<PAGE>


     As filed with the Securities and Exchange Commission on May 24, 2002


                                                     Registration No. 333-75818

================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                               -----------------

                                AMENDMENT NO. 1


                                      TO



                                   FORM S-4
                            REGISTRATION STATEMENT
                                     Under
                          THE SECURITIES ACT OF 1933
                               -----------------
                         Hanover Equipment Trust 2001B
                          Hanover Compressor Company
                    Hanover Compression Limited Partnership
          (Exact names of registrants as specified in their charters)

<TABLE>
<S>                                      <C>                                      <C>
               Delaware                                   7359                                  51-6523442
               Delaware                                   7359                                  76-0625124
               Delaware                                   7359                                  75-2344249
    (State or other jurisdiction of           (Primary Standard Industrial        (I.R.S. Employer Identification Numbers)
    incorporation or organization)            Classification Code Numbers)
</TABLE>

<TABLE>
<S>                                                <C>
          c/o Wilmington Trust Company                         12001 N. Houston Rosslyn
               Rodney Square North                               Houston, Texas 77086
            1100 North Market Street                                (281) 447-8787
           Wilmington, Delaware 19890
                 (302) 651-1000
   (Address, including zip code, and telephone        (Address, including zip code, and telephone
    number, including area code, of principal                      number, including
executive office of Hanover Equipment Trust 2001B)   area code, of principal executive offices of
                                                        Hanover Compressor Company and Hanover
                                                           Compression Limited Partnership)
</TABLE>

                               -----------------

<TABLE>
<S>                                                <C>
David A. Vanaskey, Jr. Vice President Wilmington                   Michael J. McGhan
                  Trust Company                      President and Chief Executive Officer Hanover
               Rodney Square North                                Compressor Company
            1100 North Market Street                           12001 N. Houston Rosslyn
           Wilmington, Delaware 19890                            Houston, Texas 77086
                 (302) 651-1000                                     (281) 447-8787
(Name, address, including zip code, and telephone  (Name, address, including zip code, and telephone
number, including area code, of agent for service                  number, including
        of Hanover Equipment Trust 2001B)            area code, of principal executive offices of
                                                        Hanover Compressor Company and Hanover
                                                           Compression Limited Partnership)
</TABLE>

                               -----------------
                                  Copies to:


<TABLE>
<S>                                                <C>
               Lewis Ledyard, Esq.                               Richard Meller, Esq.
     Morris, James, Hitchens & Williams LLP                        Latham & Watkins
         222 Delaware Avenue, 10th Floor                  233 South Wacker Drive, Suite 5800
           Wilmington, Delaware 19801                           Chicago, Illinois 60606
                 (302) 888-6869                                     (312) 876-7700
</TABLE>


                               -----------------
   Approximate date of commencement of proposed sale to the public:   As soon
as practicable after this registration statement becomes effective.

   If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]

   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]





                               -----------------

   The registrants hereby amend this registration statement on such date or
dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
================================================================================

<PAGE>

The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities, and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.


                      Subject to Completion, May 24, 2002

PROSPECTUS
--------------------------------------------------------------------------------

                               OFFER TO EXCHANGE

                      8.75% Senior Secured Notes Due 2011
          that have been registered under the Securities Act of 1933
                                      for


       all outstanding unregistered 8.75% Senior Secured Notes Due 2011

                  ($250,000,000 principal amount outstanding)
                                      of

                         Hanover Equipment Trust 2001B
              payable from lease obligations of and guaranteed by

                    Hanover Compression Limited Partnership
              which lease obligations and notes are guaranteed by

                          Hanover Compressor Company

--------------------------------------------------------------------------------

   Hanover Equipment Trust 2001B, a special purpose Delaware business trust
(which we refer to as the "Issuer"), is offering to exchange $250,000,000
aggregate principal amount of its new 8.75% Senior Secured Notes due 2011
(which we refer to as the "new notes" or the "notes") that have been registered
under the Securities Act of 1933 for the same aggregate principal amount of its
outstanding 8.75% Senior Secured Notes due 2011 (which we refer to as the "old
notes") that were issued and sold on August 30, 2001 in a transaction exempt
from registration under the Securities Act. The terms of the new notes are
identical to the terms of the old notes, except that the new notes are
registered under the Securities Act of 1933, are freely transferable, and do
not have exchange or registration rights. The Issuer used the proceeds from the
sale of the old notes, together with equity financing raised by the Issuer, to
finance the purchase of domestic gas compression equipment from Hanover
Compression Limited Partnership (which we refer to as "HCLP") and certain of
its subsidiaries. HCLP is an indirect wholly owned subsidiary of Hanover
Compressor Company (which we refer to as "Hanover"). The Issuer then leased the
equipment to HCLP for a ten-year term under an operating lease (which we refer
to as the "Lease"). The payments under the Lease are the source of funds from
which the Issuer intends to make interest and principal payments under the
notes. The Lease is a senior subordinated obligation of HCLP. HCLP's
obligations under the Lease are fully and unconditionally guaranteed, on a
senior subordinated basis, by Hanover. In addition, the Issuer's obligations
under the new notes are jointly and severally guaranteed, unconditionally and
on a senior subordinated basis, by Hanover and HCLP for an amount up to 70.0%
of the aggregate principal balance of notes outstanding, which is equal to the
final rent payment under the Lease. If there is an event of default under the
Lease, Hanover and HCLP guarantee, jointly and severally, on a senior
subordinated basis, all of the Issuer's obligations under the new notes.

*Please consider the following:

    .  Our offer to exchange old notes for new notes will be open until 5:00
       p.m., New York City time, on      , 2002, unless we extend the offer.


    .  You should carefully review the procedures for tendering the old notes
       beginning on page 34 of this prospectus.


    .  If you fail to tender your old notes, you will continue to hold
       unregistered securities and your ability to transfer them could be
       adversely affected.

    .  No public market currently exists for the new notes. We do not intend to
       list the new notes on any securities exchange and, therefore, no active
       public market is anticipated.


    You should carefully review the Risk Factors beginning on page 20 of this
prospectus.


    We are not asking you for a proxy and you are requested not to send us a
proxy.

    We are not making the exchange offer in any state or jurisdiction where it
is not permitted.


   Each broker-dealer that receives new notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
new notes received in exchange for old notes where such old notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Issuer has agreed that, for a period of 180 days after the date
this exchange offer expires, it will make this prospectus available to any
broker-dealer for use in connection with any such resale. See the Plan of
Distribution beginning on page 167 of this prospectus.


    Neither the Securities and Exchange Commission nor any state securities
 commission has approved or disapproved of the new notes to be distributed in
 the exchange offer or has determined if this prospectus is truthful or
 complete. Any representation to the contrary is a criminal offense.

<PAGE>

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
  <S>                                                                     <C>
  WHERE YOU CAN FIND MORE INFORMATION....................................  ii
  INCORPORATION OF DOCUMENTS BY REFERENCE................................ iii
  PROSPECTUS SUMMARY.....................................................   1
  RISK FACTORS...........................................................  20
  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................  31
  THE EXCHANGE OFFER.....................................................  32
  USE OF PROCEEDS........................................................  43
  CAPITALIZATION OF HANOVER COMPRESSOR COMPANY AND HANOVER
    COMPRESSION LIMITED PARTNERSHIP......................................  44
  CAPITALIZATION OF HANOVER EQUIPMENT TRUST 2001B........................  46
  SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF HANOVER COMPRESSOR
    COMPANY AND HANOVER COMPRESSION LIMITED PARTNERSHIP..................  47
  SELECTED HISTORICAL FINANCIAL DATA OF HANOVER EQUIPMENT TRUST 2001B....  52
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
    OF OPERATIONS OF HANOVER COMPRESSOR COMPANY AND HANOVER COMPRESSION
    LIMITED PARTNERSHIP..................................................  53
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
    OF OPERATIONS OF HANOVER EQUIPMENT TRUST 2001B.......................  77
  BUSINESS OF HANOVER COMPRESSOR COMPANY AND HANOVER COMPRESSION
    LIMITED PARTNERSHIP..................................................  79
  SECURITY OWNERSHIP OF HANOVER COMPRESSOR COMPANY.......................  91
  HANOVER COMPRESSION LIMITED PARTNERSHIP................................  93
  HANOVER EQUIPMENT TRUST 2001B..........................................  95
  CERTAIN TRANSACTIONS...................................................  97
  DESCRIPTION OF NOTES................................................... 102
  SUMMARY OF PRINCIPAL OPERATIVE AGREEMENTS.............................. 148
  THE EQUIPMENT.......................................................... 155
  DESCRIPTION OF CERTAIN INDEBTEDNESS.................................... 156
  BOOK-ENTRY; DELIVERY AND FORM.......................................... 158
  MATERIAL ERISA CONSIDERATIONS.......................................... 160
  UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS........................ 162
  PLAN OF DISTRIBUTION................................................... 167
  VALIDITY OF THE SECURITIES............................................. 168
  EXPERTS................................................................ 168
  INDEX TO FINANCIAL STATEMENTS.......................................... F-1
</TABLE>


                                       i

<PAGE>

                      WHERE YOU CAN FIND MORE INFORMATION


   We have filed with the SEC a registration statement on Form S-4 (Reg. No.
333-75818) with respect to the securities we are offering. This prospectus does
not contain all the information contained in the registration statement,
including its exhibits and schedules. You should refer to the registration
statement, including the exhibits and schedules, for further information about
us and the securities we are offering. Statements we make in this prospectus or
in any document incorporated in this prospectus by reference about any contract
or other document are not necessarily complete. When we make such statements,
you should refer to the copy of the contract or other document filed with the
SEC. The registration statement, including exhibits and schedules, is on file
at the offices of the SEC and may be inspected without charge.



   Hanover Equipment Trust 2001B, Hanover Compressor Company and Hanover
Compression Limited Partnership are co-registrants with respect to the
registration statement. Neither Hanover Equipment Trust 2001B nor Hanover
Compression Limited Partnership is currently subject to the periodic reporting
and other information requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). In connection with the exchange offer, the Issuer
and HCLP will become subject to the information requirements of the Exchange
Act, and will file reports and other information with the SEC. Hanover is
currently subject to the informational requirements of the Exchange Act. In
accordance with the Exchange Act, Hanover files annual, quarterly and special
reports, proxy statements and other information with the SEC. These SEC
filings, including the registration statement, are available to the public over
the Internet at the SEC's web site at http://www.sec.gov.


   You may also read and copy any document the registrants file with the SEC at
its public reference facilities at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference facilities.
Hanover's SEC filings are also available at the offices of the New York Stock
Exchange, Inc., 11 Wall Street, New York, New York 10005.

                                      ii

<PAGE>

                    INCORPORATION OF DOCUMENTS BY REFERENCE

   We have incorporated by reference certain reports and other information
Hanover has filed, or will file, with the SEC. The information incorporated by
reference is an important part of this prospectus. In addition, information
that Hanover files with the SEC will automatically update and supersede this
information. Hanover incorporates by reference the documents listed below and
any further filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 after the date of this prospectus:


    .  Hanover's Annual Report on Form 10-K/A for the year ended December 31,
       2001;



    .  Hanover's Quarterly Report on Form 10-Q for the three months ended March
       31, 2002;





    .  Hanover's Current Reports on Form 8-K and 8-K/A filed with the SEC on
       November 9, 2001, January 25, 2002; January 29, 2002; February 26, 2002;
       February 27, 2002; March 5, 2002; March 11, 2002; March 20, 2002; March
       21, 2002; March 29, 2002; April 16, 2002, April 18, 2002; May 10, 2002;
       May 14, 2002; and



    .  Hanover's Definitive Proxy Statement, dated April 22, 2002, for the
       Annual Meeting of Stockholders to be held on May 14, 2002.


   You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:

      Hanover Compressor Company
      12001 North Houston Rosslyn
      Houston, Texas 77086
      Attention:  Corporate Secretary
      Telephone: (281) 447-8787

   TO OBTAIN TIMELY DELIVERY OF INFORMATION THAT YOU REQUEST FROM US, YOU MUST
REQUEST SUCH INFORMATION NO LATER THAN     , 2002.


                                      iii

<PAGE>

                              PROSPECTUS SUMMARY


   This summary highlights material information contained elsewhere in this
prospectus and in filings incorporated by reference. This summary may not
contain all of the information that may be important to you. You should read
this entire prospectus carefully, including the financial statements and
related notes contained in this prospectus, before making an investment
decision. The information provided in this prospectus gives effect to various
internal restructuring transactions that Hanover Compressor Company and its
subsidiaries completed in 1999, 2000 and 2001, which transactions have had no
effect on our business. As a result of these restructuring transactions,
substantially all of our assets and operations are owned or conducted by
Hanover Compression Limited Partnership and its subsidiaries. In addition, in
early 2002 in conjunction with a review of our joint ventures and other
transactions, Hanover determined to restate its revenues, income before taxes,
net income and earnings per share for the year ended December 31, 2000. The
information provided in this prospectus gives effect to this restatement.
Except as described in this paragraph and unless the context requires
otherwise, "Hanover," "we," "us," "our" or similar terms in this prospectus
refer to Hanover Compressor Company and its subsidiaries (including Hanover
Compression Limited Partnership) following completion of these restructuring
transactions. Except as the context requires otherwise, "HCLP" refers to
Hanover Compression Limited Partnership, an indirect wholly owned subsidiary of
Hanover. Except as the context otherwise requires, the "Issuer" refers to
Hanover Equipment Trust 2001B. Except as the context otherwise requires, the
terms "registrants" or "registrant" when used in this prospectus mean the
Issuer (as registrant of the new notes), HCLP (as registrant of the lease
obligations to the Issuer, and the guarantee obligations with respect to the
new notes) and Hanover (as registrant of the guarantee obligations with respect
to the lease obligations to the Issuer and the new notes). Except as the
context requires otherwise, financial and statistical data described as "pro
forma" reflect our acquisition of the gas compression business of Schlumberger
Limited and its affiliates (which we refer to as "Schlumberger") in August 2001.


                                   OVERVIEW

   This prospectus relates to the offer by Hanover Equipment Trust 2001B to
exchange its registered 8.75% senior secured notes due 2011 (which we refer to
as the "new notes" or the "notes") for all of its outstanding 8.75% senior
secured notes due 2011 (which we refer to as the "old notes"). The terms of the
new notes are identical to the terms of the old notes except that the new notes
are freely transferable under the Securities Act and do not have any exchange
or registration rights. The exchange offer expires at 5:00 p.m., New York City
time, on             , 2002, unless extended.

   The old notes were issued by the Issuer on August 30, 2001 as part of an
operating lease transaction with HCLP. The Issuer used the proceeds from the
old notes, together with equity financing raised by the Issuer, to purchase
domestic natural gas compression equipment from HCLP and certain of its
subsidiaries, and then leased that equipment to HCLP for a ten-year term. The
Issuer intends to make interest and principal payments on the notes using the
payments received from HCLP under the operating lease.

   The notes are obligations of the Issuer. The Issuer's obligations under the
notes are jointly and severally guaranteed, unconditionally and on a senior
subordinated basis, by Hanover and HCLP for an amount up to 70.0% of the
aggregate principal balance of notes outstanding, which is equal to the final
rent payment under the operating lease. If there is an event of default under
the operating lease, Hanover and HCLP guarantee, jointly and severally, on a
senior subordinated basis, all of the Issuer's obligations under the notes. All
of HCLP's obligations under the operating lease are unconditionally guaranteed,
on a senior subordinated basis, by Hanover. The Issuer is not affiliated with
Hanover or HCLP.

                                      1

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B


   Hanover Equipment Trust 2001B is a special purpose Delaware business trust
formed in August 2001 to raise equity financing, issue the old notes and the
new notes and enter into certain contracts described in this prospectus.
Hanover Equipment Trust 2001B is the sole issuer of the notes. Because it is
the sole equity certificate holder of the Issuer, General Electric Capital
Corporation ("GE Capital") is the owner of the Issuer. However, GE Capital has
no obligation to pay the principal or interest on the notes.



   The Issuer used the proceeds of the old notes, together with equity
financing raised by the Issuer, to purchase equipment for lease to HCLP for a
ten-year term. Under the operating lease with HCLP, the Issuer receives lease
payments that are sufficient in amount to pay interest on the notes, and to
provide a return to the equity certificate holder of the Issuer. At the end of
the term of the operating lease, HCLP has an option to purchase the leased
equipment from the Issuer for an amount sufficient to repay the notes in full.
In the event that HCLP does not exercise its option to purchase all the leased
equipment, HCLP is required to use its best efforts to sell the equipment on
the Issuer's behalf. In such event, at the end of the lease term, HCLP is
required to make a final rent payment equal to approximately $175 million, plus
the proceeds from the sale of the leased equipment. All of these amounts will
be applied to repay the notes. If the final rent payment and the proceeds from
the sale of the leased equipment are insufficient to pay the notes in full,
HCLP will be liable for an assessment of additional rent with respect to actual
excess wear and tear of the leased equipment, as determined by an independent
appraisal procedure. There can be no assurance that, if the sale option is
exercised, the final rent payment, sale proceeds and the assessment of
additional rent will be sufficient for the Issuer to repay the notes in full.
To the extent the final rent payment and the proceeds from the sale of leased
equipment exceed the amounts required to pay the notes, the excess will be used
to repay contributed capital to the equity certificate holder and then returned
to HCLP.



   The Issuer's obligations under the notes are jointly and severally
guaranteed, unconditionally and on a senior subordinated basis, by Hanover and
HCLP for an amount up to 70.0% of the aggregate principal balance of notes
outstanding, which is equal to the final rent payment under the operating
lease. As long as there is no event of default under the operating lease and
HCLP does not purchase the Equipment, neither Hanover nor HCLP has any
obligation to pay 30.0% of the aggregate principal balance of notes
outstanding. If there is an event of default under the operating lease, Hanover
and HCLP guarantee, jointly and severally, on a senior subordinated basis, all
of the Issuer's obligations under the notes.

   Hanover Equipment Trust 2001B is a special purpose business trust formed
under the laws of the State of Delaware. Its principal executive office is
located c/o Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, and its telephone number at that address is
(302) 651-1000.

                          HANOVER COMPRESSOR COMPANY
                    HANOVER COMPRESSION LIMITED PARTNERSHIP


   Hanover Compressor Company, through its indirect wholly-owned subsidiary
Hanover Compression Limited Partnership and its subsidiaries, is a global
market leader in full service natural gas compression and a leading provider of
service, fabrication and equipment for contract natural gas handling
applications. We provide this equipment on a rental, contract compression,
maintenance and acquisition leaseback basis to natural gas production,
processing and transportation companies that are increasingly seeking
outsourcing solutions. Founded in 1990 and a public company since 1997, our
customers include premier independent and major producers and distributors. In
conjunction with our maintenance business, we have developed our parts and
service business to provide solutions to customers that own their own
compression equipment, but want to outsource their operations. Our compression
services are complemented by our compressor and oil and gas production
equipment fabrication operations and gas processing and treating, gas
measurement and power generation services, which broaden our customer
relationships both domestically and internationally.


                                      2

<PAGE>




   Our products and services are essential to the production, processing,
transportation and storage of natural gas and are provided primarily to energy
producers and distributors of natural gas. Our decentralized operating
structure, technically experienced personnel and high quality compressor fleet
allow us to successfully provide reliable and timely customer service. As a
result, we have experienced substantial growth over the past five years and
have developed and maintained a number of long-term customer relationships.
This has enabled us to maintain an average horsepower utilization rate of
approximately 93% from 1997 to 2001, compared to industry rates which we
believe to have been 80% to 85% for this period.



   We compete primarily in the market for transportable natural gas compression
units of up to 4,450 horsepower. This market for rental compression has
experienced significant growth over the past decade, with a compound annual
growth rate which we estimate to be approximately 15%. We believe that the
growth in the domestic gas compression market will continue due to the
increased consumption of natural gas, the continued aging of the natural gas
reserve base and the attendant decline of wellhead pressures, and the discovery
of new reserves.



   The rental portion of the domestic gas compression market is estimated to be
at least 5.2 million horsepower and accounts for approximately 34% of the
aggregate U.S. horsepower, up from 20% in 1992. Growth of rental compression
capacity in the U.S. market is primarily driven by the increasing trend toward
outsourcing by energy producers and processors. We believe that outsourcing
provides the customer greater financial and operating flexibility by minimizing
the customer's investment in equipment and enabling the customer to more
efficiently resize compression units to meet the changing reservoir conditions.
In addition, we believe that outsourcing typically provides the customer with
more timely and technically proficient service and necessary maintenance, which
often reduces operating costs. Internationally, we believe similar growth
opportunities for compressor rental and sales exist due to (i) increased
worldwide energy consumption, (ii) implementation of international
environmental and conservation laws preventing the flaring of natural gas, and
(iii) increased outsourcing by energy producers and processors.



   As of March 31, 2002, we operated a fleet of 7,161 compression rental units
with an aggregate capacity of approximately 3,554,000 horsepower (excluding
89,000 in noncompression horsepower). We believe that we are currently the
largest natural gas compression company in the United States on the basis of
aggregate rental horsepower with 6,390 rental units having an aggregate
capacity of approximately 2,735,000 horsepower at March 31, 2002. We estimate
that we are one of the largest providers of compression services in the rapidly
growing Latin American and Canadian markets, operating 771 units
internationally with approximately 819,000 horsepower at March 31, 2002.



   Substantially all of our assets and operations are owned or conducted by our
wholly-owned subsidiary, Hanover Compression Limited Partnership. In December
2001, HCLP and its subsidiaries completed various internal restructuring
transactions pursuant to which certain of the domestic subsidiaries of HCLP
were merged, directly or indirectly, with and into HCLP.


   Hanover Compressor Company is a corporation formed under the laws of the
State of Delaware. Its principal executive office is located at 12001 North
Houston Rosslyn, Houston, Texas 77086, telephone (281) 447-8787.

   Hanover Compression Limited Partnership is a limited partnership formed
under the laws of the State of Delaware and is an indirect wholly-owned
subsidiary of Hanover Compressor Company. Its principal executive office is
located at 12001 North Houston Rosslyn, Houston, Texas 77086, telephone (281)
447-8787.


                                      3

<PAGE>

                        THE OPERATING LEASE TRANSACTION


   The Issuer used the proceeds from the sale of the old notes and the related
equity certificates to purchase from HCLP and certain of its subsidiaries a
portion of the gas compression assets acquired from Schlumberger in the POI
acquisition and certain other domestic gas compression equipment having an
aggregate appraised fair market value of approximately $258 million (the
"Equipment"). We used the proceeds from the sale of Equipment to exercise our
equipment purchase option under our 1998 operating lease and for general
corporate purposes. The Issuer then leased the Equipment to HCLP for a ten-year
term under an operating lease (the "Lease").


   The parties intend that (i) for purposes of financial accounting, the Lease
will be treated as an operating lease and (ii) for purposes of federal, state
and local income taxes, state laws and federal and state bankruptcy or
insolvency laws, the Lease will be treated as a financing arrangement.

   Under the Lease, HCLP pays rent to the Issuer sufficient to enable the
Issuer to make interest payments under the notes. At the end of the term of the
Lease, HCLP has an option to purchase the Equipment from the Issuer for an
amount sufficient to repay the notes in full. In the event that HCLP does not
exercise its option to purchase all the Equipment, HCLP is required to use its
best efforts to sell the Equipment on the Issuer's behalf. In such event, at
the end of the Lease term, HCLP is required to make a payment equal to
approximately $175 million (as such amount may be reduced from time to time
upon purchases of the Equipment by HCLP in accordance with the terms of the
Lease, the "Final Rent Payment") plus the proceeds from the sale of the
Equipment. All of these amounts will be applied to repay the notes. Any excess
amounts will be used to repay the unrecovered amount of the investments made in
the Issuer by its equity certificate holder. Any remaining proceeds will be
returned to HCLP. If the Final Rent Payment and the proceeds from the sale of
the Equipment are insufficient to pay the notes in full, then HCLP will be
liable for an assessment of additional rent with respect to actual excess wear
and tear of the Equipment, as determined by an independent appraisal procedure.
It is possible that the Final Rent Payment, sale proceeds and assessment of
additional rent will be insufficient to repay the notes in full.

   Payment of the principal, premium, if any, and interest on the notes is
secured by a perfected first priority security interest in the Issuer's
interest in the Equipment and an assignment of the Lease and the guarantee to
the trustee for the notes. Hanover guarantees, on a senior subordinated basis,
the full payment of the Lease obligations by HCLP (the "Lease Guarantee"). The
notes are jointly and severally guaranteed, unconditionally and on a senior
subordinated basis, by Hanover and HCLP for an amount up to 70.0% of the
aggregate principal balance of notes outstanding, which is equal to the Final
Rent Payment under the Lease. If there is an event of default under the Lease,
Hanover and HCLP guarantee, jointly and severally, on a senior subordinated
basis, all of the Issuer's obligations under the notes (the "Notes Guarantee";
we refer to the Notes Guarantee and the Lease Guarantee collectively as the
"Hanover Guarantee").

   At issuance of the old notes on August 30, 2001, certain of Hanover's
domestic subsidiaries were guarantors under the Hanover Guarantee. In December
2001, consistent with the terms of the Lease and the other operative
agreements, Hanover and its subsidiaries completed various internal
restructuring transactions pursuant to which all of the domestic subsidiaries
of Hanover (other than HCLP) that were guarantors of the old notes have been
merged, directly or indirectly, with and into HCLP. As a result, Hanover and
HCLP are the only remaining guarantors under the Hanover Guarantee.

                                      4

<PAGE>

   The chart below illustrates the Lease facility, which includes the new notes.


                                  [FLOW CHART]

HANOVER                  LEASE GUARANTEE

                                                                      EQUITY
                                                                   CERTIFICATE
100%            NOTES                             NOTES               HOLDER
INDIRECT      GUARANTEE                          HOLDERS
OWNERSHIP                                                  NOTES      EQUITY
                                                                   CERTIFICATES

HCLP                    LEASE                                       ISSUER
                         OF
                      EQUIPMENT




   The sale of Equipment by Hanover and its subsidiaries to the Issuer,
together with the Issuer's lease of Equipment to HCLP, has a number of
advantages over other sources of capital presently available to us.
Specifically, Hanover believes sale and leaseback transactions (1) enable
Hanover to extend the duration of its financing arrangements, (2) reduce
Hanover's cost of capital and (3) provide access to a source of capital other
than traditional bank financing. For a more detailed discussion of Hanover's
and HCLP's sale and leaseback transactions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Hanover Compressor
Company and Hanover Compression Limited Partnership--Critical Accounting
Policies and Estimates--Sale and Leaseback Transactions" and "--Leasing
Transactions."



   The indenture, the participation agreement and our bank credit agreement
contain limitations on Hanover's ability to incur additional indebtedness or
enter into other sale and leaseback transactions. Our bank credit agreement
permits us to incur indebtedness up to the $350 million credit limit under our
bank credit agreement, plus an additional $125 million in unsecured
indebtedness. As of March 31, 2002, we had approximately $85 million of
availability under our $350 million bank credit agreement. Our bank credit
agreement permits us to enter into sale and leaseback transactions with respect
to equipment having a value not in excess of $300 million. In addition to
purchase money and similar obligations, the indenture and the participation
agreement permit us to incur indebtedness (which is defined for the purposes of
the indenture and the participation agreement to include obligations under sale
and leaseback transactions and the obligations under operating lease facilities
similar to this Lease facility) up to the $350 million credit limit under our
bank credit agreement, plus (1) an additional $75 million in unsecured
indebtedness and (2) any additional indebtedness so long as, after incurring
such indebtedness, Hanover's ratio of the sum of consolidated net income before
expenses, leasing expense, distributions on mandatorily redeemable convertible
preferred securities, income tax, and depreciation and amortization, or
EBITDAR, to total fixed charges, as defined and adjusted by these agreements,
is greater than 2.25 to 1.0.



   The notes are obligations of the Issuer. The Issuer's sole sources of
payment of the principal and interest on the notes are rent payments under the
Lease, the Final Rent Payment, proceeds of the sale of Equipment, the
assessment of additional rent and amounts received under the Hanover Guarantee.
The obligations of Hanover and HCLP under the Lease or the Hanover Guarantee
are subordinated in right of payment to all existing and future senior
indebtedness of Hanover and HCLP. If there is a payment default by Hanover or
HCLP under the Hanover Guarantee or the Lease, so that neither Hanover nor HCLP
has sufficient cash and capital resources to pay their obligations, the only
source of payment of the notes will be the Equipment. The value realized upon a
future sale of any Equipment will depend on market and economic conditions at
that time and other factors, and


                                      5

<PAGE>


the proceeds realized from the sale of any Equipment may be insufficient to
cover the Issuer's obligations under the notes. Events of default under the
indenture differ in certain respects from events of default under the Lease.
Unless there is an event of default under the Lease, the Issuer would have
recourse under the Hanover Guarantee only up to 70.0% of the aggregate
principal balance of the notes outstanding, which is equal to the Final Rent
Payment. In this case, neither Hanover nor HCLP would be obligated to pay the
remaining 30.0% of the aggregate principal balance of notes outstanding. As a
result, the Issuer may be unable to perform its obligations under the
indenture. See "Risk Factors--Risks Related to the Notes" for a more detailed
discussion of the risks involved in an investment in the notes.





                      RESTATEMENT OF FINANCIAL STATEMENTS



   In early 2002 in conjunction with a review of our joint ventures and other
transactions, Hanover determined to restate its revenues, income before taxes,
net income and earnings per share for the year ended December 31, 2000 and each
of the quarters in the nine months ended September 30, 2001. The net effect of
this restatement on Hanover for the year ended December 31, 2000 was as
follows: (i) a decrease in revenues of $37,748,000, from $603,829,000 to
$566,081,000; (ii) a decrease in income before taxes of $11,999,000, from
$93,470,000 to $81,471,000; (iii) a decrease in net income of $7,535,000, from
$58,699,000 to $51,164,000; and (iv) a decrease in earnings per common share of
$0.12 basic and $0.11 diluted for the year ended December 31, 2000. The net
effect of this restatement on Hanover for the three months ended March 31, 2001
was as follows: (i) an increase in revenues of $10,025,000, from $219,919,000
to $229,944,000; (ii) an increase in income before taxes of $1,903,000, from
$30,312,000 to $32,215,000; (iii) an increase in net income of $1,180,000, from
$18,629,000 to $19,809,000; and (iv) an increase in earnings per common share
of $0.02 basic and $0.01 diluted for the three months ended March 31, 2001. The
net effect of this reinstatement on HCLP for the year ended December 31, 2000
was as follows; (i) a decrease in revenues of $37,748,000 from $603,829,000 to
$566,081,000; (ii) a decrease in income before taxes of $11,999,000 from
$99,839,000 to $87,840,000; and (iii) a decrease in net income before taxes of
$7,535,000, from $62,699,000 to $55,164,000. The net effect of this restatement
on HCLP for the three months ended March 31, 2001 was as follows: (i) an
increase in revenues of $10,025,000, from $219,919,000 to $229,944,000; (ii) an
increase in income before taxes of $1,903,000, from $32,155,000 to $34,058,000;
and (iii) an increase in net income of $1,180,000, from $19,772,000 to
$20,952,000. For a more detailed discussion of the impact of, and transactions
giving rise to, the restatement, please see note 20 to Hanover's consolidated
financial statements, which are incorporated by reference in this prospectus,
and note 19 to HCLP's consolidated financial statements, which are included in
this prospectus.


                                      6

<PAGE>

                              THE EXCHANGE OFFER


<TABLE>
<S>                <C>
The Exchange Offer The Issuer is offering to exchange $1,000 principal
                   amount of new notes in exchange for each $1,000
                   principal amount of old notes. As of the date hereof,
                   $250,000,000 in aggregate principal amount of old
                   notes are outstanding.
                   Based on the interpretations by the staff of the SEC,
                   as set forth in no-action letters issued to certain third
                   parties unrelated to us, we believe that new notes may
                   be offered for resale, resold or otherwise transferred
                   by you without compliance with the registration and
                   prospectus delivery requirements of the Securities
                   Act, unless you:
                   .  are an "affiliate" of ours within the meaning of
                           Rule 405 under the Securities Act;
                   .  are a broker-dealer who purchased old notes
                           directly  from us for resale under Rule 144A or
                           any  other  available exemption under the
                           Securities  Act;
                   .  acquired the new notes other than in the ordinary
                                course of your business; or
                   .  are engaged in a distribution of the new notes or
                           have an arrangement with any person to engage in
                           the distribution of new notes.
                   The SEC has not considered the exchange offer in the
                   context of a no-action letter, however, and we cannot
                   be sure that the staff of the SEC would make a similar
                   determination with respect to the exchange offer as in
                   such other circumstances. In order to participate in the
                   exchange offer, you must make the representations set
                   forth in the letter of transmittal that we are sending
                   you with this prospectus.
</TABLE>

<TABLE>
  <S>                 <C>
  Registration Rights We sold the old notes on August 30, 2001 in a private
                      placement in reliance on Section 4(2) of the Securities
                      Act. The old notes were immediately resold by the
                      initial purchasers in the United States in reliance on
                      Rule 144A under the Securities Act and outside the
                      United States in reliance on Regulation S under the
                      Securities Act. At the same time, we entered into an
                      exchange and registration rights agreement with the
                      initial purchasers requiring us to make this exchange
                      offer. This exchange offer satisfies those rights, which
                      terminate upon consummation of the exchange offer.
                      You will not be entitled to any exchange or
                      registration rights with respect to the new notes.
                      Additionally, after completion of the exchange offer,
                      we will no longer be required to register with the SEC
                      any transfer of old notes that remain outstanding.
</TABLE>

                                      7

<PAGE>


<TABLE>
<S>                                         <C>
Expiration Date............................ The exchange offer will expire at 5:00 p.m.,
                                                      , 2002, New York City time, or a later
                                            date and time if we extend it (the "Expiration Date").
Withdrawal................................. You may withdraw the tender of the old notes
                                            pursuant to the exchange offer at any time prior to the
                                            Expiration Date. As soon as practicable after the
                                            expiration or termination of the exchange offer we
                                            will return to you at our expense any old notes not
                                            accepted for exchange for any reason.
Interest on the New Notes and the Old Notes Interest on the new notes will accrue from the date of
                                            the last payment of interest on the old notes. No
                                            interest will be paid on the old notes tendered and
                                            accepted for exchange.
Conditions to the Exchange Offer........... The exchange offer is subject to customary
                                            conditions, some of which may be waived by us. See
                                            "The Exchange Offer--Conditions to the Exchange
                                            Offer."
Procedures for Tendering Old Notes......... If you wish to accept the exchange offer, you must
                                            first complete, sign and date an original or faxed letter
                                            of transmittal, in accordance with the instructions
                                            contained in this prospectus and in the letter of
                                            transmittal. You must then mail, fax or deliver the
                                            letter of transmittal, together with the old notes and
                                            any other required documentation, to Wilmington
                                            Trust FSB at the address set forth in this prospectus.
                                            If you are a person holding the old notes through the
                                            Depository Trust Company and wish to accept the
                                            exchange offer, you must do so through the
                                            Depository Trust Company's Automated Tender
                                            Offer Program, by which you will agree to be bound
                                            by the letter of transmittal. By executing or agreeing
                                            to be bound by the letter of transmittal, you will be
                                            making a number of important representations to us,
                                            as described under "The Exchange Offer--Procedures
                                            for Tendering" and "--Terms and Conditions of the
                                            Letter of Transmittal."
                                            If you are a broker-dealer that will receive new notes
                                            for your own account in exchange for old notes that
                                            you acquired as a result of your market-making or
                                            other trading activities, you will be required to
                                            acknowledge in the letter of transmittal that you will
                                            deliver a prospectus in connection with any resale of
                                            the new notes.
</TABLE>


                                      8

<PAGE>

<TABLE>
<S>                               <C>
                                  We will accept for exchange any and all old notes that
                                  are properly tendered in the exchange offer prior to
                                  the Expiration Date. The new notes issued in the
                                  exchange offer will be delivered promptly following
                                  the Expiration Date. See "The Exchange Offer--
                                  Terms of the Exchange Offer."
Exchange Agent................... Wilmington Trust FSB is serving as exchange agent
                                  in connection with the exchange offer.
Federal Income Tax Considerations The exchange of old notes for new notes in the
                                  exchange offer will not constitute a sale or an
                                  exchange for federal income tax purposes. Therefore,
                                  you will not have to pay federal income tax as a result
                                  of your participation in the exchange offer. See
                                  "United States Federal Income Tax Considerations."
Effect of Not Tendering.......... Old notes that are not tendered or that are tendered
                                  but not accepted will, following the completion of the
                                  exchange offer, continue to be subject to their existing
                                  transfer restrictions. As a result of those restrictions
                                  and the availability of registered new notes, the old
                                  notes are likely to be much less liquid than before.
                                  We will have no further obligation to provide for
                                  exchange or registration under the Securities Act of
                                  such old notes.
                                  Neither the Delaware General Corporation Law nor
                                  the indenture relating to the old notes gives you any
                                  appraisal or dissenters' rights or any other right to
                                  seek monetary damages in court if you do not
                                  participate in the exchange offer.
</TABLE>









                                      9

<PAGE>

                                 THE NEW NOTES

   The summary below contains basic information about the principal terms of
the new notes and is not intended to be complete. It does not contain all the
information that is important to you. The terms and conditions described below
are subject to important limitations and exceptions. The "Description of Notes"
section of this prospectus contains a more detailed description of the terms
and conditions of the new notes.

                                 The Offering

Issuer......................  Hanover Equipment Trust 2001B.

Notes Offered...............  $250,000,000 aggregate principal amount of 8.75%
                              Senior Secured Notes Due 2011.

Maturity Date...............  September 1, 2011.

Interest Rate...............  8.75% per year.


Interest Payment Dates......  March 1 and September 1 of each year, commencing
                              September 1, 2002.


Use of Proceeds.............  There will be no cash proceeds from the issuance
                              of the new notes under this exchange offer. The
                              Issuer used the proceeds from its offering of the
                              old notes to purchase the Equipment from HCLP.
                              The proceeds from the sale of such Equipment were
                              used by HCLP to exercise its equipment purchase
                              option under an existing operating lease and for
                              general corporate purposes.

Lease.......................  HCLP leases the Equipment from the Issuer under
                              the Lease. Payments under the Lease are senior
                              subordinated obligations of HCLP. The term of the
                              Lease started on August 31, 2001, and ends on
                              September 1, 2011. The Lease is a "triple net
                              lease." See "Summary of Principal Operative
                              Agreements--The Lease."

Lease Guarantee.............  Hanover and any material domestic subsidiaries
                              created or acquired by Hanover on or after the
                              issue date that become guarantors under Hanover's
                              $350 million bank credit agreement have
                              guaranteed or will guarantee, as applicable,
                              jointly and severally and on a senior
                              subordinated basis, all obligations of HCLP under
                              the Lease, including all rent payments.

Notes Guarantee.............  Hanover, HCLP, and any material domestic
                              subsidiaries created or acquired by Hanover on or
                              after the issue date that become guarantors under
                              Hanover's $350 million bank credit agreement have
                              guaranteed or will guarantee, as applicable,
                              jointly and severally, unconditionally and on a
                              senior subordinated basis, the payment when due
                              of all amounts required to be paid by the Issuer
                              under the notes, up to the maximum amount of
                              70.0% of the aggregate principal balance of notes
                              outstanding, which is equal to the Final Rent
                              Payment under the Lease. If there is an event of
                              default under the Lease, Hanover and HCLP
                              guarantee, jointly and severally, on a senior
                              subordinated basis, the payment when due of all
                              amounts required to be paid by the Issuer under
                              the notes.

                                      10

<PAGE>


Security and Funds for
  Payment...................  The notes are obligations of the Issuer. The
                              Lease is an obligation of HCLP. There is no
                              amortization or sinking fund to cover the
                              principal payment of the notes. Payment of the
                              principal, premium, if any, and interest on the
                              notes is secured by a perfected first priority
                              security interest in the Issuer's interest in the
                              Equipment and an assignment of the Lease and the
                              Hanover Guarantee to the trustee for the holders
                              of the notes. Under the Lease, HCLP pays rent to
                              the Issuer sufficient to enable the Issuer to
                              make interest payments under the notes. Holders
                              of the notes have recourse on a secured basis
                              only with respect to the Equipment and other
                              assets of the Issuer described under "Description
                              of Notes--Security."



Ranking.....................  The notes are senior secured obligations of the
                              Issuer, and the Issuer is not permitted to incur
                              any additional indebtedness. The obligations of
                              HCLP under the Lease are subordinated in right of
                              payment to all existing and future senior
                              indebtedness of HCLP. The obligations of Hanover
                              and HCLP under the Hanover Guarantee are
                              subordinated in right of payment to all existing
                              and future senior indebtedness of Hanover and
                              HCLP. The Hanover Guarantee ranks equally in
                              right of payment with all senior subordinated
                              debt and senior to all subordinated debt of
                              Hanover and HCLP. As of March 31, 2002, Hanover
                              had total senior indebtedness of approximately
                              $941 million, which consists of $192 million of
                              indebtedness under Hanover's 4.75% convertible
                              senior notes due 2008, $265 million under our
                              $350 million bank credit agreement (including
                              outstanding letters of credit), $474 million in
                              residual value guarantees under operating leases
                              and approximately $10 million in other debt. As
                              of March 31, 2002, Hanover had $232 million in
                              residual value guarantees under an operating
                              lease that ranks equally with Hanover's
                              obligations under the Hanover Guarantee.



                              As of March 31, 2002, HCLP had total senior
                              indebtedness of approximately $749 million, which
                              consists of $265 million under our $350 million
                              bank credit agreement (including outstanding
                              letters of credit), $474 million in residual
                              value guarantees under existing operating leases
                              and approximately $10 million in other debt. As
                              of March 31, 2002, HCLP had $232 million in
                              residual value guarantees under an operating
                              lease that ranks equally with HCLP's obligations
                              under the Lease and the Hanover Guarantee.




Payment Blockage Periods....  During the continuance of certain defaults under
                              senior indebtedness of Hanover or HCLP, Hanover
                              or HCLP, as the case may be, will not be
                              permitted to make payments under the Hanover
                              Guarantee or the Lease for a period of up to 179
                              of 360 consecutive days. Any remedies exercisable
                              against the Equipment securing the notes will
                              also be blocked during such period.


Optional Redemption.........  Prior to September 1, 2004, if Hanover raises
                              proceeds from one or more bona fide underwritten
                              sales to the public of Hanover's common stock and
                              Hanover causes HCLP to repurchase Equipment from
                              the Issuer, the Issuer is required to apply the
                              proceeds it receives to redeem up to 35% of the
                              notes at a redemption price of 108.75% of

                                      11

<PAGE>

                              the principal amount thereof. Otherwise, the
                              Issuer does not have the right to redeem the
                              notes until September 1, 2006. After September 1,
                              2006, the Issuer may redeem the notes, in whole
                              or in part, if it pays the redemption premium
                              described under "Description of Notes--Optional
                              Redemption."


Mandatory Offer to Repurchase If Hanover or any of its restricted subsidiaries
                              sell certain assets and do not reinvest the
                              proceeds or pay down debt, or if Hanover
                              experiences specific changes of control, Hanover
                              is required to cause HCLP to repurchase Equipment
                              from the Issuer at a total price equal to the sum
                              of (1) the principal and interest due on the
                              notes, (2) the amount necessary to repay the
                              equity certificate holder's capital contribution
                              and any unpaid certificate holder yield amounts,
                              and (3) all other amounts due to the note
                              holders, equity certificate holder or the trustee
                              of the Issuer. The repurchase price per unit is
                              determined by allocating the total repurchase
                              price to each piece of Equipment on a relative
                              cost basis. The Issuer is required to apply the
                              proceeds from the sale of the Equipment to offer
                              to repurchase the notes for cash in the amount
                              described under "Description of Notes--Certain
                              Covenants under the Participation
                              Agreement--Limitation on Sales of Assets and
                              Subsidiary Stock" and "Description of
                              Notes--Change of Control." There can be no
                              assurance that the Issuer will have sufficient
                              funds or that the Issuer will be able to arrange
                              for additional financing to repurchase the notes
                              tendered following a change in control. See "Risk
                              Factors" for a description of the possible
                              effects if the Issuer is unable to purchase the
                              notes upon a change of control.


Certain Covenants of the
  Issuer....................  The Issuer issued the old notes, and will issue
                              the new notes, under an indenture with Wilmington
                              Trust FSB, the indenture trustee, and a
                              participation agreement. The indenture governing
                              the notes contains covenants that limit the
                              Issuer's ability to, among other things:

                                  . incur liens;

                                  . incur additional indebtedness;

                                  . enter into any other transactions;

                                  . make investments;

                                  . liquidate; and

                                  . engage in non-related lines of business.

                              These covenants are subject to a number of
                              important qualifications and limitations. See
                              "Description of Notes--Certain Covenants Under
                              the Indenture."

Certain Covenants under the
Participation Agreement.....  The participation agreement contains covenants
                              that limit the ability of Hanover and its
                              restricted subsidiaries (including HCLP) to,
                              among other things:

                                  . incur additional indebtedness;

                                  . layer indebtedness;

                                  . pay dividends on or repurchase their
                              capital stock;

                                      12

<PAGE>

                                  . purchase or redeem subordinated obligations
                                  prior to maturity;

                                  . make investments;

                                  . incur liens;

                                  . permit restrictions on the ability of the
                                   restricted subsidiaries to pay dividends on
                                   their capital stock and to repay
                                   indebtedness, make loans or transfer
                                   property to Hanover or its other
                                   subsidiaries;

                                  . dispose of assets;

                                  . engage in affiliate transactions;

                                  . transfer the capital stock of the
                              restricted subsidiaries;

                                  . transfer all or substantially all of the
                                   assets of Hanover to another person; and

                                  . engage in non-related lines of business.

                              These covenants are subject to a number of
                              important qualifications and limitations. See
                              "Description of Notes--Certain Covenants Under
                              the Participation Agreement."

   You should refer to the section entitled "Risk Factors" for an explanation
of certain risks of investing in the new notes.

                                      13

<PAGE>

                           SUMMARY FINANCIAL DATA OF
                        HANOVER COMPRESSOR COMPANY AND
                    HANOVER COMPRESSION LIMITED PARTNERSHIP


   In the table below and the footnotes thereto, we have provided you with
Hanover's and HCLP's summary historical consolidated financial data and pro
forma combined condensed financial data. The historical consolidated financial
data as of and for each of the fiscal years in the three-year period ended
December 31, 2001 were derived from Hanover's and HCLP's audited consolidated
financial statements. The historical consolidated financial data as of and for
the three months ended March 31, 2002 and 2001 were derived from Hanover's and
HCLP's unaudited condensed consolidated financial statements. In the opinion of
management, such unaudited financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position and results of operations of such interim periods.



   In August 2001, we acquired the gas compression business of Schlumberger for
approximately $761 million in cash, indebtedness, and common stock, subject to
certain post-closing adjustments pursuant to the acquisition agreement that to
date have resulted in an increase in the purchase price to approximately $771
million due to an increase in net assets acquired and before any reduction due
to the restrictions on the marketability of the common stock. In addition, we
are required under certain circumstances to pay up to $58 million to
Schlumberger with the proceeds of a financing of a South American joint venture
acquired with the gas compression business of Schlumberger. The pro forma
combined condensed financial data present our pro forma results of operations
as if this acquisition had occurred on January 1, 2001 and were derived from
the pro forma combined condensed financial statements as of and for the year
ended December 31, 2001 included in this prospectus. The pro forma financial
data does not reflect our acquisition of OEC Compression Corporation in March
2001, which is not significant. The pro forma financial data does not purport
to be indicative of the results which would actually have been obtained had the
acquisitions been completed on the date indicated or which may be obtained in
the future.



   The information in this section should be read along with Hanover's
consolidated financial statements, accompanying notes and other financial
information, HCLP's consolidated financial statements, accompanying notes and
other financial information, the combined financial statements of the natural
gas compression business of Schlumberger and related pro forma financial data
that, in each case, are included or incorporated by reference in this
prospectus. See "Where You Can Find More Information" and "Incorporation of
Documents by Reference."


                                      14

<PAGE>

                          Hanover Compressor Company


<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                                                   ---------------------------------------------
                                                    Pro Forma
                                                    2001(1)(2)    2001(1)   2000(1)(3)   1999(1)
                                                   -----------  ----------  ----------  --------
                                                                   (in thousands)
<S>                                                <C>          <C>         <C>         <C>
INCOME STATEMENT DATA:
Total revenues and other.......................... $ 1,183,862  $1,078,209  $  566,081  $323,220
Expenses:
 Operating........................................     705,707     649,687     316,558   157,361
 Selling, general and administrative..............     109,704     100,980      54,632    33,782
 Depreciation and amortization....................      98,259      90,560      52,882    37,337
 Leasing expense..................................      93,309      70,435      45,484    22,090
 Interest expense.................................      26,040      17,540       8,685     8,786
 Foreign currency translation.....................       6,658       6,658
 Distributions on mandatorily redeemable
   convertible preferred securities...............       6,373       6,373       6,369       278
 Other............................................      18,566      18,566
                                                   -----------  ----------  ----------  --------
   Total expenses.................................   1,064,616     960,799     484,610   259,634
                                                   -----------  ----------  ----------  --------
Income before income taxes........................     119,246     117,410      81,471    63,586
Provision for income taxes........................      45,307      44,609      30,307    23,145
                                                   -----------  ----------  ----------  --------
Net income before cumulative effect of accounting
 change...........................................      73,939      72,801      51,164    40,441
Cumulative effect of accounting change for
 derivative instruments, net of tax...............                    (164)
                                                   -----------  ----------  ----------  --------
Net income........................................ $    73,939  $   72,637  $   51,164  $ 40,441
                                                   ===========  ==========  ==========  ========
OTHER DATA:
 EBITDAR(4)....................................... $   343,227  $  302,318  $  194,891  $132,077
 Ratio of earnings to fixed charges(5)............         1.9x        2.1x        2.2x      2.8x
CASH FLOWS PROVIDED BY (USED IN):
 Operating activities.............................              $  154,080  $   31,658  $ 68,222
 Investing activities.............................                (483,583)    (69,393)  (92,114)
 Financing activities.............................                 307,259      77,589    18,218
BALANCE SHEET DATA (END OF PERIOD):
 Working capital..................................              $  275,824  $  285,443  $107,966
 Net property, plant and equipment................               1,153,691     573,596   497,465
 Total assets.....................................               2,272,966   1,251,756   756,510
 Long-term debt, excluding current maturities.....                 504,260     110,935    69,681
 Mandatorily redeemable convertible preferred
   securities.....................................                  86,250      86,250    86,250
 Common stockholders' equity......................               1,043,203     632,458   367,914
</TABLE>


                                      15

<PAGE>


                          Hanover Compressor Company



<TABLE>
<CAPTION>
                                                           Three Months
                                                          Ended March 31,
                                                      ----------------------
                                                        2002(1)   2001(1)(3)
                                                      ----------  ----------
                                                          (in thousands)
                                                            (unaudited)
   <S>                                                <C>         <C>
   INCOME STATEMENT DATA:
   Total revenues and other.......................... $  260,906  $  229,944
   Expenses:
    Operating........................................    149,804     136,576
    Selling, general and administrative..............     34,671      20,736
    Depreciation and amortization....................     24,376      17,403
    Leasing expense..................................     22,928      15,288
    Interest expense.................................      8,262       2,986
    Distributions on mandatorily redeemable
      convertible preferred securities...............      1,593       1,593
    Foreign currency translation.....................     12,681         155
    Change in fair value of derivative financial
      instruments....................................     (2,010)      2,992
    Other............................................        211          --
                                                      ----------  ----------
      Total expenses.................................    252,516     197,729
                                                      ----------  ----------
   Income before income taxes........................      8,390      32,215
   Provision for income taxes........................      3,356      12,242
                                                      ----------  ----------
   Net income before cumulative effect of accounting
    change...........................................      5,034      19,973
   Cumulative effect of accounting change for
    derivative instruments, net of tax...............                   (164)
                                                      ----------  ----------
   Net income........................................ $    5,034  $   19,809
                                                      ==========  ==========
   OTHER DATA:
    EBITDAR(4)....................................... $   65,549  $   69,485
    Ratio of earnings to fixed charges(5)............        1.1x        2.5x
   CASH FLOWS PROVIDED BY (USED IN):
    Operating activities............................. $  (42,410) $   19,588
    Investing activities.............................    (47,248)   (124,537)
    Financing activities.............................     71,205     159,078
   BALANCE SHEET DATA (END OF PERIOD):
    Working capital.................................. $  306,091  $  275,824
    Net property, plant and equipment................  1,179,498     707,779
    Total assets.....................................  2,270,246   1,523,801
    Long-term debt, excluding current maturities.....    574,880     196,122
    Mandatorily redeemable convertible preferred
      securities.....................................     86,250      86,250
    Common stockholders' equity......................  1,051,377     775,023
</TABLE>


                                      16

<PAGE>

--------
(1) Substantially all of Hanover's assets and operations are owned or conducted
    by HCLP. To the extent there are differences between the consolidated
    financial data for Hanover and the consolidated financial data for HCLP,
    these arise due to Hanover's mandatorily redeemable convertible preferred
    securities, Hanover's 4.75% convertible senior notes due 2008 and Hanover's
    outstanding common stock. The following line items would be different with
    respect to HCLP's summary consolidated financial data, compared to
    Hanover's summary consolidated financial data presented above:


<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                  -----------------------------------------
                                                                  Pro Forma
                                                                    2001       2001     2000 (d)     1999
                                                                  --------- ---------- ----------  --------
                                                                                (in thousands)
<S>                                                               <C>       <C>        <C>         <C>
       Net income (a)............................................  $82,731  $   81,429 $   55,164  $ 40,618
       OTHER DATA:
         Ratio of earnings to fixed charges(5)...................     2.1x        2.3x        2.5x      2.9x
       CASH FLOWS PROVIDED BY (USED IN):
         Operating activities....................................           $  162,861 $   40,154  $ 75,757
         Financing activities....................................              298,478     69,093    10,683
       BALANCE SHEET DATA (END OF PERIOD):
         Working capital.........................................           $  278,859 $  285,624  $108,245
         Total assets............................................            2,266,404  1,249,848   756,587
         Long-term debt, excluding current maturities (b)........              312,260    110,935    69,681
         Mandatorily redeemable convertible preferred
          securities (c).........................................
         Partners' equity........................................            1,316,262    714,968   454,729
</TABLE>



<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                  March 31, (d)
                                                                             ----------------------
                                                                                2002        2001
                                                                             ----------  ----------
                                                                                 (in thousands)
                                                                                   (unaudited)
<S>                                                                          <C>         <C>
       Net income (a)....................................................... $    7,498  $   20,952
       OTHER DATA:
         Ratio of earnings to fixed charges(5)..............................       1.2x        2.8x
       CASH FLOWS PROVIDED BY (USED IN):
         Operating activities............................................... $  (35,974) $   21,261
         Investing activities...............................................    (47,248)   (124,537)
         Financing activities...............................................     64,759     157,405
       BALANCE SHEET DATA (END OF PERIOD):
         Working Capital.................................................... $  306,435  $  376,033
         Total assets.......................................................  2,263,575   1,521,213
         Long-term debt, excluding current maturities (b)...................    382,880       9,882
         Mandatorily redeemable convertible preferred securities (c)........
         Partners' equity...................................................  1,313,797   1,042,136
</TABLE>

       -

      (a) Includes the adjustment to remove the distributions on mandatorily
          redeemable convertible preferred securities, net of tax, and, for
          2002 and 2001 periods, interest on and amortization of financing
          costs associated with the 4.75% convertible senior notes due 2008,
          net of tax, both of which are obligations of Hanover but not HCLP.


      (b) Includes the adjustment to remove the 4.75% convertible senior notes
          due 2008, which are obligations of Hanover but not HCLP.


      (c) Mandatorily redeemable convertible preferred securities are
          obligations of Hanover but not HCLP.


      (d) In conjunction with a review of our joint ventures and other
          transactions conducted by our management and Board of Directors in
          early 2002, HCLP determined to restate its financial statements for
          the year ended December 31, 2000 and each of the quarters in the nine
          months ended September 30, 2001. The net effect of this restatement
          on HCLP for the year ended December 31, 2000 was as follows: (i) a
          decrease in revenues of $37,748,000, from $603,829,000 to
          $566,081,000; (ii) a decrease in income before taxes of $11,999,000
          from $99,839,000 to $87,840,000; and (iii) a decrease in net income
          of $7,535,000, from $62,699,000


                                      17

<PAGE>


          to $55,164,000. The net effect of this restatement on HCLP for the
          three months ended March 31, 2001 was as follows: (i) an increase in
          revenues of $10,025,000, from $219,919,000 to $229,944,000; (ii) an
          increase in income before taxes of $1,903,000, from $32,155,000 to
          $34,058,000; and (iii) an increase in net income of $1,180,000, from
          $19,772,000 to $20,952,000.



(2) In June 2001, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards ("SFAS") 142, Goodwill and Other Intangible
    Assets. Under SFAS 142, amortization of goodwill to earnings is
    discontinued. SFAS 142 was effective for Hanover and HCLP on January 1,
    2002. However, under the transition provisions of this statement, goodwill
    acquired in a business combination for which the acquisition date is after
    June 30, 2001, shall not be amortized. Because the acquisition of the gas
    compression business of Schlumberger was consummated after June 30, 2001,
    the goodwill related to this acquisition has not been amortized in the pro
    forma statements of operations. The goodwill related to business
    combinations completed before June 30, 2001 was amortized in the pro forma
    presentation because Hanover and HCLP had not adopted SFAS 142 prior to
    January 1, 2002.



(3) In conjunction with a review of our joint ventures and other transactions
    conducted by our management and Board of Directors in early 2002, the
    Company determined to restate its financial statements for the year ended
    December 31, 2000 and each of the quarters in the nine months ended
    September 30, 2001. The net effect of this restatement on Hanover for the
    year ended December 31, 2000 was as follows: (i) a decrease in revenues of
    $37,748,000, from $603,829,000 to $566,081,000; (ii) a decrease in income
    before taxes of $11,999,000, from $93,470,000 to $81,471,000; and (iii) a
    decrease in net income of $7,535,000, from $58,699,000 to $51,164,000. The
    net effect of this restatement on Hanover for the three months ended
    March 31, 2001 was as follows: (i) an increase in revenues of $10,025,000,
    from $219,919,000 to $229,944,000; (ii) an increase in income before taxes
    of $1,903,000, from $30,312,000 to $32,215,000; (iii) an increase in net
    income of $1,180,000 million, from $18,629,000 to $19,809,000; and (iv) an
    increase in earnings per common share of $0.02 basic and $0.01 diluted for
    the three months ended March 31, 2001.



(4) EBITDAR consists of the sum of consolidated net income before interest
    expense, leasing expense, distributions on mandatorily redeemable
    convertible preferred securities, income tax, and depreciation and
    amortization. We believe that EBITDAR is a commonly used measure of
    financial performance for valuing companies in the compression industry.
    Additionally, since EBITDAR is a basic source of funds not only for growth
    but to service indebtedness, lenders in the private and public debt markets
    use EBITDAR as a primary determinate of borrowing capacity. EBITDAR should
    not be considered as an alternative performance measure prescribed by
    generally accepted accounting principles.



(5) For purposes of computing the ratio of earnings to fixed charges:
    "earnings" consist of income before income taxes plus fixed charges and
    "fixed charges" consist of interest expense (including amortization of debt
    discount and expense), leasing expense and the estimated interest factor
    attributable to rentals.


                                      18

<PAGE>

            Summary Financial Data of Hanover Equipment Trust 2001B


   In the table below, we have provided you with summary historical financial
data for the Issuer. The historical financial data were derived from the
Issuer's audited financial statements as of and for the three months ended
March 31, 2002 and as of December 31, 2001 and for the period from August 16,
2001 (inception) to December 31, 2001. Operations of the Issuer commenced on
August 16, 2001. The information in this section should be read along with the
Issuer's financial statements, accompanying notes and other financial
information contained in this prospectus.



<TABLE>
<CAPTION>
                                                                     As of March 31, 2002    As of December 31, 2001
                                                                      and for the Three      and for the Period from
                                                                         Months Ended     August 16, 2001 (Inception) to
                                                                        March 31, 2002          December 31, 2001
                                                                     -------------------- ------------------------------
                                                                                                  (in thousands)
<S>                                                                  <C>                  <C>
OPERATING STATEMENT DATA:
Rental revenues.....................................................       $  6,390                  $  7,911
Expenses:
  Interest expense on rental equipment..............................          5,901                     7,352
                                                                           --------                  --------
   Excess rental revenue over interest expense on rental equipment..            489                       559
Operating expense...................................................            293                       269
                                                                           --------                  --------
Net income..........................................................       $    196                  $    290
                                                                           ========                  ========
OTHER DATA:
Ratio of earnings to fixed charges..................................            1.0x                      1.0x

BALANCE SHEET DATA (END OF PERIOD):
Rental equipment....................................................       $257,750                  $257,750
Total assets........................................................        260,252                   265,602
8.75% senior secured notes due 2011.................................        250,000                   250,000
Certificate holder's equity.........................................          7,750                     7,750
</TABLE>


--------



                                      19

<PAGE>

                                 RISK FACTORS

   An investment in the notes involves risks. You should carefully consider and
evaluate all of the information in this prospectus, including the following
risk factors, before investing.

Risks Related to Our Business


   Short Lease Terms--Many of our compressor leases with customers have short
initial terms, and we cannot be sure that the rental compressors will stay out
on location after the end of the initial lease term.



   The length of our leases varies based on operating conditions and customer
needs, as more fully discussed in "Business of Hanover Compressor Company and
Hanover Compression Limited Partnership--Compression Services and Fabrication"
on page 85 of this prospectus. In most cases, under currently prevailing lease
rates, the initial lease terms are not long enough to enable us to fully recoup
the average cost of acquiring or fabricating the equipment. We cannot be sure
that a substantial number of our lessees will continue to renew their leases or
that we will be able to re-lease the equipment to new customers or that any
renewals or re-leases will be at comparable lease rates. The inability to renew
or re-lease a substantial portion of our compressor rental fleet would have a
material adverse effect upon our business, results of operations and financial
condition.


   Substantial Capital Requirements--We require a substantial amount of capital
to expand our compressor rental fleet and our complementary businesses.


   We have made and plan to continue to make substantial capital investments to
expand our compressor rental fleet and our complementary businesses. We
currently plan to spend approximately $250 million in 2002, exclusive of any
major acquisitions, in continued expansion and maintenance of our rental fleet
and other businesses, including $60 million on equipment overhauls and other
maintenance capital. The amount of these expenditures may vary depending on
their expected rate of return, conditions in the natural gas industry and the
timing and extent of any significant acquisitions we may make. Historically, we
have funded our capital expenditures through internally generated funds, sale
and leaseback transactions and debt and equity financing. While we believe that
cash flow from our operations and borrowings under our existing $350 million
bank credit agreement will provide us with sufficient cash to fund our planned
capital expenditures in the short term, we cannot assure you that these sources
will be sufficient. As of March 31, 2002, we had approximately $85 million of
credit capacity remaining on our $350 million bank credit agreement (3.7% rate
at March 31, 2002). Failure to generate sufficient cash flow, together with the
absence of alternative sources of capital, could have a material adverse effect
on our growth, results of operations and financial condition.


