UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (Amendment No.  )

 

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EXTERRAN HOLDINGS, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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EXTERRAN HOLDINGS, INC.

 

Dear Fellow Stockholder:

 

You are invited to attend the 2009 Annual Meeting of Stockholders of Exterran Holdings, Inc. on April 30, 2009, in Houston, Texas. Your attendance at the meeting will give you the opportunity to meet members of our Board of Directors as well as our senior management team.

 

The formal notice of the Annual Meeting, Proxy Statement and form of proxy that follow provide information regarding the matters to be voted on at the meeting as well as information regarding other items of interest to our stockholders.

 

Your vote is important. Regardless of the size of your stockholdings, we want to see your shares represented at the Annual Meeting. Please vote your shares by one of the methods offered and explained in the Proxy Statement and on the enclosed proxy card. If you have access to the Internet, we urge you to vote your shares electronically.

 

We hope to see you at the 2009 Annual Meeting.

 

Sincerely,

 

Gordon T. Hall

Chairman of the Board

 

March 25, 2009

 

EXTERRAN HOLDINGS, INC.

 

 

2009 PROXY STATEMENT

 

EXTERRAN HOLDINGS, INC.
16666 Northchase Drive
Houston, Texas 77060

 

PROXY STATEMENT FOR 2009 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 2009

 

The Board of Directors has sent these proxy materials to you to solicit your vote at the 2009 Annual Meeting of Stockholders (the “2009 Stockholders’ Meeting”). The meeting will begin promptly at 1:00 p.m. local time on Thursday, April 30, 2009, at Exterran’s corporate offices located at 16666 Northchase Drive, Houston, Texas 77060. This Proxy Statement and form of proxy are first being sent to stockholders on or about March 25, 2009, and are accompanied by our 2008 Annual Report. Exterran Holdings, Inc., a Delaware corporation, is also referred to in this Proxy Statement as “we,” “us,” “our,” “Exterran” or the “Company.”

 

The 2009 Stockholders’ Meeting will be held for the following purposes:

 

1. to elect ten directors to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified;

 

2. to ratify the appointment of Deloitte & Touche LLP as Exterran’s independent registered public accounting firm for fiscal year 2009;

 

3. to approve Amendment No. 1 to the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan; and

 

4. to transact such other business as may properly come before the meeting.

 

All of these items are discussed in more detail in this Proxy Statement.

 

Owners of Exterran’s common stock, $0.01 par value per share, as of the close of business on March 5, 2009, are entitled to receive notice of and to vote at the 2009 Stockholders’ Meeting. At the close of business on March 5, 2009, there were 62,295,595 shares of common stock issued and outstanding. Each share of common stock entitles the holder to one vote on all matters submitted to a vote at the 2009 Stockholders’ Meeting and any adjournment or postponement of the meeting. A complete list of the stockholders entitled to vote will be available for examination at the meeting and for at least 10 days prior to the meeting at our corporate offices located at 16666 Northchase Drive, Houston, Texas 77060.

 

A quorum of stockholders is necessary for a valid meeting. The presence in person or by proxy of the holders of a majority of the outstanding shares of our common stock will constitute a quorum for the 2009 Stockholders’ Meeting. Under our Second Amended and Restated Bylaws and under Delaware law, abstentions and “broker non-votes” are counted as present in determining whether the quorum requirement is satisfied. A “broker non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that proposal and has not received instructions from the beneficial owner. Under the rules of the New York Stock Exchange (“NYSE”), if you hold your shares through a bank or broker, your broker is permitted to vote your shares on the election of directors and ratification of our independent registered public accounting firm even if the broker has not received instructions from you.

The table below shows the vote required to approve each of the proposals described in this Proxy Statement.

 

 

For any other matters that may be properly presented for consideration at the 2009 Stockholders’ Meeting, the persons named as proxies will have discretion to vote on those matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. As of the date of this Proxy Statement, we do not anticipate that any other matters will be properly presented for consideration at the 2009 Stockholders’ Meeting.

 

Shares of our common stock held through the Exterran Holdings, Inc. Retirement and Savings Plan will be voted by the plan participant as though such participant was a registered holder with respect to such shares of common stock allocated to the participant’s plan account.

 

Because many stockholders cannot attend the 2009 Stockholders’ Meeting in person, it is necessary that a large number of stockholders be represented by proxy. You can vote your proxy by one of the following three methods:

 

 

You may receive more than one proxy card, depending on how you hold your shares. You should vote each proxy card provided to you using one of the above methods. Please refer to your proxy card or the information forwarded by your bank, broker or other nominee to determine which options are available for voting the proxy. The Internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow you to confirm that your instructions have been properly recorded.

 

A proxy may be revoked at any time before it is voted by sending written notice of revocation to our Secretary, by delivering a later dated proxy (by one of the methods described above) or by voting in person at the meeting. The Secretary may be contacted at the following address: Exterran Holdings, Inc., 16666 Northchase Drive, Houston, Texas 77060, Attention: Secretary.

 

This solicitation is made on behalf of the Board of Directors. We will pay the cost of soliciting proxies. Proxies are being solicited by mail and may be solicited by telephone, facsimile, or in person by our employees, who will not receive additional compensation for any such solicitation. Laurel Hill Advisory Group, LLC has been retained to assist in the solicitation of proxies at a fee of $7,500, plus reimbursement for out-of-pocket expenses. We will also request brokers and other fiduciaries to forward proxy soliciting materials to the beneficial owners of shares of our common stock that are held of record by such brokers and fiduciaries, and we will reimburse their reasonable out-of-pocket expenses.

PROPOSAL 1

 

ELECTION OF DIRECTORS

 

Ten directors are nominated to be elected to the Board of Directors at the 2009 Stockholders’ Meeting, to hold office until our next annual meeting of stockholders or until their respective successors are duly elected and qualified. Each nominee has consented to serve as a director if elected.

 

Information concerning the name, age and background of each of the nominees for election to the Board of Directors is set forth below. Ages are stated as of March 5, 2009. Certain of the nominees listed below previously served as directors of Hanover Compressor Company (“Hanover”) or Universal Compression Holdings, Inc. (“Universal”) and were appointed to the Board of Directors of Exterran on August 20, 2007, the effective date of a series of mergers among Hanover, Universal and certain of its subsidiaries that resulted in Hanover and Universal becoming wholly owned subsidiaries of Exterran.

 

Janet F. Clark , 54, has served as a director since January 2003. Ms. Clark was appointed Executive Vice President and Chief Financial Officer of Marathon Oil Company (an international energy company) in January 2007, having served as Senior Vice President and Chief Financial Officer since January 2004. Prior to joining Marathon Oil, Ms. Clark served as Senior Vice President and Chief Financial Officer of Nuevo Energy Company (a natural gas and oil exploration company) from December 2001 through December 2003, and as Executive Vice President, Corporate Development and Administration, and Senior Vice President and Chief Financial Officer of Santa Fe Snyder Corporation (subsequently merged into Devon Energy Corporation) and its predecessor, Santa Fe Energy Resources, Inc., from 1997 through 2000. Ms. Clark serves as a director of several non-profit organizations.

 

Ernie L. Danner , 54, has served as a director since our acquisition of Tidewater Compression Service, Inc. in 1998, and as President and Chief Operating Officer since October 2008. Prior to the merger of Universal and Hanover, Mr. Danner served in various positions of increasing responsibility at Universal from 1998 until 2007, including as an Executive Vice President from February 1998 to 2007 and Chief Operating Officer from July 2006 to August 2007. Prior to joining Universal, he served as Chief Financial Officer and Senior Vice President of MidCon Corp. (an interstate pipeline company and a wholly-owned subsidiary of Occidental Petroleum Corporation). Mr. Danner is a director of Exterran GP LLC, the managing general partner of Exterran Partners, L.P. (a master limited partnership in which we own a majority interest) and Copano Energy, L.L.C. (a natural gas gathering and processing company). Mr. Danner also serves as a director of Anchor Drilling Fluids, Inc. (a privately held company providing drilling fluid services to exploration and

production companies), as a member of the Board of Trustees of the John Cooper School in The Woodlands, Texas and as an officer and director of certain majority-owned subsidiaries of Exterran.

 

Uriel E. Dutton , 78, has served as a director since February 2001, initially as a designee of WEUS Holding, Inc. following the acquisition of Weatherford Global Compression Services, L.P. Mr. Dutton has been counsel to and a partner with the law firm of Fulbright & Jaworski L.L.P. for over 50 years, where his practice focuses on real estate and oil and gas matters. Mr. Dutton also serves as director and Vice President of the M.D. Anderson Foundation (a charitable organization).

