Filed On 6/15/07 5:19pm ET · SEC File 333-141695 · Accession Number 950129-7-3007
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
6/15/07 Iliad Holdings/INC S-4/A 7:464 Bowne of Houston...01/FA
Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction · Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4/A Form S-4 Amendment No. 2 HTML 2,718K
2: EX-23.1 Consent of Pricewaterhousecoopers Llp HTML 5K
3: EX-23.2 Consent of Deloitte & Touche Llp Independent HTML 6K
Public Accounting Firm
4: EX-23.5 Consent of Ernst & Young Llp. HTML 5K
5: EX-23.6 Consent of Ernst & Young Llp. HTML 5K
6: EX-99.1 Consent of Credit Suisse Securities (Usa) Llc HTML 8K
7: EX-99.2 Consent of Goldman, Sachs & Co. HTML 8K
| Page | (sequential) | | | | (alphabetic) | Top |
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- Alternative Formats (RTF, XML, et al.)
- Accounting Treatment
- Agreement and Plan of Merger
- Amendment; Extensions and Waivers
- Annex A
- Annex B Opinion of Credit Suisse Securities (USA) LLC
- Annex C Opinion of Goldman, Sachs & Co
- Annex D Holdings 2007 Stock Incentive Plan
- Annex E Holdings Employee Stock Purchase Plan
- Annexes
- Annex F Excerpt from Hanover s Governance Principles Concerning Shareholder Election of Directors
- Annex G Excerpt from Hanover s Governance Principles Concerning Independence Standards for Hanover Directors
- Annex H Universal Compensation Committee Charter
- Annual Reports
- Appraisal Rights
- Audit and Other Fees
- Background of the Mergers
- Bank Facility Amendments
- Beneficial Ownership of Hanover Common Stock
- Cautionary Information Regarding Forward-Looking Statements
- Certain Relationships and Related Transactions
- Change in Control Provision in Hanover s Equipment Leases
- Companies, The
- Comparative Stock Prices and Dividends
- Comparison of Stockholder Rights
- Compensation Committee Report
- Compensation Discussion and Analysis
- Conditions to the Mergers
- Consideration to be Received in the Mergers
- Continuing Board and Management Positions
- Covenants and Agreements
- Deregistration and Delisting of Hanover and Universal Common Stock
- Description of Holdings Capital Stock
- Description of the Holdings 2007 Stock Incentive Plan
- Description of the Holdings Employee Stock Purchase Plan
- Director Compensation
- Dividends
- Equity Compensation Plan Information
- Executive Officer Compensation
- Executive Officers
- Exhibit 2.3.1 Restated Certificate of Incorporation of Holdings
- Exhibit 2.3.2 Amended and Restated Bylaws of Holdings
- Exhibit 7.11 Form of Rule 145 Affiliate Letter
- Exhibit 8.1(i) Consents
- Expenses and Termination Fees
- Experts
- Fees Paid to the Independent Registered Public Accounting Firm
- Financial Forecasts
- Form and Effective Times of the Mergers
- General Description of the Mergers
- General Information
- General Information about Proxies and Voting
- Governing Law
- Hanover Annual Meeting
- Hanover Compressor Company
- Hanover s Reasons for the Mergers and Recommendation of Hanover s Board of Directors
- Hector Sub, Inc
- Iliad Holdings, Inc
- Iliad Holdings, Inc. Consolidated Balance Sheet
- Iliad Holdings, Inc. Note to Consolidated Balance Sheet
- Iliad Holdings, Inc. Unaudited Pro Forma Condensed Combined Financial Information
- Information about Universal s Corporate Governance and the Board of Directors and its Committees
- Information about Universal s Directors
- Information Regarding Corporate Governance, the Board of Directors and Committees of the Board
- Information Regarding Executive Compensation
- Interests of Hanover and Universal Directors and Executive Officers in the Mergers
- Legal Matters
- Listing of Holdings Common Stock
- Material U.S. Federal Income Tax Consequences of the Mergers
- Matters to be Considered at the Annual Meetings
- Merger Agreement, The
- Mergers, The
- Nominees for Director
- Opinion of Hanover s Financial Advisor
- Opinion of Universal s Financial Advisor
- Other Information
- Pre-Approval Policies and Procedures
- Pre-Approval Policy
- Procedures for Exchange of Share Certificates
- Proposal 1 Adoption of the Merger Agreement
- Proposal 2 Adoption of the Holdings 2007 Stock Incentive Plan
- Proposal 2 Approval of the Holdings 2007 Stock Incentive Plan
- Proposal 3 Adoption of the Holdings Employee Stock Purchase Plan
- Proposal 3 Approval of the Holdings Employee Stock Plan
- Proposal 4 Election of Directors
- Proposal 5 Ratification of Reappointment of Independent Registered Public Accounting Firm
- Questions and Answers About the Meetings
- Regulatory Matters
- Reporting Requirements
- Report of Independent Registered Public Accounting Firm
- Report of the Audit Committee
- Representations and Warranties
- Resale of Holdings Common Stock
- Risk Factors
- Risks Relating to the Businesses of the Combined Company
- Risks Relating to the Mergers
- Security Ownership of Certain Beneficial Owners and Management
- Selected Historical Financial Data
- Selected Unaudited Pro Forma Condensed Combined Financial Data
- Stock Prices
- Strategic and Financial Rationale for the Mergers
- Summary
- Table of Contents
- Termination of the Merger Agreement
- The Companies
- The Merger Agreement
- The Mergers
- Ulysses Sub, Inc
- Unaudited Comparative Per Share Data
- Universal Annual Meeting
- Universal Compression Holdings, Inc
- Universal s Reasons for the Mergers and Recommendation of Universal s Board of Directors
- U.S. Federal Income Tax Consequences of the Hanover Merger
- U.S. Federal Income Tax Consequences of the Universal Merger
- Vote Regarding the Ratification of the Reappointment of the Independent Registered Public Accounting Firm
- Where You Can Find More Information
- Workforce and Employee Benefits Matters
- 2008 Annual Meeting of Stockholders
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| 1 | 1st Page
|
| " | Table of Contents
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| " | Summary
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| " | Questions and Answers About the Meetings
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| " | The Companies
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| " | The Mergers
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| " | Matters to be Considered at the Annual Meetings
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| " | Comparative Stock Prices and Dividends
|
| " | Selected Historical Financial Data
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| " | Selected Unaudited Pro Forma Condensed Combined Financial Data
|
| " | Unaudited Comparative Per Share Data
|
| " | Risk Factors
|
| " | Risks Relating to the Mergers
|
| " | Risks Relating to the Businesses of the Combined Company
|
| " | Cautionary Information Regarding Forward-Looking Statements
|
| " | General Description of the Mergers
|
| " | Background of the Mergers
|
| " | Strategic and Financial Rationale for the Mergers
|
| " | Hanover s Reasons for the Mergers and Recommendation of Hanover s Board of Directors
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| " | Universal s Reasons for the Mergers and Recommendation of Universal s Board of Directors
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| " | Financial Forecasts
|
| " | Opinion of Hanover s Financial Advisor
|
| " | Opinion of Universal s Financial Advisor
|
| " | Interests of Hanover and Universal Directors and Executive Officers in the Mergers
|
| " | Continuing Board and Management Positions
|
| " | Regulatory Matters
|
| " | Workforce and Employee Benefits Matters
|
| " | Accounting Treatment
|
| " | Appraisal Rights
|
| " | Resale of Holdings Common Stock
|
| " | Listing of Holdings Common Stock
|
| " | Deregistration and Delisting of Hanover and Universal Common Stock
|
| " | Dividends
|
| " | Bank Facility Amendments
|
| " | Change in Control Provision in Hanover s Equipment Leases
|
| " | Material U.S. Federal Income Tax Consequences of the Mergers
|
| " | U.S. Federal Income Tax Consequences of the Hanover Merger
|
| " | U.S. Federal Income Tax Consequences of the Universal Merger
|
| " | Reporting Requirements
|
| " | The Merger Agreement
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| " | Form and Effective Times of the Mergers
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| " | Consideration to be Received in the Mergers
|
| " | Procedures for Exchange of Share Certificates
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| " | Covenants and Agreements
|
| " | Representations and Warranties
|
| " | Conditions to the Mergers
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| " | Termination of the Merger Agreement
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| " | Expenses and Termination Fees
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| " | Amendment; Extensions and Waivers
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| " | Governing Law
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| " | Iliad Holdings, Inc
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| " | Hanover Compressor Company
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| " | Universal Compression Holdings, Inc
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| " | Hector Sub, Inc
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| " | Ulysses Sub, Inc
|
| " | Stock Prices
|
| " | Description of the Holdings 2007 Stock Incentive Plan
|
| " | Description of the Holdings Employee Stock Purchase Plan
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| " | Hanover Annual Meeting
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| " | General Information
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| " | Proposal 1 Adoption of the Merger Agreement
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| " | Proposal 2 Approval of the Holdings 2007 Stock Incentive Plan
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| " | Equity Compensation Plan Information
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| " | Proposal 3 Approval of the Holdings Employee Stock Plan
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| " | Proposal 4 Election of Directors
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| " | Nominees for Director
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| " | Information Regarding Corporate Governance, the Board of Directors and Committees of the Board
|
| " | Compensation Discussion and Analysis
|
| " | Compensation Committee Report
|
| " | Information Regarding Executive Compensation
|
| " | Beneficial Ownership of Hanover Common Stock
|
| " | Proposal 5 Ratification of Reappointment of Independent Registered Public Accounting Firm
|
| " | Fees Paid to the Independent Registered Public Accounting Firm
|
| " | Pre-Approval Policies and Procedures
|
| " | Vote Regarding the Ratification of the Reappointment of the Independent Registered Public Accounting Firm
|
| " | Report of the Audit Committee
|
| " | 2008 Annual Meeting of Stockholders
|
| " | Annual Reports
|
| " | Universal Annual Meeting
|
| " | General Information about Proxies and Voting
|
| " | Proposal 2 Adoption of the Holdings 2007 Stock Incentive Plan
|
| " | Proposal 3 Adoption of the Holdings Employee Stock Purchase Plan
|
| " | Security Ownership of Certain Beneficial Owners and Management
|
| " | Information about Universal s Directors
|
| " | Information about Universal s Corporate Governance and the Board of Directors and its Committees
|
| " | Executive Officers
|
| " | Executive Officer Compensation
|
| " | Director Compensation
|
| " | Certain Relationships and Related Transactions
|
| " | Audit and Other Fees
|
| " | Pre-Approval Policy
|
| " | Other Information
|
| " | Iliad Holdings, Inc. Unaudited Pro Forma Condensed Combined Financial Information
|
| " | Description of Holdings Capital Stock
|
| " | Comparison of Stockholder Rights
|
| " | Legal Matters
|
| " | Experts
|
| " | Where You Can Find More Information
|
| " | Report of Independent Registered Public Accounting Firm
|
| " | Iliad Holdings, Inc. Consolidated Balance Sheet
|
| " | Iliad Holdings, Inc. Note to Consolidated Balance Sheet
|
| " | Annexes
|
| " | Annex A
|
| " | Agreement and Plan of Merger
|
| " | Exhibit 2.3.1 Restated Certificate of Incorporation of Holdings
|
| " | Exhibit 2.3.2 Amended and Restated Bylaws of Holdings
|
| " | Exhibit 7.11 Form of Rule 145 Affiliate Letter
|
| " | Exhibit 8.1(i) Consents
|
| " | Annex B Opinion of Credit Suisse Securities (USA) LLC
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| " | Annex C Opinion of Goldman, Sachs & Co
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| " | Annex D Holdings 2007 Stock Incentive Plan
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| " | Annex E Holdings Employee Stock Purchase Plan
|
| " | Annex F Excerpt from Hanover s Governance Principles Concerning Shareholder Election of Directors
|
| " | Annex G Excerpt from Hanover s Governance Principles Concerning Independence Standards for Hanover Directors
|
| " | Annex H Universal Compensation Committee Charter
|
This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]
As filed with the Securities and Exchange Commission on June
15, 2007
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
ILIAD HOLDINGS, INC.
(Exact name of Registrant as
specified in its charter)
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Delaware
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7359
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74-3204509
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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4444 Brittmoore
(Address, including zip code,
and telephone number, including area code, of registrant’s
principal executive offices)
Donald C. Wayne
Vice President, General Counsel and Secretary
Universal Compression Holdings, Inc.
4444 Brittmoore
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Stephen A. Massad
Ryan J. Maierson
One Shell Plaza
Baker Botts L.L.P.
910 Louisiana Street
Houston, Texas 77002
(713) 229-1234
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Gary M. Wilson
Suzanne B. Kean
Hanover Compressor Company
12001 N. Houston Rosslyn
Houston, Texas 77086
(281) 447-8787
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Scott N. Wulfe
W. Matthew Strock
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2500
Houston, Texas 77002
(713) 758-2222
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Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable
after this Registration Statement becomes effective and all
other conditions under the Agreement and
Plan of Merger included
as
Annex A to the enclosed joint proxy
statement/prospectus have been satisfied or waived.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check the
following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary joint proxy statement/prospectus
is not complete and may be changed. These securities may not be
sold until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary joint
proxy statement/prospectus is not an offer to sell and is not
soliciting an offer to buy these securities in any jurisdiction
where the offer or sale is not permitted.
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PRELIMINARY
COPY — SUBJECT TO COMPLETION, DATED JUNE 15,
2007
MERGERS
PROPOSED — YOUR VOTE IS VERY IMPORTANT
Dear Hanover and Universal Stockholders:
As we previously announced, the boards of directors of Hanover
Compressor Company and Universal Compression Holdings, Inc. have
each unanimously approved mergers combining Hanover and
Universal in what we intend to be a “merger of
equals.” A new company incorporated in Delaware, currently
named Iliad Holdings, Inc., or Holdings, will hold what today
are Hanover’s and Universal’s independent businesses.
Holdings will be renamed and, upon consummation of the mergers,
its common stock is expected to be listed on the New York Stock
Exchange.
If the mergers are consummated, Hanover stockholders will
receive 0.325 shares of the common stock of Holdings for
each share of Hanover common stock held, and Universal
stockholders will receive one share of common stock of Holdings
for each share of Universal common stock held.
Based on the number of shares of common stock of Hanover and
Universal outstanding on
February 2, 2007, the last trading
day prior to the public announcement of the merger, former
Hanover stockholders will own approximately 53% of the common
stock of Holdings and former Universal stockholders will own
approximately 47% of the common stock of Holdings.
Each of Hanover and Universal is holding its annual meeting of
stockholders
on ,
2007 to adopt the merger agreement and approve certain equity
incentive plans to be used by Holdings if the mergers are
completed. Each company’s stockholders will also elect
directors and act on other matters normally considered at each
company’s annual meeting. Information about these meetings
and the mergers is contained in this joint proxy
statement/prospectus. We encourage you to read this entire joint
proxy statement/prospectus, as well as the annexes and
information incorporated by reference, carefully.
The boards of directors of Hanover and Universal each
unanimously recommend that their respective stockholders vote
FOR the proposal to adopt the merger agreement.
In considering the recommendation of your company’s board
of directors, you should be aware that directors and officers of
Hanover and Universal have interests in the mergers that are
different from, or are in addition to, the interests of Hanover
and Universal stockholders generally, and that these directors
and officers will directly benefit if the mergers are
consummated. These interests and benefits are described in this
joint proxy statement/prospectus.
This joint proxy statement/prospectus describes the annual
meetings, the proposals to be considered and voted upon at the
annual meetings and related matters. Every vote is important.
Whether or not you plan to attend your company’s annual
meeting, please take the time to vote by following the
instructions on your proxy card.
We enthusiastically support this combination of our companies
and join with our boards in recommending that you vote
FOR the adoption of the merger agreement. Thank
you for your continued interest in and support for our companies.
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Sincerely,
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Sincerely,
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John E. Jackson
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Stephen A. Snider
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President and Chief Executive
Officer
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President and Chief Executive
Officer
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Hanover Compressor Company
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Universal Compression Holdings,
Inc.
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For a discussion of risk factors you should consider in
evaluating the mergers, see “Risk Factors” beginning
on page 22.
