: Scott N. Wulfe
Facsimile:(713) 615-5637
Houston, TX 77041
Attention: General Counsel
Facsimile:(713) 335-7867
A-45
Table of Contents
One Shell Plaza
910 Louisiana
Houston, Texas77002-4995
Attention: Stephen A. Massad
Facsimile:(713) 229-7775
A-46
Table of Contents
A-47
Table of Contents
By: | /s/ JOHN E. JACKSON |
Title: | President and Chief Executive Officer |
By: | /s/ STEPHEN A. SNIDER |
Title: | Chief Executive Officer |
By: | /s/ J. MICHAEL ANDERSON |
Title: | Sole Director |
By: | /s/ J. MICHAEL ANDERSON |
Title: | Sole Director |
By: | /s/ J. MICHAEL ANDERSON |
Title: | Sole Director |
A-48
Table of Contents
OF
UNIVERSAL COMPRESSION HOLDINGS, INC.
A-49
Table of Contents
OF
HANOVER COMPRESSOR COMPANY
Latham & Watkins
233 S. Wacker Drive, Suite 5800
Chicago, IL 60606.
A-50
Table of Contents
OF
UNIVERSAL COMPRESSION HOLDINGS, INC.
A Delaware Corporation
(hereinafter called the “Company”)
A-51
Table of Contents
A-52
Table of Contents
A-53
Table of Contents
A-54
Table of Contents
A-55
Table of Contents
A-56
Table of Contents
A-57
Table of Contents
A-58
Table of Contents
A-59
Table of Contents
OF
HANOVER COMPRESSOR COMPANY
(hereinafter called the “Company”)
A-60
Table of Contents
A-61
Table of Contents
A-62
Table of Contents
A-63
Table of Contents
A-64
Table of Contents
A-65
Table of Contents
A-66
Table of Contents
A-67
Table of Contents
A-68
Table of Contents
under the name Iliad Holdings, Inc.)
A-69
Table of Contents
A-70
Table of Contents
A-71
Table of Contents
By: |
Title: |
A-72
Table of Contents
A-73
Table of Contents
ARTICLE I STOCKHOLDERS | A-76 | |||||
Section 1.1 | Annual Meeting | A-76 | ||||
Section 1.2 | Special Meetings | A-76 | ||||
Section 1.3 | Notice of Meetings | A-76 | ||||
Section 1.4 | Quorum | A-76 | ||||
Section 1.5 | Organization | A-76 | ||||
Section 1.6 | Conduct of Business | A-77 | ||||
Section 1.7 | Proxies and Voting | A-77 | ||||
Section 1.8 | Stock List | A-77 | ||||
Section 1.9 | Notice of Stockholder Business and Nominations | A-77 | ||||
ARTICLE II BOARD OF DIRECTORS | A-79 | |||||
Section 2.1 | Number, Election and Term of Directors | A-79 | ||||
Section 2.2 | Newly Created Directorships and Vacancies | A-79 | ||||
Section 2.3 | Regular Meetings | A-80 | ||||
Section 2.4 | Special Meetings | A-80 | ||||
Section 2.5 | Quorum | A-80 | ||||
Section 2.6 | Participation in Meetings By Conference Telephone | A-80 | ||||
Section 2.7 | Conduct of Business | A-80 | ||||
Section 2.8 | Compensation of Directors | A-80 | ||||
Section 2.9 | Powers and Duties of the Chairman of the Board | A-80 | ||||
ARTICLE III COMMITTEES | A-80 | |||||
Section 3.1 | Committees of the Board of Directors | A-80 | ||||
Section 3.2 | Conduct of Business | A-81 | ||||
ARTICLE IV OFFICERS | A-81 | |||||
Section 4.1 | Generally | A-81 | ||||
Section 4.2 | Resignation and Removal | A-81 | ||||
Section 4.3 | Powers and Duties of the Chief Executive Officer | A-81 | ||||
Section 4.4 | Powers and Duties of the President | A-81 | ||||
Section 4.5 | Vice Presidents | A-82 | ||||
Section 4.6 | Treasurer | A-82 | ||||
Section 4.7 | Assistant Treasurers | A-82 | ||||
Section 4.8 | Secretary | A-82 | ||||
Section 4.9 | Assistant Secretaries | A-82 | ||||
Section 4.10 | Delegation of Authority | A-82 | ||||
Section 4.11 | Action with Respect to Securities of Other Corporations | A-82 | ||||
ARTICLE V STOCK | A-82 | |||||
Section 5.1 | Certificates of Stock | A-82 | ||||
Section 5.2 | Transfers of Stock | A-83 | ||||
Section 5.3 | Record Date | A-83 | ||||
Section 5.4 | Lost, Stolen or Destroyed Certificates | A-83 | ||||
Section 5.5 | Regulations | A-83 | ||||
A-74
Table of Contents
ARTICLE VI NOTICES | A-83 | |||||
Section 6.1 | Notices | A-83 | ||||
Section 6.2 | Waivers | A-83 | ||||
ARTICLE VII MISCELLANEOUS | A-84 | |||||
Section 7.1 | Facsimile Signatures | A-84 | ||||
Section 7.2 | Corporate Seal | A-84 | ||||
Section 7.3 | Reliance upon Books, Reports and Records | A-84 | ||||
Section 7.4 | Fiscal Year | A-84 | ||||
Section 7.5 | Time Periods | A-84 | ||||
ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS | A-84 | |||||
Section 8.1 | Mandatory Indemnification of Directors and Officers | A-84 | ||||
Section 8.2 | Right of Indemnitee to Bring Suit | A-85 | ||||
Section 8.3 | Permissive Indemnification of Non-Officer Employees and Agents | A-85 | ||||
Section 8.4 | General Provisions | A-85 | ||||
ARTICLE IX AMENDMENTS | A-86 |
A-75
Table of Contents
OF
[HOLDCO], INC.
