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.

 

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EXTERRAN HOLDINGS, INC.

 

Dear Fellow Stockholder:

 

You are invited to attend the 2010 Annual Meeting of Stockholders of Exterran Holdings, Inc. on May 4, 2010, 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 important 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 counts. Your broker is no longer allowed to use its discretion to vote your shares on the annual election of directors without your instructions. 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 your ownership of Exterran represented at the 2010 Annual Meeting.

 

Sincerely,

 

Gordon T. Hall

Chairman of the Board

 

March 29, 2010

 

EXTERRAN HOLDINGS, INC.

 

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

 

To the Stockholders of Exterran Holdings, Inc.:

 

The 2010 Annual Meeting of Stockholders of Exterran Holdings, Inc., a Delaware corporation, will be held at 9:00 a.m. local time on Tuesday, May 4, 2010, at the corporate offices of Exterran located at 16666 Northchase Drive, Houston, Texas 77060, for the following purposes:

 

 

The Board of Directors has set the close of business on March 11, 2010, as the record date for determining the stockholders who are entitled to notice of and to vote at the meeting and at any postponement or adjournment of the meeting.

 

We encourage you to sign and return your proxy card, use the telephone or Internet voting procedures or attend the meeting in person so that your shares are represented.

 

By Order of the Board of Directors,

 

Donald C. Wayne
Secretary

 

Houston, Texas

March 29, 2010

 

 

Important Notice Regarding the Availability of Proxy Materials for the 2010 Annual Meeting of Stockholders to be held on May 4, 2010

 

The Proxy Statement and annual report to stockholders are available at www.exterran.com.

 

2010 PROXY STATEMENT

 

TABLE OF CONTENTS

 

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

 

PROXY STATEMENT FOR 2010 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 4, 2010

 

The Board of Directors has sent these proxy materials to you to solicit your vote at the 2010 Annual Meeting of Stockholders (the “2010 Stockholders’ Meeting”). The meeting will begin promptly at 9:00 a.m. local time on Tuesday, May 4, 2010, 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 29, 2010, and are accompanied by our 2009 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 2010 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 2010;

 

3. to approve Amendment No. 3 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 11, 2010, are entitled to receive notice of and to vote at the 2010 Stockholders’ Meeting. At the close of business on March 11, 2010, there were 63,078,822 shares of common stock outstanding. Each share of common stock entitles the holder to one vote on all matters submitted to a vote at the 2010 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 2010 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”), beginning with the 2010 Stockholders’ Meeting, brokers no longer have discretionary authority to vote shares in the election of directors without instructions from the beneficial owner. Therefore, if you hold your shares in the name of a bank, broker or other holder of record, for your vote to be counted in the election of directors, you

will need to communicate your voting decisions to your bank, broker or other holder of record before the date of the 2010 Stockholders’ Meeting.

 

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 2010 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 2010 Stockholders’ Meeting.

 

Shares of our common stock held through the Exterran Holdings, Inc. Retirement and Savings Plan will be voted by the participants in the plan as though each 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 2010 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 for a fee of $8,000, 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.

 

Ten directors are nominated to be elected to the Board of Directors (the “Board”) at the 2010 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 is set forth below. Ages are stated as of March 11, 2010. 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 Exterran on August 20, 2007, the effective date of a series of mergers among Hanover, Universal and certain of their subsidiaries that resulted in Hanover and Universal becoming wholly owned subsidiaries of Exterran.

 

Janet F. Clark, 55, 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 (an oil and gas exploration and production company, subsequently merged into Devon Energy Corporation) and its predecessor, Santa Fe Energy Resources, Inc., from 1997 through 2000. Prior to that time, Ms. Clark was an investment banker specializing in corporate finance for 12 years, primarily with Credit Suisse (a brokerage services and investment banking firm). Ms. Clark serves on the boards of the Houston Symphony and Rice University — Jones School Council of Overseers and YES Preparatory Public Schools. Ms. Clark earned an A.B. in Economics from Harvard University and an M.B.A. in Finance from The Wharton School of the University of Pennsylvania.

 

As the Chief Financial Officer of an international energy company, Ms. Clark brings a high level of financial and accounting acumen, as well as an understanding of operational challenges and risks specific to our industry. Her prior experience as an investment banker also allows her to bring to the Board an understanding of corporate financing and capital market transactions. The Board has determined that based on

Ms. Clark’s financial and accounting background she qualifies as an “audit committee financial expert” as that term is defined by the Securities and Exchange Commission (the “SEC”), and this, coupled with Ms. Clark’s understanding of domestic and international risks in the energy industry, make her qualified to serve as chair of our Audit Committee.

 

Ernie L. Danner, 55, has served as a director since 1998 and as President and Chief Executive Officer since July 2009, having served as President and Chief Operating Officer from October 2008 to June 2009. 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), Copano Energy, L.L.C. (a natural gas gathering and processing company) and Anchor Drilling Fluids, Inc. (a privately held company providing drilling fluid services to exploration and production companies). Mr. Danner is also a member of the Board of Trustees of the John Cooper School in The Woodlands, Texas and is an officer and director of certain majority-owned subsidiaries of Exterran. Mr. Danner earned his B.A. and Masters in accounting from Rice University.