Based on the number of Hanover and Universal shares outstanding
on
June 13, 2007, there would be 65,793,309 shares of
Holdings’ common stock, par value $0.01 per share,
issued in connection with the mergers.
Neither the Securities and Exchange Commission nor any state
securities regulator has approved or disapproved the mergers and
other transactions described in this joint proxy
statement/prospectus nor have they approved or disapproved the
issuance of Holdings’ common stock in connection with the
mergers, or determined if this joint proxy statement/prospectus
is accurate or adequate. Any representation to the contrary is a
criminal offense.
This joint proxy statement/prospectus is
dated ,
2007, and, together with the accompanying proxy card, is first
being mailed to stockholders of Hanover and Universal on or
about ,
2007.
HANOVER
COMPRESSOR COMPANY
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS TO BE
HELD ,
2007
To the Stockholders of Hanover Compressor Company:
We cordially invite you to our 2007 Annual Meeting of
Stockholders. The meeting will be held
on , ,
2007, at 2:00 p.m., local time, at the InterContinental
Hotel Houston, 2222 West Loop South,
Houston,
Texas 77027.
At this year’s meeting, you will be asked to:
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adopt the Agreement and Plan of Merger, dated as of
February 5, 2007, among Hanover Compressor Company,
Universal Compression Holdings, Inc., Iliad Holdings, Inc.,
Hector Sub, Inc. and Ulysses Sub, Inc., a copy of which is
attached as Annex A to this joint proxy
statement/prospectus;
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approve the Holdings 2007 Stock Incentive Plan, a copy of which
is attached as Annex D to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
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approve the Holdings Employee Stock Purchase Plan, a copy of
which is attached as Annex E to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
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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;
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ratify the reappointment of PricewaterhouseCoopers LLP as
Hanover’s independent registered public accounting firm for
fiscal year 2007; and
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transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
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If the Agreement and
Plan of Merger is adopted and the mergers
are consummated, the Hanover directors elected pursuant to the
proposal in the fourth bullet above will serve only until the
mergers are consummated. Also, the proposals described in the
second and third bullets will be implemented only if the
Agreement and
Plan of Merger is adopted. For more information
about the proposals and the annual meeting, please review the
accompanying joint proxy statement/prospectus.
Hanover will transact no other business at its annual meeting,
except for business properly brought before the annual meeting
or any adjournment or postponement thereof.
Only holders of record of shares of Hanover common stock at the
close of business
on ,
2007, the record date for the annual meeting, are entitled to
notice of, and a vote at, the annual meeting and any
adjournments or postponements of the annual meeting.
Your vote is important. We encourage you to sign and return your
proxy card, or use the telephone or Internet voting procedures,
before the annual meeting, so that your shares will be
represented and voted at the annual meeting even if you cannot
attend in person.
Please do not send any share certificates at this time. If the
mergers are consummated, we will notify you of the procedures
for exchanging Hanover share certificates for shares of Holdings.
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Houston, Texas
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GARY M. WILSON
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,
2007
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Corporate
Secretary
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UNIVERSAL COMPRESSION HOLDINGS,
INC.
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ,
2007
To the Stockholders of Universal Compression Holdings, Inc.:
We cordially invite you to our 2007 Annual Meeting of
Stockholders. The meeting will be held
on , ,
2007, at 9:00 a.m., local time, at the Hilton Houston
Westchase, 9999 Westheimer Road,
Houston,
Texas 77042. At
this year’s meeting, you will be asked to:
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adopt the Agreement and Plan of Merger, dated as of
February 5, 2007, among Hanover Compressor Company,
Universal Compression Holdings, Inc., Iliad Holdings, Inc.,
Hector Sub, Inc. and Ulysses Sub, Inc., a copy of which is
attached as Annex A to this joint proxy
statement/prospectus;
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approve the Holdings 2007 Stock Incentive Plan, a copy of which
is attached as Annex D to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
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approve the Holdings Employee Stock Purchase Plan, a copy of
which is attached as Annex E to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
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re-elect directors Thomas C. Case, Janet F. Clark and Uriel E.
Dutton, each for a three-year term ending 2010;
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ratify the reappointment of Deloitte & Touche LLP as
Universal’s independent registered public accounting firm
for fiscal year 2007; and
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transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
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If the Agreement and
Plan of Merger is adopted and the mergers
are consummated, the Universal directors elected pursuant to the
proposal in the fourth bullet above will serve only until the
mergers are consummated. Also, the proposals described in the
second and third bullets will be implemented only if the
Agreement and
Plan of Merger is adopted. For more information
about the proposals and the annual meeting, please review the
accompanying joint proxy statement/prospectus.
Universal will transact no other business at its annual meeting,
except for business properly brought before the annual meeting
or any adjournment or postponement thereof.
Only holders of record of shares of Universal common stock at
the close of business
on ,
2007, the record date for the annual meeting, are entitled to
notice of, and a vote at, the annual meeting and any
adjournments or postponements of the annual meeting.
Your vote is important. We encourage you to sign and return your
proxy card, or use the telephone or Internet voting procedures,
before the annual meeting, so that your shares will be
represented and voted at the annual meeting even if you cannot
attend in person.
Please do not send any share certificates at this time. If the
mergers are consummated, we will notify you of the procedures
for exchanging Universal share certificates for shares of
Holdings.
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Houston, Texas
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STEPHEN A. SNIDER
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,
2007
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President and Chief Executive
Officer
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HOW TO
OBTAIN ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important
business and financial information about Hanover and Universal
from other documents that are not included in or delivered with
this joint proxy statement/prospectus. See
“Where You Can
Find More Information” beginning on page 216 for a
listing of
documents incorporated by reference. This information
is available for you to review at the public reference room of
the Securities and Exchange Commission, or SEC, located at 100 F
Street, N.E., Room 1580, Washington, DC 20549, and through
the SEC’s
website,
www.sec.gov. You can also obtain
those
documents incorporated by reference in this joint proxy
statement/prospectus by requesting them in writing or by
telephone from the appropriate company at the following
addresses and telephone numbers:
You may also obtain
documents incorporated by reference in this
joint proxy statement/prospectus by requesting them in writing
or by telephone from D.F. King & Co., Inc.,
Hanover’s proxy solicitor, or Georgeson Inc.,
Universal’s proxy solicitor, at the following addresses and
telephone numbers:
If you would like to request documents, please do so
by ,
2007 in order to receive them before the annual meetings.
VOTING BY
INTERNET, TELEPHONE OR MAIL
If you hold your shares through a bank, broker, custodian or
other recordholder, please refer to your proxy card or voting
instruction form or the information forwarded by your bank,
broker, custodian or other recordholder to see which options are
available to you.
Hanover stockholders of record may submit their proxies
by:
Internet. You can vote over the Internet by
accessing the
website listed on your proxy card and following
the instructions on the
website prior to 11:59 EST
on , .
Internet voting is available 24 hours a day. If you vote
over the Internet, do not return your proxy card(s).
Telephone. You can vote by telephone by
calling the toll-free number listed on your proxy card in the
United States, Canada or Puerto Rico on a touch-tone phone prior
to 11:59 EST
on , .
You will then be prompted to enter the control number printed on
your proxy card and to follow the subsequent instructions.
Telephone voting is available 24 hours a day. If you vote
by telephone, do not return your proxy card(s).
Mail. You can vote by mail by completing,
signing, dating and mailing your proxy card(s) in the
postage-paid envelope included with this joint proxy
statement/prospectus.
Universal stockholders of record may submit their proxies
by:
Internet. You can vote over the Internet by
accessing the
website listed on your proxy card and following
the instructions on the
website prior to 11:59 EST
on , .
Internet voting is available 24 hours a day. If you vote
over the Internet, do not return your proxy card(s).
Telephone. You can vote by telephone by
calling the toll-free number listed on your proxy card in the
United States, Canada or Puerto Rico on a touch-tone phone prior
to 11:59 EST
on , .
You will then be prompted to enter the control number printed on
your proxy card and to follow subsequent instructions. Telephone
voting is available 24 hours a day. If you vote by
telephone, do not return your proxy card(s).
Mail. You can vote by mail by completing,
signing, dating and mailing your proxy card(s) in the
postage-paid envelope included with this joint proxy
statement/prospectus.
i
TABLE OF
CONTENTS
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1
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1
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9
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10
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14
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16
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17
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20
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21
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22
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22
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25
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34
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35
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35
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36
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44
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45
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49
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52
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55
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60
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66
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74
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75
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76
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77
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78
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78
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78
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78
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78
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79
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79
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79
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80
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81
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81
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82
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82
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83
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84
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84
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92
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93
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95
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ii
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Page
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95
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96
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97
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97
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97
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97
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98
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98
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99
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99
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99
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100
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100
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106
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108
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108
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111
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112
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113
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115
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116
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116
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118
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124
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138
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139
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148
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152
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152
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152
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153
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154
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155
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155
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155
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156
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156
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157
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158
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158
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159
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160
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162
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164
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166
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iii
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167
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176
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177
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185
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187
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187
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191
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192
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192
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196
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205
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207
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215
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216
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F-1
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F-2
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F-3
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iv
SUMMARY
This summary highlights selected information contained in
this joint proxy statement/prospectus and may not contain all
the information that is important to you. Hanover and Universal
urge you to read carefully this joint proxy statement/prospectus
in its entirety, as well as the annexes. Additional important
information is also contained in the documents incorporated by
reference into this joint proxy statement/prospectus. See
“Where You Can Find More Information” beginning on
page 216. We have included page references parenthetically
to direct you to a more complete description of the topics
presented in this summary.
In this joint proxy statement/prospectus, “Hanover”
refers to Hanover Compressor Company and its consolidated
subsidiaries, “Universal” refers to Universal
Compression Holdings, Inc. and its consolidated subsidiaries and
the “merger agreement” refers to the Agreement and
Plan of Merger, dated February 5, 2007, by and among
Hanover, Universal, Holdings, Hector Sub, Inc. and Ulysses Sub,
Inc., a copy of which is attached as Annex A to this
joint proxy statement/prospectus.
Questions
and Answers About the Meetings
Below are brief answers to questions you may have concerning the
transactions described in this joint proxy statement/prospectus
and the annual meetings of Hanover and Universal. These
questions and answers do not, and are not intended to, address
all of the information that may be important to you. You should
read carefully this entire joint proxy statement/prospectus and
the other documents to which we refer you.
GENERAL
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Q: |
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Why am I receiving this document? |
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A: |
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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. |
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When and where are the meetings of the stockholders? |
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A: |
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The annual meeting of Hanover stockholders will take place at
2:00 p.m., local time,
on ,
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 ,
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. |
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Q: |
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Who can answer any questions I may have about the annual
meetings or the mergers? |
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A: |
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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. |
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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. |
CONCERNING
THE MERGERS
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Q: |
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What will happen in the proposed mergers? |
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A: |
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Prior to entering into the merger agreement, Universal formed a
new Delaware corporation, Iliad Holdings, Inc., which we refer
to in this joint proxy statement/prospectus as
“Holdings.” When the transactions |
1
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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. Holdings will be renamed in connection with the
mergers. |
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Additional information on the mergers is set forth beginning on
page 35. |
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Q: |
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Why are Hanover and Universal proposing the mergers? |
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A: |
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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: |
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• the combination of complementary strengths,
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• improved operating efficiencies and reliability as
well as a broader and deeper array of experienced and skilled
technicians and service specialists,
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• 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,”
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• stronger and more stable earnings and cash flow as a
result of business line diversification,
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• an expanded international platform, and
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• significant cost savings and synergies.
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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 44, 45 and 49, respectively. |
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Q: |
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What will I receive for my shares? |
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A: |
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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. |
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Additional information on the consideration to be received in
the mergers is set forth beginning on page 83. |
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Q: |
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What are my U.S. federal income tax consequences as a
result of the mergers? |
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A: |
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We expect that holders of Hanover or Universal common stock will
not recognize gain or loss for U.S. federal income tax
purposes in the mergers (except with respect to any cash
received in lieu of fractional shares of Holdings common stock).
You are strongly urged to consult with a tax advisor to
determine the particular U.S. federal, state or local or
foreign tax consequences of the mergers to you. |
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Additional information regarding tax matters is set forth in
“Material U.S. Federal Income Tax Consequences of the
Mergers” beginning on page 79. |
2
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Q: |
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What vote is required to approve the mergers? |
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A: |
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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 ,
2007, the record date for the Hanover annual meeting, directors
and executive officers of Hanover and their respective
affiliates had the right to vote %
of the then outstanding shares of Hanover common stock. At the
close of business
on ,
2007, the record date for the Universal annual meeting,
directors and executive officers of Universal and their
respective affiliates had the right to
vote % 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. |
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Additional information on the votes required to approve the
mergers is located on page 111 for Hanover and on
page 157 for Universal. |
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|
Q: |
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How do the boards of directors of Hanover and Universal
recommend that I vote with respect to the proposed mergers? |
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A: |
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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. |
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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. |
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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 45 and “The Mergers — Universal’s
Reasons for the Mergers and Recommendation of Universal’s
Board of Directors” beginning on page 49, respectively. |
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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. |
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Q: |
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Who else must approve the mergers? |
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A: |
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Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, which we
refer to as the HSR Act, Hanover and Universal may not complete
the mergers until they have furnished certain information and
materials to the Antitrust Division of the U.S. Department
of Justice and the U.S. Federal Trade Commission and the
applicable waiting period has expired or been early terminated.
Completion of the mergers is also subject to approval of certain
non-U.S. antitrust
regulatory authorities if the failure to obtain those approvals
would have a material adverse effect on Holdings after
completion of the mergers. We have determined the jurisdictions
in which foreign competition filings will be necessary and are
in the process of making those filings. |
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Additional information regarding regulatory approvals required
for completion of the mergers is set forth in “The
Mergers — Regulatory Matters” beginning on
page 75. |
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Q: |
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Will Holdings’ shares be traded on an exchange? |
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A: |
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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
“ .” |
3
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Q: |
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When do you expect to complete the mergers? |
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A: |
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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
60 days following the annual meetings. |
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|
Q: |
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Who will serve as the directors and executive officers of
Holdings after the consummation of the mergers? |
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A: |
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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. |
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Q: |
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Are there risks associated with the mergers? |
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A: |
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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 34, respectively. |
CONCERNING
THE HANOVER AND UNIVERSAL ANNUAL MEETINGS
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Q: |
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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? |
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A: |
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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: |
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• 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;
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• 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;
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• 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
|
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• 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.
|
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|
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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: |
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• the Holdings incentive plan proposal;
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• the Holdings stock purchase plan proposal;
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• 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
|
4
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• 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.
|
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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. |
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|
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? |
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A: |
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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. |
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Additional information on Hanover’s policy with regard to
nominees who receive more votes “withheld” than
“for” such nominee is set forth in the excerpt from
the Hanover’s Governance Principles Concerning Shareholder
Election of Directors included in this joint proxy
statement/prospectus as Annex F. |
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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. |
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|
Q: |
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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? |
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A: |
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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. |
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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. |
5
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What stockholder approvals are required to approve the
Holdings incentive plan proposal and the Holdings stock purchase
plan proposal? |
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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. |
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Why are Hanover and Universal stockholders being asked to
vote on the Holdings incentive plan proposal and the Holdings
stock purchase plan proposal? |
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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. |
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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. |
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How will the vote on the proposed mergers impact the Holdings
incentive plan proposal and the Holdings stock purchase plan
proposal? |
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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. |
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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. |
PROCEDURES
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What do I need to do now? |
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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 |
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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. |
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Additional information on voting procedures is located beginning
on page 108 for Hanover and on page 156 for Universal. |
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What should I do if I receive more than one set of voting
materials? |
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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. |
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Should I send in my share certificates now? |
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No. If the mergers are completed, we will send the former
stockholders of both Hanover and Universal written instructions
for exchanging their share certificates for Holdings share
certificates. Additional information on the procedures for
exchanging certificates representing shares of Hanover or
Universal common stock for certificates representing shares of
Holdings common stock is set forth in “The Merger
Agreement — Procedures for Exchange of Share
Certificates” beginning on page 84. |
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If my shares are held in “street name” by a broker
or other nominee, will my broker or nominee vote my shares for
me? |
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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. |
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Additional information on how to vote if your shares are held in
street name is located beginning on page 108 for Hanover
and on page 156 for Universal. |
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As a participant in Hanover’s or Universal’s 401(k)
plan, how do I vote shares held in my plan account? |
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If you are a participant in the Hanover or 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 Hanover or Universal common stock that are held by the
Hanover or Universal 401(k) Plan and allocated to your plan
account on the proposals to be considered at the annual
meetings. 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, (1) the
Hanover plan trustee will not vote the Hanover shares allocated
to your plan account or (2) 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
Hanover or Universal annual meeting, you are urged to deliver
your instructions well in advance of the Hanover or Universal
annual meeting so that the instructions are received no later
than ,
2007. |
7
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What if I do not vote on the matters relating to the
mergers? |
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A: |
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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. |
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Q: |
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What if I want to change my vote? |
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A: |
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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. |
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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. |
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Do I have appraisal rights? |
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A: |
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No. Neither the Hanover stockholders nor the Universal
stockholders will have appraisal rights under Delaware law as a
result of the mergers. |
8
The
Companies
Hanover Compressor Company
12001 N. Houston Rosslyn
Hanover is a global market leader in the full service natural
gas compression business and is also a leading provider of
service, fabrication and equipment for oil and natural gas
production, processing and transportation applications. Hanover
sells and rents this equipment and provides complete operation
and maintenance services, including run-time guarantees, for
both customer-owned equipment and its fleet of rental equipment.