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


   We operate in many different geographic markets, some of which are outside
the United States. Changes in local economic or political conditions,
particularly in Latin America or Canada, could have a material adverse effect
on our business, results of operations and financial condition. Additional
risks inherent in our international business activities include the following:


    .  difficulties in managing international operations;

    .  unexpected changes in regulatory requirements;

    .  tariffs and other trade barriers which may restrict our ability to enter
       into new markets;


    .  changes in political conditions in Venezuela and Argentina;




    .  potentially adverse tax consequences;


    .  restrictions on repatriation of earnings or expropriation of property;


                                      20

<PAGE>

    .  the burden of complying with foreign laws; and


    .  fluctuations in currency exchange rates and the value of the U.S.
       dollar, particularly in Argentina and Venezuela.



   See "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Hanover Compressor Company and Hanover Compression Limited
Partnership--Three Months Ended March 31, 2002 Compared to March 31, 2001" and
"--Quantitative and Qualitative Disclosures About Market Risk" for a more
detailed discussion of impact of the recent events in Argentina and Venezuela
on Hanover's results of operations.



   As part of our acquisition of the gas compression business of Schlumberger,
we acquired minority interests in three joint ventures in Venezuela. As a
minority investor in these joint ventures, we will not be able to control their
operations and activities, including without limitation, whether and when they
distribute cash or property to their holders.


   Acquisition Strategy--We may not be able to find suitable acquisition
candidates or successfully integrate acquired companies into our business.


   As part of our business strategy, we have completed selective acquisitions
of other companies, assets and product lines that either complement or expand
our business and may do so in the future. Each acquisition involves potential
risks, such as the diversion of management's attention away from current
operations, problems in integrating acquired businesses and possible short-term
adverse effects on our operations as a result of that process. We may be unable
to successfully integrate acquired businesses into our business, or may be able
to do so only at significant expense. We actively review acquisition
opportunities on an ongoing basis, and we may make new acquisitions at any
time. Given our selective approach to acquisitions, we are unable to predict
whether or when we will find suitable acquisition candidates or whether we will
be able to complete a material acquisition. Depending on the size of our
potential acquisitions, we may seek to finance acquisitions with cash or
through the issuance of new debt and/or equity securities.


   Industry Conditions--A prolonged, substantial reduction in oil or gas prices
could adversely affect our business.


   Our operations depend upon the levels of activity in natural gas
development, production, processing and transportation. In recent years, oil
and gas prices and the level of drilling and exploration activity have been
extremely volatile. For example, oil and gas exploration and development
activity and the number of well completions typically decline when there is a
significant reduction in oil and gas prices. As a result, the demand for our
gas compression and oil and gas production equipment would be adversely
affected. Any future significant, prolonged decline in oil and gas prices could
have a material adverse effect on our business, results of operations and
financial condition.



   Erosion of the financial condition of customers could adversely affect our
business. During times when the natural gas market weakens, the likelihood of
the erosion of the financial condition of these customers increases. Upon the
financial failure of a customer, we could experience a loss associated with the
unsecured portion of any of our outstanding accounts receivable.


   Competition--We operate in a highly competitive industry.


   We experience competition from companies who may be able to more quickly
adapt to changes within our industry and throughout the economy as a whole,
more readily take advantage of acquisition and other opportunities and adopt
more aggressive pricing policies. There can be no assurance that we will be
able to continue to compete successfully in this market or against such
competition. If we do not compete successfully, our business, results of
operations and financial condition could be materially adversely affected.



                                      21

<PAGE>

   Potential Liability and Insurance--Natural gas operations entail inherent
risks that may result in substantial liability to us.


   Natural gas operations entail inherent risks, including equipment defects,
malfunctions and failures and natural disasters, which could result in
uncontrollable flows of gas or well fluids, fires and explosions. These risks
may expose us, as an equipment operator or fabricator, to liability for
personal injury, wrongful death, property damage, pollution and other
environmental damage. We have obtained insurance against liability for personal
injury, wrongful death and property damage, but we cannot assure you that the
insurance will be adequate to cover the liability we may incur. Insurance
premium pricing is highly volatile and we cannot assure you that we will be
able to obtain insurance in the future at a reasonable cost or at all. Our
business, results of operations and financial condition could be materially
adversely affected if we incur substantial liability and the damages are not
covered by insurance or are in excess of policy limits.


   Terrorist Attacks or Responses Thereto--Terrorist attacks or responses
thereto could adversely affect our business, results of operations and
financial condition.


   On September 11, 2001, terrorists carried out attacks that destroyed the
World Trade Center in New York and badly damaged the Pentagon outside of
Washington, D.C. As a result of these attacks, the United States securities
markets were closed for several days. We believe that these events and the
subsequent military actions have caused a delay in capital spending which has
impacted our business. The impact that these terrorist attacks, or future
events arising as a result of these terrorist attacks, including military or
police activities in the United States or foreign countries, future terrorist
activities or threats of such activities, political unrest and instability,
riots and protests, could have on the United States and the global economy, the
United States and global securities markets and our business, results of
operations and financial condition cannot presently be determined with any
accuracy. We have not obtained insurance against terrorist attacks or responses
thereto and, due to its limited availability and high cost, do not expect to
obtain such insurance in the future. Our business, results of operations and
financial condition could be materially adversely affected if we incur
substantial damages as a result of terrorist attacks or responses thereto.




   Governmental Regulation--Our business is subject to a variety of
governmental regulations relating to the environment, health and safety.

   Our business is subject to a variety of federal, state, local and foreign
laws and regulations relating to the environment, health and safety. These laws
and regulations are complex, change frequently and have tended to become more
stringent over time. Failure to comply with these laws and regulations may
result in a variety of civil and criminal enforcement measures, including
assessment of monetary penalties, imposition of remedial requirements and
issuance of injunctions as to future compliance. As part of the regular overall
evaluation of both our current operations and newly acquired operations, we are
in the process of applying for or updating certain facility permits with
respect to stormwater discharges, waste handling and air emissions relating to
painting and blasting. In addition, certain of our customer service
arrangements may require us to operate, on behalf of a specific customer,
petroleum storage units such as underground tanks or pipelines and other
regulated units, all of which may impose additional compliance obligations.

   We are evaluating the impact on our operations of recently promulgated air
emission regulations relating to non-road engines. We intend to implement any
equipment upgrades or permit modifications required by these air emission
regulations according to the required schedule. We do not anticipate, however,
that any changes or updates in response to such regulations, or any other
anticipated permit modifications (for stormwater, other air emission sources or
otherwise) or anticipated ongoing regulatory compliance obligations will have a
material adverse effect on our operations either as a result of any enforcement
measures or through increased capital costs. Based on our experience to date,
we believe that the future cost of compliance with existing laws and
regulations will not have a material adverse effect on our business, results of
operations or financial condition. However, future events, such as compliance
with more stringent laws and regulations, a major expansion of our operations

                                      22

<PAGE>

into more heavily regulated activities, more vigorous enforcement policies by
regulatory agencies or stricter or different interpretations of existing laws
and regulations could require us to make material expenditures.

   We have conducted preliminary environmental site assessments with respect to
some, but not all, properties currently owned or leased by us, usually in a
pre-acquisition context. Some of these assessments have revealed that soils
and/or groundwater at some of our facilities are contaminated with
hydrocarbons, heavy metals and various other regulated substances. With respect
to newly acquired properties, we do not believe that our operations caused or
contributed to any such contamination and we are not currently under any orders
or directives to undertake any remedial activity. We typically will develop a
baseline of site conditions so we can establish conditions at the outset of our
operations on such property. However, the handling of petroleum products and
other regulated substances is a normal part of our operations, and we have
experienced occasional minor spills or incidental leakage in connection with
our operations. Certain properties previously owned or leased by us were
determined to be impacted by soil contamination. Where such contamination was
identified, we have since conducted remedial activities at these
previously-held properties as we believed necessary to meet regulatory
standards, and either sold the owned properties to third parties or returned
the leased properties to the lessors. We are not currently aware of any further
remedial obligations at such previously-held properties. Based on our
experience to date, and the relatively minor nature of the types of
contamination we have identified to date, we believe that the future cost of
necessary investigation or remediation on our current properties will not have
a material adverse effect on our business, results of operations, or financial
condition. We cannot be certain, however, that cleanup standards will not
become more stringent, or that we will not be required to undertake any
remedial activities involving any substantial costs on any of these current or
previously-held properties in the future or that the discovery of unknown
contamination or third-party claims made with respect to current or previously
owned or leased properties may not result in substantial costs.

   Concentrated Ownership--A significant amount of our stock is owned by two
stockholders.


   GKH Investments, L.P. ("GKH") owned approximately 23% of our common stock as
of March 31, 2002 Schlumberger and its affiliates owned approximately 11% of
our common stock as of March 31, 2002. As holders of large blocks of our stock,
GKH and Schlumberger are in a position to exert substantial influence over the
outcome of many corporate actions requiring stockholder approval, including the
election of directors, the additional issuance of our common stock or other
securities and transactions involving a change of control. The interests of GKH
or Schlumberger could conflict with the interests of our other stockholders and
the holders of the notes.



   GKH has advised us that it is in the process of dissolving and "winding up"
its affairs. Although GKH has not advised us of the precise timeline of its
dissolution and "winding-up," we believe that GKH will complete this process
within the next 24 months. As part of the wind-up process, GKH will liquidate
or distribute substantially all of its assets, including the shares of our
common stock owned by GKH, to its partners. In the event the partners of GKH
receive a distribution of shares of our common stock from GKH as a result of
the wind-up, we cannot predict whether those partners would continue to hold
those shares or whether the interests of such partners may conflict with the
interests of our other stockholders and the holders of the notes.



   Customer Concentration--Production Operators, Inc. ("POI"), which we
acquired as part of the gas compression business of Schlumberger in August
2001, is subject to a higher level of customer concentration than we have
historically experienced.



   POI generated 49% of its revenues in 2001 from its three largest customers.
On a pro forma basis, these three customers would have accounted for 10% of our
revenues in 2001. While our historic customer base is more diverse, the loss of
any of the three largest customers or a significant decrease in demand by any
of the three largest customers for the services POI provides could have a
material adverse effect on our business, results of operations and financial
condition.


                                      23

<PAGE>

Risks Related to the Notes


   Substantial Debt and Operating Leases--We have a substantial amount of debt
and operating lease commitments. Our current debt level could limit our ability
to fund future growth and operations and increase our exposure during adverse
economic conditions.



   As of March 31, 2002, we had approximately $881 million in total residual
value guarantees that are due upon termination of our operating leases
(including the Lease) and may be satisfied by a cash payment or the exercise of
our purchase options under the terms of the respective lease agreements,
approximately $580 million of debt outstanding, and unused availability of
approximately $85 million under our $350 million bank credit agreement.


   Our substantial debt and operating lease commitments could have important
consequences to you. For example, these commitments could:

   .   make it more difficult for us to satisfy our obligations with respect to
       the notes;

    .  increase our vulnerability to general adverse economic and industry
       conditions;

    .  limit our ability to fund future working capital, capital expenditures,
       acquisitions and other general corporate requirements;

    .  increase our vulnerability to interest rate fluctuations because the
       interest payments on a portion of our debt are at variable rates;

    .  limit our flexibility in planning for, or reacting to, changes in our
       business and our industry;

    .  place us at a disadvantage compared to our competitors that have less
       debt or operating lease commitments; and

    .  limit our ability to borrow additional funds.

   Additionally, the indenture, the participation agreement and other documents
governing the Lease contain financial and other restrictive covenants. Failing
to comply with those covenants could result in an event of default which, if
not cured or waived, could have a material adverse effect on us. See
"Description of Notes."


   We may incur additional debt and increase the amounts under our bank credit
facility and our operating lease commitments, which may intensify the risks
described above and may be senior in right of payment to the Lease and the
Hanover Guarantee. Our bank credit facility permits us to incur indebtedness up
to the $350 million credit limit under our bank credit facility, plus an
additional $125 million in unsecured indebtedness. As of March 31, 2002, we had
approximately $85 million of availability under our $350 million bank credit
facility (3.7% rate at March 31, 2002). Our bank credit facility permits us to
enter into sale and leaseback transactions with respect to equipment having a
value not in excess of $300 million. In addition to purchase money and similar
obligations, the indenture and the participation agreement permit us to incur
indebtedness (which is defined for the purposes of the indenture and the
participation agreement to include obligations under sale and leaseback
transactions and under facilities similar to this Lease facility) up to the
$350 million credit limit under our bank credit facility, plus (1) an
additional $75 million in unsecured indebtedness and (2) any additional
indebtedness so long as, after incurring such indebtedness, Hanover's ratio of
EBITDAR to total fixed charges, as defined and adjusted by these agreements, is
greater than 2.25 to 1.0.





   Significant Cash Requirements--We will need to generate a significant amount
of cash to service our indebtedness and operating lease commitments and to fund
working capital, and our ability to generate cash depends on many factors
beyond our control.


                                      24

<PAGE>

   Our ability to make scheduled payments under the Lease or our other
operating leases, or to refinance our indebtedness, will depend on our ability
to generate cash in the future. This is subject to our operational performance,
as well as general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.


   Based upon our total long term debt of $580 million at March 31, 2002, we
expect total debt service payments for the year ended December 31, 2002
(including debt service payments made during the three months ended March 31,
2002) will be approximately $40 million based upon interest rates in effect as
of March 31, 2002. In addition, based upon our current operating lease
commitments and rates in effect at March 31, 2002, we expect that total
compressor lease rent payments for the year ended December 31, 2002 (including
compressor lease rent payments made for the three months ended March 31, 2002)
will be approximately $90 million. We also expect that total distributions on
our 7 1/4% mandatorily redeemable convertible preferred securities for the year
ended December 31, 2002 (including distributions made during the three months
ended March 31, 2002 and assuming no deferrals as permitted by the terms of
such securities) will be approximately $6.4 million.


   We cannot be sure that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our $350
million bank credit agreement in an amount sufficient to enable us to pay our
indebtedness, operating lease commitments, or to fund our other liquidity
needs. We cannot be sure that we will be able to refinance any of our
indebtedness on commercially reasonable terms or at all. Our inability to
refinance our debt on commercially reasonable terms could materially adversely
affect our business.


   Subordination of the Hanover Guarantee--While the notes will be senior,
secured obligations of the Issuer, the Hanover Guarantee ranks behind Hanover's
and HCLP's existing and future senior indebtedness. Moreover, the obligations
of Hanover and HCLP under the Hanover Guarantee will be structurally
subordinated to all indebtedness and other liabilities of such guarantor's
respective subsidiaries.

   As a result of the subordinated nature of the Hanover Guarantee, upon any
distribution to any of the creditors of Hanover or HCLP, as the case may be, in
a bankruptcy, liquidation or reorganization or similar proceeding relating to
Hanover or HCLP or their respective properties, the holders of senior
indebtedness of Hanover or HCLP, as the case may be, will be entitled to be
paid in full in cash before any payment may be made with respect to the Hanover
Guarantee.


   Events of default under the indenture differ in certain respects from the
events of default under the Lease. Unless there is an event of default under
the Lease, the Issuer would have recourse under the Hanover Guarantee only up
to the maximum amount of 70.0% of the aggregate principal balance of notes
outstanding, which is equal to the final rent payment under the Lease. As of
March 31, 2002, unless there is an event of default under the Lease, the Issuer
would have recourse under the Hanover Guarantee only to the extent of
approximately $175 million. As a result, the Issuer may not be able to perform
its obligations under the indenture.




   No payments may be made under the Hanover Guarantee if there is a default in
payment on senior indebtedness of Hanover or HCLP or the maturity of such
senior indebtedness is accelerated. In addition, during the continuance of
certain defaults under certain senior indebtedness of Hanover or HCLP, Hanover
or HCLP, as the case may be, will not be permitted to make payments under the
Hanover Guarantee for a payment blockage period of up to 179 of 360 consecutive
days. In the event that the Issuer is unable to pay the notes, the holders of
the notes would have no recourse under the Hanover Guarantee during any such
payment blockage period. Furthermore, despite the fact that the notes are
secured by the Equipment, any remedies exercisable against such collateral will
also be blocked during such period.

   Partial Payment and the Hanover Guarantee--If at the end of the Lease term,
HCLP fails to purchase the Equipment, then HCLP is required to pay an amount
equal to the Final Rent Payment with respect to the Lease plus the proceeds, if
any, from the sale of the Equipment. This amount may be less than the amount
due on the notes.

                                      25

<PAGE>

   Hanover and HCLP are obligated under the Hanover Guarantee to guarantee
payment in full on the notes only upon the occurrence of an event of default
under the Lease, which would include, among other things, the failure to make
any rent payments (including the Final Rent Payment) or properly insure or
maintain the Equipment. If, by the end of the term of the Lease, HCLP does not
exercise its option to purchase the Equipment and instead exercises its option
to pay the Final Rent Payment in full, sell the Equipment, and apply the
proceeds from the sale to repay the remainder of the notes, no event of default
under the Lease will have occurred. If the proceeds from the sale of the
Equipment under the Lease are less than $75 million (as such amount may be
reduced from time to time upon purchases of Equipment under the Lease by HCLP
in accordance with the terms of the Lease) and therefore insufficient to pay
the remainder of the notes, the holders of the notes will incur a loss and
neither Hanover nor HCLP will be required to compensate for any such shortfall.

   Insufficient Equipment Value--The value of the Equipment securing the notes
may not be sufficient to cover the obligations owed to you under the notes.

   The notes are secured by collateral consisting of a perfected first priority
security interest in the Equipment, and an assignment of the Lease and the
Hanover Guarantee to the trustee for the notes. If there is a payment default
under the Lease or the Hanover Guarantee such that we do not have sufficient
cash and capital resources available to pay our obligations, you will have to
look to the value that can be realized from the Equipment with respect to the
notes.

   An independent appraisal firm prepared an appraisal of the Equipment to
appraise the value of the Equipment as of August 16, 2001 and as of the end of
the Lease term. The Equipment had an appraised fair market value as of August
16, 2001 of not less than $258 million. You should not place undue reliance on
the appraisal. The appraisal relies on certain assumptions and methodologies
and may not accurately reflect the current or future market value of the
Equipment. Appraisals based on different assumptions or methodologies may
result in materially different valuations.

   An appraisal is only an estimate of value. The proceeds realized upon a
future sale of any of the Equipment may be less than the appraised value of the
Equipment. If the remedies after default are exercised under the Lease, the
value of the Equipment will depend on market and economic conditions at that
time, the supply of similar types of equipment, the availability of buyers, the
condition of the Equipment and other factors. Accordingly, there can be no
assurance that the proceeds realized upon any such exercise of remedies would
be sufficient to satisfy in full amounts owing on the notes.

   Limited Assets and Revenues--The assets and source of revenue available to
repay the notes and satisfy the claims of holders of the notes are limited, as
the Issuer has no assets other than its interests in the Equipment, and no
source of revenue other than the payments under the Lease and the Hanover
Guarantee.

   The notes are the obligations of the Issuer and are secured only by a
perfected first priority security interest in the Equipment and an assignment
of the Lease and the Hanover Guarantee to the trustee for the notes. The notes
are not obligations of Hanover or HCLP. The holders of the notes and the
trustee under the indenture will have recourse only against the Issuer, the
collateral for the benefit of the holders of the notes, and Hanover and HCLP to
the extent of the Hanover Guarantee. If HCLP defaults under the Lease and
Hanover and HCLP default under the Hanover Guarantee, the Issuer may not be
able to perform its obligations under the indenture.

   Limitations on Amendments and Acceleration--There are some limitations on
the right to amend the participation agreement and the other operative
agreements and to accelerate payments under the Lease and to foreclose on the
Equipment.

   During a workout or bankruptcy proceeding, the consent of the Issuer's
equity certificate holder may be required to amend, supplement, waive or modify
provisions of the Lease, the participation agreement, the indenture and each
other operative agreement that is material to such equity certificate holder,
if such amendment, waiver, supplement or modification would materially
adversely affect the equity certificate holder.

                                      26

<PAGE>


   Events of default under the indenture are different in some ways from the
events of default under the Lease. Accordingly, even though the trustee under
the indenture will be entitled to accelerate the notes if there is an event of
default under the indenture, the Issuer, as lessor under the Lease, would not
be entitled to accelerate the lease payments or exercise any of its other
remedies under the Lease unless there were an event of default under the Lease.
If a default occurs under the indenture without a corresponding default under
the Lease, the Issuer would have no source of repayment of the notes upon
acceleration of the notes by the trustee. Further, unless there is an event of
default under the Lease, the holders of the notes will have recourse under the
Hanover Guarantee only up to the maximum amount of 70.0% of the aggregate
principal balance of notes outstanding, which is equal to the final rent
payment under the Lease. As of March 31, 2002, unless there is an event of
default under the Lease, the Issuer would have recourse under the Hanover
Guarantee only to the extent of approximately $175 million. As a result, the
Issuer may not be able to perform its obligations under the indenture.


   Rejection of the Lease in Bankruptcy--The Lease may be rejected as an
executory contract if HCLP declares bankruptcy.

   The parties intend that, for bankruptcy law purposes, the transactions
evidenced by the Lease be regarded as loans made by an unrelated third party
lender to HCLP, secured by a lien on the Equipment. If HCLP were to become a
debtor in a bankruptcy case, the court should agree with this characterization.
If, however, a bankruptcy court determines that the Lease should be
characterized as a true lease, HCLP or its bankruptcy trustee would have the
right to assume or reject the Lease as an executory contract. Regardless of how
the transactions are characterized, however, the right to exercise remedies
against HCLP in a bankruptcy proceeding would be stayed, including the right to
proceed against the Equipment and HCLP under the Lease and Hanover Guarantee,
and may be stayed against Hanover under the Hanover Guarantee. In addition, in
the event of a HCLP bankruptcy, (i) there could be no assurance that
distributions, if any, payable with respect to any claim under the Lease would
be in an amount sufficient to result in a repayment of the notes, and (ii) if,
after obtaining bankruptcy court approval, the Issuer is permitted to foreclose
or otherwise sell the Equipment during a bankruptcy of HCLP, it may not realize
sufficient value to cause the notes to be repaid.

   Subordination of HCLP's Lease Commitment--Commitments and payment
obligations under the Lease are subordinated to HCLP's senior obligations as
well as all indebtedness and other liabilities of its subsidiaries.

   While the notes are senior secured obligations of the Issuer, the Issuer's
ability to make timely payments under the notes will depend entirely on timely
receipt of payments from HCLP under the Lease. Obligations in respect of the
Lease will rank behind all of HCLP's existing and future senior indebtedness.
HCLP's commitments under the Lease will also be effectively subordinated to all
secured indebtedness of HCLP to the extent of the security. Moreover, HCLP's
commitments under the Lease will be structurally subordinated to all
indebtedness and other liabilities of its subsidiaries.

   Events of default under the indenture differ in certain respects from the
events of default under the Lease. Accordingly, although the trustee for the
notes is entitled to accelerate the maturity of the notes following an event of
default under the indenture, the Issuer is not entitled to accelerate the
payments under the Lease or exercise any of its other remedies under the Lease
unless there is an event of default under the Lease.
   No payments may be made under the Lease if there is a default in payment on
senior indebtedness of HCLP or the maturity of such senior indebtedness is
accelerated. In addition, during the continuance of certain defaults under
certain senior indebtedness of HCLP, HCLP is not permitted to make payments
under the Lease for a payment blockage period of up to 179 of 360 consecutive
days. As a result, the Issuer will have insufficient funds to pay the notes.
Despite the fact that the notes are secured by the Equipment of the Issuer, any
remedies exercisable against this collateral will also be blocked during any
payment blockage period.

                                      27

<PAGE>

   Limited Rights Against Issuer in Bankruptcy--In addition to the risks
discussed above with respect to bankruptcy of HCLP, if the Issuer declares
bankruptcy, your rights against the Issuer may be limited.

   If the Issuer were the subject of a bankruptcy petition, the right to
exercise virtually all remedies against the Issuer would be stayed, including
the right to proceed against the collateral held by the collateral agent
securing the notes. A bankruptcy court may recharacterize the Lease as a
secured financing incurred by HCLP and therefore restrict your ability to
realize on the Equipment in order to satisfy the obligation under the notes. In
addition, the bankruptcy court could permit the use or disposition of payments
made under the Lease for purposes other than making payments on the notes and
could reduce the amount or modify the timing of payments due under the notes or
the Lease, including by rejecting the Lease.


   Characterization of the Lease--We and the Issuer treat the Lease as an
operating lease for financial accounting purposes but as a financing
arrangement for income tax and certain other tax purposes. Changes in generally
accepted accounting principles related to operating leases or an accounting
treatment inconsistent with our position could adversely affect our other
obligations and tax treatment inconsistent with our position could have a
material adverse effect on our financial condition, results of operations and
liquidity.



   We and the Issuer intend to continue to treat the Lease as a secured
financing arrangement for income and certain other tax purposes, which is
consistent with how the Lease is intended to be treated for bankruptcy law and
state law purposes, but differs from the treatment of the Lease as an operating
lease for financial accounting purposes.


   If the Internal Revenue Service or another taxing authority were to
successfully contend that the Lease or any of our other operating leases should
be treated as a sale and leaseback of equipment rather than a secured financing
arrangement, we may owe significant additional taxes. This result may affect
our ability to make payments on the Lease, which in turn may affect the
Issuer's ability to make payments to the holders of the notes.

   In addition, if the Lease is treated as indebtedness rather than as an
operating lease for financial accounting purposes, this additional indebtedness
could cause a default with respect to certain of our other obligations. Some of
those obligations, including our bank credit agreement and our other operating
leases, are senior to our obligations with respect to the Lease. A default
under those other obligations could affect our ability to make timely payments
on the Lease, which in turn may affect the Issuer's ability to make timely
payments to the holders of the notes.

   Prior Liens--Other creditors may have prior liens on the collateral that
could reduce or eliminate the amount of collateral securing the notes.

   In general, the priority of the liens on a particular item of collateral
securing the Lease is determined by the time that the security interest in that
item of collateral is perfected. Creditors such as purchase money lenders may
be entitled to a prior claim to someone, such as the collateral agent, even if
that person has previously perfected a security interest in the collateral.
Furthermore, liens such as landlords', warehousemen's and materialmen's liens
and tax liens may by law have priority over the liens granted for your benefit
in the collateral.

   We do not believe there are any material prior liens on the collateral
securing claims of anyone that is not a party to the Lease. However, additional
prior claims may arise by law and a bankruptcy or other court may refuse, on
equitable or other grounds, to enforce the terms of the Lease and the
participation agreement against the other creditors party to those agreements.
If this were to happen, the claims of the other creditors against the
collateral could be prior to yours.

   Fraudulent Transfer--The Hanover Guarantee could be declared void or
subordinate because of federal bankruptcy law or comparable state law
provisions.

                                      28

<PAGE>

   Under the federal bankruptcy laws and comparable provisions of state
fraudulent transfer laws, the Hanover Guarantee could be declared void, or
claims in respect of such guarantee could be subordinated to all other debts of
Hanover or HCLP if, among other things, Hanover or HCLP, as the case may be, at
the time it incurred the indebtedness evidenced by the Hanover Guarantee
received less than reasonably equivalent value or fair consideration for the
incurrence of the Hanover Guarantee and

    .  was insolvent or rendered insolvent by reason of that incurrence;

    .  was engaged in a business or transaction for which Hanover's or HCLP's
       remaining assets constituted unreasonably small capital; or

    .  intended to incur, or believed that it would incur, debts beyond its
       ability to pay such debts as they mature.

   In addition, any payment by Hanover or HCLP pursuant to the Hanover
Guarantee could be declared void and required to be returned to Hanover or
HCLP, as the case may be, or to a fund for the benefit of its creditors.

   The measures of insolvency for purposes of the fraudulent transfer laws vary
depending on the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, an entity would be
considered insolvent if:

    .  the sum of its debts, including contingent liabilities, was greater than
       the fair saleable value of all of its assets;

    .  the present fair saleable value of its assets was less than the amount
       that would be required to pay its probable liabilities on its existing
       debts, including contingent liabilities, as they become absolute and
       mature; or

    .  it could not pay its debts as they become due.

   We cannot be sure as to the standard a court would use to determine whether
or not Hanover or HCLP was solvent at the relevant time, or, regardless of the
standard a court uses, that the issuance of the Hanover Guarantee would not be
voided or that the Hanover Guarantee would not be subordinated to Hanover's or
HCLP's other debt.

   If the Hanover Guarantee were legally challenged, it could also be subject
to the claim that, because incurred for the benefit of the holders of the
notes, and only indirectly for the benefit of Hanover and HCLP, the obligations
of Hanover or HCLP, as the case may be, were incurred for less than fair
consideration.

   A court could thus void the obligations under the Hanover Guarantee with
respect to Hanover or HCLP or subordinate the Hanover Guarantee to Hanover's or
HCLP's other debt or take other action detrimental to holders of the notes.

   No Prior Public Trading Market--There currently exists no public market for
the new notes, and we cannot assure you that one will develop.

   The new notes are new securities for which there is currently no trading
market. We do not intend to list the new notes on any securities exchange. No
affiliate of the Issuer will make a market in the new notes. Although we expect
the new notes to be eligible for trading in the PORTAL market, an active
trading market for the new notes may never develop.

   The liquidity of any market for the new notes will depend upon various
factors, including:

    .  the number of holders of the new notes;

    .  the interest of securities dealers in making a market for the new notes;

                                      29

<PAGE>

    .  the overall market for high-yield securities;

    .  our financial performance and prospects; and

    .  the prospects for companies in our industry generally.

   Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
like the new notes. The market for the new notes, if any, may be subject to
similar disruptions. Any such disruptions could adversely affect you as a
holder of the new notes.

   In addition, to the extent that old notes are surrendered and accepted in
the exchange offer, the trading market for unsurrendered old notes and for
surrendered-but-unaccepted old notes could be adversely affected due to the
limited amount of old notes that are expected to remain outstanding following
the exchange offer. Generally, when there are fewer outstanding securities of a
given issue, there is less demand to purchase that security. This results in a
lower price for the security. Conversely, if many old notes are not
surrendered, or are surrendered-but-unaccepted, the trading market for the new
notes could be adversely affected. See "Plan of Distribution" and "The Exchange
Offer" for further information regarding the distribution of the new notes and
the consequences of failure to participate in the exchange offer.

   Repayment or Repurchase of Notes--The Issuer may be unable to repay or,
following a change in control, repurchase the notes.

   There is no sinking fund with respect to the notes, and at maturity the
entire outstanding principal amount of the notes will become due and payable.
If Hanover experiences a change in control of the type described under
"Description of Notes," you may require the Issuer to repurchase all or a
portion of your notes prior to maturity. We cannot assure you that the Issuer
will have sufficient funds to repay the notes at maturity or to repurchase the
notes tendered following a change in control. The Issuer's failure to
repurchase any tendered notes or to repay the notes upon maturity would
constitute an event of default under the indenture and, upon acceleration of
the notes in accordance with the indenture, would cause a default under the
terms of Hanover's $350 million bank credit agreement, existing operating
leases and 4.75% convertible senior notes due 2008.

                                      30

<PAGE>

               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS


   This prospectus contains forward-looking statements. These statements may be
found throughout this prospectus, particularly under the headings "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Hanover Compressor Company and Hanover
Compression Limited Partnership," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Hanover Equipment Trust
2001B," "Business of Hanover Compressor and Hanover Compression Limited
Partnership," "Hanover Compression Limited Partnership," and "Hanover Equipment
Trust 2001B," among others. These forward-looking statements can generally be
identified as such because the context of the statement will include words such
as "believes," "anticipates," "expects," "estimates," or words of similar
import, although some forward-looking statements are expressed differently.
Statements that describe our future plans, objectives or goals are also
forward-looking statements. You should consider these statements carefully
because they describe our expectations and beliefs concerning future business
conditions, our results of operations, financial position, and our business
outlook or state other "forward-looking" information based on currently
available information. These forward-looking statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from those anticipated as of the date of this prospectus.


    .  the loss of market share through competition;

   .   the introduction of competing technologies by other companies;

    .  a prolonged, substantial reduction in oil and gas prices which would
       cause a decline in the demand for our compression and oil and gas
       production equipment;

    .  new governmental safety, health and environmental regulations which
       could require us to make significant capital expenditures;

    .  our inability to successfully integrate acquired businesses; and

    .  changes in economic or political conditions in the countries in which we
       operate.

   The forward-looking statements included herein are only made as of the date
of this prospectus, and we undertake no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.


                                      31

<PAGE>

                              THE EXCHANGE OFFER

Purpose of the Exchange Offer

   We issued the old notes on August 30, 2001 in a transaction exempt from the
registration requirements of the Securities Act. Accordingly, the old notes may
not be reoffered, resold, or otherwise transferred unless so registered or
unless an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.

   In connection with the sale of the old notes, we entered into an exchange
and registration rights agreement, which requires us to:

    .  file a registration statement with the Securities and Exchange
       Commission relating to the exchange offer not later than 120 days after
       the date of issuance of the old notes;

    .  use our reasonable best efforts to cause the registration statement
       relating to the exchange offer to become effective under the Securities
       Act no later than 150 days after the date of issuance of the old notes;

    .  use our reasonable best efforts to complete the exchange offer no later
       than 180 days after the date of issuance of the old notes; and

   .   to file a shelf registration statement for the resale of the old notes
       if we cannot effect an exchange offer within 180 days after the date of
       issuance of the old notes and in other designated circumstances.

   We have filed a copy of the exchange and registration rights agreement as an
exhibit to the registration statement of which this prospectus is a part. We
are making the exchange offer to satisfy our obligations under the exchange and
registration rights agreement. Other than pursuant to the exchange and
registration rights agreement, we are not required to file any registration
statement to register any outstanding old notes. Holders of old notes who do
not tender their old notes or whose old notes are tendered but not accepted in
the exchange offer must rely on an exemption from the registration requirements
under the federal securities laws if they wish to sell their old notes.

Terms of the Exchange Offer

   We are offering to exchange, subject to the conditions described in this
prospectus and in the letter of transmittal accompanying this prospectus,
$1,000 in principal amount of new notes for each $1,000 in principal amount of
the old notes. The terms of the new notes are identical in all material
respects to the terms of the old notes, except that the new notes will
generally be freely transferable by holders of the new notes and will not be
subject to the terms of the exchange and registration rights agreement. The new
notes will evidence the same indebtedness as the old notes and will be entitled
to the benefits of the indenture. For additional information, see "Description
of Notes."

   The exchange offer is not conditioned upon the tender of any minimum
principal amount of old notes.

   We have not requested, and do not intend to request, an interpretation by
the staff of the Securities and Exchange Commission as to whether the new notes
issued in exchange for the old notes may be offered for sale, resold or
otherwise transferred by any holder or beneficial owner without compliance with
the registration and prospectus delivery provisions of the Securities Act.
Instead, based on an interpretation by the staff of the Securities and Exchange
Commission set forth in a series of no-action letters issued to third parties,
we believe that new notes issued in the exchange offer in exchange for old
notes may be offered for sale, resold and otherwise transferred by any holder
of new notes or beneficial owner thereof, other than any holder or beneficial
owner that is a broker-dealer or is an "affiliate" of ours within the meaning
of Rule 405 under the Securities Act, without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that:


    .  the new notes are acquired in the ordinary course of business of the
       holder and each beneficial owner of old notes tendered thereby;


                                      32

<PAGE>


    .  the holder and each beneficial owner of old notes tendered thereby has
       no arrangement or understanding with any person to participate in the
       distribution of the new notes; and



    .  the holder and each beneficial owner of old notes tendered thereby is
       not engaged in, and does not intend to engage in, a distribution of the
       new notes.



   Because the Securities and Exchange Commission has not considered the
exchange offer in the context of a no-action letter, we can provide no
assurance that the staff of the Securities and Exchange Commission would make a
similar determination with respect to the exchange offer. Any holder or
beneficial owner who is an affiliate of ours or who tenders old notes in the
exchange offer for the purpose of participating in a distribution of the new
notes cannot rely on the interpretation by the staff of the Securities and
Exchange Commission and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. In connection with the foregoing, each holder must make certain
representations to us to participate in the exchange offer. See "--Procedures
for Tendering Old Notes" and "--Terms and Conditions of the Letter of
Transmittal."


   Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. See "Plan of Distribution." Broker-dealers who acquired old
notes directly from us and not as a result of market-making activities or other
trading activities may not rely on the staff's interpretations discussed above
or participate in the exchange offer, and must comply with the prospectus
delivery requirements of the Securities Act to sell the old notes.


   The new notes will accrue interest from the date of the last payment of
interest on the old notes, which was March 1, 2002. Holders whose old notes are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the old notes. Tendering holders of the old notes will not
be required to pay brokerage commissions or fees, or transfer taxes, except as
specified in the instructions in the letter of transmittal, with respect to the
exchange of the old notes in the exchange offer.


Expiration Date; Extension; Termination; Amendment

   The exchange offer will expire at 5:00 p.m., New York City time, on       ,
2002, unless we, in our sole discretion, extend the period of time for which
the exchange offer is open. Such time and date, as it may be extended, is
referred to herein as the "expiration date." The expiration date will be at
least 20 business days after the commencement of the exchange offer in
accordance with Rule 14e-1(a) under the Exchange Act. We expressly reserve the
right, at any time or from time to time, to extend the period of time during
which the exchange offer is open, and thereby delay acceptance for exchange of
any old notes. We will extend the expiration date by giving oral (promptly
confirmed in writing) or written notice of the extension to the exchange agent
and by timely public announcement no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled expiration date. During
the extension, all old notes previously tendered will remain subject to the
exchange offer unless properly withdrawn. We expressly reserve the right to:

    .  terminate or amend the exchange offer and not to accept for exchange any
       old notes not previously accepted for exchange upon the occurrence of
       any of the events specified below under "--Conditions to the Exchange
       Offer" below which have not been waived by us; and

    .  amend the terms of the exchange offer in any manner, whether before or
       after any tender of the old notes.

   If any termination or amendment occurs, we will notify the exchange agent
and will either issue a press release or give oral or written notice to the
holders of the old notes as promptly as practicable.

   For purposes of the exchange offer, a "business day" means any day other
than Saturday, Sunday or a date

                                      33

<PAGE>

on which banking institutions are required or authorized by Delaware or New
York State law to be closed, and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York City time. Unless we terminate the exchange
offer prior to 5:00 p.m., New York City time, on the expiration date, we will
exchange the new notes for the old notes promptly following the expiration date.

Procedures for Tendering

   Our acceptance of old notes tendered by a holder will constitute a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions described in this prospectus and in the accompanying letter of
transmittal. All references in this prospectus to the letter of transmittal are
deemed to include a facsimile of the letter of transmittal. A holder of old
notes may tender the old notes by:


    .  properly completing and signing the letter of transmittal or a facsimile
       thereof;



    .  properly completing any required signature guarantees;



    .  properly completing any other documents required by the letter of
       transmittal; and



    .  delivering all of the above, together with the certificate or
       certificates representing the old notes being tendered, to the exchange
       agent at its address set forth below on or prior to the expiration date;
       or



    .  complying with the procedure for book-entry transfer described below; or



    .  complying with the guaranteed delivery procedures described below.


   The method of delivery of old notes, letters of transmittal and all other
required documents is at the election and risk of the holders. If the delivery
is by mail, it is recommended that registered mail properly insured, with
return receipt requested, be used. In all cases, sufficient time should be
allowed to ensure timely delivery. Holders should not send old notes or letters
of transmittal to us.

   The signature on the letter of transmittal need not be guaranteed if:


    .  tendered old notes are registered in the name of the signer of the
       letter of transmittal;



    .  the new notes to be issued in exchange for the old notes are to be
       issued in the name of the holder; and



    .  any untendered old notes are to be reissued in the name of the holder.


   In any other case, the tendered old notes must be:


    .  endorsed or accompanied by written instruments of transfer in form
       satisfactory to us;



    .  duly executed by the holder; and



    .  the signature on the endorsement or instrument of transfer must be
       guaranteed by a bank, broker, dealer, credit union, savings association,
       clearing agency or other institution, in each case that is an "eligible
       guarantor institution" within the meaning of Rule 17Ad-15 under the
       Exchange Act and that is a member in good standing of a recognized
       medallion signature guarantee program (an "Eligible Institution").


   If the new notes and/or old notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the old notes, the signature in the letter of transmittal must be
guaranteed by an Eligible Institution.

   The exchange agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the
old notes at The Depository Trust Company, the "book-entry transfer facility,"
for the purpose of facilitating the exchange offer, unless suitable accounts
have already been established.

                                      34

<PAGE>

We refer to The Depository Trust Company in this prospectus as "DTC." Subject
to establishing the accounts, any financial institution that is a participant
in the book-entry transfer facility's system may make book-entry delivery of
old notes by causing the book-entry transfer facility to transfer the old notes
into the exchange agent's account with respect to the old notes in accordance
with the book-entry transfer facility's procedures for the transfer. Although
delivery of old notes may be effected through book-entry transfer into the
exchange agent's account at the book-entry transfer facility, an appropriate
letter of transmittal with any required signature guarantee and all other
required documents, or an agent's message, must in each case be properly
transmitted to and received or confirmed by the exchange agent at its address
set forth below prior to the expiration date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures.

   The exchange agent and DTC have confirmed that the exchange offer is
eligible for the DTC Automated Tender Offer Program. We refer to the Automated
Tender Offer Program in this prospectus as "ATOP." Accordingly, DTC
participants may, in lieu of physically completing and signing the letter of
transmittal and delivering it to the exchange agent, electronically transmit
their acceptance of the exchange offer by causing DTC to transfer old notes to
the exchange agent in accordance with DTC's ATOP procedures for transfer. DTC
will then send an agent's message. The term "agent's message" means a message
which:

    .  is transmitted by DTC;

    .  is received by the exchange agent and forms part of the book-entry
       transfer;

    .  states that DTC has received an express acknowledgment from a
       participant in DTC that is tendering old notes which are the subject of
       the book-entry transfer;

    .  states that the participant has received and agrees to be bound by all
       of the terms of the letter of transmittal; and

    .  states that we may enforce such letter of transmittal and the agreements
       set forth therein against the participant.

   If a holder desires to accept the exchange offer and time will not permit a
letter of transmittal or old notes to reach the exchange agent before the
expiration date or the procedure for book-entry transfer cannot be completed on
a timely basis, the holder may effect a tender if the exchange agent has
received at its address set forth below on or prior to the expiration date, a
letter, telegram or facsimile transmission, and an original delivered by
guaranteed overnight courier, from an Eligible Institution setting forth:

    .  the name and address of the tendering holder;

    .  the names in which the old notes are registered and, if possible, the
       certificate numbers of the old notes to be tendered; and

    .  a statement that the tender is being made thereby and guaranteeing that
       within three New York Stock Exchange trading days after the expiration
       date, the old notes in proper form for transfer, or a confirmation of
       book-entry transfer of such old notes into the exchange agent's account
       at the book-entry transfer facility, will be delivered by the Eligible
       Institution together with a properly completed and duly executed letter
       of transmittal or an agent's message and any other required documents.

   So long as old notes being tendered by the above-described method are
deposited with the exchange agent within the relevant time period, a tender
will be deemed to have been received as of the date when:

    .  the tendering holder's properly completed and duly signed letter of
       transmittal, or a properly transmitted agent's message, accompanied by
       the old notes or a confirmation of book-entry transfer of the old notes
       into the exchange agent's account at the book-entry transfer facility is
       received by the exchange agent; or

                                      35

<PAGE>

    .  a notice of guaranteed delivery or letter, telegram or facsimile
       transmission to similar effect from an Eligible Institution is received
       by the exchange agent.

   Issuances of new notes in exchange for old notes tendered pursuant to a
notice of guaranteed delivery or letter, telegram or facsimile transmission to
similar effect by an Eligible Institution will be made only against deposit of
the letter of transmittal and any other required documents and the tendered old
notes or a confirmation of book-entry and an agent's message. All questions as
to the validity, form, eligibility (including time of receipt), and acceptance
of old notes tendered for exchange will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all tenders of any old notes not properly
tendered or not to accept any old notes which acceptance might, in our judgment
or the judgment of our counsel, be unlawful. We also reserve the absolute right
to waive any defects or irregularities or conditions of the exchange offer as
to any old notes either before or after the expiration date, including the
right to waive the ineligibility of any holder who seeks to tender old notes in
the exchange offer. The interpretation of the terms and conditions of the
exchange offer, including the letter of transmittal and the instructions
contained in the letter of transmittal, by us will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of old notes for exchange must be cured prior to the expiration date.
Neither we, the exchange agent nor any other person has any duty to you to give
notification of any defect or irregularity with respect to any tender of old
notes for exchange, nor will any of us incur any liability for failure to give
such notification.

   If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of old notes, the old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the old notes.


   If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
us, such persons must submit proper evidence satisfactory to us of their
authority to so act.




Terms and Conditions of the Letter of Transmittal

   The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.


   The party tendering old notes for exchange exchanges, assigns and transfers
the old notes to us and irrevocably constitutes and appoints the exchange agent
as his or her agent and attorney-in-fact to cause the old notes to be assigned,
transferred and exchanged. We refer to the party tendering notes herein as the
"transferor." The transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the old notes and to acquire
new notes issuable upon the exchange of the tendered old notes, and that, when
the same are accepted for exchange, we will acquire good and unencumbered title
to the tendered old notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the exchange agent or us to be necessary or desirable to
complete the exchange, assignment and transfer of tendered old notes or
transfer ownership of such old notes on the account books maintained by a
book-entry transfer facility. The transferor further agrees that acceptance of
any tendered old notes by us and the issuance of new notes in exchange for old
notes will constitute performance in full by us of various of our obligations
under the exchange and registration rights agreement. All authority conferred
by the transferor will survive the death or incapacity of the transferor and
every obligation of the transferor will be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of the
transferor.





   By tendering, each transferor represents to us that, among other things:



    .  the new notes acquired pursuant to the exchange offer are being acquired
       in the ordinary course of business of the transferor and each beneficial
       owner of old notes tendered thereby;



    .  the transferor and each beneficial owner of old notes tendered thereby
       has no arrangement or understanding with any person to participate in
       the distribution of the new notes;


                                      36

<PAGE>


    .  the transferor and each beneficial owner of old notes tendered thereby
       is not an "affiliate," as defined under Rule 405 of the Securities Act,
       of ours;



    .  the transferor and each beneficial owner of old notes tendered thereby
       is not engaged in, and does not intend to engage in, a distribution of
       the new notes;



    .  the transferor and each beneficial owner of old notes tendered thereby
       acknowledge that any person who is a broker-dealer registered under the
       Exchange Act or is participating in the exchange offer for the purpose
       of distributing the new notes must comply with the registration and
       prospectus delivery requirements of Section 10 of the Securities Act in
       connection with a secondary resale transaction of the new notes acquired
       by such person and cannot rely on the position of the staff of the
       Securities and Exchange Commission set forth in certain no action
       letters; and



    .  the transferor and each beneficial owner of old notes tendered thereby
       understand that a secondary resale transaction described in the fifth
       bullet point above and any resales of new notes obtained by the
       transferor or any beneficial owner in exchange for the old notes
       acquired by the transferor directly from the Issuer should be covered by
       an effective registration statement containing the selling
       securityholder information required by Item 507 or Item 508, if
       applicable, of Regulation S-K of the Securities and Exchange Commission.


   Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such new notes. See "Plan of Distribution." Broker-dealers who acquired old
notes directly from us and not as a result of market-making activities or other
trading activities may not rely on the staff's interpretations discussed above
or participate in the exchange offer, and must comply with the prospectus
delivery requirements of the Securities Act to sell the old notes.

Withdrawal Rights

   Tenders of old notes may be withdrawn at any time prior to the expiration
date.

   For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission, with receipt confirmed by telephone, or
letter must be received by the exchange agent at the address set forth in this
prospectus prior to the expiration date. Any notice of withdrawal must:

    .  specify the name of the person having tendered the old notes to be
       withdrawn;

    .  identify the old notes to be withdrawn, including the certificate number
       or numbers and principal amount of such old notes;

    .  specify the principal amount of old notes to be withdrawn;


    .  include a statement that the holder is withdrawing his or her election
       to have the old notes exchanged;


    .  be signed by the holder in the same manner as the original signature on
       the letter of transmittal by which the old notes were tendered or as
       otherwise described above, including any required signature guarantees,
       or be accompanied by documents of transfer sufficient to have the
       trustee under the indenture register the transfer of the old notes into
       the name of the person withdrawing the tender; and

    .  specify the name in which any such old notes are to be registered, if
       different from that of the person who tendered the old notes.

   The exchange agent will return the properly withdrawn old notes promptly
following receipt of the notice of withdrawal. If old notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal
must specify the name and number of the account at the book-entry transfer
facility to be credited with the withdrawn old notes or otherwise comply with
the book- entry transfer facility procedure. All questions as to the validity
of notices of withdrawals, including time of receipt, will be determined by us
and our determination will be final and binding on all parties.

   Any old notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any old notes which have been
tendered for exchange but which are not exchanged for any

                                      37

<PAGE>

reason will be returned to the holder without cost to the holder. In the case
of old notes tendered by book-entry transfer into the exchange agent's account
at the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, the old notes will be credited to an account with
the book-entry transfer facility specified by the holder. In either case, the
old notes will be returned as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn old notes
may be retendered by following one of the procedures described under
"--Procedures for Tendering" above at any time prior to the expiration date.

Acceptance of Old Notes for Exchange; Delivery of New Notes

   Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, on the expiration date, all old notes properly tendered and
will issue the new notes promptly after such acceptance. See "--Conditions to
the Exchange Offer" below for more detailed information. For purposes of the
exchange offer, we will be deemed to have accepted properly tendered old notes
for exchange when, and if, we have given oral (promptly confirmed in writing)
or written notice of our acceptance to the exchange agent.

   For each old note accepted for exchange, the holder of the old note will
receive a new note having a principal amount equal to that of the surrendered
old note.

   In all cases, issuance of new notes for old notes that are accepted for
exchange pursuant to the exchange offer will be made only after:

    .  timely receipt by the exchange agent of certificates for the old notes
       or a timely book-entry confirmation of the old notes into the exchange
       agent's account at the book-entry transfer facility;

    .  a properly completed and duly executed letter of transmittal, or a
       properly transmitted agent's message; and

    .  timely receipt by the exchange agent of all other required documents.

   If any tendered old notes are not accepted for any reason or if old notes
are submitted for a greater principal amount than the holder desires to
exchange, the unaccepted or nonexchanged old notes will be returned without
expense to the tendering holder of the old notes. In the case of old notes
tendered by book-entry transfer into the exchange agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, the non-exchanged old notes will be credited to an account
maintained with the book-entry transfer facility. In either case, the old notes
will be returned as promptly as practicable after the expiration of the
exchange offer.

Conditions to the Exchange Offer

   Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will not be required to accept for exchange, or to
issue new notes in exchange for, any old notes and may terminate or amend the
exchange offer, by oral (promptly confirmed in writing) or written notice to
the exchange agent or by a timely press release, if at any time before the
acceptance of the old notes for exchange or the exchange of the new notes for
such old notes, any of the following conditions exist:

    .  any action or proceeding is instituted or threatened in any court or by
       or before any governmental agency with respect to the exchange offer
       which, in our judgment would be expected to impair our ability to
       proceed with the exchange offer; or

    .  the exchange offer, or the making of any exchange by a holder, violates
       applicable law, any applicable interpretation of the staff of the
       Securities and Exchange Commission or any order of any governmental
       agency or court of competent jurisdiction.

                                      38

<PAGE>

   The conditions described above are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to the condition or we may
waive any condition in whole or in part at any time and from time to time in
our sole discretion. Our failure at any time to exercise any of the rights
described above will not be deemed a waiver of the right and each right will be
deemed an ongoing right which we may assert at any time and from time to time.

   If we waive or amend the conditions above, we will, if required by law,
extend the exchange offer for a minimum of five business days from the date
that we first give notice, by public announcement or otherwise, of the waiver
or amendment, if the exchange offer would otherwise expire within the five
business-day period. Any determination by us concerning the events described
above will be final and binding upon all parties.

   In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for those old notes, if at such time any
stop order shall be threatened or in effect with respect to the registration
statement of which this prospectus constitutes a part or the qualification of
the indenture under the Trust Indenture Act of 1939. In any of those events, we
are required to use every reasonable effort to obtain the withdrawal of any
stop order at the earliest possible time.

   The exchange offer is not conditioned upon any minimum principal amount of
old notes being tendered.

Exchange Agent

   Wilmington Trust FSB has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below:

<TABLE>
<S>                               <C>                   <C>
By Registered or Certified Mail:      By Facsimile:       By Hand or Overnight Courier:

 Corporate Trust Reorg Services      (302) 636-4145      Corporate Trust Reorg Services
      Wilmington Trust FSB                                    Wilmington Trust FSB
        as Exchange Agent         Confirm by Telephone:         as Exchange Agent
         Mail Drop 1615                                        Rodney Square North
          P.O. Box 8861              (302) 636-6472         1100 North Market Street
    Wilmington, DE 19899-8861                               Wilmington, DE 19890-1615
Re: Hanover Equipment Trust 2001B                       Re: Hanover Equipment Trust 2001B
</TABLE>

   You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for notices of guaranteed delivery to the exchange agent at the
address and telephone number set forth in the letter of transmittal.

   Delivery to an address other than as set forth on the letter of transmittal,
or transmissions of the letter by transmittal via a facsimile number other than
the one set forth on the letter of transmittal, will not constitute a valid
delivery.

Solicitations of Tenders; Fees and Expenses

   We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. However, we will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. We will also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this and other
related documents to the beneficial owners of the old notes and in handling or
forwarding tenders for their customers.


   We will pay the estimated cash expenses to be incurred in connection with
the exchange offer. We estimate the expenses to be approximately $625,000 which
includes fees and expenses of the exchange agent, trustee, registration fees,
accounting, legal, printing and related fees and expenses.


                                      39

<PAGE>

   No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those
contained in this prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by us.
Neither the delivery of this prospectus nor any exchange made pursuant to this
prospectus, under any circumstances, create any implication that there has been
no change in our affairs since the respective dates as of which information is
given in this prospectus. The exchange offer is not being made to, nor will
tenders be accepted from or on behalf of, holders of old notes in any
jurisdiction in which the making of the exchange offer or the acceptance of the
exchange offer would not be in compliance with the laws of the jurisdiction.
However, we may, at our discretion, take such action as we may deem necessary
to make the exchange offer in the jurisdiction and extend the exchange offer to
holders of old notes in the jurisdiction. In any jurisdiction in which the
securities laws or blue sky laws of which require the exchange offer to be made
by a licensed broker or dealer, the exchange offer is being made on our behalf
by one or more registered brokers or dealers which are licensed under the laws
of the jurisdiction.

Transfer Taxes

   We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. However, the transfer taxes will be
payable by the tendering holder if:

    .  certificates representing new notes or old notes for principal amounts
       not tendered or accepted for exchange are to be delivered to, or are to
       be issued in the name of, any person other than the registered holder of
       the old notes tendered; or

    .  tendered old notes are registered in the name of any person other than
       the person signing the letter of transmittal; or

    .  a transfer tax is imposed for any reason other than the exchange of old
       notes pursuant to the exchange offer.

   If taxes are payable by the tendering holders, we will bill the amount of
the transfer taxes directly to the tendering holder if satisfactory evidence of
payment of the taxes or exemption therefrom is not submitted with the letter of
transmittal.

Accounting Treatment

   For accounting purposes, we will not recognize gain or loss upon the
exchange of the new notes for old notes. We will amortize expenses incurred in
connection with the issuance of the new notes over the term of the new notes.

Consequence of Failure to Exchange

   Holders of old notes who do not exchange their old notes for new notes
pursuant to the exchange offer will continue to be subject to the restrictions
on transfer of the old notes as described in the legend on the old notes. Old
notes not exchanged pursuant to the exchange offer will continue to remain
outstanding in accordance with their terms. In general, the old notes may not
be offered or sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. We do not currently anticipate that we
will register the old notes under the Securities Act.

   Participation in the exchange offer is voluntary, and holders of old notes
should carefully consider whether to participate. Holders of old notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.

   As a result of the making of, and upon acceptance for exchange of all
validly tendered old notes pursuant to the terms of, this exchange offer, we
will have fulfilled our obligations under the exchange and registration rights
agreement. Holders of old notes who do not tender their old notes in the
exchange offer will continue to hold the old notes and will be entitled to all
the rights and limitations applicable to the old notes under the indenture,

                                      40

<PAGE>

except for any rights under the exchange and registration rights agreement that
by their terms terminate or cease to have further effectiveness as a result of
the making of this exchange offer. All untendered old notes will continue to be
subject to the restrictions on transfer described in the indenture. To the
extent that old notes are tendered and accepted in the exchange offer, the
trading market for untendered old notes could be adversely affected.

   We may in the future seek to acquire, subject to the terms of the indenture,
untendered old notes in open market or privately negotiated transactions,
through subsequent exchange offers or otherwise. We have no present plan to
acquire any old notes which are not tendered in the exchange offer.

Resale of New Notes


   We are making the exchange offer in reliance on the position of the staff of
the Securities and Exchange Commission as set forth in interpretive letters
addressed to third parties in other transactions. However, we have not sought
our own interpretive letter and we can provide no assurance that the staff
would make a similar determination with respect to the exchange offer as it has
in such interpretive letters to third parties. Based on these interpretations
by the staff, we believe that the new notes issued pursuant to the exchange
offer in exchange for old notes may be offered for resale, resold and otherwise
transferred by a holder or beneficial owner of such new notes, other than any
holder or beneficial owner who is a broker-dealer or an "affiliate" of ours
within the meaning of Rule 405 of the Securities Act, without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that:



    .  the new notes are acquired in the ordinary course of business of the
       holder and each beneficial holder of old notes tendered thereby;



    .  the holder and each beneficial holder of old notes tendered thereby has
       no arrangement or understanding with any person to participate in a
       distribution of the new notes; and



    .  the holder and each beneficial holder of old notes tendered thereby is
       not engaged in, and does not intend to engage in, a distribution of the
       new notes.



   However, any holder or any beneficial owner of old notes tendered thereby
who is:


   .   an "affiliate" of ours;

    .  who has an arrangement or understanding with respect to the distribution
       of the new notes to be acquired pursuant to the exchange offer; or

    .  any broker-dealer who purchased old notes from us to resell pursuant to
       Rule 144A or any other available exemption under the Securities Act,

could not rely on the applicable interpretations of the staff and must comply
with the registration and prospectus delivery requirements of the Securities
Act. A broker-dealer who holds old notes that were acquired for its own account
as a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of new notes. Each such broker-dealer that receives
new notes for its own account in exchange for old notes, where the
broker-dealer acquired the old notes as a result of market-making activities or
other trading activities, must acknowledge, as provided in the letter of
transmittal, that it will deliver a prospectus in connection with any resale of
such new notes. For more detailed information, see "Plan of Distribution."

   In addition, to comply with the securities laws of various jurisdictions, if
applicable, the new notes may not be offered or sold unless they have been
registered or qualified for sale in the jurisdiction or an exemption from
registration or qualification is available and is complied with. We have
agreed, pursuant to the exchange and registration rights agreement and subject
to specified limitations therein, to register or qualify the new notes for
offer or sale under the securities or blue sky laws of the jurisdictions as any
holder of the new notes reasonably requests. The registration or qualification
may require the imposition of restrictions or conditions, including suitability
requirements for offerees or purchasers, in connection with the offer or sale
of any new notes.

                                      41

<PAGE>

Shelf Registration Statement

   If:

    .  we are not permitted to effect the exchange offer because of any change
       in law or applicable interpretations by the staff of the Securities and
       Exchange Commission;

    .  the exchange offer is not consummated for any reason within 180 days
       after the date of issuance of the old notes;

    .  any old notes tendered pursuant to the exchange offer are not exchanged
       for new notes within 10 days of being accepted in the exchange offer;

    .  any of the initial purchasers of the old notes so requests with respect
       to old notes not eligible to be exchanged for new notes in the exchange
       offer and held by it following the consummation of the exchange offer; or

    .  any applicable law or interpretations do not permit any holder to
       participate in the exchange offer,


then the exchange and registration rights agreement requires us to file as
promptly as practicable and use our reasonable best efforts to cause the
Securities and Exchange Commission to declare effective a shelf registration
statement with respect to the resale of the old notes and keep the statement
effective for up to two years after the effective date of the shelf
registration statement or such shorter period that will terminate when all the
old notes covered by the registration statement have been sold pursuant to the
shelf registration statement. Under certain circumstances, we may suspend the
effectiveness of the shelf registration statement for up to 60 days in any year
during the two-year period of effectiveness described above.


Additional Interest

   If:


    .  the registration statement covering the new notes offered in the
       exchange offer is not declared effective by the Securities and Exchange
       Commission on or prior to 150 days after the date of issuance of the old
       notes;




    .  we fail to consummate the exchange offer on or prior to 180 days after
       the date of issuance of the old notes;

    .  we fail to file the shelf registration statement required by the
       exchange and registration rights agreement on or before the date
       specified for such filing;

    .  the shelf registration statement is not declared effective by the
       Securities and Exchange Commission on or prior to the date specified for
       such effectiveness in the exchange and registration rights agreement; or

    .  the shelf registration statement is declared effective but thereafter
       ceases to be effective without being succeeded within 30 days by an
       additional registration statement filed and declared effective (each
       such event, a "Registration Default"),


then we are obligated to pay additional interest to each holder of old notes,
during the period of one or more such Registration Defaults, in an amount equal
to $0.192 per week per $1,000 principal amount of notes held by such holder.





   Because the registration statement of which this prospectus is a part was
not declared effective on or prior to January 28, 2002 and the exchange offer
was not consummated on or prior to February 26, 2002, the Issuer is obligated
to pay additional interest to each holder of old notes in an amount equal to
$0.192 per week per $1,000 principal amount of notes held by such holder. The
additional interest began to accrue on January 28, 2002 and will continue to
accrue with respect to the old notes until we have cured all Registration
Defaults under the exchange and registration rights agreement, which we expect
to occur when we complete the exchange offer. Additional interest which has
accrued on the old notes is due and payable by the Issuer to the record holder
of old notes (or, following the closing of the exchange offer, to the record
holder of new notes to the extent that there exists accrued but unpaid
additional interest with respect to old notes exchanged therefor) entitled to
receive an interest payment made on each regularly scheduled interest payment
date.


                                      42

<PAGE>

                                USE OF PROCEEDS

   This exchange offer is intended to satisfy the obligations of the Issuer,
Hanover and HCLP under the exchange and registration rights agreement entered
into with the initial purchasers of the old notes concurrently with the
issuance of the old notes. None of the registrants will receive any cash
proceeds from the exchange offer. You will receive, in exchange for old notes
tendered by you in the exchange offer, new notes in like principal amount. The
old notes surrendered in exchange for the new notes will be retired and
cancelled and cannot be reissued. Accordingly, the issuance of the new notes
will not result in any increase of the Issuer's, Hanover's or HCLP's
outstanding debt.

   The Issuer used the proceeds from the sale of the old notes, together with
equity financing raised by the Issuer, to purchase domestic gas compression
equipment covered by the operating lease from HCLP and certain of its
subsidiaries. Hanover used the proceeds from the sale of the Equipment covered
by the operating lease to exercise HCLP's equipment purchase option under an
existing operating lease and for general corporate purposes.