 

Mr. Danner’s day-to-day leadership as our Chief Executive Officer provides him with an intimate knowledge of our Company, including its strategies, operations and markets. In addition, his prior experience in financial and operational roles at Universal has enhanced his financial acumen and gives him a unique perspective on and understanding of our operations. By serving as an independent member of the board of other publicly traded companies, Mr. Danner also brings experience with related sectors of the energy industry. Mr. Danner’s business judgment, management experience and leadership skills are highly valuable in managing our leadership team and assessing our business strategies and accompanying risks.

 

Uriel E. Dutton, 79, 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. He also served for approximately 20 years on the board of directors of Grey Wolf Drilling Company (a private oil and gas drilling services provider) prior to its acquisition by Grey Wolf, Inc. in 1997 and for 12 years on the board of directors of EVI, Inc. (a manufacturer and supplier of engineered oilfield tools and equipment) prior to its merger with Weatherford Enterra, Inc. in 1998. Mr. Dutton serves as director and Vice President of the M.D. Anderson Foundation (a charitable organization). Mr. Dutton received his J.D. from Baylor University.

 

Mr. Dutton’s experience representing clients in the oil and gas industry brings an understanding of the operational and jurisdictional challenges of an international energy services company. In addition, the length and depth of his experience have afforded him the opportunity to work with a wide variety of companies in our industry. As an attorney, Mr. Dutton has an understanding of the importance of sound corporate governance, as well as other issues relating to law, compliance and regulatory matters, which makes him qualified to serve as chair of our Nominating and Corporate Governance Committee.

 

Gordon T. Hall, 50, 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 (a brokerage services and investment banking firm). While at Credit Suisse, Mr. Hall served as Senior Oil Field Services Analyst and Co-Head of the Global Energy Group. Mr. Hall joined Credit Suisse 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) from March 2002 until its merger with Tenaris S.A. in May 2007 and was a director of Grant Prideco, Inc. (a drill technology and manufacturing company) from November 2007 until its acquisition by National Oilwell Varco, Inc. in April 2008. Mr. Hall is currently a director and member of the audit committee of Noble Corporation (a global offshore drilling contractor for the oil and gas industry) and is a director of several non-profit organizations. He holds a S.M. from the M.I.T. Sloan School of Management.

As Chairman of the Board of Hanover from May 2005, and continuing in that role following the merger of Hanover and Universal in August 2007, Mr. Hall has developed a thorough understanding of our operational and strategic opportunities and challenges. Mr. Hall’s prior experience as a research analyst covering oil field services companies gives him a broad-based understanding of the industry, our customers and our competitors, as well as mergers and acquisitions and capital market transactions. Mr. Hall’s former and current experience as a member of the boards, including the audit committees, of other public oil and gas companies further enhances his value as a member of our Board.

 

J.W.G. “Will” Honeybourne, 58, 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, with a particular emphasis on the equipment, manufacturing and services sector, upstream oil and gas 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) from 1996 to 1998. Mr. Honeybourne currently serves as a director of Acteon Group (a U.K.-based offshore and subsea services company), and is non-executive Chairman of KrisEnergy (a Singapore-based upstream oil and gas company). He has previously served as a director of the following private companies: Abbott Group (a U.K.-based drilling company) from March 2008 to December 2009, Red Technology Alliance (a First Reserve joint venture with Halliburton Company) from December 2006 to January 2010, Caledonia Oil and Gas (an acquirer and developer of North Sea natural gas reserves) from October 2003 to November 2005, and CiDRA (a provider of flow monitoring to a diverse range of industrial applications) from April 1999 to May 2006. Mr. Honeybourne holds a B.S. in Oil Technology from Imperial College, London University and is a member of the Society of Petroleum Engineers and the Society of Exploration Geophysicists. He is also a director of the Petroleum Equipment Suppliers Association.

 

Mr. Honeybourne’s technical background in petroleum engineering and his experience as Managing Director of a private equity firm focused on the international oil and gas industry, results in a valuable combination of skills for a member of our Board of Directors. Mr. Honeybourne’s current and former service as a director of various oil and gas companies located outside the United States, including his service as non-executive Chairman of KrisEnergy, brings an understanding of the challenges and opportunities of international markets and operations.

 

John E. Jackson, 51, has served as a director since July 2004. Mr. Jackson was Chairman, Chief Executive Officer and President of Price Gregory Services, Inc. (a pipeline-related infrastructure service provider in North America) from February 2008 until its acquisition by Quanta Services, Inc. in October 2009. Prior to the merger of Hanover and Universal in August 2007, Mr. Jackson served as Hanover’s President and Chief Executive Officer since October 2004, having joined Hanover in January 2002 as Senior Vice President and Chief Financial Officer. Mr. Jackson joined Duke Energy Field Services (a producer and marketer of natural gas liquids) in 1999 and served as Vice President and Chief Financial Officer. Prior to joining Duke Energy Field Services, Mr. Jackson held a variety of treasury, controller and accounting positions at Union Pacific Resources (an oil and gas exploration and production company). 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 a non-profit organization. Mr. Jackson, a Certified Public Accountant, received his B.B.A. from Baylor University.

 

As the former President and Chief Executive Officer of Hanover, Mr. Jackson has an understanding of both our domestic and international operations and specific knowledge of certain major ongoing international projects that were initiated prior to the August 2007 merger between Hanover and Universal. In addition, Mr. Jackson’s former roles as Chief Financial Officer of Hanover and Duke Energy Field Services allowed him to develop financial and accounting acumen focused in the oil field services industry. His tenure as a Chief Executive Officer of a pipeline service provider and service on the boards of another publicly traded company and a publicly traded master limited partnership also make him a valuable contributor to our Board.