For the twelve months ended
December 31, 2006, Hanover had
revenues and other income of $1,670.7 million and net
income of $86.5 million. Hanover had revenues and other
income of $473.2 million and net income of
$25.4 million for the three months ended
March 31,
2007.
Universal Compression Holdings, Inc.
4444 Brittmoore Road
Universal is one of the largest natural gas compression services
companies in the world in terms of compressor fleet horsepower,
with a fleet as of
March 31, 2007 of approximately 7,100
compressor units comprising approximately 2.7 million
horsepower. Universal provides a full range of natural gas
compression services and products, including sales, operations,
maintenance and fabrication to the natural gas industry, both
domestically and internationally. For the twelve months ended
December 31, 2006, Universal had revenues of
$947.7 million and net income of $87.7 million.
Universal had revenues of $239.4 million and net income of
$14.3 million for the three months ended
March 31,
2007.
Iliad Holdings, Inc.
4444 Brittmoore Road
Holdings is a Delaware corporation formed for the purpose of
holding both Hanover and Universal as wholly owned
subsidiaries
following completion of the mergers. Holdings will be renamed in
connection with the merger.
Hector Sub, Inc.
4444 Brittmoore Road
Hector Sub is a wholly owned subsidiary of Holdings, formed
solely for the purpose of engaging in the Hanover merger and the
other transactions contemplated by the merger agreement. In the
Hanover merger, Hector Sub will merge with and into Hanover and
thereafter cease to exist.
Ulysses Sub, Inc.
4444 Brittmoore Road
Ulysses Sub is a wholly owned subsidiary of Holdings, formed
solely for the purpose of engaging in the Universal merger and
the other transactions contemplated by the merger agreement. In
the Universal merger, Ulysses Sub will merge with and into
Universal and thereafter cease to exist.
9
The
Mergers
Recommendations
of the Hanover and Universal Boards of Directors (Pages 43
and 46)
At its meeting on
February 3, 2007, after due
consideration, the Hanover board of directors unanimously:
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determined that the merger agreement and the transactions
contemplated thereby are advisable and in the best interests of
the stockholders of Hanover;
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approved, authorized and adopted the merger agreement; and
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recommended that the stockholders of Hanover vote for adoption
of the merger agreement at the annual meeting of stockholders of
Hanover.
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At its meeting on
February 3, 2007, after due
consideration, the Universal board of directors unanimously:
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determined that the merger agreement and the transactions it
contemplates are advisable, fair to and in the best interests of
Universal and its stockholders;
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approved the merger agreement; and
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recommended that the Universal stockholders vote for the
adoption of the merger agreement.
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To review the risks related to the mergers and the combined
company following consummation of the mergers, please see
“Risk Factors” beginning on page 21. To review
the background, strategic and financial rationale and reasons
for the mergers, please see the sections beginning on
pages 36, 44 and 45 and 49, respectively.
Opinion
of Hanover’s Financial Advisor (Page 55)
On
February 3, 2007, Credit Suisse Securities (USA) LLC, or
Credit Suisse, rendered its oral opinion to Hanover’s board
of directors (which was subsequently confirmed in writing by
delivery of Credit Suisse’s written opinion dated the same
date) to the effect that, as of
February 3, 2007, the
Hanover exchange ratio was fair, from a financial point of view,
to the holders of Hanover common stock. Credit Suisse has not
been requested to and is not expected to update or reaffirm its
opinion.
Credit Suisse’s opinion was directed to Hanover’s
board of directors and only addressed the fairness from a
financial point of view of the Hanover exchange ratio and does
not address any other aspect or implication of the mergers. The
summary of Credit Suisse’s opinion in this joint proxy
statement/prospectus is qualified in its entirety by reference
to the full text of its written opinion, which is included as
Annex B to this joint proxy statement/prospectus and
sets forth the procedures followed, assumptions made,
qualifications and limitations on the review undertaken and
other matters considered by Credit Suisse in preparing its
opinion. Hanover encourages Hanover’s stockholders to
carefully read the full text of Credit Suisse’s written
opinion. However, neither Credit Suisse’s written opinion
nor the summary of its opinion and the related analyses set
forth in this joint proxy statement/prospectus are intended to
be, and do not constitute advice or a recommendation to any
stockholder as to how such stockholder should vote or act with
respect to any matter relating to the mergers.
Pursuant to an engagement letter between Hanover and Credit
Suisse, dated
December 20, 2006, Hanover has agreed to pay
Credit Suisse a transaction fee of $8 million. Payment of
Credit Suisse’s fee is fully contingent upon the
consummation of the mergers.
Opinion
of Universal’s Financial Advisor (Page 60)
Goldman, Sachs & Co., or Goldman Sachs, rendered its
opinion to the board of directors of Universal that, as of
February 5, 2007 and based upon and subject to the factors
and assumptions set forth therein, the Universal exchange ratio
pursuant to the merger agreement was fair from a financial point
of view to the
10
holders of Universal common stock. Universal does not intend to
request that Goldman Sachs render an opinion as of any date
subsequent to
February 5, 2007.
The full text of the written opinion of Goldman Sachs, dated
February 5, 2007, which sets forth assumptions made,
procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as
Annex C. Goldman Sachs provided its opinion for
the information and assistance of the board of directors of
Universal in connection with its consideration of the mergers.
The Goldman Sachs opinion is not a recommendation as to how any
holder of Universal common stock should vote with respect to the
mergers.
Pursuant to an engagement letter between Universal and Goldman
Sachs, dated
December 22, 2006, Universal has agreed to pay
Goldman Sachs a transaction fee of $10 million, payable
upon consummation of the mergers. Universal has also agreed to
consider, in good faith, taking into account the level of
service that Goldman Sachs has provided in connection with the
merger, paying Goldman Sachs an additional transaction fee of
$3 million. Payment of Goldman Sachs’ fees is fully
contingent upon the consummation of the mergers.
Interests
of Directors and Executive Officers in the Mergers
(Page 66)
You should be aware that some Hanover and Universal directors
and executive officers have interests in the mergers as
directors or executive officers that are different from, or in
addition to, the interests of other Hanover and Universal
stockholders.
Continuing
Board and Management Positions (Page 74)
The Holdings board of directors will consist of 10 members, five
of whom will be current members of, and designated by,
Hanover’s board of directors and five of whom will be
current members of, and designated by, Universal’s board of
directors.
Hanover intends to designate the following current members of
its board of directors to serve on the Holdings board of
directors:
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Gordon T. Hall;
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John E. Jackson;
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Peter H. Kamin;
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William C. Pate; and
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Stephen M. Pazuk.
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Universal intends to designate the following current members of
its board of directors to serve on the Holdings board of
directors:
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Stephen A. Snider;
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Ernie L. Danner;
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Uriel E. Dutton;
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Janet F. Clark; and
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J.W.G. “Will” Honeybourne.
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Stephen A. Snider, Universal’s current President and Chief
Executive Officer and Chairman of Universal’s board of
directors, will be the President and Chief Executive Officer of
Holdings and a member of the Holdings board of directors. Gordon
T. Hall, the current chairman of Hanover’s board of
directors, will be the chairman of the Holdings board of
directors.
11
Regulatory
Matters (Page 75)
HSR
Act
Under the HSR Act, the mergers may not be consummated until
premerger notifications and required information have been
furnished to the Antitrust Division of the Department of Justice
and the Federal Trade Commission, or FTC, and the relevant
waiting periods have been early terminated or have expired.
Hanover and Universal filed premerger notification forms
pursuant to the HSR Act with the Antitrust Division and the FTC
on
February 22, 2007. On
March 26, 2007, Hanover and
Universal each received a request for additional information
from the Antitrust Division regarding the proposed mergers. The
effect of the second request is to extend the waiting period
imposed by the HSR Act until 30 days after Hanover and Universal
have substantially complied with the second request. Hanover and
Universal are cooperating fully with the Antitrust Division.
At any time before or after consummation of the mergers, the
Antitrust Division, the FTC or any state attorney general could
take any action under the antitrust laws deemed necessary or
desirable in the public interest, including seeking to enjoin
consummation of the mergers or seeking divestiture of particular
assets or businesses of Hanover or Universal. The merger
agreement requires Hanover and Universal to satisfy any
conditions or divestiture requirements imposed upon them unless
the conditions or divestitures would be reasonably likely to
have a material adverse effect on the combined company after the
completion of the mergers.
Foreign
Clearances
Completion of the mergers also may be subject to the antitrust
laws, rules and regulations of foreign governmental authorities.
The mergers may not be completed before receiving foreign
antitrust clearances unless the failure to obtain those
clearances would not have a material adverse effect on the
combined company after completion of the mergers. We have
determined the jurisdictions in which foreign competition
filings will be necessary and are in the process of making those
filings. We anticipate that all foreign competition filings will
be made by the end of June 2007.
Accounting
Treatment (Page 77)
The mergers will be accounted for using the purchase method of
accounting. Although the business combination of Hanover and
Universal is a merger of equals, Hanover has been determined to
be the acquirer for purposes of generally accepted accounting
principles. The purchase price will be allocated to
Universal’s identifiable assets and liabilities based on
their estimated fair values at the date of the consummation of
the mergers, and any excess of the purchase price over those
fair values will be accounted for as goodwill.
No
Appraisal Rights (Page 78)
Hanover and Universal stockholders will not have appraisal
rights under Delaware law as a result of the mergers.
Material
U.S. Federal Income Tax Consequences of the Mergers
(Page 79)
Hanover and Universal have structured the mergers so that a
holder of Hanover common stock or Universal common stock will
not recognize gain or loss upon the receipt of Holdings common
stock in exchange for Hanover or Universal common stock in the
mergers except to the extent of cash, if any, received in lieu
of a fractional share of Holdings common stock. It is a
condition to the closing of the mergers that Vinson &
Elkins L.L.P. deliver its opinion to Hanover and Baker Botts
L.L.P. deliver its opinion to Universal that for
U.S. federal income tax purposes no gain or loss shall be
recognized by a holder of that company’s common stock upon
the transfer of that company’s common stock to Holdings in
exchange for Holdings common stock pursuant to the applicable
merger.
12
This summary does not address tax consequences that may vary
with, or depend upon, individual circumstances. Accordingly, you
should consult a tax advisor to determine the U.S. federal,
state, local and foreign tax consequences to you of the mergers
taking into account your particular circumstances.
Summary
of Merger Agreement (Page 82)
The merger agreement is attached as Annex A to this
joint proxy statement/prospectus and governs the terms of the
mergers.
Conditions
to Mergers (Page 93)
Hanover’s and Universal’s obligations to consummate
the mergers are subject to the satisfaction or waiver of a
number of conditions, including:
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adoption of the merger agreement by the stockholders of each of
Hanover and Universal;
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the expiration or early termination of any waiting period
applicable to the consummation of the mergers under the HSR Act
and, except in certain circumstances, the receipt of approval or
expiration of any mandatory waiting periods under applicable
non-U.S. antitrust
laws;
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the absence of any decree, order or injunction of a
U.S. court of competent jurisdiction that prohibits the
consummation of the mergers;
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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;
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the receipt of required consents and relief from Hanover’s
and Universal’s credit agreements, which have been obtained;
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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
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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.
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“No
Solicitation” Provisions (Page 90)
The merger agreement contains “no solicitation”
provisions that prohibit either party from taking any action to
solicit a takeover proposal. The agreement does not, however,
prohibit either party from furnishing information to or
participating in negotiations with a person making a takeover
proposal that such party’s board of directors determines is
or is reasonably likely to lead to a superior proposal, if the
failure to do so would be inconsistent with that board’s
fiduciary duties to its stockholders.
Termination
of Merger Agreement (Page 95)
The parties may terminate the merger agreement by mutual written
consent. Either party may terminate the merger agreement if:
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the mergers have not been consummated by February 5, 2008,
through no fault of the terminating party;
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the stockholders of Hanover or Universal have held a meeting to
consider the merger agreement but have not voted to adopt the
merger agreement;
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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;
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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
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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.
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Expenses
and Termination Fees (Page 95)
Hanover or Universal will be obligated to pay the other party a
termination fee of $70 million if the merger agreement is
terminated because the board of directors of the non-terminating
party has changed its recommendation of the merger agreement.
Hanover or Universal also will be obligated to pay the other
party a fee of $5 million if there has been a takeover
proposal with respect to the party that becomes obligated to pay
the fee and the merger agreement is then terminated, either
because the mergers have not been completed by
February 5,
2008 or because the stockholders of the party that is the
subject of the takeover proposal do not vote in favor of
adoption of the merger agreement. Under those circumstances, the
party that is the subject of the takeover proposal will be
required to pay to the other party an additional
$65 million termination fee if it enters into any
definitive agreement with respect to, or consummates, any
takeover proposal within 365 days after the termination of
the merger agreement.
Comparison
of Stockholder Rights (Page 207)
Hanover, Universal and Holdings are incorporated under the laws
of the State of Delaware. In accordance with the merger
agreement, upon the consummation of the mergers, the holders of
Hanover common stock and Universal common stock will exchange
their respective shares of common stock for Holdings common
stock in accordance with their respective exchange ratios. Your
rights as a stockholder of Holdings will be governed by Delaware
law, Holdings’ restated
certificate of incorporation and
the amended and restated
bylaws of Holdings. For a comparison of
the material rights of Hanover stockholders, Universal
stockholders and Holdings stockholders under each company’s
organizational documents and the Delaware statutory framework,
please see
“Comparison of Stockholder Rights”
beginning on page 207.
Matters
to be Considered at the Annual Meetings
Hanover
Hanover stockholders will be asked to vote on the following
proposals:
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to adopt the merger agreement;
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to approve the Holdings 2007 Stock Incentive Plan, a copy of
which is attached as Annex D to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
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to approve the Holdings Employee Stock Purchase Plan, a copy of
which is attached as Annex E to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
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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;
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to ratify the reappointment of PricewaterhouseCoopers LLP as
Hanover’s independent registered public accounting firm for
fiscal year 2007; and
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to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
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If the merger agreement is adopted and the mergers are
consummated, the Hanover directors elected pursuant to the
proposal in the fourth bullet above will serve only until the
mergers are consummated. Also,
14
the proposals described in the second and third bullets will be
implemented only if the merger agreement is adopted.
Universal
Universal stockholders will be asked to vote on the following
proposals:
|
|
|
| |
•
|
to adopt the merger agreement;
|
| |
| |
•
|
to approve the Holdings 2007 Stock Incentive Plan, a copy of
which is attached as Annex D to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
|
| |
| |
•
|
to approve the Holdings Employee Stock Purchase Plan, a copy of
which is attached as Annex E to this joint proxy
statement/prospectus, to be used by Holdings following the
consummation of the mergers;
|
| |
| |
•
|
to re-elect Thomas C. Case, Janet F. Clark and Uriel E. Dutton
to service as Class A members of Universal’s board of
directors until the 2010 annual meeting of Universal
stockholders or until their successors are duly elected and
qualified;
|
| |
| |
•
|
to ratify the reappointment of Deloitte & Touche LLP
as Universal’s independent registered public accounting
firm for fiscal year 2007; and
|
| |
| |
•
|
to transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
|
If the merger agreement is adopted and the mergers are
consummated, the Universal directors elected pursuant to the
proposal in the fourth bullet above will serve only until the
mergers are consummated. Also, the proposals described in the
second and third bullets will be implemented only if the merger
agreement is adopted.