 

Gordon T. Hall , 49, has served as a director since March 2002 and Chairman of the Board since May 2005. Prior to his election as a director, Mr. Hall was a Managing Director at Credit Suisse First Boston (a brokerage services and investment banking firm). While at Credit Suisse First Boston, Mr. Hall served as Senior Oil Field Services Analyst and Co-Head of the Global Energy Group. Mr. Hall joined the First Boston Corporation in 1987 as a technology analyst. Mr. Hall was a director of Hydril Company (an oil and gas service company specializing in pressure control equipment and premium connections for tubing and casing) until its merger with Tenaris S.A. in May 2007 and was a director of Grant Prideco, Inc. (a drill technology and manufacturing company) until its acquisition by National Oilwell Varco, Inc. in April 2008. Mr. Hall serves as a director of several non-profit organizations.

 

J.W.G. “Will” Honeybourne , 57, has served as a director since April 2006. Mr. Honeybourne has been Managing Director of First Reserve Corporation (a private equity firm) since January 1999, where he is responsible for deal origination, investment structuring and monitoring, focusing on the energy services and manufacturing sectors and international markets. Prior to joining First Reserve, Mr. Honeybourne served as Senior Vice President of Western Atlas International (a seismic and wireline-logging company). Mr. Honeybourne currently serves as a director of Acteon Group (a U.K.-based offshore and subsea services company), Red Technology Alliance (a First Reserve joint venture with Halliburton) and Abbott Group (a U.K.-based drilling company).

 

John E. Jackson , 50, has served as a director since July 2004. Mr. Jackson is Chairman, Chief Executive Officer and President of Price Gregory Services, Inc. (a pipeline-related infrastructure service provider in North America), a position he has held since February 2008. Prior to the merger of Universal and Hanover in August 2007, Mr. Jackson served as Hanover’s President and Chief Executive Officer from October 2004, having joined Hanover in January 2002 as Senior Vice President and Chief Financial Officer. Mr. Jackson is currently a director of Seitel Inc. (a provider of seismic data and geophysical expertise) and Encore Energy Partners GP LLC (the general partner of Encore Energy Partners, L.P., an oil and gas exploration and production partnership) and serves on the board of the Prison Entrepreneurship Program, a non-profit organization.

 

William C. Pate , 45, has served as a director since January 2007. Mr. Pate is Chief Investment Officer and a Managing Director of Equity Group Investments, L.L.C., or EGI (a private investment firm), and serves as a member of the board of directors of certain private affiliates of EGI. Prior to joining EGI in 1994, Mr. Pate was an associate with The Blackstone Group (a global asset management and advisory services firm) and served in the mergers and acquisitions group of Credit Suisse First Boston (a brokerage services and investment banking provider). Mr. Pate also serves as a director of Covanta Holding Corporation and MiddleBrook Pharmaceuticals, Inc.

 

Stephen M. Pazuk, 65, has served as a director since February 2004. Mr. Pazuk is the Chief Financial Officer and Treasurer of Drive Thru Technology, Inc. (a provider of computer-based surveillance equipment, systems and monitoring), a position he has held since 2000. He has also been involved in venture capital investments and real estate development in Boston, Massachusetts, and Fresno and Clovis, California, since his retirement as Senior Vice President, Treasurer and Partner of Wellington Management Company, LLP (a global investment advisor) in June 2000. Mr. Pazuk started his career with Wellington in 1968 and held

various positions during his tenure, including Treasurer of Wellington Trust Company NA and President of Wellington Sales Company. Mr. Pazuk currently serves on the board of several privately-held companies.

 

Christopher T. Seaver , 60, has served as a director since October 2008. Mr. Seaver was appointed chairman of the board of Hydril Company in 2006, CEO and director in 1997 and president in 1993, and served in such capacities until the company’s acquisition by Tenaris S.A. and his retirement in May 2007. Mr. Seaver joined Hydril in 1985. He has been a director and officer of the Petroleum Equipment Suppliers Association, a director of the American Petroleum Institute, and a director and chairman of the National Ocean Industries Association. Prior to joining Hydril, Mr. Seaver was a corporate and securities attorney for Paul, Hastings, Janofsky & Walker, and was a Foreign Service Officer in the U.S. State Department, with postings in Kinshasa, Republic of Congo, and Bogota, Colombia. Mr. Seaver also serves on the board of directors of Oil States International, Inc. (a manufacturer and provider of services in support of oil and gas land drilling and deepwater production facilities) and is a director and officer of The Seaver Institute, a charitable trust.

 

Stephen A. Snider , 61, has served as director since our acquisition of Tidewater Compression Services, Inc. in 1998 and currently serves as Chief Executive Officer, having also served as President from August 2007 to October 2008. Prior to the merger of Hanover and Universal in August 2007, Mr. Snider held the positions of President, Chief Executive Officer and director of Universal since 1998, and he was appointed Chairman of Universal’s Board of Directors in April 2006. He has over 30 years of experience in senior management of operating companies. Mr. Snider also serves as Chief Executive Officer and director of Exterran GP LLC. Mr. Snider is on the board of directors of Energen Corporation (a diversified energy company focusing on natural gas distribution and oil and gas exploration and production) and the Memorial Hermann Hospital System and serves as an officer and director of certain majority-owned subsidiaries of Exterran.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE

FOR

THE ELECTION OF EACH OF THE NOMINEES TO THE BOARD OF DIRECTORS.

 

The Board of Directors (the “Board”) has designated an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee to assist in the discharge of the Board’s responsibilities. Members of each committee are elected by the Board at its first meeting following the annual meeting of stockholders and serve for one-year terms. The Board and the committees of the Board are governed by our Code of Business Conduct, Corporate Governance Principles and committee charters, which are reviewed by the Board annually and are available to the public on our website at www.exterran.com or in print by submitting a written request to Exterran Holdings, Inc., 16666 Northchase Drive, Houston, Texas 77060, Attention: Secretary.

 

Exterran’s Code of Business Conduct requires all employees, officers and non-employee directors to avoid situations that may impact their ability to carry out their duties in an independent and objective fashion. Any circumstances that have the potential to compromise their ability to perform independently must be disclosed. This policy is made available to all employees. In addition, we distribute director and officer questionnaires at least annually to elicit related-party information. The questionnaire requires that responses be updated to the extent circumstances change.

The Nominating and Corporate Governance Committee assesses director independence each year by considering all direct and indirect business relationships between Exterran and each director (including his or her immediate family), as well as relationships with other for-profit concerns and charitable organizations. With the Nominating and Corporate Governance Committee’s recommendation, the Board makes a determination relating to the independence of its members, which is based on applicable laws, regulations, Exterran’s Corporate Governance Principles and the rules of the NYSE.

 

During the Nominating and Corporate Governance Committee’s most recent review of independence, the committee was provided information regarding transactions with any related parties as determined through a search of our accounting records as well as the responses to the director and officer questionnaires; as a result, the relationships described in this Proxy Statement under the section titled “Certain Relationships and Related Transactions” were reviewed by the Nominating and Corporate Governance Committee.

 

Based on the recommendation of the Nominating and Corporate Governance Committee, the Board determined that the following directors are independent: Ms. Clark and Messrs. Dutton, Hall, Honeybourne, Pate, Pazuk and Seaver. Mr. Snider is not independent by virtue of his role as Chief Executive Officer of Exterran, Mr. Danner is not independent by virtue of his role as President and Chief Operating Officer of Exterran, and Mr. Jackson is not independent by virtue of his former role as an executive of Hanover.

 

Mr. Hall serves as Chairman of the Board and presides over the executive sessions of the Board, which are attended by non-management directors only and are held at every regularly scheduled Board meeting. The Board also holds at least one executive session each year in which only the independent members of the Board participate.

 

Stockholders may communicate with the entire Board or any individual member of the Board by writing to us at the following address: Exterran Holdings, Inc., 16666 Northchase Drive, Houston, Texas 77060, Attention: Secretary. All written inquiries will be immediately forwarded to the Chairman of the Board. In addition, any concern or inquiry may be communicated to the Audit Committee or the Board by calling our hotline at 1-800-281-5439 (within the U.S. and Canada) or 1-832-554-4859 (outside the U.S. and Canada).