 

Mark A McCollum, 50, has served as a director since May 2009. Mr. McCollum is Executive Vice President and Chief Financial Officer of Halliburton Company (an energy services company that provides well

construction, well completion and reservoir engineering). He served as Senior Vice President and Chief Accounting Officer of Halliburton from August 2003 until assuming his current position in December 2007. Prior to joining Halliburton, he served as Senior Vice President and Chief Financial Officer of Tenneco Automotive, Inc. (a supplier of ride control, emissions control and elastomer products) from April 1998 to August 2003. Mr. McCollum was a director of Exterran GP LLC from October 2006 until his appointment to our Board in May 2009. Mr. McCollum also served as a director of KBR, Inc. (a global engineering, procurement and construction company) from June 2006 to April 2007. Mr. McCollum serves the following Houston-based non-profit organizations: Chairman and Trustee of the Star of Hope Mission, Trustee of The Center Foundation and member of the Advisory Board of Yellowstone Academy. He is a member of the AICPA, the Texas Society of CPA’s, Financial Executives International and the Institute of Management Accountants. Mr. McCollum, a Certified Public Accountant, received his B.B.A. from Baylor University.

 

Through Mr. McCollum’s experience as the Chief Financial Officer of an international energy services company, he brings to the Board extensive financial and accounting expertise. In addition, his tenure as 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, provides him with an understanding of our U.S. contract compression operations and overall strategy with respect to our ownership of Exterran Partners, L.P.

 

William C. Pate, 46, 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 (a brokerage services and investment banking firm). Mr. Pate also serves as a director and chairman of the audit committee of Covanta Holding Corporation (an owner and operator of energy-from-waste and power generation projects) and as a director of Middlebrook Pharmaceuticals, Inc. (a pharmaceutical company). Mr. Pate received his J.D. from the University of Chicago Law School and B.B.A. from Harvard University.

 

Mr. Pate has extensive experience with the private and public capital markets as well as complex corporate transactions, including mergers and acquisitions. His current and former service on the boards of other public companies in a variety of industries and his current service as chairman of the audit committee of Covanta also make him a valuable contributor to our Board.

 

Stephen M. Pazuk, 66, 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 began 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.

 

Through his treasury and finance background, management experience and service on the boards of several privately-held companies, Mr. Pazuk has an understanding of financial transactions, management dynamics and cost structures. In addition, prior to the merger of Hanover and Universal, Mr. Pazuk served as a member of Hanover’s audit committee and as the chairman of its compensation committee, which gave him insight into our operations and compensation philosophy and practices. Mr. Pazuk’s background and experience make him qualified to serve as a member of the Board and as chair of our Compensation Committee.

 

Christopher T. Seaver, 61, was appointed Chairman of the Board of Hydril Company (an oil and gas service company specializing in pressure control equipment and premium connections for tubing and casing) 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 and held a series of domestic and international management positions until his appointment as President in 1993. 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 the law firm of Paul, Hastings, Janofsky & Walker LLP, 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 as a director and member of the audit committee of Oil States International, Inc. (an oil and gas services company and manufacturer of products for deepwater production facilities and subsea pipelines), is a director and officer of The Seaver Institute (a charitable trust) and is a director of True Production Services, Inc, (a private Canadian wireline services business). Mr. Seaver holds an A.B. in economics from Yale University and J.D. and M.B.A. degrees from Stanford University.

 

Through his former roles as President, Chief Executive Officer and Chairman of the Board of a publicly-traded oil and gas services company, Mr. Seaver brings to our Board both the perspective of an executive officer as well as that of a director. He has both domestic and international management and operations experience and has been heavily involved in many industry trade and professional organizations. His tenure with the U.S. State Department makes him well-versed in international cultures and the challenges and opportunities presented by conducting business in developing countries. Mr. Seaver’s service on the board of another energy services company also enhances his value as a member our Board.

 

***

 

Please note that as a result of recent changes to NYSE rules, the election of directors is no longer considered a “routine” matter and, therefore, the firm that holds your shares will not have discretionary authority to vote your shares for the election of directors unless you provide instructions using one of the methods described above.

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE

FOR

THE ELECTION OF EACH OF THE NOMINEES TO 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. The Board and the committees of the Board are governed by our Code of Business Conduct, Corporate Governance Principles and committee charters, which 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 circumstance that has 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 throughout the year 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 and approved by the Audit 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, McCollum, Pate, Pazuk and Seaver. Mr. Danner is not independent by virtue of his role as President and Chief Executive Officer of Exterran, and Mr. Jackson is not independent by virtue of his former role as an executive of Hanover.

 

The Board has an active role, as a whole and through its committees, in overseeing management of the Company’s risks. The Board’s role in the risk oversight process includes receiving regular reports from members of senior management on areas of material risk to the Company, including operational, financial and strategic risks. Also, the involvement of the Board in reviewing, approving and monitoring our fundamental financial and business strategies, as contemplated by our Corporate Governance Principles, is critical to the determination of the types and appropriate levels of risk our Company undertakes. The Board’s committees, all comprised solely of independent directors, assist the Board in fulfilling its oversight responsibilities in certain areas of risk. The Compensation Committee oversees the management of risks relating to our executive compensation plans and arrangements. The Nominating and Corporate Governance Committee manages risks associated with the composition of the Board of Directors and other types of risks within its areas of responsibility. The Audit Committee oversees the management of financial risks and also receives regular quarterly reports from our Director of Internal Audit and our Chief Compliance Officer. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board is regularly informed through committee reports about such risks. This enables the Board and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.