15
Comparative
Stock Prices and Dividends
Shares of Hanover common stock and Universal common stock are
listed for trading on the New York Stock Exchange. The following
table sets forth the closing sales prices per share of Hanover
common stock, on an actual and adjusted basis, and Universal
common stock on the New York Stock Exchange on the following
dates:
|
|
|
| |
•
|
February 2, 2007, the last full trading day prior to the
public announcement of the mergers, and
|
|
|
|
| |
•
|
June 14, 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)
|
|
|
|
|
|
|
$
|
19.40
|
|
|
$
|
59.69
|
|
|
$
|
61.10
|
|
|
$
|
61.10
|
|
|
|
|
$
|
26.18
|
|
|
$
|
80.55
|
|
|
$
|
79.24
|
|
|
|
79.24
|
|
|
|
|
|
(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. |
Neither Hanover nor Universal has ever declared or paid any cash
dividends on its common stock. The board of directors of
Holdings will determine the dividend policy of Holdings after
consummation of the mergers.
16
Selected
Historical Financial Data
Hanover and Universal are providing you with the following
financial information to assist you in your analysis of the
financial aspects of the mergers. This information is only a
summary that you should read together with the historical
audited consolidated financial statements of Hanover and
Universal and the related notes, as well as the sections titled
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” contained in the
annual reports on
Form 10-K
and quarterly reports on Form 10-Q for the three months
ended
March 31, 2007 that Hanover and Universal previously
have filed with the SEC and that are
incorporated by reference
into this joint proxy statement/prospectus. Historical results
are not necessarily indicative of any results to be expected in
the future. See
“Where You Can Find More Information”
beginning on page 216.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
Selected
Unaudited Pro Forma Condensed Combined Financial Data
The following selected unaudited pro forma condensed combined
financial data gives effect to the mergers. The unaudited pro
forma statement of operations data presented below is based on
the assumption that the mergers occurred as of
January 1,
2006 and reflects only adjustments directly related to the
mergers. The unaudited pro forma balance sheet data is prepared
as if the mergers occurred on
March 31, 2007. The pro forma
adjustments are based on available information and assumptions
that each company’s management believes are reasonable and
in accordance with SEC requirements. The selected unaudited pro
forma condensed combined financial data are presented for
illustrative purposes only and should not be read for any other
purpose. You should not rely on this information as being
indicative of the historical results that would have been
achieved had the companies been combined for the period
presented or the future results that the combined company will
experience after the mergers. The selected unaudited pro forma
condensed combined financial data:
|
|
|
| |
•
|
have been derived from and should be read in conjunction with
the “Iliad Holdings, Inc. Unaudited Pro Forma Condensed
Combined Financial Information” and the related notes
beginning on page 196 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
Unaudited
Comparative Per Share Data
The following selected comparative per share information of
Hanover and Universal as of and for the three months ended
March 31, 2007 was derived from the companies’
unaudited financial statements and as of and for the twelve
months ended
December 31, 2006 was derived from the
companies’ audited financial statements. You should read
this information along with Hanover’s and Universal’s
historical consolidated financial statements and the
accompanying notes for that period included in the documents
described under
“Where You Can Find More Information”
beginning on page 216. You should also read the unaudited
pro forma condensed combined financial information and
accompanying discussion and notes included in this joint proxy
statement/prospectus under
“Iliad Holdings, Inc. Unaudited
Pro Forma Condensed Combined Financial Information”
beginning on page 196.
| |
|
|
|
|
|
|
|
|
|
|
|
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
RISK
FACTORS
In addition to the other information included and
incorporated by reference in this joint proxy
statement/prospectus, Hanover and Universal stockholders should
carefully consider the matters described below to determine
whether to adopt the merger agreement and thereby approve the
mergers.
Risks
Relating to the Mergers
The
value of the shares of Holdings common stock you receive upon
the consummation of the mergers may be less than the value of
your shares of Hanover common stock or Universal common stock as
of the date of the merger agreement, the date of this joint
proxy statement/prospectus or the date of the annual
meetings.
The exchange ratios in the Hanover merger and the Universal
merger are fixed and will not be adjusted in the event of any
change in the stock prices of Hanover or Universal prior to the
mergers. There may be a significant amount of time between the
dates when the stockholders of each of Hanover and Universal
vote on the merger agreement at the annual meeting of each
company and the date when the mergers are completed. The
absolute and relative prices of shares of Hanover common stock
and Universal common stock may vary significantly between the
date of this joint proxy statement/prospectus, the date of the
annual meetings and the date of the completion of the mergers.
These variations may be caused by, among other things, changes
in the businesses, operations, results or prospects of Hanover
or Universal, market expectations of the likelihood that the
mergers will be completed and the timing of completion, the
prospects of post-merger operations, the effect of any
conditions or restrictions imposed on or proposed with respect
to the combined company by regulatory agencies and authorities,
general market and economic conditions and other factors. In
addition, it is impossible to predict accurately the market
price of the Holdings common stock to be received by Hanover and
Universal stockholders after the completion of the mergers.
Accordingly, the prices of Universal common stock and Hanover
common stock on the date of this joint proxy
statement/prospectus and on the date of the annual meetings may
not be indicative of their prices immediately prior to
completion of the mergers and the price of Holdings common stock
after the mergers are completed.
The
mergers are subject to the receipt of consents and approvals
from various government entities that may impose conditions on,
jeopardize or delay completion of the mergers or reduce the
anticipated benefits of the mergers.
Completion of the mergers is conditioned upon the expiration or
early termination of the applicable waiting period under the HSR
Act and the expiration or termination of any mandatory waiting
period under applicable
non-U.S. antitrust
laws, where the failure to observe that waiting period would be
reasonably likely to have a material adverse effect on the
combined company after the mergers.
It is possible that we may not obtain the required consents,
orders, approvals and clearances. Even if they are obtained,
they may not be obtained before Hanover and Universal
stockholders vote on the mergers. Moreover, if they are
obtained, they may impose conditions on, or require divestitures
relating to, the divisions, operations or assets of Hanover or
Universal. The merger agreement requires Hanover and Universal
to satisfy any conditions or divestiture requirements imposed
upon them unless the conditions or divestitures would be
reasonably likely to have a material adverse effect on the
combined company after the mergers. A substantial delay in
obtaining any required approvals or the imposition of any
unfavorable conditions or divestitures in connection with the
receipt of any required approvals may jeopardize or delay
completion of the mergers or reduce the anticipated benefits of
the mergers.
The
anticipated benefits of combining the companies may not be
realized.
Hanover and Universal entered into the merger agreement with the
expectation that the mergers would result in various benefits,
including, among other things, annual synergies and cost savings
of approximately $50 million and other operating
efficiencies that cannot be quantified at this time. We may not
achieve these benefits at the levels expected or at all. If we
fail to achieve these expected benefits, the results of
operations and the enterprise value of the combined company may
be adversely affected.
22
The
integration of Hanover and Universal following the mergers will
present significant challenges that may reduce the anticipated
potential benefits of the mergers.
Hanover and Universal will face significant challenges in
consolidating functions and integrating their organizations,
procedures and operations in a timely and efficient manner, as
well as retaining key personnel. The integration of Hanover and
Universal will be complex and time-consuming due to the size and
complexity of each organization. The principal challenges will
include the following:
|
|
|
| |
•
|
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.
|
The respective managements of Hanover and Universal will have to
dedicate substantial effort to integrating the businesses. These
efforts could divert management’s focus and resources from
other
day-to-day
tasks, corporate initiatives or strategic opportunities during
the integration process.
Hanover
and Universal will incur significant transaction and
merger-related integration costs in connection with the
mergers.
Hanover and Universal expect to pay transaction costs of
approximately $40 million to $45 million in the
aggregate, including payments of approximately $10 million
made to some of their employees pursuant to change of control
agreements. These transaction fees include investment banking,
legal and accounting fees and expenses, SEC filing fees,
printing expenses, mailing expenses and other related charges.
These amounts are preliminary estimates that are subject to
change. A portion of the transaction costs will be incurred
regardless of whether the mergers are consummated. Hanover and
Universal will each pay its own transaction costs, except that
they will share equally certain filing, printing and other costs
and expenses.
Hanover and Universal currently estimate integration costs
associated with the mergers to be approximately $35 million
to $40 million. Hanover and Universal are in the early
stages of assessing the magnitude of these costs, and,
therefore, these estimates may change substantially and
additional unanticipated costs may be incurred in the
integration of the businesses of Hanover and Universal.
As a
result of the mergers, the repurchase of a significant portion
of Hanover’s and Universal’s outstanding debt may be
required and additional funds to finance the repurchase may not
be available on terms favorable to Holdings, if at
all.
Hanover has indebtedness related to its outstanding compression
equipment lease obligations, the aggregate principal amount of
which was approximately $383.0 million in notes payable
plus an additional amount of $11.9 million in related
minority interest obligations as of
March 31, 2007. As a
result of the mergers, the equipment trusts that issued the
indebtedness will be required to make an offer (with funds
supplied by Hanover) to repurchase the equipment lease notes and
the related minority interest obligations at a price equal to
101% of the outstanding principal amount, plus accrued and
unpaid interest to the date of purchase, unless the obligations
of the equipment trusts have been earlier satisfied and
discharged. For more information regarding these repurchase
obligations, please read
“The Mergers — Change in
Control Provision in Hanover’s Equipment Leases”
beginning on page 79.
Hanover and Universal expect that Holdings will refinance any
required repurchase of the equipment lease obligations. If
Holdings is unable to obtain necessary financing on favorable
terms, the earnings and cash
23
flow of Holdings could be materially adversely affected. If
Holdings is unable to obtain the necessary financing at all, the
equipment trusts would be in default under the
indenture
relating to the equipment lease obligations, which would cause
defaults under Hanover’s other financing arrangements.
While
the mergers are pending, Hanover and Universal will be subject
to business uncertainties and contractual restrictions that
could adversely affect their businesses.
Uncertainty about the effect of the mergers on employees,
customers and suppliers may have an adverse effect on Hanover
and Universal and, consequently, on the combined company. These
uncertainties may impair Hanover’s and Universal’s
ability to attract, retain and motivate key personnel until the
mergers are consummated and for a period of time thereafter, and
could cause customers, suppliers and others who deal with
Hanover and Universal to seek to change existing business
relationships with Hanover and Universal. Employee retention may
be particularly challenging during the pendency of the mergers
because employees may experience uncertainty about their future
roles with the combined company. If, despite Hanover’s and
Universal’s retention efforts, key employees depart because
of issues relating to the uncertainty and difficulty of
integration or a desire not to remain with the combined company,
the combined company’s business could be seriously harmed.
In addition, the merger agreement restricts Hanover and
Universal, without the other party’s consent and subject to
certain exceptions, from making certain acquisitions and taking
other specified actions until the mergers occur or the merger
agreement terminates. These restrictions may prevent Hanover and
Universal from pursuing otherwise attractive business
opportunities and making other changes to their businesses that
may arise prior to completion of the mergers or termination of
the merger agreement.
Failure
to complete the mergers could negatively impact the stock prices
and the future business and financial results of Hanover and
Universal because of, among other things, the disruption that
would occur as a result of uncertainties relating to a failure
to complete the mergers.
The stockholders of both Hanover and Universal may not approve
the mergers or Hanover and Universal may not receive the
required consents, orders, approvals and clearances or satisfy
the other conditions to the completion of the mergers. If the
mergers are not completed for any reason, Hanover and Universal
could be subject to several risks, including the following:
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•
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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;
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•
|
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
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•
|
incurring substantial transaction costs related to the mergers.
|
In addition, Hanover and Universal would not realize any of the
expected benefits of having completed the mergers.
If the mergers are not completed, the price of Hanover or
Universal common stock may decline to the extent that the
current market price of that stock reflects a market assumption
that the mergers will be completed and that the related benefits
and synergies will be realized, or as a result of the
market’s perceptions that the mergers were not consummated
due to an adverse change in Hanover’s or Universal’s
business. In addition, Hanover’s business and
Universal’s business may be harmed, and the prices of their
stock may decline as a result, to the extent that customers,
suppliers and others believe that the companies cannot compete
in the marketplace as effectively without the mergers or
otherwise remain uncertain about the companies’ future
prospects in the absence of the mergers. Similarly, current and
prospective employees of Hanover and Universal may experience
uncertainty about their future roles with the resulting company
and choose to pursue other opportunities, which could adversely
affect Hanover or Universal, as applicable, if the mergers are
not completed. The realization of any of these risks may
materially adversely affect the business, financial results,
financial condition and stock prices of Hanover and Universal.
24
The
merger agreement limits Hanover’s and Universal’s
ability to pursue an alternative acquisition proposal and
requires Hanover or Universal to pay a termination fee of up to
$70 million if it does.
The merger agreement prohibits Hanover and Universal from
soliciting, initiating or encouraging alternative merger or
acquisition proposals with any third party. The merger agreement
also provides for the payment by Hanover or Universal of a
termination fee of up to $70 million if the merger
agreement is terminated in certain circumstances in connection
with a competing acquisition proposal or the withdrawal by the
board of directors of that company of its recommendation that
the stockholders of that company vote for the adoption of the
merger agreement, as the case may be. See “The Merger
Agreement — Covenants and Agreements — No
Solicitation” beginning on page 90.
These provisions limit Universal’s and Hanover’s
ability to pursue offers from third parties that could result in
greater value to Hanover’s or Universal’s
stockholders. The obligation to make the termination fee payment
also may discourage a third party from pursuing an alternative
acquisition proposal.
Some
of the directors and executive officers of Hanover and Universal
have interests in the mergers that are different from the
interests of Hanover’s and Universal’s
stockholders.
When considering the recommendation of the Hanover board of
directors with respect to the mergers, Hanover stockholders
should be aware that some directors and executive officers of
Hanover have interests in the mergers that are different from,
or in addition to, the interests of the stockholders of Hanover.
These interests include (1) their designation as Holdings
directors or executive officers, (2) the fact that the
completion of the transaction will result in the acceleration of
vesting of long-term incentive awards held by directors and
executive officers and (3) the fact that certain executive
officers of Hanover have entered into change of control
agreements with Hanover that will entitle them to cash payments
and other benefits if the mergers are completed and their
employment is terminated or if the executive resigns for good
reason, as defined in the agreements.
When considering the recommendation of the Universal board of
directors with respect to the mergers, Universal stockholders
should be aware that some directors and executive officers of
Universal have interests in the mergers that are different from,
or in addition to, the interests of the stockholders of
Universal. These interests include (1) their designation as
Holdings directors or executive officers, (2) the fact that
the completion of the transaction will result in the
acceleration of vesting of equity-based awards held by directors
and executive officers and (3) the fact that certain
executive officers of Universal have entered into change of
control agreements with Universal that will entitle them to cash
payments and other benefits if the mergers are completed and
their employment is terminated or if the executive terminates
his employment for good reason, as defined in the agreements.
Stockholders should consider these interests in conjunction with
the recommendation of the directors of Hanover and Universal of
approval of the mergers. These interests have been described
more fully in “The Mergers — Interests of Hanover
and Universal Directors and Executive Officers in the
Mergers” beginning on page 66.
Risks
Relating to the Businesses of the Combined Company
A
substantial portion of Holdings’ future cash flows may be
used to service its indebtedness, and Holdings’ ability to
generate cash will depend on many factors beyond its
control.
As of
March 31, 2007, Hanover and Universal had
approximately $2.2 billion in combined outstanding
indebtedness. After the consummation of the mergers, factors
beyond the control of Holdings will continue to affect its
ability to make payments on or refinancings of its outstanding
indebtedness. These factors include those discussed elsewhere in
these
“Risk Factors” and those listed in the
“Cautionary Information Regarding Forward-Looking
Statements” section of this joint proxy
statement/prospectus beginning on pages 22 and 34,
respectively. Further, the ability of Holdings to fund working
capital and capital expenditures will also depend on its ability
to generate cash. If, in the future, sufficient cash is not
generated from Holdings’ operations to
25
meet its debt service obligations, Holdings may need to reduce
or delay funding for capital investment, operations or other
purposes.