 

Audit Committee

 

Purpose.   The Audit Committee has been appointed by the Board to assist the Board in its oversight of the integrity of our financial statements, our compliance with legal and regulatory requirements, the independence, qualifications and performance of the independent auditor, the performance of our internal audit function and the independent auditor and our systems of disclosure controls and procedures and internal controls over financial reporting. The Audit Committee operates under a Board-approved written charter, a copy of which is available as indicated in the section titled “— Governance” above.

 

 

The Board has determined that each member of the Audit Committee is independent and possesses the requisite financial literacy to serve on the Audit Committee. The Board has also determined that each member qualifies as an “audit committee financial expert” as that term is defined by the Securities and Exchange Commission (the “SEC”). No member of the Audit Committee serves on the audit committee of more than two other public companies. The Report of the Audit Committee is included in this Proxy Statement on page 14.

Compensation Committee

 

Purpose.   The Compensation Committee has been appointed by the Board to oversee the development and implementation of our compensation philosophy and strategy with the goals of attracting and retaining the executive talent required to achieve corporate objectives and linking pay and performance. The Compensation Committee operates under a Board-approved written charter, a copy of which is available as indicated in the section titled “— Governance” above.

 

 

The Board has determined that each member of the Compensation Committee is independent. The Report of the Compensation Committee is included in this Proxy Statement on page 43.

 

Nominating and Corporate Governance Committee

 

Purpose.   The Nominating and Corporate Governance Committee has been appointed by the Board to identify qualified individuals to become Board members, determine whether existing Board members should be nominated for re-election, review the composition of the Board and its committees, oversee the evaluation of the Board and review and implement our Corporate Governance Principles. The Nominating and Corporate Governance Committee operates under a Board-approved written charter, a copy of which is available as indicated in the section titled “— Governance” above.

 

 

The Board has determined that each member of the Nominating and Corporate Governance Committee is independent.

Attendance at Meetings

 

The Board and its committees held the following number of meetings and acted by unanimous written consent the following number of times during 2008:

 

 

We expect members of the Board to attend all meetings. The directors standing for re-election attended, as a group, 98% of the meetings of the Board and Board committees on which they served during calendar year 2008. Each director standing for re-election attended at least 92% of the meetings of the Board and Board committees on which he or she served during 2008. Directors are also encouraged to attend the annual meeting of stockholders, and in 2008 all of our directors attended the meeting.

 

Stockholders may propose director nominees to the Nominating and Corporate Governance Committee (for consideration for election at the 2010 Annual Meeting of Stockholders) by submitting, within the time frame set forth in this Proxy Statement on page 56, the names and supporting information (including confirmation of the nominee’s willingness to serve as a director) to: Exterran Holdings, Inc., 16666 Northchase Drive, Houston, Texas 77060, Attention: Secretary. See the section titled “General Information — 2010 Annual Meeting of Stockholders.”

Any stockholder-recommended nominee will be evaluated in the context of our director qualification standards and the existing size and composition of the Board. The Nominating and Corporate Governance Committee believes that all Board candidates should be selected for their character, judgment, ethics, integrity, business experience, time commitment and acumen. The Board, as a whole, through its individual members, seeks to have competence in areas of particular importance to us such as finance, accounting, international business and relevant technical expertise. Directors must be committed to enhancing the long-term interests of our stockholders as a whole and should not be biased toward the interests of any particular segment of the stockholder or employee population. Board members should also be prepared to travel to personally attend meetings of the Board and its committees and should be ready to dedicate sufficient time to prepare in advance of such meetings to allow them to make an effective contribution to the meetings. Further, Board members should ensure that they are not otherwise committed to other activities which would make a commitment to the Board impractical or unadvisable and should satisfy the independence, qualification and composition requirements of the Board and its committees, as required by law, regulation or the rules of the NYSE, our certificate of incorporation and bylaws and our Corporate Governance Principles.

Compensation Committee Interlocks and Insider Participation

 

The members of the Compensation Committee of the Board of Directors during the last completed fiscal year were Messrs. Honeybourne, Pate and Pazuk. There are no matters relating to interlocks or insider participation that we are required to report.

 

The following provides information regarding our executive officers as of March 5, 2009. Certain of our executive officers also serve as officers of Exterran GP LLC, the managing general partner of Exterran Partners, L.P., a master limited partnership in which we own a majority interest (the “Partnership”). Information concerning the business experience of Messrs. Danner and Snider is provided under the Section titled “— Nominees for Director” beginning on page 3 of this Proxy Statement.

 

J. Michael Anderson , 46, is Senior Vice President, Chief Financial Officer and Chief of Staff. He also serves as Senior Vice President and director of Exterran GP LLC, positions he has held since June 2006 and October 2006, respectively. Prior to the merger of Hanover and Universal, Mr. Anderson was Senior Vice President and Chief Financial Officer of Universal, a position he assumed in March 2003. Mr. Anderson held various positions with Azurix Corp. (a water and wastewater utility and services company), including as Chief Financial Officer and later as Chairman and Chief Executive Officer. Prior to that time, he spent ten years in the Global Investment Banking Group of J.P. Morgan Chase & Co., where he specialized in merger and acquisitions advisory services. Mr. Anderson also serves as an officer and director of certain other Exterran majority-owned subsidiaries.

 

Kenneth R. Bickett , 47, is Vice President — Finance and Accounting. He also serves as Vice President and Controller of Exterran GP LLC, a position he has held since June 2006. Prior to the merger of Hanover and Universal and from July 2005, Mr. Bickett served as Vice President, Accounting and Corporate Controller of Universal. Mr. Bickett previously served as Vice President and Assistant Controller for Reliant Energy, Inc. (an electricity and energy services provider). Prior to joining Reliant Energy in 2002, Mr. Bickett was employed by Azurix Corp. from 1998, most recently as Vice President and Controller. Mr. Bickett also serves as an officer of certain other Exterran majority-owned subsidiaries.

 

D. Bradley Childers , 44, is Senior Vice President. He also serves as Senior Vice President and director of Exterran GP LLC, positions he has held since June 2006 and May 2008, respectively, and as President, North America of Exterran Energy Solutions, L.P., a position he has held since March 2008. From August 2007 through March 2008, Mr. Childers served as Exterran’s Senior Vice President, Corporate Development. Prior to the merger of Hanover and Universal, Mr. Childers was Senior Vice President of Universal and President of the International Division of Universal Compression, Inc., Universal’s wholly owned subsidiary, positions he held from July 2006. Previously, he served as Senior Vice President, Business Development, General Counsel and Secretary of Universal beginning in April 2005 and as Senior Vice President, General Counsel and

Secretary of Universal beginning in September 2002. Prior to joining Universal, he held various positions with Occidental Petroleum Corporation (an international oil and gas exploration and production company) and its subsidiaries from 1994 to 2002, including Vice President, Business Development at Occidental Oil and Gas Corporation and corporate counsel. Mr. Childers also serves as an officer and director of certain other Exterran majority-owned subsidiaries.

 

Joseph G. Kishkill, 44 , is Senior Vice President.  He also serves as President, Latin America of Exterran Energy Solutions, L.P., a position he has held since March 2008. Prior to the merger of Hanover and Universal in August 2007, Mr. Kishkill held the position of Vice President, Latin America with Universal Compression Argentina S.A. (a wholly owned subsidiary). Mr. Kishkill joined Universal in 2002 as a General Manager in South America. Mr. Kishkill held positions of increasing responsibility with Enron Corporation from 1990 to 2001, advancing to Chief Executive Officer for South America. During his career, Mr. Kishkill has been based in Brazil and Argentina and has provided management services for energy projects and pipelines throughout South America. Mr. Kishkill also serves as an officer of certain other Exterran majority-owned subsidiaries.

 

Norman A. “Norrie” Mckay, 49, is Senior Vice President. He also serves as President, Eastern Hemisphere of Exterran Energy Solutions, L.P., a position he has held since March 2008. Mr. Mckay held the position of Senior Vice President, Eastern Hemisphere with Hanover from July 2006 until Hanover’s merger with Universal in August 2007. He joined Hanover as a Vice President in May 2005. From 1981 to May 2005, Mr. Mckay served in a variety of engineering and management positions of increasing responsibility with Schlumberger Ltd. (a global oilfield services provider) and its affiliates. During his career, Mr. Mckay has been based in Houston as well as a number of international locations, including Bolivia, Italy, Libya, France, Mexico, Venezuela, United Kingdom and, currently, Dubai. Mr. Mckay also serves as an officer of certain other Exterran majority-owned subsidiaries.