 

We separate the roles of Chairman of the Board and Chief Executive Officer. We believe this structure is currently in the best interests of our stockholders because by separating these positions:

 

 

The Board recognizes the time, effort and energy that the Chief Executive Officer is required to devote to his position, as well as the commitment required to serve as our Chairman. The Board believes this structure is appropriate for the Company because of the size and composition of the Board, the scope and complexity of the Company’s operations and the responsibilities of the Board and management.

 

The Board has adopted procedures for the timely and efficient transfer of the Chief Executive Officer’s responsibilities in the event of an emergency or his sudden incapacitation or departure.

 

Mr. Hall serves as Chairman of the Board and presides over the regular sessions of the Board and the executive sessions of the Board that are attended only by non-management directors 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 or other interested parties 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 as directed. 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).

 

Members of each committee are elected by the Board at its first meeting following the annual meeting of stockholders to serve for one-year terms. The current members of our committees are indicated in the following chart:

 

 

 

 

Audit Committee

 

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 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 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 17.

 

Compensation Committee

 

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 Board has determined that each member of the Compensation Committee is independent. The Compensation Committee Report is included in this Proxy Statement on page 35.

 

Nominating and Corporate Governance Committee

 

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

 

The Board and its committees held the following number of meetings and acted by unanimous written consent the following number of times during 2009:

 

 

We expect members of the Board to attend all meetings. The directors standing for re-election attended, as a group, 99% of the meetings of the Board and Board committees on which they served during calendar year 2009. Each director standing for re-election attended at least 93% of the meetings of the Board and Board committees on which he or she served during 2009. Directors are also encouraged to attend the annual meeting of stockholders, and in 2009, nine out of ten of our directors attended the meeting.

 

Stockholders may propose director nominees to the Nominating and Corporate Governance Committee (for consideration for election at the 2011 Annual Meeting of Stockholders) by submitting, within the time frame set forth in this Proxy Statement on page 61, 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 — 2011 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. The Nominating and Corporate Governance Committee also considers issues of diversity in the director identification and nomination process. While the Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity, it seeks nominees with a broad diversity of experience, professions, skills, education and backgrounds. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Nominating and Corporate Governance Committee believes that backgrounds and qualifications of the directors, considered as a group, should provide a significant composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities. Nominees are not discriminated against on the basis of race, religion, national origin, sexual orientation, disability or any other basis proscribed by law.

 

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.

 

We believe our compensation practices reflect sound risk management practices and are not reasonably likely to result in a material adverse effect on us. For example, our Compensation Committee and management set performance goals in light of past performance, future expectations and market conditions, which they believe do not encourage the taking of unreasonable risks. In addition, we believe employee compensation is allocated between cash and equity-based awards, between fixed and variable awards, and between short-term and long-term focused compensation in a manner that encourages decision-making that balances short-term goals with long-term goals and thereby reduces the likelihood of excessive risk taking. Finally, our Compensation Committee has established multiple metrics in our short-term incentive program that balance various Company objectives, short-term incentive awards with maximum payout levels, and long-term incentive awards with three-year vesting periods, which we believe further balances short- and long-term objectives and encourages employee behavior designed to achieve sustained profitability and growth.

 

The members of the Compensation Committee of the Board of Directors during the last completed fiscal year were Messrs. Hall, Honeybourne, McCollum, 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 11, 2010. 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 Mr. Danner is provided under the Section titled “— Nominees for Director” beginning on page 3 of this Proxy Statement.

 

J. Michael Anderson, 47, 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 held from March 2003 to August 2007. 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. Mr. Anderson holds a B.B.A. in finance from Texas Tech University and an M.B.A. in finance from The Wharton School of the University of Pennsylvania.

 

Kenneth R. Bickett, 48, is Vice President, Finance and Accounting. He also serves as Vice President, Finance and Accounting of Exterran GP LLC, a position he has held since March 2009, having previously served as Vice President and Controller since March 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. Mr. Bickett is a Certified Public Accountant and holds a B.S. in accounting from the University of Kentucky.

 

D. Bradley Childers, 45, 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 in August 2007, 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. 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. Mr. Childers holds a B.A. from Claremont McKenna College and a J.D. from the University of Southern California.

 

Joseph G. Kishkill, 45, is Senior Vice President.  He also serves as President, Eastern Hemisphere of Exterran Energy Solutions, L.P., having served as President, Latin America from March 2008 to November 2009. Prior to the merger of Hanover and Universal in August 2007, Mr. Kishkill held the position of Vice President, Latin America with Exterran Argentina S.A. (formerly, 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. Mr. Kishkill earned a B.S. in electrical engineering from Brown University and an M.B.A. from Harvard University.

 

Daniel K. Schlanger, 36, 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. Mr. Schlanger earned a B.S. in economics from the University of Pennsylvania.

 

Donald C. Wayne, 43, 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. Mr. Wayne holds a B.A. from Tufts University and a J.D. and an M.B.A. from Washington University (St. Louis).

 

The following table provides information about beneficial owners, known by us as of March 11, 2010, of 5% or more 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 11, 2010, regarding the beneficial ownership of our common stock by each of our directors, each of our Named Executive Officers (as identified on page 18 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 2009, 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.