Holdings
may be vulnerable to interest rate increases due to its floating
rate debt obligations.
As of
March 31, 2007, after taking into consideration
interest rate swaps, Hanover and Universal had approximately
$472 million of combined outstanding indebtedness subject
to interest at floating rates. Changes in economic conditions
outside of Holdings’ control could result in higher
interest rates, thereby increasing Holdings’ interest
expense and reducing its funds available for capital investment,
operations or other purposes.
Hanover’s
and Universal’s indebtedness imposes restrictions on them
that will affect Holdings’ ability to successfully operate
its business.
Following the consummation of the mergers, the bank credit
facilities and other indebtedness of Hanover and Universal are
expected to remain outstanding. These bank credit facilities and
the agreements governing certain of this indebtedness include
covenants that, among other things, will restrict Holdings’
ability to:
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borrow money;
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•
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create liens;
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•
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make investments;
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•
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declare dividends or make certain distributions;
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•
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sell or dispose of property; or
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•
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merge into or consolidate with any third party or sell or
transfer all or substantially all of its property.
|
These bank credit facilities and certain other agreements also
will require Holdings to maintain various financial ratios. Such
covenants will restrict Holdings’ ability to expand or to
pursue its business strategies. Holdings’ ability to comply
with these and any other provisions of such agreements will be
affected by changes in its operating and financial performance,
changes in business conditions or results of operations, adverse
regulatory developments or other events beyond its control. The
breach of any of these covenants could result in a default,
which could cause Holdings’ indebtedness to become due and
payable. If any of Holdings’ indebtedness were to be
accelerated, it may not be able to repay or refinance it.
A
reduction in oil or natural gas prices, or instability in
U.S. or global energy markets, could adversely affect
Holdings’ business.
Following the consummation of the mergers, Holdings’
results of operations will depend upon the level of activity in
the global energy market, including natural gas development,
production, processing and transportation. Oil and natural gas
prices and the level of drilling and exploration activity can be
volatile. For example, oil and natural gas exploration and
development activity and the number of well completions
typically decline when there is a significant reduction in oil
and natural gas prices or significant instability in energy
markets. As a result, the demand for Holdings’ gas
compression services and oil and gas production and processing
equipment would be adversely affected. Any future decline in oil
and natural gas prices could have a material adverse effect on
the business, consolidated financial condition, results of
operations and cash flows of Holdings.
Erosion of the financial condition of customers of Holdings
following the consummation of the mergers could also have an
adverse effect on its business. During times when the oil or
natural gas markets weaken, the likelihood of the erosion of the
financial condition of customers increases. If and to the extent
the financial condition of Holdings’ customers declines,
those customers could seek to preserve capital by canceling any
month-to-month
natural gas compression
contracts, canceling or delaying
scheduled maintenance of their existing gas compression and oil
and gas production and processing equipment or determining not
to enter into any new natural gas compression service
contracts
or purchase new gas compression and oil and gas
26
production and processing equipment, thereby reducing demand for
Holdings’ products and services. The reduced demand for
Holdings’ services following the consummation of the
mergers as described above could adversely affect the business,
financial condition and operations results of Holdings. In
addition, in the event of the financial failure of a customer,
Holdings could experience a loss associated with the unsecured
portion of any of its outstanding accounts receivable.
There
are many risks associated with conducting operations in
international markets.
Following the consummation of the mergers, Holdings will
continue to operate in many geographic markets outside the
United States. For the three months ended
March 31, 2007,
Hanover and Universal derived 48.9% and 30.8%, respectively, of
their revenues from international operations. Changes in local
economic or political conditions, particularly in Latin America,
could have a material adverse effect on the business,
consolidated financial condition, results of operations and cash
flows of the combined company. Additional risks inherent in
Holdings’ international business activities following the
consummation of the mergers include the following:
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•
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difficulties in managing international operations, including the
ability of Holdings to timely and cost effectively execute
projects;
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•
|
training and retaining qualified personnel in international
markets;
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•
|
inconsistent product regulation or sudden policy changes by
foreign agencies or governments;
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•
|
the burden of complying with multiple and potentially
conflicting laws;
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•
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tariffs and other trade barriers that may restrict the ability
of Holdings to enter new markets;
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•
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governmental actions that result in the deprivation of contract
rights and other difficulties in enforcing contractual
obligations;
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•
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foreign exchange rate risks;
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•
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difficulty in collecting international accounts receivable;
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•
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potentially longer payment cycles;
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•
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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;
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•
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potentially adverse tax consequences;
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•
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restrictions on repatriation of earnings or expropriation of
property without fair compensation;
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•
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the geographic, time zone, language and cultural differences
among personnel in different areas of the world; and
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•
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difficulties in establishing new international offices and risks
inherent in establishing new relationships in foreign countries.
|
Following the consummation of the mergers, the combined company
plans to expand its business into international markets where
Universal and Hanover currently do not conduct business. The
risks inherent in establishing new business ventures, especially
in international markets where local customs, laws and business
procedures present special challenges, may affect Holdings’
ability to be successful in these ventures or avoid losses that
could have a material adverse effect on its business, financial
condition, results of operations and cash flows.
27
There
are risks associated with the companies’ operations in
Nigeria. Local unrest and violence in Nigeria has adversely
affected Hanover’s historical financial results and could
result in possible impairment and write-downs by the combined
company of its assets in Nigeria if the political situation in
Nigeria does not improve.
The companies’ operations in Nigeria are subject to
numerous risks and uncertainties associated with operating in
Nigeria. Such risks include, among other things, political,
social and economic instability, civil uprisings, riots,
terrorism, kidnapping, the taking of property without fair
compensation and governmental actions that may restrict payments
or the movement of funds or result in the deprivation of
contract rights. Any of these risks, including risks arising
from the increase in violence and local unrest in Nigeria over
the past year, could adversely impact the combined
company’s operations in Nigeria and could affect the timing
and decrease the amount of revenue the combined company may
realize from its assets in Nigeria.
For example, Hanover is involved in a project called the
Cawthorne Channel Project in Nigeria in which it rents and
operates barge-mounted gas compression and gas processing
facilities stationed in a Nigerian coastal waterway. Because of
unrest and violence in the region, natural gas flow to the
project was stopped in June 2006. As a result, Hanover did not
recognize revenue on the Cawthorne Channel Project for the last
six months of 2006, and Holdings may not be able to recognize
revenue from this project in the future. If the violence and
local unrest in Nigeria continues or worsens following the
consummation of the mergers, Holdings may experience further
decreases in revenue from its projects in Nigeria.
At
March 31, 2007, Hanover and Universal had combined
tangible net assets of approximately $74.1 million related
to projects in Nigeria. If Holdings is unable to operate its
assets under current projects, it may be required to find
alternative uses for those assets, which could potentially
result in an impairment and write-down of its investment in
those assets in Nigeria, which could adversely impact
Holdings’ consolidated financial position or results of
operation.
There
are risks associated with the companies’ operations in
Venezuela. Further changes to the laws and regulations of
Venezuela could adversely impact the combined company’s
results of operations and require it to write-down certain of
its assets in Venezuela.
Recently, laws and regulations in Venezuela have been subject to
frequent and significant changes. These changes have included
currency controls, restrictions on repatriation of capital,
expropriation and nationalization of certain firms and
industries and changes to the tax laws. While these changes have
not had a material impact on Hanover or Universal to date,
future changes could have a material impact on the combined
company. For example, if the government of Venezuela institutes
further changes to the laws and regulations of Venezuela, those
changes could increase the expenses incurred by the combined
company’s Venezuelan operations, resulting in a reduction
in its net income or a write-down of its investments in
Venezuela. At
March 31, 2007, Hanover and Universal had
combined tangible net assets in Venezuela, including investments
in non-consolidated affiliates, of approximately
$291.7 million.
Following
the consummation of the mergers, Holdings will be exposed to
exchange rate fluctuations in the international markets in which
it will operate. A decrease in the value of any of these
currencies relative to the U.S. dollar could reduce profits
from international operations and the value of international net
assets of the combined company.
Following the consummation of the mergers, the reporting
currency of the combined company will be the U.S. dollar.
Gains and losses from the remeasurement of balances that are
receivable or payable in currency other than functional currency
are included in the consolidated statements of operations. The
remeasurement has caused the U.S. dollar value of
Hanover’s and Universal’s international results of
operations to vary with exchange rate fluctuations and, after
consummation of the mergers, the U.S. dollar value of
Holdings’ international results of operations will continue
to vary with exchange rate fluctuations. Hanover and Universal
have not hedged exchange rate exposures, which exposes them to
the risk of exchange rate losses.
A fluctuation in the value of any of these currencies relative
to the U.S. dollar following the consummation of the
mergers could reduce Holdings’ profits from international
operations and the value of the
28
net assets of Holdings’ international operations when
reported in U.S. dollars in its financial statements. This
could have a negative impact on Holdings’ business,
financial condition or results of operations as reported in
U.S. dollars. For example, in February 2004 and March 2005,
the Venezuelan government devalued their currency to 1,920
bolivars and 2,148 bolivars, respectively, for each
U.S. dollar.
In addition, fluctuations in currencies relative to currencies
in which the earnings are generated may make it more difficult
to perform
period-to-period
comparisons of Holdings’ reported results of operations
following the consummation of the mergers.
Although both Hanover and Universal attempt to match costs and
revenues in local currencies, they anticipate that there will be
instances in which costs and revenues will not be exactly
matched with respect to currency denomination. As a result, to
the extent Holdings expands geographically, we expect that
increasing portions of its revenues, costs, assets and
liabilities will be subject to fluctuations in foreign currency
valuations. Holdings may experience economic loss and a negative
impact on earnings or net assets solely as a result of foreign
currency exchange rate fluctuations. Further, the markets in
which Holdings will operate could restrict the removal or
conversion of the local or foreign currency, resulting in
Holdings’ inability to hedge against these risks.
Many
of Hanover’s and Universal’s compressor contracts with
customers have short initial terms, and Holdings cannot be sure
that the contracts for these compressors will be renewed after
the end of the initial contractual term.
The length of Hanover’s and Universal’s compressor
contracts with customers varies based on operating conditions
and customer needs. In most cases, under currently prevailing
contract compression rates, Hanover’s and Universal’s
initial
contract terms are not long enough to enable them to
fully recoup the average cost of acquiring or fabricating the
equipment. Following the consummation of the mergers, Holdings
cannot be sure that a substantial number of these customers will
continue to renew their
contracts, that it will be able to enter
into new
contracts for the equipment with new customers or that
any renewals will be at comparable rates. The inability to renew
contracts with respect to a substantial portion of
Holdings’ compressor fleet would have a material adverse
effect upon the business, consolidated financial condition,
results of operations and cash flows of the combined company.
Hanover
and Universal are dependent on particular suppliers and are
vulnerable to product shortages and price
increases.
Some of the components used in Hanover’s and
Universal’s products are obtained from a single source or a
limited group of suppliers. Hanover’s and Universal’s
reliance on these suppliers involves several risks, including
price increases, inferior component quality and a potential
inability to obtain an adequate supply of required components in
a timely manner. The partial or complete loss of certain of
these sources following the consummation of the mergers could
have a negative impact on Holdings’ results of operations
and could damage its customer relationships. Further, a
significant increase in the price of one or more of these
components could have a negative impact on Holdings’
results of operations.
Hanover’s
ability to substitute compression equipment under its
compression equipment leases is limited, and there are risks
associated with reaching that limit prior to the expiration of
the lease term.
As of
March 31, 2007, Hanover was the lessee in two
transactions involving the sale of compression equipment by
Hanover to special purpose entities, which in turn lease the
equipment back to Hanover. Hanover is entitled under the
compression equipment operating lease agreements to substitute
equipment that it owns for equipment owned by the special
purpose entities, provided that the value of the equipment that
it is substituting is equal to or greater than the value of the
equipment that is being substituted. Hanover generally
substitutes equipment when one of its lease customers exercises
a contractual right or otherwise desires to buy the leased
equipment or when fleet equipment owned by the special purpose
entities becomes obsolete or is selected by Hanover for transfer
to international projects. Each lease agreement limits the
aggregate amount of replacement equipment that may be
substituted to, among other restrictions, a percentage of the
termination
29
value under each lease. The termination value is equal to
(1) the aggregate amount of outstanding principal of the
corresponding notes issued by the special purpose entity, plus
accrued and unpaid interest, and (2) the aggregate amount
of equity investor contributions to the special purpose entity,
plus all accrued amounts due on account of the investor yield
and any other amounts owed to those investors in the special
purpose entity or to the holders of the notes issued by the
special purpose entity or their agents. In the following table,
termination value does not include amounts in excess of the
aggregate outstanding principal amount of notes and the
aggregate outstanding amount of the equity investor
contributions, as such amounts are periodically paid as
supplemental rent as required by Hanover’s compression
equipment operating leases. The aggregate amount of replacement
equipment substituted (in dollars and percentage of termination
value), the termination value and the substitution percentage
limitation relating to each of Hanover’s compression
equipment operating leases as of
March 31, 2007 are as
follows:
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Substitution
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Value of
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Percentage of
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Limitation as
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Substituted
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Termination
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Termination
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Percentage of
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Lease
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Lease
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Equipment
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Value(1)
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Value(1)
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Termination Value
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Termination Date
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|
(Dollars in millions)
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2001A compression equipment lease
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|
$
|
20.2
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14.7
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%
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|
$
|
137.1
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|
25
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%
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|
September 2008
|
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2001B compression equipment lease
|
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|
55.4
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|
21.5
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%
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|
257.7
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|
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|
25
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%
|
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|
September 2011
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Total
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$
|
75.6
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$
|
394.8
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(1) |
|
Termination value assumes all accrued rents paid before
termination. |
In the event Hanover reaches the substitution limitation prior
to a lease termination date, it will not be able to effect any
additional substitutions with respect to such lease. This
inability to substitute could have a material adverse effect on
Holdings’ business, consolidated financial position,
results of operations and cash flows.
The
tax treatment of the Universal Partnership depends on its status
as a partnership for federal income tax purposes, as well as its
not being subject to a material amount of entity-level taxation
by individual states. If the Internal Revenue Service treats the
Universal Partnership as a corporation or it becomes subject to
a material amount of entity-level taxation for state tax
purposes, it would substantially reduce the amount of cash
available for distribution to the Universal Partnership’s
unitholders and undermine the Universal Partnership’s cost
of capital advantage, which would diminish one of the
anticipated benefits of consummating the mergers.
The anticipated after-tax economic benefit of an investment in
the Universal Partnership’s common units depends largely on
its being treated as a partnership for federal income tax
purposes. The Universal Partnership has not received a ruling
from the Internal Revenue Service, or IRS, on this or any other
tax matter affecting it.
If the Universal Partnership were treated as a corporation for
federal income tax purposes, it would pay federal income tax at
the corporate tax rate and would also likely pay state income
tax. Treatment of the Universal Partnership as a corporation for
federal income tax purposes would result in a material reduction
in the anticipated cash flow and after-tax return to its
unitholders, likely causing a substantial reduction in the value
of its common units.
Current law may change so as to cause the Universal Partnership
to be treated as a corporation for federal income tax purposes
or otherwise subject it to entity-level taxation. In addition,
because of widespread state budget deficits and other reasons,
several states are evaluating ways to subject partnerships to
entity-level taxation through the imposition of state income,
franchise and other forms of taxation. The Universal
Partnership’s partnership agreement provides that if a law
is enacted or existing law is modified or interpreted in a
manner that subjects it to taxation as a corporation or
otherwise subjects it to entity-level taxation for federal,
state or local income tax purposes, the minimum quarterly
distribution amount and the target
30
distribution levels of the Universal Partnership may be adjusted
to reflect the impact of that law on it at the option of its
general partner without the consent of its unitholders. If the
Universal Partnership were to be taxed as at the entity level,
it would lose its comparative cost of capital advantage over a
corporation structure, thereby undermining one of the
companies’ key strategic reasons for consummating the
mergers.
The
combined company will face significant competition that may
cause it to lose market share and harm its financial
performance.