 

Steven W. Muck , 56, is Senior Vice President, Global Human Resources. Prior to the merger of Hanover and Universal, Mr. Muck served as Vice President, Global Human Resources and Health, Safety and Environment of Hanover since July 2006, having served as Vice President, Latin America since May 2005. Mr. Muck joined Hanover in 2000 as Vice President, International Operations. From 1997 to 2000, Mr. Muck served as Vice President of Worldwide Operations of Dresser-Rand Compressor Services (a provider of equipment to the oil, gas and chemical industries). In addition, Mr. Muck held positions in sales, marketing and operations with Dresser-Rand and its predecessor, Ingersoll Rand, from 1975 to 1997. Mr. Muck also serves on the board of directors of the Greenspoint District (a private real estate development and management organization) and as an officer of certain other Exterran majority-owned subsidiaries.

 

Daniel K. Schlanger , 35, is Senior Vice President, Operations Services. He also serves as Senior Vice President and director of Exterran GP LLC, positions he has held since June 2006 and October 2006, respectively, and served as Chief Financial Officer of Exterran GP LLC from June 2006 through March 2009. From May 2006 until the merger of Hanover and Universal, Mr. Schlanger served as Vice President, Corporate Development of Universal Compression, Inc. (a wholly owned subsidiary of Universal). From August 1996 through May 2006, Mr. Schlanger was employed as an investment banker with Merrill Lynch & Co. where he focused on the energy sector. Mr. Schlanger also serves as an officer of certain other Exterran majority-owned subsidiaries.

 

Donald C. Wayne , 42, is Senior Vice President, General Counsel and Secretary. He also serves as Senior Vice President and General Counsel of Exterran GP LLC, a position he has held since August 2006. Prior to the merger of Hanover and Universal, Mr. Wayne served as Vice President, General Counsel and Secretary of Universal, a position he held since joining Universal in August 2006. Prior to joining Universal, he served as Vice President, General Counsel and Secretary of U.S. Concrete, Inc. (a producer of ready-mixed concrete and concrete-related products) from 1999 to August 2006. Prior to joining U.S. Concrete in 1999, Mr. Wayne served as an attorney with the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. Mr. Wayne also serves as an officer and director of certain other Exterran majority-owned subsidiaries.

BENEFICIAL OWNERSHIP OF COMMON STOCK

 

The following table provides information about beneficial owners, known by us as of March 5, 2009, of more than 5% of our outstanding common stock (the “5% Stockholders”). Unless otherwise noted in the footnotes to the table, the 5% Stockholders named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them.

 

 

 

 

The following table provides information, as of March 5, 2009, regarding the beneficial ownership of our common stock by each of our directors, each of our Named Executive Officers (as identified on page 15 of this Proxy Statement), and all of our current directors and executive officers as a group. Unless otherwise noted in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Unless otherwise noted, the address for each executive officer and director listed below is c/o Exterran Holdings, Inc., 16666 Northchase Drive, Houston, Texas 77060.

 

 

 

 

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and persons who beneficially own more than 10% of our common stock to file reports with the SEC and NYSE and us to disclose their initial beneficial ownership of common stock and changes in such ownership. To our knowledge, based upon a review of such reports furnished to us and certifications from our directors and executive officers, we believe that during 2008, all of our directors, executive officers and beneficial owners of more than 10% of our common stock complied with all Section 16(a) filing requirements applicable to them.

PROPOSAL 2

 

RATIFICATION OF APPOINTMENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

 

Deloitte & Touche LLP (“Deloitte”) served as our independent registered public accounting firm for the fiscal year ended December 31, 2008. The Audit Committee has selected Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2009. We are submitting the selection of Deloitte for stockholder ratification at the 2009 Stockholders’ Meeting. A representative of Deloitte is expected to be present at the 2009 Stockholders’ Meeting and will have an opportunity to make a statement and to respond to appropriate questions from stockholders.

 

Our organizational documents do not require that our stockholders ratify the selection of our independent registered public accounting firm. We are requesting such ratification because we believe it is a matter of good corporate practice. If our stockholders do not ratify the selection, the Audit Committee will reconsider whether to retain Deloitte. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of us and our stockholders.

Fees Paid to the Independent Registered Public Accounting Firm

 

The following table presents fees for professional services rendered by Deloitte and its member firms and respective affiliates on behalf of Exterran for calendar years 2007 and 2008:

 

 

 

 

In considering the nature of the services provided by Deloitte, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with our independent registered public accounting firm and our management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.

 

The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by our independent registered public accounting firm. This policy generally provides that we will not engage our independent registered public accounting firm to render audit or non-audit services, and will not engage any other independent registered public accounting firm to render audit services, unless the service is specifically approved in advance by the Audit Committee.

 

The Audit Committee’s practice is to consider for approval, at its regularly scheduled meetings, all audit and non-audit services proposed to be provided by our independent registered public accounting firm. In situations where a matter cannot wait until the next regularly scheduled committee meeting, the chair of the Audit Committee has been delegated authority to consider and, if appropriate, approve audit and non-audit services. Approval of services and related fees by the Audit Committee chair are reported to the full Audit Committee at the next regularly scheduled meeting. All services performed by our independent registered public accounting firm in 2008 were pre-approved by the Audit Committee.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR
THE RATIFICATION OF THE REAPPOINTMENT OF DELOITTE & TOUCHE LLP.

 

The purpose of the Audit Committee is to assist the Board of Directors in its general oversight of Exterran’s financial reporting, internal controls and audit functions. The Audit Committee Charter describes in greater detail the full responsibilities of the Audit Committee and is available on Exterran’s website at www.exterran.com.

 

The Audit Committee has reviewed and discussed the consolidated financial statements and management’s assessment of internal controls over financial reporting with management and Deloitte & Touche LLP (“Deloitte”), the Company’s independent registered public accounting firm. Management is responsible for the preparation of financial statements and the reporting process, including the system of internal controls. Deloitte is responsible for performing an independent audit of Exterran’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to issue a report thereon. The Audit Committee monitors these processes.

 

The Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management and the independent auditors. The Audit Committee serves a board-level oversight role, in which it provides advice, counsel and direction to management and the independent auditors on the basis of the information it receives, discussions with management and the independent auditors, and the experience of the Audit Committee’s members in business, financial and accounting matters. The Audit Committee has the authority to engage its own outside advisers, including experts in particular areas of accounting, as it determines appropriate, apart from counsel or advisers hired by management.

 

In this context, the Audit Committee met and held discussions with management and Deloitte. Management represented to the Audit Committee that Exterran’s consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, and the Audit Committee reviewed and discussed the consolidated financial statements with management and Deloitte. The Audit Committee also discussed with Deloitte the matters required to be discussed by Statement on Auditing Standards No. 61 (Codification of Statements on Auditing Standards, AU 380), as amended.

 

In addition, the Audit Committee discussed with Deloitte its independence from Exterran and its management, and Deloitte provided to the Audit Committee the written disclosures and letter required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditors’ communications with the Audit Committee concerning independence. The Audit Committee discussed with Exterran’s internal auditors and Deloitte the overall scope and plans for their respective audits. The Audit Committee met with the internal auditors and Deloitte, with and without management present, to discuss the results of their examinations, their evaluations of Exterran’s internal controls, and the overall quality of Exterran’s financial reporting.

 

Based on the reviews and discussions referred to above, the Audit Committee recommended to Exterran’s Board of Directors, and the Board has concurred, that (i) the audited financial statements be included in Exterran’s Annual Report on Form 10-K for the twelve months ended December 31, 2008, for filing with the Securities and Exchange Commission; (ii) Deloitte meets the requirements for independence; and (iii) the appointment of Deloitte for 2009 be submitted to the stockholders for ratification.

 

Submitted by the Audit Committee
of the Board of Directors

 

Janet F. Clark, Chair

Gordon T. Hall

William C. Pate

Christopher T. Seaver

 

This Compensation Discussion and Analysis (“CD&A”) provides information about our compensation objectives and policies for our chief executive officer, chief financial officer and four other of our most highly compensated executive officers, including Mr. Matusek, whose employment with us concluded in August 2008 (our “Named Executive Officers”). This CD&A provides additional context for the numbers presented in the compensation tables that follow this discussion. For calendar year 2008, the following individuals comprised our Named Executive Officers:

 

 

The Compensation Committee is comprised of independent, non-employee directors and operates under a charter approved by the full Board of Directors, which is available on our website at www.exterran.com . The fundamental responsibilities of the Compensation Committee are to:

 

 

We and the Compensation Committee believe that compensation programs play a vital role in attracting and retaining people with the level of expertise and experience needed to help achieve the business objectives that ultimately drive both short- and long-term success and stockholder value. To attract, retain and motivate an effective management team, the Compensation Committee has guided management in developing a compensation program linking pay and performance in a manner consistent with our corporate values. These values include the recognition of the importance of retaining talented employees and fostering an

entrepreneurial spirit within an environment of well-reasoned risk-taking to achieve consistent growth, profitability and return for our stockholders.