                                      43

<PAGE>

                 CAPITALIZATION OF HANOVER COMPRESSOR COMPANY
                  AND HANOVER COMPRESSION LIMITED PARTNERSHIP


   In the table below and the footnotes thereto, we have provided you with
Hanover's and HCLP's total capitalization at March 31, 2002. You should read
this table and the footnotes thereto in conjunction with Hanover's and HCLP's
consolidated financial statements and the notes related thereto, which are
included or incorporated by reference in this prospectus. See "Where You Can
Find More Information" and "Incorporation of Documents by Reference."



<TABLE>
<CAPTION>
                                                                  As of March 31,
                                                                      2002(1)
                                                                  ---------------
                                                                  (in thousands,
                                                                    except par
                                                                  value and share
                                                                     amounts)
<S>                                                               <C>
Current maturities of long-term debt.............................   $    5,298
                                                                    ----------
Long-term debt
   4.75% Convertible Senior Notes................................      192,000
   $350 million bank credit agreement (2)........................      228,000
   Subordinated acquisition note (3).............................      150,000
   Other.........................................................        4,880
                                                                    ----------
       Total long-term debt......................................      574,880
                                                                    ----------
Joint venture payment (4)........................................       58,000
                                                                    ----------
Mandatorily redeemable convertible
   preferred securities..........................................       86,250
                                                                    ----------
Common stockholders' equity
   Common stock, $.001 par value, 200,000,000 shares authorized;
     79,294,105 shares issued and outstanding (5)................           79
   Additional paid-in capital (5)................................      829,743
   Notes-receivable--employee stockholders.......................       (2,166)
   Accumulated other comprehensive loss..........................       (4,593)
   Retained earnings.............................................      229,031
   Treasury stock--75,739 common shares, at cost.................         (717)
                                                                    ----------
       Total common stockholders' equity.........................    1,051,377
                                                                    ----------
       Total capitalization......................................   $1,775,805
                                                                    ==========
</TABLE>

--------

(1) The following table reflects the total capitalization of HCLP at March 31,
    2002:



<TABLE>
<CAPTION>
                                                      As of March 31,
                                                           2002
                                                      ---------------
                                                      (in thousands)
          <S>                                         <C>
          Current maturities of long-term debt.......   $    5,298
                                                        ----------
          Long-term debt
             $350 million bank credit agreement (2)..      228,000
             Subordinated acquisition note (3).......      150,000
             Other...................................        4,880
                                                        ----------
                Total long-term debt.................      382,880
                                                        ----------
          Joint venture payment (4)..................       58,000
                                                        ----------
          Partners' equity
             Partners' capital.......................    1,318,390
             Accumulated other comprehensive loss....       (4,593)
                                                        ----------
                Total partners' equity...............    1,313,797
                                                        ----------
                Total capitalization.................   $1,759,975
                                                        ==========
</TABLE>


                                      44

<PAGE>


(2) As of March 31, 2002, we had approximately $85 million of credit capacity
    remaining on our $350 million bank credit agreement (3.7% rate at March 31,
    2002).


(3) As more fully described under "Description of Certain Indebtedness",
    amounts outstanding under the subordinated acquisition note accrue
    pay-in-kind interest at a fixed rate of 8.5% until six months after the
    date of issuance of the note, and thereafter the interest rate increases
    periodically in increments of 1% to 2% per annum to a maximum interest rate
    42 months after issuance of 15.5%. We are considering alternatives to
    prepay the subordinated acquisition note, including the possible sale of
    equity securities. In the event that we complete an offering of equity
    securities, the terms of the note require us to apply the proceeds of the
    offering toward repayment of the note, subject to certain exceptions.


(4) We are required to pay up to $58 million to Schlumberger with proceeds of a
    financing of a South American joint venture acquired by Hanover in the
    acquisition of the gas compression business of Schlumberger. If the joint
    venture fails to execute the financing or such financing fails to be
    non-recourse to Hanover, in either case, on or before December 31, 2002,
    Hanover will have the right to put our interest in the joint venture back
    to Schlumberger in exchange for a return of the purchase price allocated to
    the joint venture, plus the net amount of any capital contributions by
    Hanover to the joint venture. Our right to exercise the put expires on
    January 31, 2003. This $58 million amount is included in "Accrued
    liabilities" in Hanover's and HCLP's balance sheet.


(5) Does not include shares of common stock issuable upon exercise of employee
    stock options or exercise of warrants to purchase common stock.


   Since January 1999, we have completed five sale and leaseback transactions
(including the Lease) of compression equipment from which we received aggregate
gross proceeds of approximately $1,139.6 million. The leaseback of the
equipment is recorded as an operating lease. Three of these transactions,
completed in 1999 and 2000, have five-year terms and require quarterly rental
payments based on the London Interbank Offered Rate. Under these three leases,
we continue to utilize the equipment and have the option to repurchase the
equipment under certain conditions as defined by the lease agreements. The
Lease has a ten-year term and requires semi-annual rental payments based upon
the amount necessary for the Issuer to make regularly scheduled payments on the
notes and to provide a return to its equity certificate holder. The fifth
transaction, completed concurrently with the Lease, has a seven-year term and
is substantially similar to the Lease. We have approximately $881 million in
residual value guarantees that are due upon termination of our operating leases
(including the Lease), which may be satisfied by a cash payment or the exercise
of our purchase options under the terms of the respective lease agreements.


                                      45

<PAGE>

                CAPITALIZATION OF HANOVER EQUIPMENT TRUST 2001B


   The following table sets forth the Issuer's capitalization as of March 31,
2002. You should read this table in conjunction with the Issuer's financial
statements and notes thereto, which are included in this prospectus.



<TABLE>
<CAPTION>
                                                    As of March 31,
                                                         2002
                                                    ---------------
                                                    (in thousands)
            <S>                                     <C>
            Long-term debt:
               8.75% senior Secured Notes due 2011.    $250,000
            Certificate holder's equity:
               Equity certificates.................       7,750
                                                       --------
                      Total capitalization.........    $257,750
                                                       ========
</TABLE>


                                      46

<PAGE>

               SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
                         OF HANOVER COMPRESSOR COMPANY
                  AND HANOVER COMPRESSION LIMITED PARTNERSHIP


   In the table below and the footnotes thereto, we have provided you with
Hanover's and HCLP's selected historical consolidated financial data and pro
forma combined condensed financial data. The historical consolidated financial
data of Hanover for each of the fiscal years in the five-year period ended
December 31, 2001 were derived from Hanover's audited consolidated financial
statements. The historical consolidated financial data of HCLP for each of the
fiscal years in the four-year period ended December 31, 2001 were derived from
HCLP's audited consolidated financial statements. The historical consolidated
financial data of HCLP for the fiscal year ended December 31, 1997 were derived
from HCLP's unaudited consolidated financial statements. The historical
consolidated financial data as of and for the three months ended March 31, 2002
and 2001 were derived from Hanover's and HCLP's unaudited condensed
consolidated financial statements. In the opinion of management, such unaudited
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position and
results of operations of such interim periods.



   In August 2001, we acquired the gas compression business of Schlumberger for
total consideration of $761 million, consisting of $270 million in cash, $150
million in a long-term subordinated note and approximately 8.7 million shares
of common stock, subject to certain post-closing adjustments pursuant to the
acquisition agreement that to date have resulted in an increase in the purchase
price to approximately $771 million due to an increase in net assets acquired
and before any reduction due to the restrictions on the marketability of the
common stock (the "POI Acquisition"). In addition, we are required under
certain circumstances to pay up to $58 million to Schlumberger with the
proceeds of a financing of a South American joint venture acquired in the POI
Acquisition. In connection with the POI Acquisition, we sold certain gas
compression equipment to the Issuer and to Hanover Equipment Trust 2001A and
exercised our equipment purchase option under an existing operating lease
entered into during 1998 (the "1998 Lease") (collectively, the "Transactions").
The pro forma combined condensed financial data present our pro forma results
of operations as if the Transactions had occurred on January 1, 2001 and were
derived from the pro forma combined condensed financial statements of
operations for the year ended December 31, 2001 included in this prospectus.
The pro forma financial data is not adjusted to reflect the pro forma effect of
our acquisition of OEC Compression Corporation, completed in March 2001, which
was not significant. The pro forma financial data does not purport to be
indicative of the results that would actually have been obtained had the
Transactions been completed on the date indicated or that may be obtained in
the future.



   The information in this section should be read along with Hanover's
consolidated financial statements, accompanying notes and other financial
information, HCLP's consolidated financial statements, accompanying notes and
other financial information, the combined financial statements of the gas
compression business of Schlumberger and related pro forma financial data, each
of which is included or incorporated by reference in this prospectus. See
"Where You Can Find More Information" and "Incorporation of Documents by
Reference."


                                      47

<PAGE>

                          Hanover Compressor Company


<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                           -----------------------------------------------------------------
                                                           Pro Forma
                                                           2001(1)(2)    2001(1)   2000(1)(3)   1999(1)   1998(1)   1997(1)
                                                           ----------  ----------  ----------  --------  --------  ---------
                                                                        (in thousands, except per share amounts)
<S>                                                        <C>         <C>         <C>         <C>       <C>       <C>
INCOME STATEMENT DATA:
Total revenues and other.................................. $1,183,862  $1,078,209  $  566,081  $323,220  $286,351  $ 199,393
Expenses:
  Operating...............................................    705,707     649,687     316,558   157,361   155,046    110,027
  Selling, general and administrative.....................    109,704     100,980      54,632    33,782    26,626     21,514
  Depreciation and amortization...........................     98,259      90,560      52,882    37,337    37,154     28,439
  Leasing expense.........................................     93,309      70,435      45,484    22,090     6,173
  Interest expense........................................     26,040      17,540       8,685     8,786    11,716     10,728
  Foreign currency translation............................      6,658       6,658
  Distributions on mandatorily redeemable convertible
   preferred securities...................................      6,373       6,373       6,369       278
  Other...................................................     18,566      18,566
                                                           ----------  ----------  ----------  --------  --------  ---------
   Total expenses.........................................  1,064,616     960,799     484,610   259,634   236,715    170,708
                                                           ----------  ----------  ----------  --------  --------  ---------
Income before income taxes................................    119,246     117,410      81,471    63,586    49,636     28,685
Provision for income taxes................................     45,307      44,609      30,307    23,145    19,259     11,043
                                                           ----------  ----------  ----------  --------  --------  ---------
Net income before cumulative effect of accounting change..     73,939      72,801      51,164    40,441    30,377     17,642
Cumulative effect of accounting change for derivative
 instruments, net of tax..................................                   (164)
                                                           ----------  ----------  ----------  --------  --------  ---------
Net income................................................ $   73,939      72,637      51,164    40,411    30,377     17,642
                                                           ==========
Other comprehensive income (loss), net of tax:
  Change in fair value of derivative instruments..........                 (6,073)
  Foreign currency translation adjustment.................                    (27)       (146)     (463)      152
                                                                       ----------  ----------  --------  --------  ---------
Comprehensive income......................................             $   66,537  $   51,018  $ 39,978  $ 30,529  $  17,642
                                                                       ==========  ==========  ========  ========  =========
Diluted net income per share:
  Net income before cumulative effect of accounting
   change................................................. $   73,939  $   72,801  $   51,164  $ 40,441  $ 30,377  $  17,642
  Distributions on mandatorily redeemable convertible
   preferred securities, net of tax.......................      4,142       4,142
  Cumulative effect of accounting change for derivative
   instruments, net of tax................................                   (164)
                                                           ----------  ----------  ----------  --------  --------  ---------
  Net income for purposes of computing diluted net income
   per share.............................................. $   78,081  $   76,779  $   51,164  $ 40,441  $ 30,377  $  17,642
                                                           ==========  ==========  ==========  ========  ========  =========
Weighted average common and common equivalent shares:
  Basic(4)................................................     78,160      72,355      61,831    57,048    56,936     51,246
                                                           ----------  ----------  ----------  --------  --------  ---------
  Diluted(4)..............................................     86,980      81,175      66,366    61,054    60,182     54,690
                                                           ----------  ----------  ----------  --------  --------  ---------
Earnings per common share:
  Basic(4)................................................ $     0.95  $     1.00  $     0.83  $   0.71  $   0.53  $    0.34
                                                           ==========  ==========  ==========  ========  ========  =========
  Diluted(4).............................................. $     0.90  $     0.95  $     0.77  $   0.66  $   0.50  $    0.32
                                                           ==========  ==========  ==========  ========  ========  =========
OTHER DATA:
  EBITDAR(5).............................................. $  343,227  $  302,318  $  194,891  $132,077  $104,679  $  67,852
  Ratio of earnings to fixed charges(6)...................        1.9x        2.1x        2.2x      2.8x      3.7x       3.7x
CASH FLOWS PROVIDED BY(USED IN):
  Operating activities....................................             $  154,080  $   31,658  $ 68,222  $ 31,147  $  32,219
  Investing activities....................................               (483,583)    (69,393)  (92,114)  (14,699)  (164,490)
  Financing activities....................................                307,259      77,589    18,218    (9,328)   129,510
BALANCE SHEET DATA(END OF PERIOD):
  Working capital.........................................             $  275,824  $  285,443  $107,966  $113,264  $  58,027
  Net property, plant and equipment.......................              1,153,691     573,596   497,465   392,498    394,070
  Total assets............................................              2,272,966   1,251,756   756,510   614,590    506,452
  Long-term debt, excluding current maturities............                504,260     110,935    69,681   156,943    158,838
  Mandatorily redeemable convertible preferred securities.                 86,250      86,250    86,250
  Common stockholders' equity.............................              1,043,203     632,458   367,914   315,470    287,028
</TABLE>


                                      48

<PAGE>


                          Hanover Compressor Company



<TABLE>
<CAPTION>
                                                                                             Three Months
                                                                                            Ended March 31,
                                                                                        ----------------------
                                                                                          2002(1)   2001(1)(3)
                                                                                        ----------  ----------
                                                                                            (in thousands)
                                                                                              (unaudited)
<S>                                                                                     <C>         <C>
INCOME STATEMENT DATA:
Total revenues and other............................................................... $  260,906  $  229,944
Expenses:
  Operating............................................................................    149,804     136,576
  Selling, general and administrative..................................................     34,671      20,736
  Depreciation and amortization........................................................     24,376      17,403
  Leasing expense......................................................................     22,928      15,288
  Interest expense.....................................................................      8,262       2,986
  Distributions on mandatorily redeemable convertible preferred securities.............      1,593       1,593
  Foreign currency translation.........................................................     12,681         155
  Change in fair value of derivative financial instruments.............................     (2,010)      2,992
  Other................................................................................        211
                                                                                        ----------  ----------
   Total expenses......................................................................    252,516     197,729
                                                                                        ----------  ----------
Income before income taxes.............................................................      8,390      32,215
Provision for income taxes.............................................................      3,356      12,242
                                                                                        ----------  ----------
Net income before cumulative effect of accounting change...............................      5,034      19,973
Cumulative effect of accounting change for derivative instruments, net of tax..........                   (164)
                                                                                        ----------  ----------
Net income.............................................................................      5,034      19,809

Other comprehensive income (loss), net of tax:
  Change in fair value of derivative instruments.......................................      1,959
  Foreign currency translation adjustment..............................................          4         (27)
                                                                                        ----------  ----------
Comprehensive income................................................................... $    6,997  $   19,782
                                                                                        ==========  ==========
Diluted net income per share:
  Net income before cumulative effect of accounting change............................. $    5,034  $   19,973
  Distributions on mandatorily redeemable convertible preferred securities, net of tax.                  1,036
  Cumulative effect of accounting change for derivative instruments, net of tax........                   (164)
                                                                                        ----------  ----------
  Net income for purposes of computing diluted net income per share.................... $    5,034  $   20,845
                                                                                        ==========  ==========
Weighted average common and common equivalent shares:
  Basic................................................................................     79,195      66,869
                                                                                        ----------  ----------
  Diluted..............................................................................     82,190      75,904
                                                                                        ----------  ----------
Earnings per common share:
  Basic................................................................................ $     0.06  $     0.30
                                                                                        ==========  ==========
  Diluted.............................................................................. $     0.06  $     0.27
                                                                                        ==========  ==========
OTHER DATA:
  EBITDAR(5)........................................................................... $   65,549  $   69,485
  Ratio of earnings to fixed charges(6)................................................        1.1x        2.5x
CASH FLOWS PROVIDED BY(USED IN):
  Operating activities................................................................. $  (42,410) $   19,588
  Investing activities.................................................................    (47,248)   (124,537)
  Financing activities.................................................................     71,205     159,078
BALANCE SHEET DATA (END OF PERIOD):
  Working capital...................................................................... $  306,091  $  275,824
  Net property, plant and equipment....................................................  1,179,498     707,779
  Total assets.........................................................................  2,270,246   1,523,801
  Long-term debt, excluding current maturities.........................................    574,880     196,122
  Mandatorily redeemable convertible preferred securities..............................     86,250      86,250
  Common stockholders' equity..........................................................  1,051,377     775,023
</TABLE>


                                      49

<PAGE>

--------

(1) Substantially all of Hanover's assets and operations are owned or conducted
    by HCLP. To the extent there are differences between the selected
    consolidated financial data for Hanover and the selected consolidated
    financial data for HCLP, these arise due to Hanover's mandatorily
    redeemable convertible preferred securities, Hanover's 4.75% convertible
    senior notes due 2008 and Hanover's outstanding common stock. The following
    line items would be different with respect to HCLP's selected consolidated
    financial data, compared to Hanover's selected consolidated financial data
    presented above. Earnings per share data computations are applicable to
    Hanover only as HCLP is a limited partnership.



<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                         ------------------------------------------------------------------
                                         Pro Forma
                                           2001        2001      2000 (d)      1999       1998       1997
                                         ---------  ----------  ----------  ---------  --------   ---------
                                                                   (in thousands)
<S>                                      <C>        <C>         <C>         <C>        <C>        <C>
Net income (a)..........................  $ 82,731  $   81,429  $   55,164  $  40,618  $ 30,377   $  17,642
OTHER DATA:
  Ratio of earnings to fixed charges(6).       2.1x        2.3x        2.5x       2.9x       3.7x       3.7x
CASH FLOWS PROVIDED BY
  (USED IN):
  Operating activities..................            $  162,861  $   40,154   $ 75,757  $ 31,909   $  32,219
  Financing activities..................               298,478      69,093     10,683   (10,090)    129,510
BALANCE SHEET DATA (END OF
 PERIOD):
  Working capital.......................            $  278,859  $  285,624  $ 108,245  $113,264   $  58,027
  Total assets..........................             2,266,404   1,249,848    756,587   624,737     506,452
  Long-term debt, excluding current
    maturities (b)......................               312,260     110,935     69,681   156,943     158,838
  Mandatorily redeemable convertible
   preferred securities (c).............
  Partners' equity......................             1,316,262     714,968    454,729   325,463     287,028
</TABLE>



<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                    March 31,
                                                                             ----------------------
                                                                                2002      2001 (d)
                                                                             ----------  ----------
                                                                                 (in thousands)
                                                                                   (unaudited)
<S>                                                                          <C>         <C>
       Net income (a)....................................................... $    7,498  $   20,952
       OTHER DATA:
         Ratio of earnings to fixed charges(5)..............................        1.2x        2.8x
       CASH FLOWS PROVIDED BY (USED IN):
         Operating activities............................................... $  (35,974) $   21,261
         Investing activities...............................................    (47,248)   (124,537)
         Financing activities...............................................     64,759     157,405
       BALANCE SHEET DATA (END OF PERIOD):
         Working Capital.................................................... $  306,435  $  376,033
         Total assets.......................................................  2,263,575   1,521,213
         Long-term debt, excluding current maturities (b)...................    382,880       9,882
         Mandatorily redeemable convertible preferred securities (c)........
         Partners' equity...................................................  1,313,797   1,042,136
</TABLE>



   -----



   (a) Includes the adjustment to remove the distributions on mandatorily
       redeemable convertible preferred securities, net of tax, and, for the
       2002 and 2001 periods, interest on and amortization of financing costs
       associated with the 4.75% convertible senior notes due 2008, net of tax,
       both of which are obligations of Hanover but not HCLP.


   (b) Includes the adjustment to remove the 4.75% convertible senior notes due
       2008, which are obligations of Hanover but not HCLP.


   (c) Mandatorily redeemable convertible preferred securities are obligations
       of Hanover but not HCLP.


   (d) In conjunction with a review of our joint ventures and other
       transactions conducted by our management and Board of Directors in early
       2002, HCLP determined to restate its financial statements for the year
       ended December 31, 2000 and each of the quarters in the nine months
       ended September 30, 2001. The net effect of this restatement was as
       follows: (i) a decrease in revenues of $37,748,000, from $603,829,000 to
       $566,081,000; (ii) a decrease in income before taxes of $11,999,000 from
       $99,839,000 to $87,840,000; and (iii) a decrease in net income of
       $7,535,000, from $62,699,000 to $55,164,000.


                                      50

<PAGE>


       The net effect of this restatement on HCLP for the three months ended
       March 31, 2001 was as follows: (i) an increase in revenues of
       $10,025,000, from $219,919,000 to $229,944,000; (ii) an increase in
       income before taxes of $1,903,000, from $32,155,000 to $34,058,000; and
       (iii) an increase in net income of $1,180,000, from $19,772,00 to
       $20,952,000.





(2) In June 2001, the Financial Accounting Standards Board issued Statement of
    Financial Accounting Standards ("SFAS") 142, Goodwill and Other Intangible
    Assets. Under SFAS 142, amortization of goodwill to earnings is
    discontinued. However, goodwill will be reviewed for impairment annually or
    whenever events indicate impairment may have occurred. SFAS 142 was
    effective for Hanover and HCLP on January 1, 2002. Under the transition
    provisions of SFAS 142, goodwill acquired in a business combination for
    which the acquisition date is after June 30, 2001 shall not be amortized.
    Because the POI Acquisition was consummated after June 30, 2001, the
    goodwill recognized in our consolidated financial statements related to the
    POI Acquisition has not been amortized in our pro forma combined condensed
    statements of operations. The goodwill related to business combinations
    completed before June 30, 2001 was amortized in the pro forma combined
    condensed statements of operations because Hanover and HCLP had not adopted
    SFAS 142 prior to January 1, 2002.



(3) In conjunction with a review of our joint ventures and other transactions
    conducted by our management and Board of Directors in early 2002, the
    Company determined to restate its financial statements for the year ended
    December 31, 2000 and each of the quarters in the nine months ended
    September 30, 2001. The net effect of this restatement for the year ended
    December 31, 2000 was as follows: (i) a decrease in revenues of
    $37,748,000, from $603,829,000 to $566,081,000; (ii) a decrease in income
    before taxes of $11,999,000, from $93,470,000 to $81,471,000; (iii) a
    decrease in net income of $7,535,000, from $58,699,000 to $51,164,000; and
    (iv) a decrease in earnings per common share of $0.12 basic and $0.11
    diluted. The net effect of this restatement on Hanover for the three months
    ended March 31, 2001 was as follows: (i) an increase in revenues of
    $10,025,000, from $219,919,000 to $229,944,000; (ii) an increase in income
    before taxes of $1,903,000, from $30,312,000 to $32,215,000; (iii) an
    increase in net income of $1,180,000, from $18,629,000 to $19,809,000; and
    (iv) an increase in earnings per common share of $0.02 basic and $0.01
    diluted for the three months ended March 31, 2001.



(4) In June 2000, we completed a 2-for-1 stock split effected in the form of a
    100% stock dividend. All weighted average and common equivalent shares
    information have been restated for all periods presented to reflect this
    stock split.



(5) EBITDAR consists of the sum of consolidated net income before interest
    expense, leasing expense, distributions on mandatorily redeemable
    convertible preferred securities, income tax, and depreciation and
    amortization. We believe that EBITDAR is a commonly used measure of
    financial performance for valuing companies in the compression industry.
    Additionally, since EBITDAR is a basic source of funds not only for growth
    but to service indebtedness, lenders in the private and public debt markets
    use EBITDAR as a primary determinant of borrowing capacity. EBITDAR should
    not be considered as an alternative performance measure prescribed by
    generally accepted accounting principles.



(6) For purposes of computing the ratio of earnings to fixed charges:
    "earnings" consist of income before taxes plus fixed charges and "fixed
    charges" consist of interest expense (including amortization of debt
    discount and expense), leasing expense and the estimated interest factor
    attributable to rentals.


                                      51

<PAGE>

                     SELECTED HISTORICAL FINANCIAL DATA OF
                         HANOVER EQUIPMENT TRUST 2001B


   In the table below, we have provided you with selected historical financial
data for the Issuer. The historical financial data were derived from the
Issuer's audited financial statements as of and for the three months ended
March 31, 2002 and as of December 31, 2001 and for the period from August 16,
2001 (inception) to December 31, 2001. The Issuer was organized under the laws
of the State of Delaware and commenced business on August 16, 2001 solely for
the purpose of (1) issuing the old notes and the new notes, (2) executing,
delivering and performing the operative documents to which it is a party and
(3) using the proceeds from the issuance of the old notes and the other
financing transactions to purchase the Equipment.


   The information in this section should be read along with the Issuer's
financial statements, accompanying notes and other financial information
included in this prospectus.


<TABLE>
<CAPTION>
                                                                  As of March 31, 2002   As of December 31, 2001
                                                                   and for the Three     and for the Period from
                                                                      Months Ended     August 16, 2001 (Inception)
                                                                     March 31, 2002       to December 31, 2001
                                                                  -------------------- ---------------------------
                                                                                   (in thousands)
<S>                                                               <C>                  <C>
OPERATING STATEMENT DATA:
Total revenues and other.........................................       $  6,390                $   7,911
Expenses:
   Interest expense on rental equipment..........................          5,901                    7,352
                                                                        --------                ---------
       Excess rental revenue over interest expense on rental
         equipment...............................................            489                      559
Operating expense................................................            293                      269
                                                                        --------                ---------
Net income.......................................................       $    196                $     290
                                                                        ========                =========
OTHER DATA:
Ratio of earnings to fixed charges...............................            1.0x                     1.0x

BALANCE SHEET DATA (END OF PERIOD):
Rental equipment.................................................       $257,750                $ 257,750
Total assets.....................................................        260,252                  265,602
8.75% senior secured notes due 2011..............................        250,000                  250,000
Certificate holder's equity......................................          7,750                    7,750
</TABLE>

--------



                                      52

<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                         OF HANOVER COMPRESSOR COMPANY
                  AND HANOVER COMPRESSION LIMITED PARTNERSHIP

   Management's discussion and analysis of the financial condition and results
of operations of Hanover Compressor Company and its subsidiaries (including
Hanover Compression Limited Partnership) should be read in conjunction with
Hanover's and HCLP's consolidated financial statements and notes related
thereto included or incorporated by reference in this prospectus. Substantially
all of Hanover's assets and operations are owned or conducted by HCLP. To the
extent there are differences between the consolidated financial data for
Hanover and the consolidated financial data for HCLP, these arise due to
Hanover's mandatorily redeemable convertible preferred securities, Hanover's
4.75% convertible senior notes due 2008 and Hanover's outstanding common stock.

                          Hanover Compressor Company


   Hanover Compressor Company, through its indirect wholly owned subsidiary
Hanover Compression Limited Partnership and its subsidiaries, is a leading
provider of a broad array of natural gas compression, gas handling and related
services in the United States and select international markets. Founded in 1990
and publicly held since 1997, we operate the largest compressor rental fleet in
the United States, in terms of horsepower, in the gas compression industry and
provide services on a rental, contract compression, maintenance and acquisition
leaseback basis. In conjunction with our maintenance business, we have
developed our parts and service business to provide solutions to customers that
own their own compression equipment but want to outsource their operations. Our
compression services are complemented by our compressor and oil and gas
production equipment fabrication operations and gas processing and treating,
gas measurement and power generation services, which broaden our customer
relationships both domestically and internationally. Our products and services
are essential to the production, gathering, processing, transportation and
storage of natural gas and are provided primarily to independent and major
producers and distributors of natural gas.


   The Company has grown through internal growth and acquisitions. For 2002,
the Company plans to reduce its capital spending and focus on completing the
process of integrating recent acquisitions into its operations.



   In August 2001, we acquired the gas compression business of Schlumberger
(including Production Operators Corporation and related assets) for total
consideration of $761 million in cash, Hanover common stock and indebtedness,
subject to certain post-closing adjustments pursuant to the acquisition
agreement that to date have resulted in an increase in the purchase price to
approximately $771 million due to an increase in net assets acquired. Under the
terms of the acquisition agreement, Schlumberger received approximately $270
million in cash (excluding the amounts paid for the increase in net assets),
$150 million in a long-term subordinated note and approximately 8,708,000
shares of Hanover common stock, or approximately 11% of the outstanding shares
of Hanover common stock, which are required to be held by Schlumberger for at
least three years following the closing date. The ultimate number of shares
issued under the acquisition agreement was determined based on the nominal
value of $283 million divided by the 30 day average closing price of Hanover
common stock as defined under the acquisition agreement and subject to a collar
of $41.50 and $32.50. The estimated fair value of the stock issued was $212.5
million, based on the market value of the shares at the time the number of
shares issued was determined reduced by an estimated 20% discount due to the
restrictions on the stock's marketability. In addition, we agreed in the
acquisition agreement to make a payment of $58 million upon the completion of a
financing (which payment would be funded by the financing) of a South American
joint venture in which we acquired a 30.0% interest from Schlumberger, provided
that the financing must be non-recourse to Hanover. At December 31, 2001,
interest began to accrue on this $58 million obligation at the prime rate. If
the joint venture fails to execute its financing or such financing fails to be
non-recourse to Hanover, in either case, on or before December 31, 2002, we
will have the right to put our interest in the joint venture back to
Schlumberger in exchange for a return of the purchase price allocated to the
joint venture, plus the net amount of any capital contributions by Hanover to
the joint venture. Our right to exercise the put expires on January 31, 2003.
As of the date hereof, the participants in the joint venture and certain
financial institutions are in negotiations with respect to the financing. We
anticipate that the financing will be completed by December 31, 2002 and will
yield


                                      53

<PAGE>


proceeds to the joint venture that will be sufficient to make the required
payment to Schlumberger. The POI Acquisition was accounted for as a purchase
and is included in our financial statements commencing on September 1, 2001.





   We recorded approximately $67 million in goodwill related to the acquisition
of POI which, in accordance with the transition provisions of SFAS 142 will not
be amortized. In addition, we recorded $8.2 million in estimated value of
identifiable intangible assets. The purchase price is subject to certain
post-closing adjustments, including a contingent payment of up to $58 million
by us to Schlumberger, a net worth adjustment and additional payments which are
based on the realization of certain tax benefits by us over the next 15 years.



   In March 2001, we purchased OEC in an all-stock transaction for
approximately $101.8 million, including the assumption and payment of
approximately $64.6 million of OEC indebtedness. We paid an aggregate of
approximately 1,146,000 shares of Hanover common stock to stockholders of OEC.
The acquisition was accounted for under the purchase method of accounting and
is included in our financial statements commencing in April 2001.



   In September 2000, we acquired the compression services division of
Dresser-Rand Company for $177 million in cash and common stock, subject to
certain post-closing adjustments pursuant to the acquisition agreement which to
date have resulted in an increase in the purchase price to approximately $199
million due to increases in net assets acquired. In July 2000, we acquired
PAMCO Services International for approximately $58 million in cash and notes.
In June 2000, we acquired Applied Process Solutions, Inc. for approximately
2,303,000 newly issued shares of our common stock. These acquisitions were
included in the results of operations from their respective acquisition dates.



   We completed a two-for-one stock split effected in the form of a 100% stock
dividend in June 2000. Accordingly, common stock, additional paid-in capital
and all earnings per share information have been restated for all periods
presented.



   In addition, in early 2002 in conjunction with a review of our joint
ventures and other transactions, we determined to restate our financial
statements for the year ended December 31, 2000 and each of the quarters in the
nine months ended September 30, 2001. Accordingly, revenues, income before
taxes, net income and earnings per share have been restated for the year ended
December 31, 2000 and the three months ended March 31, 2001.


                                      54

<PAGE>




   The following table summarizes revenues, expenses and gross profit
percentages for each of our business segments (dollars in millions):



<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                          March 31,        Year Ended December 31,
                                                        ------------------ ----------------------
                                                         2002      2001      2001     2000   1999
                                                         -------   ------  --------  ------ ------
<S>                                                     <C>       <C>      <C>       <C>    <C>
Revenues:
   Rentals--Domestic...................................  $ 86.1   $ 53.7   $  269.9  $173.2 $136.5
   Rentals--International..............................    42.7     26.1      130.9    81.3   56.2
   Parts, services and used equipment..................    67.6     50.3      251.8   132.2   42.5
   Compressor fabrication..............................    26.1     54.7      223.5    90.3   52.5
   Production and processing equipment fabrication.....    33.1     41.6      184.0    79.1   28.0
   Equity in income of non-consolidated affiliates and
     other.............................................     5.3      3.5       18.1    10.0    7.5
                                                         -------   ------  --------  ------ ------
       Total...........................................  $260.9   $229.9   $1,078.2  $566.1 $323.2
                                                         =======   ======  ========  ====== ======
Expenses:
   Rentals--Domestic...................................  $ 29.9   $ 17.3   $   95.2  $ 60.3 $ 46.2
   Rentals--International..............................    12.8      9.4       45.8    27.7   18.8
   Parts, services and used equipment..................    56.2     29.8      172.7    89.1   27.9
   Compressor fabrication..............................    22.4     46.3      188.1    76.8   43.7
   Production and processing equipment fabrication.....    28.5     33.8      147.8    62.7   20.8
                                                         -------   ------  --------  ------ ------
       Total...........................................  $149.8   $136.6   $  649.6  $316.6 $157.4
                                                         =======   ======  ========  ====== ======
Gross profit percentage:
   Rentals--Domestic...................................   65.3%    67.7%      64.7%   65.2%  66.1%
   Rentals--International..............................   70.0%    64.2%      65.0%   66.0%  66.6%
   Parts, services and used equipment..................   16.9%    40.7%      31.4%   32.6%  34.3%
   Compressor fabrication..............................   14.0%    15.4%      15.8%   15.0%  16.8%
   Production and processing equipment fabrication.....   13.9%    18.9%      19.7%   20.8%  25.7%
</TABLE>





Critical Accounting Policies and Estimates



   This discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates and accounting
policies, including those related to bad debts, inventories, fixed assets,
investments, intangible assets, income taxes, warranty obligations, sale and
leaseback transactions, revenue recognition and contingencies and litigation.



   We base our estimates on historical experience and on other assumptions that
we believe are reasonable under the circumstances. The results of this process
form the basis of our judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions and
these differences can be material to our financial condition, results of
operations and liquidity.



Allowances and Reserves



   We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of a customer deteriorates, resulting in an impairment of its ability
to make payments, additional allowances may be required.



   We write down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and


                                      55

<PAGE>


market conditions. If actual market conditions are less favorable than those
expected by management, additional inventory write-downs may be required.



Long Lived Assets and Investments



   We review for the impairment of long-lived assets, including property, plant
and equipment, goodwill, intangibles and investments in non-consolidated
affiliates whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss exists
when estimated undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than its carrying amount. The
impairment loss recognized represents the excess of the asset's carrying value
as compared to its estimated fair market value and is charged to the period in
which the impairment occurred. In addition, we capitalize major improvements
that we believe extend the useful life of an asset. Repairs and maintenance are
expensed as incurred. Interest is capitalized during the fabrication period of
compression equipment and facilities that are for use in our rental operations.
The capitalized interest is recorded as part of the basis of the asset to which
it relates and is amortized over the asset's estimated useful life.



   We hold minority interests in companies having operations or technology in
areas that relate to our business, one of which is publicly traded and may
experience volatile share prices. We record an investment impairment charge
when we believe an investment has experienced a decline in value that is other
than temporary. Future adverse changes in market conditions or poor operating
results of underlying investments could result in losses or an inability to
recover the carrying value of the investments that may not be reflected in an
investment's current carrying value, thereby possibly requiring an impairment
charge in the future.



Tax Assets



   We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, should we determine that we
would not be able to realize all or part of our deferred tax assets in the
future, an adjustment to the deferred tax asset may need to be charged to
income in the period such determination is made.



Sale and Leaseback Transactions



   Since 1998, we have entered into five sale and leaseback transactions of
compression equipment with special purpose entities. Sale and leaseback
transactions of compression equipment are evaluated for lease classification in
accordance with Statement of Financial Accounting Standards No. 13, Accounting
for Leases. In accordance with generally accepted accounting principles, these
special purpose entities are not included in our consolidated financial
statements when the owners of the special purpose entities have made a
substantial residual equity investment of at least three percent of the total
capital of the entity that is at risk during the entire term of the lease.
Generally accepted accounting principles requires us to:



    .  estimate the remaining life of the asset at lease inception;



    .  estimate the fair market value of the asset at lease inception;



    .  estimate the leased equipment's residual value at the end of the lease;



    .  estimate certain costs to be incurred by us in connection with the lease;



    .  estimate the present value of the lease payments under the lease; and



    .  confirm that the substantial residual equity investment of at least
       three percent of the total capital of the entity continues to be at risk
       during the entire term of the lease.



   If these estimates were materially incorrect, we could be required to
include the special purpose entities and the related compression equipment and
debt in our financial statements. We believe that our estimates were


                                      56

<PAGE>


correct; however, if we were required to consolidate the special purpose
entities as of March 31, 2002, we would add approximately $1,031 million in
compressor equipment and approximately $1,140 million in debt to our balance
sheet and we would reverse $109 million of the deferred gains which were
recorded on our balance sheet as a result of the sale and leaseback
transactions.



   In addition, because we sold the compressors to the special purpose
entities, our depreciation expense was reduced by approximately $12 million and
$11 million for the three months ended March 31, 2002 and 2001, respectively,
and by approximately $43 million, $31 million, and $20 million for the years
ended December 31, 2001, 2000 and 1999, respectively. We also believe that
these transactions had the effect of decreasing interest expense. However, we
believe the decreased interest expense and the increased leasing expense are
not directly comparable because the duration of our operating leases are longer
than the maturity of our revolving line of credit.



   See "--Leasing Transactions" for more information on these sale and
leaseback transactions.



Revenue Recognition--Percentage of Completion Accounting



   We recognize revenue and profit for our fabrication operations as work
progresses on long-term, fixed price contracts using the
percentage-of-completion method, which relies on estimates of total expected
contract revenue and costs. We follow this method since reasonably dependable
estimates of the revenue and costs applicable to various stages of a contract
can be made and since the projects usually last several months. Recognized
revenues and profit are subject to revisions as the contract progresses to
completion. Revisions in profit estimates are charged to income in the period
in which the facts that give rise to the revision become known. Examples of
facts that would give rise to revisions include variances in the actual or
revisions to the estimated costs of components, labor or other fabrication
cost. The average duration of these projects is four to six months. As of March
31, 2002, we had recognized 148.5 million of revenue, 111.0 million in billings
and 23.7 million of gross profit based on percentage-of-completion accounting
for projects which were not yet complete.



   We estimate percentage-of-completion for compressor and processing equipment
fabrication on a direct labor hour-to-total labor hour basis. This requires
management to estimate the number of total labor hours required for each
project and to estimate the profit expected on the project. Production
equipment fabrication percentage-of-completion is estimated using the
cost-to-total cost basis. This requires us to estimate the number of total
costs (labor and materials) required to complete each project.



   Since we have many fabrication projects in process at any given time, we do
not believe that materially different results would be achieved if different
estimates, assumptions, or conditions were used for each project.



Contingencies and Litigation



   In the ordinary course of business we are involved in various pending or
threatened legal actions. While we are unable to predict the ultimate outcome
of these actions, we are required to record a loss during the period in which
we, based on our experience, believe a contingency is likely to result in a
financial loss to us.



Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001.



  Revenues



   Our total revenues increased by $31.0 million, or 14%, to $260.9 million
during the three months ended March 31, 2002 from $229.9 million during the
three months ended March 31, 2001. The increase resulted primarily from growth
of our natural gas compressor rental fleet and business acquisitions completed
during 2001.


                                      57

<PAGE>


   Revenues from rentals increased by $49.0 million, or 61%, to $128.9 million
during the three months ended March 31, 2002 from $79.9 million during the
three months ended March 31, 2001. Domestic revenues from rentals increased by
$32.4 million, or 60%, to $86.1 million during the three months ended March 31,
2002 from $53.7 million during the three months ended March 31, 2001.
International rental revenues increased by $16.6 million, or 64%, to $42.7
million during the three months ended March 31, 2002 from $26.1 million during
the three months ended March 31, 2001. The increase in both domestic and
international rental revenue resulted primarily from business acquisitions
completed during 2001 and from expansion of our rental fleet. During 2001, we
completed two significant acquisitions: (1) in March 2001, we acquired OEC
Compression Corporation which increased our rental fleet by approximately
175,000 horsepower, and (2) in August 2001, we acquired Production Operators
Corporation which increased our rental fleet by approximately 860,000
horsepower. At March 31, 2002, the compressor rental fleet consisted of
approximately 3,554,000 horsepower, a 46% increase over the 2,429,000
horsepower in the rental fleet at March 31, 2001. Domestic horsepower in the
rental fleet increased by 36% to 2,735,000 horsepower at March 31, 2002 from
approximately 2,009,000 horsepower at March 31, 2001. In addition,
international horsepower increased by 95% to 819,000 horsepower at March 31,
2002 from approximately 420,000 horsepower at March 31, 2001.



   Revenue from parts, service and used equipment increased by $17.3 million,
or 34%, to $67.6 million during the three months ended March 31, 2002 from
$50.3 million during the three months ended March 31, 2001. This increase was
due to a $26.5 million gas plant sale transaction in 2002. The 2001 period
included a $12.0 million compressor sale transaction.



   Revenues from compressor fabrication decreased by $28.6 million, or 52%, to
$26.1 million during the three months ended March 31, 2002 from $54.7 million
during the three months ended March 31, 2001. During the three months ended
March 31, 2002, an aggregate of approximately 41,000 horsepower of compression
equipment was fabricated and sold compared to approximately 89,000 horsepower
fabricated and sold during the three months ended March 31, 2001. In addition,
approximately 57,000 horsepower was fabricated and placed in the rental fleet
during the three months ended March 31, 2002 compared to 46,000 in the three
months ended March 31, 2001.



   Revenues from production and processing equipment fabrication decreased by
$8.5 million, or 20%, to $33.1 million during the three months ended March 31,
2002 from $41.6 million during the three months ended March 31, 2001. The
decrease in sales of production and processing equipment and compressor
fabrication was due primarily to the lower capital spending by customers as a
consequence of recent South American political events and domestic and economic
market conditions. The average wellhead natural gas price decreased to $2.34
per mcf in the first quarter of 2002 from $6.35 per mcf in the first quarter of
2001.



   Equity in income of non-consolidated affiliates increased by $4.1 million,
or 558%, to $4.9 million during the three months ended March 31, 2002, from $.8
million during the three months ended March 31, 2001. This increase is
primarily due to our acquisition of POI in August of 2001, which included
interests in three joint venture projects in South America. These joint
ventures contributed $5.3 million in equity earnings for the first quarter of
2002.



  Expenses



   Operating expenses of the rental segments increased by $16.0 million, or
60%, to $42.7 million during the three months ended March 31, 2002 from $26.7
million during the three months ended March 31, 2001. The increase resulted
primarily from the corresponding 61% increase in revenues from rentals over the
corresponding period in 2001. The gross profit percentage from rentals was 67%
during the three months ended March 31, 2002 and 2001.



   Operating expenses of parts, service and used equipment increased by $26.4
million, or 88%, to $56.2 million, which related to the 34% increase in parts,
service and used equipment revenue and a decrease in


                                      58

<PAGE>


margin. The gross profit margin from parts, service and used equipment was 17%
during the three months ended March 31, 2002 and 41% during the three months
ended March 31, 2001. Approximately 6% of the decrease in gross profit margin
for parts, service and used equipment was due to a low margin gas plant sale
transaction. The remainder of the decrease was due to lower sales levels
without a corresponding decrease in overhead and the impact of weaker market
conditions on sales margins. Operating expenses of compressor fabrication
decreased by $23.9 million, or 52%, to $22.4 million during the three months
ended March 31, 2002 from $46.3 million during the three months ended March 31,
2001 commensurate with the corresponding decrease in compressor fabrication
revenue. The gross profit margin on compression fabrication was 14% during the
three months ended March 31, 2002 and 15% during the three months ended March
31, 2001. The operating expenses attributable to production equipment
fabrication decreased by $5.3 million, or 16%, to $28.5 million during the
three months ended March 31, 2002 from $33.8 million during the three months
ended March 31, 2001. The gross profit margin attributable to production and
processing equipment fabrication was 14% during the three months ended March
31, 2002 and 19% during the three months ended March 31, 2001. The decrease in
gross profit margin for production and processing equipment fabrication was
attributable to lower sales levels without a corresponding decrease in overhead
and the impact of weaker market conditions on sales margins.



   Selling, general and administrative expenses increased $14.0 million, or
67%, to $34.7 million during the three months ended March 31, 2002 from $20.7
million during the three months ended March 31, 2001. The increase is
attributable to increased personnel and other administrative and selling
expenses associated with increased activity in our business segments resulting
from the acquisitions completed during 2001. In addition, we recorded
approximately $3.4 million in additional legal and accounting costs, a
significant portion of which was associated with the our Board of Directors
review of certain transactions, the subsequent restatement of financial results
and the Securities and Exchange Commission investigation.



   We believe that earnings before interest, leasing expense, distributions on
mandatorily redeemable convertible preferred securities, income taxes,
depreciation and amortization (EBITDAR) is a standard measure of financial
performance used for valuing companies in the compression industry. EBITDAR is
a useful common yardstick as it measures the capacity of companies to generate
cash without reference to how they are capitalized, how they account for
significant non-cash charges for depreciation and amortization associated with
assets used in the business (the bulk of which are long-lived assets in the
compression industry), or what their tax attributes may be. Additionally, since
EBITDAR is a basic source of funds not only for growth but to service
indebtedness, lenders in both the private and public debt markets use EBITDAR
as a primary determinant of borrowing capacity. EBITDAR for the three months
ended March 31, 2002 decreased 6% to $65.5 million from $69.5 million for the
three months ended March 31, 2001 primarily due to foreign currency translation
charges (discussed below). EBITDAR should not be considered in isolation from,
or as a substitute for, net income, cash flows from operating activities or
other consolidated income or cash flow data prepared in accordance with
generally accepted accounting principles.



   Depreciation and amortization increased by $7.0 million to $24.4 million
during the three months ended March 31, 2002 compared to $17.4 million during
the three months ended March 31, 2001. The increase in depreciation was due to
the additions to the rental fleet, partially offset by the change in estimated
lives of certain compressors.



   After a review of the estimated economic lives of our compression fleet, on
July 1, 2001 we changed our estimate of the useful life of certain compression
equipment to range from 15 to 30 years instead of a uniform 15 year depreciable
life. Our new estimated lives are based upon our experience, maintenance
program and the different types of compressors presently in our rental fleet,
and we believe our new estimate reflects the economic useful lives of the
compressors more accurately than a uniform useful life applied to all
compressors regardless of their age or performance characteristics. The effect
of this change in estimate on the three months ended March 31, 2002 was a
decrease in depreciation expense of approximately $3.3 million and an increase
in net income of approximately $2.0 million ($0.02 per share).


                                      59

<PAGE>


   In addition, because we sold compressors in sale leaseback transactions,
depreciation expense was reduced by approximately $12 million in the three
months ended March 31, 2002 compared to approximately $11 million in the three
months ended March 31, 2001. The increase in depreciation was also offset by
the decrease in goodwill amortization due to our adoption of Financial
Accounting Standard ("SFAS") 142. Under SFAS 142, amortization of goodwill over
an estimated useful life is discontinued. Instead, goodwill amounts will be
subject to a fair-value-based annual impairment assessment. During the three
months ended March 31, 2001, approximately $2.5 million in goodwill
amortization was recorded.



   We incurred leasing expense of $22.9 million during the three months ended
March 31, 2002, compared to $15.3 million during the three months ended March
31, 2001. This increase was attributable to the equipment leases we entered
into in August 2001. In connection with these leases, we are obligated to
prepare registration statements and complete an exchange offer to enable the
holders of the notes issued by the lessors to exchange their notes for notes
which are registered under the Securities Act. Because the exchange offer has
not been completed, we are required to pay additional leasing expense in the
amount of approximately $105,600 per week until the exchange offer is
completed. The additional leasing expense began accruing on January 28, 2002.
In the three months ended March 31, 2002, we recorded additional leasing
expense of approximately $.9 million related to the registration and exchange
offering obligations.



   Interest expense increased by $5.3 million to $8.3 million during the three
months ended March 31, 2002 from $3.0 million for the three months ended March
31, 2001 due to higher levels of outstanding debt partly offset by lower
interest rates.



   Foreign currency translation expense for the three months ended March 31,
2002 was $12.7 million, compared to $.2 million for the three months ended
March 31, 2001. Foreign currency translation expense increased primarily due to
our operations in Argentina and Venezuela. In January 2002, Argentina devalued
its peso against the U.S. dollar and imposed significant restrictions on fund
transfers internally and outside the country. In addition, the Argentine
government enacted regulations to temporarily prohibit enforcement of contracts
with exchange rate-based purchase price adjustments. Instead, payment under
such contracts can either be made at an exchange rate negotiated by the parties
or, if no such agreement is reached, a preliminary payment may be made based on
a 1 dollar to 1 peso equivalent pending a final agreement. The Argentine
government also requires the parties to such contracts to renegotiate the price
terms within 180 business days of the devaluation. As a result, we are involved
in negotiations with our customers in Argentina, as mandated by the Argentine
government. During the three months ended March 31, 2002, we recorded an
exchange loss of approximately $11.7 million and $1.4 million for assets
exposed to currency translation in Argentina and Venezuela, respectively, and
recorded a translation gain of approximately $.4 million for all other
countries. We have renegotiated two of our eleven customer contracts in
Argentina and expect to renegotiate the remaining nine contracts before the end
of the third quarter. While we have not finalized negotiations with our
customers, we believe that the eventual settlements will partially mitigate the
unfavorable financial impact recorded in the first quarter of 2002. In
addition, our equity in income of non-consolidated affiliates was reduced by
approximately $1.4 million due to the change in exchange rates in Venezuela.



   The fair value of our derivative instruments (interest rate swaps) increased
during the three months ended March 31, 2002 by $2.0 million compared to a loss
in value of $3.0 million for the three months ended March 31, 2001. This
resulted from the recognition of an unrealized change in fair value of the
interest rate swaps which were not designated as cash flow hedges under SFAS
133.



  Income Taxes



   The provision for income taxes decreased by $8.8 million, or 73%, to $3.4
million during the three months ended March 31, 2002 from $12.2 million during
the three months ended March 31, 2001. The decrease resulted primarily from the
corresponding decrease in income before income taxes. The effective income tax
rates during the three months ended March 31, 2002 and 2001 were 40% and 38%,
respectively. The increase in effective


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<PAGE>


income tax rate reflects a 3% impact from projected increases due to income tax
on income from our minority owned foreign joint ventures and a 1% benefit from
the decrease in goodwill amortization in our financial statements due to the
adoption of SFAS 142.



  Net Income



   Net income decreased by $14.8 million, or 75%, to $5.0 million during the
three months ended March 31, 2002 from $19.8 million during the three months
ended March 31, 2001 for the reasons discussed above.





Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.


Revenues


   Our total revenues increased by $512.1 million, or 90%, to $1,078.2 million
during 2001 from $566.1 million during 2000. The increase in revenues resulted
from growth in horsepower of our natural gas compressor rental fleet, internal
growth in our fabrication and outsourcing businesses, which includes
compression, gas treating, process measurement and power generation, as well as
growth due to business acquisitions completed in 2001 and 2000.





   Revenues from rentals increased by $146.3 million, or 57%, to $400.8 million
during 2001 from $254.5   million during 2000. Domestic revenues from rentals
increased by $96.7 million, or 56%, to $269.9 million during 2001 from $173.2
million during 2000. International rental revenues increased by $49.6 million,
or 61%, to $130.9 million during 2001 from $81.3 million during 2000. The
increase in both domestic and international rental revenue resulted from
expansion of our rental fleet and business acquisitions completed in 2001 and
2000. At December 31, 2001, the compressor rental fleet consisted of
approximately 3,477,000 horsepower, a 62% increase over the 2,151,000
horsepower in the rental fleet at December 31, 2000. Domestically, the rental
fleet increased by 955,000 horsepower, or 55%, during 2001 and internationally
by 371,000 horsepower, or 90%.



   Revenue from parts, service and used equipment increased by $119.6 million,
or 90% to $251.8 million during 2001 from $132.2 million during 2000. This
increase is due in part to an increase in our marketing focus for this business
segment, as well as expansion of business activities through acquisitions.
Approximately 46% of the increase in parts, service and used equipment revenues
resulted from business acquisitions. Revenues from compressor fabrication
increased by $133.2 million, or 148%, to $223.5 million during 2001 from $90.3
million during 2000. Approximately 47% of this increase is due to the
acquisition of Dresser-Rand Company's compression service division in September
2000 and the POI Acquisition in August 2001. During 2001, an aggregate of
approximately 366,000 horsepower of compression equipment was fabricated and
sold compared to approximately 166,000 horsepower fabricated and sold during
2000. In addition, 220,000 horsepower was fabricated and placed in the rental
fleet during 2001 compared to 168,000 horsepower in 2000.



   Revenues from production and processing equipment fabrication increased by
$104.9 million, or 133%, to $184.0 million during 2001 from $79.1 million
during 2000. Of this increase, 48% is due to the acquisition of APSI during
June 2000 and the balance due to an improvement in market conditions in the
process equipment business compared to conditions which existed in 2000.



   Equity in income of non-consoidated affiliates increased $5.8 million, or
166%, to $9.3 million during 2001, from $3.5 million during 2000. This increase
is primarily due to our acquisition of POI, which included interests in three
joint venture projects in Venezuela. These joint ventures contributed $8.1
million in equity in income for 2001, which was partially offset by a decrease
in equity in income from Collicutt Hanover Mechanical Services which decreased
to a loss of $257,000 in 2001 from $786,000 in income in 2000.


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<PAGE>

Expenses


   Operating expenses of the rental segments increased by $53.0 million, or
60%, to $141.0 million during 2001 from $88.0 million during 2000. The increase
resulted primarily from the corresponding 57% increase in revenues from rentals
over 2000. The gross profit percentage from rentals was approximately 65%
during 2001 and 2000.



   Operating expenses of our parts, service and used equipment segment
increased by $83.6 million, or 94% to $172.7 million during 2001, compared to
$89.1 million in 2000, which relates to the 90% increase in parts, service and
used equipment revenue. The gross profit margin from parts, service and used
equipment was 31.4% during 2001 compared to 32.6% during 2000. Operating
expenses of compressor fabrication increased by $111.4 million, or 145%, to
$188.1 million during 2001 from $76.8 million during 2000, commensurate with
the corresponding increase in compressor fabrication revenue. The gross profit
margin on compression fabrication was 15.8% during 2001 and 15% during 2000.
The operating expenses attributable to production equipment fabrication
increased by $85.1 million, or 136%, to $147.8 million during 2001 from $62.7
million during 2000. The gross profit margin attributable to production and
processing equipment fabrication was 19.7% during 2001 and 20.8% during 2000.



   Selling, general and administrative expenses increased $46.4 million, or
85%, to $101.0 million during 2001 from $54.6 million during 2000. The increase
is attributable to increased personnel and other administrative and selling
expenses associated with business acquisitions completed during 2001 and 2000
as well as increased activity in our business segments.



   We believe that earnings before interest, leasing expense, distributions on
mandatorily redeemable convertible preferred securities, income taxes,
depreciation and amortization ("EBITDAR") is a commonly used measure of
financial performance for valuing companies in the compression industry.
EBITDAR is a useful yardstick as it measures the capacity of companies to
generate cash without reference to how they are capitalized, how they account
for significant non-cash charges for depreciation and amortization associated
with assets used in the business (the bulk of which are long-lived assets in
the compression industry), or what their tax attributes may be. Additionally,
because EBITDAR is a basic source of funds not only for growth but to service
indebtedness, lenders in both the private and public debt markets use EBITDAR
as a primary determinant of borrowing capacity. EBITDAR for 2001 increased 55%
to $302.3 million from $194.9 million for 2000, primarily due to the increase
in our revenue for reasons previously discussed. EBITDAR should not be
considered in isolation from, or a substitute for, net income, cash flows from
operating activities or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles.



   Depreciation and amortization increased by $37.7 million, or 71%, to $90.6
million during 2001 compared to $52.9 million during 2000. The increase in
depreciation was due to additions to the rental fleet which were partially
offset by an approximately $12 million decrease in depreciation as a result of
the sale of compression equipment into the equipment leases in March, August
and October 2000 and in August 2001. The increase in goodwill amortization of
approximately $6.5 million was due to additional goodwill recorded from
business acquisitions completed during 2001 and 2000.



   After a review of the estimated economic lives of our compression fleet, on
July 1, 2001 we changed our estimate of the useful life of certain compression
equipment to range from 15 to 30 years instead of a 15 year depreciable life.
Our new estimated lives are based upon our experience, maintenance program and
the different types of compressors presently in our rental fleet, rather than a
uniform estimated life applied to all compressors regardless of type or age,
and more accurately reflect the economic lives of the compressors. The effect
of this change in estimate on the year ended December 31, 2001 was a decrease
in depreciation expense of approximately $5 million and an increase in net
income of approximately $3.1 million ($0.04 per share). We anticipate this
change in estimated useful life will reduce future depreciation expense, based
on our depreciable assets at December 31, 2001, by approximately $16 million
per year.


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<PAGE>


   We incurred leasing expense of $70.4 million during 2001 compared to $45.5
million during 2000. The increase of $24.9 million resulted from the additional
equipment leases entered into in 2001 and 2000.



   Interest expense increased by $8.8 million to $17.5 million during 2001 from
$8.7 million for 2000. The increase in interest expense is due to higher levels
of outstanding debt partially offset by lower effective interest rates.





   Translation expense for the year ended December 31, 2001 was $6.7 million,
primarily due to the Company's operations in Argentina and Venezuela. Due to
the currency exposure in Argentina and Venezuela, the Company recorded an
exchange loss during 2001 of approximately $5.2 million and $1.2 million for
assets exposed to currency translation risk in these countries, respectively.



   Other expenses during 2001 were $18.6 million, which included a $2.8 million
bridge loan commitment fee associated with Hanover's recent acquisition of POI,
a $5.0 million write down of an investment in Aurion Technologies, Inc., an
$8.8 million recognition of an unrealized loss related to the change in fair
value of the interest rate swaps as required under SFAS 133 and $2.0 million in
other non-operating expenses.


Income Taxes

   The provision for income taxes increased by $14.3 million, or 47%, to $44.6
million during 2001 from $30.3 million during 2000. The increase resulted
primarily from the corresponding increase in income before income taxes. The
average effective income tax rates during 2001 and 2000 were 38.0% and 37.2%,
respectively.

Net Income


   Net income increased $21.4 million, or 42%, to $72.6 million during 2001
from $51.2 million during 2000 due to the increase in revenues and gross
profits discussed above.


Year Ended December 31, 2000 Compared to Year Ended December 31, 1999.

  Revenues


   Our total revenues increased by $242.9 million, or 75%, to $566.1 million
during 2000 from $323.2 million during 1999. The increase resulted from growth
of our natural gas compressor rental fleet and business acquisitions completed
during 2000.


   Revenues from rentals increased by $61.8 million, or 32%, to $254.5 million
during 2000 from $192.7 million during 1999. Domestic revenues from rentals
increased by $36.7 million, or 27%, to $173.2 million during 2000 from $136.5
million during 1999. International revenues from rentals increased by $25.1
million, or 45%, to $81.3 million during 2000 from $56.2 million during 1999.
At December 31, 2000 the compressor rental fleet consisted of approximately
2,151,000 horsepower, a 48% increase over the 1,458,000 horsepower in the
rental fleet at December 31, 1999. Domestically, the rental fleet increased by
560,000 horsepower, or 47%, during 2000 and internationally by 133,000
horsepower, or 48%. The increase in both domestic and international rental
revenues resulted primarily from expansion of our rental fleet.


   Revenues from parts, service and used equipment increased by $89.7 million,
or 211% to $132.2 million during 2000 from $42.5 million during 1999. This
increase is due primarily to increased marketing focus and partially from
expansion of business activities through recent acquisitions. Approximately 26%
of the increase in parts, service and used equipment revenues resulted from
business acquisitions. Revenues from compressor fabrication increased by $37.8
million, or 72%, to $90.3 million during 2000 from $52.5 million during 1999.
An aggregate of 166,000 horsepower was sold during 2000. In addition, 168,000
horsepower was fabricated and placed in the rental fleet during 2000. The
increase in horsepower produced during 2000 resulted from an increased demand
for compression equipment due to higher natural gas prices. The average
wellhead natural gas price increased from $2.19 per mcf in 1999 to $3.69 per
mcf for 2000.


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<PAGE>


   Revenues from production and processing equipment fabrication increased by
$51.1 million, or 182%, to $79.1 million during 2000 from $28.0 million during
1999. The increase in revenues from production equipment fabrication is due
primarily to the acquisition of Applied Process Solutions, Inc. in June 2000.





   Equity in income of non-consolidated affiliates increased by $2.3 million
during 2000 to $3.5 million from $1.2 million during 1999. This increase was
primarily due to our investment in Hanover Measurement Services Company, LP
which was formed in September 1999. In addition, during 2000 we recorded a
change in interest gain of $0.9 million resulting from a decrease in our
interest due to an unconsolidated subsidiary's stock offering to third parties.


Expenses


   Operating expenses of the rentals segments increased by $23.0 million, or
35% to $88.0 million during 2000 from $65.0 million during 1999. The increase
resulted primarily from the corresponding 32% increase in revenues from rentals
over the corresponding period in 1999. The gross profit percentage from rentals
was 65% during 2000 and 66% during 1999.



   Operating expenses of our parts, service and used equipment segment
increased $61.2 million, or 219% to $89.1 million during 2000 from $27.9
million during 1999, which relates to the 211% increase in parts and service
revenue. The gross profit percentage from parts, service and used equipment was
33% during 2000 and 34% during 1999. Operating expenses of compressor
fabrication increased by $33.1 million, or 76% to $76.8 million from $43.7
million during 1999. The gross profit margin on compression fabrication was 15%
during 2000 and 17% during 1999. The decrease in gross profit margin for
compression fabrication was attributable to the acquisition of the compression
services division of Dresser-Rand Company. Production and processing equipment
fabrication operating expenses increased by $41.9 million, or 201%, during 2000
to $62.7 million from $20.8 million during 1999. The gross profit margin
attributable to production and processing equipment fabrication decreased to
21% during 2000, from 26% during 1999. The decrease in gross profit margin for
production and processing equipment fabrication was attributable to the
acquisition of Applied Process Solutions, Inc. in June 2000, which has lower
gross margins than we have historically experienced.



   Selling, general and administrative expenses increased by $20.9 million, or
62% to $54.6 million during 2000. The increase is attributable to increased
personnel and other administrative and selling expenses associated with
business acquisitions completed in 2000 and the increase in operating activity
in our rentals business segments as described above.



   Depreciation and amortization expense increased by $15.5 million, or 42%
during 2000 to $52.9 million. The increase in depreciation from the additions
to the rental fleet and additional goodwill amortization of approximately $3.0
million from acquisitions was offset by an approximately $11.0 million decrease
in depreciation as a result of the equipment leases entered into in June 1999
and during 2000.