The U.S. compression business is highly competitive and there
are low barriers to entry. Following the consummation of the
mergers, Holdings expects to experience competition from
companies that may be able to adapt more quickly to
technological changes within its industry and throughout the
economy as a whole, more readily take advantage of acquisitions
and other opportunities and adopt more aggressive pricing
policies. The ability of Holdings to renew or replace existing
contracts with its customers at rates sufficient to maintain
current revenue and cash flows could be adversely affected by
the activities of its competitors and its customers. If its
competitors substantially increase the resources they devote to
the development and marketing of competitive services or
substantially decrease the price at which they offer their
services, Holdings may not be able to compete effectively. Some
of these competitors may expand or construct newer or more
powerful compression systems that would create additional
competition for the services Hanover and Universal currently
provide to their customers. In addition, customers that are
significant producers of natural gas may purchase their own
compression systems in lieu of using our
contract compression
services. In addition, Holdings’ other lines of business
will face significant competition.
Following the consummation of the mergers, Holdings also may not
be able to take advantage of certain opportunities or make
certain investments because of its significant leverage, the
agreements related to Hanover’s compression equipment lease
obligations and Holdings’ other obligations. All of these
competitive pressures could have a material adverse effect on
the business, results of operations and financial condition of
the combined company.
Natural
gas operations entail inherent risks that may result in
substantial liability to Holdings following the consummation of
the mergers. Hanover and Universal do not insure against all
potential losses and each could be seriously harmed by
unexpected liabilities.
Natural gas operations entail inherent risks, including
equipment defects, malfunctions and failures and natural
disasters, which could result in uncontrollable flows of natural
gas or well fluids, fires and explosions. These risks may expose
Hanover, Universal or, following the consummation of the
mergers, Holdings, as an equipment operator or fabricator, to
liability for personal injury, wrongful death, property damage,
pollution and other environmental damage. Although Hanover and
Universal have obtained insurance against many of these risks,
their insurance may be inadequate to cover their liabilities.
For example, Universal has elected to fully self-insure its
offshore assets. Further, insurance covering the risks Holdings
expects to face or in the amounts it desires may not be
available in the future or, if available, the premiums may not
be commercially justifiable. If Hanover, Universal or Holdings
were to incur substantial liability and such damages were not
covered by insurance or were in excess of policy limits, or if
Hanover, Universal or Holdings were to incur liability at a time
when it was not able to obtain liability insurance, the
business, results of operations and financial condition of the
combined company could be negatively impacted.
Following
the consummation of the mergers, Holdings will be subject to a
variety of governmental regulations.
Following the consummation of the mergers, Holdings will be
subject to a variety of federal, state, local and international
laws and regulations relating to the environment, health and
safety, export controls, currency exchange, labor and employment
and taxation. These laws and regulations are complex, change
frequently and have tended to become more stringent over time.
Failure to comply with these laws and regulations may result in
a variety of administrative, civil and criminal enforcement
measures, including assessment of monetary penalties, imposition
of remedial requirements and issuance of injunctions as to
future compliance. From
time-to-time
as part of the regular overall evaluation of the operations of
Holdings, including newly acquired
31
operations, Holdings may be subject to compliance audits by
regulatory authorities in the various countries in which it
operates.
Environmental laws and regulations may, in certain
circumstances, impose strict liability for environmental
contamination, which may render Holdings liable for remediation
costs, natural resource damages and other damages as a result of
conduct that was lawful at the time it occurred or the conduct
of, or conditions caused by, prior owners or operators or other
third parties. In addition, where contamination may be present,
it is not uncommon for neighboring land owners and other third
parties to file claims for personal injury, property damage and
recovery of response costs. Remediation costs and other damages
arising as a result of environmental laws and regulations, and
costs associated with new information, changes in existing
environmental laws and regulations or the adoption of new
environmental laws and regulations could be substantial and
could negatively impact Holdings’ financial condition or
results of operations.
Following the consummation of the mergers, Holdings may need to
apply for or amend facility permits or licenses from
time-to-time
with respect to storm water or wastewater discharges, waste
handling, or air emissions relating to manufacturing activities
or equipment operations in order to comply with new or revised
permitting conditions. In addition, customer service
arrangements may require Holdings to operate, on behalf of a
specific customer, petroleum storage units such as underground
tanks or pipelines and other regulated units, all of which may
impose additional compliance and permitting obligations.
Following the consummation of the mergers, Holdings will conduct
operations at numerous facilities in a wide variety of locations
across the country. The operations at many of these facilities
will require federal, state or local environmental permits or
other authorizations. Additionally, following the consummation
of the mergers, natural gas compressors at many of
Holdings’ customer facilities will require individual air
permits or general authorizations to operate under various air
regulatory programs established by rule or regulation. These
permits and authorizations frequently contain numerous
compliance requirements, including monitoring and reporting
obligations and operational restrictions, such as emission
limits. Given the large number of facilities in which Holdings
will operate, and the numerous environmental permits and other
authorizations that will be applicable to its operations,
Holdings may occasionally identify or be notified of technical
violations of certain requirements existing in various permits
or other authorizations. Occasionally, both Hanover and
Universal have been assessed penalties for their non-compliance,
and the combined company could be subject to such penalties in
the future.
In addition, future events, such as compliance with more
stringent laws, regulations or permit conditions, a major
expansion of the combined company’s operations into more
heavily regulated activities, more vigorous enforcement policies
by regulatory agencies, or stricter or different interpretations
of existing laws and regulations could require the combined
company to make material expenditures.
The
price of Holdings’ common stock may experience
volatility.
Following the consummation of the mergers, the price of
Holdings’ common stock may be volatile. Some of the factors
that could affect the price of Holdings’ common stock are
quarterly increases or decreases in revenue or earnings, changes
in revenue or earnings estimates by the investment community,
the ability of Holdings to implement its integration strategy
and to realize the expected synergies and other benefits from
the mergers and speculation in the press or investment community
about Holdings’ financial condition or results of
operations. General market conditions and U.S. or international
economic factors and political events unrelated to the
performance of Holdings may also affect its stock price. For
these reasons, investors should not rely on recent trends in the
price of Hanover’s or Universal’s common stock to
predict the future price of Holdings’ common stock or its
financial results.
32
The
charter and bylaws of Holdings contain provisions that may make
it more difficult for a third party to acquire control of it,
even if a change in control would result in the purchase of your
shares of common stock of Holdings at a premium to the market
price or would otherwise be beneficial to you.
There are provisions in Holdings’ restated certificate of
incorporation and
bylaws that may make it more difficult for a
third party to acquire control of it, even if a change in
control would result in the purchase of your shares of common
stock of Holdings at a premium to the market price or would
otherwise be beneficial to you. For example, Holdings’
restated
certificate of incorporation authorizes Holdings’
board of directors to issue preferred stock without stockholder
approval. If the board of directors of Holdings elects to issue
preferred stock, it could be more difficult for a third party to
acquire it. In addition, provisions of Holdings’ restated
certificate of incorporation and
bylaws, such limitations on
stockholder actions by written consent and on stockholder
proposals at meetings of stockholders, could make it more
difficult for a third party to acquire control of Holdings.
Delaware corporation law may also discourage takeover attempts
that have not been approved by the board of directors of
Holdings.
33
CAUTIONARY
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the documents that are
incorporated into this joint proxy statement/prospectus by
reference may contain or
incorporate by reference
forward-looking statements that do not directly or exclusively
relate to historical facts. You can typically identify
forward-looking statements by the use of forward-looking words,
such as
“may,” “will,” “could,”
“project,” “believe,”
“anticipate,” “expect,”
“estimate,” “continue,”
“potential,” “plan,” “forecast”
and other words of similar import. Forward-looking statements
include information concerning possible or assumed future
results of our operations, including statements about the
following subjects:
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• benefits, effects or results of the proposed mergers;
• cost reductions, operating efficiencies or synergies resulting from the proposed mergers;
• ability to obtain regulatory approvals of the proposed mergers and the timing thereof;
• 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;
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• 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.
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These forward-looking statements represent our intentions,
plans, expectations, assumptions and beliefs about future events
and are subject to risks, uncertainties and other factors. Many
of those factors are outside of our control and could cause
actual results to differ materially from the results expressed
or implied by those forward-looking statements. In addition to
the risk factors described in this joint proxy
statement/prospectus under
“Risk Factors,” as well as
the risk factors described in the other documents we file with
the SEC and
incorporate by reference in this joint proxy
statement/prospectus, those factors include:
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our ability to renew our short-term equipment contracts with our
customers so as to fully recoup our cost of the equipment;
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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;
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competition among the various providers of natural gas
compression services, including any introduction of any
competing technologies by other companies;
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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;
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currency exchange rate fluctuations;
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employment workforce factors, including the loss of key
employees;
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changes in safety and environmental regulations pertaining to
the production and transportation of natural gas;
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our ability to implement certain business objectives, such as
international expansion and the ability to timely and
cost-effectively execute integrated projects;
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34
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the inherent risks associated with our operations, such as
equipment defects, malfunctions and natural disasters;
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our ability to obtain components used to fabricate our products;
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changes in governmental safety, health, environmental and other
regulations, which could require us to make significant
expenditures;
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liability related to the use of our products and
services; and
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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.
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In light of these risks, uncertainties and assumptions, the
events described in the forward-looking statements might not
occur or might occur to a different extent or at a different
time than we have described. You should consider the areas of
risk and uncertainty described above and discussed under
“Risk Factors” in this joint proxy
statement/prospectus and the other documents we file with the
SEC and
incorporate by reference in connection with any written
or oral forward-looking statements that may be made after the
date of this joint proxy statement/prospectus by Hanover,
Universal or Holdings or anyone acting for any or all of them.
Except as may be required by law, we undertake no obligation to
publicly update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise.
THE
MERGERS
The discussion in this joint proxy statement/prospectus of
the mergers and the principal terms of the merger agreement are
subject to, and are qualified in their entirety by reference to,
the merger agreement, a copy of which is attached to this joint
proxy statement/prospectus as Annex A and
incorporated into this joint proxy statement/prospectus by
reference.
General
Description of the Mergers
The mergers are structured as all-stock transactions. Prior to
entering into the merger agreement, Universal formed a new
Delaware corporation, Iliad Holdings, Inc., which in turn formed
two wholly owned
subsidiaries, Ulysses Sub, Inc. and Hector Sub,
Inc. The merger agreement contemplates that Ulysses Sub will
merge with and into Universal, with Universal surviving the
merger. In that merger, which we call the
“Universal
merger,” the holders of Universal common stock will receive
the right to receive one share of Holdings common stock for each
share of Universal common stock they hold. As a result, the
current holders of Universal common stock will become,
temporarily, the holders of all of the outstanding shares of
Holdings common stock, and Universal will become a wholly owned
subsidiary of Holdings.
Immediately following the Universal merger, the merger agreement
contemplates that Hector Sub will merge with and into Hanover,
with Hanover surviving the merger. In that merger, which we call
the “Hanover merger,” the holders of Hanover common
stock will receive the right to receive 0.325 shares of
Holdings common stock for each share of Hanover common stock
they hold. As a result, the current holders of Hanover common
stock will become holders of Holdings common stock, and Hanover
will become a wholly owned subsidiary of Holdings.
We refer to the Universal merger and the Hanover merger together
throughout this document as the
“mergers.” Immediately
following completion of the mergers, based on the number of
shares of common stock of each of Hanover and Universal
outstanding as of
February 2, 2007, the last trading day
prior to the public announcement of the mergers, former Hanover
stockholders will own approximately 53% of Holdings’ common
stock and former Universal stockholders will own approximately
47% of Holdings’ common stock. We intend to apply to the
New York Stock Exchange prior to the consummation of the mergers
to list Holdings common stock under the symbol
“ .”
35
Background
of the Mergers
From time to time, the board of directors and management of each
of Hanover and Universal have examined possible strategic
opportunities in an effort to ensure that their respective
company is well positioned for future growth in light of
industry developments. In the first quarter of 2004, an
investment banker met with the management of Universal to
discuss the possibility of a combination of Universal with
Hanover. This same investment banker also met with
Hanover’s management to determine if Hanover was interested
in a combination with Universal. Hanover considered the
information presented by this investment banker but informed the
investment banker that it was not interested in pursuing such a
transaction, primarily because companies in the compression
industry generally, including Hanover and Universal, were then
experiencing a period of relatively weak results of operations
and Hanover was then in the process of completing the settlement
of an SEC investigation and class action securities litigation.
Hanover and Universal did not engage in any direct dialogue
regarding a business combination at this time.
At various times during 2004, members of management of the two
companies had discussions with one another considering various
strategic transactions. Specifically, the parties discussed
transactions that generally involved the leasing or sale of
certain of Hanover’s and Universal’s idle U.S.
compression assets to each other to satisfy the needs of each
other’s respective customers as well as transactions
involving various joint ventures and cooperation arrangements on
international compression projects. Hanover and Universal were
also requested by a major customer to jointly bid on a large
international compression project, though the parties ultimately
did not engage in the project. Hanover and Universal entered
into preliminary discussions with respect to some of these
potential transactions but ultimately were not able to reach an
agreement on the terms of any such transaction. As a result of
these conversations, however, Hanover offered to sell its
Canadian compression assets to Universal. This sale was
ultimately completed in November 2004 for approximately
$57 million in cash.
In the first quarter of 2005, Hanover’s board of directors
authorized
the company to issue shares of common stock in a
registered public offering. Prior to engaging in the offering,
management of Hanover decided to contact Universal to discuss
the possibility of the parties’ merging. In March 2005,
John E. Jackson, President and Chief Executive Officer of
Hanover, Lee E. Beckelman, Senior Vice President and Chief
Financial Officer of Hanover, Stephen A. Snider, the President
and Chief Executive Officer of Universal, and J. Michael
Anderson, the Senior Vice President and Chief Financial Officer
of Universal, met to discuss the possibility of a merger between
the two companies. The parties determined that it was not an
opportune time to pursue a merger between the companies for a
number of reasons, including complications from a financial,
legal and operational perspective associated with such a merger,
issues related to Hanover’s capital structure and overall
leverage at the time and the parties’ respective stock
market valuations relative to one another. At the time,
Hanover’s
debt-to-capital
ratio was relatively high and the equity values of Hanover and
Universal were not substantially similar based on the market
price of their common stock, thus making it difficult to
negotiate a merger of equals. In addition, management of each of
Hanover and Universal was concerned that the pressures
associated with a pending merger transaction would be too
disruptive to the parties given their respective financial
conditions at the time. As a result of this determination,
management of Hanover and Universal decided not to further
pursue merger discussions, and Hanover proceeded with its
registered public offering of common stock, which was completed
in August 2005.
Occasionally in 2005 and the first half of 2006,
Mr. Jackson and Mr. Snider discussed the possibility
of a transaction involving the companies. The discussions
generally related to sales of various U.S. asset packages
between the companies or joint venture arrangements for various
international projects. None of these discussions, however,
resulted in meaningful preliminary negotiations between the
parties regarding a merger or any other strategic transaction.
In July and October 2006, the Hanover board of directors held
regular meetings at which Mr. Jackson made presentations
regarding various strategic alternatives that Hanover was in the
process of evaluating. Included among those strategic
alternatives under consideration was the possibility of Hanover
forming a master limited partnership and commencing an initial
public offering of units in that partnership as well as a
business combination with Universal.
36
In October 2006, the Universal Partnership completed its initial
public offering. Mr. Jackson telephoned Mr. Snider to
congratulate him on the transaction.
In early November 2006, Mr. Jackson telephoned
Mr. Snider to explore the possibility of Hanover and
Universal engaging in a strategic transaction. Among the several
strategic alternatives Mr. Snider and Mr. Jackson
discussed were sales of certain assets by each company to the
other and a possible merger of Hanover and Universal.