 

Our philosophy is to provide total compensation to our management that is competitive with that of similarly-sized companies across a variety of industries and within the oilfield services sector by targeting cash compensation at the 50th percentile of those groups and by targeting equity compensation at the 50th to 75th percentile of those groups, as further described below in the section entitled “— How Our Compensation Committee Determines Executive Compensation.” The combination of these target percentiles positions our executives’ compensation competitively relative to the market.

 

We also emphasize at-risk compensation as an important component of our overall compensation philosophy. More than half of our Named Executive Officers’ compensation for 2008 was “at risk.” This is consistent with our emphasis on a pay for performance philosophy and is intended to focus executives and key employees on our short-term goal of profitability as well as our long-term strategic goals of sustained growth and enhanced stockholder value.

 

During 2008, we experienced an increased level of competition in the marketplace for highly qualified personnel due to a shortage of talent available within the oilfield services industry. The hiring and retention of experienced managers and individuals with the technical skills necessary for our successful operation became a key focus of senior management and the Compensation Committee, and our compensation practices during 2008 reflected an effort to attract and retain those individuals with the skills and experience necessary to generate improved operating results and long-term stockholder value. With the deterioration of the financial markets in late 2008, retention issues became less significant and the Compensation Committee focused on developing a compensation program for 2009 that would continue to further the compensation philosophies described in this section and take into account the recent uncertainty and volatility in the financial and energy markets.

 

Our executive compensation programs are managed from a “total rewards” perspective, with consideration given to each of the following components:

 

 

In addition to base salaries and annual incentive bonuses, our U.S. and certain of our international employees are provided and share in the cost of customary health and welfare benefits and are eligible to participate in the Exterran 401(k) Plan and the Exterran Employee Stock Purchase Plan. In addition, certain employees are also eligible to participate in the Exterran Deferred Compensation Plan. An employee whose employment is terminated due to a change of control or reduction in workforce is eligible to receive severance benefits, and certain executive officers, including our Named Executive Officers, have been provided with change of control arrangements, as further described below. Employees who are asked to relocate outside of their home country are provided with an expatriate compensation package, which generally includes assistance with housing, auto and education expenses and, where applicable, a cost of living adjustment. Information on the compensation paid to our Named Executive Officers can be found in tabular format in the Summary Compensation Table on page 31 of this Proxy Statement.

 

The chairman of our Compensation Committee, with the Compensation Committee’s authorization, entered into an agreement for Towers Perrin LLC to act as an independent third-party consultant to the Compensation Committee. Towers Perrin has been directed by our Compensation Committee to:

 

 

The scope of Towers Perrin’s compensation review includes an analysis of competitive factors in the marketplace and further takes into consideration our financial plans, strategic direction, organizational structure and compensation philosophy.

Role of Our Executive Officers in Compensation Decisions

 

The most significant aspects of management’s, including our Chief Executive Officer’s, role in the compensation-setting process are:

 

 

Our Chief Executive Officer annually reviews the performance of each of his direct reporting officers. His recommendations with respect to salary adjustments, annual cash incentives and equity awards are based on these performance reviews and are then presented to the Compensation Committee for consideration. The Compensation Committee determines the compensation of our executive officers in its discretion, taking into account the recommendations of our Chief Executive Officer and other data and materials made available to the Compensation Committee.

 

In determining the appropriate levels of compensation, including total direct compensation and its principal components, for our executive officers, the Compensation Committee reviewed general industry (as defined below) and oilfield services-specific data and analyses provided by Towers Perrin, as well as data contained in the proxy statements of the oilfield services companies selected for our peer group. In this section we describe how our Compensation Committee determines executive compensation, including the role of each of these three sets of external data.

 

Towers Perrin provided the Compensation Committee with comparative compensation data from companies across a variety of industries (which we refer to as the “general industry”), totaling in excess of 750 companies, which was then regressed for companies with annual revenue of approximately $3 billion. In addition, the Compensation Committee considered survey data from the oilfield services industry provided by Towers Perrin. This data included the following 15 companies with a median revenue of $2.3 billion: Atwood

Oceanics, Inc., Baker Hughes Incorporated, Bristow Group Inc., Cameron International Corporation, Diamond Offshore Drilling, Inc., ENSCO International Incorporated, Global Industries, Ltd., Halliburton Company, Helmerich & Payne, Inc., Noble Corporation, Oil States International, Inc., Pride International, Inc., Rowan Companies, Inc., Schlumberger Limited and Transocean Inc. The Compensation Committee used this data both to consider overall trends in executive compensation and to target executive cash compensation at the 50th percentile and long-term incentive compensation at the 50th to 75th percentile. Actual cash and long-term incentive compensation during 2008 for our Named Executive Officers as a group approximated the median of the survey data evaluated by the Compensation Committee.

 

The Compensation Committee believes the combination of this general industry data and oilfield services data provides a broad-based view of executive compensation across multiple industry segments based on similar company size and executive compensation practices. This provides valuable information for structuring an executive compensation program that is generally competitive, allows the Compensation Committee to identify a target compensation range and appropriately position executive compensation within that target range, as indicated above, and provides the data necessary to support individual compensation decisions for comparable positions in the general and oilfield services industries.

 

The Compensation Committee also uses executive compensation data published in the proxy statements of our peer group as an additional source of information in assessing whether our executive compensation program is appropriately positioned and competitive based on our industry and size. In addition, since we compete with our peer group for managers with oilfield services experience and talent, this data is used to determine if our compensation program provides an adequate retention feature. For 2008, the Compensation Committee identified our peer group as consisting of the following companies:

 

 

For 2009, the Compensation Committee determined to use an expanded peer group because it believes that a greater diversity of oilfield services companies will provide a more enhanced overview of compensation. The 2009 peer group, which follows, was selected so that we are positioned at the median in terms of revenue for the year ended December 31, 2007. This peer group includes companies with a larger range of revenues and with both domestic and international operations, and reflects more completely those companies with which we compete for technical and managerial talent.

 

 

 

In addition to its review of competitive market data relative to the general industry, oilfield services industry and our peer group, on a periodic basis, the Compensation Committee reviews each executive officer’s current and past total compensation, including a three year look-back at base salary, short-term incentive pay, the value of long-term incentives and payouts in the event of a termination following a change of control. In its most recent review of executive compensation, in February 2009, the Compensation Committee considered our relative performance under rapidly changing market conditions, and, taking into account the recommendations of our Chief Executive Officer with respect to each executive officer other than himself (as described above), it focused on each executive officer’s performance within that officer’s scope of responsibilities, our strategic initiatives and that officer’s ability to contribute to those initiatives, and his future potential and experience, with no specific weighting assigned to any of these factors.

 

Each of the compensation components provided to executive officers and key employees is further described below.

 

Base Salaries

 

2008.   Our Compensation Committee has determined that, to attract and retain sufficient talent, base pay generally should be set near the median of that for similarly-sized companies in the general industry and the oilfield services industry, as described above. In addition to considering market comparisons in making salary decisions, the Compensation Committee exercises judgment and discretion based upon each executive’s level of responsibility, individual skills, experience in the executive’s current role, the executive’s expected future role, performance, and external factors involving competitive positioning and general economic conditions. No specific formula is applied to determine the weight of each of these factors. Performance evaluations are conducted during the first quarter of each year and the resulting adjustments in base salaries generally are effective shortly thereafter.

 

In February 2008, the Compensation Committee approved the following adjustments, effective in April 2008, to the annual base salaries of our Named Executive Officers, which took into account the factors

described above in the context of a larger organization after the merger of Universal and Hanover in August 2007 and each executive’s level of increased responsibility within the larger organization:

 

 

 

 

2009.   In late 2008, our management and the Compensation Committee considered the level of uncertainty in the oil and gas industry created by the financial crisis. In January 2009, our management and the Compensation Committee suspended 2009 merit increases in base salary for our executives (including our Named Executive Officers) and employees and indicated that decision would be re-evaluated based on a mid-year review of our performance relative to our business plan.