Incorporated under the Laws of the State of Delaware
A-76
Table of Contents
A-77
Table of Contents
A-78
Table of Contents
A-79
Table of Contents
A-80
Table of Contents
A-81
Table of Contents
A-82
Table of Contents
A-83
Table of Contents
A-84
Table of Contents
A-85
Table of Contents
A-86
Table of Contents
A-87
Table of Contents
A-88
Table of Contents
• | Share Retention and Indemnity Agreement, dated January 31, 1999, between Camco International Inc. (predecessor in interest to Hanover) and the Overseas Private Investment Corporation (“OPIC”) (relating to the El Furrial joint venture) | |
• | Share Retention Agreement, dated September 30, 2003, by and among Hanover Compressor Company, OPIC, ABN AMRO Bank N.V., in its capacities as SACE Facility Agent and Administrative Agent and Citibank, N.A., in its capacity as Collateral Agent (relating to the PIGAP joint venture) |
A-89
Table of Contents
![]() | CREDIT SUISSE SECURITIES (USA) LLC | |||
Eleven Madison Avenue | Phone 212 325 2000 | |||
New York, NY 10010-3629 | www.credit-suisse.com |
B-1
Table of Contents
![(Credit Suisse Logo)](https://capedge.com/proxy/DEFM14A/0000950129-07-003320/h44610dah4461011.gif)
B-2
Table of Contents
Tel: 212-902-1000 Fax: 212-902-3000
![(GOLDMAN SACHS)](https://capedge.com/proxy/DEFM14A/0000950129-07-003320/h44610dah4461010.gif)
C-1
Table of Contents
C-2
Table of Contents
2007 STOCK INCENTIVE PLAN
D-1
Table of Contents
D-2
Table of Contents
D-3
Table of Contents
D-4
Table of Contents
D-5
Table of Contents
D-6
Table of Contents
D-7
Table of Contents
D-8
Table of Contents
D-9
Table of Contents
D-10
Table of Contents
D-11
Table of Contents
D-12
Table of Contents
D-13
Table of Contents
D-14
Table of Contents
D-15
Table of Contents
EMPLOYEE STOCK PURCHASE PLAN
E-1
Table of Contents
E-2
Table of Contents
E-3
Table of Contents
E-4
Table of Contents
E-5
Table of Contents
E-6
Table of Contents
E-7
Table of Contents
E-8
Table of Contents
F-1
Table of Contents
G-1
Table of Contents
G-2
Table of Contents
COMPENSATION COMMITTEE CHARTER
H-1
Table of Contents
H-2
Table of Contents
H-3
Table of Contents
for the Annual Meeting of Stockholders to be held August 16, 2007
Table of Contents
HANOVER COMPRESSOR COMPANY
August 16, 2007
[FOR REGISTERED STOCKHOLDERS ONLY]
or
TELEPHONE — Call toll-free1-800-PROXIES(1-800-776-9437) from any touch-tone telephone
and follow the instructions. Have your proxy card available when you call.
or
INTERNET — Access“www.voteproxy.com”and follow the on-screen instructions. Have your
proxy card available when you access the web site.
until 11:59 PM Eastern Time the day before the meeting date.
telephone or the Internet.
HANOVER COMPRESSOR COMPANY
August 16, 2007
[FOR NON-REGISTERED STOCKHOLDERS ONLY]
or
TELEPHONE — Call toll-free1-800-454-8683from any touch-tone telephone and follow the
instructions. Have your proxy card available when you call.
or
INTERNET — Access“www.proxyvote.com”and follow the on-screen instructions. Have your
proxy card available when you access the web site.
until 11:59 PM Eastern Time the day before the meeting date.
telephone or the Internet.
Table of Contents
AND “FOR” ALL THE NOMINEES FOR DIRECTOR.
1. | Adoption of the Agreement and Plan of Merger, as amended. | [FOR] | [AGAINST] | [ABSTAIN] | ||||
2. | Adoption of the Exterran Holdings, Inc. 2007 Stock Incentive Plan. | [FOR] | [AGAINST] | [ABSTAIN] | ||||
3. | Adoption of the Exterran Holdings, Inc. Employee Stock Purchase Plan. | [FOR] | [AGAINST] | [ABSTAIN] | ||||
4. | Election of Directors: Election of the following persons to serve as directors of Hanover Compressor Company until the 2008 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified. |
• | I. Jon Brumley | • | John E. Jackson | |||||
• | Ted Collins, Jr. | • | Peter H. Kamin | |||||
• | Margaret K. Dorman | • | William C. Pate | |||||
• | Robert R. Furgason | • | Stephen M. Pazuk | |||||
• | Victor E. Grijalva | • | L. Ali Sheikh | |||||
• | Gordon T. Hall |
INSTRUCTION: | To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee for whom you wish to withhold authority to vote, as shown here:• |
5. | Ratification of the reappointment of PricewaterhouseCoopers LLP as Hanover Compressor Company’s independent registered public accounting firm. | [FOR] | [AGAINST] | [ABSTAIN] |
To change the address on your account, please check the box at right and indicate your new address in the address space on the reverse side. Please note that changes to the registered name(s) on the account may not be submitted via this method. | o |
Mark here if you plan to attend the meeting. | o |
Signature of Stockholder | Date | Signature of Stockholder | Date |