Mr. Snider and Mr. Jackson agreed to further discuss
the possibility of a business combination between Hanover and
Universal at an in-person meeting. Each of Mr. Snider and
Mr. Jackson believed that because of improvements in the
business and capital structure of Hanover and Universal, this
could potentially be an opportune time for the parties to
consider a business combination. Hanover had significantly
reduced its
debt-to-capital
ratio compared to early 2004, and the reduced debt at Hanover
had also improved its earnings outlook. Management of each of
Hanover and Universal also believed that because of the improved
financial condition of each company and the industry in general,
each company was then in a better position to withstand the
disruptive pressures associated with a pending merger
transaction. The equity values of Hanover and Universal were
also substantially similar based on the market price of their
common stock, thus making it more likely that the parties could
negotiate a definitive transaction because it would be a merger
of equals. In addition, Universal had completed the initial
public offering of the Universal Partnership. Because Hanover
was considering the formation of its own master limited
partnership, the Universal Partnership made Universal a more
attractive merger party to Hanover than before. Following this
telephone call, Mr. Jackson telephoned Gordon Hall, the
chairman of the Hanover board of directors, to inform him of
these developments.
On
November 21, 2006, Messrs. Jackson, Beckelman,
Snider and Anderson, together with Brian Matusek, the Senior
Vice President — Western Hemisphere of Hanover, Ernie
Danner, the Executive Vice President and Chief Operating Officer
of Universal, Daniel Schlanger, the Vice President of Business
Development of Universal Compression, Inc., and representatives
of Credit Suisse, which from time to time had served as
financial advisor to Hanover, met to discuss the possibility of
a business combination between the companies. After that
meeting, Universal contacted Goldman, Sachs & Co. to
serve as its financial advisor in considering a possible
business combination transaction with Hanover.
On
December 6, 2006, Donald Wayne, the Vice President,
General Counsel and Secretary of Universal, and Gary Wilson, the
Senior Vice President, General Counsel and Secretary of Hanover,
together with their respective antitrust counsel, met to discuss
antitrust considerations relating to a possible business
combination and the regulatory filings that might be required in
connection with any such combination.
On
December 7, 2006, Mr. Wayne and Mr. Wilson
executed, on behalf of their respective companies, a
confidentiality agreement pursuant to which the parties could
exchange confidential financial and other information regarding
their respective business. Following the execution of the
confidentiality agreement, Mr. Wilson telephoned
Mr. Hall to inform him that the parties had executed the
confidentiality agreement, and thereafter Mr. Hall
telephoned each of the Hanover directors to inform them of this
development.
Beginning on
December 11, 2006, Universal management, with
the assistance of representatives of Goldman Sachs, began
analyzing Hanover’s business and considering the potential
benefits, synergies and risks of a combination transaction.
On
December 12, 2006, at a regular meeting of the Universal
board of directors, Mr. Snider informed the Universal board
of directors that a confidentiality agreement had been executed
with Hanover and discussed the possibility of a transaction
between Hanover and Universal, including the parties’
potential strategic fit and synergies.
On
December 15, 2006, Messrs. Jackson, Beckelman,
Snider and Anderson met to discuss a proposed schedule for
conducting due diligence, analyzing potential synergies,
negotiating a merger agreement and analyzing the required
regulatory filings and implications of a potential transaction
and the next steps in the process. After that meeting,
Mr. Jackson telephoned Mr. Hall, who then telephoned
each of the other Hanover directors to notify them of the
information discussed by the parties at the
December 15,
2006 meeting.
37
On
December 20, 2006, the finance committee of the Hanover
board of directors held a special telephonic meeting of the
committee at which Messrs. Jackson and Wilson, Peter H.
Kamin, William C. Pate and a representative of
Vinson & Elkins L.L.P. participated. The committee has
authority under its charter to, among other duties, review
potential business combinations and make recommendations to the
full board of directors. At that time, Messrs. Kamin and
Pate had been appointed to become directors of Hanover,
effective as of
January 1, 2007. Mr. Kamin is a
co-founder and Managing Partner of ValueAct Capital, an
investment partnership that, together with its affiliates, then
held just under 11% of Hanover’s common stock.
Mr. Pate is a Managing Director of Equity Group
Investments, LLC (
“EGI”), a private investment firm
that then held approximately 9% of Hanover’s common stock.
During that meeting, Mr. Jackson provided the finance
committee with an overview of the meetings that had taken place
over the past several weeks related to a potential strategic
transaction between Hanover and Universal. Mr. Jackson led
a discussion regarding the relative business characteristics of
Hanover and Universal as well as their similar business
segments. A representative of Vinson & Elkins
discussed with the committee the customary process associated
with negotiation of a business combination such as the one being
considered by Hanover and Universal. The committee discussed
matters related to the negotiation of a strategic business
combination such as the retention of financial advisors and the
allocation of
break-up
risks and associated fees. The committee also discussed issues
relating to the engagement of a financial advisor to Hanover,
including the structure of the fee payable to any such financial
advisor. The committee authorized Messrs. Jackson and Hall
to negotiate and retain a financial advisor for Hanover in
connection with the consideration of a potential business
combination with Universal. Following the meeting of the finance
committee, Messrs. Hall and Jackson negotiated the terms of
an engagement letter with Credit Suisse whereby Hanover engaged
Credit Suisse to serve as its financial advisor in considering a
potential transaction with Universal.
On
December 27, 2006, Messrs. Beckelman, Matusek,
Anderson, Schlanger and Danner and Larry Lucas, the Vice
President — Strategic Planning and Corporate
Development of Hanover, and Kirk Townsend, a Senior Vice
President of Universal, met to discuss the potential synergies
to be obtained from a business combination.
On
December 28, 2006, Mr. Jackson and Mr. Snider
met to discuss governance and management issues relating to a
business combination. Mr. Snider expressed an interest in
being the chief executive officer of the combined company, and
Mr. Jackson expressed that he was amenable to that result
as long as Hanover would be appropriately represented in
management positions of the combined company. Also on
December 28, 2006, Hanover and Universal began to exchange
confidential financial and other information to conduct due
diligence.
On
December 29, 2006, the Universal board of directors held
a special telephonic meeting at which members of management
provided an update regarding a potential transaction. The
management update addressed, among other things,
Universal’s strategic fit with Hanover, the potential risks
and challenges associated with a transaction and the potential
benefits and synergies that could be obtained following
completion of a transaction. The Universal directors expressed a
desire to continue engaging in discussions and negotiations with
Hanover regarding a transaction.
On
January 2, 2007, Mr. Wayne and Mr. Wilson
conducted a telephone conference with representatives of Baker
Botts L.L.P., counsel to Universal, and Vinson &
Elkins L.L.P., counsel to Hanover, to discuss the structure and
timing of a potential transaction. That same day, members of
Hanover and Universal management, together with representatives
of Vinson & Elkins, Baker Botts, Goldman Sachs and
Credit Suisse, conducted a telephone conference to discuss
various considerations regarding the structure of a transaction.
On
January 4, 2007, the Hanover board of directors held a
special telephonic meeting. Representatives of Credit Suisse,
along with several members of Hanover’s management team,
also participated in the meeting. Mr. Jackson provided the
Hanover board of directors with an overview of the meetings that
had taken place since the
December 20, 2006 meeting of the
finance committee related to a potential strategic transaction
between Hanover and Universal and of the engagement of Credit
Suisse to serve as financial advisor to Hanover in connection
with a possible business combination with Universal.
Mr. Jackson then led a discussion
38
with the board of directors regarding strategic alternatives to
a business combination with Universal, including maintaining
Hanover’s current structure and business strategy, the
formation by Hanover of a master limited partnership, the
acquisition by Hanover of Universal’s international assets,
the sale by Hanover of certain of its assets or a leveraged
buyout. Mr. Jackson discussed the advantages of a business
combination with Universal over these alternative strategies,
including the expected financial synergies, the combination of
personnel, and the increased scale of a combined company.
Representatives of Credit Suisse then discussed various
preliminary financial analyses regarding a potential business
combination of Hanover and Universal. Representatives of Credit
Suisse responded to various questions from directors regarding
potential exchange ratios and other issues related to a
potential business combination. The board of directors also
discussed Hanover’s preliminary results for the fourth
quarter of 2006 and the timing of a public announcement of a
potential business combination with Universal relative to the
public announcement of Hanover’s and Universal’s
results for the fourth quarter of 2006. Hanover’s board of
directors also instructed management to negotiate and execute an
employee non-solicitation agreement with Universal. The Hanover
board of directors then met in executive session to discuss
matters related to the negotiation of a potential business
combination with Universal and, following executive session,
instructed management to continue negotiations with Universal
and to continue its analysis of the potential business
combination. The board of directors also instructed management
to conduct a further analysis of the formation of a master
limited partnership sponsored by Hanover as a strategic
alternative to the proposed business combination with Universal.
On
January 5, 2007, Mr. Jackson and Mr. Snider
met to discuss issues relating to the management of a combined
company. Later that day, members of Hanover and Universal
management, together with representatives of Credit Suisse and
Goldman Sachs, met to discuss financial and operational
information. The parties exchanged information regarding the
preliminary results of their respective performance in the
fourth quarter of 2006 and each company’s financial and
operational outlook for 2007. Representatives of Hanover’s
management also made a presentation to familiarize
Universal’s management with the business segments in which
Hanover is engaged but Universal is not.
Also on
January 5, 2007, representatives of Baker Botts
distributed to Hanover and its counsel an initial draft of the
merger agreement that had been prepared by Baker Botts and
Richards, Layton & Finger, P.A., special Delaware
counsel to Universal.
On
January 8, 2007, Mr. Wilson and Mr. Wayne
executed, on behalf of their respective companies, a
non-solicitation agreement with respect to certain categories of
employees.
Also on
January 8, 2007, the Universal board of directors
held a special meeting at Universal’s offices in Houston at
which representatives of Goldman Sachs, Baker Botts and
Universal’s antitrust counsel, along with several members
of Universal’s management team, were present. During that
meeting, Mr. Snider updated the board of directors
regarding recent discussions with Hanover and its advisors,
including discussions regarding transaction structure.
Mr. Snider noted that counsel to Universal had distributed
a draft of a merger agreement to Hanover and its counsel on
January 5, 2007 and that a structuring meeting had been
scheduled for
January 9, 2007. Mr. Snider stated that
he had also discussed with Mr. Jackson governance and
social issues surrounding a possible transaction and observed
that the parties would continue to discuss these matters.
Representatives of Goldman Sachs then reviewed with the
Universal board of directors Goldman Sachs’ preliminary
financial analysis of a potential transaction. Goldman Sachs
representatives, Mr. Snider and Mr. Danner discussed
Hanover’s lines of business. A representative of Baker
Botts reviewed the directors’ fiduciary obligations in
considering a transaction of this type, the terms of the current
draft of the merger agreement that had been distributed to
Hanover and its counsel and various structuring issues
associated with a transaction. Universal’s antitrust
counsel then discussed with the Universal board of directors
antitrust considerations with respect to a transaction.
On
January 9, 2007, members of management of each of
Hanover and Universal, along with representatives of
Vinson & Elkins and Baker Botts, met to discuss
structuring considerations. The parties discussed several
possible transaction structures and various considerations
regarding each alternative. After considering those issues, the
parties agreed that the preferred transaction structure would
involve Universal’s formation of a holding company with
subsidiaries that would merge into each of Hanover and
Universal. Each of
39
Universal’s and Hanover’s management also provided the
other party with an update regarding its preliminary results for
the fourth quarter of 2006.
On
January 10, 2007, the Universal board of directors held
a special telephonic meeting to discuss the potential
transaction. Mr. Snider began by providing an update
regarding recent meetings between representatives of Hanover and
Universal, noting that most of the structural issues relating to
the potential transaction had been resolved at the
January 9, 2007 meeting between the parties and their
counsel and that the parties were continuing to discuss the
related governance and social issues. Mr. Snider noted that
Hanover had scheduled a special board meeting and discussion
with its financial advisor for
January 12, 2007.
Mr. Snider also discussed with the Universal board of
directors Universal’s preliminary results for the fourth
quarter of 2006 and the impact of finalizing and announcing
those results, as well as Hanover’s fourth quarter results,
on the timing of the proposed transaction.
Also on
January 10, 2007, representatives of Baker Botts
distributed to Hanover and its counsel a draft of the merger
agreement that had been revised to reflect changes to the
transaction structure agreed upon at the
January 9, 2007
meeting.
On
January 11, 2007, Mr. Hall and Mr. Snider met
to discuss management and governance issues relating to a
combined company. Mr. Jackson later joined the meeting and
participated in those discussions. Mr. Anderson then met
with Messrs. Hall and Jackson to discuss financial matters
and other strategies and goals relating to the proposed
transaction and a combined company.
That evening, Mr. Snider had dinner with Messrs. Hall
and Pate during which they discussed Mr. Snider’s
strategies and goals for a combined company.
On
January 12, 2007, the Hanover board of directors held a
special telephonic meeting. Representatives of Credit Suisse and
Vinson & Elkins, along with several members of
Hanover’s management team, also participated in the
meeting. A representative of Vinson & Elkins reviewed
with the directors and answered questions regarding the
directors’ fiduciary obligations in considering a
transaction of this type. Mr. Jackson provided the board of
directors with an update regarding the parties’
discussions, noting that a preliminary draft merger agreement
was under review and that Hanover and Universal had signed an
employee non-solicitation agreement. Mr. Jackson informed
the board of directors that the preliminary results for the
fourth quarter of 2006, which had been previously exchanged by
representatives of Hanover and Universal, indicated that Hanover
expected to be at or above the consensus expectation of
securities analysts regarding its earnings per share and that
Universal expected to be slightly below that consensus on its
earnings per share. The Hanover board of directors discussed the
impact these preliminary results would have on the negotiation
of an exchange ratio in connection with a potential business
combination with Universal. Hanover’s management also
discussed with the board of directors their understanding and
evaluation of Universal’s preliminary results for the
fourth quarter of 2006 and the potential impact those results
may have on results for 2007, based upon discussions between
Hanover’s and Universal’s management. Prior to that
time, representatives of Hanover and Universal had discussed an
exchange ratio based upon the then-current market prices of
Hanover’s and Universal’s common stock. The board of
directors engaged in a discussion of the advantages and
disadvantages of other strategic alternatives to a business
combination with Universal. Specifically, it was noted that a
business combination with Universal would eliminate the resource
and management distraction that would be required for Hanover to
form its own master limited partnership while providing a larger
and more diverse asset base that could be contributed to a
master limited partnership. The Hanover board of directors also
discussed the cost synergies associated with a business
combination with Universal, the improvement in Hanover’s
capital structure as a result of a business combination with
Universal and certain other benefits. Representatives of Credit
Suisse then reviewed and discussed with the Hanover board of
directors Credit Suisse’s preliminary financial analysis of
a potential business combination with Universal. The Hanover
board of directors also discussed with a representative of
Vinson & Elkins issues associated with releasing
Hanover’s preliminary results for the fourth quarter of
2006 prior to the expected announcement of earnings on
February 15, 2007. The directors discussed a preference not
to enter into a merger agreement with Universal until Hanover
and Universal had released their respective results for the
fourth quarter of 2006 unless the
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Hanover stockholders received some premium to the then-current
market price of Hanover’s common stock in connection with
the merger.
Following the Hanover board meeting, Mr. Jackson conveyed
to Mr. Snider the concern expressed by members of the board
of directors with negotiating an exchange ratio prior to the
announcement by Hanover and Universal of their respective
results for the fourth quarter of 2006. Mr. Snider
thereafter distributed an email to the Universal directors to
inform them of the Hanover directors’ position.
Also on
January 12, 2007, the board of directors of the
general partner of the Universal Partnership held a special
telephonic meeting at which Mr. Snider apprised that board
of the potential transaction. Messrs. Snider and Schlanger
then discussed with the board the potential impact of the
transaction on the Universal Partnership.
On
January 16, 2007, Mr. Snider met with Samuel Zell
of EGI, a Hanover stockholder which had previously executed a
non-disclosure agreement with Hanover. Mr. Pate, a director of
Hanover, is a Managing Director of EGI. Mr. Snider and
Mr. Zell discussed issues relating to the senior management
of a combined company and timing of the release of the
parties’ fourth quarter 2006 results. Mr. Snider and
Mr. Zell also discussed the potential impact of the
Universal Partnership on Hanover’s U.S. compression
business and the significance to the combined company of
Hanover’s international business. Mr. Zell
subsequently discussed the potential transaction with Messrs.
Jackson, Hall and Pate, following which Mr. Jackson and
Mr. Hall contacted each of the other Hanover directors.