 

Annual Performance-Based Incentive Compensation

 

2008.   In January 2008, our Compensation Committee adopted the Exterran Annual Performance Pay Plan (the “APPP”) to provide the short-term incentive compensation element of our total direct compensation program. Under the APPP, each Named Executive Officer was eligible to receive an annual cash award based on our level of achievement of specified corporate performance objectives established by the Compensation Committee for fiscal year 2008, as well as the individual Named Executive Officer’s performance assessment, determined primarily through his performance evaluation for that year. The amount of each Named Executive Officer’s award under the APPP for 2008 was to be calculated by multiplying (i) a target percentage of his base salary by (ii) the level of our achievement of the applicable corporate performance measures (ranging from 0% to 200% of the target performance level) by (iii) his individual performance coefficient (ranging from 0% to 125%) for the year.

 

In determining the target 2008 bonus opportunity for each Named Executive Officer, the Compensation Committee considered his relative responsibility, his role in continuing our integration subsequent to the August 2007 merger of Hanover and Universal and his potential impact on the achievement of our performance goals. Those bonus targets, expressed as a percentage of each Named Executive Officer’s base salary for 2008, were as follows:

 

 

 

 

For each 2008 company performance measure, there were three possible levels of attainment: threshold (50% of objective), target (100% of objective) and maximum (200% of objective). No awards were made for any performance measure for which the threshold was not met; awards were prorated for performance between the threshold and maximum levels.

 

The following table shows the corporate measures under the APPP adopted by the Compensation Committee, and the results achieved under those measures, for the year ended December 31, 2008 (dollars in millions; horsepower in thousands):

 

 

 

 

Based on our performance as of December 31, 2008, the payout as computed under the APPP for each Named Executive Officer would have been approximately 62% of his 2008 bonus target. In its discretion, the Compensation Committee made adjustments to the weightings of the incentive measures to better reflect the relative importance of each of these measures to our performance in 2008. As a result of these adjustments, the payout for each Named Executive Officer was reduced to approximately 59% of his 2008 bonus target. Finally, the Compensation Committee considered whether to make an individual adjustment to each Named Executive Officer’s 2008 APPP award based on a subjective review of each executive officer’s performance within his scope of responsibilities and, taking into account the recommendations of our Chief Executive Officer with respect to each executive officer other than himself, as described above, determined not to make any individual adjustment. The following payout amounts were approved by the Compensation Committee and were applied to our Named Executive Officers as indicated:

 

 

 

 

2009.   In February 2009, the Compensation Committee adopted a short-term incentive program (the “Incentive Program”) to provide the short-term incentive compensation element of our total direct compensation program for this year. Under the Incentive Program, which replaces the APPP for 2009, each Named Executive Officer will be eligible to receive an annual cash award based on the Compensation Committee’s assessment of our performance for 2009 relative to key business activities and key business indicators listed below, as well as one or more of the following items that the Compensation Committee may choose to consider, in its discretion:

 

 

The key business activities and key business indicators relate to the following in 2009:

 

 

The Compensation Committee intends to award performance-based short-term incentive compensation for 2009 under the Incentive Program based on the Compensation Committee’s assessment, with input from management, of our performance based on the criteria listed above, as well as each executive officer’s individual contribution toward those criteria. No specific weight will be assigned to any particular Company performance or individual level of contribution, and, with respect to a performance-based award to be made to a particular executive officer, no specific weight will be made as between Company performance and individual contribution.

Each executive officer’s target bonus payment under the Incentive Program will be a specified percentage of that individual’s base salary, and each executive officer’s actual bonus payment may be paid out at a level of 0% to 200% of target bonus based on Company performance, as may be adjusted based on individual performance, in each case based on the Compensation Committee’s determination, in its discretion and with input from management, of the level of attainment of applicable Company and individual performance. The Compensation Committee considered the relative responsibility of each executive officer and his potential impact on the achievement of our performance criteria in determining the target 2009 bonus opportunity for each of the Named Executive Officers (expressed as a percentage of each Named Executive Officer’s base salary for 2009), which is as follows:

 

 

 

 

We anticipate that awards under the Incentive Program for the year ending December 31, 2009 will be determined and paid in the first quarter of 2010.

 

We have not disclosed target levels with respect to the key business activities and indicators described above because we believe such disclosure would provide third parties with information that would cause us competitive harm. In particular, the target performance levels for the key business activities and indicators are based on our strategic business plan and reflect confidential business information. These targets are derived from internal analyses and projections of our performance, reflecting our business strategy for the current year. Because these targets were developed strictly for internal planning purposes and their disclosure would provide our competitors, customers and other third parties with significant insights regarding our confidential planning process and strategies that could cause us substantial competitive harm, we do not disclose these targets publicly. Also, the Compensation Committee has reserved the right to modify the target levels of one or more of these criteria in its discretion based on internal and external developments during the course of 2009.

 

The target levels with respect to the key business activities and indicators described above generally reflect levels that the Compensation Committee considers sufficiently aggressive but achievable based on the underlying operating assumptions. The Compensation Committee believes that these targets were set at levels such that achievement of the target levels will require significant effort on the part of our executive officers and that payment of the maximum amounts would reflect results substantially in excess of expectations. The Compensation Committee believes that our performance goals for 2009 generally are similar to those set for 2008 in terms of the difficulty of achievability at target levels. As described above, two of our performance goals for 2008 (Consolidated EBITDA and North America Contracted Horsepower Growth) were not achieved at threshold levels, and one performance goal (International Bookings) was achieved above threshold but below target level.

 

Long-Term Incentive Compensation

 

2008.   Our Compensation Committee and management believe that our executive officers and other key employees should have an ongoing stake in our success and that these individuals should have a meaningful portion of their total compensation tied to the achievement of our strategic objectives and long-term financial and operational performance. In considering the composition of the long-term incentive awards (“LTI Awards”) for 2008, the Compensation Committee also considered the need to enhance retention of executives and key employees in light of the vesting of those individuals’ pre-2007 equity awards upon the August 2007 merger

of Hanover and Universal. Based on this review, the Compensation Committee established the mix of 2008 long-term incentive awards for our executive officers generally to consist of 45% Exterran restricted stock, 45% Exterran stock options and 10% phantom units of the Partnership, or a combination of the foregoing to certain other key employees. Approximately 46% to 59% of the aggregate amounts of the 2008 LTI Awards to our Named Executive Officers reflects the Compensation Committee’s intent to strengthen the equity-based incentive compensation element for our Named Executive Officers in light of the accelerated vesting of certain of their outstanding incentive-based equity awards in connection with the merger. Our Compensation Committee believes that:

 

 

2009.   In considering the composition of the LTI Awards for 2009, the Compensation Committee applied the same philosophies discussed above for 2008, except that for 2009 the Compensation Committee did not emphasize strengthening the equity-based incentive compensation element for the Named Executive Officers in light of the accelerated vesting of certain of their outstanding incentive-based equity awards in connection with the merger in 2007. Based on these philosophies, the Compensation Committee established the mix of 2009 LTI Awards for our executive officers (including our Named Executive Officers) to consist of 45% Exterran restricted stock, 45% Exterran stock options and 10% phantom units of the Partnership, or a combination of the foregoing to certain other key employees.

 

Any award of equity is considered effective, and a value is assigned based on the closing market price of our common stock, on the date of Compensation Committee or Board approval. The Compensation Committee has also delegated limited authority to our Chief Executive Officer to grant off-cycle equity awards, with the following restrictions:

 

 

During 2008, our Chief Executive Officer granted an aggregate of 4,445 stock options and 30,208 shares of restricted stock to our employees pursuant to this delegation of authority by the Compensation Committee.

 

401(k) Retirement and Savings Plan

 

The Exterran 401(k) Plan provides employees, including our Named Executive Officers, the opportunity to defer up to 25% of their eligible salary, up to the Internal Revenue Service (“IRS”) maximum deferral amount, on

a pre-tax basis. This is accomplished through contributions to an account maintained by an independent trustee. We match 100% of an employee’s contribution to a maximum of 1% of the employee’s annual eligible compensation, plus 50% of an employee’s contribution from 2% to a maximum of 5% of the employee’s annual eligible compensation. The employee directs how contributions to the 401(k) Plan are invested. Employees vest in our matching contributions after two years of service. The Exterran 401(k) Plan includes a sunset provision which requires that employees divest their Plan account of our common stock by December 31, 2010.