   Interest expense decreased by $0.1 million, or 1% during 2000 to $8.7
million. The decrease in interest expense was due in part to utilization of
proceeds from the equipment leases which was used to reduce indebtedness under
our credit facility and to the capitalization of interest expense on assets
that are under construction.



   We incurred compression equipment lease expense of $45.5 million during 2000
and $22.1 million during 1999. The increase is due to having a full year of
lease expense on the equipment lease entered into in June 1999 and the new
equipment leases entered into during 2000.


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<PAGE>

Income Taxes


   The provision for income taxes increased by $7.2 million, or 31%, to $30.3
million during 2000 from $23.1 million during 1999. The increase resulted
primarily from the corresponding increase in income before taxes. Our effective
income tax rate was approximately 37.2% during 2000 and 36.4% during 1999.


Net Income


   Net income increased $10.8 million, or 27%, to $51.2 million for 2000 from
$40.4 million in 1999 for the reasons discussed above.




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<PAGE>



                    Hanover Compression Limited Partnership

   Management's discussion and analysis of the financial condition and results
of operations of HCLP and its subsidiaries is identical to the discussion and
analysis presented above with respect to Hanover, except for the items
described below. Substantially all of Hanover's assets and operations are owned
or conducted by HCLP. To the extent there are differences between the
consolidated financial data for Hanover and the consolidated financial data for
HCLP, these arise due to Hanover's mandatorily redeemable convertible preferred
securities, Hanover's 4.75% convertible senior notes due 2008 and Hanover's
outstanding common stock.


Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001.



  Depreciation



   Depreciation and amortization increased by $6.7 million to $24.1 million
during the three months ended March 31, 2002 compared to $17.4 million during
the three months ended March 31, 2001. The increase in depreciation was due to
the additions to the rental fleet, partially offset by the change in estimated
lives of certain compressors.



   After a review of the estimated economic lives of our compression fleet, on
July 1, 2001 we changed our estimate of the useful life of certain compression
equipment to range from 15 to 30 years instead of a uniform 15 year depreciable
life. Our new estimated lives are based upon our experience, maintenance
program and the different types of compressors presently in our rental fleet,
and we believe our new estimate reflects the economic useful lives of the
compressors more accurately than a uniform useful life applied to all
compressors regardless of their age or performance characteristics. The effect
of this change in estimate on the three months ended March 31, 2002 was a
decrease in depreciation expense of approximately $3.3 million and an increase
in net income of approximately $2.0 million.



   In addition, because we sold compressors in sale leaseback transactions,
depreciation expense was reduced by approximately $12 million in the three
months ended March 31, 2002 compared to approximately $11 million in the three
months ended March 31, 2001. The increase in depreciation was also offset by
the decrease in goodwill amortization due to our adoption of SFAS 142. Under
SFAS 142, amortization of goodwill over an estimated useful life is
discontinued. Instead, goodwill amounts will be subject to a fair-value-based
annual impairment assessment. During the three months ended March 31, 2001,
approximately $2.5 million in goodwill amortization was recorded.



  Interest Expense



   Interest expense increased by $3.3 million to $6.0 million during the three
months ended March 31, 2002 from $2.7 million for the three months ended March
31, 2001 due to higher levels of outstanding debt partly offset by lower
interest rates.



  Income Taxes



   The provision for income taxes decreased by $7.9 million, or 158%, to $5.0
million during the three months ended March 31, 2002 from $12.9 million during
the three months ended March 31, 2001. The decrease resulted primarily from the
corresponding decrease in income before income taxes. The effective income tax
rates during the three months ended March 31, 2002 and 2001 were 40.0% and
38.0%, respectively. The increase in effective income tax rate reflects a 3%
impact from projected increases due to income tax on income from our minority
owned foreign joint ventures and a 1% benefit from the decrease in goodwill
amortization in our financial statements due to the adoption of SFAS 142.



  Net Income



   Net income decreased by $13.5 million, or 64%, to $7.5 million during the
three months ended March 31, 2002 from $21.0 million during the three months
ended March 31, 2001 for the reasons discussed above.


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<PAGE>


Year Ended December 31, 2001 Compared to Year ended December 31, 2000.




Depreciation




   Depreciation and amortization increased by $36.9 million, or 70%, to $89.8
million during 2001 compared to $52.9 million during 2000. The increase in
depreciation was due to the additions to the rental fleet which were partially
offset by an approximately $12 million decrease in depreciation as a result of
the sale of compression equipment into the equipment leases in March, August
and October 2000 and in August 2001. The increase in goodwill amortization of
approximately $6.5 million was due to additional goodwill recorded from
business acquisitions completed during 2001 and 2000.



   After a review of the estimated economic lives of our compression fleet, on
July 1, 2001 we changed our estimate of the useful life of certain compression
equipment to range from 15 to 30 years instead of a 15 year depreciable life.
Our new estimated lives are based upon our experience, maintenance program and
the different types of compressors presently in our rental fleet, rather than a
uniform estimated life applied to all compressors regardless of type or age,
and more accurately reflects the economic lives of the compressors. The effect
of this change in estimate on the year ended December 31, 2001 was a decrease
in depreciation expense of approximately $5 million and an increase in net
income of approximately $3.1 million. We anticipate this change in estimated
useful life will reduce future depreciation expense, based on our depreciable
assets as of December 31, 2001, by approximately $16 million per year.


Interest expense


   Interest expense increased by $1.7 million to $10.4 million during 2001 from
$8.7 million for 2000.


Income Taxes


   The provision for income taxes increased by $17.3 million, or 53%, to $50.0
million during 2001 from $32.7 million during 2000. The increase resulted
primarily from the corresponding increase in income before income taxes. The
average effective income tax rates during 2001 and 2000 were 38.0% and 37.2%,
respectively.


Net Income


   Net income increased $26.2 million, or 48%, to $81.4 million during 2001
from $55.2 million during 2000 due to the increase in revenues and gross
profits discussed above.


Year Ended December 31, 2000 Compared to Year Ended December 31, 1999.

Income Taxes


   The provision for income taxes increased by $9.5 million, or 41%, to $32.7
million during 2000 from $23.2 million during 1999. The increase resulted
primarily from the corresponding increase in income before taxes. Our effective
income tax rate was approximately 37.2% during 2000 and 36.4% during 1999. The
increase in the effective rate was primarily the result of increased income in
foreign tax jurisdictions.


Net Income


   Net income increased $14.6 million, or 36%, to $55.2 million for 2000 from
$40.6 million in 1999 for the reasons discussed above.




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<PAGE>


Leasing Transactions





   The sale of Equipment by Hanover and its subsidiaries to the Issuer,
together with the Issuer's lease of Equipment to HCLP, has a number of
advantages over other sources of capital presently available to us.
Specifically, Hanover believes sale and leaseback transactions (1) enable
Hanover to affordably extend the duration of its financing arrangements, (2)
reduce Hanover's cost of capital and (3) provide access to a source of capital
other than traditional bank financing.



   Prior to its first sale and leaseback transaction in 1998, Hanover financed
growth in compression assets by drawing down on its revolving line of credit
with a commercial bank. While highly flexible and well priced, the line of
credit represented a short term funding strategy to finance long term assets.
Sale and leaseback transactions can reduce refinancing risk by extending the
duration of our capital commitments.



   Sale and leaseback transactions also provide capital to us at a lower cost
compared to other sources presently available to us. Lenders to the trusts do
not require as high a rate of interest because their capital risk is mitigated
by a perfected, first priority security interest in the compression equipment,
as well as a residual value guarantee provided by us. This factor has the
corresponding effect of reducing the lease rate paid by Hanover. Based on its
periodic review of capital alternatives, we believe that the cost of its rent
payments in the sale and leaseback transactions has been 0.50% to 2.00% per
annum less than the cost of debt financing alternatives available to us at the
time we entered into these sale and leaseback transactions. Hanover will
continue to evaluate sale and leaseback transactions as well as consider other
forms of financing for cost effectiveness as future capital needs arise.
Changes in generally accepted accounting principles related to operating leases
and changes in other business conditions in which we operate may reduce the
desirability of sale and leaseback transactions to us.





   Hanover also believes that the sale and leaseback transactions represent a
source of capital in addition to the commercial bank financing traditionally
utilized by the Company. This diversification of Hanover's capital sources has
broadened the Company's access to capital to allow us to expand operations.



   In August 2001 and in connection with the POI Acquisition, we completed two
sale and lease back transactions involving certain compression equipment.
Concurrent with the transactions, we exercised our purchase option under our
1998 operating lease for $200 million. Under one transaction, we received
$309.3 million from the sale of compression equipment to an independent special
purpose entity. Under the second transaction, we received $257.8 million from
the sale of additional compression equipment to an independent special purpose
entity. Both transactions are recorded as a sale and lease back of the
equipment and are recorded as operating leases. Under the $309.3 million
transaction, the equipment was sold and leased back by us for a seven year
period and will continue to be deployed by us under our normal operating
procedures. The agreement calls for semi-annual rental payments of
approximately $12.8 million in addition to quarterly rental payments of
approximately $245,000. Under the $257.8 million transaction, the equipment was
sold and leased back by us for a ten year period and will continue to be
deployed by us under our normal operating procedures. The agreement calls for
semi-annual rental payments of approximately $10.9 million in addition to
quarterly rental payments of approximately $213,000. We have options to
repurchase some or all of the equipment under certain conditions defined by the
lease agreement. Through March 31, 2002, we incurred transaction costs of
approximately $18.2 million related to these transactions. These costs are
included in intangible and other assets and are being amortized over the
respective lease terms.



   In October 2000, we completed a $172.6 million sale and lease back of
compression equipment with an independent special purpose entity. In March
2000, we entered into a separate $200.0 million sale and lease back of
compression equipment with an independent special purpose entity. Under the
March agreement, we received proceeds of $100.0 million from the sale of
compression equipment at the first closing in March 2000 and in August 2000, we
completed the second half of the equipment lease and received an additional
$100.0 million for the sale of additional compression equipment. In June 1999
and in July 1998 we completed two other separate $200.0 million sale and lease
back transactions of compression equipment with independent special purpose


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<PAGE>


entities. Under the 2000 and 1999 lease agreements, the equipment was sold and
leased back by us for a five year term and will be utilized by us in its
business. We have options to repurchase the equipment under the 2000 and 1999
leases under certain conditions as defined by the lease agreements. The 2000
and 1999 lease agreements call for variable quarterly payments that fluctuate
with the London Interbank Offering Rate. We incurred an aggregate of
approximately $8.1 million in transactions costs for the leases entered into in
2000, 1999 and 1998, which are included in intangible and other assets and are
being amortized over the respective lease terms.



   The following table summarizes the proceeds, net book value of equipment
sold, deferred gain on equipment sale, the residual guarantee and the lease
termination date for equipment leases (in thousands of dollars):



<TABLE>
<CAPTION>
                                                          Residual      Lease
                                 Sale   Net Book Deferred   Value    Termination
           Leases              Proceeds  Value     Gain   Guarantee     Date
           ------              -------- -------- -------- --------- --------------
<S>                            <C>      <C>      <C>      <C>       <C>
June 1999..................... $200,000 $166,356 $33,644  $166,000  June 2004
March and August 2000.........  200,000  166,922  33,078   166,000  March 2005
October 2000..................  172,589  155,692  16,897   142,299  October 2005
August 2001...................  309,300  306,034   3,266   232,000  September 2008
August 2001...................  257,750  235,877  21,873   175,000  September 2011
</TABLE>



   Each of these transactions are recorded as a sale and lease back of the
equipment and the leases are recorded as operating leases. We made guarantees
under the lease agreements that are due upon termination of the leases and
which may be satisfied by a cash payment or the exercise of our purchase
options under the terms of the lease agreements. The residual value guarantees
and other lease terms, which are based on negotiation between us and third
party lessors, were supported by equipment appraisals and analysis. We believe
that the market value of the equipment at the end of the lease will exceed the
guaranteed residual values due to our predictive and preventive maintenance
programs, routine overhaul practices, and the expected demand for compression
equipment in the future. We review the value of the equipment whenever events
or circumstances indicate that a decrease in market value may have occurred as
a result of foreseeable obsolescence or a decrease in market demand. If the
fair value of the equipment was less than the guaranteed residual value, we
would accrue additional lease expense for the amount that would be payable upon
termination of the lease. Any gains on the sale of the equipment are deferred
until the end of the respective lease terms. Should we not exercise our
purchase options under the lease agreements, the deferred gains will be
recognized to the extent they exceed any final rent payments and any other
payments required under the lease agreements.





   As a result of the lease transactions, we incurred approximately $22.9
million and $15.3 million in lease expense for the three months ended March 31,
2002 and 2001, respectively, and approximately $70.4 million, $45.5 million and
$22.1 million in lease expense for the years ended December 31, 2001, 2000 and
1999, respectively. The following minimum lease payments are due under the
leasing arrangements exclusive of any final rent payments or purchase option
payments (in thousands): 2002--$88,111; 2003--$84,941; 2004--$77,536;
2005--$62,780; 2006--$49,072; and $149,779 thereafter.





   In connection with the leases entered into in August 2001, we are obligated
to prepare registration statements and complete exchange offers to enable the
holders of the notes issued by the lessors to exchange their notes with notes
which are registered under the Securities Act. Because the exchange offers have
not been completed, we are required to pay additional lease expense in the
amount equal to $105,600 per week until the exchange offers are completed. The
additional lease expense began accruing on January 28, 2002. See "The Exchange
Offer--Additional Interest."




Liquidity and Capital Resources


   Three Months Ended March 31, 2002.  Our cash balance amounted to $3.2
million at March 31, 2002 compared to $23.2 million at December 31, 2001. Our
principal source of cash was borrowings of $71 million under our bank credit
facility. Principal uses of cash during the three months ended March 31, 2002
were capital expenditures of $67.9 million and payment of accounts payable and
other liabilities.


                                      69

<PAGE>


   Working capital increased to $306.1 million at March 31, 2002 from $275.8
million at December 31, 2001, primarily as a result of decreases in payables
and accrued liabilities partly offset by a decrease in current assets. The
decrease in these balances is due to a decreased level of activity in our lines
of business during the first quarter of 2002.



   We invested $67.9 million in property, plant and equipment during the three
months ended March 31, 2002. During 2002, we added approximately 77,000
horsepower to the rental fleet. At March 31, 2002, the compressor rental fleet
consisted of 2,735,000 horsepower domestically and 819,000 horsepower in the
international rental fleet.


   Year Ended December 31, 2001.  Our cash balance amounted to $23.2 million at
December 31, 2001 compared to $45.5 million at December 31, 2000. Primary
sources of cash during the year ended December 31, 2001 were net proceeds of
$185.5 million from the issuance of 4.75% convertible senior notes due 2008,
$83.9 million through our public offering of 2,500,000 shares of common stock,
$550 million from two sale-leaseback transactions, $54.5 million from
borrowings under our bank credit facility and operating cash flows of $154.1
million. Principal uses of cash during the year ended December 31, 2001 were
capital expenditures of $661.4 million (including $200 million used to exercise
our purchase option under our 1998 operating lease), and business acquisitions
of $386.1 million.





   Working capital decreased to $275.8 million at December 31, 2001 from $285.4
million at December 31, 2000, primarily as a result of the $58 million
liability to Schlumberger which is expected to be paid in 2002 and is included
in accrued liabilities. Excluding the $58 million accrued business acquisition
payment liability, working capital would have increased by $48.4 million. This
increase was due to increases in accounts receivable, inventories and costs in
excess of billings, which resulted from increased levels of activity in our
lines of business compared to 2000 as well as from acquisitions. The increases
were partially offset by an increase in current liabilities.



   We invested $1,067.7 million in property, plant and equipment in 2001
(before the impact of sale and leaseback transactions). During 2001, we added
approximately 1,326,000 horsepower to the rental fleet. At December 31, 2001,
the compressor rental fleet consisted of 2,696,000 horsepower domestically and
781,000 horsepower in the international rental fleet.


   Given its consistently high compressor rental fleet utilization, the Company
carries out new customer projects through fleet additions and other related
capital expenditures. The Company generally invests funds necessary to make
these rental fleet additions when its idle equipment cannot economically
fulfill a project's requirements and the new equipment expenditure is matched
with long-term contracts whose expected economic terms exceed the Company's
return on capital targets. During 2002, the Company plans to spend
approximately $250 million on rental equipment fleet additions, including $60
million on equipment overhauls and other maintenance capital. Historically, we
have funded capital expenditures with a combination of internally generated
cash flow, borrowing under the revolving credit facility, sale lease-back
transactions and raising additional equity and issuing long term debt.





   In August 2001, we acquired the natural gas compression business of
Schlumberger in exchange for total consideration of $771 million in cash,
common stock and indebtedness. To finance the acquisition, we used $270 million
of the proceeds from the sale of Equipment to the Issuer in combination with
the $150 million subordinated acquisition note and $283 million of common stock.



   We believe that cash flow from operations and borrowing under our existing
$350 million bank credit facility will provide us with adequate capital
resources to fund our estimated level of capital expenditures for the short
term. Since capital expenditures for 2002 are largely discretionary, we believe
we would be able to significantly reduce them, if expected cash flows from
operations were not realized. As of March 31, 2002, we had approximately $228
million in borrowings and approximately $37 million in letters of credit
outstanding on


                                      70

<PAGE>


our $350 million revolving bank credit facility (3.7% weighted average
effective rate at March 31, 2002). The letters of credit expire between 2002
and 2003. In addition, we had approximately $19.9 million in letters of credit
outstanding under other letters of credit facilities which expire during 2002
and 2003.



   We are in compliance with all covenants and other requirements set forth in
our bank credit facility, operating leases and indentures. During the three
months ended March 31, 2002, we obtained waivers and amendments to our bank
credit facility and certain operating leases to cure non-compliance with
convenants in those agreements largely resulting from the restatement of our
consolidated financial statements for the year ended December 31, 2000 and each
quarter in the nine months ended September 30, 2001. These waivers and
amendments did not result in any material adverse consequences to the Company's
business. We do not have any rating downgrade provisions that would accelerate
the maturity dates of our debt. However, a downgrade in our credit rating could
materially and adversely affect our ability to renew existing, or obtain access
to new, credit facilities in the future and could increase the cost of such
facilities. Should this occur, we might seek alternative sources of funding. As
of March 31, 2002, our debt to capitalization ratio, including the residual
value guarantees under our operating leases, was 1.39 to 1 and our book debt to
capitalization ratio, excluding operating leases, was .55 to 1.



   Our bank credit facility permits us to incur indebtedness up to the $350
million credit limit under our bank credit agreement, plus an additional $125
million in unsecured indebtedness. In addition, our bank credit facility
permits us to enter into future sale and leaseback transactions with respect to
equipment having a value not in excess of $300 million. The indenture and the
participation agreements, which are part of our compression equipment leases,
permit us to incur indebtedness up to the $350 million credit limit under our
bank credit facility, plus (1) an additional $75 million in unsecured
indebtedness and (2) any additional indebtedness so long as, after incurring
such indebtedness, Hanover's ratio of EBITDAR to total fixed charges, as
defined and adjusted by the agreements, is greater than 2.25 to 1.0. These
agreements define indebtedness to include the obligations under sale and
leaseback transactions and under facilities similar to our compression
equipment lease facilities.



   Based upon our total debt of approximately $580 million at March 31, 2002,
we expect total debt service payments for the year ending December 31, 2002
(including debt service payments made during the three months ended March 31,
2002) will be approximately $40 million based upon interest rates in effect as
of March 31, 2002. In addition, based upon our current operating lease
commitments and rates in effect at March 31, 2002, we expect that total
compressor lease rent payments for the year ending December 31, 2002 (including
lease rent payments made during the three months ended March 31, 2002 will be
approximately $90 million. We also expect that total distributions on our
7 1/4% mandatorily redeemable convertible preferred securities for the year
ended December 31, 2002 (including distributions made during the three months
ended March 31, 2002 and assuming no deferrals as permitted by the terms of
such securities) to be approximately $6.4 million.



   The following summarizes our contractual obligations at December 31, 2001,
and the effect such obligations are expected to have on our liquidity and cash
flow in future periods.



<TABLE>
<CAPTION>
                                                  TOTAL      2002    2003     2004   Thereafter
                                                ---------- -------- ------- -------- ----------
                                                                (in thousands)
<S>                                             <C>        <C>      <C>     <C>      <C>
CONTRACTUAL OBLIGATIONS:
4.75% convertible senior notes due 2008........ $  192,000 $        $       $         $192,000
Bank credit facility...........................    157,000                   157,000
Other long-term debt(1)........................    160,813    5,553   1,382    1,037   152,841
Other contractual obligations(2)...............     58,000   58,000
Mandatorily redeemable convertible preferred
  securities...................................     86,250                              86,250
Compression equipment operating leases(3)......    512,219   88,111  84,941   77,536   261,631
Facilities and other equipment operating leases     13,586    4,238   3,536    2,903     2,909
                                                ---------- -------- ------- --------  --------
Total contractual cash obligations............. $1,179,868 $155,902 $89,859 $238,476  $695,631
                                                ========== ======== ======= ========  ========
</TABLE>

--------

(1) In connection with the POI Acquisition on August 31, 2001, the Company
    issued a $150 million subordinated acquisition note to Schlumberger, which
    matures December 15, 2005. Interest on the


                                      71

<PAGE>


   subordinated acquisition note accrues and is payable-in-kind at the rate of
   8.5% annually for the first six months after issuance and periodically
   increases in increments of 1% to 2% per annum to a maximum interest rate 42
   months after issuance of 15.5%. In the event of an event of default under
   the subordinated acquisition note, interest will accrue at a rate of 2%
   above the then applicable rate. The subordinated acquisition note is
   subordinated to all of the Company's indebtedness other than indebtedness to
   fund future acquisitions. In the event that the Company completes an
   offering of equity securities, the Company is required to apply the proceeds
   of the offering to repay amounts outstanding under the subordinated
   acquisition note as long as no default exists or would exist under our other
   indebtedness as a result of such payment.



(2) We are required to pay up to $58 million to Schlumberger with proceeds of a
    financing of a South American joint venture, a minority interest of which
    was acquired by Hanover in the acquisition of POI. If the joint venture
    fails to execute the financing or such financing fails to be non-recourse
    to us, in either case, on or before December 31, 2002, we will have the
    right to put our interest in the joint venture back to Schlumberger in
    exchange for a return of the purchase price allocated to the joint venture,
    plus the net amount of any capital contributions by Hanover to the joint
    venture. Our right to exercise the put expires on January 31, 2003. Since
    we expect the financing to be completed in 2002, this $58 million amount is
    included in "Accrued liabilities" in our balance sheet.



(3) Excludes residual value guarantees, which are discussed below.

--------


   As part of our business, we are a party to various financial guarantees,
performance guarantees and other contractual commitments to extend guarantees
of credit and other assistance to various subsidiaries, investees and other
third parties. To varying degrees, these guarantees involve elements of
performance and credit risk, which are not included on our Consolidated Balance
Sheet. The possibility of us having to honor our contingencies is largely
dependent upon future operations of various subsidiaries, investees and other
third parties, or the occurrence of certain future events.



   In January 2001, we entered into a facilitation agreement with Belleli
Energy SRL ("Belleli"), a fabrication company based in Italy. In connection
with the agreement, we agreed to provide Belleli with project financing
including necessary guarantees, bonding capacity and other collateral on an
individual project basis. Under the agreement, Belleli must present each
project to us which we may approve at our sole discretion. At March 31, 2002,
no amounts were outstanding under the facilitation agreement. Under a separate
agreement with Belleli, we have issued letters of credit on Belleli's behalf
totaling approximately $13.6 million at March 31, 2002. In July 2001, the
Company acquired a 20% interest in Belleli.



   We are also a guarantor of approximately $881 million of debt associated
with independent special purpose entities with which we entered into sale
leaseback transactions, which is equal to the residual value guarantees under
the lease agreements.



   The Company utilizes derivative financial instruments to minimize the risks
and/or costs associated with financial and global operating activities by
managing its exposure to interest rate fluctuation on a portion of its variable
rate debt and leasing obligations. The Company does not utilize derivative
financial instruments for trading or other speculative purposes. The cash flow
from hedges is classified in the Consolidated Statements of Cash Flows under
the same category as the cash flows from the underlying assets, liabilities or
anticipated transactions.



   On January 1, 2001, we adopted SFAS 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS 137 and
SFAS 138, effective January 1, 2001. SFAS 133 requires that all derivative
instruments (including certain derivative instruments embedded in other
contracts) be recognized in the balance sheet at fair value, and that changes
in such fair values be recognized in earnings unless specific hedging criteria
are met. Changes in the values of derivatives that meet these hedging criteria
will ultimately


                                      72

<PAGE>


offset related earnings effects of the hedged item pending recognition in
earnings. Prior to 2001, we entered into two interest rate swaps which were
outstanding at March 31, 2002 with notional amounts of $75,000,000 and
$125,000,000 and strike rates of 5.51% and 5.56%, respectively. These swaps
were to expire in July 2001; however, they were extended for an additional two
years at the option of the counterparty. The difference paid or received on the
swap transactions is recognized in leasing expense. These swap transactions
expire in July 2003. On January 1, 2001, in accordance with the transition
provisions of SFAS 133, we recorded a loss resulting from the cumulative effect
of an accounting change in the statement of income of approximately $164,000,
net of tax benefit of $89,000. During the three months ended March 31, 2002 and
the year ended December 31, 2001, we recognized an unrealized gain of
approximately $2.0 million and an additional unrealized loss of approximately
$8.8 million, respectively, related to the change in the fair value of these
interest rate swaps in other expense in the statement of income because these
swaps did not meet the specific hedge criteria as a result of the
counterparty's option to extend the interest rate swaps. Further, management
decided not to designate the interest rate swaps as hedges at the time they
were extended by the counterparty. At March 31, 2002, we recorded approximately
$5.1 million in accrued liabilities and approximately $2.0 million in other
long-term liabilities related to these interest rate swaps. The fair value of
these interest rate swaps will fluctuate with changes in interest rates over
their remaining terms and the fluctuations will be recorded in the statement of
income.



   During the second quarter of 2001, we entered into three additional interest
rate swaps to convert variable lease payments under certain lease arrangements
to fixed payments as follows:




<TABLE>
<CAPTION>
                                 Maturity Strike    Notional
                    Lease          Date    Rate      Amount
                    -----        -------- ------- ------------
                 <S>             <C>      <C>     <C>
                 March 2000       3/11/05 5.2550% $100,000,000
                 August 2000      3/11/05 5.2725% $100,000,000
                 October 2000    10/26/05 5.3975% $100,000,000
</TABLE>



   These three swaps, which we have designated as cash flow hedging
instruments, meet the specific hedge criteria and any changes in their fair
values have been recognized in other comprehensive income. During the three
months ended March 31, 2002 and the year ended December 31, 2001, we recorded a
gain of approximately $2.0 million and a loss of approximately $6.2 million,
respectively, with respect to these three swaps, net of tax in other
comprehensive income. As of March 31, 2002, a total of approximately $2.6
million was recorded in accrued current liabilities and approximately $3.8
million in other long-term liabilities with respect to these three swaps.



   The counterparties to the interest rate swap agreements are major
international financial institutions. We continually monitor the credit quality
of these financial institutions and do not expect non-performance by any
counterparty, although such non-performance could have a material adverse
effect on us.



   In January 2002, Argentina devalued its peso against the U.S. dollar and
imposed significant restrictions on funds transfers internally and outside the
country. In addition, the Argentine government enacted regulations to
temporarily prohibit enforcement of contracts with exchange rate-based purchase
price adjustments. Instead, payment under such contracts can either be made at
an exchange rate negotiated by the parties or, if no such agreement is reached,
a preliminary payment may be made based on a 1 dollar to 1 peso equivalent
pending a final agreement. The Argentine government also requires the parties
to such contracts to renegotiate the price terms within 180 days of the
devaluation. As a result, we are involved in negotiations with our customers in
Argentina as to the currency in which contract amounts are to be paid, as
mandated by the Argentine government. During the three months ended March 31,
2002, we recorded an exchange loss of approximately $11.7 million for assets
exposed to currency translation in Argentina. We have renegotiated two of our
eleven customer contracts in Argentina and expect to renegotiate the remaining
nine contracts before the end of the third quarter of 2002. For the year ended
December 31, 2001, our Argentine operations represented approximately 7% of our
revenue and 8% of our EBITDA, before allocation of corporate sales, general and
administrative expenses.


                                      73

<PAGE>


The economic situation in Argentina is subject to change, and we cannot predict
whether the peso will continue to lose value against the dollar or the terms
under which we and our customers will be able to renegotiate our contracts. To
the extent that the situation in Argentina continues to deteriorate, exchange
controls continue in place and the value of the peso against the dollar is
reduced further, Hanover's results of operations in Argentina could be
materially and adversely affected which could result in reductions in Hanover's
net income.



   In addition, we have exposure to currency risks in Venezuela. To mitigate
that risk, the majority of our existing contracts provide that we receive
payment in U.S. dollars rather than Venezuelan bolivars, thus reducing our
exposure to fluctuations in the bolivar's value. During the three months ended
March 31, 2002, we recorded an exchange loss of approximately $1.4 million for
assets exposed to currency translation in Venezuela. In addition, our equity in
income of non-consolidated affiliates was reduced by approximately $1.4 million
due to the change in exchange rates in Venezuela. For the year ended December
31, 2001, our Venezuelan operations represented approximately 7% of our revenue
and 11% of our EBITDAR, before allocation of corporate sales, general and
administrative expenses.




   This discussion also describes the liquidity of HCLP and its subsidiaries,
with the exception that the proceeds from the issuance of the 4.75% convertible
senior notes due 2008 and the public offering of 2,500,000 shares of Hanover
common stock were received by Hanover and contributed to HCLP as a capital
contribution. HCLP is dependent on Hanover for funding capital contributions,
which have in the past included the proceeds of Hanover's debt and equity
offerings.

New Accounting Pronouncements


   In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, Business
Combinations. This Statement is effective for all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. All business combinations in the scope of this
statement are to be accounted for using one method, the purchase method.
Companies may no longer use the pooling method for future combinations.



   In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets
("SFAS 142"). Under SFAS 142, amortization of goodwill over an estimated useful
life will be discontinued. Instead, goodwill amounts will be subject to a
fair-value-based annual impairment assessment. The standard also requires
acquired intangible assets to be recognized separately and amortized as
appropriate. SFAS 142 was effective for Hanover on January 1, 2002. The
adoption of SFAS No. 142 has had an impact on future financial statements, due
to the discontinuation of goodwill amortization expense. For the three months
ended March 31, 2001 and the year ended December 31, 2001, goodwill
amortization expense was approximately $2.5 million and $11.6 million,
respectively. The transition provisions of SFAS 142 require us to perform an
initial impairment assessment of goodwill by June 30, 2002. We are currently
performing the initial assessment and evaluating the effect the implementation
of the impairment assessment provisions of SFAS 142 will have on our financial
statements.





   In June 2001, the FASB issued SFAS 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets ("SFAS 143"). SFAS 143
establishes the accounting standards for the recognition and measurement of an
asset retirement obligation and its associated asset retirement cost. This
statement is effective for Hanover effective January 1, 2003. We are currently
assessing the new standard and have not yet determined the impact on our
consolidated results of operations, cash flows or financial position.



   In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS No. 144"). The new rules supersede SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("SFAS No. 121"). The new rules retain many of the
fundamental recognition and measurement provisions of SFAS No. 121, but
significantly change the criteria for classifying an asset as held-for-sale.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
We have evaluated the new standard and believe that it will have no material
effect on our consolidated results of operations or financial position.




                                      74

<PAGE>




   In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
The Statement updates, clarifies and simplifies existing accounting
pronouncements. Provisions of SFAS 145 related to the rescission of Statement 4
are effective for us on January 1, 2003. The provisions of SFAS 145 related to
SFAS 13 are effective for transactions occurring after May 15, 2002. We are
assessing the new standard and have not yet determined its impact on our
consolidated results of operations, cash flows or financial position.


Quantitative and Qualitative Disclosures About Market Risk


   We are exposed to interest rate and foreign currency risk. Hanover and its
subsidiaries periodically enter into interest rate swaps to manage its exposure
to fluctuations in interest rates. At March 31, 2002, the fair market value of
these interest rate swaps was a liability of approximately $13.5 million, of
which $7.7 million was recorded in accrued liabilities and $5.8 million in
other long-term liabilities. We are party to five interest rate swaps to
convert variable lease payments under certain lease arrangements to fixed
payments as follows (in thousands):



<TABLE>
<CAPTION>
                                 Fair Value of
 Maturity  Company Pays Notional  the Swap at
   Date     Fixed Rate   Amount  March 31, 2002
---------- ------------ -------- --------------
<S>        <C>          <C>      <C>
7/21/2003     5.5100%   $ 75,000    $(2,621)
7/21/2003     5.5600%   $125,000    $(4,461)
3/11/2005     5.2550%   $100,000    $(1,943)
3/11/2005     5.2725%   $100,000    $(2,030)
10/26/2005    5.3975%   $100,000    $(2,401)
</TABLE>



   The Company is exposed to interest rate risk on borrowings under its
floating rate revolving credit facility. At March 31, 2002, $228 million was
outstanding bearing interest at a weighted average effective rate of 3.7% per
annum. Assuming a hypothetical 10% increase in weighted average interest rates
from those in effect at March 31, 2002, the increase in annual interest expense
for advances under this facility would be approximately $0.8 million. At March
31, 2002, the Company is exposed to variable rental rates on the equipment
leases it entered into in September 1999 and October 2000. Assuming a
hypothetical 10% increase in interest rates from those in effect at quarter
end; the increase in annual leasing expense on these equipment leases would be
approximately $1.8 million. The Company does not currently use derivative
financial instruments to mitigate foreign currency risk; however, we may
consider the use of such instruments because of recent events in Argentina and
Venezuela.





   In January 2002, Argentina devalued its peso against the U.S. dollar and
imposed significant restrictions on funds transfers internally and outside the
country. In addition, the Argentine government enacted regulations to
temporarily prohibit enforcement of contracts with exchange rate-based purchase
price adjustments. Instead, payment under such contracts can either be made at
an exchange rate negotiated by the parties or, if no such agreement is reached,
a preliminary payment may be made based on a 1 dollar to 1 peso equivalent
pending a final agreement. The Argentine government also requires that the
parties to such contracts renegotiate the price terms within 180 days of the
devaluation. As a result, we are involved in negotiations with our customers in
Argentina as to the currency in which contract amounts are to be paid, as
mandated by the Argentine government. During the three months ended March 31,
2002, we recorded an exchange loss of approximately $11.7 million for assets
exposed to currency translation in Argentina. We have renegotiated two of our
eleven customer contracts in Argentina and expect to renegotiate the remaining
nine contracts before the end of the third quarter of 2002. For the year ended
December 31, 2001, our Argentine operations represented approximately 7% of our
revenue and 8% of our EBITDAR, before allocation of corporate sales, general
and administrative expenses. The economic situation in Argentina is subject to
change, and we cannot predict whether the peso will continue to lose value
against the dollar or the terms under which we and our customers will be able
to renegotiate our contracts. To the extent that the situation in Argentina
continues to deteriorate, exchange controls continue in place and the value of
the peso against the dollar is reduced further, our results of operations in
Argentina could be materially and adversely affected which could result in
reductions in our net income.




                                      75

<PAGE>


   In addition, we have exposure to currency risks in Venezuela. To mitigate
that risk, the majority of our existing contracts provide that we receive
payment in U.S. dollars rather than Venezuelan bolivars, thus reducing our
exposure to fluctuations in the bolivar's value. During the three months ended
March 31, 2002, we recorded an exchange loss of approximately $1.4 million for
assets exposed to currency translation in Venezuela. In addition, our equity in
income of non-consolidated affiliates was reduced by approximately $1.4 million
due to the change in exchange rates in Venezuela. For the year ended December
31, 2001, our Venezuelan operations represented approximately 7% of our revenue
and 11% of our EBITDAR, before allocation of corporate sales, general and
administrative expenses.


                                      76

<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                      FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS OF HANOVER EQUIPMENT TRUST 2001B

   Management's discussion and analysis of the financial condition and results
of operations of the Issuer should be read in conjunction with the financial
statements of the Issuer and related notes thereto included in this prospectus.

General

   Hanover Equipment Trust 2001B, a Delaware special purpose business trust,
was formed in August 2001 solely for the purpose of: (1) issuing the old notes
and the new notes, (2) executing, delivering and performing the operative
documents to which it is a party, and (3) using the proceeds of the issuance of
the old notes and the equity certificates to purchase gas compression equipment
from HCLP and certain of its subsidiaries. The equity funding, issuance of old
notes and equipment purchase occurred on August 30, 2001. The Issuer leases the
gas compression equipment back to HCLP under a ten-year operating lease. In
addition to rental payments, HCLP is obligated to pay supplemental rent, costs,
taxes, indemnities, and other amounts owing under the operating lease.


   The trustee of the Issuer is Wilmington Trust Company. General Electric
Capital Corporation ("GE Capital") is the sole equity certificate holder. The
initial equity certificate holder assigned its interest to GE Capital and was
repaid its capital contribution in August 2001.



Three Months Ended March 31, 2002.



  Revenue



   The Issuer's total revenue for the period was approximately $6.4 million.
The Issuer's rental revenue is based primarily on the interest accrued on the
old notes and the yield payable to the equity certificate holder. The interest
rate on the old notes is fixed at 8.75%. However, the yield payable on the
equity certificates will vary depending upon the certificate holder yield rate
(10.2% as of March 31, 2002). Based on current interest rates and property
balances applicable as of March 31, 2002 and including rental revenues earned
during the three months ended March 31, 2002, rental revenue is expected to be
approximately $22.7 million for 2002. This amount does not include rents
received to reimburse the Issuer, as required under the Lease, for its
operating expenses.



  Interest Expense on Rental Equipment



   Interest expense on rental equipment is the interest recorded in connection
with the old notes. Interest expense on rental equipment for the period was
approximately $5.9 million or approximately 92% of rental revenue. Due to the
terms of the operating lease with HCLP, interest expense on rental equipment is
expected to remain fairly constant. Based on current interest rates and
including interest expense on rental equipment incurred during the three months
ended March 31, 2002, interest expense on rental equipment is expected to be
approximately $21.9 million for 2002.



Period from August 16, 2001 (Inception) to December 31, 2001.


Revenue


   The Issuer's total revenue for the period was approximately $7.9 million.
Revenue was not earned until after the purchase of gas compression equipment on
August 30, 2001. The Issuer's rental revenue is based primarily on the interest
accrued on the old notes and the yield payable to the equity certificate
holder. The interest rate on the old notes is fixed at 8.75%. However, the
yield payable on the equity certificates will vary depending upon the
certificate holder yield rate (10.2% as of December 31, 2001).


                                      77

<PAGE>

Interest Expense on Rental Equipment


   Interest expense on rental equipment is the interest recorded in connection
with the old notes. Interest expense on rental equipment for the period was
approximately $7.4 million or approximately 93% of rental revenue. Due to the
terms of the operating lease with HCLP, interest expense on rental equipment is
expected to remain fairly constant.




Liquidity and Capital Resources

   Under the triple net lease terms for the Equipment, all of the costs of
maintaining and financing the equipment are borne by HCLP, as the lessee. The
Issuer believes it has adequate capital resources for the nature of its
business and that funds from its operations as described in this prospectus
will be sufficient to provide for its operations. Because the Issuer has agreed
to limit its business activities as described in this prospectus, the Issuer
does not believe it will have any need to obtain additional financing or equity.


   Three Months Ended March 31, 2002.  The Issuer's cash and cash equivalents
balance at March 31, 2002 was $0. Operating activities provided $0.5 million in
cash which was used in financing activities for the payment of the equity
certificate yield due.



   Period from August 2, 2001 (Inception) to December 31, 2001.  The Issuer's
cash and cash equivalents balance at December 31, 2001 was $0. Operating
activities provided $0 in cash, investing activities used $257.8 million in
cash and financing activities provided $257.8 million in cash. Cash was used in
investing activities for the purchase of $257.8 million of rental equipment.
Cash provided by financing activities resulted from $7.8 million of equity
investment from the Issuer's equity certificate holder and $250 million in
proceeds from the issuance of the old notes.


Quantitative and Qualitative Disclosures about Market Risk


   The Issuer is exposed to market risk due to the variable yield rate on its
equity certificates, however the Issuer's market risk is minimized because
rental revenue would increase or decrease by an equal amount with any change in
the yield on its equity certificates. As of March 31, 2002, the Issuer had $250
million outstanding principal amount of the old notes, which bear interest at a
fixed rate of 8.75% per annum, and $7.8 million in equity investment under the
Issuer's equity certificates, which accrue yield payments at the certificate
holder yield rate. Yield payments on the equity certificates are based upon the
Eurodollar rate or the prime rate, plus a spread in each case of 8.375% per
year (10.2% as of March 31, 2002). An increase in the certificate holder yield
rate by 1% would result in an approximately $78 thousand annual increase in the
yield payments on the Issuer's equity certificates and rental revenue.


                                      78

<PAGE>

                    BUSINESS OF HANOVER COMPRESSOR COMPANY
                  AND HANOVER COMPRESSION LIMITED PARTNERSHIP

General


   Hanover Compressor Company, through its indirect wholly owned subsidiary
Hanover Compression Limited Partnership and its subsidiaries, is a global
market leader in full service natural gas compression and a leading provider of
service, fabrication and equipment for contract natural gas handling
applications. We provide this equipment on a rental, contract compression,
maintenance and acquisition leaseback basis to natural gas production,
processing and transportation companies that are increasingly seeking
outsourcing solutions. Founded in 1990 and a public company since 1997, our
customers include premier independent and major producers and distributors. In
conjunction with our maintenance business, we have developed our parts and
service business to provide solutions to customers that own their own
compression equipment, but want to outsource their operations. Our compression
services are complemented by our compressor and oil and gas production
equipment fabrication operations and gas processing and treating, gas
measurement and power generation services, which broaden our customer
relationships both domestically and internationally.







   Our products and services are essential to the production, processing,
transportation and storage of natural gas and are provided primarily to energy
producers and distributors of natural gas. Our decentralized operating
structure, technically experienced personnel and high quality compressor fleet
allow us to successfully provide reliable and timely customer service. As a
result, we have experienced substantial growth over the past five years and
have developed and maintained a number of long-term customer relationships.
This has enabled us to maintain an average horsepower utilization rate of
approximately 93% from 1997 to 2001, compared to industry rates which we
believe to have been 80% to 85% for this period.



   We compete primarily in the market for transportable natural gas compression
units of up to 4,450 horsepower. This market for rental compression has
experienced significant growth over the past decade, with a compound annual
growth rate of approximately 15%. We believe that the growth in the domestic
gas compression market will continue due to the increased consumption of
natural gas, the continued aging of the natural gas reserve base and the
attendant decline of wellhead pressures, and the discovery of new reserves.



   The rental portion of the domestic gas compression market is estimated to be
at least 5.2 million horsepower and accounts for approximately 34% of the
aggregate U.S. horsepower, up from 20% in 1992. Growth of rental compression
capacity in the U.S. market is primarily driven by the increasing trend toward
outsourcing by energy producers and processors. We believe that outsourcing
provides the customer greater financial and operating flexibility by minimizing
the customer's investment in equipment and enabling the customer to more
efficiently resize compression units to meet the changing reservoir conditions.
In addition, we also believe that outsourcing typically provides the customer
with more timely and technically proficient service and necessary maintenance,
which often reduces operating costs. Internationally, we believe similar growth
opportunities for compressor rental and sales exist due to (i) increased
worldwide energy consumption, (ii) implementation of international
environmental and conservation laws preventing the flaring of natural gas, and
(iii) increased outsourcing by energy producers and processors.



   As of March 31, 2002, we operated a fleet of 7,161 compression rental units
with an aggregate capacity of approximately 3,554,000 horsepower (excluding
89,000 in noncompression horsepower). We believe that we are currently the
largest natural gas compression company in the United States on the basis of
aggregate rental horsepower with 6,390 rental units having an aggregate
capacity of approximately 2,735,000 horsepower at March 31, 2002. We estimate
that we are one of the largest providers of compression services in the rapidly
growing Latin American and Canadian markets, operating 771 units
internationally with approximately 819,000 horsepower at March 31, 2002.



   Substantially all of our assets and operations are owned or conducted by our
wholly-owned subsidiary, Hanover Compression Limited Partnership. In December
2001, HCLP and its subsidiaries completed various internal restructuring
transactions pursuant to which certain of the domestic subsidiaries of HCLP
were merged, directly or indirectly, with and into HCLP.


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<PAGE>

Compressor Rental Fleet


   The size and horsepower of our compressor rental fleet owned or operated
under lease on March 31, 2002 is summarized in the following table.



<TABLE>
<CAPTION>
                                                 Aggregate
                                     Number of   Horsepower   % of Total
        Range of Horsepower per Unit   Units   (in thousands) Horsepower
        ---------------------------- --------- -------------- ----------
        <S>                          <C>       <C>            <C>
                 0-100..............   2,144         148           4.2%
                 101-200............   1,427         215           6.1%
                 201-500............   1,222         403          11.3%
                 501-800............     643         417          11.7%
                 801-1100...........     512         517          14.5%
                 1101-1500..........     918       1,295          36.4%
                 1501-2500..........     215         333           9.4%
                 2501-4450..........      80         226           6.4%
                                       -----       -----        ------
                 Total..............   7,161       3,554        100.00
                                       =====       =====        ======
</TABLE>


Business Strategy


   Historically, we have generated growth in excess of industry averages and
have delivered superior results to our investors. From 1999 through 2001, our
revenue, EBITDAR and net income growth have averaged 59%, 43 % and 34% per
year, respectively. During this same period, the rental compression market,
driven by growth in consumption and the trend toward outsourcing, has
consistently grown at approximately 15% per year, while natural gas pricing and
exploration activity have been quite volatile. For example, from January 1,
1999 through March 31, 2002, monthly average domestic natural gas prices have
ranged from around $1.70 per thousand cubic feet to around $8.06 per thousand
cubic feet, while drilling activity, measured by North American active rig
counts, has ranged from approximately 500 to 1,275.


   Our growth strategy includes the following key elements:

    .  Offer Broad-Based Solutions:  We believe that we are the only company in
       our industry that offers outsourced rental compression as well as
       compressor and oil and gas production and processing equipment
       fabrication and related services. By offering a broad range of services
       that complement our historic strengths, we believe that we can offer
       more complete solutions to our customers and thereby drive growth in
       each of our businesses.

       -- Our leading position in the design and fabrication of compressors for
          sale helps us meet our rental fleet growth requirements as well as
          the needs of energy industry participants who resize or replace units
          on existing projects or obtain compression products and services for
          new projects.

       -- Our compressor services business supplies parts and services and
          manages compression units for customers who own their units, thereby
          helping us develop relationships for future outsourcing business.

       -- We design and fabricate oil and gas production equipment and provide
          related services essential to the operation of recently completed oil
          and gas wells, all of which enhance our opportunity to deliver
          compression services and equipment to customers as the need develops
          over the useful life of a well.

       -- As our customers look to us to provide an ever-widening array of
          outsourced services, we continue to build our core business with
          emerging business opportunities, such as turnkey gas treatment, gas
          measurement and power generation sales and services. As with
          compression, these emerging businesses are increasingly being
          outsourced by industry participants and represent an additional
          opportunity to gain incremental revenue from current and potential
          customers.

    .  Exploit International Opportunities:  We believe international markets
       represent one of the greatest growth opportunities for our business.
       Although our international horsepower has grown significantly over the
       last six years, we continue to believe that the market is drastically
       under-served. Of total

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<PAGE>


proven worldwide reserves, 97% are located outside the United States, yet
       international energy companies utilized only 35% of worldwide
       compression capacity. We believe that the implementation of
       international environmental and conservation laws preventing the flaring
       of natural gas and encouraging the use of gas-fired electric power
       generation, coupled with increased worldwide energy consumption, will
       continue to drive use of compression by international energy companies.
       In addition, we typically see higher pricing relative to the domestic
       market in international markets. At March 31, 2002, we had 819,000
       horsepower in service internationally, or 23% of total horsepower. For
       the three months ended March 31, 2002 and the year ended December 31,
       2001, approximately 33% of rental revenue was provided by international
       horsepower. Moreover, international oil and gas companies have
       traditionally purchased compression equipment, but over the past decade,
       the international energy producers have increasingly chosen to fulfill
       their compression requirements through outsourcing. We believe we are
       well positioned to exploit the opportunity created by these
       international trends.



    .  Continue to Expand in our Existing Domestic Markets:  Since 1992,
       approximately 50% of the aggregate horsepower added by the oil and gas
       industry has been outsourced to third party rental companies like us.
       Consequently, the percentage of aggregate compression horsepower
       outsourced by the industry has increased from nearly 20% in 1992 to
       approximately 34% in 2001. This move to outsourcing has been driven by,
       among other things, the desire of producers and distributors of natural
       gas to: (1) maximize production revenue by improving mechanical run-time
       and reducing equipment maintenance and personnel costs; (2) increase
       capital available for other uses; and (3) improve operating flexibility
       by exploiting the rental company's greater asset base and extensive
       field service organization to efficiently resize compressor units to
       meet changing reservoir conditions. We believe the breadth and quality
       of our services, the depth of our customer relationships and our
       presence throughout the gas producing regions of the United States
       position us to capture additional outsourced business.



    .  Focus on High Horsepower Units:  The high horsepower compression
       segment, comprised of units of greater than 500 horsepower, is the
       fastest growing segment of the rental compression market. These units
       are typically installed on larger wells, gathering systems and
       processing and treating facilities whose size and generally more
       attractive unit economics largely insulate them from declining commodity
       prices. As a result, compressors in this segment tend to realize higher
       utilization rates. The greater technical requirements of these larger
       systems enable us to differentiate our compression products and services
       and to offer related products and services. In addition, most
       compressors installed internationally are high horsepower units. As of
       March 31, 2002, approximately 78% of our aggregate horsepower consists
       of high horsepower compression units. We believe the breadth of our
       experience, the quality of our service and of our compressor production
       and treatment equipment fabrication operations and our international
       experience will enable us to continue to succeed in this segment of the
       market.



    .  Capture Acquisition Leaseback Opportunities:  We believe that as of
       December 31, 2001, U.S. energy producers, transporters and processors
       directly owned and operated approximately 66% of the total U.S.
       compression market. In recent years, more companies have been
       outsourcing their compression operations in order to improve their
       financial and operating results. We also offer energy producers,
       transporters and processors the opportunity to outsource their
       operations and reallocate capital to core activities through our
       acquisition leaseback program, whereby we purchase in-place compression
       equipment and lease the equipment back to the former owner under
       long-term operating and maintenance contracts. We believe that our
       extensive geographic reach and our experience with a wide range of
       compression equipment and operating conditions give us a competitive
       advantage in capturing acquisition leaseback opportunities. Between
       January 1, 1999 and March 31, 2002, we executed acquisition leaseback
       transactions for approximately 422 compression units totaling 245,800
       horsepower.


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<PAGE>

    .  Selectively Pursue Industry Acquisitions:  Since 1992, we have acquired
       over three dozen small, well-established, regional companies providing
       compressor rental and related services while delivering superior
       financial results. In addition, we completed four sizable acquisitions
       of compression companies: PAMCO Services International and the
       compression services division of Dresser-Rand Company in 2000, OEC
       Compression Corporation in March 2001 and the gas compression business
       of Schlumberger in August 2001. We also pursue acquisitions to expand
       our offerings of related products and services and extend our geographic
       scope, such as our June 2000 acquisition of Applied Process Solutions,
       Inc., a leader in the design, fabrication and installation of natural
       gas treating and processing equipment.

    .  Capitalize on our Decentralized Management and Operating Structure:  We
       utilize a decentralized management and operating structure to provide
       superior customer service in a relationship-driven, service-intensive
       industry. We believe that our regionally based network, local presence,
       experience and in-depth knowledge of customers' operating needs and
       growth plans provide us with significant competitive advantages and
       drive internal growth. To maintain this regional strength and to create
       incentives to attract, motivate and retain an entrepreneurial, highly
       experienced management team, since 1992 we have offered equity ownership
       and stock option programs to create incentives for approximately 300 of
       our employees, and our employees own, or have options to purchase, over
       9% of our common stock.

   We believe the successful execution of our growth strategy, combined with
our focus on and leadership position in the compression industry, will enable
us to continue to differentiate our company and drive future growth and
profitability.

                               Industry Overview

Gas Compression

   Typically, compression is required several times during the natural gas
production cycle: at the wellhead, at the gathering lines, into and out of gas
processing facilities, into and out of storage and throughout the intrastate
and interstate pipelines.

   Over the life of an oil or gas well, natural reservoir pressure and
deliverability typically decline as reserves are produced. As the natural
reservoir pressure of the well declines below the line pressure of the gas
gathering or pipeline system used to transport the gas to market, gas no longer
naturally flows into the pipeline. It is at this time that compression
equipment is applied to economically boost the well's production levels and
allow gas to be brought to market.


   In addition to such wellhead and gas field gathering activities, natural gas
compressors are utilized in a number of other applications, all of which are
intended to enhance the productivity of oil and gas wells, gas transportation
lines and processing plants. Compressors are used to increase the efficiency of
a low capacity gas field by providing a central compression point from which
the gas can be removed and injected into a pipeline for transmission to
facilities for further processing. As gas is transported through a pipeline,
compression equipment is applied to allow the gas to continue to flow in the
pipeline to its destination. Additionally, compressors are utilized to
re-inject associated gas to lift liquid hydrocarbons artificially which
increases the rate of crude oil production from oil and gas wells. Furthermore,
compression enables gas to be stored in underground storage reservoirs for
subsequent extraction during periods of peak demand. Finally, compressors are
often utilized in combination with oil and gas production equipment to process
and refine oil and gas into higher value added and more marketable energy
sources.



   Changing well and pipeline pressures and conditions over the life of a well
often require producers to reconfigure or change their compressor units to
optimize the well production or pipeline efficiency. Due to the


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<PAGE>


technical nature of the equipment, a dedicated local parts inventory, a
diversified fleet of natural gas compressors and a highly trained staff of
field service personnel are necessary to perform such functions in the most
economic manner. These requirements, however, have typically proven to be an
extremely inefficient use of capital and manpower for independent natural gas
producers and have caused such firms, as well as natural gas processors and
transporters, to increasingly outsource their non-core compression activities
to specialists such as Hanover.



   The advent of rental and contract compression roughly 40 years ago made it
possible for natural gas producers, transporters and processors to improve the
efficiency and financial performance of their operations. Compressors leased
from specialists generally have a higher rate of mechanical reliability and
typically generate greater productivity than those owned by oil and gas
operators. Furthermore, because compression needs of a well change over time,
outsourcing of compression equipment enables an oil and gas producer to better
match variable compression requirements to the production needs throughout the
life of the well. Also, certain major domestic oil companies are seeking to
streamline their operations and reduce their capital expenditures and other
costs. To this end, they have sold certain domestic energy reserves to
independent energy producers and are outsourcing facets of their operations. We
believe that such initiatives are likely to contribute to increased rental of
compressor equipment.



   Natural gas compressor fabrication involves the design, fabrication and sale
of compressors to meet the unique specifications dictated by the well pressure,
production characteristics and the particular applications for which
compression is sought. Compressor fabrication is essentially an assembly
operation in which an engine, compressor, control panel, cooler and necessary
piping are attached to a frame called a "skid." A fabricator typically
purchases the various compressor components from third party manufacturers, but
employs its own engineers and design and labor force.


   In order to meet customers' needs, gas compressor fabricators typically
offer a variety of services to their customers including: (1) engineering,
fabrication and assembly of the compressor unit; (2) installation and testing
of the unit; (3) ongoing performance review to assess the need for a change in
compression; and (4) periodic maintenance and replacement parts supply.


Production Equipment



   Oil and gas reserves are generally not commercially marketable as produced
at the wellhead. Typically, such reserves must be refined before they can be
transported to market. Oil and gas production equipment is utilized to separate
and treat such oil and gas immediately after it is produced in order to
facilitate further processing, transportation and sale of such fuels and
derivative energy sources. Oil and gas production equipment is typically
installed at the wellhead immediately prior to commencing the large scale
production phase of a well and remains at the site through the life of the well.






Market Conditions

   We believe that the most fundamental force driving the demand for gas
compression and production equipment is the growing consumption of natural gas.
As more gas is consumed, the demand for compression and production equipment
increases.


   Additionally, although natural gas has historically been a more significant
source of energy in the United States than in the rest of the world, we believe
that aggregate foreign natural gas consumption (excluding the former Soviet
Union) has recently grown. Despite significant growth in energy demand, most
non-U.S. energy markets, until recently, have typically lacked the
infrastructure necessary to transport natural gas to local markets, and natural
gas historically has been flared at the wellhead. Given recent environmental
legislation and the construction of numerous natural gas-fueled power plants
built to meet international energy demand, we believe that international
compression markets are experiencing growth.


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<PAGE>


   Natural gas is considered to be the "fuel of the future" because it provides
the best mix of environmental soundness, economy and availability of any energy
source. Rising worldwide energy demand, environmental considerations, the
further development of the natural gas pipeline infrastructure and the
increasing use of natural gas as a fuel source in power generation are the
principal reasons for this growth.


   While gas compression and production equipment typically must be highly
engineered to meet demanding and unique customer specifications, the
fundamental technology of such equipment has been stable and has not been
subject to significant technological change.

                                   Property


   The following table describes the material facilities owned or leased by
Hanover and its subsidiaries as of March 31, 2002:



<TABLE>
<CAPTION>
                       Square
       Location         Feet   Status                       Uses
       --------        ------- ------ -------------------------------------------------
<S>                    <C>     <C>    <C>
Houston, Texas........ 192,000  Owned Corporate headquarters and compressor fabrication
Yukon, Oklahoma.......  11,700  Owned Office and compressor maintenance
Pocola, Oklahoma......   8,000  Owned Office and compressor maintenance
Midland, Texas........  12,000  Owned Office and compressor maintenance
Davis, Oklahoma....... 345,000  Owned Compressor fabrication
Kilgore, Texas........  16,750  Owned Office and compressor maintenance
Columbus, Texas....... 210,000  Owned Production equipment manufacturing
Broussard, Louisiana..  35,000  Owned Office and compressor maintenance
Farmington, New Mexico  19,000  Owned Office and compressor maintenance
Broken Arrow, Oklahoma 134,570  Owned Office and compressor fabrication
Tulsa, Oklahoma.......  40,000  Owned Production equipment manufacturing
Aldridge, Walsall, UK.  33,700  Owned Office and compressor maintenance
Alberta, Canada.......  78,000  Owned Office and compressor maintenance
Houston, Texas........ 137,000  Owned Office and compressor fabrication
Houston, Texas........ 190,000  Owned Compressor fabrication
Victoria, Texas.......  19,000 Leased Office and compressor maintenance
Farmington, New Mexico  18,500 Leased Office and compressor maintenance
Neuquen, Argentina....  32,900 Leased Office and compressor maintenance
El Tigre, Venezuela...  14,300 Leased Office and compressor maintenance
Patio Ocana, Venezuela  26,700 Leased Office and compressor maintenance
</TABLE>


   Hanover's executive offices are located at 12001 North Houston Rosslyn,
Houston, Texas 77086 and its telephone number is (281) 447-8787.

   HCLP's executive offices are located at 12001 North Houston Rosslyn,
Houston, Texas 77086 and its telephone number is (281) 447-8787.

                               Business Segments


   Our revenues and income are derived from five business segments (comprising
four operating divisions): (a) domestic compression rentals; (b) international
compression rentals; (c) compressor fabrication; (d) production and processing
equipment fabrication and (e) parts, service and used equipment. The domestic
and international compression rentals segments have operations primarily in the
United States, Canada and South America. For financial data relating to our
business segments, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Hanover Compressor Company and Hanover
Compression Limited Partnership" and the notes to our consolidated financial
statements included or incorporated by reference in this prospectus.




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<PAGE>

                     Compression Services and Fabrication


   We provide our customers with a full range of compressor rental, maintenance
and contract compression services. As of March 31, 2002, our gas compressor
fleet consisted of 7,161 units, ranging from 24 to 4,450 horsepower per unit.
The size, type and geographic diversity of this rental fleet enable us to
provide our customers with a range of compression units that can serve a wide
variety of applications and to select the correct equipment for the job, rather
than trying to "fit" the job to its fleet of equipment.


   We base our gas compressor rental rates on several factors, including the
cost and size of the equipment, the type and complexity of service desired by
the customer, the length of the contract, and the inclusion of any other
services desired, such as installation, transportation and the degree of daily
operation. Substantially all of our units are operated pursuant to "contract
compression" or "rental with full maintenance" contracts under which we perform
all maintenance and repairs on such units while under contract. In the U.S.
onshore market, compression rental fleet units are generally leased under
contract with minimum terms of six months to two years, which convert to
month-to-month at the end of the stipulated minimum period. Historically, the
majority of our customers have extended the length of their contracts, on a
month-to-month basis, well beyond the initial term. Typically, our compression
rental units utilized in offshore and international applications carry
substantially longer lease terms than those for onshore domestic applications.


   An essential element to our success is our ability to provide compression
services to customers with contractually committed compressor run-times of
between 95% and 98%. Historically, our incidence of failing to meet run-time
commitments (the penalty for which is paid in credits to the customer's
account) has been insignificant, due largely to our rigorous preventive
maintenance program and extensive field service network which permits us to
promptly address maintenance requirements. Our rental compressor maintenance
services are performed by over 2,300 experienced and factory-trained
maintenance personnel both at our facilities and in the field. Such maintenance
facilities are situated in close proximity to actual rental fleet deployment to
permit superior service response times.



   All rental fleet units are serviced at manufacturers' recommended
maintenance intervals, modified as required by the peculiar characteristics of
each individual job and the actual operating experience of each compressor
unit. Prior to the conclusion of any rental job, our field management evaluates
the condition of the equipment and, where practical, corrects any problems
before the equipment is shipped out from the job site. Although natural gas
compressors generally do not suffer significant technological obsolescence,
they do require routine maintenance and periodic refurbishing to prolong their
useful life. Routine maintenance includes alignment, compression checks and
other parametric checks that indicate a change in the condition of the
equipment. In addition, oil and wear-particle analysis is performed on all
units prior to their redeployment at specific compression rental jobs.
Overhauls are done on a condition-based interval instead of a time-based
schedule. In our experience, these rigorous procedures maximize component life
and unit availability and minimize avoidable downtime. Typically, we overhaul
each rental compressor unit for general refurbishment every 36 to 48 months and
anticipate performing a comprehensive overhaul of each rental compressor unit
every 60 to 72 months. This maintenance program has provided us with a highly
reliable fleet of compressors in excellent condition.



   Our field service mechanics provide all operating and maintenance services
for our compression units leased on a contract compression or full maintenance
basis and are on-call 24 hours a day. Those field personnel receive regular
mechanical and safety training both from our staff and our vendors. Each of our
field mechanics is responsible for specific compressor unit installations and
has at his or her disposal a dedicated local parts inventory. Additionally,
each field mechanic operates from a fully-equipped service vehicle. Each
mechanic's field service vehicle is radio or cellular telephone equipped which
allows that individual to be our primary contact with the customer's field
operations staff and to be contacted at either his or her residence or mobile
phone 24 hours a day. Accordingly, our field service mechanics are given the
responsibility to promptly respond to customer service needs as they arise
based on the mechanic's trained judgment and field expertise.