 

Deloitte & Touche LLP (“Deloitte”) served as our independent registered public accounting firm for the fiscal year ended December 31, 2009. The Audit Committee has selected Deloitte as our independent registered public accounting firm for the fiscal year ending December 31, 2010. We are submitting the selection of Deloitte for stockholder ratification at the 2010 Stockholders’ Meeting. A representative of Deloitte is expected to be present at the 2010 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.

 

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 2009 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 2009 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 and report on 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, presentation and integrity 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 issuing a report thereon, as well as expressing an opinion on the effectiveness of Exterran’s internal control over financial reporting. 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 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. 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, considered the compatibility of non-audit services with the auditors’ independence and received 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.

 

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, 2009, for filing with the Securities and Exchange Commission; (ii) Deloitte meets the requirements for independence; and (iii) the appointment of Deloitte for 2010 be submitted to the stockholders for ratification.

 

Submitted by the Audit Committee
of the Board of Directors

 

Janet F. Clark, Chair

Mark A. McCollum

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 our other most highly compensated executive officers, including Mr. Snider, whose employment with us concluded in June 2009, and Mr. Mckay, whose employment with us concluded in October 2009 (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 2009, the following individuals comprised our Named Executive Officers (titles are as of December 31, 2009):

 

 

On June 30, 2009, in accordance with his previously announced plans for retirement, Stephen A. Snider resigned as our Chief Executive Officer. Mr. Danner, who rejoined us as President and Chief Operating Officer in October 2008, was named President and Chief Executive Officer on June 30, 2009 concurrent with Mr. Snider’s retirement, in conjunction with a previously announced management succession plan.

 

Effective October 31, 2009, Norman A. Mckay resigned as our Senior Vice President and President, Eastern Hemisphere of EESLP, and was succeeded in that position by Joseph G. Kishkill, who previously served as our Senior Vice President and President, Latin America of EESLP.

 

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 and operating principles, including integrity, teamwork, accountability and customer service, 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 is intended to position our executives’ compensation competitively relative to the market.

 

Our emphasis on at-risk, variable compensation is an important component of our overall compensation philosophy. More than half of our Named Executive Officers’ compensation for 2009 was “at risk.” Cash bonuses based on yearly performance are intended to focus our executives and key employees on our short-term goals of profitability and operational improvements. Equity awards, the value of which is based on future performance, are intended to focus our executives and key employees on our long-term strategic goals of sustained profitability and growth. The Compensation Committee believes that “at-risk” compensation helps to align management’s interest with that of our stockholders.

 

Due to the deterioration of the financial markets in late 2008, the Compensation Committee became focused on developing a compensation program for 2009 that would continue to further the compensation philosophies described in this section as well as take into consideration the uncertainty and volatility in the financial and energy markets and the resulting impact on our Company. In light of the decrease in activity levels in the energy industry, as compared to 2008, that negatively impacted our business activity levels, management elected to take actions to help reduce our selling, general and administrative costs and enhance cash flow generation. To this end, management implemented a reduction in workforce and suspended 2009 merit increases in base salary and, for a minimum period of one year, also suspended the company match for our 401(k) and deferred compensation plans. To help retain our employees and our ability to attract key management talent, the Compensation Committee continued to focus on performance-based short-term and long-term incentive compensation.

 

In its most recent review of executive compensation, in February 2010, 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 below), 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 experience and future potential, with no specific weighting assigned to any of these factors. In this context, the Compensation Committee made the compensation decisions discussed below in the section entitled “— Elements of Compensation.”

 

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 the executive 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 Committee.

 

Role of Our Compensation Consultant

 

Towers Watson (formerly Towers Perrin), an independent third-party consultant, has been engaged by our Compensation Committee to:

 

 

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

 

Establishing Competitive Pay Levels

 

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 Watson, as well as data contained in the proxy statements of the oilfield services companies selected for our peer group (which data we refer to collectively as “comparative compensation data”).

 

Towers Watson 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 Watson. This data included the following 15 companies with a median revenue of approximately $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, because it believes this to be an appropriate range both to maintain our competitiveness in the market for managerial talent and to align executive compensation with stockholder interests.

 

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 reviews from time to time executive compensation data published in the proxy statements of our peer group (as described below) as an additional source of information in assessing whether our executive compensation program is appropriately positioned and competitive based on our industry and size.

 

For 2009, the Compensation Committee changed our peer group from seven companies to the 20 listed below. This expanded peer group included companies with a larger range of revenues and with both domestic and international operations, many of whom are our competitors for managerial talent. The Compensation Committee believed that a greater diversity of oilfield services companies would provide an enhanced overview of compensation and reflect more completely those companies with which we compete for technical and managerial talent.

 

 

In addition to its review of comparative compensation data, 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.

 

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

 

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

 

 

The total compensation paid to our Named Executive Officers in 2009, excluding other benefit programs and perquisites, and excluding those officers who were no longer employed by us at December 31, 2009, was comprised approximately of 28% base salary, 15% annual cash bonus and 57% long-term incentives (based on the grant-date fair value of the awards), as shown below.

 

Average NEO Compensation Mix

 

 

The composition of the total compensation package illustrates our emphasis on variable compensation. We believe our emphasis on long-term incentives encourages our executives to act strategically to ensure our sustainable long-term performance and to support our goal of enhancing long-term stockholder value.

 

In addition, our Named Executive Officers are eligible to participate in our various retirement savings plans, standard employee benefit plans and our standard employee health and welfare benefits, as further described below. Certain executive officers, including our Named Executive Officers, have been provided with change of control arrangements, as further described below. Certain employees who are asked to relocate outside of their home country are provided with an expatriate compensation package, which generally includes assistance with housing 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 for 2009 on page 36 of this Proxy Statement.