 

Employees’ Supplemental Savings Plan

 

Prior to the merger, Universal sponsored an Employees’ Supplemental Savings Plan (the “ESSP”), through which employees with an annual base salary of $100,000 or more, including certain of the Named Executive Officers, could defer up to 25% of their eligible salary on a pre-tax basis. The ESSP is a nonqualified, deferred compensation plan and participation was voluntary. Participants could also defer up to 100% of their incentive bonus in 25% increments. Universal’s policy was to provide matching contributions to the ESSP in the form of Universal common stock. Deferrals from bonuses were not eligible for the match. The match limits of 3% and 4.5% (based on company tenure) were aggregate amounts that included both the Universal 401(k) Plan and the ESSP match amounts. The ESSP was designed in part to provide a mechanism to restore qualified plan benefits that were reduced as a result of limitations imposed under the Internal Revenue Code of 1986, as amended (the “Code”). It also enabled deferral of compensation that would otherwise be treated as excess employee remuneration by Universal within the meaning of Section 162(m) of the Code.

 

Effective January 1, 2008, the ESSP was amended to (i) change the plan sponsor to Exterran, (ii) freeze the ESSP with respect to new participation and contributions as of December 31, 2007 and (iii) fully vest the accounts of active participants as of that date. The ESSP is intended to be a “grandfathered” plan for purposes of Section 409A of the Code.

 

Deferred Compensation Plan

 

Under the Exterran Deferred Compensation Plan (the “Deferred Compensation Plan”), key management and highly compensated employees, including our Named Executive Officers, may (i) defer receipt of their compensation, including up to 100% of their salaries and up to 100% of their bonuses, and (ii) be credited with company contributions that are designed to serve as a make-up for the portion of the employer-matching contribution that cannot be made under the Exterran 401(k) Plan due to qualified plan limits under the Code. We may, but have no obligation to, make discretionary contributions on behalf of a participant, in such form and amount as our Compensation Committee deems appropriate, in its sole discretion.

 

Participant elections with respect to deferrals of compensation and distributions generally must be made in the year preceding that in which the compensation is earned, except that our Compensation Committee may permit a newly eligible participant to make deferral elections up to 30 days after he or she first becomes eligible to participate in the Deferred Compensation Plan. The Deferred Compensation Plan is an “unfunded” plan for state and federal tax purposes, and participants have the rights of our unsecured creditors with respect to their Deferred Compensation Plan accounts.

 

Participants may elect to receive distributions of their accounts while still employed by us or upon the participant’s separation from service or disability, each as defined in the Deferred Compensation Plan, either in a lump sum or in two to 10 annual installments. Distributions will be made in cash, except that a participant may elect to have any portion of his or her account that is deemed invested in our common stock distributed in shares of common stock if the distribution is made prior to January 1, 2011.

 

Employee Stock Purchase Plan

 

The Exterran Holdings, Inc. Employee Stock Purchase Plan (the “ESPP”) provides our eligible employees, including our Named Executive Officers, an option to purchase our common stock through payroll deductions and is designed to comply with Section 423 of the Code. Our Compensation Committee, which administers the ESPP, has the discretion to set the purchase price at 85% to 100% of the fair market value of a share of our common stock on one of the following dates: (i) the offering date, (ii) the purchase date or (iii) the

offering date or the purchase date, whichever is lower. Our Compensation Committee has determined that employees who elect to participate in the ESPP will initially have an option to purchase a share of our common stock at the lesser of (i) 85% of the fair market value of a share of common stock on the offering date or (ii) 85% of the fair market value of a share of common stock on the purchase date. The initial offering period commenced on October 1, 2007, and offering periods consist of three-month periods, or such other periods as may be determined from time to time by our Compensation Committee. A total of 650,000 shares of our common stock has been authorized and reserved for issuance under the ESPP. At December 31, 2008, 574,010 shares remained available for purchase under the ESPP.

 

Amended and Restated 2007 Stock Incentive Plan

 

The Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan (the “Stock Incentive Plan”) is administered by our Compensation Committee and authorizes the issuance of awards, at the discretion of our Compensation Committee, of stock options, restricted stock, restricted stock units, stock appreciation rights and performance awards to our directors and employees and employees of our subsidiaries. A maximum of 4,750,000 shares of our common stock is available for issuance under the Stock Incentive Plan. The Stock Incentive Plan was approved by Universal’s and Hanover’s stockholders in connection with their approval of the merger of the two companies on August 20, 2007, and was subsequently amended by our Board of Directors.

 

Medical Expense Reimbursement Plan

 

The Medical Expense Reimbursement Plan (“MERP”) is a plan made available to certain of our executive officers that supplements the standard medical and dental benefit plans available to all our employees. During 2008, the MERP provided for reimbursement, in an amount up to $10,000, of certain out-of-pocket medical costs incurred by the executive or his dependents that were not covered by our standard medical and dental plans.

 

Perquisites

 

We made what we believe were limited use of perquisites during 2008. A taxable benefit of tax preparation and planning services was made available to certain of our executive officers. The health care and insurance coverage provided to our executives was the same as that provided to all active employees with the exception of the MERP, which provided for additional medical, dental, and vision benefits to certain of our executive officers during 2008. In addition, we have agreed that Mr. Snider and his spouse will be entitled to continue to participate at no cost in our medical benefit plan following his retirement, provided he remains our active employee until the time of his retirement. The Compensation Committee established a policy in early 2009 that tax gross-ups will no longer be provided on income attributable to change of control agreements entered into in the future or executive or director perquisites.

 

Base Salary

 

In accordance with our overall philosophy and practice to provide generally for 4% base salary increases from 2007 to 2008, and based on a written performance evaluation conducted by the Board of Directors in February 2008, the Compensation Committee increased Mr. Snider’s annual base salary by 4.8% to $600,000, effective April 1, 2008. As described above in the section entitled “— How Our Compensation Committee Determines Executive Compensation — Base Salaries,” the Compensation Committee determined to suspend annual salary increases in 2009, including those for Mr. Snider and the other executive officers.

 

Annual Performance-Based Incentive Compensation

 

In reviewing Mr. Snider’s performance during 2008, the Compensation Committee considered his impact on continued merger integration efforts and, in light of the expectation that Mr. Danner will assume the role of Chief Executive Officer upon Mr. Snider’s planned retirement by June 30, 2009, the Compensation Committee also considered Mr. Snider’s efforts to begin the transition of duties to Mr. Danner in late 2008. Based on the

foregoing factors and in the sole discretion of the Compensation Committee, it determined to make no individual adjustment with respect to Mr. Snider’s APPP award for 2008. As described above in the section entitled “— How Our Compensation Committee Determines Executive Compensation — Annual Performance-Based Incentive Compensation,” the Compensation Committee made adjustments to the weightings of the incentive measures to better reflect the relative importance of each of these measures in 2008, which resulted in a reduced payout to Mr. Snider, from approximately 62% of his base salary to approximately 59% of his base salary, of $352,800.

 

The Compensation Committee has determined that Mr. Snider will participate in the Incentive Program for 2009, as discussed above in the section entitled “— Annual Performance-Based Incentive Compensation — 2009,” although the amount of his award under the Incentive Program will be prorated for the period from January 1, 2009 through the date of his planned retirement by June 30, 2009 (the “Employment Period”). Mr. Snider may elect to be paid his award either upon his retirement or in March 2010 concurrently with the payment of awards to the other Named Executive Officers. With respect to Company performance, the amount of Mr. Snider’s award will be determined by the Compensation Committee in its sole discretion, based on the Compensation Committee’s assessment of our performance for (i) the Employment Period, if Mr. Snider elects to be paid his award upon his retirement, or (ii) the year ending December 31, 2009, if Mr. Snider elects to be paid his award in March 2010. With respect to individual performance, the amount of Mr. Snider’s award will be determined by the Compensation Committee in its sole discretion, based on the Compensation Committee’s evaluation of Mr. Snider’s individual performance during the Employment Period.