                                      85

<PAGE>


   We believe our competitive position has benefited from the managerial parity
that our sales and field service organizations enjoy within the company,
enabling these two vital organizations to work together in a highly coordinated
fashion in order to deliver maximum customer service, responsiveness and
reliability. The foundation for our successful field operations effort is the
experience and responsiveness of our over 2,300 member compressor rental field
service and shop staff of factory-trained and field-tested compressor
mechanics. Our field service mechanics are coordinated and supported by
regional operations managers who have supervisory responsibility for specific
geographic areas.



   Our compressor fabrication operations, doing business as Hanover Maintech,
Hanover-Davis, Hanover Dresser-Rand and Production Operators, design, engineer
and assemble compression units for sale to third parties as well as for
placement in our compressor rental fleet. As of March 31, 2002, we had a
compressor unit fabrication backlog for sale to third parties of $29.2 million
compared to $68.1 million as of March 31, 2001. We believe that the decrease in
backlog is attributable to weaker market conditions, generally, which we
believe are in part attributable to the decrease in the price of natural gas in
late 2001 and a contraction of capital spending and investing in the in the
wake of the September 11, 2001 terrorist attacks and the Enron bankruptcy. The
average wellhead natural gas price decreased to $2.34 per mcf in the first
quarter of 2002 from $6.35 per mcf in the first quarter of 2001. The wellhead
natural gas price averaged $4.12 per mcf in 2001 and $3.69 per mcf in 2000.
Substantially all backlog is expected to be produced within a 90 to 180 day
period. In general, units to be sold to third parties are assembled according
to each customer's specifications and sold on a turnkey basis. We acquire major
components for these compressor units from third party suppliers.





                       Oil and Gas Production Equipment



   Through our divisions doing business as Hanover Smith and Hanover Applied
Process Solutions, we design, engineer, fabricate and either sell or
occasionally rent a broad range of oil and gas production equipment designed to
heat, separate, dehydrate and measure crude oil and natural gas. Our product
line includes line heaters, oil and gas separators, glycol dehydration units
and skid-mounted production packages designed for both onshore and offshore
production facilities. We generally maintain standard product inventories in
excess of $5 million and are therefore able to meet most customers' rapid
response requirements and minimize customer downtime. As of March 31, 2002, we
had a production equipment fabrication backlog of $34.3 million compared to
$62.7 million as of March 31, 2001. We believe that the decrease in backlog is
attributable to weaker market conditions, generally, which we believe are in
part attributable to the decrease in the price of natural gas in late 2001 and
a contraction of capital spending and investing in the in the wake of the
September 11, 2001 terrorist attacks and the Enron bankruptcy. In addition,
backlog has decreased due to our decision to focus on standardized products
that historically deliver higher margins and are usually sold out of production
stock. Substantially all backlog is expected to be produced within a 90 to 180
day period. We also purchase and reconditions used production equipment which
is then sold or rented.



                               Parts and Service



   We purchase and recondition used gas compression units, power generation and
treating facilities and production equipment which is then sold or rented to
customers. In addition, we often provide contract operations and related
services for customers that prefer to own their production, gas treating, power
generation or compression equipment. We believe that we are particularly well
qualified to provide these services because our highly experienced operating
personnel have access to the full range of our compression rental, production
processing equipment and power generation equipment and facilities. As
customers look to us to provide an ever-widening array of outsourced services,
we will continue to build our core business with emerging business
opportunities, such as turnkey gas treatment, gas measurement and power
generation sales and services.


                                      86

<PAGE>

                             Market and Customers


   Our customer base consists of over 1,500 U.S. and international companies
engaged in all aspects of the oil and gas industry, including major integrated
oil and gas companies, large and small independent producers and natural gas
processors, gatherers and pipelines. Additionally, we have negotiated strategic
alliances or preferred vendor relationships with key customers pursuant to
which we receive preferential consideration in customer compressor and oil and
gas production equipment procurement decisions in exchange for providing
enhanced product availability, product support, automated procurement practices
and limited pricing concessions. No individual customer accounted for more than
10% of our consolidated revenues during 2001 or 2000. Production Operators
Corporation ("POC"), which we acquired in 2001 and was previously part of the
gas compression business of Schlumberger, generated 49% of its revenues in 2001
from its three largest customers. On a pro forma basis, these three customers
would have accounted for a total of approximately 10% of our revenues in 2001.



   Our compressor leasing activities are located throughout the continental
United States, internationally and in offshore operations. International
locations include Tunisia, Nigeria, Argentina, Barbados, Egypt, Equatorial
Guinea, India, Venezuela, Colombia, Trinidad, Bolivia, Brazil, Mexico,
Indonesia, Spain, Nigeria, United Kingdom and Canada. In addition, we have
representative offices in the Netherlands, China and the Cayman Islands. As of
March 31, 2002, equipment representing approximately 23%  of our compressor
horsepower was being used in international applications.


                              Sales and Marketing


   Our more than 120 salespeople report to three sales vice presidents. The
sales vice presidents report to our Chief Operating Officer. Our salespeople
aggressively pursue the rental and sale market for compressors and production
equipment in their respective territories. Each salesperson is assigned a
customer list on the basis of the experience and personal relationships of the
salesperson and the individual service requirements of the customer. This
customer and relationship-focused strategy is communicated through frequent
direct contact, technical presentations, print literature, print advertising
and direct mail. Our advertising and promotion strategy is a "concentrated"
approach, tailoring specific messages into a very focused presentation
methodology.


   Additionally, our salespeople coordinate with each other to effectively
pursue customers who operate in multiple regions. The salespeople maintain
intensive contact with our operations personnel in order to promptly respond to
and satisfy customer needs. Our sales efforts concentrate on demonstrating our
commitment to enhancing the customer's cash flow through superior product
design, fabrication, installation, customer service and after-market support.

   Upon receipt of a request for proposal or bid by a customer, we assign a
team of sales, operations and engineering personnel to analyze the application
and prepare a quotation, including selection of the equipment, pricing and
delivery date. The quotation is then delivered to the customer, and, if we are
selected as the vendor, final terms are agreed upon and a contract or purchase
order is executed. Our engineering and operations personnel also often provide
assistance on complex compressor applications, field operations issues or
equipment modifications.

                                  Competition


   We believe that we are currently the largest natural gas compression company
in the United States on the basis of aggregate rental horsepower. However, the
natural gas compression services and fabrication business is highly
competitive. Overall, we experience considerable competition from companies who
may be able to more quickly adapt to changes within our industry and changes in
economic conditions as a whole, more readily take advantage of acquisition and
other opportunities and adopt more aggressive pricing policies.


                                      87

<PAGE>

   Compressor industry participants can achieve significant advantages through
increased size and geographic breadth. As the number of rental units increases
in a rental fleet, the number of sales, engineering, administrative and
maintenance personnel required does not increase proportionately. As a result,
due to economies of scale, companies such as Hanover with larger rental fleets
have relatively lower operating costs and higher margins than smaller companies.


   One of the significant cost items in the compressor rental business is the
amount of inventory required to service rental units. Each rental company must
maintain a minimum amount of inventory to stay competitive. As the size of the
rental fleet increases, the required amount of inventory does not increase in
the same proportion. The larger rental fleet companies can generate cost
savings through improved purchasing power and vendor support.



   We believe that we compete effectively on the basis of price, customer
service, including the availability of personnel in remote locations,
flexibility in meeting customer needs and quality and reliability of our
compressors and related services. The compressor fabrication business is
dominated by a few major competitors, some of which also compete with us in the
compressor rental business. We believe that we are the largest compressor
fabrication company in the United States.


   The production equipment business is a highly fragmented business with
approximately eight substantial U.S. competitors. Although sufficient
information is not available to definitively estimate our relative position in
this market, we believe that we are among the top three oil and gas production
equipment fabricators in the United States.




                           Fabrication and Materials



   Our fabrication operations consist of fabricating compressor and production
and processing equipment from components and subassemblies, most of which we
acquire from a wide range of vendors. These components represent a significant
portion of the cost of our compressor and production and processing equipment
products. Although our products are generally shipped within 180 days following
order date, increases in raw material costs cannot always be offset by
increases in our products' sales prices. We believe that all materials and
components are readily available from multiple suppliers at competitive prices.


                             Government Regulation


   We are subject to various federal, state, local and foreign laws and
regulations relating to the environment, health and safety, including
regulations regarding air emissions, wastewater and stormwater discharges, as
well as waste handling and disposal. In addition, certain of our customer
service arrangements may require us to operate, on behalf of a specific
customer, petroleum storage units such as underground tanks, or pipelines and
other regulated units, all of which may impose additional compliance
obligations. Certain states have or are considering, and the federal government
has recently passed, more stringent air emission controls on off-road engines.
These laws and regulations may affect the costs of our operations. As with any
owner of property, we are also subject to clean-up costs and liability for
hazardous materials or any other toxic or hazardous substance that may exist on
or under any of our properties.


   We believe that we are in substantial compliance with environmental laws and
regulations and that the phasing in of recent non-road engine air emission
controls and other known regulatory requirements at the rate currently
contemplated by such laws and regulations will not have a material adverse
effect on our financial condition, results of operations or cash flows.

                                      88

<PAGE>

   Notwithstanding, we may not be in compliance with certain environmental
requirements for recently acquired facilities, in part because of our rapid
growth through acquisitions. With respect to newly-acquired facilities, it is
our practice to investigate environmental compliance issues and address any
issues promptly. We cannot be certain, however, that all such issues are
completely resolved in accordance with applicable environmental regulations
prior to our taking over operations, although it is our goal to correct any
deficiencies as quickly as possible.

   The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on persons who are
considered to be responsible for the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the facility or
disposal site or sites where the release occurred and companies that disposed
or arranged for the disposal of the hazardous substances. Under CERCLA, and
similar state laws, such persons may be subject to joint and several liability
for the costs of cleaning up the hazardous substances that have been released
into the environment, for damages to natural resources, and for the costs of
certain health studies. Furthermore, it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by hazardous substances or other pollutants
released into the environment. We are not currently under any order requiring
that we undertake or pay for any cleanup activities, nor are we aware of any
current environmental claims by the government or private parties against us
demanding remedial costs or alleging that we are liable for such costs.
However, we cannot be certain that we will not receive any such claims in the
future.

   The Resource Conservation and Recovery Act ("RCRA"), and regulations
promulgated thereunder, govern the generation, storage, transfer and disposal
of hazardous wastes. We must comply with RCRA regulations for any of our
operations that involve the generation, management or disposal of hazardous
wastes (such as painting activities or the use of solvents). In addition, to
the extent we operate underground tanks on behalf of specific customers, such
operations may be regulated under RCRA. We believe we are in substantial
compliance with RCRA and are not aware of any current claims against us
alleging RCRA violations. We cannot be certain, however, that we will not
receive such notices of potential liability in the future.

   Stricter standards in environmental legislation that may affect us may be
imposed in the future, such as more stringent air emission requirements or
proposals to make hazardous wastes subject to more stringent and costly
handling, disposal and clean-up requirements. While we may be able to pass on
the additional costs of complying with such laws to our customers, there can be
no assurance that attempts to do so will be successful. Accordingly, new laws
or regulations or amendments to existing laws or regulations might require us
to undertake significant capital expenditures and otherwise have a material
adverse effect on our business, results of operations, cash flows and financial
condition.


                              Foreign Operations



   We operate in many different geographic markets, some of which are outside
the United States. Changes in local economic or political conditions,
particularly in Venezuela, Argentina, other parts of Latin America or Canada,
could have a material adverse effect on our business, results of operations and
financial condition. Additional risks inherent in our international business
activities include the following: (a) difficulties in managing international
operations; (b) unexpected changes in regulatory requirements; (c) tariffs and
other trade barriers which may restrict our ability to enter into new markets;
(d) potentially adverse tax consequences; (e) restrictions on repatriation of
earnings or expropriation of property; (f) the burden of complying with foreign
laws; and (g) fluctuations in currency exchange rates and the value of the U.S.
dollar.



   As part of our acquisition of the gas compression business of Schlumberger,
we acquired minority interests in three joint ventures in Venezuela. As a
minority investor in these joint ventures, we will not be able to


                                      89

<PAGE>


control their operations and activities, including without limitation, whether
and when they distribute cash or property to their holders. For financial data
relating to the Company's geographic concentrations, see the notes to our
consolidated financial statements included or incorporated by reference in this
prospectus.


                                   Employees


   As of March 31, 2002, we had approximately 5,000 employees, approximately
100 of whom are represented by a labor union. We believe that our relations
with our employees are satisfactory.


                               Legal Proceedings


   Commencing in February 2002, approximately 14 putative class action lawsuits
were filed against us and certain of our officers and directors in the United
States District Court for the Southern District of Texas. The plaintiffs in the
actions each purport to represent purchasers of our common stock during various
periods ranging from May 15, 2000 through January 28, 2002. The complaints
assert various claims under Section 10(b) and 20(a) of the Securities Exchange
Act of 1934 and seek unspecified amounts of compensatory damages, interest and
costs, including legal fees. In addition, commencing in February 2002, four
derivative lawsuits were filed in the United States District Court for the
Southern District of Texas and one derivative lawsuit was filed in the Delaware
State Court in New Castle County, Delaware. These derivative lawsuits, which
were filed by certain of our shareholders against our directors purportedly on
behalf of the Company, allege, among other things, that our directors breached
their fiduciary duties to shareholders and seek unspecified amounts of damages,
interest and costs, including legal fees. We intend to defend these cases
vigorously. The Board of Directors has formed a Special Litigation Committee to
address the issues raised by the derivative suits. The lawsuits are at a very
early stage. Consequently, it is not possible at this time to predict whether
we will incur any liability or to estimate the damages, or the range of
damages, if any, that we might incur in connection with such actions, or
whether an adverse outcome could have a material adverse impact on our
business, consolidated financial condition, results of operations or cash flows.



   The Fort Worth District Office of the Securities and Exchange Commission has
requested Hanover to provide information relating to the matters involved in
Hanover's restatement of its financial results for the year ended December 31,
2000 and the nine months ended September 30, 2001. Hanover is cooperating fully
with this request. It is too soon to tell whether the outcome of this inquiry
will have a material effect on the Company's business, financial condition,
results of operations or cash flows.



   We are involved in various other legal proceedings that are considered to be
in the normal course of business. We believe that these proceedings will not
have a material adverse effect on our business, consolidated financial
condition, results of operations or cash flows.


                                      90

<PAGE>




               SECURITY OWNERSHIP OF HANOVER COMPRESSOR COMPANY



   The following table sets forth, as of April 1, 2002, the beneficial
ownership of the common stock of Hanover by (i) each person who is known by us
to beneficially own more than 5% of our outstanding common stock, (ii) each
director of Hanover, (iii) each executive officer of Hanover named in the
Summary Compensation Table incorporated by reference herein from Hanover's
Definitive Proxy Statement, dated April 22, 2002, for the Annual Meeting of
Stockholders held on May 14, 2002, and (iv) all directors and executive
officers of Hanover as a group. Unless otherwise noted, the persons named in
the table have sole voting and investment power with respect to all shares
shown as beneficially owned by them. As of April 1, 2002, 79,175,561 shares of
Hanover common stock were issued and outstanding.



<TABLE>
<CAPTION>
                                                                  Number of
                                                                    Shares          Approximate
                                                                 Beneficially       Percent of
Name and Address                                                    Owned              Class
----------------                                             ------------           -----------
<S>                                                          <C>                    <C>
Melvyn N. Klein.............................................  18,274,795(1)            23.1%
 Wells Fargo Tower, Suite 1940
 615 North Upper Broadway
 Corpus Christi, Texas 78477
GKH Investments, L.P........................................  17,607,237               22.2%
 200 West Madison
 Chicago, Illinois 60606
Schlumberger Limited........................................   8,707,693(2)            11.0%
 153 East 53rd Street, 57th Floor
 New York, New York 10022
GKH Partners, L.P...........................................     667,558(3)               *
 200 West Madison
 Chicago, IL 60606
Michael A. O'Connor.........................................   1,904,190(4)             2.3%
Michael J. McGhan...........................................   1,225,514(5)             1.5%
William S. Goldberg.........................................     504,408(6)               *
Ted Collins, Jr.............................................     345,536(7)               *
Alvin V. Shoemaker..........................................     283,966(8)               *
Robert R. Furgason..........................................       8,350(9)               *
Robert O. Pierce............................................     142,654(10)              *
Joe C. Bradford.............................................     245,198(11)              *
Charles D. Erwin............................................     370,310(12)              *
Victor E. Grijalva..........................................           0                  *
John Brumley................................................           0                  *
Rene Huck...................................................           0                  *
John E. Jackson.............................................           0                  *
Gordon Hall.................................................           0                  *
All directors and executive officers as a group (15 persons)  23,304,891(1)(4)-(12)    28.1%
</TABLE>

--------

*  Less than one percent


 (1) Includes (i) 17,607,237 shares of common stock owned by GKH Investments,
     L.P. and (ii) 667,558 shares of common stock owned by GKH Partners, L.P.
     GKH Partners is the general partner of GKH Investments. Mr. Klein, who is
     a director of Hanover, is the sole stockholder of a corporation which is a
     general partner of GKH Partners. By virtue of his relationship to GKH
     Partners, Mr. Klein may be deemed to share beneficial ownership of the
     shares of common stock owned by GKH Investments and GKH Partners. Mr.
     Klein disclaims beneficial ownership of all shares owned by GKH
     Investments and GKH Partners.


 (2) Includes 51,491 shares of common stock owned by Schlumberger Technology
     Corporation, 6,762,479 shares of common stock owned by Camco
     International, Inc., 1,430,304 shares of common stock owned by


                                      91

<PAGE>


   Schlumberger Surenco, S.A., 366,158 shares of common stock owned by
   Schlumberger Oilfield Holdings, Ltd., and 97,261 shares of common stock
   owned by Operational Services, Inc. Schlumberger Limited, as the direct or
   indirect owner of all these entities, may be deemed to beneficially own all
   8,707,693 shares of common stock listed above.


 (3) Excludes 17,607,237 shares of common stock owned by GKH Investments. GKH
     Partners is the general partner of GKH Investments. As the general partner
     of GKH Investments, GKH Partners may be deemed to be the beneficial owner
     of stock held by GKH Investments; however, GKH Partners disclaims any such
     beneficial ownership.


 (4) Includes 1,382,038 shares subject to options held by Mr. O'Connor and
     500,000 shares subject to options held by the Michael A. O'Connor and
     Karen L. O'Connor Foundation. Excludes 339,550 shares held by Goldman
     Sachs Exchange Place Fund, L.P., in which Mr. O'Connor has an interest.
     Mr. O'Connor disclaims beneficial ownership of such shares.


 (5) Includes 944,030 shares subject to options held by Mr. McGhan, 5,650
     shares of common stock held by Mr. McGhan's wife individually and as joint
     tenants with Mr. McGhan and 1,200 shares of common stock held by Mr.
     McGhan's two minor children.


 (6) Excludes 80,832 shares of common stock owned by Mr. Goldberg's wife, Nancy
     K. Goldberg, as trustee of the Nancy K. Goldberg Declaration of Trust,
     3,900 shares of Common Stock held in the William S. Goldberg Children's
     Trust and 32,476 shares owned by Mrs. Goldberg individually. Mr. Goldberg
     disclaims beneficial ownership of all of such shares. Includes 300,000
     shares subject to options held by Mr. Goldberg.


 (7) Includes 2,094 shares subject to warrants held by Mr. Collins. Excludes
     4,000 shares held in trust for the benefit of Mr. Collins' two minor
     children. Mr. Collins is the trustee of such trusts but disclaims
     beneficial ownership of such shares.


 (8) Excludes shares beneficially owned directly or indirectly by members of
     Mr. Shoemaker's family as to which Mr. Shoemaker has no voting or
     investment power. Excludes 34,190 shares held by Goldman Sachs Exchange
     Place Fund, L.P., in which Mr. Shoemaker has an interest. Mr. Shoemaker
     disclaims beneficial ownership of all such shares.


 (9) Excludes 400 shares owned by Mr. Furgason's wife. Mr. Furgason disclaims
     beneficial ownership of all such shares.


(10) Includes 112,600 shares subject to options held by Mr. Pierce.


(11) Includes 201,634 shares subject to options held by Mr. Bradford.


(12) Includes 322,302 shares subject to options held by Mr. Erwin.





                                      92

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

General

   Hanover Compression Limited Partnership is a Delaware limited partnership
and an indirect wholly-owned subsidiary of Hanover. HCLP was formed on December
7, 2000 by the filing of a certificate of limited partnership with the
Secretary of State of the State of Delaware.


Limited Partnership Agreement



   HCLP operates under a limited partnership agreement between Hanover
Compression General Holdings, LLC, a Delaware limited liability company and a
direct wholly-owned subsidiary of Hanover, as general partner (the "general
partner"), and HCL Holdings, LLC, a Delaware limited liability company and a
direct wholly-owned subsidiary of Hanover, as limited partner (the "limited
partner"). The general partner has exclusive control over the business of HCLP
and holds 1% of HCLP's partnership interests. The limited partner has no right
to participate in or vote on the business of HCLP and holds 99% of HCLP's
partnership interests. The profits and losses of HCLP are allocated to the
partners in accordance with their respective percentage interests in the
partnership. HCLP is obligated to indemnify each partner and its equity holder,
directors, officers, and employees against any liabilities or expenses arising
out of the activities of the partnership, except (i) for liabilities or
expenses incurred as a result of the gross negligence, willful misconduct or
bad faith of such person or a knowing and material violation of the limited
partnership agreement, (ii) as to which indemnification is barred by law or
(iii) as to its share as partner in any losses or expenses of the partnership.
Neither the general partner nor the limited partner may sell, transfer, assign
or encumber all or any part of its partnership interest or retire or withdraw
from the partnership, except with the written consent of the other partner.


Executive Officers and Managers of the General Partner

   HCLP's executive officers are appointed by, and serve at the discretion of,
the general partner. HCLP has no directors. The managers of the general partner
are appointed by, and serve at the discretion of, Hanover, the sole member of
the general partner. Set forth below, at the date of this prospectus, are the
names, ages and business experience for the last five years of each of the
executive officers and the managers of the general partner.


<TABLE>
<CAPTION>
          Name              Age                Position
          ----              ---                --------
          <S>               <C> <C>
          Michael J. McGhan 47  President and Chief Executive Officer;
                                Manager of the General Partner
          John E. Jackson.. 43  Senior Vice President and Chief
                                Financial Officer; Manager of the
                                General Partner
          Charles D. Erwin. 41  Manager of the General Partner
</TABLE>


   MICHAEL J. McGHAN has served as President and Chief Executive Officer of
HCLP since June 2001.
Mr. McGhan has served as Manager of the general partner since November 2001.
Mr. McGhan has served as President and Chief Executive Officer of Hanover and
as a director of Hanover since March 1992. Mr. McGhan also serves as an officer
and a director of certain of Hanover's other subsidiaries.




   JOHN E. JACKSON has served as Senior Vice President and Chief Financial
Officer of HCLP and as Manager of the general partner since February 2002. Mr.
Jackson has also served as Senior Vice President--Chief Financial Officer of
Hanover since February 2002. Prior to joining Hanover, Mr. Jackson served as
Vice President and Chief Financial Officer of Duke Energy Field Services
("DEFS"), a $10 billion joint venture of Duke Energy and Phillips Petroleum
that is one of the nation's largest producers and marketers of natural gas
liquids. Mr. Jackson joined DEFS as Vice President and Controller in April 1999
and was named Chief Financial Officer in February 2001. Prior to joining DEFS,
Mr. Jackson served in a variety of treasury, controller and accounting
positions at Union Pacific Resources between June 1981 and April 1999,
including Chief Financial Officer--Gathering Processing & Marketing Division.


                                      93

<PAGE>


   CHARLES D. ERWIN has served as Manager of the general partner since November
2001. Mr. Erwin has also served as Chief Operating Officer of Hanover since
April 2001 and as Senior Vice President--Sales and Marketing of Hanover from
May 2000 to April 2001. Prior to being named Senior Vice President, Mr. Erwin
served as a Vice President of Hanover since October 1990.


Compensation of Executive Officers and Managers of the General Partner


   HCLP's executive officers and the managers of the general partner do not
receive compensation for serving in such capacities in addition to that earned
with respect to services provided to Hanover and its consolidated subsidiaries.
Certain information with respect to compensation paid by Hanover to such
persons is disclosed in Hanover's Annual Report on Form 10-K/A for the year
ended December 31, 2001 and Hanover's Definitive Proxy Statement, dated April
22, 2002, for the Annual Meeting of Stockholders held on May 14, 2002, both of
which are incorporated by reference herein. See "Where You Can Find More
Information" and "Incorporation of Documents by Reference."


                                      94

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

General


   The Issuer is a special purpose Delaware business trust formed on August 16,
2001. The Issuer was created under a trust agreement between J.P. Morgan
Leasing, Inc., as initial certificate holder, and Wilmington Trust Company, as
trustee of the Issuer, by the filing of a certificate of trust with the
Secretary of State of the State of Delaware. The Issuer's original trust
agreement was amended and restated in its entirety as of August 30, 2001 and
the initial certificate holder assigned its interest to General Electric
Capital Corporation ("GE Capital") and was repaid its capital contribution.



   GE Capital holds the Issuer's equity certificate. The equity certificate
represents a common undivided beneficial interest in the assets of the Issuer
with an aggregate liquidation amount equal to at least 3% of the total capital
of the Issuer. Although Hanover and its affiliates have had arms-length
business dealings with GE Capital and its affiliates in the past and may do so
in the future, none of these transactions have resulted in and are not expected
to result in any material conflict of interest between GE Capital and the
Issuer.



   The address of the principal office of the Issuer is c/o Wilmington Trust
Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention:
Corporate Trust Administration, and its telecopy number is (302) 651-8882



Trust Agreement



   The Issuer conducts its business pursuant to the terms of its trust
agreement. The Issuer exists for the exclusive purposes of


    .  issuing the old notes and the new notes;

    .  issuing the equity certificates to the equity certificate holder;

    .  investing the gross proceeds of the old notes and the equity
       certificates in the Equipment;

    .  entering into the Lease, a participation agreement and other ancillary
       agreements relating to the financing of the Equipment (collectively, the
       "Operative Agreements");

    .  distributing payments received under the Lease to the holders of the old
       notes or the new notes, as the case may be, and the equity certificates;
       and

    .  engaging in only those other activities necessary or incidental to such
       purposes.


   Pursuant to the trust agreement, the equity certificate holder authorized
the trustee of the Issuer to execute and deliver each of the Operative
Agreements to which the Issuer is a party and to take such other actions as
required by each of such Operative Agreements. The Issuer holds all legal right
and title in and to the Equipment, the equity certificate holder contributions,
the proceeds of the old notes, the Operative Agreements and any other property
or payment of any kind (collectively, the "Trust Estate") for the use and
benefit of the equity certificate holder.



   The Issuer does not have officers or directors. The trustee of the Issuer
has a duty to protect and conserve the Trust Estate for the use and benefit of
the equity certificate holder, subject to the provisions of the Operative
Agreements. Subject to the terms of the trust agreement, the Operative
Agreements and applicable law, the trustee of the Issuer acts on behalf of the
Issuer solely as authorized and directed by the equity certificate holder. The
trustee of the Issuer may not otherwise manage or control the Trust Estate. The
trustee of the Issuer is indemnified by the equity certificate holder for any
liabilities or expenses that may be imposed on it arising out of or relating to
the Trust Estate, the administration of the Trust Estate, the Operative
Agreements or the Equipment. The equity certificate holder has the right to
appoint, remove or replace the trustee of the Issuer. Amendments to the trust
agreement must be approved in writing by a party (including, if applicable, the


                                      95

<PAGE>


indenture trustee) who would be adversely affected thereby. The trust agreement
and the trust will terminate and the Trust Estate will be distributed, subject
to the Operative Agreements, to the equity certificate holder upon the sale of
all property constituting the Trust Estate or after thirty years. In addition,
at any time after six months from the date on which the Lease is no longer in
effect, the trustee of the Issuer may terminate the trust agreement and the
trust at its option and convey the Trust Estate to the equity certificate
holder.




Financing

   To fund the purchase of the Equipment from HCLP, the Issuer issued $250
million aggregate principal amount of old notes and raised $7.8 million in
equity from the Issuer's equity certificate holder. Interest accrues on the
notes at the rate of 8.75% per year, payable semi-annually in arrears on March
1 and September 1 of each year. The notes mature on September 1, 2011. See
"Description of Notes--General--The Notes" and

"--Interest". Return on the equity certificate accrues at the Eurodollar rate
or the prime rate, plus a spread in each case of 8.375% per year, payable
quarterly on March 1, June 1, September 1 and December 1 of each year.



   A schedule reflecting the dates and amounts payable on the notes and the
equity certificate is set forth below. All amounts under the notes are payable
to the indenture trustee. All amounts under the equity certificate are payable
to the equity certificate holder.



<TABLE>
<S>                        <C>                                   <C>
        Obligation                      Amount Due                           Date Due
        ----------                      ----------                           --------
8.75% Senior Secured Notes $10,998,234 (1)                       March 1, 2002
due 2011                   $10,937,500 (1)                       Each March 1 and September 1
                                                                 thereafter to maturity
    Equity Certificate     Accrued return on approximately       March 1, June 1, September 1 and
                           $7.8 million, based on the floating   December 1 to maturity
                           certificate holder yield rate of the
                           Eurodollar rate or the prime rate at
                           the Issuer's option, plus a spread in
                           each case of 8.375% (2)
</TABLE>

--------

(1) Excludes additional interest paid by the Issuer to the holders of old notes
    under the exchange and registration rights agreement. This additional
    interest began accruing on January 28, 2002 at the rate of $0.192 per week
    per $1,000 principal amount of notes outstanding because the registration
    statement of which this prospectus is a part was not declared effective on
    or prior to 150 days after the issuance of the old notes and the exchange
    offer was not consummated on or prior to 180 days after the date of
    issuance of the old notes. Following the closing of the exchange offer,
    which we believe will cure all registration defaults, the accrual of
    additional interest will cease. See "The Exchange Offer--Additional
    Interest."


(2) As of March 31, 2002, based upon the certificate holder yield rate of
    10.2%, the Issuer would make payments to the equity certificate holder of
    $192,000 per quarter.




Legal Proceedings

   From time to time, the Issuer may be involved in litigation relating to
claims arising out of its operations or in the normal course of its business.
The Issuer is not currently involved in any material litigation or proceeding
and is not aware of any such litigation or proceeding threatened against it.

                                      96

<PAGE>


                             CERTAIN TRANSACTIONS





Transactions with GKH Entities



   Hanover and GKH are parties to a stockholders agreement which provides,
among other things, for GKH Investments' rights of visitation and inspection
and Hanover's obligation to provide Rule 144A information to prospective
transferees of GKH's Hanover common stock.



   Hanover, GKH and other stockholders (collectively, the "Holders"), who as of
April 1, 2002 together beneficially own approximately 23% of the outstanding
Hanover common stock are parties to a Registration Rights Agreement (the "GKH
Rights Agreement"). The GKH Rights Agreement generally provides that if Hanover
proposes to register shares of its capital stock or any other securities under
the Securities Act, then upon the request of those Holders owning in the
aggregate at least 2.5% of Hanover common stock (the "Registrable Securities")
then held by all of the Holders, Hanover will use its reasonable best efforts
to cause the Registrable Securities so requested by the Holders to be included
in the applicable registration statement, subject to underwriters' cutbacks.
Hanover is required to pay all registration expenses in connection with
registrations of Registrable Securities effected pursuant to the GKH Rights
Agreement. In addition, GKH as a holder of more than 18% of Hanover common
stock, has the right to demand, on one occasion, the registration of its common
stock.



   Hanover and GKH were parties to an agreement whereby, in exchange for
investment banking and financial advisory services rendered, Hanover agreed to
pay a fee to GKH. In February 2001, in full satisfaction of its obligations
under this agreement, Hanover paid a one time fee of $2,048,000 to GKH for
services rendered under the agreement, which amount was included in accrued
liabilities as of December 31, 2000.



   In August 2001, Hanover paid a $4,650,000 fee to GKH as payment for services
rendered in connection with Hanover's acquisition of POI and related assets.



   Pursuant to an agreement with GKH which provides for compensation to GKH for
services, Hanover paid a management fee of $45,000 per month from November 2001
until terminated January 2002.



   Hanover leases certain compression equipment to an affiliate of Cockrell Oil
and Gas, LP, which was owned 50% by GKH until January 2001. The lease is on a
month-to-month basis. For the years ended 2001, 2000 and 1999, approximately
$76,000, $228,540 and $228,540, respectively, was billed under the lease.



   William S. Goldberg, a Managing Director of GKH Partners, acted as Chief
Financial Officer of the Company during fiscal 2001 and currently serves as
Vice Chairman of Hanover and spends a substantial portion of his time on
Hanover business. He does not currently receive cash remuneration from Hanover,
which reimburses GKH Partners for certain travel and related expenses incurred
by Mr. Goldberg in connection with his efforts on our behalf.



Transactions with Schlumberger Entities



   In August 2001, Hanover purchased Production Operators Corporation and
related assets (the "POI Acquisition") from the Schlumberger Companies (as
defined below). Schlumberger Limited (we refer to Schlumberger Limited and the
Schlumberger Companies, collectively, as "Schlumberger") owns, directly or
indirectly, all of the equity of the Schlumberger Companies. Pursuant to the
Lock-Up, Standstill and Registration Rights Agreement, dated as of August 31,
2001 (the "Schlumberger Rights Agreement"), between Schlumberger Technology
Company, Camco International Inc., Schlumberger Surenco, S.A., Schlumberger
Oilfield Holdings Limited, Operational Services, Inc. (collectively, the
"Schlumberger Companies") and Hanover, Hanover granted to each of the
Schlumberger Companies certain registration rights in connection with shares of
Hanover common stock (the "Hanover Stock") received by the Schlumberger
Companies as consideration in the POI acquisition.


                                      97

<PAGE>


The registration rights granted to the Schlumberger Companies include (i) the
right, subject to certain restrictions, to register the Hanover Stock in any
registration of securities initiated by Hanover within the period of time
beginning on the third anniversary of the date of the Schlumberger Rights
Agreement and ending on the tenth anniversary of the date of the Schlumberger
Rights Agreement (such period of time, the "Registration Period"), and (ii) the
right, subject to certain restrictions, to demand up to five registrations of
the Hanover Stock within the Registration Period. Hanover is required to pay
all registration expenses in connection with registrations of Hanover Stock
pursuant to the Schlumberger Rights Agreement. For a period of three years from
the date of the Schlumberger Rights Agreement, the Schlumberger Companies are
prohibited from, directly or indirectly, selling or contracting to sell any of
the Hanover Stock. The Schlumberger Rights Agreement also provides that none of
the Schlumberger Companies shall, without Hanover's written consent, (i)
acquire or propose to acquire, directly or indirectly, greater than twenty-five
percent (25%) of the shares of Hanover common stock, (ii) make any public
announcement with respect to, or submit a proposal for, any extraordinary
transaction involving Hanover, (iii) form or join in any group with respect to
the matters set forth in (i) above, or (iv) enter into discussions or
arrangements with any third party with respect to the matters set forth in (i)
above.



   Schlumberger has the right under the POI purchase agreement, so long as
Schlumberger owns at least 5% of Hanover common stock and subject to certain
restrictions, to nominate one representative to sit on our Board of Directors.
Schlumberger designated Mr. Rene Huck as a nominee to serve on our board of
directors. Mr. Huck is a Vice President of Schlumberger Ltd. For the years
ended December 31, 2001, 2000 and 1999, Hanover generated revenues of
approximately $1,379,000, $918,000 and $1,979,000, respectively, in business
dealings with Schlumberger.



   As part of the purchase agreement entered into with respect to the POI
Acquisition, HCLP is required to make a payment of up to $58 million due upon
the completion of a financing of a South American joint venture acquired by
HCLP. If the joint venture fails to execute the financing or such financing
fails to be non-recourse to Hanover, in either case, on or before December 31,
2002, HCLP will have the right to put its interest in the joint venture back to
Schlumberger in exchange for a return of the purchase price allocated to the
joint venture, plus the net amount of any capital contributions by Hanover to
the joint venture. HCLP's right to exercise the put expires on January 31, 2003.



   In connection with the POI Acquisition, Hanover issued a $150 million
subordinated acquisition note to Schlumberger, which matures December 15, 2005.
Interest on the subordinated acquisition note accrues and is payable-in-kind at
the rate of 8.5% annually for the first six months after issuance and
periodically increases in increments of 1% to 2% per annum to a maximum
interest rate 42 months after issuance of 15.5%. In the event of an event of
default under the subordinated acquisition note, interest will accrue at a rate
of 2% above the then applicable rate. The subordinated acquisition note is
subordinated to all of Hanover's indebtedness other than indebtedness to fund
future acquisitions. In the event that Hanover completes an offering of equity
securities, Hanover is required to apply the proceeds of the offering to repay
amounts outstanding under the subordinated acquisition note as long as no
default exists or would exist under Hanover's other indebtedness as a result of
such payment.



   In August 2001, Hanover entered into a five-year strategic alliance with
Schlumberger intended to result in the active support of Schlumberger in
fulfilling certain of our business objectives. The principal components of the
strategic alliance include (1) establishing Hanover as Schlumberger's most
favored supplier of compression, natural gas treatment and gas processing
equipment worldwide, (2) Schlumberger's coordination and cooperation in further
developing our international business by placing our personnel in
Schlumberger's offices in six top international markets and (3) providing us
with access to consulting advice and technical assistance in enhancing our
field automation capabilities.


                                      98

<PAGE>


Other Related Party Transactions



   In 2000 and 1999, Hanover leased compressors to other companies owned or
controlled by or affiliated with Mr. Ted Collins, one of Hanover's directors.
Rental and maintenance revenues billed to these related parties totaled
$708,000 and $738,000 during 2000 and 1999, respectively.





   In 2000, Hanover advanced cash to certain management employees in return for
notes. At April 1, 2002, the aggregate amount outstanding on these notes
receivable totaled approximately $1,083,000, bear interest at the prime rate,
mature in June 2004 and are collateralized by Hanover common stock owned by the
employees with full recourse. The notes and related interest will be forgiven
over a four-year period should the employee continue his employment with
Hanover. The forgiveness will accelerate upon a change in control of Hanover.
Hanover recognized compensation expense related to the forgiveness of these
notes receivable of $263,000 and $105,000 during 2001 and 2000, respectively.



   In 2001, Hanover advanced cash of $2,200,000 to Michael J. McGhan, President
and Chief Executive Officer, in return for notes. The notes bear interest at
4.88%, mature on April 11, 2006 and are collateralized by personal real estate
with full recourse.



   In 2002, Hanover advanced cash of $400,000 to Mr. McGhan and $100,000 to
Robert O. Pierce, Senior Vice President--Manufacturing and Fabrication, in
return for notes. The notes bear interest at 4.0%, mature on September 30, 2002
and are unsecured.







   Set forth below is certain information concerning the indebtedness of
executive officers and directors to Hanover as of December 31, 2001, 2000 and
1999.



<TABLE>
<CAPTION>
                                                                                          Weighted Average
                                         Aggregate Amount     Largest Amount Outstanding Rate of Interest at
                                 Year Outstanding at Year End      during each Year           Year End
                                 ---- ----------------------- -------------------------- -------------------
<S>                              <C>  <C>                     <C>                        <C>
Michael J. McGhan............... 2001       $2,200,000                $2,200,000                4.88%
 President and Chief Executive   2000               --                        --                   --
 Officer                         1999               --                $1,040,845                   --
Charles D. Erwin................ 2001       $  631,800                $  769,148                4.8%
 Chief Operating Officer, Senior 2000       $  769,148                $  824,087                9.5%
  Vice President - Sales and
  Marketing                      1999               --                        --                   --
Joe C. Bradford................. 2001       $  579,947                $  706,022                4.8%
  Senior Vice President -
  Worldwide                      2000       $  706,022                $  764,961                9.5%
 Operations Development          1999               --                        --                   --
</TABLE>




                                      99

<PAGE>




   Set forth below is certain information concerning the indebtedness of
executive officers and directors to Hanover as of March 31, 2002.



<TABLE>
<CAPTION>
                                                               Largest Amount
                                            Aggregate Amount Outstanding during Weighted Average Rate
                                             Outstanding at  Three Months ended    of Interest at
                                             March 31, 2002    March 31, 2002      March 31, 2002
                                            ---------------- ------------------ ---------------------
<S>                                         <C>              <C>                <C>
Michael J. McGhan..........................    $2,600,000        $2,600,000              4.7%
 President and Chief Executive Officer

Charles D. Erwin...........................    $  591,000        $  632,000              4.8%
 Chief Operating Officer,
 Senior Vice President--Sales and Marketing

Joe C. Bradford............................    $  492,000        $  580,000              4.8%
 Senior Vice President--
 Worldwide Operations Development

Robert O. Pierce...........................    $  100,000        $  100,000              4.0%
 Senior Vice President--
 Manufacturing & Fabrication
</TABLE>





   From time to time, Hanover has contributed proceeds from Hanover's debt and
equity offerings to HCLP. Furthermore, HCLP may in the future be required to
make distributions to Hanover for repayment of Hanover's debt or other
commitments.



Employment Arrangements with Management



   John E. Jackson. In February 2002, we entered into an employment arrangement
with Mr. John E. Jackson, who serves as our Senior Vice President and Chief
Financial Officer. The arrangement provides for Mr. Jackson to receive an
annual base salary of $300,000. In addition, Mr. Jackson has the opportunity to
receive an annual profit sharing payment of up to 100% of Mr. Jackson's annual
base salary based upon personal performance compared with agreed upon
objectives and subjective measures as well as Hanover's performance. Upon Mr.
Jackson's employment start date, Mr. Jackson received a lump sum payment of
$210,000 representing the value of bonus compensation and "in the money"
options that Mr. Jackson would have received at his previous employer had he
not accepted a position at Hanover. On January 22, 2002, Mr. Jackson was
granted non-qualified stock options to purchase 50,000 shares of Hanover common
stock at an exercise price equal to $13.98 per share. Such options will vest
33.3% after one year, 66.7% after two years and 100% after three years.



   If we terminate Mr. Jackson within 12 months after a change of control
occurs, or during that period Mr. Jackson terminates his employment for good
reason, Mr. Jackson would be entitled to a severance payment equal to one and
one-half times the sum of his annualized salary and average bonus compensation
for the past two years. If we terminate Mr. Jackson with cause, or Mr. Jackson
terminates his employment without good reason, we are not obligated to make any
severance payments to Mr. Jackson.



   Mark S. Berg. In April 2002, we entered into an employment arrangement
commencing May 6, 2002 with Mr. Mark S. Berg, who serves as our Senior Vice
President, General Counsel and Corporate Secretary. The arrangement provides
for Mr. Berg to receive an annual base salary of $300,000. In addition, Mr.
Berg has the opportunity to receive an annual profit sharing payment of up to
100% of Mr. Berg's annual base salary based upon personal performance
determined by our board of directors compared with agreed upon personal
performance objectives and subjective measures as well as Hanover's
performance. On May 6, 2002, Mr. Berg was granted non-qualified stock options
to purchase 100,000 shares of Hanover common stock at an exercise price equal
to the fair market value on that date. Such options will vest 33.3% after one
year, 66.7% after two years and 100% after three years.


                                      100

<PAGE>


   If we terminate Mr. Berg within 12 months after a change of control occurs,
or during that period Mr. Berg terminates his employment for good reason, Mr.
Berg would be entitled to a severance payment equal to one and one-half times
the sum of his annualized salary and average bonus compensation for the past
two years. If we terminate Mr. Berg without cause in the absence of a change of
control, or Mr. Berg terminates his employment for good reason, Mr. Berg would
be entitled to a severance payment equal to one times the sum of his annualized
salary and average bonus compensation for the past two years. In both cases,
Mr. Berg would be entitled to the continuation of certain health benefits for a
period of 18 months following termination. If we terminate Mr. Berg with cause,
or Mr. Berg terminates his employment without good reason, we are not obligated
to make any severance payments to Mr. Berg.


                                      101

<PAGE>

                             DESCRIPTION OF NOTES

   The form and terms of the new notes and the old notes are identical in all
material respects, except that the transfer restrictions and registration
rights applicable to the old notes do not apply to the new notes. The Issuer
will issue the new notes under

    .  an indenture dated as of August 30, 2001 (the "indenture") among itself,
       Hanover, HCLP, certain Subsidiary Guarantors, and Wilmington Trust FSB,
       as trustee (the "Trustee"), and

    .  a participation agreement (the "participation agreement") among the
       Issuer, HCLP, Hanover, certain Subsidiary Guarantors, Wilmington Trust
       FSB, in its individual capacity, as collateral agent and as Trustee,
       Wilmington Trust Company, in its individual capacity, and the holder of
       the equity certificates (as described below).

   The terms of the new notes include those expressly set forth in the
indenture and those made part of such indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act").

   In addition, the Issuer issued equity certificates at an aggregate price of
$7.8 million. The equity certificates were issued pursuant to the participation
agreement and the trust agreement (the "trust agreement") between Wilmington
Trust Company, as trustee of the Issuer, and the purchaser of the equity
certificates.

   This Description of Notes is intended to be a useful overview of the
material provisions of the notes, the participation agreement and the
indenture. Since this description is only a summary, you should refer to the
participation agreement and the indenture for a complete description of the
obligations of the Issuer and your rights.

   You will find the definitions of capitalized terms used in this description
under the heading "Certain Definitions." For purposes of this description,
references to "the Issuer," "we," "our," and "us" refer only to Hanover
Equipment Trust 2001B and not to Hanover, HCLP or any of its subsidiaries.

General

   Pursuant to the indenture and the participation agreement, the Issuer issued
the notes in a single series on August 30, 2001 (the "closing date"). On the
closing date, the equity certificate holder of the Trust made its Certificate
Holder Contribution in the aggregate amount of approximately $7.8 million and
the Issuer issued and sold the 8.75% Senior Secured Notes due 2011 in an
aggregate principal amount equal to $250 million. On the closing date, the
Issuer purchased all right, title and interest in the Equipment identified by
HCLP for purchase and immediately thereafter leased all of its right, title and
interest in the Equipment to the HCLP by entering into the Lease. As of the
date of this prospectus, there are no Subsidiary Guarantors with respect to the
notes.

The Notes.

   The notes:

    .  are senior secured obligations of the Issuer;

    .  are limited to an aggregate principal amount of $250 million;

    .  mature on September 1, 2011;

    .  are issued in denominations of $1,000 and integral multiples of $1,000;

    .  are represented by one or more registered notes in global form, but in
       certain circumstances may be represented by notes in definitive form.
       See "Book-Entry; Delivery and Form";

    .  are Guaranteed by the Hanover Guarantors on a senior subordinated basis
       upon the occurrence of an event of default under the Lease. See
       "--Ranking and Priority--The Leases and the Hanover Guarantee"; and

    .  are expected to be eligible for trading in the PORTAL market.

                                      102

<PAGE>

Interest.  Interest on the notes compounds semi-annually and:

    .  accrues at the rate of 8.75% per annum;

    .  accrues from the date of issuance of the old notes or the most recent
       interest payment date;

    .  is payable in cash semi-annually in arrears on March 1 and September 1,
       commencing on March 1, 2002;

    .  is payable to the holders of record on the February 15 and August 15
       immediately preceding the related interest payment dates; and

    .  is computed on the basis of a 360-day year comprised of twelve 30-day
       months.

Payments on the Notes; Paying Agent and Registrar

   We will pay principal of, premium, if any, and interest on the notes at the
office or agency designated by the Issuer in Wilmington, Delaware, except that
we may, at our option, pay interest on the notes by check mailed to holders of
the notes at their registered address as it appears in the Registrar's books.
We have initially designated the corporate trust office of the Trustee in
Wilmington, Delaware to act as our Paying Agent and Registrar. We may, however,
change the Paying Agent or Registrar without prior notice to the holders of the
notes, and the Issuer may act as Paying Agent or Registrar.

   We will pay principal of, premium, if any, and interest on, notes in global
form registered in the name of or held by the Depository Trust Company or its
nominee in immediately available funds to the Depository Trust Company or its
nominee, as the case may be, as the registered holder of such global note.

Transfer and Exchange

   A holder of notes may transfer or exchange notes at the office of the
Registrar in accordance with the indenture. The Registrar and the Trustee may
require a holder, among other things, to furnish appropriate endorsements and
transfer documents. No service charge will be imposed by the Issuer, the
Trustee or the Registrar for any registration of transfer or exchange of notes,
but the Issuer may require a holder to pay a sum sufficient to cover any
transfer tax or other similar governmental charge required by law or permitted
by the indenture. The Issuer is not required to transfer or exchange any note
selected for redemption. Also, the Issuer is not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.

   The registered holder of a note will be treated as the owner of it for all
purposes.

Optional Redemption

   Except as described in the subsequent paragraphs, the notes are not
redeemable until September 1, 2006. On and after September 1, 2006, the Issuer
may redeem all or, from time to time, a part of the notes upon not less than 30
nor more than 60 days' notice, at the following redemption prices (expressed as
a percentage of principal amount) plus accrued and unpaid interest on the
notes, if any, to the applicable redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
beginning on September 1 of the years indicated below:

<TABLE>
<CAPTION>
                                Year         Percentage
                                ----         ----------
                         <S>                 <C>
                         2006...............  104.375%
                         2007...............  102.917%
                         2008...............  101.458%
                         2009 and thereafter  100.000%
</TABLE>

provided, however, that the Issuer shall only have the option to redeem a part
of the notes so long as no default or event of default under the Lease has
occurred and is continuing unless the redemption is made with proceeds from a
purchase of Equipment that cures a default or event of default under the Lease;
provided, further, that

                                      103

<PAGE>

during the 12-month period prior to the Stated Maturity of the notes, the
Issuer can optionally redeem only a part of the notes with the proceeds of a
purchase of Equipment by Hanover or any of its subsidiaries only if (i) HCLP
has exercised its Maturity Date Purchase Option under the Lease or (ii) such
purchase cures a default or event of default under the Lease.

   Prior to September 1, 2004, to the extent that Hanover raises Net Cash
Proceeds from one or more Public Equity Offerings and such Net Cash Proceeds
are contributed toward an Equipment Purchase (as defined below), the Issuer may
on any one or more occasions redeem up to 35% of the original principal amount
of the notes with the proceeds from an Equipment Purchase at a redemption price
of 108.75% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the redemption date (subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date); provided that

    .  at least 65% of the original principal amount of the notes remains
       outstanding after each such redemption; and

    .  the redemption occurs within 60 days after the closing of such Public
       Equity Offering.

   If the optional redemption date is on or after an interest record date and
on or before the related interest payment date, the accrued and unpaid
interest, if any, will be paid to the Person in whose name the note is
registered at the close of business on such record date, and no additional
interest will be payable to holders whose notes will be subject to redemption
by the Issuer.

   In each case, the Issuer will redeem the notes with proceeds from HCLP's
purchase of the Equipment (the "Equipment Purchase"). Pursuant to the Lease,
HCLP will purchase the amount of Equipment, at such Equipment's Termination
Value, necessary to generate sufficient proceeds for the Issuer to redeem the
notes and a proportionate amount of the equity certificates. Concurrently, the
Issuer will pay any accrued and unpaid interest on the notes to be redeemed and
yield on the equity certificates to be prepaid, as well as any applicable
redemption premium, using proceeds of supplemental rent payments equal to such
amounts, which will be required by the Lease to be paid by HCLP to the Issuer.

   In the case of any partial redemption, the Trustee will select the notes for
redemption in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed or, if the notes are
not listed, then on a pro rata basis, by lot or by such other method as the
Trustee in its sole discretion will deem to be fair and appropriate, although
no note of $1,000 in original principal amount or less will be redeemed in
part. If any note is to be redeemed in part only, the notice of redemption
relating to that note will state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original note.

Ranking And Priority

The Notes


   The payment of the principal of, premium, if any, and interest on the notes
and any other payment obligations in respect of the notes (including any
obligation to repurchase the notes or the equity certificates) are senior
secured obligations of the Issuer. The Issuer is not permitted by the indenture
to incur any indebtedness other than the notes, amounts payable pursuant to the
participation agreement, and trade payables incurred in the ordinary course of
the Issuer's business. The Issuer's ability to make timely payments under the
notes, however, will depend entirely on timely receipt of payments from HCLP
under the Lease or from the Hanover Guarantors under the Hanover Guarantee. See
"--Ranking and Priority--The Leases and the Hanover Guarantee."


   All payments that are received by the Issuer under the Lease or Hanover
Guarantee will be applied first to the notes. The payment of principal, premium
(if any) and interest on the notes will be senior in right of payment to the
payment in full of the equity certificates.

The Lease and the Hanover Guarantee

   HCLP's obligations under the Lease and the Hanover Guarantors' obligations
under the Hanover Guarantee are subordinated to the prior payment in full in
cash or Cash Equivalents when due of all Senior Indebtedness or

                                      104

<PAGE>

Guarantor Senior Indebtedness, as the case may be. HCLP's obligations under the
Lease and the Hanover Guarantors' obligations under the Hanover Guarantee are
also structurally subordinated to all Indebtedness and other liabilities of
their respective non-guarantor subsidiaries. HCLP's obligations under the Lease
and the Hanover Guarantors' obligations under the Hanover Guarantee ranks pari
passu with their respective obligations under the 2008 Lease and the 2008
Guarantee.

   Pursuant to the Hanover Guarantee, the Hanover Guarantors guarantee, jointly
and severally, unconditionally and on a senior subordinated basis, to the
Issuer, the noteholders and their successor and assigns the prompt and complete
payment of the unpaid principal of, and interest on, the notes and all other
payment obligations of the Issuer to the Trustee and the noteholders, provided,
that such unconditional guarantee is limited at all times to 70.0% of the
aggregate principal balance of notes outstanding, which is equal to the final
rent payment under the Lease. Upon the occurrence of and during a Lease Event
of Default, the Hanover Guarantors guarantee, jointly and severally, on a
senior subordinated basis, to the Issuer, the noteholders and their successor
and assigns the prompt and complete payment of the entire unpaid principal of,
and interest on, the notes and all other payment obligations of the Issuer to
the Trustee and the noteholders. The Hanover Guarantee is a guarantee of
payment, and not a guarantee of collection or performance.

   The Lease, in respect of HCLP, and the Hanover Guarantee, in respect of each
Hanover Guarantor, is subordinated to the prior payment in full of all Senior
Indebtedness or Guarantor Senior Indebtedness, as applicable, and ranks equally
with any Senior Subordinated Indebtedness and Guarantor Senior Subordinated
Indebtedness, as applicable. Only Indebtedness of HCLP or the Hanover
Guarantors that is Senior Indebtedness or Guarantor Senior Indebtedness, as the
case may be, ranks senior to the Lease and the Hanover Guarantee, as
applicable, in accordance with the provisions of the participation agreement.
As described in "Certain Covenants under the Participation
Agreement--Limitation on Layering," no Hanover Guarantor may incur any
indebtedness that is senior in right of payment to its Guarantee of the notes,
but junior in right of payment to Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be. Unsecured Indebtedness of a Hanover Guarantor
is not deemed to be subordinate or junior to secured Indebtedness merely
because it is unsecured.


   As a result of the subordination provisions described below, holders of the
notes may recover less under the Hanover Guarantee than creditors of the
Hanover Guarantors who are holders of Senior Indebtedness or Guarantor Senior
Indebtedness, as the case may be, would recover in the event of an insolvency,
bankruptcy, reorganization, receivership or similar proceedings relating to the
Hanover Guarantors. At March 31, 2002:


    .  the Issuer had no Indebtedness other than the notes;


    .  outstanding Senior Indebtedness of Hanover was approximately $941
       million;


    .  Hanover had no Senior Subordinated Indebtedness other than pursuant to
       the Hanover Guarantee and the 2011 Guarantee;


    .  outstanding Guarantor Senior Indebtedness of HCLP was approximately $749
       million;


    .  HCLP had no Guarantor Senior Subordinated Indebtedness other than
       pursuant to the Hanover Guarantee and the 2011 Guarantee; and

    .  no Guarantor Senior Indebtedness, excluding Guarantor Senior
       Indebtedness of HCLP, was outstanding.

   As of the date hereof, there are no Subsidiary Guarantors other than HCLP.
Although the participation agreement limits the amount of Indebtedness that the
Hanover Guarantors may incur, such Indebtedness may be substantial and all of
it may be Senior Indebtedness or Guarantor Senior Indebtedness, as the case may
be.


                                      105

<PAGE>

   Neither HCLP in respect of the Lease nor the Hanover Guarantors in respect
of the Hanover Guarantee may make payments under the Lease or the Hanover
Guarantee, as the case may be, if:

      (1) any Senior Indebtedness or Guarantor Senior Indebtedness, as
   applicable, is not paid when due; or

      (2) any other default on Senior Indebtedness or Guarantor Senior
   Indebtedness, as applicable, occurs and the maturity of such Senior
   Indebtedness or Guarantor Senior Indebtedness, as the case may be, is
   accelerated in accordance with its terms unless, in either case, the default
   has been cured or waived and any such acceleration has been rescinded or
   such Senior Indebtedness or Guarantor Senior Indebtedness, as applicable,
   has been paid in full.

As a result, in either such case, the Issuer will have insufficient funds to
pay the principal of, premium, if any, or interest on, or other payment
obligations in respect of, the notes or make any deposit pursuant to the
provisions described under "Defeasance" below and may not otherwise purchase,
redeem or retire any of the notes (collectively, "pay the notes"). However,
HCLP may continue to make payments under the Lease, and the Issuer may thus pay
the notes to the extent funds are available from such Lease payments, if HCLP,
the Issuer and the Trustee receive written notice approving such payment from
the Representative of any such Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable, with respect to which either of the events set
forth in clause (1) or (2) of this paragraph has occurred and is continuing.

   Each of HCLP and the Hanover Guarantors, as the case may be, also will not
be permitted to make payments under the Lease or the Hanover Guarantee, as the
case may be, for a Payment Blockage Period (as defined below) during the
continuance of any default, on any Designated Senior Indebtedness that permits
the holders of the Designated Senior Indebtedness to accelerate its maturity
immediately without either further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods.

   A "Payment Blockage Period" commences on the receipt by Hanover and HCLP
(with a copy to the Trustee and the Issuer) of written notice (a "Blockage
Notice") of a default of the kind described in the immediately preceding
paragraph from the Representative of the holders of such Designated Senior
Indebtedness, specifying an election to effect a Payment Blockage Period and
ends 179 days after receipt of the notice. The Payment Blockage Period will end
earlier if such Payment Blockage Period is terminated:

      (1) by written notice to Hanover and HCLP from the Person or Persons who
   gave such Blockage Notice;

      (2) because the default giving rise to such Blockage Notice is no longer
   continuing; or

      (3) because such Designated Senior Indebtedness has been repaid in full.

   During a Payment Blockage Period, HCLP will be unable to make a rental
payment under the Lease, and the Hanover Guarantors will be unable to make
payments under the Hanover Guarantee, as applicable. As a result, the Issuer
will have insufficient funds to pay the notes. Any interest on such deferred
payment (a "Supplemental Rental Payment") must be paid during the rental period
immediately following the Payment Blockage Period. Failure to make the
Supplemental Rental Payment will constitute a Lease Event of Default with
respect to the Lease. During a Payment Blockage Period, the Trustee in its
capacity as collateral agent shall not be permitted to exercise any rights and
powers or pursue any remedies against the Collateral securing the notes. See
"--Security."

   After the end of the Payment Blockage Period, HCLP may resume payments under
the Lease and the Issuer may resume payments on the notes, unless the holders
of such Designated Senior Indebtedness or the Representative of such holders
have accelerated the maturity of such Designated Senior Indebtedness or any
Senior Indebtedness or Guarantor Senior Indebtedness is not paid when due. Not
more than one Blockage Notice may be given in any consecutive 360 day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.


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   With respect to any obligations under the Lease or the Hanover Guarantee, in
the event of:

      (1) a total or partial liquidation or a dissolution of HCLP or any
   Hanover Guarantor;

      (2) a reorganization, bankruptcy, insolvency, receivership of or similar
   proceeding relating to HCLP, a Hanover Guarantor or its respective property;
   or

      (3) an assignment for the benefit of creditors or marshaling of HCLP's or
   a Hanover Guarantor's assets and liabilities, then

the holders of Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable, will be entitled to receive payment in full in cash or Cash
Equivalents in respect of such Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable (including interest accruing after, or which would
accrue but for, the commencement of any proceeding at the rate specified in the
applicable Senior Indebtedness or Guarantor Senior Indebtedness, whether or not
a claim for such interest would be allowed), before the Issuer or the holders
of the notes will be entitled to receive any payment or distribution under the
Lease or the Hanover Guarantee, in the event of any payment or distribution of
the assets or securities of HCLP or such Hanover Guarantor. In addition, until
the Senior Indebtedness or Guarantor Senior Indebtedness, as applicable, is
paid in full in cash or Cash Equivalents, any payment or distribution to which
the Issuer or the holders of the notes would be entitled under the Lease and
the Hanover Guarantee but for these subordination provisions will be made to
holders of Senior Indebtedness or Guarantor Senior Indebtedness, as applicable,
as their interests may appear. If a payment or distribution under the Lease or
the Hanover Guarantee is made to the Issuer, the Trustee or the holders of the
notes that, due to the subordination provisions, should not have been made to
them, such Persons are required to hold it in trust for the holders of Senior
Indebtedness or Guarantor Senior Indebtedness, as applicable, and pay the
payment or distribution over to holders of Senior Indebtedness or Guarantor
Senior Indebtedness, as applicable, as their interests may appear.

   The obligations of each Hanover Guarantor under the Hanover Guarantee are
limited as necessary to prevent the Hanover Guarantee from constituting a
fraudulent conveyance or fraudulent transfer under applicable law.

   In the event a Subsidiary Guarantor other than HCLP is sold or disposed of
(whether by merger, consolidation, the sale of its Capital Stock or the sale of
all or substantially all of its assets (other than by lease)) and whether or
not the Subsidiary Guarantor is the surviving corporation in such transaction
to a Person which is not Hanover or a Restricted Subsidiary of Hanover (other
than a Receivables Entity), such Subsidiary Guarantor will be released from its
obligations under the Hanover Guarantee and the other Operative Agreements if:

      (1) the sale or other disposition is in compliance with the participation
   agreement, including the covenants therein. See "Certain Covenants under the
   Participation Agreements--Limitation on Sales of Assets and Subsidiary
   Stock" and "--Limitation on Sales of Capital Stock of Restricted
   Subsidiaries"; and

      (2) all the obligations of such Subsidiary Guarantor under the Senior
   Credit Agreement and related documentation and any other agreements relating
   to any other indebtedness of Hanover or its Restricted Subsidiaries
   terminate.

   In addition, a Subsidiary Guarantor will be released from its obligations
under the Hanover Guarantee and the other Operative Agreements if Hanover
designates such Subsidiary as an Unrestricted Subsidiary and such designation
complies with the other applicable provisions of the Operative Agreements.