Hanover’s directors and management determined that it would
be productive to continue negotiating toward a definitive merger
agreement with Universal rather than to wait until each of
Hanover and Universal had announced their respective results for
the fourth quarter of 2006 primarily due to the risk that the
existence of the discussions between the parties might leak to
the market during the period of delay and the potential impact
any such leak could have on the market price of each
company’s stock. Based on these conversations with the
Hanover directors, Hanover decided to propose an exchange ratio
of 0.340 shares of common stock of Universal or the new
holding company to be issued in exchange for each outstanding
share of Hanover common stock.
On
January 17, 2007, Mr. Jackson telephoned
Mr. Snider to propose that exchange ratio.
On
January 18, 2007, members of Universal management met to
discuss and analyze the exchange ratio proposed by Hanover.
Mr. Snider also contacted several board members that day to
convey and discuss Hanover’s proposal.
On
January 18, 2007, Messrs. Jackson and Beckelman met with
representatives of Credit Suisse in New York to review and
discuss potential exchange ratios for the transaction and other
financial aspects of a potential business combination.
On
January 19, 2007, Universal’s management team met
with representatives of Goldman Sachs to discuss and analyze
various exchange ratios for the transaction and other financial
matters related to the proposed business combination. Following
the meeting, Mr. Snider telephoned Mr. Jackson to
schedule a meeting regarding the unresolved transaction issues.
On
January 20, 2007, Mr. Snider and Mr. Jackson
met to discuss the proposed exchange ratio. In response to
Mr. Jackson’s proposal, Mr. Snider
counterproposed an exchange ratio of 0.320 shares of common
stock of Universal or the new holding company to be issued in
exchange for each outstanding share of Hanover common stock.
Mr. Snider and Mr. Jackson also continued their
discussions regarding the senior management of the combined
company and agreed to propose to their respective boards of
directors that Mr. Snider would become the Chief Executive
Officer of the combined company. Mr. Snider and
Mr. Jackson also agreed to propose that the Chairman of the
combined company would come from Hanover’s current board of
directors and that Mr. Danner would be a non-executive
director of the combined company.
On
January 20, 2007, following his meeting with
Mr. Snider, Mr. Jackson telephoned Messrs. Hall,
Pate and Kamin and Stephen Pazuk, the Chairman of the finance
committee of the Hanover board of directors, and representatives
of Credit Suisse to discuss his
January 20, 2007 meeting
with Mr. Snider. Mr. Jackson and Mr. Hall
subsequently telephoned each of the other members of the Hanover
board of directors to discuss the same topic. Following these
discussions with the Hanover directors, Mr. Jackson,
together with representatives
41
of Credit Suisse, telephoned Mr. Snider on
January 22,
2007 to propose an exchange ratio of 0.325 shares of common
stock of Universal or the new holding company to be issued in
exchange for each outstanding share of Hanover common stock,
which represented a premium to Hanover stockholders based on the
then-current market prices of Hanover’s and
Universal’s common stock.
On
January 23, 2007, Mr. Snider telephoned
Mr. Jackson to state that Universal management would
recommend the proposed exchange ratio to Universal’s board
of directors. Later that day, the Universal board of directors
held a special telephonic meeting to review the status of the
proposed transaction. At that meeting, Mr. Snider noted
that Hanover had proposed an exchange ratio of 0.325 shares
of common stock of Universal or the new holding company for
every share of Hanover common stock to be exchanged in the
merger and that Universal management recommended the proposed
exchange ratio. Members of Universal management and the
Universal board of directors then discussed the impact of the
proposed transaction and exchange ratio on Universal.
Mr. Snider noted that any tentative agreement between
Hanover and Universal regarding the exchange ratio would remain
subject to completion of due diligence, finalization of the
merger agreement and final board approval.
Also on
January 23, 2007, representatives of
Vinson & Elkins distributed to Universal and its
counsel a revised draft of the merger agreement reflecting
comments from Vinson & Elkins and Morris Nichols
Arsht & Tunnell LLP, special Delaware counsel to
Hanover.
On
January 25, 2007, Mr. Snider met with
Mr. Jackson, Norman Mckay, the Senior Vice
President — Eastern Hemisphere of Hanover,
Mr. Danner and Mr. Matusek, to discuss potential
roles, responsibilities and positions and other management
issues relating to the combined company. Mr. Jackson and
Mr. Snider then met separately and agreed to propose to
their respective boards of directors that Mr. Hall serve as
Chairman, Mr. Jackson serve as a non-executive director,
Mr. Anderson serve as Chief Financial Officer and
Mr. Matusek serve as Chief Operating Officer of the
combined company.
On
January 26, 2007, Mr. Snider met with the directors
of Hanover in advance of a meeting of the Hanover board to
exchange views regarding the proposed transaction. After
concluding their discussions with Mr. Snider, the Hanover
board of directors held a regular meeting in Houston at which
representatives of Credit Suisse and Vinson & Elkins,
along with several members of Hanover’s management team,
were present. During that meeting, Mr. Jackson provided the
board of directors with an overview of the status of the
negotiations with Universal and the strategic benefits and
expected synergies associated with a business combination with
Universal. The board of directors then engaged in a discussion
of alternative strategic transactions and the advantages and
disadvantages of the proposed business combination with
Universal compared to those alternative strategic transactions.
The primary strategic alternatives considered by the board of
directors were (1) the creation of a master limited
partnership to which Hanover could contribute its U.S. rental
business (if it was successful in restructuring certain customer
contracts) and (2) continuing as an independent company and
focusing on its international growth strategy using available
capital. The board also discussed other general strategies that
might be available to Hanover, including acquisitions of other
assets in the U.S. and in international markets, the sale of
U.S. compression assets to other master limited partnerships and
leveraged buy-out transactions. Representatives of Credit Suisse
then reviewed their preliminary financial analyses regarding the
proposed business combination. Representatives of
Vinson & Elkins reviewed the directors’ fiduciary
obligations in considering a transaction of this type, the terms
of the current draft of the merger agreement that had been
distributed to Hanover and its counsel, various structuring
issues associated with the merger and the legal consequences of
the proposed transaction and remaining matters to be negotiated
by Hanover and Universal. Hanover’s antitrust counsel then
discussed with the Hanover board of directors antitrust
considerations with respect to the proposed transaction. The
Hanover board of directors then met in executive session to
discuss various matters related to the proposed transaction.
On
January 27, 2007, representatives of Baker Botts
distributed to Hanover and its counsel a draft of the merger
agreement that had been revised to reflect discussions among
outside counsel.
On
January 29, 2007, members of management of each of
Hanover and Universal, along with representatives of
Vinson & Elkins, Baker Botts, Credit Suisse and
Goldman Sachs, met to further discuss various financial,
accounting, legal and tax matters. Mr. Anderson first
provided an update regarding Universal’s
42
preliminary results for the fourth quarter 2006.
Mr. Beckelman then provided an update regarding
Hanover’s preliminary results for the fourth quarter 2006.
The parties then discussed a number of financial, tax,
accounting, operational, legal and corporate compliance due
diligence topics.
During the week of
January 29, 2007, Mr. Jackson and
Mr. Snider spoke telephonically several times about
management issues and about the presentation of the proposed
merger to the parties’ respective employees, customers and
suppliers.
On
January 31, 2007, representatives of Vinson &
Elkins distributed to Universal and its counsel a revised draft
of the merger agreement reflecting comments from
Vinson & Elkins and Morris Nichols.
On
February 1, 2007, Mr. Snider and Universal director
Will Honeybourne met with Mr. Jackson and Hanover director
I. Jon Brumley to discuss management issues relating to the
combined company. Also on
February 1, 2007, representatives
of Baker Botts distributed to Hanover and its counsel a draft of
the merger agreement that had been revised to reflect
discussions among outside counsel.
On
February 2, 2007, Messrs. Snider, Jackson and Mckay
engaged in a telephonic discussion of management issues relating
to the combined company.
On February 2 and 3, 2007, counsel to Hanover and Universal
engaged in discussions regarding the draft merger agreement and
exchanged revised drafts of the merger agreement.
On
February 3, 2007, Mr. Hall met with the directors
of Universal in advance of a meeting of the Universal board to
exchange views regarding the proposed transaction. After
concluding their discussions with Mr. Hall, the Universal
board of directors held a special meeting. At the meeting,
Universal’s management, together with representatives of
Goldman Sachs, Baker Botts and Universal’s antitrust
counsel, apprised the Universal board of the status of
discussions and reviewed the terms of the proposed transaction
as reflected in the form of the merger agreement.
Representatives of Goldman Sachs delivered its oral opinion to
the board that, as of that date, based upon and subject to the
factors and assumptions set forth in its opinion, the exchange
ratio pursuant to which Universal’s stockholders would
exchange their common stock for Holdings common stock in the
Universal merger was fair from a financial point of view to
Universal’s stockholders. Representatives of Baker Botts
advised the Universal board regarding the terms of the merger
agreement, certain legal matters and the board’s
consideration of the potential transaction. Representatives of
Universal’s antitrust counsel then discussed with the
Universal board certain antitrust considerations with respect to
the proposed transaction. Following extensive discussion, the
Universal board unanimously 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.
On
February 3, 2007, the Hanover board of directors held a
special telephonic meeting. Representatives of Credit Suisse and
Vinson & Elkins, along with several members of
Hanover’s management team also participated in the meeting.
Hanover’s management apprised the board of directors of the
status of discussions and reviewed the terms of the proposed
mergers as reflected in the form of merger agreement that had
been provided to the directors. Representatives of Credit Suisse
rendered its oral opinion to the Hanover board to the effect
that, as of that date and based upon and subject to the
procedures followed, assumptions made, qualifications and
limitations on the review undertaken and other matters
considered by Credit Suisse in connection with its opinion, the
Hanover exchange ratio was fair from a financial point of view
to holders of Hanover common stock. That opinion was
subsequently confirmed in writing dated the same date.
Representatives of Vinson & Elkins advised the Hanover
board of directors regarding the terms of the merger agreement,
certain legal matters and the board’s consideration of the
potential transaction. Following extensive discussion, the
Hanover board of directors unanimously determined that the
merger agreement and the transactions it contemplates are
advisable and in the best interests of the stockholders of
Hanover, approved the merger agreement and recommended that the
Hanover stockholders vote for the adoption of the merger
agreement.
After the meetings, the merger agreement was executed and
delivered by the parties thereto on
February 5, 2007. On
February 5, 2007, Goldman Sachs delivered its written
opinion to the Universal board that, as of that
43
date, and based on and subject to the factors and assumptions
set forth in its opinion, the exchange ratio pursuant to which
Universal’s stockholders would exchange their common stock
for Holdings common stock in the Universal merger was fair from
a financial point of view to Universal’s stockholders. On
February 5, 2007, before the opening of trading on the New
York Stock Exchange, Hanover and Universal issued a joint press
release announcing the execution of the merger agreement and
their respective projected results for the fourth quarter of
2006.
Strategic
and Financial Rationale for the Mergers
In the course of their discussions, both Hanover and Universal
recognized that there were substantial potential strategic and
financial benefits to be obtained from the mergers. This section
summarizes the primary strategic and financial reasons why
Hanover and Universal entered into the merger agreement. For a
discussion of various factors that could prohibit or limit the
parties’ ability to realize some or all of these benefits
the parties expect to achieve in the merger, please read
“Risk Factors” beginning on page 22,
“— Hanover’s Reasons for the Mergers and
Recommendation of Hanover’s Board of Directors”
beginning on page 45 and “— Universal’s
Reasons for the Mergers and Recommendation of Universal’s
Board of Directors” beginning on page 49.
We believe the mergers will provide the stockholders of each of
Hanover and Universal an opportunity to realize increased
long-term returns on their investment by creating a combined
company that is a global leader in the natural gas compression
services and production and processing equipment fabrication
industry. We believe that the mergers will enhance stockholder
value by, among other things, enabling the parties to capitalize
on the following benefits:
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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Hanover’s
Reasons for the Mergers and Recommendation of Hanover’s
Board of Directors
At its meeting on
February 3, 2007, after due
consideration, the Hanover board of directors unanimously:
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determined that the merger agreement and the transactions
contemplated thereby are advisable and in the best interests of
the stockholders of Hanover;
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approved, authorized and adopted the merger agreement; and
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recommended that the stockholders of Hanover vote FOR
adoption of the merger agreement at the meeting of stockholders
of Hanover.
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In approving the merger agreement and making these
determinations, the Hanover board of directors consulted with
Hanover’s management as well as Hanover’s financial
advisor and legal counsel, and considered a number of factors,
which are discussed below. The following discussion of the
information and factors considered by the Hanover board of
directors is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with the mergers,
the Hanover board of directors did not consider it practicable
to, nor did it attempt to, quantify or otherwise assign relative
weights to the specific material factors it considered in
reaching its decision. In addition, individual members of the
Hanover board of directors may have given different weight to
different factors. The Hanover board of directors considered
this information and these factors as a whole, and overall
considered the relevant information and factors to be favorable
to, and in support of, its determinations and recommendations.
The Hanover board of directors considered the following as
generally supporting its decision to enter into the merger
agreement:
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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.”
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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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.
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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.
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The Hanover board also considered the potential risks of the
mergers, including the following:
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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.
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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.
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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
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Agreement — Covenants and Agreements —
Interim Operations” beginning on page 79 for further
information.
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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 69.
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.
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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.
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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.
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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 on
Form 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.
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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.
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As part of the overall mix of information it considered, the
Hanover board also considered the interests that certain Hanover
executive officers and directors may have with respect to the
mergers in addition to their interests as Hanover stockholders.
See “— Interests of Hanover and Universal
Directors and Executive Officers in the Mergers” beginning
on page 66 for further information. This factor was not
determined to necessarily be in support of or against the
Hanover board’s decision to recommend the mergers.
The Hanover board concluded that, overall, the potential
benefits of the mergers to Hanover and its stockholders
outweighed the risks, many of which are mentioned above.
The Hanover board realized that there can be no assurance about
future results, including results considered or expected as
described in the factors listed above. It should be noted that
this explanation of the reasoning of the Hanover board and all
other information presented in this section are forward-looking
in nature and, therefore, should be read in light of the factors
discussed under the heading “Cautionary Information
Regarding Forward-Looking Statements” beginning on
page 34.
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The Hanover board of directors has unanimously approved,
authorized and adopted the merger agreement, has unanimously
determined that the merger agreement and the transactions
contemplated thereby, including the mergers, are advisable and
in the best interests of the stockholders of Hanover, and
unanimously recommends that Hanover stockholders vote FOR the
proposal to adopt the merger agreement.
Universal’s
Reasons for the Mergers and Recommendation of Universal’s
Board of Directors
At its meeting on
February 3, 2007, after due
consideration, the Universal board of directors unanimously:
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determined that the merger agreement and the transactions it
contemplates are advisable, fair to and in the best interests of
Universal and its stockholders;
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approved the merger agreement; and
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recommended that the Universal stockholders vote for the
adoption of the merger agreement.
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In reaching its determination to recommend the adoption of the
merger agreement, the Universal board of directors consulted
with management as well as Goldman Sachs, Universal’s
financial advisor, and Universal’s legal counsel.
Universal’s board of directors also considered various
material factors that are discussed below. The discussion in
this section is not intended to be an exhaustive list of the
information and factors considered by Universal’s board of
directors. In view of the wide variety of factors considered in
connection with the mergers, the Universal board of directors
did not consider it practicable to, nor did it attempt to,
quantify or otherwise assign relative weights to the specific
material factors it considered in reaching its decision. In
addition, individual members of the Universal board of directors
may have given different weight to different factors. The
Universal board of directors considered this information and
these factors, as a whole and, overall, considered the relevant
information and factors to be favorable to, and in support of,
its determinations and recommendation.
The Universal board of directors considered the following
factors as generally supporting its decision to enter into the
merger agreement:
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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.”
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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.
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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.
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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.
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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.
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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.
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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.
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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).
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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 60. 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 as Annex C to this joint proxy
statement/prospectus.
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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.
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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.
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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.
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Recommendation of Management. The Universal
board considered management’s recommendation in support of
the mergers.
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Stockholder Approval. The Universal board took
into account the requirement that stockholder approval be
obtained as a condition to the consummation of the mergers.
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The Universal board also considered various potential risks of
the mergers, including the following:
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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 on
Form 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.
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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.
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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.
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