 

Long-Term Incentive Award

 

Our Compensation Committee considered it in the best interests of our company and our stockholders to emphasize long-term incentives as a key component of Mr. Snider’s total compensation in 2008. To recognize the importance of Mr. Snider’s role in the continued successful integration during 2008 of Hanover and Universal, our Compensation Committee approved on March 4, 2008, the following LTI Awards for Mr. Snider:

 

 

In addition, the compensation committee of the board of directors of Exterran GP LLC, on behalf of the general partner of the Partnership, approved on March 4, 2008 the following LTI Award for Mr. Snider under the Partnership Plan:

 

 

The size and type of awards provided to Mr. Snider, taken together with the other elements of his compensation, were determined by the Compensation Committee to be appropriate and were designed to encourage the achievement of our short and long-term business objectives, improved operating results and growth in stockholder value and to ensure a greater ownership stake in Exterran Holdings, thereby further aligning Mr. Snider’s interests with those of our stockholders. In addition, 50% of the aggregate amounts of these awards reflects the Compensation Committee’s intent to strengthen the equity-based incentive compensation element for Mr. Snider in light of the accelerated vesting of certain of his outstanding incentive-based equity awards in connection with the merger of Hanover and Universal in 2007.

 

In contemplation of Mr. Snider’s planned retirement as our Chief Executive Officer by June 30, 2009, and in recognition of his 18 years of service to us, in October 2008 the Compensation Committee approved amendments to each agreement pursuant to which Mr. Snider was granted options, restricted stock or Partnership unit appreciation rights (collectively, the “Exterran Award Agreements”) under the Universal

Compression Holdings, Inc. Incentive Stock Option Plan, the Universal Compression Holdings, Inc. Restricted Stock Plan for Executive Officers and the Stock Incentive Plan. The amendments provide that (a) each outstanding unvested option and share of restricted stock granted under the Exterran Award Agreements will vest in full upon Mr. Snider’s retirement date and (b) the exercise term of each option and unit appreciation right granted under the Exterran Award Agreements will be extended through its original term, as set forth in the applicable plan or Exterran Award Agreement.

 

Also in October 2008, the compensation committee of the board of directors of Exterran GP LLC, the managing general partner of the Partnership, approved amendments to each award agreement pursuant to which Mr. Snider was granted unit options or phantom units with DERs (collectively, the “Partnership Award Agreements”) under the Partnership Plan. The amendments provide that (a) each outstanding phantom unit granted under the Partnership Award Agreements will vest in full upon Mr. Snider’s retirement date and (b) the exercise term of each unit option granted under the Partnership Award Agreements will be extended through its original term, as set forth in the applicable Partnership Award Agreement.

 

As a result of these amendments, approximately $104,000 of expense for stock and phantom unit awards and approximately $472,000 of expense for option awards that would not otherwise have been recognized in 2008 was recognized and included in the Stock Awards and Option Awards columns, respectively, in the Summary Compensation Table following this CD&A.

 

As discussed above in the section entitled “How Our Compensation Committee Determines Executive Compensation — Long-Term Incentive Compensation — 2009,” on March 4, 2009, the Compensation Committee approved the 2009 LTI Awards to our executive officers, including the following LTI Awards to Mr. Snider:

 

 

In addition, the compensation committee of the board of directors of Exterran GP LLC, as managing general partner of the Partnership, approved on March 4, 2009, the following LTI Award for Mr. Snider under the Partnership Plan:

 

 

In discretion and in contemplation of Mr. Snider’s planned retirement as our Chief Executive Officer by June 30, 2009, the Compensation Committee adjusted the 2009 LTI Award for Mr. Snider to an aggregate grant date value that was approximately 42% of the aggregate grant date value of his 2008 LTI Award. In addition, in recognition of his 18 years of service to us, the Compensation Committee adopted award agreements for Mr. Snider that provide, with respect to his anticipated retirement, that (a) the outstanding unvested options and restricted shares granted on March 4, 2009 will vest in full upon Mr. Snider’s retirement date and (b) upon Mr. Snider’s retirement, the exercise term of each option granted on March 4, 2009, will be seven years from the date of grant. Also in connection with Mr. Snider’s 2009 LTI Award, Exterran GP LLC’s compensation committee adopted a separate award agreement for Mr. Snider that provides that each outstanding phantom unit granted on March 4, 2009 will vest in full upon Mr. Snider’s retirement date.

 

Change of Control Provisions in Equity Plans

 

The Stock Incentive Plan provides for accelerated vesting of outstanding equity awards in the event of a change of control.

Change of Control Provisions in 401(k) Plans

 

The Exterran 401(k) Plan provides for accelerated vesting of all company matching contributions in the event of a change of control.

 

Hanover and Universal Change of Control Agreements

 

Prior to the merger, each of Hanover and Universal had entered into change of control agreements with certain of their respective executive officers and key members of management, including Messrs. Matusek and Mckay. The merger triggered a change of control under these agreements. For those executives and key employees whose employment with us terminated under certain circumstances within a year following the change of control, including Mr. Matusek, whose employment with us terminated on August 6, 2008, the appropriate payments have been made.

 

In July 2008, the Compensation Committee approved an amendment to Mr. Mckay’s change of control agreement to extend the term through August 20, 2009. A more specific description of the terms of Mr. Mckay’s change of control agreement, together with an estimate of the payout in connection with such agreement, assuming a change of control and “qualifying termination,” is provided in this Proxy Statement on page 38.

 

Exterran Change of Control Agreements

 

We have entered into change of control agreements with each of our Named Executive Officers other than Messrs. Matusek and Mckay (the “Exterran change of control agreements”). Our Compensation Committee considers the provision of change of control agreements for our executive officers to be a customary part of executive compensation and, therefore, necessary to attracting and retaining executive talent. Our change of control agreements provide for continued employment of the applicable executive for a period of time following a qualifying change of control and are designed to ensure continuity of management in such event.

 

The Exterran change of control agreements generally provide that if the executive is terminated within 12 months after a change of control occurs, or if during that period the executive terminates his employment for “good reason,” as defined in the agreements, he will be entitled to a payment equal to a multiple of two times the executive’s annual base salary and target bonus (three times base salary and bonus, in the case of Messrs. Snider and Danner), will be provided health and welfare benefits for a number of years equaling the payment multiple, and will receive certain other forms of remuneration. A more specific description of the terms of the Exterran change of control agreements, together with an estimate of the payouts in connection with such agreements, assuming a change of control and “qualifying termination,” is provided in this Proxy Statement beginning on page 39.

 

We do not have any policy or guidelines that require specified ownership of our common stock by our executive officers or any stock retention guidelines applicable to equity-based awards granted to our directors or executive officers. Each of our directors is required to hold an amount of our common stock with a market value of at least five times his or her annual base retainer (which currently amounts to $250,000). Each director has three years from May 6, 2008 or, if later, the director’s date of election to the Board of Directors, to meet this stock ownership requirement. As of March 5, 2009, the Named Executive Officers (excluding Mr. Matusek) collectively held 59,198 shares of common stock, 1,282,018 stock options and 187,291 shares of restricted stock and restricted stock units.

 

We accounted for equity compensation expense under Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”), which requires us to estimate and record an expense for

each award of equity compensation over the vesting period of the award. Accounting rules also require us to record cash compensation as an expense at the time the obligation is earned.

 

Section 162(m) of the Code generally disallows the deductibility of certain compensation expenses in excess of $1,000,000 to any one executive officer in any fiscal year. Compensation that is “performance-based” is excluded from this limitation. For compensation to be “performance-based,” it must meet certain criteria including certain predetermined objective standards approved by our stockholders. We believe that maintaining the discretion to evaluate the performance of our executive officers is an important part of our responsibilities and benefits our stockholders. The Compensation Committee, in coordination with management, periodically assesses the potential application of Section 162(m) on incentive compensation awards and other compensation decisions.

 

We believe that our executive compensation programs for 2008 were:

 

 

In the tables that follow, compensation paid and equity awards granted prior to August 20, 2007 were by Universal (in the case of Messrs. Snider, Danner, Anderson and Childers) or by Hanover (in the case of Messrs. Mckay and Matusek) pursuant to the executive’s employment with each respective company. Any compensation paid thereafter was in connection with each executive’s employment with Exterran.

 

Summary Compensation Table

 

The following table sets forth certain information with respect to compensation paid during 2007 and 2008 to each of our Named Executive Officers.

 

 

 

 

 

 

 

 

 

 

 

Grants of Plan-Based Awards for 2008

 

The following table provides additional information about stock and option awards and non-equity incentive plan awards granted to the Named Executive Officers during the year ended December 31, 2008.

 

 

 

 

Outstanding Equity Awards at 2008 Fiscal Year-End

 

The following table provides information regarding equity awards and equity-based awards granted by Hanover, Universal and Exterran that were outstanding at December 31, 2008.