Security

   Under the Operative Agreements, the Issuer, together with HCLP, has granted
to the Trustee, in its capacity as collateral agent, for the ratable benefit of
itself and the noteholders, a first lien on and security interest in all right,
title and interest of the Issuer now held or hereafter acquired in and to the
following, except for certain excepted payments with respect thereto: (i) the
Equipment, (ii) all rents and supplemental rent payable under the

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Lease, together with certain related rights of the Issuer, and (iii) the
Hanover Guarantee (collectively, the "Collateral"). The equity certificate
holder has a subordinated right to receive proceeds from the Collateral. Unless
an Event of Default shall have occurred and be continuing, the Issuer has the
right to retain title to the Equipment securing the notes and to lease such
Equipment to HCLP. The rents under the Lease are to be paid directly to the
Trustee pursuant to an assignment of rents consented to by HCLP in order to
make payments on the notes therewith in accordance with "Certain Covenants
under the Indentures." Upon the occurrence of an Event of Default under the
indenture, the Trustee in its capacity as collateral agent shall be entitled to
exercise its customary rights and powers and pursue remedies against the
Collateral, except during a Payment Blockage Period.

   All payments received and all amounts held or realized by the Trustee in its
capacity as collateral agent (including amounts realized by the Trustee in such
capacity from the exercise of any remedies) after the occurrence and during the
continuance of an Event of Default, and all payments or amounts then held or
thereafter received by the Trustee in its capacity as collateral agent under
the Lease or under the participation agreement, shall, so long as such Event of
Default continues and shall not have been waived in writing by the Trustee, be
applied on the date first received with respect to the notes as follows: first,
so much of such payments or amounts held or realized by the Trustee in its
capacity as collateral agent as shall be required to reimburse the Trustee, in
its own capacity and in its capacity as collateral agent, for any expenses not
reimbursed by the Issuer in connection with the collection or distribution of
such amounts held or realized by it and in connection with the expenses
incurred in enforcing its remedies and preserving the Collateral; second, to
the Trustee for the benefit of the noteholders for all principal, interest, and
all other amounts, if any, due each such Person under the Operative Agreements,
in each case on a pari passu basis; third, to each Person indemnified by the
Issuer other than the equity certificate holder on a pari passu basis; fourth,
to the Issuer for all amounts then due the Issuer under Section 13 of the
participation agreement; fifth, to the Issuer for the benefit of the equity
certificate holder for all amounts due and payable to such holder; and sixth,
the balance, if any, of such payment remaining thereafter shall be distributed
to HCLP.

Certain Bankruptcy Limitations

   The right of the Trustee in its capacity as collateral agent to repossess
and dispose of the Collateral upon the occurrence of an Event of Default would
be significantly impaired by applicable bankruptcy law in the event that a
bankruptcy case were to be commenced by or against the Issuer, HCLP, or any of
the Hanover Guarantors prior to the Trustee in its capacity as collateral agent
having repossessed and disposed of the Collateral. Upon the commencement of a
case for relief under Title 11 of the United States Code, as amended (the
"Bankruptcy Code"), a secured creditor such as the Trustee is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from the debtor, without bankruptcy court approval.
Moreover, the Bankruptcy Code permits the debtor to continue to retain and use
collateral even though the debtor is in default under the applicable debt
instruments provided that the secured creditor is given adequate protection.
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the
secured creditor's interest in the collateral and may include cash payments or
the granting of additional security, if and at such times as the court in its
discretion determines, for any diminution in the value of the collateral as a
result of the stay or repossession or disposition or any use of the collateral
by the debtor during the pendency of the bankruptcy case. A bankruptcy court
may determine that a secured creditor may not require compensation for a
diminution in the value of the collateral if the value of the collateral
exceeds the debt it secures.

   In view of the broad equitable powers of a bankruptcy court, it is
impossible to predict how long payments under the notes could be delayed
following commencement of a bankruptcy case, whether or when the Trustee in its
capacity as collateral agent could repossess or dispose of the Collateral, the
value of such Collateral at the time of the bankruptcy petition or whether or
to what extent holders of the notes would be compensated for any delay in
payment or loss of value of the Collateral through the requirement of "adequate
protection." Any disposition of the Collateral during a bankruptcy case would
also require permission from the bankruptcy court.

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Furthermore, in the event a bankruptcy court determines the value of the
Collateral is not sufficient to repay all amounts due on the notes, the holders
of the notes would hold secured claims to the extent of the value of the
respective Collateral to which the holders of the notes are entitled, and
unsecured claims with respect to such shortfall. The Bankruptcy Code only
permits the payment and/or accrual of post-petition interest, costs and
attorney's fees to a secured creditor during a debtor's bankruptcy case to the
extent the value of the Collateral is determined by the bankruptcy court to
exceed the aggregate outstanding principal amount of the notes.

Change of Control

   If a Change of Control with respect to Hanover occurs, each registered
holder of notes will have the right to require the Issuer to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such holder's
notes, at a purchase price in cash equal to 101% of the principal amount of
such notes plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date). Pursuant to the
Lease, HCLP will purchase the amount of Equipment, at such Equipment's
Termination Value, necessary to generate sufficient proceeds for the Issuer to
purchase the notes and prepay a proportionate amount of the equity
certificates. Concurrently, the Issuer will pay any accrued and unpaid interest
on the notes to be purchased and yield on the equity certificates to be
prepaid, as well as any redemption premium, using proceeds of supplemental rent
payments equal to such amounts, which will be required by the Lease to be paid
by HCLP to the Issuer.

   Within 30 days following any Change of Control, the Issuer, at the direction
of Hanover or HCLP, will mail a notice (the "Change of Control Offer") to each
registered holder of the notes with a copy to the Trustee stating:

      (1) that a Change of Control has occurred and that such holder has the
   right to require such Issuer to purchase such holder's notes at a purchase
   price in cash equal to 101% of the principal amount of such notes plus
   accrued and unpaid interest, if any, to the date of purchase (subject to the
   right of holders of record on a record date to receive interest on the
   relevant interest payment date) (the "Change of Control Payment");

      (2) the repurchase date (which shall be no earlier than 30 days nor later
   than 60 days from the date such notice is mailed) (the "Change of Control
   Payment Date"); and

      (3) the procedures determined by the Issuer, consistent with the
   indenture, that a holder must follow in order to have the notes repurchased.

   On the Change of Control Payment Date, the Issuer will, to the extent lawful:

      (1) accept for payment all notes or portions of notes (in integral
   multiples of $1,000) properly tendered under the Change of Control Offer;

      (2) deposit with the paying agent an amount equal to the Change of
   Control Payment in respect of all notes or portions of notes so tendered; and

      (3) deliver or cause to be delivered to the Trustee the notes so accepted
   together with an Officers' Certificate stating the aggregate principal
   amount of notes or portions of notes being purchased by the Issuer.

   The paying agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple of $1,000.

   If the Change of Control Payment Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest, if any, will be paid to the Person in whose name a note is registered
at the close of business on such record date, and no additional interest will
be payable to holders who tender pursuant to the Change of Control Offer.


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   The Change of Control provisions described above will be applicable whether
or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders to require that the Issuer
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.

   The Issuer will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by the
Issuer and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.

   The Issuer will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the indenture, the Issuer will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described in the indenture by virtue of the conflict.

   If a Change of Control Offer is made, there can be no assurance that HCLP
will have available funds to purchase a sufficient amount of Equipment to
enable the Issuer to make the Change of Control Payment for all the notes that
might be delivered by the noteholders seeking to accept the Change of Control
Offer. The Issuer has no source of revenues other than payments received from
HCLP under the Lease or from the Hanover Guarantors under the Hanover
Guarantee. The failure of the Issuer to make or consummate the Change of
Control Offer or make the applicable Change of Control Payment when due would
give the Trustee and the noteholders the rights described under "Events of
Default." Hanover and its subsidiaries have other Indebtedness and operating
leases that contain provisions designating a change of control as an event of
default which would obligate them to repay amounts outstanding thereunder.

   The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving HCLP or Hanover by
increasing the capital required to effectuate such transactions.

   The definition of "Change of Control" includes a disposition of all or
substantially all of the property and assets of Hanover and its subsidiaries
taken as a whole to any Person. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, in certain
circumstances there may be a degree of uncertainty as to whether a particular
transaction would involve a disposition of "all or substantially all" of the
property or assets of a Person. As a result, it may be unclear as to whether a
Change of Control has occurred and whether a holder of notes may require the
Issuer to make an offer to repurchase the notes as described above.

   The definition of "Change of Control" is limited in scope. The provisions of
the indenture and the participation agreement may not afford the noteholders
the right to require the Issuer to repurchase the notes in the event of a
highly leveraged transaction or certain transactions with Hanover's management
or its affiliates, including a reorganization, restructuring, merger or similar
transaction involving Hanover (including, in certain circumstances, an
acquisition of Hanover by management or its affiliates) that may adversely
affect noteholders, if such transaction is not a transaction defined as a
"Change of Control." A transaction involving Hanover's management or its
affiliates, or a transaction involving a recapitalization of Hanover, would
result in a Change of Control if it were the type of transaction specified in
such definition.

CERTAIN COVENANTS UNDER THE INDENTURE

Application of Proceeds

   There will be no cash proceeds from the issuance of the new notes under this
exchange offer. The proceeds of the sale of the old notes and equity
certificates were used solely to finance the Issuer's acquisition of items of
Equipment in accordance with the terms of the participation agreement and for
costs related to such transactions.


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Compliance with Laws

   The Issuer has covenanted to comply with all applicable statutes, rules,
regulations, orders and restrictions of the United States of America, all
states and municipalities thereof and of any governmental department,
commission, board, regulatory authority, bureau, agency and instrumentality of
the foregoing, in respect of the conduct of its business and the ownership of
its property. The Issuer shall promptly take, and maintain the effectiveness
of, all action to effectuate the participation agreement, indenture or Lease,
as applicable, or otherwise that may, from time to time, be necessary or
appropriate under applicable law in connection with the performance by the
Issuer of its obligations under the participation agreement, indenture or
Lease, as applicable, or the taking of any action hereby or thereby
contemplated, or necessary for the legality, validity, binding effect or
enforceability of the participation agreement, indenture or Lease, as
applicable, or for the making of any payment or transfer or remittance of any
funds by the Issuer under the participation agreement, indenture or Lease, as
applicable.

Limitation on Liens

   The Issuer will not, directly or indirectly, create, incur or suffer to
exist any Lien (other than Permitted Liens) on any of its property or assets.
The Issuer shall duly pay and discharge (i) immediately upon the attachment
thereof, all Liens (other than Permitted Liens) on any Collateral, (ii) as and
when due, all of its Indebtedness and other obligations before the time that
any Lien attaches unless and only to the extent that any such amounts are not
yet due and payable or the validity thereof is being contested in good faith by
appropriate proceedings so long as such proceedings do not involve any danger
of the sale, forfeiture or loss of the items of Equipment or any interest
therein and the Issuer maintains or causes Hanover and HCLP to maintain
appropriate reserves with respect thereto or has made adequate provision for
the payment thereof, in accordance with GAAP and approved by the Trustee and
(iii) all taxes imposed upon or against it or its property or assets, or upon
any property leased by it, prior to the date on which penalties attach thereto.

Limitation on Lines of Business

   The Issuer will not (i) enter into any business other than the maintenance
of its corporate existence, the acquisition, leasing, financing and sale of the
Equipment and the taking of such actions as are required to comply with the
other covenants of the Issuer under the indenture, purchase agreement and
registration rights agreement, (ii) create, incur, assume or permit to exist
any Indebtedness, except for the notes, amounts payable under the participation
agreement and ordinary course trade payables which are incidental to the
purposes permitted under the trust agreement, (iii) enter into, or be a party
to, any transaction with any Person, except the transactions set forth in the
participation agreement, indenture or Lease, as applicable, and as expressly
permitted thereby, or (iv) make any investment in, Guarantee the obligations
of, or make or advance money to any Person, through the direct or indirect
lending of money, holding of securities or otherwise except the transactions
set forth in the participation agreement, indenture or Lease, as applicable,
and as expressly permitted thereby.

Limitation on Liquidation

   The Issuer shall not wind up, liquidate or dissolve its affairs or enter
into any merger or consolidation, or convey, sell, lease (substantially as a
whole) or otherwise dispose of (whether in one or in a series of transactions)
its assets, except as expressly permitted by the Lease or the participation
agreement.

CERTAIN COVENANTS UNDER THE PARTICIPATION AGREEMENT

   In addition to the covenants under the indenture, the participation
agreement contains, among others, the following covenants with respect to
Hanover and HCLP, which may not be amended or waived without the prior written
consent of the holders of a majority of the principal amount of the notes and
the consent of the equity certificate holder to the extent such amendment or
waiver would adversely affect their interests. A default under these covenants
will constitute a default under the Lease and, therefore, a default under the
indenture.

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Limitation on Indebtedness

   Hanover will not, and will not permit any of its Restricted Subsidiaries to,
Incur any Indebtedness; provided, however, that Hanover and its Restricted
Subsidiaries may Incur Indebtedness if on the date thereof:

      (1) the Consolidated Coverage Ratio for Hanover and its Restricted
   Subsidiaries is at least 2.25 to 1.00; and

      (2) no Default or Event of Default will have occurred or be continuing or
   would occur as a consequence of Incurring the Indebtedness.

   The first paragraph of this covenant will not prohibit the incurrence of the
following Indebtedness:

      (1) Indebtedness of Hanover and its Subsidiaries Incurred pursuant to the
   Senior Credit Agreement together with the principal component of amounts
   outstanding under Qualified Receivables Transactions in an aggregate amount
   not to exceed $400.0 million at any time outstanding, less the aggregate
   principal amount of repayments with the proceeds from Asset Dispositions
   pursuant to the provisions of the participation agreement described under
   "--Limitations on Sales of Assets and Subsidiary Stock", and Guarantees of
   Restricted Subsidiaries in respect of the Indebtedness Incurred pursuant to
   the Senior Credit Agreement;

      (2) the Lease, the Hanover Guarantee, the 2008 Lease and 2008 Guarantee;

      (3) Indebtedness of Hanover owing to and held by any Wholly-Owned
   Subsidiary (other than a Receivables Entity) or Indebtedness of a Restricted
   Subsidiary owing to and held by Hanover or any Wholly-Owned Subsidiary
   (other than a Receivables Entity); provided, however,

          (a) if Hanover is the obligor on such Indebtedness, such Indebtedness
       is expressly subordinated to the prior payment in full in cash of all
       obligations with respect to the Lease and the Hanover Guarantee; and

          (b) (i) any subsequent issuance or transfer of Capital Stock or any
       other event which results in any such Indebtedness being beneficially
       held by a Person other than Hanover or a Wholly-Owned Subsidiary (other
       than a Receivables Entity) of Hanover; and

             (ii) any sale or other transfer of any such Indebtedness to a
          Person other than Hanover or a Wholly-Owned Subsidiary (other than a
          Receivables Entity) of Hanover, shall be deemed, in each case, to
          constitute an Incurrence of such Indebtedness by Hanover or such
          Subsidiary, as the case may be;

      (4) Indebtedness represented by (a) the notes, (b) any Indebtedness
   (other than the Indebtedness described in clauses (1), (2), (3), (6) (8),
   (9) and (10)) outstanding on the Issue Date, (c) any Indebtedness of
   Production Operators Corporation or any of its subsidiaries in existence as
   of the Issue Date and (d) any Refinancing Indebtedness Incurred in respect
   of any Indebtedness described in this clause (4) or clause (5) or Incurred
   pursuant to the first paragraph of this covenant;

      (5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on
   the date on which such Restricted Subsidiary was acquired by Hanover (other
   than Indebtedness Incurred (a) to provide all or any portion of the funds
   utilized to consummate the transaction or series of related transactions
   pursuant to which such Restricted Subsidiary became a Restricted Subsidiary
   or was otherwise acquired by Hanover or (b) otherwise in connection with, or
   in contemplation of, such acquisition); provided, however, that at the time
   such Restricted Subsidiary is acquired by Hanover, Hanover would have been
   able to Incur $1.00 of additional Indebtedness pursuant to the first
   paragraph of this covenant after giving effect to the Incurrence of such
   Indebtedness pursuant to this clause (5);


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      (6) Indebtedness under Currency Agreements and Interest Rate Agreements;
   provided that in the case of Currency Agreements and Interest Rate
   Agreements, such Currency Agreements and Interest Rate Agreements are
   entered into for bona fide hedging purposes of Hanover or its Restricted
   Subsidiaries (as determined in good faith by the Board of Directors or
   senior management of Hanover) and substantially correspond in terms of
   notional amount, duration, currencies and interest rates, as applicable, to
   Indebtedness of Hanover or its Restricted Subsidiaries on customary terms
   entered into in the ordinary course of business and Incurred without
   violation of the terms of the participation agreement;

      (7) the Incurrence by Hanover or any of its Restricted Subsidiaries of
   Indebtedness represented by Capitalized Lease Obligations, mortgage
   financings or purchase money obligations with respect to assets other than
   Capital Stock or other Investments, in each case Incurred for the purpose of
   financing all or any part of the purchase price or cost of construction or
   improvements of property used in the business of Hanover or such Restricted
   Subsidiary, in an aggregate principal amount not to exceed $75.0 million at
   any time outstanding (it being understood that any Indebtedness Incurred
   pursuant to this clause (7) shall cease to be deemed to be Incurred or
   outstanding for purposes hereof but shall be deemed Incurred for purposes of
   the first paragraph of this covenant from and after the first date on which
   Hanover or its Restricted Subsidiaries could have Incurred such Indebtedness
   under the first paragraph of this covenant without reliance on this clause
   (7));

      (8) Indebtedness Incurred in respect of workers' compensation claims,
   self-insurance obligations, performance, surety and similar bonds and
   completion guarantees provided by Hanover or a Restricted Subsidiary in the
   ordinary course of business;

      (9) Indebtedness arising from agreements of Hanover or a Restricted
   Subsidiary providing for indemnification, adjustment of purchase price or
   similar obligations, in each case, Incurred or assumed in connection with
   the disposition of any business, assets or Capital Stock of a Restricted
   Subsidiary;

      (10) Indebtedness arising from the honoring by a bank or other financial
   institution of a check, draft or similar instrument (except in the case of
   daylight overdrafts) drawn against insufficient funds in the ordinary course
   of business, provided, however, that such Indebtedness is extinguished
   within five business days of Incurrence; and

      (11) in addition to the items referred to in clauses (1) through (10)
   above, Indebtedness of Hanover and its Restricted Subsidiaries in an
   aggregate outstanding principal amount which, when taken together with the
   principal amount of all other Indebtedness Incurred pursuant to this clause
   (11) and then outstanding, will not exceed $75.0 million (it being
   understood that any Indebtedness Incurred pursuant to this clause (11) shall
   cease to be deemed to be Incurred or outstanding for purposes hereof but
   shall be deemed Incurred for purposes of the first paragraph of this
   covenant from and after the first date on which Hanover or its Restricted
   Subsidiaries could have Incurred such Indebtedness under the first paragraph
   of this covenant without reliance on this clause (11)).

   For purposes of determining compliance with, and the outstanding principal
amount of any particular Indebtedness Incurred pursuant to, and in compliance
with, this covenant:

      (1) (A) Indebtedness permitted by this covenant need not be permitted
   solely by reference to one provision permitting such Indebtedness but may be
   permitted in part by one such provision and in part by one or more other
   provisions of this covenant permitting such Indebtedness and (B) in the
   event that Indebtedness meets the criteria of more than one of the types of
   Indebtedness described in the first and second paragraphs of this covenant,
   Hanover, in its sole discretion, will classify such item of Indebtedness and
   only be required to include the amount and type of such Indebtedness in one
   of such clauses; and

      (2) the amount of Indebtedness issued at a price that is less than the
   principal amount thereof will be equal to the amount of the liability in
   respect thereof determined in accordance with GAAP.


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   Accrual of interest, accrual of dividends, the accretion of accreted value,
the payment of interest in the form of additional Indebtedness and the payment
of dividends in the form of additional shares of Preferred Stock will not be
deemed to be an Incurrence of Indebtedness for purposes of this covenant. The
amount of any Indebtedness outstanding as of any date shall be (i) the accreted
value of the Indebtedness in the case of any Indebtedness issued with original
issue discount and (ii) the principal amount or liquidation preference thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.

   In addition, Hanover will not permit any of its Unrestricted Subsidiaries to
Incur any Indebtedness or issue any shares of Disqualified Stock, other than
Non-Recourse Debt. If at any time an Unrestricted Subsidiary becomes a
Restricted Subsidiary, any Indebtedness of such Subsidiary shall be deemed to
be Incurred by a Restricted Subsidiary of Hanover as of such date (and, if such
Indebtedness is not permitted to be Incurred as of such date under this
"Limitation on Indebtedness" covenant, Hanover shall be in Default of this
covenant).

   For purposes of determining compliance with any U.S. dollar-denominated
restriction on the Incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was Incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is Incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S.
dollar-dominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such U.S.
dollar-dominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such Refinancing Indebtedness does not exceed the
principal amount of such Indebtedness being refinanced. Notwithstanding any
other provision of this covenant, the maximum amount of Indebtedness that
Hanover may Incur pursuant to this covenant shall not be deemed to be exceeded
solely as a result of fluctuations in the exchange rate of currencies. The
principal amount of any Indebtedness incurred to refinance other Indebtedness,
if Incurred in a different currency from the Indebtedness being refinanced,
shall be calculated based on the currency exchange rate applicable to the
currencies in which such Refinancing Indebtedness is denominated that is in
effect on the date of such refinancing.

Limitation on Layering

   Hanover will not Incur any Indebtedness if such Indebtedness is subordinate
or junior in ranking in any respect to any Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is contractually
subordinated in right of payment to Senior Subordinated Indebtedness. Neither
HCLP nor any Subsidiary Guarantor will Incur any Indebtedness if such
Indebtedness is contractually subordinate or junior in ranking in any respect
to any Guarantor Senior Indebtedness of such Subsidiary Guarantor unless such
Indebtedness is Guarantor Senior Subordinated Indebtedness of such Subsidiary
Guarantor or is contractually subordinated in right of payment to Guarantor
Senior Subordinated Indebtedness of such Subsidiary Guarantor.

Limitation on Restricted Payments

   Hanover will not, and will not permit any of its Restricted Subsidiaries,
directly or indirectly, to:

      (1) declare or pay any dividend or make any distribution on or in respect
   of its Capital Stock (including any payment in connection with any merger or
   consolidation involving Hanover or any of its Restricted Subsidiaries)
   except:

          (a) dividends or distributions payable in Capital Stock of Hanover
       (other than Disqualified Stock) or in options, warrants or other rights
       to purchase such Capital Stock; and

          (b) dividends or distributions payable to Hanover or a Restricted
       Subsidiary (and if such Restricted Subsidiary is not a Wholly-Owned
       Subsidiary, to its other holders of common Capital Stock on a pro rata
       basis);


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      (2) purchase, redeem, retire or otherwise acquire for value any Capital
   Stock of Hanover or any direct or indirect parent of Hanover held by Persons
   other than Hanover or a Restricted Subsidiary of Hanover (other than in
   exchange for Capital Stock of Hanover (other than Disqualified Stock));

      (3) purchase, repurchase, redeem, defease or otherwise acquire or retire
   for value, prior to scheduled maturity, scheduled repayment or scheduled
   sinking fund payment, any Subordinated Obligations or Guarantor Subordinated
   Obligations (other than the purchase, repurchase or other acquisition of
   Subordinated Obligations or Guarantor Subordinated Obligations purchased in
   anticipation of satisfying a sinking fund obligation, principal installment
   or final maturity, in each case due within one year of the date of purchase,
   repurchase or acquisition); or

      (4) make any Restricted Investment in any Person;

      (any such dividend, distribution, purchase, redemption, repurchase,
   defeasance, other acquisition, retirement or Restricted Investment referred
   to in clauses (1) through (4) shall be referred to herein as a "Restricted
   Payment"), if at the time Hanover or such Restricted Subsidiary makes such
   Restricted Payment:

          (a) a Default shall have occurred and be continuing (or would result
       therefrom); or

          (b) Hanover is not able to Incur an additional $1.00 of Indebtedness
       pursuant to the first paragraph under the "Limitation on Indebtedness"
       covenant after giving effect, on a pro forma basis, to such Restricted
       Payment; or

          (c) the aggregate amount of such Restricted Payment and all other
       Restricted Payments declared or made subsequent to the Issue Date would
       exceed the sum of

             (i) 50% of Consolidated Net Income for the period (treated as one
          accounting period) from the Issue Date to the end of the most recent
          fiscal quarter ending prior to the date of such Restricted Payment
          for which financial statements are in existence (or, in case such
          Consolidated Net Income is a deficit, minus 100% of such deficit);

             (ii) the aggregate Net Cash Proceeds received by Hanover from the
          issue or sale of its Capital Stock (other than Disqualified Stock) or
          other capital contributions subsequent to the Issue Date (other than
          Net Cash Proceeds received from an issuance or sale of such Capital
          Stock to a Subsidiary of Hanover or an employee stock ownership plan,
          option plan or similar trust to the extent such sale to an employee
          stock ownership plan, option plan or similar trust is financed by
          loans from or guaranteed by Hanover or any Restricted Subsidiary
          unless such loans have been repaid with cash on or prior to the date
          of determination);

             (iii) the amount by which Indebtedness of Hanover is reduced on
          Hanover's balance sheet upon the conversion or exchange (other than
          by a Subsidiary of Hanover) subsequent to the Issue Date of any
          Indebtedness of Hanover convertible or exchangeable for Capital Stock
          (other than Disqualified Stock) of Hanover (less the amount of any
          cash, or other property, distributed by Hanover upon such conversion
          or exchange);

             (iv) the amount equal to the net reduction in Restricted
          Investments made by Hanover or any of its Restricted Subsidiaries in
          any Person resulting from

                 (A) repurchases or redemptions of such Restricted Investments
              by such Person, proceeds realized upon the sale of such
              Restricted Investment to an unaffiliated purchaser, repayments of
              loans or advances or other transfers of assets (including by way
              of dividend or distribution) by such Person to Hanover or any
              Restricted Subsidiary of Hanover; or

                 (B) the redesignation of Unrestricted Subsidiaries as
              Restricted Subsidiaries (valued in each case as provided in the
              definition of "Investment") not to exceed, in the case of any
              Unrestricted Subsidiary, the amount of Investments previously
              made by Hanover or any Restricted Subsidiary in such Unrestricted
              Subsidiary, which amount in each case under this

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              clause (iv) was included in the calculation of the amount of
              Restricted Payments; provided, however, that no amount will be
              included under this clause (iv) to the extent it is already
              included in Consolidated Net Income; and

             (v) $75.0 million.

The provisions of the preceding paragraph will not prohibit:

      (1) any purchase or redemption of Capital Stock or Subordinated
   Obligations of Hanover made by exchange for, or out of the proceeds of the
   substantially concurrent sale of, Capital Stock of Hanover (other than
   Disqualified Stock and other than Capital Stock issued or sold to a
   Subsidiary or an employee stock ownership plan or similar trust to the
   extent such sale to an employee stock ownership plan or similar trust is
   financed by loans from or Guaranteed by Hanover or any Restricted Subsidiary
   unless such loans have been repaid with cash on or prior to the date of
   determination); provided, however, that such purchase or redemption will be
   excluded in subsequent calculations of the amount of Restricted Payments;

      (2) any purchase or redemption of Subordinated Obligations of Hanover
   made by exchange for, or out of the proceeds of the substantially concurrent
   sale of, Subordinated Obligations of Hanover that qualifies as Refinancing
   Indebtedness; provided, however, that such purchase or redemption will be
   excluded in subsequent calculations of the amount of Restricted Payments;

      (3) so long as no Default or Event of Default has occurred and is
   continuing, any purchase or redemption of Subordinated Obligations from Net
   Available Cash to the extent permitted under "--Limitation on Sales of
   Assets and Subsidiary Stock" below; provided, however, that such purchase or
   redemption will be excluded in subsequent calculations of the amount of
   Restricted Payments;

      (4) dividends paid within 60 days after the date of declaration if at
   such date of declaration such dividend would have complied with this
   provision; provided, however, that such dividends will be included in
   subsequent calculations of the amount of Restricted Payments;

      (5) so long as no Default or Event of Default has occurred and is
   continuing,

          (a) the purchase, redemption or other acquisition, cancellation or
       retirement for value of Capital Stock, or options, warrants, equity
       appreciation rights or other rights to purchase or acquire Capital Stock
       of Hanover or any Restricted Subsidiary of Hanover or any parent of
       Hanover held by any existing or former directors, employees or
       management of Hanover or any Subsidiary of Hanover or their assigns,
       estates or heirs, in each case in connection with the repurchase
       provisions under employee or director stock option or stock purchase
       agreements or other agreements to compensate management employees or
       directors; provided that such redemptions or repurchases pursuant to
       this clause will not exceed $25.0 million in the aggregate during any
       calendar year; provided, however, that the amount of any such repurchase
       or redemption will be included in subsequent calculations of the amount
       of Restricted Payments; and

          (b) loans or advances to employees or directors of Hanover or any
       Subsidiary of Hanover the proceeds of which are used to purchase Capital
       Stock of Hanover, in an aggregate amount not in excess of $25.0 million
       at any one time outstanding; provided, however, that the amount of such
       loans and advances will be included in subsequent calculations of the
       amount of Restricted Payments;

      (6) repurchases of Capital Stock deemed to occur upon the exercise of
   stock options if such Capital Stock represents a portion of the exercise
   price thereof; provided, however, that such repurchases will be excluded
   from subsequent calculations of the amount of Restricted Payments; and

      (7) payments under the Subordinated Acquisition Note permitted by the
   subordination provisions contained therein, which permit repayment only upon
   an issuance of equity by Hanover or upon a change of control at Hanover.

   The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of such Restricted Payment of the assets or securities
proposed to be paid, transferred or issued by Hanover or such

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Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment.
The fair market value of any cash Restricted Payment shall be its face amount
and any non-cash Restricted Payment shall be determined conclusively by the
Board of Directors of Hanover acting in good faith whose resolution with
respect thereto shall be delivered to the Trustee (with a copy to the Issuer),
such determination to be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value is estimated to exceed $10.0 million. Not later than the date
of making any Restricted Payment, Hanover shall deliver to the Trustee (with a
copy to the Issuer) an Officer's Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, together with a
copy of any fairness opinion or appraisal required by the participation
agreement.

Limitation on Liens

   Hanover will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur or suffer to exist any Lien (other than
Permitted Liens) upon any of its, or any such Restricted Subsidiary's, property
or assets (including Capital Stock), whether owned on the date of the
participation agreement or acquired after that date, securing any Senior
Subordinated Indebtedness, Subordinated Obligations, Guarantor Senior
Subordinated Indebtedness or Guarantor Subordinated Obligations, unless
contemporaneously with the Incurrence of the Liens effective provision is made
to secure the Hanover Guarantee equally and ratably with (or prior to in the
case of Liens with respect to Subordinated Obligations or Guarantor
Subordinated Obligations, as the case may be) the Indebtedness secured by such
Lien for so long as such Indebtedness is so secured.

Limitation on Restrictions on Distributions from Restricted Subsidiaries

   Hanover will not, and will not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary to:

      (1) pay dividends or make any other distributions on its Capital Stock or
   pay any Indebtedness or other obligations owed to Hanover or any Restricted
   Subsidiary;

      (2) make any loans or advances to Hanover or any Restricted Subsidiary; or

      (3) transfer any of its property or assets to Hanover or any Restricted
   Subsidiary.

      The preceding provisions will not prohibit:

          (i) any encumbrance or restriction pursuant to an agreement in effect
       at or entered into on the date of the participation agreement,
       including, without limitation, the participation agreement, the
       participation agreement with respect to the 2008 Lease, and the Senior
       Credit Agreement in effect on such date;

          (ii) any encumbrance or restriction with respect to a Restricted
       Subsidiary pursuant to an agreement relating to any Indebtedness
       Incurred by a Restricted Subsidiary on or before the date on which such
       Restricted Subsidiary was acquired by Hanover (other than Indebtedness
       Incurred as consideration in, or to provide all or any portion of the
       funds utilized to consummate, the transaction or series of related
       transactions pursuant to which such Restricted Subsidiary became a
       Restricted Subsidiary or was acquired by Hanover or in contemplation of
       the transaction) and outstanding on such date;

          (iii) any encumbrance or restriction with respect to a Restricted
       Subsidiary pursuant to an agreement effecting a refunding, replacement
       or refinancing of Indebtedness Incurred pursuant to an agreement
       referred to in clause (i) or (ii) of this paragraph or this clause (iii)
       or contained in any amendment to an agreement referred to in clause (i)
       or (ii) of this paragraph or this clause (iii); provided, however, that
       the encumbrances and restrictions with respect to such Restricted
       Subsidiary

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       contained in any such agreement are no less favorable in any material
       respect to the holders of the notes than the encumbrances and
       restrictions contained in such agreements referred to in clauses (i) or
       (ii) of this paragraph on the Issue Date or the date such Restricted
       Subsidiary became a Restricted Subsidiary, whichever is applicable;

          (iv) in the case of clause (3) of the first paragraph of this
       covenant, any encumbrance or restriction:

             (a) that restricts in a customary manner the subletting,
          assignment or transfer of any property or asset that is subject to a
          lease, license or similar contract, or the assignment or transfer of
          any such lease, license or other contract;

             (b) contained in mortgages, pledges or other security agreements
          permitted under the participation agreement securing Indebtedness of
          Hanover or a Restricted Subsidiary to the extent such encumbrances or
          restrictions restrict the transfer of the property subject to such
          mortgages, pledges or other security agreements; or

             (c) pursuant to customary provisions restricting dispositions of
          real property interests set forth in any reciprocal easement
          agreements of Hanover or any Restricted Subsidiary;

          (v) purchase money obligations for property acquired in the ordinary
       course of business that impose encumbrances or restrictions of the
       nature described in clause (3) of the first paragraph of this covenant
       on the property so acquired;

          (vi) any Purchase Money Note or other Indebtedness or contractual
       requirements incurred with respect to a Qualified Receivables
       Transaction relating exclusively to a Receivables Entity that, in the
       good faith determination of the Board of Directors, are necessary to
       effect such Qualified Receivables Transaction;

          (vii) any restriction with respect to a Restricted Subsidiary (or any
       of its property or assets) imposed pursuant to an agreement entered into
       for the direct or indirect sale or disposition of all or substantially
       all the Capital Stock or assets of such Restricted Subsidiary (or the
       property or assets that are subject to such restriction) pending the
       closing of such sale or disposition; and

          (viii) encumbrances or restrictions arising or existing by reason of
       applicable law or any applicable rule, regulation or order.

Limitation on Sales of Assets and Subsidiary Stock

   Hanover will not, and will not permit any of its Restricted Subsidiaries to,
make any Asset Disposition unless:

      (1) Hanover or such Restricted Subsidiary, as the case may be, receives
   consideration at the time of such Asset Disposition at least equal to the
   fair market value, as determined in good faith by the Board of Directors
   (including as to the value of all non-cash consideration), of the shares and
   assets subject to such Asset Disposition;

      (2) at least 80% of the consideration from such Asset Disposition
   received by Hanover or such Restricted Subsidiary, as the case may be, is in
   the form of cash or Cash Equivalents; and

      (3) an amount equal to 100% of the Net Available Cash from such Asset
   Disposition is applied by Hanover or such Restricted Subsidiary, as the case
   may be:

          (a) first, to the extent Hanover or any Restricted Subsidiary, as the
       case may be, elects (or is required by the terms of any Senior
       Indebtedness) to prepay, repay or purchase Senior Indebtedness or
       Indebtedness (other than any Preferred Stock or Guarantor Subordinated
       Obligation) of a Restricted Subsidiary that is a Hanover Guarantor (in
       each case other than Indebtedness owed to Hanover or an

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       Affiliate of Hanover); provided, however, that, in connection with any
       prepayment, repayment or purchase of Indebtedness pursuant to this
       clause (a), Hanover or such Restricted Subsidiary will retire such
       Indebtedness and will cause the related commitment (if any) to be
       permanently reduced in an amount equal to the principal amount so
       prepaid, repaid or purchased; and

          (b) second, to the extent of the balance of such Net Available Cash
       after application in accordance with clause (a), to the extent Hanover
       or such Restricted Subsidiary elects to invest in Additional Assets
       within 360 days from the later of the date of such Asset Disposition or
       the receipt of such Net Available Cash.

   Any Net Available Cash from Asset Dispositions that is not applied or
invested as provided in the preceding paragraph will be deemed to constitute
"Excess Proceeds." On the 361st day after an Asset Disposition, if the
aggregate amount of Excess Proceeds exceeds $25.0 million, Hanover will notify
the Issuer that it will, upon notice by the Trustee, cause HCLP to purchase
Equipment having a Termination Value equal to or less than the amount by which
such excess amount exceeds the portion made available for an "Asset Disposition
Offer" pursuant to the 2008 Indenture. Hanover has the option to apply such
excess amount under the indenture or the 2008 Indenture. Concurrently with the
repurchase of the notes described below, (a) HCLP will purchase the amount of
Equipment, at such Equipment's Termination Value, necessary to generate
sufficient proceeds for the Issuer to prepay a proportionate amount of equity
certificates, and (b) HCLP will make a payment of supplemental rent to the
Issuer sufficient for the Issuer to pay any accrued and unpaid interest on the
notes being repurchased and yield on the equity certificates being prepaid, as
well as any applicable redemption premium.

   The Issuer shall promptly make an offer ("Asset Disposition Offer") to all
holders of the notes to purchase the maximum principal amount of notes that may
be purchased out of the Excess Proceeds that have been applied to the purchase
of the Equipment for purposes of such corresponding repurchase of the notes
described in the preceding paragraph, taking into account the proportionate
amount of equity certificates to be repaid, at an offer price in cash in an
amount equal to 100% of the principal amount of the notes, plus accrued and
unpaid interest to the date of purchase, in accordance with the procedures set
forth in the indenture, in each case in multiples of $1,000. To the extent that
the aggregate amount of notes so validly tendered and not properly withdrawn
pursuant to an Asset Disposition Offer and the proportionate amount of equity
certificates to be repaid is less than the Excess Proceeds, Hanover may use any
remaining Excess Proceeds for general corporate purposes, subject to the other
covenants contained in the indenture and the participation agreement. If the
aggregate principal amount of notes surrendered by holders thereof and the
proportionate amount of equity certificates to be repaid exceeds the amount of
Excess Proceeds, the notes and the corresponding amount of equity certificates
shall be purchased and repaid, as applicable, on a pro rata basis. Upon
completion of such Asset Disposition Offer, the amount of Excess Proceeds shall
be reset at zero.

   The Asset Disposition Offer will remain open for a period of 20 Business
Days following its commencement, except to the extent that a longer period is
required by applicable law (the "Asset Disposition Offer Period"). No later
than five Business Days after the termination of the Asset Disposition Offer
Period (the "Asset Disposition Purchase Date"), the Issuer will purchase the
principal amount of notes required to be purchased pursuant to this covenant
(the "Asset Disposition Offer Amount") or, if less than the Asset Disposition
Offer Amount has been so validly tendered, all notes validly tendered in
response to the Asset Disposition Offer.

   If the Asset Disposition Purchase Date is on or after an interest record
date and on or before the related interest payment date, any accrued and unpaid
interest will be paid to the Person in whose name a note is registered at the
close of business on such record date, and no additional interest will be
payable to holders of the notes who tender notes pursuant to the Asset
Disposition Offer.

   On or before the Asset Disposition Purchase Date, the Issuer will, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Asset Disposition Offer Amount of notes or portions of notes so validly
tendered and not properly withdrawn pursuant to the Asset Disposition Offer, or
if less than the Asset

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Disposition Offer Amount has been validly tendered and not properly withdrawn,
all notes so validly tendered and not properly withdrawn, in each case in
integral multiples of $1,000. The Issuer will deliver to the Trustee an
Officer's Certificate stating that such notes or portions thereof were accepted
for payment by the Issuer in accordance with the terms of this covenant. The
Issuer or the Paying Agent, as the case may be, will promptly (but in any case
not later than five Business Days after termination of the Asset Disposition
Offer Period) mail or deliver to each tendering holder of notes an amount equal
to the purchase price of the notes so validly tendered and not properly
withdrawn by such holder and accepted by the Issuer for purchase, and the
Issuer will promptly issue a new note, and the Trustee, upon delivery of an
Officer's Certificate from the Issuer will authenticate and mail or deliver
such new note to such holder, in a principal amount equal to any unpurchased
portion of the note surrendered; provided that each such new note will be in a
principal amount of $1,000 or an integral multiple of $1,000. Any note not so
accepted will be promptly mailed or delivered by the Issuer to the holder
thereof. The Issuer will publicly announce the results of the Asset Disposition
Offer on the Asset Disposition Purchase Date.

   For the purposes of this covenant, the following will be deemed to be cash:

      (1) the assumption by the transferee of Senior Indebtedness of Hanover or
   Indebtedness (other than Guarantor Senior Subordinated Indebtedness,
   Guarantor Subordinated Obligations or Preferred Stock) of any Restricted
   Subsidiary of Hanover and the release of Hanover or such Restricted
   Subsidiary from all liability on such Senior Indebtedness or Indebtedness in
   connection with such Asset Disposition (in which case Hanover will, without
   further action, be deemed to have applied such deemed cash to Indebtedness
   in accordance with clause (a) above); and

      (2) securities, notes or other obligations received by Hanover or any
   Restricted Subsidiary of Hanover from the transferee that are promptly
   converted by Hanover or such Restricted Subsidiary into cash.

Limitation on Affiliate Transactions

   Hanover will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or conduct any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Hanover (an "Affiliate Transaction") unless:

      (1) the terms of such Affiliate Transaction are no less favorable to
   Hanover or such Restricted Subsidiary, as the case may be, than those that
   could be obtained in a comparable transaction at the time of such
   transaction in arm's-length dealings with a Person who is not such an
   Affiliate;

      (2) in the event such Affiliate Transaction involves an aggregate amount
   in excess of $10.0 million, the terms of such transaction have been approved
   by a majority of the members of the Board of Directors of Hanover and by a
   majority of the members of such Board having no personal stake in such
   transaction, if any (and such majority or majorities, as the case may be,
   determines that such Affiliate Transaction satisfies the criterion in clause
   (1) above); and

      (3) in the event such Affiliate Transaction involves an aggregate amount
   in excess of $25.0 million, Hanover has received a written opinion from an
   independent investment banking firm of nationally recognized standing that
   such Affiliate Transaction is not materially less favorable than those that
   might reasonably have been obtained in a comparable transaction at such time
   on an arms-length basis from a Person that is not an Affiliate.

   The preceding paragraph will not apply to:

      (1) transactions among Hanover, HCLP, the Issuer and the Hanover
   Guarantors under the Operative Agreements;

      (2) any Restricted Payment (other than a Restricted Investment) permitted
   to be made pursuant to the covenant described under "Limitation on
   Restricted Payments";

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      (3) any issuance of securities, or other payments, awards or grants in
   cash, securities or otherwise pursuant to, or the funding of, employment
   arrangements, stock options and stock ownership plans and other reasonable
   fees, compensation, benefits and indemnities paid or entered into by Hanover
   or its Restricted Subsidiaries in the ordinary course of business to or with
   officers, directors or employees of Hanover and its Restricted Subsidiaries;

      (4) loans or advances to employees and consultants in the ordinary course
   of business of Hanover or any of its Restricted Subsidiaries in an amount
   not to exceed $5.0 million in the aggregate during any calendar year;

      (5) any transaction between Hanover and a Restricted Subsidiary (other
   than a Receivables Entity) or between Restricted Subsidiaries (other than a
   Receivables Entity);

      (6) the payment of reasonable and customary fees paid to, and indemnity
   provided on behalf of, officers, directors or employees of Hanover or any
   Restricted Subsidiary of Hanover;

      (7) the performance of obligations of Hanover or any of its Restricted
   Subsidiaries under the terms of any agreement to which Hanover or any of its
   Restricted Subsidiaries is a party on the Issue Date and identified on a
   schedule to the participation agreement, as these agreements may be amended,
   modified or supplemented from time to time; provided, however, that any
   future amendment, modification or supplement entered into after the Issue
   Date will be permitted to the extent that its terms are not more
   disadvantageous to the holders of the notes in its entirety than the terms
   of the agreements in effect on the Issue Date;

      (8) sales or other transfers or dispositions of accounts receivable and
   other related assets customarily transferred in an asset securitization
   transaction involving accounts receivable to a Receivables Entity in a
   Qualified Receivables Transaction, and acquisitions of Permitted Investments
   in connection with a Qualified Receivables Transaction; and

      (9) transactions with joint venture partners in an amount not to exceed
   $10.0 million in the aggregate during any calendar year.

Limitation on Sale of Capital Stock of Restricted Subsidiaries

   Hanover will not, and will not permit any of its Restricted Subsidiaries to,
transfer, convey, sell, lease or otherwise dispose of any Voting Stock of any
Restricted Subsidiary or to issue any of the Voting Stock of a Restricted
Subsidiary (other than, if necessary, shares of its Voting Stock constituting
directors' qualifying shares) to any Person except:

      (1) to Hanover or a Wholly-Owned Subsidiary other than a Receivables
   Entity; or

      (2) in compliance with the covenant described under "--Limitation on
   Sales of Assets and Subsidiary Stock" and, immediately after giving effect
   to such issuance or sale, such Restricted Subsidiary would continue to be a
   Restricted Subsidiary.

   Notwithstanding the preceding paragraph, Hanover may sell all the Voting
Stock of a Restricted Subsidiary as long as Hanover complies with the terms of
the covenant described under "--Limitation on Sales of Assets and Subsidiary
Stock."

SEC Reports

   Notwithstanding that Hanover or the Issuer may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, to the
extent permitted by the Exchange Act, Hanover and the Issuer will file with the
Commission, and provide the Trustee with, the annual reports and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) that
are specified in Sections 13 and 15(d) of the Exchange Act within the time
periods specified

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therein. In the event that Hanover or the Issuer is not permitted to file such
reports, documents and information with the Commission pursuant to the Exchange
Act, Hanover or the Issuer, as applicable, will nevertheless provide such
Exchange Act information to the Trustee as if Hanover or the Issuer, as the
case may be, were subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act within the time periods specified therein.

Merger and Consolidation

   Hanover will not consolidate with or merge with or into, or convey, transfer
or lease all or substantially all its assets to, any Person, unless:

      (1) the resulting, surviving or transferee Person (the "Successor
   Company") will be a corporation, partnership, trust or limited liability
   company organized and existing under the laws of the United States of
   America, any State of the United States or the District of Columbia and the
   Successor Company (if not Hanover) will expressly assume, by an assumption
   agreement supplemental to the participation agreement, executed by the
   Successor Company and delivered to the Trustee, in form satisfactory to the
   Trustee, all the obligations of Hanover under the Hanover Guarantee and the
   participation agreement;

      (2) immediately after giving effect to such transaction (and treating any
   Indebtedness that becomes an obligation of the Successor Company or any
   Subsidiary of the Successor Company as a result of such transaction as
   having been Incurred by the Successor Company or such Subsidiary at the time
   of such transaction), no Default or Event of Default shall have occurred and
   be continuing;

      (3) immediately after giving effect to such transaction, the Successor
   Company would be able to Incur at least an additional $1.00 of Indebtedness
   pursuant to the first paragraph of the "Limitation on Indebtedness"
   covenant; and

      (4) Hanover shall have delivered to the Trustee an Officers' Certificate
   and an Opinion of Counsel, each stating that such consolidation, merger or
   transfer and such assumption agreement (if any) comply with the
   participation agreement.

   For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer, or other disposition of all or substantially all of the properties
and assets of one or more Subsidiaries of Hanover, which properties and assets,
if held by Hanover instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of Hanover on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of Hanover; provided, however, that a Sale/Leaseback
Transaction involving all or substantially all of the properties and assets of
Hanover or of one or more Subsidiaries of Hanover, which properties and assets,
if held by Hanover instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of Hanover on a consolidated
basis, shall not be deemed to be the transfer of all or substantially all of
the properties and assets of Hanover, and provided, further, that such
Sale/Leaseback Transaction shall be subject to the covenants under
"--Limitation on Indebtedness" and "--Limitation on Sales of Assets and
Subsidiary Stock".

   The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Hanover under the participation agreement,
but, in the case of a lease of all or substantially all its assets, Hanover
will not be released from the obligation to pay the principal of and interest
on the notes pursuant to the Hanover Guarantee.

   Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, in certain circumstances there may be a
degree of uncertainty as to whether a particular transaction would involve "all
or substantially all" of the property or assets of a Person.

   Notwithstanding the preceding clause (3), (x) any Restricted Subsidiary of
Hanover may consolidate with, merge into or transfer all or part of its
properties and assets to Hanover and (y) Hanover may merge with an Affiliate
incorporated solely for the purpose of reincorporating Hanover in another
jurisdiction to realize tax or other benefits.

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Future Subsidiary Guarantors

   As of the date of this prospectus, there are no Subsidiary Guarantors other
than HCLP with respect to the notes. After the Issue Date, Hanover will cause
each Restricted Subsidiary (other than a Foreign Subsidiary or a Receivables
Entity) that (i) becomes, or upon its creation or acquisition by Hanover or one
or more of its Restricted Subsidiaries is, a Material Subsidiary and (ii)
becomes a guarantor under the Senior Credit Agreement, to execute and deliver
to the Trustee, promptly after becoming a guarantor under the Senior Credit
Agreement, a Guarantee pursuant to which such Restricted Subsidiary will become
a Subsidiary Guarantor with respect to the Hanover Guarantee.

Events of Default

   Each of the following is an Event of Default under the indenture:

      (1) default in any payment of interest or additional interest (as
   required by the Registration Rights Agreement) on any note when due,
   continued for 30 days;

      (2) default in the payment of principal of or premium, if any, on any
   note when due at its Stated Maturity, upon optional redemption, upon
   required repurchase, upon declaration or otherwise;

      (3) failure by Hanover, HCLP or any other Hanover Guarantor to comply
   with its obligations under "Certain Covenants under the Participation
   Agreement--Merger and Consolidation";

      (4) failure by the Issuer to comply for 30 days after notice with any of
   its obligations under the covenants described under "Certain Covenants under
   the Indenture" above (other than a failure to purchase notes, which will
   constitute an Event of Default under clause (2) above);

      (5) failure by the Issuer to comply for 60 days after notice with its
   other agreements contained in the indenture or any covenant, representation
   or warranty under any of the other Operative Agreements;

      (6) the occurrence and continuation of a Lease Event of Default (see
   "Summary of Principal Operative Agreements--The Lease--Events of Default");

      (7) the Operative Agreements no longer create a first priority lien on
   all the Collateral for the benefit of the Trustee in its capacity as
   collateral agent (subject to Permitted Liens);

      (8) default under any mortgage, indenture or instrument under which there
   may be issued or by which there may be secured or evidenced any Indebtedness
   for money borrowed by Hanover or any of its Restricted Subsidiaries (or the
   payment of which is Guaranteed by Hanover or any of its Restricted
   Subsidiaries), other than Indebtedness owed to Hanover or a Restricted
   Subsidiary, whether such Indebtedness or Guarantee now exists, or is created
   after the date of the participation agreement, which default:

          (a) is caused by a failure to pay principal of, or interest or
       premium, if any, on such Indebtedness prior to the expiration of the
       grace period provided in such Indebtedness ("payment default"); or

          (b) results in the acceleration of such Indebtedness prior to its
       maturity (the "cross acceleration provision");

   and, in each case, the principal amount of any such Indebtedness, together
   with the principal amount of any other such Indebtedness under which there
   has been a payment default or the maturity of which has been so accelerated,
   aggregates $20.0 million or more;

      (9) certain events of bankruptcy, insolvency or reorganization of the
   Issuer, Hanover, any Significant Subsidiary or a group of Restricted
   Subsidiaries that, taken together (as of the latest audited consolidated
   financial statements for Hanover and its Restricted Subsidiaries), would
   constitute a Significant Subsidiary (collectively, the "bankruptcy
   provisions");

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      (10) failure by the Issuer, Hanover or any of its Restricted Subsidiaries
   to pay final judgments aggregating in excess of $20.0 million (net of any
   amounts that a reputable and creditworthy insurance company has acknowledged
   liability for in writing), which judgments are not paid, discharged or
   stayed for a period of 60 days (the "judgment default provision"); or

      (11) the Hanover Guarantee ceases to be in full force and effect (except
   as contemplated by the terms of the indenture and the participation
   agreement) or is declared null and void in a judicial proceeding with
   respect to any of the Hanover Guarantors, or any of the Hanover Guarantors
   denies or disaffirms its obligations under the participation agreement or
   the Hanover Guarantee.

However, a default under clauses (4) and (5) of this paragraph will not
constitute an Event of Default until the Trustee or the holders of 25% in
principal amount of the outstanding notes notify the Issuer of the default and
the Issuer does not cure such default within the time specified in clauses (4)
and (5) of this paragraph after receipt of such notice.

   If an Event of Default (other than an Event of Default described in clause
(9) above) occurs and is continuing, the Trustee by notice to the Issuer, or
the holders of at least 25% in principal amount of such outstanding notes by
notice to the Issuer and the Trustee, may, and the Trustee at the request of
such holders shall, declare the principal of, premium, if any, and accrued and
unpaid interest, if any, on all the notes to be due and payable; provided,
however, that so long as any Bank Indebtedness remains outstanding, no such
acceleration shall be effective until the earlier of (i) two business days
after delivery of written notice to Hanover, HCLP and the Representative under
such Bank Indebtedness and (ii) the day on which any Bank Indebtedness is
accelerated. Upon such a declaration, such principal, premium and accrued and
unpaid interest will be due and payable immediately. In the event of a
declaration of acceleration of the notes because an Event of Default described
in clause (8) under "Events of Default" has occurred and is continuing, the
declaration of acceleration of the notes shall be automatically annulled if the
event of default or payment default triggering such Event of Default pursuant
to clause (8) shall be remedied or cured by Hanover or a Restricted Subsidiary
of Hanover or waived by the holders of the relevant Indebtedness within 20 days
after the declaration of acceleration with respect thereto and if (1) the
annulment of the acceleration of the notes would not conflict with any judgment
or decree of a court of competent jurisdiction and (2) all existing Events of
Default, except nonpayment of principal, premium or interest on the notes that
became due solely because of the acceleration of the notes, have been cured or
waived. If an Event of Default described in clause (9) above occurs and is
continuing, the principal of, premium, if any, and accrued and unpaid interest
on all the notes will become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders. The holders
of a majority in principal amount of the outstanding notes may waive all past
defaults (except with respect to nonpayment of principal, premium or interest)
and rescind any such acceleration with respect to the notes and its
consequences if (1) rescission would not conflict with any judgment or decree
of a court of competent jurisdiction and (2) all existing Events of Default,
other than the nonpayment of the principal of, premium, if any, and interest on
the notes that have become due solely by such declaration of acceleration, have
been cured or waived.

   Subject to the provisions of the indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the indenture
at the request or direction of any of the respective holders unless such
holders have offered to the Trustee reasonable indemnity or security against
any loss, liability or expense. Except to enforce the right to receive payment
of principal, premium, if any, or interest when due, no holder may pursue any
remedy with respect to the indenture or the notes unless:

      (1) such holder has previously given the Trustee notice that an Event of
   Default is continuing;

      (2) holders of at least 25% in principal amount of the outstanding notes
   have requested that the Trustee pursue the remedy;

      (3) such holders have offered the Trustee reasonable security or
   indemnity against any loss, liability or expense;

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      (4) the Trustee has not complied with such request within 60 days after
   the receipt of the request and the offer of security or indemnity; and

      (5) the holders of a majority in principal amount of the outstanding
   notes have not given the Trustee a direction that, in the opinion of the
   Trustee, is inconsistent with such request within such 60-day period.

   Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The indenture
provides that in the event an Event of Default has occurred and is continuing,
the Trustee will be required in the exercise of its powers to use the degree of
care that a prudent person would use in the conduct of its own affairs. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder or that would involve the Trustee in personal
liability. Prior to taking any action under the indenture, the Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.

   The indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of, premium, if any, or interest on any note, the Trustee
may withhold notice if and so long as a committee of trust officers of the
Trustee in good faith determines that withholding notice is in the interests of
the holders. In addition, the Issuer is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Issuer also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any events which would
constitute certain Defaults, their status and what action the Issuer is taking
or proposes to take in respect thereof.

Amendments and Waivers

   Subject to certain exceptions, each indenture may be amended with the
consent of the holders of a majority in principal amount of the notes then
outstanding (including without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, the notes) and, subject
to certain exceptions, any past default or compliance with any provisions may
be waived with the consent of the holders of a majority in principal amount of
the notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the
notes). However, without the consent of each holder of an outstanding note
affected, no amendment may, among other things:

      (1) reduce the amount of notes whose holders must consent to an amendment;

      (2) reduce the stated rate of or extend the stated time for payment of
   interest on any note;

      (3) reduce the principal of or extend the Stated Maturity of any note;

      (4) reduce the premium payable upon the redemption or repurchase of any
   note or change the time at which any note may be redeemed or repurchased as
   described above under "Optional Redemption," "Change of Control," or any
   similar provision, whether through an amendment or waiver of provisions in
   the covenants, definitions or otherwise;

      (5) make any note payable in money other than that stated in the note;

      (6) impair the right of any holder to receive payment of, premium, if
   any, principal of and interest on such holder's notes on or after the due
   dates therefor or to institute suit for the enforcement of any payment on or
   with respect to such holder's notes; or

      (7) make any change in the amendment provisions which require each
   holder's consent or in the waiver provisions.

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   Without the consent of any holder, the Issuer and the Trustee may amend the
indenture to:

      (1) cure any ambiguity, omission, defect or inconsistency that does not
   materially adversely affect the rights of any holder of the notes;

      (2) provide for uncertificated notes in addition to or in place of
   certificated notes (provided that the uncertificated notes are issued in
   registered form for purposes of Section 163(f) of the Code, or in a manner
   such that the uncertificated notes are described in Section 163(f) (2) (B)
   of the Code);

      (3) add Guarantees with respect to the notes or release a Subsidiary
   Guarantor upon its designation as an Unrestricted Subsidiary; provided,
   however, that the designation is in accord with the applicable provisions of
   the indenture;

      (4) further secure the notes;

      (5) add to the covenants of the Issuer for the benefit of the holders or
   surrender any right or power conferred upon the Issuer;

      (6) make any change that does not adversely affect the rights of any
   holder; or

      (7) comply with any requirement of the SEC in connection with the
   qualification of the indenture under the Trust Indenture Act.

   The consent of the holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
indenture becomes effective, the Issuer is required to mail to the holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect in the notice, will not impair or
affect the validity of the amendment.

   Pursuant to the participation agreement, the material terms of the
participation agreement, the Lease, the Hanover Guarantee and the assignment of
the Lease may not be amended, supplemented, waived or modified without the
written agreement and consent of, among others, the Trustee acting on behalf of
the holders of a majority of the then outstanding notes; provided, however,
that, without the consent of the Trustee acting on behalf of the holders of a
majority of the then outstanding notes, the applicable Issuer, HCLP and
Hanover, the Trustee may amend, supplement, waive or modify provisions of the
Lease which relate to, among other items, the return and redelivery of the
Equipment at the expiration of the Lease term, use of the Equipment and
subleasing of the Equipment. Notwithstanding the foregoing, such parties may
not, without the consent of each holder affected thereby, amend, change or
modify in any material respect the obligations of HCLP and/or Hanover (or any
of the material provisions or definitions with respect thereto) to (a) make
payments of rent under the Lease or (b) purchase Equipment yielding proceeds
sufficient to enable the Issuer to make and consummate a Change of Control
Offer. Certain provisions of the Lease, the participation agreement, the
indenture and the other Operative Agreements which are material to the equity
certificate holder of the Issuer may not be amended, supplemented, waived or
modified without the equity certificate holder's consent if such amendment,
waiver, supplement or modification would materially adversely affect such
equity certificate holder. No amendment may be made to the subordination
provisions of the Lease or Hanover Guarantee that adversely affects the rights
of any holder of Senior Indebtedness or Guarantor Senior Indebtedness then
outstanding unless the holders of such Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable (or their Representative), consent to such change.

Defeasance

   The Issuer at any time may terminate all its obligations under the notes and
the indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes
and to maintain a registrar and paying agent in respect of the notes. If the
Issuer exercises its legal defeasance option, the Hanover Guarantee in effect
at such time will terminate.

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   The Issuer at any time may terminate its obligations under covenants
described under "Certain Covenants under the Indenture", the operation of the
cross-default upon a payment default, cross acceleration provisions, the
judgment default provision and the Guarantee provision described under "Events
of Default" above ("covenant defeasance").

   The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the notes may not be accelerated because of
an Event of Default with respect to the notes. If the Issuer exercises its
covenant defeasance option, payment of the notes may not be accelerated because
of an Event of Default specified in clause (4), (5), (6), (7), (9) or (10)
under "Events of Default" above.

   In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel (subject to customary exceptions and exclusions) to the
effect that holders of the notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance
had not occurred. In the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law.

No Personal Liability of Directors, Officers, Employees and Stockholders

   No director, officer, employee, incorporator or stockholder of the Issuer,
as such, shall have any liability for any obligations of the Issuer under the
notes, indenture or Hanover Guarantee or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder by accepting a
note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of
the SEC that such a waiver is against public policy.

Concerning the Trustee

   Wilmington Trust FSB is the Trustee under the indenture and has been
appointed by the Issuer as Registrar and Paying Agent with regard to its
respective notes.

Governing Law

   The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York.

Certain Definitions

   The following terms shall have the meanings set forth below in respect of
the indenture and the participation agreement related to the issuance of the
notes.

   "2008 Indenture" means the indenture, with terms substantially similar to
the indenture with respect the notes, with respect to Hanover Equipment Trust
2001A's 8.50% Senior Secured Notes due 2008.

   "2008 Lease" means the seven-year operating lease, with terms substantially
similar to the Lease, entered into by HCLP with Hanover Equipment Trust 2001A
as of August 31, 2001.

   "2008 Guarantee" means the Guarantee, with terms substantially similar to
the Hanover Guarantee, by the Hanover Guarantors with respect to Hanover
Equipment Trust 2001A's 8.50% Senior Secured Notes due 2008 and the 2008 Lease
entered into in connection therewith.

   "Additional Assets" means

      (1) any property or assets (other than Indebtedness and Capital Stock) to
   be used by Hanover or a Restricted Subsidiary in a Related Business;

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      (2) the Capital Stock of a Person that becomes a Restricted Subsidiary as
   a result of the acquisition of such Capital Stock by Hanover or a Restricted
   Subsidiary of Hanover; or

      (3) Capital Stock constituting a minority interest in any Person that at
   such time is a Restricted Subsidiary of Hanover;

provided, however, that, in the case of clauses (2) and (3), such Restricted
Subsidiary is primarily engaged in a Related Business.

   "Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.

   "Asset Disposition" means any direct or indirect sale, lease (other than an
operating lease entered into in the ordinary course of business), transfer,
issuance or other disposition, or a series of related sales, leases, transfers,
issuances or dispositions that are part of a common plan, of shares of Capital
Stock of a Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"disposition") by Hanover or any of its Restricted Subsidiaries, including any
disposition by means of a merger, consolidation or similar transaction.