 

Base Salaries

 

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 the comparative compensation data 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, internal pay equity 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 annually and the resulting adjustments in base salaries generally are effective following the first quarter of each year.

 

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 and employees and, as a result, the 2009 annual base salaries of our Named Executive Officers remained the same as those for 2008 (except for that of Mr. Kishkill, as noted in the table below), and were as follows:

 

 

 

 

2010.  In February 2010, the Compensation Committee approved the following adjustments, to be effective in April 2010, to the annual base salaries of our Named Executive Officers. The Compensation Committee approved a 3% increase in the base salary of each of Messrs. Anderson and Childers, based on a review of comparative compensation data, as well as Company and individual performance. The Compensation Committee approved an 8% increase in Mr. Schlanger’s base salary, based on a review of comparative compensation data, Company and individual performance, and the Compensation Committee’s determination that such increase was necessary to better reflect the size and scope of his position and level of responsibility. The Compensation Committee approved an 11% increase in Mr. Danner’s base salary, based on a review of comparative compensation data and peer group data, Mr. Danner’s willingness to forgo a salary increase when promoted to Chief Executive Officer in June 2009, and Company and individual performance. Once the increase is effective, Mr. Danner’s base salary is expected to fall within the 25th percentile of chief executive officers of similarly-sized companies in each of the general industry and the oilfield services industry, as described above under “— Establishing Competitive Pay Levels.” The Compensation Committee has determined that it is in our stockholders’ interests that a greater portion of Mr. Danner’s compensation package for 2010 consist of compensation contingent upon performance, as discussed below under “— Annual Performance-Based Incentive Compensation — 2010.” Because Mr. Kishkill received an increase in his base salary

in November 2009 in connection with his assumption of the role of President, Eastern Hemisphere of EESLP, he did not receive an increase in his base salary for 2010.

 

 

Annual Performance-Based Incentive Compensation

 

2009.  In February 2009, the Compensation Committee adopted a short-term incentive program (the “2009 Incentive Program”) to provide the short-term incentive compensation element of our total direct compensation program for this year. Under the 2009 Incentive Program, each Named Executive Officer was eligible to receive an annual cash award based on the Compensation Committee’s assessment of our performance for 2009 relative to certain key business activities and indicators, as well as each executive officer’s individual contribution toward those criteria.

 

In determining the target 2009 bonus opportunity for each Named Executive Officer, the Compensation Committee considered his relative responsibility and his potential impact on the achievement of our performance criteria. Those bonus targets, expressed as a percentage of each Named Executive Officer’s base salary for 2009, were as follows:

 

 

 

 

Under the 2009 Incentive Program, each Named Executive Officer was eligible to receive an annual cash award, at a level of 0% to 200% of his target bonus, based on our performance for 2009 relative to the key business activities and indicators listed below, as 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, as well as one or more of the following items that the Compensation Committee could choose to consider, in its discretion:

 

 

The Compensation Committee initially determined the key business activities and indicators for 2009 would relate to the following:

 

 

In setting the key business activities and indicators for 2009, the Compensation Committee 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. During the second quarter of 2009, the Venezuelan state-owned oil company assumed control over substantially all our assets and operations in Venezuela. As a result, the Compensation Committee exercised its discretion to revise certain financial and stockholder returns target levels during 2009, as shown in the table below. Also during 2009, management reviewed idle compression assets used in our contract operations segment that were not cost efficient to maintain and operate and retired those assets from the fleet, and the Compensation Committee exercised its discretion to make this target more difficult to achieve by lowering the amount of idle horsepower allowed under this target level, as shown in the table below. In addition, in consideration of challenging market conditions during 2009 and the measures we took in response, including a workforce reduction, suspension of merit increases in base salary and suspension of benefits under certain of our employee benefit plans, management determined to temporarily defer the employee training and development activities to 2010. Further, although generation of free cash flow was already an element of the Company’s business plan for 2009, as a result of continuing deterioration of energy and economic conditions during the year, management and the Compensation Committee determined to place a much greater emphasis on this during the second half of 2009 and increased the importance of this factor. These adjustments to the key business activities and indicators were intended to align incentive award payments more closely with the developing goals of the underlying business.

The following table shows the key business activities and indicators under the 2009 Incentive Program, as revised by the Compensation Committee in its discretion, and the results achieved under those activities and indicators, for the year ended December 31, 2009.

 

 

 

 

 

The Compensation Committee awarded performance-based short-term incentive compensation for 2009 under the 2009 Incentive Program based on the 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 was assigned to any particular Company performance indicator or individual level of contribution, and, with respect to a performance-based award to be made to a particular executive officer, no specific weight was made as between Company performance and individual contribution.

 

In determining the payout amounts under the 2009 Incentive Program for each of the Named Executive Officers, the Compensation Committee also considered our relative performance under rapidly changing market conditions together with its desire to achieve a measure of internal pay equity among the Named Executive Officers and, taking into consideration the recommendations of our Chief Executive Officer with respect to each executive officer other than himself, as described above, it focused on the executives’ teamwork, individual leadership and individual contributions to our performance. While no specific weight was assigned to any particular Company performance indicator, the Compensation Committee did focus in particular on the importance, given the economic environment in 2009, of the generation of free cash flow and the Company’s significant progress on this performance measure in the latter half of 2009. The following payout amounts under the 2009 Incentive Program were approved by the Compensation Committee and were applied to our Named Executive Officers as indicated:

 

 

 

 

In February 2010, the Compensation Committee determined to award Mr. Schlanger a discretionary cash bonus in consideration for his individual contribution as the Partnership’s Chief Financial Officer from its inception to March 2009. This cash bonus, in the amount of $67,500, was awarded outside the 2009 Incentive Program and is in addition to his award under the 2009 Incentive Program shown in the table above.