   Notwithstanding the preceding, the following items shall not be deemed to be
Asset Dispositions:

      (1) a disposition by a Restricted Subsidiary to Hanover or by Hanover or
   a Restricted Subsidiary to a Restricted Subsidiary in which Hanover will
   hold, directly or indirectly, at least the same ownership percentage as it
   did prior to such disposition;

      (2) the sale of Cash Equivalents in the ordinary course of business;

      (3) a disposition of inventory in the ordinary course of business;

      (4) a disposition of obsolete or worn out equipment or equipment that is
   no longer useful in the conduct of the business of Hanover and its
   Restricted Subsidiaries and that is disposed of in each case in the ordinary
   course of business;

      (5) transactions described under "Certain Covenants under the
   Participation Agreements--Merger and Consolidation" (other than with respect
   to any Sale/Leaseback Transaction involving all or substantially all of the
   properties and assets of Hanover or of one or more Subsidiaries of Hanover,
   which properties and assets, if held by Hanover instead of such
   Subsidiaries, would constitute all or substantially all of the properties
   and assets of Hanover on a consolidated basis);

      (6) an issuance of Capital Stock by a Restricted Subsidiary of Hanover to
   Hanover or to a Wholly-Owned Subsidiary (other than a Receivables Entity);

      (7) for purposes of "Certain Covenants under the Participation
   Agreements--Limitation on Sales of Assets and Subsidiary Stock" only, the
   making of a Permitted Investment or a disposition subject to "Certain
   Covenants under the Participation Agreements--Limitation on Restricted
   Payments";

      (8) sales of accounts receivable and related assets or an interest
   therein of the type specified in the definition of "Qualified Receivables
   Transaction" to a Receivables Entity;

      (9) dispositions of assets selected by the Board of Directors as not
   constituting an Asset Disposition with an aggregate fair market value since
   the Issue Date of less than $10.0 million;

      (10) dispositions in connection with Permitted Liens;

      (11) sales of Equipment pursuant to Sale/Leaseback Transactions;


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      (12) the licensing or sublicensing of intellectual property or other
   general intangibles and licenses, leases or subleases of other property in
   the ordinary course of business which do not materially interfere with the
   business of Hanover and its Restricted Subsidiaries; and

      (13) foreclosure on assets.

   "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the notes, compounded semi-annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).

   "Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (1) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (2) the sum of all such payments.

   "Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or Incurred after the Issue Date, payable by Hanover and/or HCLP or
any Subsidiary of Hanover under or in respect of the Senior Credit Agreement
and any related notes, collateral documents, letters of credit and Guarantees
and any Interest Rate Agreement entered into in connection with the Senior
Credit Agreement, including principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Hanover and/or HCLP at the rate specified therein
whether or not a claim for post filing interest is allowed in such
proceedings), fees, charges, expenses, reimbursement obligations, Guarantees
and all other amounts payable thereunder or in respect thereof.

   "Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.

   "Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participation or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.

   "Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation will be the capitalized amount of such obligation at the time
any determination thereof is to be made as determined in accordance with GAAP,
and the Stated Maturity thereof will be the date of the last payment of rent or
any other amount due under such lease prior to the first date such lease may be
terminated without penalty.

   "Cash Equivalents" means:

      (1) securities issued or directly and fully Guaranteed or insured by the
   United States Government or any agency or instrumentality of the United
   States (provided that the full faith and credit of the United States is
   pledged in support thereof), having maturities of not more than one year
   from the date of acquisition;

      (2) marketable general obligations issued by any state of the United
   States of America or any political subdivision of any such state or any
   public instrumentality thereof maturing within one year from the date of
   acquisition of the United States (provided that the full faith and credit of
   the United States is pledged in support thereof) and, at the time of
   acquisition, having a credit rating of "A" or better from either Standard &
   Poor's Ratings Services or Moody's Investors Service, Inc.;

      (3) certificates of deposit, time deposits, eurodollar time deposits,
   overnight bank deposits or bankers' acceptances having maturities of not
   more than one year from the date of acquisition thereof issued by any
   commercial bank the long-term debt of which is rated at the time of
   acquisition thereof at least "A" or the equivalent thereof by Standard &
   Poor's Ratings Services, or "A" or the equivalent thereof by Moody's
   Investors Service, Inc., and having combined capital and surplus in excess
   of $500.0 million;

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      (4) repurchase obligations with a term of not more than seven days for
   underlying securities of the types described in clauses (1), (2) and (3)
   entered into with any bank meeting the qualifications specified in clause
   (3) above;

      (5) commercial paper rated at the time of acquisition thereof at least
   "A2" or the equivalent thereof by Standard & Poor's Ratings Services or
   "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or
   carrying an equivalent rating by a nationally recognized rating agency, if
   both of the two named rating agencies cease publishing ratings of
   investments, and in any case maturing within one year after the date of
   acquisition thereof; and

      (6) interests in any investment company or money market fund which
   invests solely in instruments of the type specified in clauses (1) through
   (5) above.

   "Certificate Holder Contribution" means the investments of funds in the
Issuer made by the equity certificate holder pursuant to the participation
agreement and the trust agreement.

   "Change of Control" means:

      (1) any "person" or "group" of related persons (as such terms are used in
   Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial
   owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
   that such person or group shall be deemed to have "beneficial ownership" of
   all shares that any such person or group has the right to acquire, whether
   such right is exercisable immediately or only after the passage of time),
   directly or indirectly, of more than 51% of the total voting power of the
   Voting Stock of Hanover (or its successor by merger, consolidation or
   purchase of all or substantially all of its assets) (for the purposes of
   this clause, such person or group shall be deemed to beneficially own any
   Voting Stock of Hanover held by an entity, if such person or group
   "beneficially owns" (as defined above), directly or indirectly, more than
   51% of the voting power of the Voting Stock of such parent entity);

      (2) during any period of two consecutive years, individuals who at the
   beginning of such period constituted the Board of Directors of Hanover
   (together with any new directors whose election by such Board of Directors
   or whose nomination for election by the shareholders of Hanover was approved
   by a vote of at least a majority of the directors of Hanover then still in
   office who were either directors at the beginning of such period or whose
   election or nomination for election was previously so approved) cease for
   any reason to constitute a majority of the Board of Directors of Hanover
   then in office;

      (3) the sale, lease, transfer, conveyance or other disposition (other
   than by way of merger or consolidation), in one or a series of related
   transactions, of all or substantially all of the assets of Hanover and its
   Restricted Subsidiaries taken as a whole to any "person" (as such term is
   used in Sections 13(d) and 14(d) of the Exchange Act); or

      (4) the adoption by the stockholders of Hanover of a plan or proposal for
   the liquidation or dissolution of Hanover.

   "Code" means the Internal Revenue Code of 1986, as amended.

   "Common Stock" means with respect to any Person, any and all shares,
interest or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock whether or not
outstanding on the Issue Date, and includes, without limitation, all series and
classes of such common stock.


   "Consolidated Coverage Ratio" means as of any date of determination, with
respect to any Person, the ratio of (x) the aggregate amount of Consolidated
EBITDAR of such Person for the period of the most recent four consecutive
fiscal quarters ending prior to the date of such determination for which
financial statements are in existence to (y) Consolidated Fixed Charges for
such four fiscal quarters, provided, however, that:


      (1) if Hanover or any Restricted Subsidiary:

          (a) has Incurred any Indebtedness since the beginning of such period
       that remains outstanding on such date of determination or if the
       transaction giving rise to the need to calculate the Consolidated
       Coverage Ratio involves an Incurrence of Indebtedness, Consolidated
       EBITDA and Consolidated Fixed Charges for such period will be calculated
       after giving effect on a pro forma basis to such

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       Indebtedness as if such Indebtedness had been Incurred on the first day
       of such period (except that in making such computation, the amount of
       Indebtedness under any revolving credit facility outstanding on the date
       of such calculation will be computed based on (i) the average daily
       balance of such Indebtedness during such four fiscal quarters or such
       shorter period for which such facility was outstanding or (ii) if such
       facility was created after the end of such four fiscal quarters, the
       average daily balance of such Indebtedness during the period from the
       date of creation of such facility to the date of such calculation) and
       the discharge of any other Indebtedness repaid, repurchased, defeased or
       otherwise discharged with the proceeds of such new Indebtedness as if
       such discharge had occurred on the first day of such period; or


          (b) has repaid, repurchased, defeased or otherwise discharged any
       Indebtedness since the beginning of the period that is no longer
       outstanding on such date of determination or if the transaction giving
       rise to the need to calculate the Consolidated Coverage Ratio involves a
       discharge of Indebtedness (in each case other than Indebtedness incurred
       under any revolving credit facility unless such Indebtedness has been
       permanently repaid and the related commitment terminated), Consolidated
       EBITDAR and Consolidated Fixed Charges for such period will be
       calculated after giving effect on a pro forma basis to such discharge of
       such Indebtedness, including with the proceeds of such new Indebtedness,
       as if such discharge had occurred on the first day of such period;


      (2) if since the beginning of such period Hanover or any Restricted
   Subsidiary will have made any Asset Disposition or if the transaction giving
   rise to the need to calculate the Consolidated Coverage Ratio is an Asset
   Disposition:


          (a) the Consolidated EBITDAR for such period will be reduced by an
       amount equal to the Consolidated EBITDAR (if positive) directly
       attributable to the assets which are the subject of such Asset
       Disposition for such period or increased by an amount equal to the
       Consolidated EBITDAR (if negative) directly attributable thereto for
       such period; and


          (b) Consolidated Fixed Charges for such period will be reduced by an
       amount equal to the Consolidated Fixed Charges directly attributable to
       any Indebtedness of Hanover or any Restricted Subsidiary repaid,
       repurchased, defeased or otherwise discharged with respect to Hanover
       and its continuing Restricted Subsidiaries in connection with such Asset
       Disposition for such period (or, if the Capital Stock of any Restricted
       Subsidiary is sold, the Consolidated Fixed Charges for such period
       directly attributable to the Indebtedness of such Restricted Subsidiary
       to the extent Hanover and its continuing Restricted Subsidiaries are no
       longer liable for such Indebtedness after such sale);


      (3) if since the beginning of such period Hanover or any Restricted
   Subsidiary (by merger or otherwise) will have made an Investment in any
   Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary
   or is merged with or into Hanover) or an acquisition of assets, including
   any acquisition of assets occurring in connection with a transaction causing
   a calculation to be made hereunder, which constitutes all or substantially
   all of an operating unit, division or line of business, Consolidated EBITDAR
   and Consolidated Fixed Charges for such period will be calculated after
   giving pro forma effect thereto (including the Incurrence of any
   Indebtedness) as if such Investment or acquisition occurred on the first day
   of such period; and



      (4) if since the beginning of such period any Person (that subsequently
   became a Restricted Subsidiary or was merged with or into Hanover or any
   Restricted Subsidiary since the beginning of such period) will have made any
   Asset Disposition or any Investment or acquisition of assets that would have
   required an adjustment pursuant to clause (2) or (3) above if made by
   Hanover or a Restricted Subsidiary during such period, Consolidated EBITDAR
   and Consolidated Fixed Charges for such period will be calculated after
   giving pro forma effect thereto as if such Asset Disposition or Investment
   or acquisition of assets occurred on the first day of such period.


   For purposes of this definition, whenever pro forma effect is to be given to
any calculation under this definition, the pro forma calculations will be
determined in good faith by a responsible financial or accounting officer of
Hanover (including pro forma expense and cost reductions calculated on a basis
consistent with

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Regulation S-X under the Securities Act). If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest expense on
such Indebtedness will be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).


   "Consolidated EBITDAR" for any period means, without duplication, the
Consolidated Net Income for such period, plus the following to the extent
deducted in calculating such Consolidated Net Income:


      (1) Consolidated Interest Expense;

      (2) Consolidated Income Taxes;

      (3) consolidated depreciation expense;

      (4) consolidated amortization of intangibles;

      (5) other non-cash charges reducing Consolidated Net Income (excluding
   any such non-cash charge to the extent it represents an accrual of or
   reserve for cash charges in any future period or amortization of a prepaid
   cash expense that was paid in a prior period not included in the
   calculation); and

      (6) Consolidated Rental Expense.


   Notwithstanding the preceding sentence, clauses (2) through (6) relating to
amounts of a Restricted Subsidiary of a Person will be added to Consolidated
Net Income to compute Consolidated EBITDAR of such Person only to the extent
(and in the same proportion) that the net income (loss) of such Restricted
Subsidiary was included in calculating the Consolidated Net Income of such
Person and, to the extent the amounts set forth in clause (1) and clauses (3)
through (6) are in excess of those necessary to offset a net loss of such
Restricted Subsidiary or if such Restricted Subsidiary has net income for such
period included in Consolidated Net Income, only if a corresponding amount
would be permitted at the date of determination to be paid as a dividend to
Hanover by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.


   "Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of Consolidated Interest Expense and
Consolidated Rental Expense.

   "Consolidated Income Taxes" means, with respect to any Person for any
period, taxes imposed upon such Person or other payments required to be made by
such Person by any governmental authority which taxes or other payments are
calculated by reference to the income or profits of such Person or such Person
and its Restricted Subsidiaries (to the extent such income or profits were
included in computing Consolidated Net Income for such period), regardless of
whether such taxes or payments are required to be remitted to any governmental
authority.

   "Consolidated Interest Expense" means, for any period, the total interest
expense of Hanover and its consolidated Restricted Subsidiaries, whether paid
or accrued, plus, to the extent not included in such interest expense:

      (1) interest expense attributable to Capitalized Lease Obligations and
   the interest portion of rent expense associated with Attributable
   Indebtedness in respect of the relevant lease giving rise thereto to the
   extent not already included in Consolidated Rental Expense, determined as if
   such lease were a capitalized lease in accordance with GAAP and the interest
   component of any deferred payment obligations;

      (2) amortization of debt discount and debt issuance cost;

      (3) non-cash interest expense;

      (4) commissions, discounts and other fees and charges owed with respect
   to letters of credit and bankers' acceptance financing;

      (5) interest actually paid by Hanover or any Restricted Subsidiary under
   any Guarantee of Indebtedness or other obligation of any other Person;

      (6) net costs associated with Hedging Obligations (including amortization
   of fees);

      (7) the consolidated interest expense of such Person and its Restricted
   Subsidiaries that was capitalized during such period;

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      (8) the product of (a) all dividends paid or payable in cash, Cash
   Equivalents or Indebtedness or accrued during such period on any series of
   Disqualified Stock of such Person or on Preferred Stock of its Restricted
   Subsidiaries payable to a party other than Hanover or a Wholly-Owned
   Subsidiary, times (b) a fraction, the numerator of which is one and the
   denominator of which is one minus the then current combined federal, state,
   provincial and local statutory tax rate of such Person, expressed as a
   decimal, in each case, on a consolidated basis and in accordance with GAAP;
   and

      (9) the cash contributions to any employee stock ownership plan or
   similar trust to the extent such contributions are used by such plan or
   trust to pay interest or fees to any Person (other than Hanover) in
   connection with Indebtedness Incurred by such plan or trust; provided,
   however, that there will be excluded therefrom any such interest expense of
   any Unrestricted Subsidiary to the extent the related Indebtedness is not
   Guaranteed or paid by Hanover or any Restricted Subsidiary.

   For purposes of the foregoing, total interest expense will be determined
after giving effect to any net payments made or received by Hanover and its
Subsidiaries with respect to Interest Rate Agreements.

   "Consolidated Net Income" means, for any period, the net income (loss) of
Hanover and its Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP; provided, however, that there will not be included in
such Consolidated Net Income:

      (1) any net income (loss) of any Person if such Person is not a
   Restricted Subsidiary, except that:

          (a) subject to the limitations contained in clauses (4), (5) and (6)
       below, Hanover's equity in the net income of any such Person for such
       period will be included in such Consolidated Net Income up to the
       aggregate amount of cash actually distributed by any Person during such
       period to Hanover or a Restricted Subsidiary as a dividend or other
       distribution (subject, in the case of a dividend or other distribution
       to a Restricted Subsidiary, to the limitations contained in clause (3)
       below); and

          (b) Hanover's equity in a net loss of any such Person (other than an
       Unrestricted Subsidiary) for such period will be included in determining
       such Consolidated Net Income to the extent such loss has been funded
       with cash from Hanover or a Restricted Subsidiary;

      (2) any net income (loss) of any Person acquired by Hanover or a
   Subsidiary in a pooling of interests transaction for any period prior to the
   date of such acquisition;

      (3) any net income (but not loss) of any Restricted Subsidiary if such
   Subsidiary is subject to restrictions, directly or indirectly, on the
   payment of dividends or the making of distributions by such Restricted
   Subsidiary, directly or indirectly, to Hanover, except that:

          (a) subject to the limitations contained in clauses (4), (5) and (6)
       below, Hanover's equity in the net income of any such Restricted
       Subsidiary for such period will be included in such Consolidated Net
       Income up to the aggregate amount of cash that could have been
       distributed by such Restricted Subsidiary during such period to Hanover
       or another Restricted Subsidiary as a dividend (subject, in the case of
       a dividend to another Restricted Subsidiary, to the limitation contained
       in this clause); and

          (b) Hanover's equity in a net loss of any such Restricted Subsidiary
       for such period will be included in determining such Consolidated Net
       Income;

      (4) any gain (loss) realized upon the sale or other disposition of any
   property, plant or equipment of Hanover or its consolidated Restricted
   Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is
   not sold or otherwise disposed of in the ordinary course of business and any
   gain (loss) realized upon the sale or other disposition of any Capital Stock
   of any Person;

      (5) any extraordinary gain or loss; and

      (6) the cumulative effect of a change in accounting principles.

   "Consolidated Rental Expense" means, for any period, the aggregate of the
rental expense of Hanover and its Restricted Subsidiaries related to Operating
Lease Facilities of Hanover and its Restricted Subsidiaries for such period,
determined on a consolidated basis.

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   "Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.

   "Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

   "Designated Senior Indebtedness" means (1) the Bank Indebtedness (to the
extent such Bank Indebtedness constitutes Senior Indebtedness) and the
Synthetic Guarantees and (2) any other Senior Indebtedness or Guarantor Senior
Indebtedness, as applicable, which, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least $25.0
million and is specifically designated in the instrument evidencing or
governing such Senior Indebtedness or Guarantor Senior Indebtedness, as
applicable, as "Designated Senior Indebtedness" for purposes of the
participation agreement.

   "Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event:

      (1) matures or is mandatorily redeemable pursuant to a sinking fund
   obligation or otherwise;

      (2) is convertible or exchangeable for Indebtedness or Disqualified Stock
   (excluding Capital Stock which is convertible or exchangeable solely at the
   option of Hanover or a Restricted Subsidiary); or

      (3) is redeemable at the option of the holder of the Capital Stock
   thereof, in whole or in part,

in each case on or prior to the date that is 91 days after the date (a) on
which the notes mature or (b) on which there are no notes outstanding, provided
that only the portion of Capital Stock which so matures or is mandatorily
redeemable, is so convertible or exchangeable or is so redeemable at the option
of the holder thereof prior to such date will be deemed to be Disqualified
Stock; provided, further, that any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
Hanover to repurchase such Capital Stock upon the occurrence of a change of
control or asset sale (each defined in a substantially identical manner to the
corresponding definitions in the participation agreement) shall not constitute
Disqualified Stock if the terms of such Capital Stock (and all such securities
into which it is convertible or for which it is ratable or exchangeable)
provide that Hanover may not repurchase or redeem any such Capital Stock (and
all such securities into which it is convertible or for which it is ratable or
exchangeable) pursuant to such provision prior to compliance by Hanover with
the provisions of the participation agreement described under the caption
"Certain Covenants under the Participation Agreements--Limitation on Sales of
Assets and Subsidiary Stock" and such repurchase or redemption complies with
"Certain Covenants under the Participation Agreements--Restricted Payments."

   "Equipment" means the collective reference to all Units that are then owned
by the Issuer and leased to HCLP including all Units that are subsequently
conveyed to the Issuer in substitution of existing Units.

   "Foreign Subsidiary" means any Restricted Subsidiary that is not organized
under the laws of the United States of America or any state thereof or the
District of Columbia.

   "GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the participation agreement,
including those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations based on GAAP
contained in the participation agreement will be computed in conformity with
GAAP.

   "Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly Guaranteeing any Indebtedness of any other Person and
any obligation, direct or indirect, contingent or otherwise, of such Person:

      (1) to purchase or pay (or advance or supply funds for the purchase or
   payment of) such Indebtedness of such other Person (whether arising by
   virtue of partnership arrangements, or by agreement to keep-well, to
   purchase assets, goods, securities or services, to take-or-pay, or to
   maintain financial statement conditions or otherwise); or

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      (2) entered into for purposes of assuring in any other manner the obligee
   of such Indebtedness of the payment thereof or to protect such obligee
   against loss in respect thereof (in whole or in part);

provided, however, that the term "Guarantee" will not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.

   "Guarantor Senior Indebtedness" means, with respect to a Subsidiary
Guarantor, the following obligations, whether outstanding on the Issue Date or
thereafter issued, created, Incurred or assumed, without duplication:

      (1) the Bank Indebtedness, the Synthetic Guarantees and all Guarantees,
   as applicable, by such Subsidiary Guarantor of Senior Indebtedness of
   Hanover or Guarantor Senior Indebtedness of any other Subsidiary Guarantor;
   and

      (2) all obligations consisting of principal of and premium, if any,
   accrued and unpaid interest on, and fees and other amounts relating to, all
   other Indebtedness of the Subsidiary Guarantor. Guarantor Senior
   Indebtedness includes interest accruing on or after the filing of any
   petition in bankruptcy or for reorganization relating to the Subsidiary
   Guarantor regardless of whether postfiling interest is allowed in such
   proceeding.

   Notwithstanding anything to the contrary in the preceding paragraph,
Guarantor Senior Indebtedness will not include:

      (1) any Indebtedness in which, in the instrument creating or evidencing
   the same or pursuant to which the same is outstanding, it is provided that
   the obligations in respect of such Indebtedness are not superior in right
   of, or are subordinate to, payment of the notes and the Hanover Guarantee;

      (2) any obligations of such Subsidiary Guarantor to another Subsidiary or
   Hanover;

      (3) any liability for Federal, state, local, foreign or other taxes owed
   or owing by such Subsidiary Guarantor;

      (4) any accounts payable or other liability to trade creditors arising in
   the ordinary course of business (including Guarantees thereof or instruments
   evidencing such liabilities);

      (5) any Indebtedness, Guarantee or obligation of such Subsidiary
   Guarantor that is expressly subordinate or junior in right of payment to any
   other Indebtedness, Guarantee or obligation of such Subsidiary Guarantor,
   including, without limitation, any Guarantor Senior Subordinated
   Indebtedness and Guarantor Subordinated Obligations of such Guarantor; or

      (6) any Capital Stock.

   "Guarantor Senior Subordinated Indebtedness" means, with respect to a
Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the
Hanover Guarantee and any other Indebtedness of such Subsidiary Guarantor
(whether outstanding on the Issue Date or thereafter Incurred) that
specifically provides that such Indebtedness is to rank equally in right of
payment with the obligations of such Subsidiary Guarantor under the Hanover
Guarantee and is not expressly subordinated by its terms in right of payment to
any Indebtedness of such Subsidiary Guarantor which is not Guarantor Senior
Indebtedness of such Subsidiary Guarantor.

   "Guarantor Subordinated Obligation" means, with respect to a Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding
on the Issue Date or thereafter Incurred) which is expressly subordinate in
right of payment to the obligations of such Subsidiary Guarantor under the
Hanover Guarantee pursuant to a written agreement.

   "Hanover" means Hanover Compressor Company, a Delaware corporation.

   "Hanover Guarantee" means the Guarantee of payment of the Lease and the
notes by Hanover and the Subsidiary Guarantors pursuant to the terms of the
indenture and any supplemental indenture thereto or the terms of the
participation agreement and any assumption agreement supplemental thereto. The
Hanover Guarantee is in the form prescribed by the indenture and the
participation agreement.

   "Hanover Guarantor" means each of Hanover, HCLP and the Subsidiary
Guarantors.

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   "HCLP" means Hanover Compression Limited Partnership, a Delaware limited
partnership.

   "Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.

   "Incur" means issue, create, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary
(whether by merger, consolidation, acquisition or otherwise) will be deemed to
be incurred by such Restricted Subsidiary at the time it becomes a Restricted
Subsidiary; and the terms "Incurred" and "Incurrence" have meanings correlative
to the foregoing.

   "Indebtedness" means, with respect to any Person on any date of
determination (without duplication):

      (1) the principal of and premium (if any) in respect of indebtedness of
   such Person for borrowed money;

      (2) the principal of and premium (if any) in respect of obligations of
   such Person evidenced by bonds, debentures, notes or other similar
   instruments;

      (3) the principal component of all obligations of such Person in respect
   of letters of credit, bankers' acceptances or other similar instruments
   (including reimbursement obligations with respect thereto except to the
   extent such reimbursement obligation relates to a trade payable and such
   obligation is satisfied within 30 days of Incurrence);

      (4) the principal component of all obligations of such Person to pay the
   deferred and unpaid purchase price of property (except trade payables),
   which purchase price is due more than six months after the date of placing
   such property in service or taking delivery and title thereto;

      (5) Capitalized Lease Obligations and all Attributable Indebtedness of
   such Person;

      (6) the principal component or liquidation preference of all obligations
   of such Person with respect to the redemption, repayment or other repurchase
   of any Disqualified Stock or, with respect to any Subsidiary, any Preferred
   Stock (but excluding, in each case, any accrued dividends);

      (7) the principal component of all Indebtedness of other Persons secured
   by a Lien on any asset of such Person, whether or not such Indebtedness is
   assumed by such Person; provided, however, that the amount of such
   Indebtedness will be the lesser of (a) the fair market value of such asset
   at such date of determination and (b) the amount of such Indebtedness of
   such other Persons;

      (8) the principal component of Indebtedness of other Persons to the
   extent Guaranteed by such Person;

      (9) to the extent not otherwise included in this definition, net
   obligations of such Person under Currency Agreements and Interest Rate
   Agreements (the amount of any such obligations to be equal at any time to
   the termination value of such agreement or arrangement giving rise to such
   obligation that would be payable by such Person at such time); and

      (10) the obligation to pay the principal and premium (if any) in respect
   of any Operating Lease Facility, in an amount, as determined on the date of
   incurrence of such obligation, equal to the purchase price of the related
   property or assets.

The amount of Indebtedness of any Person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date.

   In addition, "Indebtedness" of any Person shall include Indebtedness
described in the preceding paragraph that would not appear as a liability on
the balance sheet of such Person if:

      (1) such Indebtedness is the obligation of a partnership or joint venture
   that is not a Restricted Subsidiary (a "Joint Venture");

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      (2) such Person or a Restricted Subsidiary of such Person is a general
   partner of the Joint Venture (a "General Partner"); and

      (3) there is recourse, by contract or operation of law, with respect to
   the payment of such Indebtedness to property or assets of such Person or a
   Restricted Subsidiary of such Person; and then such Indebtedness shall be
   included in an amount not to exceed:

          (a) the lesser of (i) the net assets of the General Partner and (ii)
       the amount of such obligations to the extent that there is recourse, by
       contract or operation of law, to the property or assets of such Person
       or a Restricted Subsidiary of such Person; or

          (b) if less than the amount determined pursuant to clause (a)
       immediately above, the actual amount of such Indebtedness that is
       recourse to such Person or a Restricted Subsidiary of such Person, if
       the Indebtedness is evidenced by a writing and is for a determinable
       amount and the related interest expense shall be included in
       Consolidated Interest Expense to the extent actually paid by Hanover or
       its Restricted Subsidiaries.

   "Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.

   "Investment" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of any direct or
indirect advance, loan (other than advances to customers in the ordinary course
of business) or other extension of credit (including by way of Guarantee or
similar arrangement, but excluding any debt or extension of credit represented
by a bank deposit other than a time deposit) or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments issued
by, such Person and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP; provided that
none of the following will be deemed to be an Investment:

      (1) Hedging Obligations entered into in the ordinary course of business
   and in compliance with the participation agreement;

      (2) endorsements of negotiable instruments and documents in the ordinary
   course of business; and

      (3) an acquisition of assets, Capital Stock or other securities by
   Hanover or a Subsidiary for consideration to the extent such consideration
   consists exclusively of common equity securities of Hanover.

   For purposes of "Certain Covenants under the Participation
Agreements--Limitation on Restricted Payments",

      (1) "Investment" will include the portion (proportionate to Hanover's
   equity interest in a Restricted Subsidiary to be designated as an
   Unrestricted Subsidiary) of the fair market value of the net assets of such
   Restricted Subsidiary of Hanover at the time that such Restricted Subsidiary
   is designated an Unrestricted Subsidiary; provided, however, that upon a
   redesignation of such Subsidiary as a Restricted Subsidiary, Hanover will be
   deemed to continue to have a permanent "Investment" in an Unrestricted
   Subsidiary in an amount (if positive) equal to (a) Hanover's "Investment" in
   such Subsidiary at the time of such redesignation less (b) the portion
   (proportionate to Hanover's equity interest in such Subsidiary) of the fair
   market value of the net assets (as conclusively determined by the Board of
   Directors of Hanover in good faith) of such Subsidiary at the time that such
   Subsidiary is so redesignated a Restricted Subsidiary; and

      (2) any property transferred to or from an Unrestricted Subsidiary will
   be valued at its fair market value at the time of such transfer, in each
   case as determined in good faith by the Board of Directors of Hanover.

   "Issue Date" means August 30, 2001.

   "Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).

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   "Material Subsidiary" means any Restricted Subsidiary of Hanover for which
the aggregate fair market value of all assets owned by such Restricted
Subsidiary is greater than $20.0 million as of the date of determination.

   "Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of:

      (1) all legal, accounting, investment banking, title and recording tax
   expenses, commissions and other fees and expenses incurred, and all Federal,
   state, provincial, foreign and local taxes required to be paid or accrued as
   a liability under GAAP (after taking into account any available tax credits
   or deductions and any tax sharing agreements), as a consequence of such
   Asset Disposition;

      (2) all payments made on any Indebtedness which is secured by any assets
   subject to such Asset Disposition, in accordance with the terms of any Lien
   upon such assets, or which must by its terms, or in order to obtain a
   necessary consent to such Asset Disposition, or by applicable law be repaid
   out of the proceeds from such Asset Disposition;

      (3) all distributions and other payments required to be made to minority
   interest holders in Subsidiaries or joint ventures as a result of such Asset
   Disposition; and

      (4) the deduction of appropriate amounts to be provided by the seller as
   a reserve, in accordance with GAAP, against any liabilities associated with
   the assets disposed of in such Asset Disposition and retained by Hanover or
   any Restricted Subsidiary after such Asset Disposition.

   "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, listing fees,
discounts or commissions and brokerage, consultant and other fees and charges
actually incurred in connection with such issuance or sale and net of taxes
paid or payable as a result of such issuance or sale (after taking into account
any available tax credit or deductions and any tax sharing arrangements).

   "Non-Recourse Debt" means Indebtedness:

      (1) as to which neither Hanover nor any Restricted Subsidiary (a)
   provides any Guarantee or credit support of any kind (including any
   undertaking, Guarantee, indemnity, agreement or instrument that would
   constitute Indebtedness) or (b) is directly or indirectly liable (as a
   guarantor or otherwise);

      (2) no default with respect to which (including any rights that the
   holders thereof may have to take enforcement action against an Unrestricted
   Subsidiary) would permit (upon notice, lapse of time or both) any holder of
   any other Indebtedness of Hanover or any Restricted Subsidiary to declare a
   default under such other Indebtedness or cause the payment thereof to be
   accelerated or payable prior to its stated maturity; and

      (3) the explicit terms of which provide there is no recourse against any
   of the assets of Hanover or its Restricted Subsidiaries.

   "Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of Hanover or the trustee of the
Issuer, as applicable.

   "Officer's Certificate" means a certificate signed by two Officers or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of Hanover
or the trustee of the Issuer, as applicable.

   "Operating Lease Facility" means any operating lease transaction entered
into by Hanover or any of its Restricted Subsidiaries (including the 2008
Lease) resulting in the off-balance sheet financing of any of Hanover's or such
Restricted Subsidiary's property or assets, including its gas compression
equipment.

   "Operative Agreements" means, collectively, the indenture, the notes, the
Lease, the participation agreement, the Hanover Guarantee, the assignment of
the Lease, the security agreement, the UCC financing

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statements, the trust agreement, the consent to assignment, the equity
certificates, the Requisition, the bills of sale with respect to the Equipment
and any amendments, supplements or modifications from time to time of any of
the above.

   "Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Issuer, the Trustee or Hanover.

   "Permitted Investment" means an Investment by Hanover or any Restricted
Subsidiary in:

      (1) Hanover, a Restricted Subsidiary (other than a Receivables Entity) or
   a Person which will, upon the making of such Investment, become a Restricted
   Subsidiary (other than a Receivables Entity); provided, however, that the
   primary business of such Restricted Subsidiary is a Related Business;

      (2) another Person if as a result of such Investment such other Person is
   merged or consolidated with or into, or transfers or conveys all or
   substantially all its assets to, Hanover or a Restricted Subsidiary (other
   than a Receivables Entity); provided, however, that such Person's primary
   business is a Related Business;

      (3) cash and Cash Equivalents;

      (4) receivables owing to Hanover or any Restricted Subsidiary created or
   acquired in the ordinary course of business and payable or dischargeable in
   accordance with customary trade terms; provided, however, that such trade
   terms may include such concessionary trade terms as Hanover or any such
   Restricted Subsidiary deems reasonable under the circumstances;

      (5) payroll, travel and similar advances to cover matters that are
   expected at the time of such advances ultimately to be treated as expenses
   for accounting purposes and that are made in the ordinary course of business;

      (6) loans or advances to employees made in the ordinary course of
   business consistent with past practices of Hanover or such Restricted
   Subsidiary;

      (7) stock, obligations or securities received in settlement of debts
   created in the ordinary course of business and owing to Hanover or any
   Restricted Subsidiary or in satisfaction of judgments or pursuant to any
   plan of reorganization or similar arrangement upon the bankruptcy or
   insolvency of a debtor;

      (8) Investments made as a result of the receipt of non-cash consideration
   from an Asset Sale that was made pursuant to and in compliance with "Certain
   Covenants under the Participation Agreements--Limitation on Sales of Assets
   and Subsidiary Stock";

      (9) Investments in existence on the Issue Date including those made
   through the acquisition of Production Operators Corporation and related
   assets from Schlumberger Technology Corporation on the Issue Date;

      (10) Currency Agreements, Interest Rate Agreements and related Hedging
   Obligations, which transactions or obligations are Incurred in compliance
   with "Certain Covenants under the Participation Agreements--Limitation on
   Indebtedness";

      (11) Investments by Hanover or any of its Restricted Subsidiaries,
   together with all other Investments pursuant to this clause (11), in an
   aggregate amount at the time of such Investment not to exceed
    $25.0 million outstanding at any one time;

      (12) Investments made in connection with the performance of obligations
   of Hanover or any of its Restricted Subsidiaries under the terms of any
   joint venture agreement to which Hanover or any of its Restricted
   Subsidiaries is a party on the Issue Date and identified on a schedule to
   the participation agreement on the Issue Date, as these agreements may be
   amended, modified or supplemented from time to time;

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   provided, however, that no future amendment, modification or supplement will
   increase the amount of the Investment in a joint venture that is a Permitted
   Investment pursuant to this clause (12) beyond the amount that would have
   been a Permitted Investment pursuant to this clause (12) under terms of the
   agreements in effect on the Issue Date, and provided, further, that no such
   Investments shall exceed $30.0 million in the aggregate;

      (13) Guarantees issued in accordance with "Certain Covenants under the
   Participation Agreements--Limitations on Indebtedness"; and

      (14) Investments by Hanover or a Restricted Subsidiary in a Receivables
   Entity or any Investment by a Receivables Entity in any other Person, in
   each case, in connection with a Qualified Receivables Transaction, provided,
   however, that any Investment in any such Person is in the form of a Purchase
   Money Note, or any equity interest or interests in accounts receivable and
   related assets generated by Hanover or a Restricted Subsidiary and
   transferred to any Person in connection with a Qualified Receivables
   Transaction or any such Person owning such accounts receivable.

   "Permitted Liens" means, with respect to any Person:

      (1) Liens securing Indebtedness and other obligations of Hanover and/or
   HCLP under the Senior Credit Agreement and related Interest Rate Agreements
   and other Senior Indebtedness and liens on assets of Restricted Subsidiaries
   securing Guarantees of Indebtedness and other obligations of Hanover and/or
   HCLP under the Senior Credit Agreement and other Guarantor Senior
   Indebtedness permitted to be incurred under the participation agreement;

      (2) pledges or deposits by such Person under workmen's compensation laws,
   unemployment insurance laws or similar legislation, or good faith deposits
   in connection with bids, tenders, contracts (other than for the payment of
   Indebtedness) or leases to which such Person is a party, or deposits to
   secure public or statutory obligations of such Person or deposits or cash or
   United States government bonds to secure surety or appeal bonds to which
   such Person is a party, or deposits as security for contested taxes or
   import or customs duties or for the payment of rent, in each case Incurred
   in the ordinary course of business;

      (3) Liens imposed by law, including carriers', warehousemen's and
   mechanics', Liens, in each case for sums not yet due or being contested in
   good faith by appropriate proceedings if a reserve or other appropriate
   provisions, if any, as shall be required by GAAP shall have been made in
   respect thereof;

      (4) Liens for taxes, assessments or other governmental charges not yet
   subject to penalties for nonpayment or which are being contested in good
   faith by appropriate proceedings provided appropriate reserves required
   pursuant to GAAP have been made in respect thereof;

      (5) Liens in favor of Issuers of surety or performance bonds or letters
   of credit or bankers' acceptances issued pursuant to the request of and for
   the account of such Person in the ordinary course of its business; provided,
   however, that such letters of credit do not constitute Indebtedness;

      (6) encumbrances, easements or reservations of, or rights of others for,
   licenses, rights of way, sewers, electric lines, telegraph and telephone
   lines and other similar purposes, or zoning or other restrictions as to the
   use of real properties or liens incidental to the conduct of the business of
   such Person or to the ownership of its properties which do not in the
   aggregate materially adversely affect the value of said properties or
   materially impair their use in the operation of the business of such Person;

      (7) Liens securing Hedging Obligations so long as the related
   Indebtedness is, and is permitted to be under the indenture or the
   participation agreement, as applicable, secured by a Lien on the same
   property securing such Hedging Obligation;

      (8) leases and subleases of real property which do not materially
   interfere with the ordinary conduct of the business of Hanover or any of its
   Restricted Subsidiaries;

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      (9) judgment Liens not giving rise to an Event of Default so long as such
   Lien is adequately bonded and any appropriate legal proceedings which may
   have been duly initiated for the review of such judgment have not been
   finally terminated or the period within which such proceedings may be
   initiated has not expired;

      (10) Liens for the purpose of securing the payment of all or a part of
   the purchase price of, or Capitalized Lease Obligations with respect to,
   assets or property acquired or constructed in the ordinary course of
   business, provided that:

          (a) the aggregate principal amount of Indebtedness secured by such
       Liens is otherwise permitted to be Incurred under the indenture or the
       participation agreement, as applicable, and does not exceed the cost of
       the assets or property so acquired or constructed; and

          (b) such Liens are created within 180 days of construction or
       acquisition of such assets or property and do not encumber any other
       assets or property of Hanover or any Restricted Subsidiary other than
       such assets or property and assets affixed or appurtenant thereto;

      (11) Liens arising solely by virtue of any statutory or common law
   provisions relating to banker's Liens, rights of set-off or similar rights
   and remedies as to deposit accounts or other funds maintained with a
   depositary institution; provided that:

          (a) such deposit account is not a dedicated cash collateral account
       and is not subject to restrictions against access by Hanover or HCLP in
       excess of those set forth by regulations promulgated by the Federal
       Reserve Board; and

          (b) such deposit account is not intended by Hanover or any Restricted
       Subsidiary to provide collateral to the depository institution;

      (12) Liens arising from Uniform Commercial Code financing statement
   filings regarding operating leases entered into by Hanover and its
   Restricted Subsidiaries in the ordinary course of business;

      (13) Liens existing on the Issue Date;

      (14) Liens on property or shares of stock of a Person at the time such
   Person becomes a Restricted Subsidiary; provided, however, that such Liens
   are not created, incurred or assumed in connection with, or in contemplation
   of, such other Person becoming a Restricted Subsidiary; provided further,
   however, that any such Lien may not extend to any other property owned by
   Hanover or any Restricted Subsidiary;

      (15) Liens on property at the time Hanover or a Restricted Subsidiary
   acquired the property, including any acquisition by means of a merger or
   consolidation with or into Hanover or any Restricted Subsidiary; provided,
   however, that such Liens are not created, Incurred or assumed in connection
   with, or in contemplation of, such acquisition; provided further, however,
   that such Liens may not extend to any other property owned by Hanover or any
   Restricted Subsidiary;

      (16) Liens securing Indebtedness or other obligations of a Restricted
   Subsidiary owing to Hanover or a Wholly-Owned Subsidiary (other than a
   Receivables Entity);

      (17) Liens securing the notes and the Hanover Guarantee;

      (18) Liens securing Refinancing Indebtedness incurred to refinance
   Indebtedness that was previously so secured, provided that any such Lien is
   limited to all or part of the same property or assets (plus improvements,
   accessions, proceeds or dividends or distributions in respect thereof) that
   secured (or, under the written arrangements under which the original Lien
   arose, could secure) the Indebtedness being refinanced or is in respect of
   property that is the security for a Permitted Lien hereunder;

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      (19) Liens on assets transferred to a Receivables Entity or on assets of
   a Receivables Entity, in either case incurred in connection with a Qualified
   Receivables Transaction;

      (20) Liens securing Operating Lease Facilities Incurred in compliance
   with "Certain Covenants Under the Participation Agreements--Limitation on
   Indebtedness";

      (21) the rights of any sublessee or assignee under a sublease or an
   assignment or a compressor management agreement expressly permitted by the
   terms of the Lease; and

      (22) Liens caused by any act or omission of the Issuer, the trustee of
   the Issuer, the Trustee, any of the equity certificate holder or any of
   their affiliates.

   "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, government or any agency or political subdivision hereof or
any other entity.

   "Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.

   "Public Equity Offering" means an offering for cash by Hanover of its common
stock, or options, warrants or rights with respect to its common stock pursuant
to a registration statement that has been declared effective by the Securities
and Exchange Commission (other than on Form S-4 or S-8).

   "Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from Hanover or any
Restricted Subsidiary of Hanover in connection with a Qualified Receivables
Transaction to a Receivables Entity, which note is repayable from cash
available to the Receivables Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts owing to such investors and amounts paid in connection with the
purchase of newly generated accounts receivable.

   "Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Hanover or any of its Restricted
Subsidiaries pursuant to which Hanover or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (1) a Receivables Entity (in the case
of a transfer by Hanover or any of its Restricted Subsidiaries) and (2) any
other Person (in the case of a transfer by a Receivables Entity), or may grant
a security interest in, any accounts receivable (whether now existing or
arising in the future) of Hanover or any of its Restricted Subsidiaries, and
any assets related thereto including, without limitation, all collateral
securing such accounts receivable, all contracts and all guarantees or other
obligations in respect of such accounts receivable, the proceeds of such
receivables and other assets which are customarily transferred, or in respect
of which security interests are customarily granted in connection with asset
securitization involving accounts receivable.

   "Receivables Entity" means a Wholly-Owned Subsidiary of Hanover (or another
Person in which Hanover or any Restricted Subsidiary of Hanover makes an
Investment and to which Hanover or any Restricted Subsidiary of Hanover
transfers accounts receivable and related assets) which engages in no
activities other than in connection with the financing of accounts receivable
and which is designated by the Board of Directors of Hanover (as provided
below) as a Receivables Entity:

      (1) no portion of the Indebtedness or any other obligations (contingent
   or otherwise) of which:

          (a) is guaranteed by Hanover or any Restricted Subsidiary of Hanover
       (excluding guarantees of Obligations (other than the principal of, and
       interest on, Indebtedness) pursuant to Standard Securitization
       Undertakings);

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          (b) is recourse to or obligates Hanover or any Restricted Subsidiary
       of Hanover in any way other than pursuant to Standard Securitization
       Undertakings; or

          (c) subjects any property or asset of Hanover or any Restricted
       Subsidiary of Hanover, directly or indirectly, contingently or
       otherwise, to the satisfaction thereof, other than pursuant to Standard
       Securitization Undertakings;

      (2) with which neither Hanover nor any Restricted Subsidiary of Hanover
   has any material contract, agreement, arrangement or understanding (except
   in connection with a Purchase Money Note or Qualified Receivables
   Transaction) other than on terms no less favorable to Hanover or such
   Restricted Subsidiary than those that might be obtained at the time from
   Persons that are not Affiliates of Hanover, other than fees payable in the
   ordinary course of business in connection with servicing accounts
   receivable; and

      (3) to which neither Hanover nor any Restricted Subsidiary of Hanover has
   any obligation to maintain or preserve such entity's financial condition or
   cause such entity to achieve certain levels of operating results.

   Any such designation by the Board of Directors of Hanover shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the resolution of
the Board of Directors of Hanover giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
foregoing conditions.

   "Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, exchange, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinance," "refinances,"
and "refinanced" shall have a correlative meaning) any Indebtedness existing on
the date of the participation agreement or Incurred in compliance with the
participation agreement (including Indebtedness of Hanover that refinances
Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary)
including Indebtedness that refinances Refinancing Indebtedness, provided,
however, that:

      (1) (a) if the Stated Maturity of the Indebtedness being refinanced is
   earlier than the Stated Maturity of the notes, the Refinancing Indebtedness
   has a Stated Maturity no earlier than the Stated Maturity of the
   Indebtedness being refinanced or (b) if the Stated Maturity of the
   Indebtedness being refinanced is later than the Stated Maturity of the
   notes, the Refinancing Indebtedness has a Stated Maturity at least 91 days
   later than the Stated Maturity of the notes;

      (2) the Refinancing Indebtedness has an Average Life at the time such
   Refinancing Indebtedness is Incurred that is equal to or greater than the
   Average Life of the Indebtedness being refinanced;

      (3) such Refinancing Indebtedness is Incurred in an aggregate principal
   amount (or if issued with original issue discount, an aggregate issue price)
   that is equal to or less than the sum of the aggregate principal amount (or
   if issued with original issue discount, the aggregate accreted value) then
   outstanding of Indebtedness being refinanced (plus, without duplication, any
   additional Indebtedness Incurred to pay interest or premiums required by the
   instruments governing such existing Indebtedness and fees incurred in
   connection therewith); and

      (4) if the Indebtedness being refinanced is subordinated in right of
   payment to the notes or the Hanover Guarantee, such Refinancing Indebtedness
   is subordinated in right of payment to the notes or the Hanover Guarantee on
   terms at least as favorable to the holders of notes as those contained in
   the documentation governing the Indebtedness being extended, refinanced,
   renewed, replaced, defeased or refunded.

   "Related Business" means any business which is the same as or related,
ancillary or complementary to any of the businesses of Hanover and its
Restricted Subsidiaries on the date of the participation agreement.

   "Representative" means any trustee, agent or representative (if any) of an
issue of Senior Indebtedness or Guarantor Senior Indebtedness, as the case may
be; provided that when used in connection with the Senior Credit Agreement, the
term "Representative" shall refer to the administrative agent under the Senior
Credit Agreement.

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   "Requisition" shall have the meaning set forth in the participation
agreement.

   "Restricted Investment" means any Investment other than a Permitted
Investment.

   "Restricted Subsidiary" means any Subsidiary of Hanover other than an
Unrestricted Subsidiary.

   "Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby Hanover or a Restricted Subsidiary
transfers such property to a Person and Hanover or a Restricted Subsidiary
leases it from such Person.

   "Senior Credit Agreement" means, with respect to Hanover and/or HCLP, one or
more debt facilities (including, without limitation, the Amended and Restated
Senior Credit Agreement, dated March 13, 2000, among Hanover, HCLP, The Chase
Manhattan Bank, as administrative agent, and the lenders parties thereto, as
the same may be, and may have been, amended, supplemented or otherwise modified
from time to time) or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part from time to time (and whether or not with the original administrative
agent and lenders or another administrative agent or agents or other lenders
and whether provided under the original Senior Credit Agreement or any other
credit or other agreement or indenture).

   "Senior Indebtedness" means, whether outstanding on the Issue Date or
thereafter issued, created, Incurred or assumed, the Bank Indebtedness, the
Synthetic Guarantees, Indebtedness relating to Hanover's $192 million aggregate
principal amount 4.75% Convertible Senior Notes due March 15, 2008 and all
other Indebtedness of Hanover, including accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Hanover at the rate specified in the documentation
with respect thereto whether or not a claim for post filing interest is allowed
in such proceeding) and fees and other amounts relating thereto; provided,
however, that Senior Indebtedness will not include:

      (1) any Indebtedness in which, in the instrument creating or evidencing
   the same or pursuant to which the same is outstanding, it is provided that
   the obligations in respect of such Indebtedness are not superior in right
   of, or are subordinate to, payment of the notes and the Hanover Guarantee;

      (2) any obligation of Hanover to any Subsidiary;

      (3) any liability for Federal, state, foreign, local or other taxes owed
   or owing by Hanover;

      (4) any accounts payable or other liability to trade creditors arising in
   the ordinary course of business (including Guarantees thereof or instruments
   evidencing such liabilities);

      (5) any Indebtedness, Guarantee or obligation of Hanover that is
   expressly subordinate or junior in right of payment to any other
   Indebtedness, Guarantee or obligation of Hanover, including, without
   limitation, any Senior Subordinated Indebtedness and any Subordinated
   Obligations; or

      (6) any Capital Stock.

   "Senior Subordinated Indebtedness" means the obligations of Hanover under
the Hanover Guarantee and any other Indebtedness of Hanover that specifically
provides that such Indebtedness is to rank equally in right of payment with the
obligations of Hanover under the Hanover Guarantee and is not expressly
subordinated by its terms in right of payment to any Indebtedness or other
obligation of Hanover which is not Senior Indebtedness.

   "Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Hanover within the meaning of Rule 102 under
Regulation S-X promulgated by the SEC.

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   "Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Hanover or any Restricted Subsidiary
of Hanover which are reasonably customary in securitization of accounts
receivable transactions.

   "Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision, but shall not include any contingent obligations to repay, redeem or
repurchase any such principal prior to the date originally scheduled for the
payment thereof.

   "Subordinated Acquisition Note" means the $150.0 million subordinated
promissory note between Hanover and Camco International, Inc., maturing on
December 15, 2005.

   "Subordinated Obligation" means any Indebtedness of Hanover (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the notes pursuant to a written agreement.

   "Subsidiary" of any Person means any corporation, association, partnership,
joint venture, limited liability company or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or other
interests (including partnership and joint venture interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (1) such Person, (2) such Person and one or more
Subsidiaries of such Person or (3) one or more Subsidiaries of such Person.
Unless otherwise specified herein, each reference to a Subsidiary will refer to
a Subsidiary of Hanover, including without limitation, HCLP.

   "Subsidiary Guarantor" means each Restricted Subsidiary (other than a
Foreign Subsidiary or a Receivables Entity) that (A) becomes, or upon its
creation or acquisition by Hanover or one or more of its Restricted
Subsidiaries is, a Material Subsidiary and (B) becomes a guarantor under the
Senior Credit Agreement.

   "Synthetic Guarantees" means, collectively, (i) the Guarantee, dated as of
October 27, 2000 (as the same may be, and may have been amended, supplemented
or otherwise modified from time to time), among the Lessee, Hanover Equipment
Trust 2000B, Bank Hapoalim B.M. and FBTC Leasing Corp., as investors, the
lenders parties thereto and The Chase Manhattan Bank, as administrative agent;
(ii) the Guarantee, dated as of March 13, 2000 (as the same may be, and may
have been amended, supplemented or otherwise modified from time to time), among
the Lessee, Hanover Equipment Trust 2000A, First Union National Bank and
Scotiabanc Inc., as investors, the lenders parties thereto and The Chase
Manhattan Bank, as administrative agent; and
(iii) the Guarantee, dated as of June 15, 1999 (as the same may be, and may
have been amended, supplemented or otherwise modified from time to time), among
the Lessee, Hanover Equipment Trust 1999A, Societe Generale Financial
Corporation and FBTC Leasing Corp., as investors, the lenders parties thereto
and The Chase Manhattan Bank, as administrative agent.

   "Termination Value" means, with respect to all of the Equipment, as of any
determination date, an amount equal to the sum of (i) the aggregate outstanding
principal amount of the notes, accrued and unpaid interest thereon and any
other amounts due under the indenture, plus (ii) the aggregate outstanding
amount of the Certificate Holder Contribution and all unpaid yield thereon plus
(iii) all other amounts due and owing to the equity certificate holder, the
Trustee or the noteholders under any Operative Agreements, including applicable
premiums, if any. Termination Value will only include amounts in excess of the
aggregate outstanding principal amount of the notes and the aggregate
outstanding amount of the Certificate Holder Contribution if such amounts have
not been paid as supplemental rent as required by the Lease (after giving
effect to any concurrent payment of supplemental rent). If it is necessary to
calculate Termination Value for a particular Unit of Equipment, the total
Termination Value will be allocated among the Equipment based upon the relative
cost of each Unit.

   "Unit" means each piece of Equipment as specifically scheduled and described
in the Lease.

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   "Unrestricted Subsidiary" means:

      (1) any Subsidiary of Hanover that at the time of determination shall be
   designated an Unrestricted Subsidiary by the Board of Directors of Hanover
   in the manner provided below; and

      (2) any Subsidiary of an Unrestricted Subsidiary.

   The Board of Directors of Hanover may designate any Subsidiary of Hanover
(including any newly acquired or newly formed Subsidiary or a Person becoming a
Subsidiary through merger or consolidation or Investment therein) to be an
Unrestricted Subsidiary only if:

      (1) such Subsidiary or any of its Subsidiaries does not own any Capital
   Stock or Indebtedness of or have any Investment in, or own or hold any Lien
   on any property of, any other Subsidiary of Hanover which is not a
   Subsidiary of the Subsidiary to be so designated or otherwise an
   Unrestricted Subsidiary;

      (2) all the Indebtedness of such Subsidiary and its Subsidiaries shall,
   at the date of designation, and will at all times thereafter, consist of
   Non-Recourse Debt;

      (3) such designation and the Investment of Hanover in such Subsidiary
   complies with "Certain Covenants under the Participation
   Agreements--Limitation on Restricted Payments";

      (4) such Subsidiary, either alone or in the aggregate with all other
   Unrestricted Subsidiaries, does not operate, directly or indirectly, all or
   substantially all of the business of Hanover and its Subsidiaries;

      (5) such Subsidiary is a Person with respect to which neither Hanover nor
   any of its Restricted Subsidiaries has any direct or indirect obligation:

          (a) to subscribe for additional Capital Stock of such Person; or

          (b) to maintain or preserve such Person's financial condition or to
       cause such Person to achieve any specified levels of operating results;
       and

      (6) on the date such Subsidiary is designated an Unrestricted Subsidiary,
   such Subsidiary is not a party to any agreement, contract, arrangement or
   understanding with Hanover or any Restricted Subsidiary with terms
   substantially less favorable to Hanover than those that might have been
   obtained from Persons who are not Affiliates of Hanover.

   Any such designation by the Board of Directors of Hanover shall be evidenced
to the Trustee by filing with the Trustee a resolution of the Board of
Directors of Hanover giving effect to such designation and an Officer's
Certificate certifying that such designation complies with the foregoing
conditions. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the participation agreement
and any Indebtedness of such Subsidiary shall be deemed to be Incurred as of
such date.

   The Board of Directors of Hanover may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that immediately after giving effect to
such designation, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and Hanover could incur at
least $1.00 of additional Indebtedness under the first paragraph of "Certain
Covenants under the Participation Agreements--Limitation on Indebtedness" on a
pro forma basis taking into account such designation.

   "U.S. Government Obligations" means securities that are (a) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the Issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act of 1933, as amended), as custodian with respect
to any such U.S. Government Obligations or a specific payment of principal

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or interest on any such U.S. Government Obligations held by such custodian for
the account of the holder of such depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligations or the
specific payment of principal of or interest on the U.S. Government Obligations
evidenced by such depository receipt.

   "Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.

   "Wholly-Owned Subsidiary" means a Restricted Subsidiary of Hanover, all of
the Capital Stock of which (other than director's qualifying shares) is owned
by Hanover or another Wholly-Owned Subsidiary.

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                   SUMMARY OF PRINCIPAL OPERATIVE AGREEMENTS

   The following is a summary of certain other principal operative agreements
(together with any ancillary documents, the "Operative Agreements") related to
the financing of the Equipment and should not be considered to be a full
statement of the terms and provisions thereof. Accordingly, the following
summaries are qualified by reference to each agreement and are subject to the
full text of each agreement, a copy of which we have filed as an exhibit to the
registration statement of which this prospectus forms a part.

The Lease

Parties

   The Issuer, as Lessor, and HCLP, as Lessee.

Lease Term

   The Lease Term commenced on August 31, 2001, and, unless sooner terminated
pursuant to its terms, shall end on the Stated Maturity.

Basic Rent


   HCLP will make a payment of Basic Rent to the Issuer each March 1, June 1,
September 1 and December 1, beginning March 1, 2002, in an amount equal to the
interest accrued on the notes that is payable semi-annually and the yield due
on the Certificate Holder Contribution that is payable quarterly.


Supplemental Rent

   HCLP will also pay Supplemental Rent in respect of all amounts which HCLP is
obligated to pay, other than Basic Rent, under the Lease and participation
agreement, including, but not limited to, costs, taxes and indemnities.

Equipment Purchases Prior to Stated Maturity

   Prior to the Stated Maturity, upon the occurrence of an Optional Redemption
of notes, HCLP shall purchase, and upon the occurrence of a Change of Control
of Hanover or certain Asset Dispositions resulting in Excess Proceeds, HCLP
shall purchase, the Equipment and terminate the Lease with respect to such
purchased Equipment upon payment of an amount equal to the Termination Value
with respect to such Equipment and the related Supplemental Rents. With respect
to the Lease, the purchase by HCLP during the Lease Term of Equipment having an
aggregate Termination Value equal to or greater than 25% of the highest
Termination Value of all Equipment held by the Issuer at any one time during
the period starting on the first anniversary of the commencement of the Lease
and ending 12 months prior to the Stated Maturity shall be deemed an exercise
of the Maturity Date Purchase Option with respect to all the Equipment. See
"--Purchase Option at Maturity."

  Purchase upon Optional Redemption of the Notes

      The Lease permits HCLP, at its option upon not less than 30 nor more than
   60 days' notice to the Issuer, on or after September 1, 2006, to purchase
   all the Equipment thereunder or, if no default or event of default under the
   Lease has occurred and is continuing, less than all of the Equipment upon
   payment of an amount equal to the Termination Value with respect to such
   Equipment and the related Supplemental Rent, provided, however, that during
   the 12-month period prior to the Stated Maturity of the notes, HCLP can
   purchase less than all of the Equipment only if (i) HCLP has exercised its
   Maturity Date Purchase Option under the Lease or (ii) such purchase cures a
   default or event of default under the Lease. Any applicable premiums with
   respect to such purchase shall be payable by HCLP as Supplemental Rent.


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      To the extent that Hanover raises Net Cash Proceeds from one or more
   Public Equity Offerings, the Lease permits HCLP, at its option upon not less
   than 30 nor more than 60 days' notice to the Issuer, prior to September 1,
   2004, to purchase one or more Units of Equipment thereunder, if no default
   or event of default under the Lease has occurred and is continuing, upon
   payment of an amount equal to the Termination Value for such Units and the
   related Supplemental Rent; provided, however, the aggregate amount of
   Equipment purchased with such Net Cash Proceeds by Hanover with respect to
   Lease shall not exceed 35% of the aggregate Termination Value of all the
   Equipment thereunder.

  Purchase upon Change of Control

      In the event the Issuer is required to repurchase notes tendered by the
   noteholders pursuant to a Change of Control Offer upon the occurrence of a
   Change of Control with respect to Hanover, the Lease requires HCLP, upon not
   less than 30 nor more than 60 days' notice to the Issuer, to purchase one or
   more Units of the Equipment upon payment of an amount equal to the
   Termination Value of such Units; provided that in no event shall HCLP be
   permitted to purchase Equipment having an aggregate Termination Value in
   excess of the sum of the principal amount of notes tendered by the
   noteholders and the equity certificates to be repaid under the Lease. A
   premium of 1.0% with respect to such note repurchase shall be payable by
   HCLP as Supplemental Rent.

  Purchase upon an Asset Disposition

      In the event the Issuer is required to repurchase notes tendered by the
   noteholders pursuant to an Asset Disposition Offer to the extent Excess
   Proceeds are available from Asset Dispositions, the Lease requires HCLP,
   upon not less than 30 nor more than 60 days' notice to the Issuer, to
   purchase one or more Units of the Equipment upon payment of an amount equal
   to the Termination Value of such Units; provided that in no event shall HCLP
   be permitted to purchase Equipment having an aggregate Termination Value in
   excess of the sum of the principal amount of notes tendered by the
   noteholders and the equity certificates to be repaid under the Lease.

  Options at Stated Maturity

   Twelve months prior to the Stated Maturity of each issuance of notes, HCLP
is required under the Lease either to (i) exercise its Maturity Date Purchase
Option (as defined below) or (ii) exercise its Remarketing Option (as defined
below).

  Purchase Option at Maturity

      By giving written notice to the Issuer at least 12 months prior to the
   Stated Maturity of the notes, HCLP may purchase, or designate another Person
   to purchase, on the Stated Maturity of the notes all, but not less than all,
   the Equipment then subject to the Lease in an amount equal to the
   Termination Value of the Equipment thereunder ("Maturity Date Purchase
   Option"). If 12 months prior to the Stated Maturity of the notes, the
   aggregate Termination Value of all Equipment then held by the Issuer is less
   than 75% of the highest Termination Value of all Equipment held by the
   Issuer at any one time during the period starting on the first anniversary
   of the Issue Date and ending 12 months prior to the Stated Maturity, then
   HCLP will be required to purchase, or cause its designee to purchase, all
   remaining Equipment on such Stated Maturity.

  Final Rent Payment and Remarketing Option

      In the event that HCLP does not exercise its Maturity Date Purchase
   Option, then (i) HCLP will be required to pay (in addition to Basic Rent and
   as Supplemental Rent) an amount equal to the maximum amount permitted under
   SFAS No. 13 which permits HCLP to account for the Lease as an operating
   lease (the "Final Rent Payment"), which Final Rent Payment will be used only
   to repay a portion of the notes and

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   (ii) beginning not later than 12 months prior to the applicable Stated
   Maturity, HCLP will be required to use its best efforts to sell (the
   "Remarketing Option") the Equipment subject to the Lease on Issuer's behalf
   and consummate a sale of all of such Equipment on or prior to the Stated
   Maturity. The proceeds from the sale of such Equipment, together with the
   Final Rent Payment, will be applied to repay the notes. Any excess proceeds
   will be used to repay the unrecovered amount of the equity certificates. Any
   remaining proceeds will be returned to HCLP. If the sale proceeds from such
   Equipment, together with the Final Rent Payment, are less than the sum of
   the amount necessary to pay the notes, then HCLP shall be liable for an
   assessment of additional rent with respect to actual excess wear and tear of
   such Equipment, as determined by an appraisal procedure; provided, however,
   that such assessment shall under no circumstances prevent HCLP from
   accounting for such Lease as an operating lease under SFAS No. 13.

      If HCLP is unable to sell such Equipment on or prior to the Stated
   Maturity, then HCLP shall pay the Final Rent Payment and shall surrender
   possession of such Equipment to the Issuer on the Stated Maturity.