 

2010.  In February 2010, the Compensation Committee adopted a short-term incentive program (the “2010 Incentive Program”) to provide the short-term incentive compensation element of our total direct compensation program for this year. Under the 2010 Incentive Program, each Named Executive Officer will be eligible to receive an annual cash award based on the Compensation Committee’s assessment of our performance for 2010 relative to key business activities and indicators listed below, as well as each executive officer’s individual contribution toward those criteria:

 

 

The Compensation Committee may also choose to consider, in its discretion, one ore more of the following items:

 

 

We have not disclosed our target level with respect to generation of free cash flow or the achievement of the other financial targets listed above because they are derived from internal analyses and projections of our performance, reflecting our business strategy for the current year, and were developed for internal planning purposes. We believe 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. While future results cannot be predicted with certainty, the Compensation Committee believes that these performance measures are set at a level such that achievement of the target levels will be challenging but reasonable in light of past performance, future expectations and market conditions.

 

The Compensation Committee intends to award performance-based short-term incentive compensation for 2010 under the 2010 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. The Compensation Committee has reserved the right to modify the list of criteria as well as target levels of one or more of these criteria in its discretion based on internal and external developments during the course of 2010.

 

Each executive officer’s target bonus payment under the 2010 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 2010 bonus

opportunity for each of the Named Executive Officers (expressed as a percentage of each Named Executive Officer’s base salary for 2010), which is as follows:

 

 

As discussed above under “— Base Salaries — 2010,” Mr. Danner’s base salary for 2010 is expected to fall within the 25th percentile of chief executive officers of similarly-sized companies in the general industry and the oilfield services industry. The Compensation Committee has determined that it is in our stockholders’ interests that a greater portion of Mr. Danner’s compensation package for 2010 consist of compensation contingent upon performance and, accordingly, has set Mr. Danner’s 2010 short-term incentive target at 140% of his base salary for 2010. Mr. Danner’s base salary for 2010 and bonus target under the 2010 Incentive Program, if achieved at target level, together are expected to place him approximately at the 50^th percentile of chief executive officers of similarly-sized companies in the general industry and the oilfield services industry.

 

We anticipate that awards under the 2010 Incentive Program for the year ending December 31, 2010 will be determined and paid in the first quarter of 2011.

 

Long-Term Incentive Compensation

 

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. Our Compensation Committee believes that:

 

 

Equity awards are 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. Awards generally vest at the rate of one-third per year over a three-year period of employment and, in the case of full value awards, over a minimum period of three years.

 

The Compensation Committee has also delegated limited authority to a committee of the Board, which is currently comprised of our Chief Executive Officer, to grant off-cycle equity awards, with the following restrictions:

 

 

 

During 2009, an aggregate of 60,944 stock options and 19,141 shares of restricted stock, which did not exceed the limits discussed above, was granted to our employees pursuant to this delegation of authority by the Compensation Committee.

 

2009.  Based on the philosophy discussed above, the Compensation Committee established the mix of long-term incentive awards (“LTI Awards”) for 2009 for our executive officers generally to consist of 45% Exterran restricted stock, 45% Exterran stock options and 10% Partnership phantom units, or a combination of the foregoing to certain other key employees. Please see the Summary Compensation Table for 2009 and the Grants of Plan-Based Awards for 2009 table below for more information regarding the LTI Awards granted to our Named Executive Officers in 2009.

 

As previously disclosed, in its discretion and in contemplation of Mr. Snider’s planned retirement as our Chief Executive Officer in June 2009, and in recognition of his 18 years of service to us, the Compensation Committee in March 2009 adopted award agreements for Mr. Snider that provided that, upon his retirement, (a) the outstanding unvested options and restricted shares granted in 2009 vested in full and (b) the exercise term of each option granted in 2009 is 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 Partnership phantom unit granted in 2009 vested in full upon Mr. Snider’s retirement date.

 

2010. Our Compensation Committee and management continue to 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. The Compensation Committee believes that performance shares also encourage long-range planning and reward sustained stockholder value creation and, accordingly, determined to include performance shares, in addition to the equity awards discussed above, in the makeup of the LTI Awards for 2010 for our Named Executive Officers. The performance shares are payable based on achievement of certain specified Company cash flow metrics, and may be paid out at a level of 0% to 200% of the grant value. Payout amounts under the performance shares will be determined on the one-year anniversary date of grant, based on performance from January 1, 2010 through December 31, 2010, and vest on the third-year anniversary date of grant.

 

We have not disclosed our target levels with respect to the cash flow and return on capital employed metrics that would result in payment of the performance shares because they are derived from internal analyses and projections of our performance, reflecting our business strategy for the current year, and were developed for internal planning purposes. We believe 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. While future results cannot be predicted with certainty, the Compensation Committee believes that these performance measures are set at levels such that achievement of them will be challenging but reasonable in light of past performance, future expectations and market conditions.

 

Taking into consideration the objectives of stock options, restricted stock, restricted stock units, Partnership phantom units with DERs and performance shares, as discussed above, the Compensation Committee

(and Exterran GP LLC’s compensation committee in the case of the Partnership phantom units with DERs) determined to make LTI Awards for 2010 to our Named Executive Officers as follows:

 

 

In addition to the annual grant for 2010 discussed above, in recognition of Mr. Danner’s leadership and Company performance during the second half of 2009, together with Mr. Danner’s willingness to forgo any salary increase or adjustment to his LTI Award opportunity when promoted to Chief Executive Officer in June 2009, in February 2010 the Compensation Committee awarded Mr. Danner a one-time grant of 51,645 stock options, 19,780 shares of restricted stock and 4,371 Partnership phantom units.

 

In addition to the annual grant for 2010 discussed above, the Compensation Committee awarded Mr. Kishkill a one-time grant of 8,608 stock options and 3,297 restricted stock units in recognition of Mr. Kishkill’s assumption of the role of President, Eastern Hemisphere of EESLP in late 2009.

 

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. From January 1, 2009 through June 30, 2009, we matched 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 6% of the employee’s annual eligible compensation. Effective July 1, 2009, in light of rapidly changing market conditions, we suspended our matching contributions under the 401(k) Plan for a one-year period, following which we will determine whether to reinstate the Company match.

 

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, (iii) fully vest the accounts of active participants as of that date, and (iv) transfer all Plan benefits that were earned or vested after December 31, 2004, along with all earnings thereon, from the ESSP into the Exterran Deferred Compensation Plan. 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. In addition, effective January 1, 2008, all ESSP benefits subject to Section 409A of the Code were transferred from the ESSP into the Deferred Compensation Plan.

 

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.

 

Effective July 1, 2009, in light of rapidly changing market conditions, we suspended our matching contributions under the Deferred Compensation Plan for a one-year period, following which we will determine whether to reinstate such contributions.

 

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. From January 1, 2009 through June 30, 2009, employees who elected to participate in the ESPP could 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. Effective July 1, 2009, in light of changing market conditions, the Compensation Committee determined that employees who elect to participate in the ESPP can purchase a share of our common stock at the lesser of (i) 95% of the fair market value of a share of common stock on the offering date or (ii) 95% of the fair market value of a share of common stock on the purchase date. 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, 2009, 342,938 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 (as amended, the “Stock Incentive Plan”) is administered by our Compensation Committee and authorizes the issuance of awards, at the discretion of our Compensation Committee, of our 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 6,750,000 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 that took place on August 20, 2007.

 

Exterran Partners Long-Term Incentive Plan

 

The Partnership Plan, which is administered by the Partnership’s compensation committee, provides incentive compensation awards based on the value of the Partnership’s common units to management, directors, employees and consultants of us, the Partnership and our respective affiliates who perform services for the Partnership and its subsidiaries. The Partnership Plan also enhances our ability to attract and retain the services of individuals essential for the Partnership’s growth and profitability and encourages them to devote their best efforts to advancing the Partnership’s business.

 

The Partnership Plan provides for the grant of up to an aggregate of 1,035,378 units, restricted units, phantom units, unit options, unit awards or substitute awards and, with respect to unit options and phantom units, the grant of DERs. DERs are credited with an amount equal to any cash distributions the Partnership makes on its common units during the period phantom units are outstanding and are payable upon vesting of the tandem phantom units without interest. Since the inception of the Partnership Plan, the Partnership has awarded only unit options and phantom units.

 

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 2009, 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 2009. 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 2009. In addition, pursuant to an agreement entered into with Universal in 2001, Mr. Snider and his spouse will continue to participate at no cost in our medical benefit plan following his retirement. The Compensation Committee established a policy in early 2009 that tax gross-ups would no longer be provided on income attributable to change of control agreements entered into in the future or on executive or director perquisites.

 

Change of Control Provisions in Equity Plans

 

The Stock Incentive Plan and the Partnership Plan provide 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 Mr. 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, the appropriate payments have been made.

 

Following the combination of Universal and Hanover, we and Mr. Mckay extended the term of his change of control agreement through August 20, 2009. Effective August 5, 2009, we entered into an Amendment and Discharge of Change of Control Agreement (the “Amendment”) with Mr. Mckay, pursuant to which Mr. Mckay waived his rights under the change of control agreement and we paid him a cash payment. A more specific description of the terms of Mr. Mckay’s change of control agreement, his waiver of his rights thereunder and the payment made to him is provided in this Proxy Statement on page 44.

 

Exterran Change of Control Agreements

 

We have entered into change of control agreements with each of Messrs. Danner, Anderson, Childers, Kishkill and Schlanger (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 are designed to promote continuity of management in the event of a change of control.

 

The Exterran change of control agreements generally provide that if the executive is terminated within 18 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 Mr. 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 45.

 

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 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 of our common stock). 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 11, 2010, the Named Executive Officers, other than Messrs. Snider and Mckay, collectively held 70,977 shares of common stock, 1,115,852 stock options, 172,403 shares of restricted stock and 73,245 restricted stock units.

 

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.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to Exterran’s Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

Submitted by the Compensation Committee
of the Board of Directors

 

Stephen M. Pazuk, Chair

Gordon T. Hall

J.W.G. Honeybourne

Mark A. McCollum

William C. Pate

 

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

 

The following table sets forth certain information with respect to compensation paid during 2007, 2008 and 2009 to each of our Named Executive Officers.

 

 

 

 

 

 

 

 

 

 

 

 

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, 2009.