      So long as HCLP performs its obligations under the Lease by either
   exercising the Maturity Date Purchase Option or making the Final Rent
   Payment and exercising the Remarketing Option, no Lease Event of Default
   will have occurred and the Hanover Guarantee will, by its terms, require no
   further payment. If the proceeds from the Remarketing Option are
   insufficient to pay the remainder of the notes and the outstanding equity
   certificates, the holders of the notes and the equity certificates will
   incur a loss and no Hanover Guarantor will be required to compensate for any
   such shortfall.

  Net Lease

   The Lease is a triple net lease and HCLP's obligations to pay all lease
payments are absolute and unconditional.

  Event of Loss

   An Event of Loss means any of the following events: (i) any damage or taking
of all or any Unit of Equipment as a result of fire, casualty or condemnation
that in the good faith reasonable judgment of HCLP either renders such
Equipment unsuitable for the continued use for its intended purpose immediately
prior to such fire, casualty or condemnation or is such that the restoration of
such Equipment to its condition substantially as it existed immediately prior
to such fire, casualty or condemnation would be impractical or impossible or
(ii) an environmental violation is discovered and HCLP in its good faith
reasonable judgment determines that the cost to remediate will exceed ten
percent of the cost of the Equipment. Upon the occurrence of an Event of Loss,
HCLP shall, unless HCLP exercises its Purchase Option, substitute, replace,
rebuild or restore the affected Equipment with Equipment having a value,
utility and remaining economic life at least equal to that of the Equipment
being replaced, in which case the Lease will continue and the rent payable
under the Lease will not be reduced.

  Assignment and Subletting

   The Lease permits HCLP to sublease the Equipment but prohibits assignment,
except as permitted by the Operative Agreements. Notwithstanding any sublease,
HCLP remains primarily liable for the performance of all of its obligations
under the Lease.

  Quiet Enjoyment

   HCLP has the right to peaceably and quietly hold, possess and use the
Equipment during the Lease Term prior to the Stated Maturity so long as no
Event of Default shall have occurred and be continuing under the Lease.

  Maintenance

   HCLP will cause the Equipment to be kept in good and safe order and
condition, normal wear and tear excepted. The Equipment will be maintained in
all material respects at all times in accordance with applicable law, including
without limitation all environmental laws, and in accordance with all insurance
requirements.

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  Insurance

   HCLP will keep each Unit of Equipment insured against loss or damage by fire
and other risks on terms and in amounts that are no less favorable than
insurance maintained by owners of similar equipment, that are in accordance
with normal industry practice, are in amounts equal to the greater of (i)
Termination Value and (ii) the actual replacement cost of the Equipment.

  Modifications and Substitutions

   HCLP has the right to make modifications, alterations or renovations to the
Equipment (the "Modifications") so long as such Modifications do not impair the
value, utility or the useful life of the Equipment.

   HCLP has the right to substitute one or more Units of Equipment under the
Lease (i) in the ordinary course of its business, (ii) due to an Event of Loss
and (iii) pursuant to purchases by sublessees of the Equipment in accordance
with the terms of their respective subleases with the Lessee; provided,
however, that, with respect to the Lease, the aggregate fair market value of
all Equipment substitutions shall not exceed 25% of the Termination Value of
all the Equipment thereunder. Any replacement Equipment shall be free and clear
of all Liens (other than Permitted Liens) and have a value, utility and
remaining economic useful life at least equal to the Equipment being replaced
as of the date of the replacement.

   On or prior to any date of Equipment replacement permitted under a Lease,
HCLP shall provide, upon the written request of the Trustee or holders of a
majority of aggregate outstanding amount of the related notes, an appraisal
with respect to such replaced Equipment, provided that HCLP shall not be
required to provide more than one appraisal in any 12-month period. If the
aggregate value of such Equipment being replaced from time to time is equal to
or greater than 10% of the aggregate value of the Equipment under the Lease,
then HCLP shall be required to deliver an appraisal of such replaced Equipment
to the Trustee and the equity certificate holder. In the event that the
appraisers determine that replacement Equipment has a lesser value than the
original Equipment, a Lease Event of Default could be declared under the Lease.

  Use

   HCLP agreed that each item of Equipment will be used in accordance with its
intended purpose and in accordance with its specifications.

  Intent

   The Issuer and HCLP intend that, (i) for financial accounting purposes with
respect to HCLP, (A) the Lease shall be treated as an "operating lease"
pursuant to Statement of Financial Accounting Standards No. 13, as amended, (B)
the Issuer will be treated as the owner and lessor of the Equipment and (C)
HCLP will be treated as the lessee of the Equipment, but (ii) for federal,
state and local income tax and state law purposes, (A) the Lease will be
treated as a financing arrangement, (B) the noteholders will be treated as
senior lenders making loans to HCLP in an amount equal to the principal amount
of the notes, which notes will be secured by the Equipment, (C) the equity
certificate holder will be treated as a subordinated lender making loans to
HCLP in an aggregate amount equal to the Certificate Holder Contribution, which
loans are secured by the Equipment and (D) HCLP shall be treated as the owner
of the Equipment and will be entitled to all tax benefits ordinarily available
to an owner of property similar to the Equipment for such tax purposes.

  Liens

   HCLP will keep the Equipment free and clear of all liens except the
following permitted liens and liens caused by the Issuer. Such permitted liens
include, without limitation, (1) the respective rights and interests of the

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parties under the Lease and participation agreement (including any lien created
pursuant to or expressly permitted by the terms of such participation
agreement), (2) liens for taxes that either are not yet due and payable or are
being contested in good faith, (3) any permitted sublease, (4) liens arising by
operation of law, materialmen's, mechanics', workers', repairmen's, employees',
carriers', warehousemen's and other like liens in connection with any
alterations, modifications or replacements to the extent permitted by the Lease
for amounts that are not more than 30 days past due or are being diligently
contested in good faith by appropriate proceedings, so long as such proceedings
satisfy customary conditions for contest proceedings, or that have been bonded,
(5) liens arising out of judgments or awards with respect to which appeals or
other proceedings for review are being prosecuted in good faith and for the
payment of which adequate reserves have been provided as required by GAAP or
other appropriate provisions have been made, and (6) certain other permitted
matters of title and liens resulting from the acts of the Issuer.

  Events of Default

   The following events (each, a "Lease Event of Default") are events of
default under the Lease:

      (a) HCLP shall fail to make payment of (i) any Basic Rent within 30 days
   after the same has become due and payable under the Lease or (ii) any Final
   Rent Payment, purchase price payable as described under "--The
   Lease--Equipment Purchases Prior to Stated Maturity" or Termination Value
   after the same has become due and payable under the Lease;

      (b) HCLP shall fail to make payment of any Supplemental Rent due and
   payable under the Lease to a holder of notes, an equity certificate holder,
   the Issuer, the Trustee or the trustee of the Issuer within 30 days after
   receipt of notice thereof;

      (c) HCLP shall fail to maintain insurance as required by the Lease; or

      (d) HCLP or any Hanover Guarantor shall default in the observance or
   performance of any term, covenant or condition of HCLP or of such Hanover
   Guarantor, respectively, under the Lease, the participation agreement, the
   Hanover Guarantee or any other Operative Agreement to which it is a party
   (other than those set forth in (a), (b) or (c) above) and such default shall
   continue unremedied for a period of 30 days after receipt of notice thereof
   or any representation or warranty by HCLP or any Hanover Guarantor,
   respectively, set forth in the Lease, the participation agreement, the
   Hanover Guarantee or any other Operative Agreement or in any document
   entered into in connection therewith or in any documents, certificate or
   financial or other statement delivered in connection therewith shall be
   false or inaccurate in any material respect; or

      (e) an event of default under the indenture that is caused by, or results
   from, any action or inaction of HCLP or any other Hanover Guarantors or
   relates to HCLP or any other Hanover Guarantor shall have occurred and be
   continuing.

   If, as of the Stated Maturity, any Lease Event of Default under the Lease
has occurred and is continuing, then HCLP shall be deemed to have exercised the
Maturity Date Purchase Option.

   To comply with certain accounting limitations, the amount realizable on
certain nonmonetary, nonperformance events of default may be limited.

Participation Agreement

  Parties

   HCLP, Hanover and certain of its subsidiaries, the Issuer, the equity
certificate holder, the Trustee, in its individual capacity, as collateral
agent and as Trustee under the indenture, and the trustee of the Issuer, in its
individual capacity.

  General

   The participation agreement sets forth customary representations, warranties
and covenants of the parties and conditions precedent to the entering into of
the Lease and funding of the notes and the equity certificates. Certain
significant provisions of the participation agreement are summarized below.

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  General Indemnity

   HCLP will indemnify (the "General Indemnity"), on an after-tax basis, the
Issuer, the trustee of the Issuer, the holder of the equity certificates, the
noteholders and the Trustee and any of such parties' assignees, affiliates and
their officers (the "Indemnified Persons") from and against liabilities, losses
or expenses which may be asserted against any such Person arising out of (i)
the ownership, leasing, maintenance, use or possession of the Equipment; and
(ii) the transactions in connection with the Lease and the notes. The General
Indemnity will exclude claims that (i) are attributable to gross negligence or
willful misconduct of the indemnified party or its affiliates, representatives
or agents, (ii) arise out of events occurring after the discharge of the HCLP's
obligations or (iii) relate to taxes. There will be no structural indemnity
with respect to the tax characterization or accounting treatment of the Lease.

  General Tax Indemnity

   HCLP will indemnify, on an after-tax basis, the Indemnified Persons against
and will agree to pay any and all taxes payable as a result of ownership,
rental, operation, use, maintenance or sale of the Equipment, including, but
not limited to, rental, withholding, sales, use, gross receipts, personal
equipment, franchise, excise, value added or other taxes, but excluding,
subject to certain exceptions, (i) federal net income taxes and (ii) state and
local net income taxes except taxes imposed by the state where the Equipment is
located (unless such Indemnified Persons were subject to taxes in such
jurisdiction without regard to the transactions contemplated herein).

  Security

   The provisions of the participation agreement relating to the Collateral
securing the notes are described under "Description of the Notes--Ranking and
Priority."

Hanover Guarantee

   The Hanover Guarantee represents both a Guarantee of HCLP's payment
obligations under the Lease and a Guarantee of the Issuer's payment obligations
under the notes. With respect to HCLP's obligations under the Lease, the
Hanover Guarantors guarantee, jointly and severally, fully and unconditionally
and on a senior subordinated basis, all obligations of HCLP under the Lease,
including all rent payments. With respect to the issuer's obligations under the
notes, independent of HCLP's obligations under the Lease, the Hanover
Guarantors guarantee, jointly and severally, unconditionally and on a senior
subordinated basis, the payment when due of all amounts required to be paid by
the Issuer under the notes; provided that such unconditional guarantee is
limited at all times to 70.0% of the aggregate principal balance of notes
outstanding, which is equal to the final rent payment under the Lease. Upon the
occurrence of and during a Lease Event of Default, the Hanover Guarantors
guarantee, jointly and severally, on a senior subordinated basis, the payment
when due of the entire unpaid principal of, and interest on, the notes and all
other payment obligations of the Issuer to the Trustee and the noteholders. The
Hanover Guarantee is in favor of the Trustee for the benefit of the noteholders
and the equity certificate holder. The Hanover Guarantee is subordinated to any
Senior Indebtedness or Guarantor Senior Indebtedness, as applicable, and ranks
equally with any Senior Subordinated Indebtedness and Guarantor Senior
Subordinated Indebtedness, as applicable.  The Hanover Guarantee and the 2008
Guarantee rank equally in right of payment to each other.

Assignment of Lease, Rents and Guarantee

   The Issuer assigned the Lease and Hanover Guarantee to the Trustee for the
benefit of the noteholders and the equity certificate holder.

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The Amended and Restated Trust Agreement



  Parties



   General Electric Capital Corporation, as the equity certificate holder, and
the trustee of the Issuer, in its individual capacity and in its capacity as
trustee under the amended and restated trust agreement.



  Duties of the Trustee of the Issuer



   The amended and restated trust agreement (the "Trust Agreement") sets forth
the responsibilities of the trustee of the Issuer to protect and conserve the
Equipment, the equity certificate holder contributions, the proceeds of the
notes and any other property contributed by the equity certificate holder to
the Issuer (collectively, the "Trust Estate") for the use and benefit of the
equity certificate holder, subject to the terms of the Operative Agreements.



   If the trustee of the Issuer has actual knowledge of any Lease Default,
Lease Event of Default, Indenture Default or Indenture Event of Default, it
must give notice to the equity certificate holder, HCLP, the indenture trustee
and any other person identified in writing by the equity certificate holder.
The trustee of the Issuer may act only as authorized and directed by the equity
certificate holder (or HCLP pursuant to the participation agreement), subject
to the terms of the Trust Agreement, the Operative Agreements and applicable
law. The trustee of the Issuer may not manage, control, use, sell dispose of or
otherwise deal with the Trust Estate except as provided in the Trust Agreement.
All persons (other than the equity certificate holders as set forth in the
Trust Agreement) may look only to the Trust Estate for satisfaction of any
claim against the issuer of the Trustee.



  Indemnification



   The trustee of the Issuer will be indemnified by the equity certificate
holder for any and all obligations, liabilities, losses, actions, suits,
penalties, taxes, claims, demands, costs and expenses which may be imposed on,
incurred by or asserted against it in any way relating to or arising out of the
Trust Estate, the administration of the Trust Estate, any action or inaction
under the Operative Agreements or in any way relating to the Equipment.



  Removal of the Trustee of the Issuer



   The trustee of the Issuer may resign without cause upon 30 days' notice to
the equity certificate holder, the indenture trustee and HCLP. The equity
certificate holder may remove the trustee of the Issuer with or without cause
upon 60 days' notice and appoint a successor trustee that meets certain
requirements under the Trust Agreement and is approved by HCLP.



  Amendments and Termination



   The Trust Agreement may be amended by the equity certificate holder and the
trustee of the Issuer, subject to consent by the indenture trustee if such
amendment might result in the termination of the Issuer prior to the
satisfaction and discharge of the Liens and security interests under the
Operative Agreements. The equity certificate holder and the trustee of the
Issuer agree with HCLP and the indenture trustee not to terminate or revoke the
Issuer or otherwise modify the Trust Agreement without the prior written
consent of any person who would be adversely affected.



   The trust will terminate and the Trust Estate will be distributed to the
equity certificate holder upon the sale of all property constituting the Trust
Estate or after thirty years. In addition, the trustee of the Issuer may
terminate the trust at its option and convey the Trust Estate to the equity
certificate holder at any time six months after the Lease is no longer in
effect.




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                                 THE EQUIPMENT

   The Equipment subject to the Lease is a representative sample of HCLP's
natural gas compression equipment fleet. The Equipment had an appraised value
as of the commencement date of the Lease and an anticipated residual value as
of the Stated Maturity, of no less than $258 million, as determined by American
Appraisal Associates ("AAA"). We selected AAA on the basis of its expertise in
equipment valuations in leasing transactions. AAA is a large independent
valuation firm that has been in business for over 100 years. To our knowledge,
except for appraisal engagements entered into the ordinary course of business
in exchange for customary fees and expenses, there are no material
relationships between AAA, its affiliates and/or unaffiliated representatives
and the registrants or their affiliates. We have paid AAA a fee of $41,000 plus
expenses of $900 for the appraisal of the Equipment. None of the registrants
placed any limitations on the scope of analysis, procedures or methodologies
employed by AAA in the preparation of its appraisal report.

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                      DESCRIPTION OF CERTAIN INDEBTEDNESS

$350 Million Bank Credit Agreement


   We have a bank credit agreement which provides for a revolving credit
facility in an aggregate principal amount of $350 million, including a
commitment to issue letters of credit of up to $75 million by JPMorgan Chase
Bank as agent for several banks and other financial institutions. At March 31,
2002, we had approximately $228 million of outstanding borrowings and $37
million of outstanding letters of credit under the bank credit agreement. In
addition, we had approximately $19.9 million in letters of credit outstanding
under other letters of credit facilities which expire during 2002 and 2003.
Amounts outstanding under our bank credit agreement bear interest at either the
Eurodollar rate plus the spread, the ABR rate plus the spread (each as defined
in the bank credit agreement) or a combination of both. Revolving loans may be
borrowed, repaid and reborrowed from time to time.


   Our bank credit agreement also contains various covenants which require,
among other things, that we meet specified quarterly financial ratios,
including cash flow and net worth measurements, and restricts our ability to
incur additional indebtedness.

   The revolving loans mature in November 2004. No assurances can be made that
we will be able to refinance the bank credit agreement on commercially
reasonable terms, if at all.

Convertible Senior Notes

   In March 2001, Hanover issued $192 million aggregate principal amount of
4.75% Convertible Senior Notes due March 15, 2008. The convertible senior notes
are convertible at the option of the holder into shares of our common stock at
a conversion rate of 22.7596 shares of common stock per $1,000 principal amount
of convertible senior notes. The conversion rate is subject to anti-dilution
adjustment in certain events.

   On or after March 15, 2004, we have the right at any time to redeem some or
all of the convertible senior notes. If we experience a specified change in
control, a holder of convertible senior notes may require us to repurchase,
with cash or common stock, some or all of the convertible senior notes at a
price equal to 100% of the principal amount plus accrued and unpaid interest to
the repurchase date.

   The convertible senior notes are general unsecured obligations and rank
equally in right of payment with all of our other unsecured senior debt. The
convertible senior notes are effectively subordinated to all existing and
future liabilities of our subsidiaries (including HCLP).

Convertible Preferred Securities

   In December 1999, Hanover issued $86,250,000 of unsecured 7 1/4% Mandatorily
Redeemable Convertible Preferred Securities through our subsidiary, Hanover
Compressor Capital Trust, a Delaware business trust and subsidiary of Hanover
(the "Business Trust"). Under a guarantee agreement, we guarantee, on a
subordinated basis, any payments required to be made by the Business Trust to
the extent the Business Trust has funds available to make the payments.

   The convertible preferred securities are convertible at the option of the
holder into shares of our common stock and have a liquidation amount of $50 per
security and mature in 30 years, but we may redeem them, in whole or in part,
at any time on or after December 20, 2002. We are required to pay annual cash
distributions at the rate of 7 1/4%, payable quarterly in arrears. However,
such payments may be deferred for up to 20 consecutive quarters subject to
certain restrictions. During any periods in which payments are deferred, in
general, we cannot pay any dividend or distribution on our capital stock or
redeem, purchase, acquire or make any liquidation on any of our capital stock.

   With the proceeds from the offering of the convertible preferred securities,
the Business Trust purchased $86,250,000 of our 7 1/4% unsecured subordinated
debentures. When the debentures are repaid in full, either at maturity or
through optional redemption, the proceeds from the repayment will be applied to
redeem, on a pro rata basis, an equivalent liquidation amount of convertible
preferred securities.

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<PAGE>

   The debentures are subordinated to all of our existing and future senior
debt, and are effectively subordinated to all existing and future liabilities
of our subsidiaries (including HCLP).

Operating Leases

   Concurrently with our consummation of the Lease, in August 2001, we entered
into a separate $309 million sale and lease back of certain compression
equipment. This operating lease has a seven-year term and is substantially
similar to the Lease.

   In October 2000, we completed a $173 million sale and lease back of certain
compression equipment. In March 2000, we entered into a separate $200 million
sale and lease back of certain compression equipment. Under the March 2000
agreement, we received $100 million in proceeds from the sale of compression
equipment at closing and, in August 2000, we completed the second half of the
equipment lease and received an additional $100 million for the sale of
additional compression equipment. In June 1999, we completed a separate $200
million sale and lease back of certain compression equipment.


   The 2000 and 1999 transactions are recorded as a sale and lease back of the
equipment and are recorded as operating leases. Under these lease agreements,
the equipment was sold and leased back by us for a 5 year period and we will
continue to deploy the equipment under our normal operating procedures. At any
time, we have options to repurchase the equipment under certain conditions as
defined by the lease agreements. We have substantial guarantees under the lease
agreements that are due upon termination of the leases and which may be
satisfied by a cash payment or the exercise of our purchase options. Any gains
on the sale of the equipment are deferred until the end of the respective lease
terms. Should we choose not to exercise our purchase options under the lease
agreements, the deferred gains will be recognized to the extent they exceed any
residual value guarantee payments and any other items required under the lease
agreements.



   Our lease agreements call for variable quarterly rental payments that vary
with the London Interbank Offering Rate. The minimum lease payments under the
leasing agreements exclusive of any guarantee payments are between $49 million
and $90 million for the years 2002 to 2006 based on rates in effect as of March
31, 2002.


Subordinated Acquisition Note

   In connection with our acquisition of the gas compression business of
Schlumberger, we issued a $150 million subordinated acquisition note to
Schlumberger, which matures December 15, 2005.

   Interest on the subordinated acquisition note accrues and is payable-in-kind
at the rate of 8.5% annually for the first six months after issuance and
periodically increases in increments of 1% to 2% per annum to a maximum
interest rate 42 months after issuance of 15.5%. In the event of an event of
default under the subordinated acquisition note, interest will accrue at a rate
of 2% above the applicable rate.

   The subordinated acquisition note is subordinated to all of our indebtedness
other than indebtedness to fund future acquisitions. In the event that we
complete an offering of equity securities, we are required to apply the
proceeds of the offering to repay amounts outstanding under the subordinated
acquisition note as long as no default exists or would exist under our other
indebtedness as a result of such payment.

Equity Investment in the Issuer

   In connection with the Issuer's acquisition of the Equipment and its
execution of the Operative Agreements, an investor contributed an aggregate
amount of $7.8 million in cash to the Issuer. As described in the "Description
of Notes," such equity certificate holders may receive payments upon certain
repurchases or redemptions of the notes.

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                         BOOK-ENTRY; DELIVERY AND FORM

   The certificates representing the new notes will be issued in fully
registered form without interest coupons. Except as described in
"--Certificated Notes" below, the new notes will be represented by one or more
permanent global certificates in definitive, fully registered form without
interest coupons (the "global notes"). The global notes will be deposited with
the Trustee as custodian for The Depository Trust Company ("DTC") and
registered in the name of a nominee of such depositary.

The Global Notes

   The Issuer expects that pursuant to procedures established by DTC (1) upon
the issuance of the global notes, DTC or its custodian will credit, on its
internal system, the principal amount of the individual beneficial interests
represented by such global notes to the respective accounts of persons who have
accounts with such depositary and (2) ownership of beneficial interests in the
global notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Ownership of beneficial
interests in the global notes will be limited to persons who have accounts with
DTC ("participants") or persons who hold interests through participants.

   So long as DTC, or its nominee, is the registered owner or holder of the new
notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the new notes represented by such global notes for all
purposes under the indenture. No beneficial owner of an interest in the global
notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the indenture.

   Payments of the principal of, premium, if any, or interest (including
additional interest) on, the global notes will be made to DTC or its nominee,
as the case may be, as the registered owner thereof. None of us, the trustee or
any paying agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the global notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.


   The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including additional interest) on the
global notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the global notes as shown on the records of DTC or its nominee. The Issuer
also expects that payments by participants to owners of beneficial interests in
the global notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Those payments will be the responsibility of those participants.


   The Issuer expects that transfers between participants in DTC will be
effected in the ordinary way through DTC's same-day funds system in accordance
with DTC rules and will be settled in same-day funds. If a holder requires
physical delivery of a certificated security for any reason, including to sell
new notes to persons in states which require physical delivery of the new
notes, or to pledge such securities, such holder must transfer its interest in
a global note, in accordance with the normal procedures of DTC and with the
procedures set forth in the indenture.

   DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of new notes (including the presentation of notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the global notes are credited and only in
respect of such portion of the aggregate principal amount of new notes as to
which such participant or participants has or have given such direction.
However, if there is an event of default under the indenture, DTC will exchange
the global notes for certificated securities, which it will distribute to its
participants.

   DTC has advised us that it is:

    .  a limited purpose trust company organized under the laws of the State of
       New York;

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    .  a "banking organization" within the meaning of the New York Banking Law;

    .  a member of the Federal Reserve System;

    .  a "clearing corporation" within the meaning of the Uniform Commercial
       Code, as amended; and

    .  a "clearing agency" registered under Section 17A of the Securities
       Exchange Act of 1934.

   Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global notes among participants of DTC, DTC is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.

Certificated Notes

   Except as described below, owners of beneficial interests in the global
notes will not be permitted to take physical delivery of certificated notes. If:

    .  DTC notifies the Issuer that it is at any time unwilling or unable to
       continue as a depositary or DTC ceases to be registered as a clearing
       agency under the Securities Exchange Act of 1934 and a successor
       depositary is not appointed within 90 days of such notice or cessation;

    .  the Issuer, at its option, notifies the trustee in writing that it
       elects to cause the issuance of its notes in definitive form under its
       indenture; or

    .  upon the occurrence of some other events as provided in such indenture;

then, upon surrender by DTC of the applicable global notes, certificated notes
will be issued to each person that DTC identifies as the beneficial owner of
the notes represented by the applicable global notes. Upon the issuance of
certificated notes, the trustee is required to register the certificated notes
in the name of that person or persons, or their nominee, and cause the
certificated notes to be delivered thereto.

   Neither the Issuer nor the trustee will be liable for any delay by DTC or
any participant or indirect participant in DTC in identifying the beneficial
owners of the related notes and each of those persons may conclusively rely on,
and will be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the respective notes to be issued.

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                         MATERIAL ERISA CONSIDERATIONS

Certain ERISA Considerations

   The following is a summary of certain considerations associated with the
acquisition and holding of the notes by employee benefit plans that are subject
to Title I of the U.S. Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), plans, individual retirement accounts and other arrangements
that are subject to Section 4975 of the Code or provisions under any federal,
state, local, non-U.S. or other laws or regulations that are similar to such
provisions of the Code or ERISA (collectively, "Similar Laws"), and entities
whose underlying assets are considered to include "plan assets" of such plans,
accounts and arrangements (each, a "Plan").

General Fiduciary Matters

   ERISA and the Code impose certain duties on persons who are fiduciaries of a
Plan subject to Title I of ERISA or Section 4975 of the Code and prohibit
certain transactions involving the assets of a Plan and its fiduciaries or
other interested parties. Under ERISA and the Code, any person who exercises
any discretionary authority or control over the administration of such a Plan
or the management or disposition of the assets of such a Plan, or who renders
investment advice for a fee or other compensation to such a Plan, is generally
considered to be a fiduciary of the Plan.

   In considering an investment in the notes of a portion of the assets of any
Plan, a fiduciary should determine whether the investment is in accordance with
the documents and instruments governing the Plan and the applicable provisions
of ERISA, the Code or any Similar Law relating to a fiduciary's duties to the
Plan including, without limitation, the prudence, diversification, delegation
of control and prohibited transaction provisions of ERISA, the Code and any
other applicable Similar Laws.

   Any insurance company proposing to invest assets of its general account in
the notes should consider the extent that such investment would be subject to
the requirements of ERISA in light of the U.S. Supreme Court's decision in John
Hancock Mutual Life Insurance Co. v. Harris Trust and Savings Bank and under
any subsequent legislation or other guidance that has or may become available
relating to that decision, including the enactment of Section 401(c) of ERISA
by the Small Business Job Protection Act of 1996 and the regulations
promulgated thereunder.

Prohibited Transaction Issues

   Section 406 of ERISA and Section 4975 of the Code prohibit Plans, subject to
Title I of ERISA or Section 4975 of the Code from engaging in specified
transactions involving plan assets with persons or entities who are "parties in
interest," within the meaning of ERISA, or "disqualified persons," within the
meaning of Section 4975 of the Code, unless an exemption is available. A party
in interest or disqualified person who engaged in a non-exempt prohibited
transaction may be subject to excise taxes and other penalties and liabilities
under ERISA and the Code. In addition, the fiduciary of the Plan that engaged
in such a non-exempt prohibited transaction may be subject to penalties and
liabilities under ERISA and the Code. The acquisition and/or holding of notes
by a Plan with respect to which the Issuer is considered a party in interest or
a disqualified person may constitute or result in a direct or indirect
prohibited transaction under Section 406 of ERISA and/or Section 4975 of the
Code, unless the investment is acquired and is held in accordance with an
applicable statutory, class or individual prohibited transaction exemption. In
this regard, the U.S. Department of Labor (the "DOL") has issued prohibited
transaction class exemptions, or "PTCEs," that may apply to the acquisition and
holding of the notes. These class exemptions include, without limitation, PTCE
84-14 respecting transactions determined by independent qualified professional
asset managers, PTCE 90-1 respecting insurance company pooled separate
accounts, PTCE 91-38 respecting bank collective investment trust Partnerships,
PTCE 95-60 respecting life insurance company general accounts and PTCE 96-23
respecting transactions determined by in-house asset managers, although there
can be no assurance that all of the conditions of any such exemptions will be
satisfied.

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   Because of the foregoing, the notes should not be purchased or held by any
person investing "plan assets" of any Plan, unless such purchase and holding
will not constitute a non-exempt prohibited transaction under ERISA and the
Code or similar violation of any applicable Similar Laws.

Representations

   Accordingly, by acceptance of an old note and exchange of such old note for
a new note, you and your successors and assigns will be deemed to have
represented and warranted that either (i) no portion of the assets used by you
to acquire the notes constitutes assets of any Plan or (ii) the purchase and
holding of the notes by you will not constitute a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code or similar
violation under any applicable Similar Laws.

   The foregoing discussion is general in nature and is not intended to be
all-inclusive. Due to the complexity of these rules and the penalties that may
be imposed upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons considering
purchasing the notes on behalf of, or with the assets of, any Plan, consult
with their counsel regarding the potential applicability of ERISA, Section 4975
of the Code and any Similar Laws to such investment and whether an exemption
would be applicable to the purchase and holding of the notes.

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<PAGE>

                UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

   This section discusses the material U.S. federal income tax considerations
relating to the exchange of old notes for new notes and the purchase, ownership
and disposition of the new notes. This summary is based on the following
materials, all as of the date of this prospectus:

    .  the Internal Revenue Code of 1986, as amended (the "Code"),

    .  current, temporary and proposed Treasury Regulations promulgated under
       the Code,

    .  current administrative interpretations of the Internal Revenue Service
       (the "IRS"), and

    .  court decisions.

   Legislation, judicial decisions or administrative changes may be forthcoming
that could affect the accuracy of the statements included in this summary,
possibly on a retroactive basis. There can be no assurance that the IRS will
not challenge one or more of the tax results described herein, and we have not
obtained, nor do we intend to obtain, a ruling from the IRS with respect to the
U.S. federal tax consequences described below.

   This discussion assumes the new notes and the old notes are held as "capital
assets" within the meaning of Section 1221 of the Code (generally, property
held for investment). For purposes of this discussion, "U.S. Holders" are
beneficial owners of the notes that include the following:

    .  citizens or residents of the United States,

    .  corporations organized under the laws of the United States or any state,

    .  estates the income of which is subject to U.S. federal income taxation
       regardless of its source, and

    .  trusts if the administration of the trust is subject to the primary
       supervision of a U.S. court and one or more U.S. persons have the
       authority to control all substantial decisions of the trust.

A "Non-U.S. Holder" is a beneficial owner of the notes other than a "U.S.
Holder."

   If a partnership holds the notes, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding the notes, you
should consult your own tax advisors as to the tax consequences of the
partnership's purchase, ownership or disposition of the notes.

   This discussion does not purport to address all tax considerations that may
be important to a particular holder in light of the holder's circumstances. For
example, special rules not discussed here may apply to a holder who is:

    .  a broker-dealer, a dealer in securities or a financial institution;

    .  an insurance company;

    .  a tax-exempt organization;

    .  subject to the alternative minimum tax provisions of the Code;

    .  holding the notes as part of a hedge, conversion or constructive sale
       transaction, straddle or other risk reduction transaction;

    .  a person with a "functional currency" other than the U.S. dollar; or

    .  a person who has ceased to be a U.S. citizen or ceased to be taxed as a
       resident alien.

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<PAGE>

Finally, this discussion does not describe any tax considerations arising under
the laws of any applicable foreign, state, or local jurisdiction.

   Investors should consult their own tax advisors regarding the application of
the U.S. federal income tax laws to their particular situations and the
consequences of U.S. federal estate or gift tax laws, foreign, state or local
laws, and tax treaties.

Obligor on the Notes

   We intend to treat the notes as obligations of HCLP for federal income tax
purposes, and the following discussion assumes that the notes will be so
treated. If the IRS were to contend successfully that the notes are not
obligations of HCLP, it could contend that the notes are obligations of the
Issuer. Such alternative characterization should not have any material adverse
federal income tax consequences to holders of the notes. Holders of the notes
should consult their own tax advisors as to the tax consequences to them of
such alternative characterization.

Tax Consequences of Exchange of Old Notes for New Notes

   The exchange of old notes for new notes pursuant to the exchange offer will
not be treated as a taxable exchange because the new notes do not differ
materially in kind or extent from the old notes. Accordingly:

   (1) holders will not recognize taxable gain or loss as a result of
       exchanging such holder's old notes for new notes,


   (2) the holding period for a new note received will include the holding
       period of the old note exchanged therefore, and



   (3) the adjusted tax basis of a new note received will be the same as the
       adjusted tax basis of the old note exchanged therefore immediately
       before such exchange.


U.S. Holders

  Interest on Notes


   U.S. Holders will be required to recognize as ordinary income any interest
paid or accrued on the notes, in accordance with their regular method of
accounting for federal income tax purposes. We are taking the position that the
additional interest paid pursuant to the exchange and registration rights
agreement is treated the same as the regularly scheduled interest payments on
the notes.


  Market Discount

   The market discount rules discussed below apply to any note purchased after
original issue at a price less than its stated redemption price at maturity.

   If a U.S. Holder purchases a note at a market discount, such holder
generally will be required to treat any principal payments on, or any gain on
the disposition of, such note as ordinary income to the extent of the accrued
market discount (not previously included in income) at the time of such payment
or disposition. In general, subject to a de minimis exception, market discount
is the amount by which the note's stated redemption price at maturity exceeds
the holder's basis in the note immediately after the note is acquired. A note
is not treated as purchased at a market discount, however, if the market
discount is less than 0.25 percent of the stated redemption price at maturity
of the note multiplied by the number of complete years to maturity from the
date when a holder acquired the note. Market discount on a note will accrue on
a straight-line basis, unless a holder elects to accrue such discount on a
constant yield to maturity basis. This election is irrevocable. A U.S. Holder
may also elect to include market discount in income currently as it accrues.
This election, once made, applies to all market discount obligations acquired
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS. If a U.S. Holder
acquires a note at a market discount and disposes of such note in any
non-taxable transaction (other than a nonrecognition transaction

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<PAGE>

defined in section 1276(c) of the Code), accrued market discount will be
includable as ordinary income to such holder as if such holder had sold the
note at its fair market value. A U.S. Holder may be required to defer until the
maturity of the note or, in certain circumstances, its earlier disposition, the
deduction of all or a portion of the interest expense attributable to debt
incurred or continued to purchase or carry a note with market discount, unless
an election is made to include the market discount in income on a current basis.

  Amortizable Bond Premium

   If a U.S. Holder purchases a note for an amount in excess of its stated
redemption price at maturity, such holder will generally be considered to have
purchased the note with "amortizable bond premium." The amount of amortizable
bond premium is computed based on the redemption price on an earlier call date
if such computation results in a smaller amortizable bond premium attributable
to the period of such earlier call date. A U.S. Holder generally may elect to
amortize such premium using the constant yield to maturity method. The amount
amortized in any year will generally be treated as a reduction of a holder's
interest income on the note. If the amortizable bond premium allocable to a
year exceeds the amount of interest allocable to that year, the excess would be
allowed as a deduction for that year but only to the extent that a holder's
prior interest inclusions exceed bond premium deductions on the note. The
election to amortize the premium on a constant yield to maturity method, once
made, generally applies to all bonds held or subsequently acquired by a U.S.
Holder on or after the first day of the first taxable year to which the
election applies. A U.S. Holder may not revoke this election without the
consent of the IRS.

  Sale or Other Taxable Disposition of Notes

   A U.S. Holder will generally recognize capital gain or loss on the sale,
redemption, exchange, retirement or other taxable disposition of a note. The
holder's gain or loss will equal the difference between the holder's adjusted
tax basis in the note and the proceeds received by the holder, excluding any
proceeds attributable to accrued interest which will be recognized as ordinary
interest income to the extent that the holder has not previously included the
accrued interest in income. The proceeds received by the holder will include
the amount of any cash and the fair market value of any other property received
for the note. The holder's tax basis in the note will generally equal the
amount the holder paid for the note, plus any market discount previously
included in income, less any previous deductions of bond premium. The gain or
loss will be long-term capital gain or loss if the holder held the note for
more than one year. The deductibility of capital losses may be subject to
limitation.

  Information Reporting and Backup Withholding

   Information reporting and backup withholding may apply to payments of
principal and interest on a note or the proceeds from the sale or other
disposition of a note with respect to certain noncorporate U.S. Holders. Such
U.S. Holders generally will be subject to backup withholding unless the U.S.
Holder provides to the payor a correct taxpayer identification number and
certain other information, certified under penalties of perjury, or otherwise
establishes an exemption. Any amount withheld under the backup withholding
rules may be credited against the U.S. Holder's federal income tax liability
and any excess may be refundable if the proper information is provided to the
IRS.

Non-U.S. Holders

  Interest on Notes


   Payments of interest on the notes to Non-U.S. Holders will generally qualify
as "portfolio interest" and thus will be exempt from the withholding of U.S.
federal income tax if the Non-U.S. Holder properly certifies as to its foreign
status as described below. We are taking the position that the additional
interest paid pursuant to the exchange and registration rights agreement is
treated the same as the regularly scheduled interest payments on the notes. The
portfolio interest exception will not apply to payments of interest to a
Non-U.S. Holder that:


    .  owns, directly or indirectly, at least 10% of our voting stock (or the
       equity of the Issuer or its owners, in the event that the notes are
       characterized as obligations of the Issuer), or

    .  is a "controlled foreign corporation" that is related to us (or to the
       Issuer or its owners, in the event that the notes are characterized as
       obligations of the Issuer).

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If the portfolio interest exception does not apply, then payments of interest
to a Non-U.S. Holder will generally be subject to U.S. federal income tax
withholding at a rate of 30%, unless reduced by an applicable tax treaty.

   The portfolio interest exception and several of the special rules for
Non-U.S. Holders described below generally apply only if the Non-U.S. Holder
appropriately certifies as to its foreign status. A Non-U.S. Holder can
generally meet this certification requirement by providing a properly executed
Form W-8BEN or appropriate substitute form to us or our paying agent. If the
holder holds the note through a financial institution or other agent acting on
the holder's behalf, the holder may be required to provide appropriate
certifications to the agent. The holder's agent will then generally be required
to provide appropriate certifications to us or our paying agent, either
directly or through other intermediaries. Special rules apply to foreign
partnerships, estates and trusts, and in certain circumstances certifications
as to foreign status of partners, trust owners or beneficiaries may have to be
provided to us or our paying agent. In addition, special rules apply to
qualified intermediaries that enter into withholding agreements with the IRS,
and such intermediaries generally are not required to forward any certification
forms received from Non-U.S. Holders.

  Sale or Other Taxable Disposition of Notes

   A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on any gain realized on the sale, redemption, exchange, retirement or other
taxable disposition of a note. This general rule, however, is subject to
several exceptions. For example, the gain will be subject to U.S. federal
income tax if

    .  the gain is effectively connected with the conduct by the Non-U.S.
       Holder of a U.S. trade or business,

    .  the Non-U.S. Holder is an individual that has been present in the United
       States for 183 days or more in the taxable year of disposition and
       certain other requirements are met, or

    .  the Non-U.S. Holder was a citizen or resident of the United States and
       is subject to special rules that apply to certain expatriates.

  Income or Gain Effectively Connected With a U.S. Trade or Business

   The preceding discussion of the tax consequences of the purchase, ownership
and disposition of notes by a Non-U.S. Holder generally assumes that the holder
is not engaged in a U.S. trade or business. If any interest on the notes or
gain from the sale, exchange or other taxable disposition of the notes is
effectively connected with a U.S. trade or business conducted by the Non-U.S.
Holder, then the income or gain will be subject to U.S. federal income tax at
regular graduated income tax rates, but will not be subject to withholding tax
if certain certification requirements are satisfied. If the Non-U.S. Holder is
eligible for the benefits of a tax treaty between the United States and the
holder's country of residence, any "effectively connected" income or gain will
generally be subject to U.S. federal income tax only if it is also attributable
to a permanent establishment maintained by the holder in the United States. If
the Non-U.S. Holder is a corporation, that portion of its earnings and profits
that is effectively connected with its U.S. trade or business will generally be
subject to a "branch profits tax" at a 30% rate, although an applicable tax
treaty may provide for a lower rate.

  U.S. Federal Estate Tax

   If a Non-U.S. Holder qualifies for the portfolio interest exemption under
the rules described above when he or she dies, the notes will not be included
in his or her estate for U.S. federal estate tax purposes, unless the income on
the notes is effectively connected with his or her conduct of a trade or
business in the United States.

                                      165

<PAGE>

  Information Reporting and Backup Withholding

   In general, backup withholding will apply with respect to payments on the
notes made by us or our paying agent unless the Non-U.S. Holder appropriately
certifies as to its foreign status or otherwise establishes an exemption.
Information reporting on IRS Form 1042-S may apply to payments even if the
certification is provided.

   Information reporting requirements and backup withholding tax generally will
not apply to any payment of the proceeds of the sale of a note effected outside
the United States by a foreign office of a foreign "broker" (as defined in
applicable Treasury regulations). However, unless the foreign office of a
broker has documentary evidence in its records that the beneficial owner is a
Non-U.S. Holder and certain other conditions are met, or the beneficial owner
otherwise establishes an exemption, information reporting (but not backup
withholding) will apply to any payment of the proceeds of the sale of a note
effected outside the United States by such a broker if it

    .  is a U.S. person

    .  is a foreign person that derives 50% or more of its gross income for
       certain periods from the conduct of a trade or business in the United
       States,

    .  is a controlled foreign corporation for U.S. federal income tax
       purposes, or

    .  is a foreign partnership that, at any time during its taxable year, has
       50% or more of its income or capital interests owned by U.S. persons or
       is engaged in the conduct of a U.S. trade or business.

   Payment of the proceeds of a sale of a note effected by the U.S. office of a
broker will be subject to information reporting requirements and backup
withholding tax unless the Non-U.S. Holder properly certifies under penalties
of perjury as to its foreign status and certain other conditions are met or it
otherwise establishes an exemption. The Treasury regulations governing
withholding and backup withholding provide certain rules on the reliance
standard, under which a certification may not be relied upon if the person
relying on such certification has actual knowledge (or reason to know) that the
certification is false.

   Any amount withheld under the backup withholding rules may be credited
against the Non-U.S. Holder's U.S. federal income tax liability and any excess
may be refundable if the proper information is provided to the IRS.

   The preceding discussion of certain U.S. federal income tax considerations
is for general information only and is not tax advice. Each prospective
investor should consult its own tax advisor regarding the particular U.S.
federal, state, local, and foreign tax consequences of purchasing, holding, and
disposing of the notes, including the consequences of any proposed change in
applicable laws.

                                      166

<PAGE>

                             PLAN OF DISTRIBUTION

   We are not using any underwriters for this exchange offer. We are bearing
all expenses of this exchange offer.

   Each broker-dealer that receives new notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period of 180 days after the
Expiration Date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until       , 2002, all dealers effecting transactions in the new
notes may be required to deliver a prospectus.

   We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to this exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
this exchange offer and any broker or dealer that participates in a
distribution of such new notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of new notes
and any commission or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.

   For a period of 180 days after the Expiration Date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to this exchange offer
(including the expenses of one counsel for the holders of the old notes) other
than commissions or concessions of any broker-dealers and will indemnify the
holders of the old notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.

                                      167

<PAGE>

                          VALIDITY OF THE SECURITIES


   The validity of the new notes, the lease obligations and the guarantee
obligations will be passed upon by Latham & Watkins, Chicago, Illinois. Certain
partners of Latham & Watkins own or have an interest in shares of Hanover
Compressor Company's common stock.



   Certain legal matters concerning the Issuer with respect to the new notes
will be passed upon by Morris, James, Hitchens & Williams LLP, Wilmington,
Delaware.


                                    EXPERTS


   The audited financial statements of Hanover Equipment Trust 2001B as of and
for the three months ended March 31, 2002 and as of December 31, 2001 and for
the period from August 16, 2001 (inception) to December 31, 2001, included in
this prospectus, have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.



   The audited consolidated financial statements of Hanover Compressor Company
as of December 31, 2001 and 2000 and for each of the three years in the period
ended December 31, 2001, incorporated in this prospectus by reference to
Hanover Compressor Company's Annual Report on Form 10-K/A, for the year ended
December 31, 2001, and of the Gas Compression Business of Schlumberger as of
December 31, 2000 and 1999 and for each of the three years in the period ended
December 31, 2000, incorporated in this prospectus by reference to Item 7(a) of
Hanover Compressor Company's Current Report on Form 8-K/A filed on November 9,
2001, have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.



   The audited consolidated financial statements of Hanover Compression Limited
Partnership as of December 31, 2001 and 2000 and for each of the three years in
the period ended December 31, 2001 included in this prospectus, have been so
included in reliance on the reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.


                                      168

<PAGE>

                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                 Pages
                                                                                                 -----
<S>                                                                                              <C>
I.  Hanover Equipment Trust 2001B
       Periods from August 16, 2001 (Inception) to December 31, 2001 and Three Months Ended
         March 31, 2002
          Report of Independent Accountants..................................................... F-2
          Balance Sheet as of December 31, 2001 and March 31, 2002.............................. F-3
          Statement of Operations............................................................... F-4
          Statement of Cash Flows............................................................... F-5
          Statement of Certificate Holder's Equity.............................................. F-6
          Notes to Financial Statements......................................................... F-7

II.  Hanover Compressor Company
       (incorporated by reference)

III.  Pro Forma Combined Condensed Statement of Operations of Hanover Compressor Company
    and Hanover Compression Limited Partnership (unaudited)..................................... F-12
       Unaudited Pro Forma Combined Condensed Statement of Operations for the Year Ended
         December 31, 2001...................................................................... F-13
       Notes to Unaudited Pro Forma Combined Condensed Statement of Operations of Hanover
         Compressor Company and Hanover Compression Limited Partnership......................... F-14

IV.  Hanover Compression Limited Partnership
       December 31, 2001, 2000 and 1999
          Report of Independent Accountants..................................................... F-16
          Consolidated Balance Sheet............................................................ F-17
          Consolidated Statement of Income and Comprehensive Income............................. F-18
          Consolidated Statement of Cash Flows.................................................. F-19
          Consolidated Statement of Partners' Equity............................................ F-21
          Notes to Consolidated Financial Statements............................................ F-22
       Selected Quarterly Unaudited Financial Data.............................................. F-51
       Three Months Ended March 31, 2002 and 2001
          Condensed Consolidated Balance Sheet.................................................. F-52
          Condensed Consolidated Statement of Income and Comprehensive Income................... F-53
          Condensed Consolidated Statement of Cash Flows........................................ F-54
          Notes to Condensed Consolidated Financial Statements.................................. F-55

V.   Financial Statement Schedules
          Report of Independent Accountants..................................................... S-1
          Valuation and Qualifying Accounts of Hanover Compressor Company....................... S-2
</TABLE>




                                      F-1

<PAGE>

                       Report of Independent Accountants

To Management and the Equity Certificate Holder of
Hanover Equipment Trust 2001B:


   In our opinion, the accompanying balance sheet and the related statements of
operations, of certificate holder's equity and of cash flows present fairly, in
all material respects, the financial position of Hanover Equipment Trust 2001B
at March 31, 2002 and December 31, 2001 and the results of its operations and
its cash flows for the three months ended March 31, 2002 and the period from
August 16, 2001 (inception) to December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Trust's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.


/S/PRICEWATERHOUSECOOPERS LLP

Houston, Texas

May 23, 2002


                                      F-2

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                                 BALANCE SHEET


                           (in thousands of dollars)


<TABLE>
<CAPTION>
                                                                            March 31, December 31,
                                                                              2002        2001
                                                                            --------- ------------
<S>                                                                         <C>       <C>
                            ASSETS
Current assets:
   Cash and cash equivalents............................................... $           $
   Accounts receivable -- rentals..........................................    2,502       7,852
                                                                            --------    --------
              Total current assets.........................................    2,502       7,852
                                                                            --------    --------
Rental equipment...........................................................  257,750     257,750
                                                                            --------    --------
              Total assets................................................. $260,252    $265,602
                                                                            ========    ========

          LIABILITIES AND CERTIFICATE HOLDER'S EQUITY
Current liabilities:
   Accrued liabilities..................................................... $    371    $    210
   Interest payable........................................................    2,063       7,352
   Equity certificate yield payable........................................       68         290
                                                                            --------    --------
              Total current liabilities....................................    2,502       7,852

Notes payable..............................................................  250,000     250,000
                                                                            --------    --------
              Total liabilities............................................  252,502     257,852
                                                                            --------    --------

Commitments and contingencies (Note 5)
Certificate holder's equity:
   Equity certificates.....................................................    7,750       7,750
   Trust earnings (deficit)................................................
                                                                            --------    --------
     Certificate holder's equity...........................................    7,750       7,750
                                                                            --------    --------
              Total liabilities and certificate holder's equity............ $260,252    $265,602
                                                                            ========    ========
</TABLE>






  The accompanying notes are an integral part of these financial statements.

                                      F-3

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                            STATEMENT OF OPERATIONS


                           (in thousands of dollars)


<TABLE>
<CAPTION>
                                                                                        For the
                                                                                      Period from
                                                                                       August 16,
                                                                       For the Three      2001
                                                                       Months Ended  (Inception) to
                                                                         March 31,    December 31,
                                                                           2002           2001
                                                                       ------------- --------------
<S>                                                                    <C>           <C>
Rental revenue........................................................    $6,390         $7,911
Interest expense on rental equipment..................................     5,901          7,352
                                                                          ------         ------
   Excess rental revenue over interest expense on rental equipment....       489            559
Operating expense.....................................................       293            269
                                                                          ------         ------
Net income............................................................    $  196         $  290
                                                                          ======         ======
</TABLE>






  The accompanying notes are an integral part of these financial statements.

                                      F-4

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                            STATEMENT OF CASH FLOWS


                           (in thousands of dollars)


<TABLE>
<CAPTION>
                                                                                                For the
                                                                                              Period from
                                                                              For the Three August 16, 2001
                                                                              Months Ended  (Inception) to
                                                                                March 31,    December 31,
                                                                                  2002           2001
                                                                              ------------- ---------------
<S>                                                                           <C>           <C>
Cash flows from operating activities:
   Net income................................................................    $   196       $     290
       Changes in assets and liabilities:
          Accounts receivable -- rents.......................................      5,350          (7,852)
          Interest payable...................................................     (5,289)          7,352
          Accrued liabilities................................................        161             210
                                                                                 -------       ---------
              Net cash provided by operating activities......................        418
                                                                                 -------       ---------
Cash flows from investing activities:
   Purchase of rental equipment..............................................                   (257,750)
                                                                                 -------       ---------
              Net cash used in investing activities..........................                   (257,750)
                                                                                 -------       ---------
Cash flows from financing activities:
   Issuance of senior secured notes..........................................                    250,000
   Issuance of equity certificates...........................................                      7,750
   Equity certificates yield paid............................................       (418)
                                                                                 -------       ---------
              Net cash provided by (used in) financing activities............       (418)        257,750
                                                                                 -------       ---------
Net increase (decrease) in cash and cash equivalents.........................
Cash and cash equivalents at beginning of period.............................
                                                                                 -------       ---------
Cash and cash equivalents at end of period...................................    $             $
                                                                                 =======       =========
Supplemental disclosure of cash flow information:
       Interest paid.........................................................    $10,998       $
</TABLE>







  The accompanying notes are an integral part of these financial statements.

                                      F-5

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                   STATEMENT OF CERTIFICATE HOLDER'S EQUITY


                           (in thousands of dollars)


<TABLE>
                <S>                                      <C>
                Equity certificates
                Balance at inception.................... $
                Issuance of equity certificates.........  7,750
                                                         ------
                Balance at December 31, 2001 and March
                  31, 2002.............................. $7,750
                                                         ======
                Trust earnings (deficit)
                Balance at inception.................... $
                Net income..............................    290
                Equity certificates yield payable.......   (290)
                                                         ------
                Balance at December 31, 2001............ $
                Net income..............................    196
                Equity certificate yield payable........   (196)
                                                         ------
                Balance at March 31, 2002............... $
                                                         ======
</TABLE>







  The accompanying notes are an integral part of these financial statements.

                                      F-6

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                         NOTES TO FINANCIAL STATEMENTS


                     March 31, 2002 and December 31, 2001



1.  The Trust, Business and Significant Accounting Policies


   Hanover Equipment Trust 2001B (the "Trust") is a Delaware special purpose
business trust which was formed in August 2001. The Trust was formed solely to:
1) issue the 2011 senior secured notes ("Notes") (see Note 2), 2) execute,
deliver and perform the operating agreements to which it is a party, and 3) use
the proceeds of the Notes and the related equity certificates to purchase
approximately $258 million of gas compression equipment from Hanover
Compression Limited Partnership ("HCLP") and certain of its subsidiaries. The
equity funding, issuance of the notes and equipment purchase occurred on August
30, 2001. The Trust leased its gas compression equipment back to HCLP under a
ten-year operating lease (the "Lease", see Note 4). In addition to rental
payments, HCLP is obligated to pay supplemental rent, costs, taxes,
indemnities, and other amounts owing under the operating lease. In addition,
HCLP paid the underwriting, legal, accounting and other costs of the
transactions for the Trust.


Use of Estimates in the Financial Statements

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses, as well as the disclosures of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date. Management believes
that the estimates are reasonable.

Cash and Cash Equivalents

   The Trust considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

Revenue Recognition


   Revenue from compression equipment rentals is recorded when earned over the
period of the ten-year operating lease which began on August 30, 2001. Rental
revenues are based on the current rental rates and estimated supplemental rent
payable by HCLP under the Lease (see Note 4).


Concentrations of Credit Risk

   Financial instruments that potentially subject the Trust to concentrations
of credit risk consist of cash, cash equivalents and accounts receivable. The
Trust's management believes that the credit risk in temporary cash investments
that it has with financial institutions is minimal. Trade accounts receivable
are due from HCLP and are due on a short-term basis. The Trust does not obtain
collateral for receivables. The recorded assets, obligations and operations of
the Trust could be adversely affected if the Trust's relationship with and/or
the financial position of HCLP is adversely affected.

Rental Equipment


   Rental equipment consists of domestic gas compression equipment and is
recorded at cost. Due to the terms of the Lease (see Note 4) and the expected
residual value of the equipment at the end of the Lease, the management of the
Trust believes that the Trust will recover the original cost of the equipment
at the end of the Lease. As such, the Trust is not depreciating the rental
equipment.


                                      F-7

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


Long-Lived Assets


   The Trust reviews for the impairment of long-lived assets, including rental
equipment and the Trust's interest in the residual value of the equipment,
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment loss exists when estimated
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition are less than its carrying amount. The impairment loss
recognized represents the excess of the asset's carrying value as compared to
its estimated fair market value.


Income Taxes

   No provision has been made for federal or state income taxes because the
parties will treat the Trust as a financing vehicle for income tax purposes.
The Trust is not a business trust for tax purposes. To the extent the Trust is
not considered a mere financing vehicle, then solely for income and franchise
tax purposes, the Trust would be treated as a grantor trust. Each certificate
holder will include in its gross income such certificate holder's share of the
Trust's net income.

2.  Notes Payable


   Notes payable at March 31, 2002 and December 31, 2001 consisted of the
following (in thousands):


<TABLE>
<S>                                                                                     <C>
Senior Secured Notes--fixed rate of 8.75% due September 1, 2011, interest payable semi-
  annually on March 1 and September 1.................................................. $250,000
</TABLE>


   The Notes are obligations of the Trust and are collateralized by all of the
equipment, rents and supplemental rents covered by the Lease (see Note 4). In
addition, the Trust's obligations under the Notes are jointly and severally
guaranteed, unconditionally and on a senior subordinated basis, by Hanover
Compressor Company ("Hanover"), the ultimate parent company of HCLP, and HCLP
for an amount up to 70.0% of the aggregate principal balance of Notes
outstanding, which is equal to the final rent payment under the Lease. If there
is an event of default under the Lease, Hanover and HCLP guarantee, jointly and
severally, on a senior subordinated basis, all of the Trust's obligations under
the Notes. All of HCLP's obligations under the Lease are unconditionally
guaranteed, on a senior subordinated basis, by Hanover. The obligations of HCLP
under the Lease are subordinated in right of payment to all existing and future
senior indebtedness of HCLP. The obligations of Hanover and HCLP under the
guarantee are subordinated in right of payment to all existing and future
senior indebtedness of such guarantor. The guarantee ranks equally in right of
payment with all senior subordinated debt and senior to all subordinated debt
of such guarantor. The fair market value of the Notes was approximately $258.8
million at December 31, 2001 and approximately $251.9 at March 31, 2002.



   In December 2001, HCLP and its subsidiaries completed various internal
restructuring transactions pursuant to which all of the domestic subsidiaries
of HCLP that were guarantors of the Notes have been merged, directly or
indirectly, with and into HCLP.



   All payments that are received by the Trust under the Lease or guarantee
will be applied first to the amounts due under the Notes. The payment of
principal, premium (if any) and interest on the Notes will be senior in right
of payment to the payment in full of the amounts due under the equity
certificates.


   Prior to September 1, 2004, if Hanover raises proceeds from one or more bona
fide underwritten sales to the public of Hanover's common stock and Hanover
causes HCLP to repurchase equipment from the Trust, the Trust is required to
apply the proceeds it receives to redeem up to 35% of the Notes at a redemption
price of 108.75% of the principal amount thereof. Otherwise, the Trust does not
have the right to redeem the Notes until

                                      F-8

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                  NOTES TO FINANCIAL STATEMENTS--(Continued)

September 1, 2006. After September 1, 2006, the Trust may redeem the notes, in
whole or in part, if the Trust pays the redemption prices indicated below:

<TABLE>
<CAPTION>
                   Percentage
                   ----------
<S>                <C>
After Sept 1, 2006  104.375%
After Sept 1, 2007  102.917%
After Sept 1, 2008  101.458%
After Sept 1, 2009  100.000%
</TABLE>


   The Trust is not affiliated with Hanover or HCLP. The indenture and
participation agreement governing the Notes contains covenants that restrict
the Trust's ability to, among other things: incur liens, incur additional
indebtedness, enter any other transactions, make investments, liquidate, and
engage in non-related lines of business. In addition, the indenture and
participation agreement governing the Notes contains covenants that limit
Hanover and HCLP to engage in certain activities and transactions.


   The Notes have not been registered under the Securities Act of 1933 or any
state securities laws. The Notes are subject to restrictions on transferability
and resale. However, the Trust has agreed to use its reasonable best efforts to
register notes with the Securities and Exchange Commission that have
substantially identical terms as the Notes issued by the Trust in August 2001
and to offer to exchange the registered freely exchangeable notes for the Notes
(see Note 7).

3.  Equity Certificates


   The Trust raised approximately $7.8 million from equity certificates issued
during the period from August 16, 2001 (inception) through December 31, 2001.
The Trust's equity certificates were issued to General Electric Capital
Corporation ("GE Capital"). The original certificate holder assigned its
interest to GE Capital and was repaid its capital contribution of $1 in August
2001. Equity certificate holders may receive return of capital payments for
their equity investment in the Trust, after full payment of the Notes. The
Trust will make a quarterly payment (on the first day of March, June,
September, and December; the first payment was made on March 1, 2002) to equity
certificate holders equal to the certificate holder yield rate (10.2% as of
March 31, 2002 and December 31, 2001) multiplied by the aggregate outstanding
certificate holder contributions. As of March 31, 2002 and December 31, 2001,
approximately $68,000 and $290,000, respectively, was payable to the
certificate holder. Equity certificate capital repayment may be made from the
proceeds from sale of equipment to HCLP or, on the expiration date or earlier
termination of the lease, from the proceeds from the final rent payment and the
sale of equipment (see Note 4).


4.  Lease Transaction


   The Trust's equipment is rented to HCLP under a ten-year operating lease
with the basic rent payments equal to the interest payable on the Notes and the
yield payable to the equity certificate holder. In addition, HCLP will also pay
supplemental rent in respect of all amounts which HCLP is obligated to pay,
other than basic rent, under the Lease and participation agreement, including,
but not limited to, operating costs of the Trust such as audit fees, legal
fees, general administrative fees, certain taxes and indemnities.


                                      F-9

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                  NOTES TO FINANCIAL STATEMENTS--(Continued)



   The minimum rental payments to be received by the Trust under the Lease are
estimated using interest rates and rental equipment balances applicable as of
March 31, 2002, as follows (in thousands):



<TABLE>
<S>                        <C>
Period ending December 31:
2002...................... $ 22,664
2003......................   22,664
2004......................   22,664
2005......................   22,664
2006......................   22,664
Thereafter................  105,768
                           --------
                           $219,088
                           ========
</TABLE>


   Prior to the stated maturity, HCLP may be required to purchase or shall have
the option to purchase the equipment and terminate the Lease under certain
conditions and after making the required payments as detailed in the Lease.
Twelve months prior to the end of the lease term, HCLP may (a) elect to
purchase all of the equipment on the maturity date of the Notes, for an amount
sufficient to repay the Notes, equity certificates and any other amounts owed
under the Lease in full or (b) begin selling the equipment on behalf of the
Trust. Upon the expiration of the lease term, if HCLP has elected to sell the
equipment on behalf of the Trust, HCLP is required to pay the Trust a final
rent payment (the "Final Rent Payment") of approximately $175 million as
determined by and subject to limitations and adjustments as detailed in the
Lease. The proceeds from the sale of equipment together with the Final Rent
Payment will be applied to repay all amounts payable under the Notes. Any
remaining proceeds will first be used to repay the unrecovered amount of the
equity certificates and any excess will then be returned to HCLP. If the sale
proceeds from the equipment together with the Final Rent Payment are less than
the amount necessary to repay the Notes, HCLP will be liable for an assessment
of additional rent with respect to excess wear and tear of such equipment as
determined by an independent appraisal process and subject to limitations
detailed in the Lease. The future minimum rental schedule above includes the
future amounts HCLP is required to pay under the Lease exclusive of any Final
Rent Payment or purchase option payment.

5.  Commitments and Contingencies


   In the ordinary course of business the Trust may be involved in various
pending or threatened legal actions. The Trust has no commitments or contingent
liabilities which, in the judgment of the management of the Trust, would result
in losses that would materially affect the Trust's financial position,
operating results or cash flows.


6.  New Accounting Standards

   In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
143, Accounting for Obligations Associated with the Retirement of Long-Lived
Assets. SFAS 143 establishes the accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost. This statement is effective for the Trust beginning January 1,
2003. The Trust does not believe the adoption of SFAS 143 will have a material
effect on its financial statements.

   In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 addresses significant issues relating
to the implementation of SFAS 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and to develop a single
accounting model, based on the framework established in SFAS 121, for
long-lived assets to be disposed of by

                                     F-10

<PAGE>

                         HANOVER EQUIPMENT TRUST 2001B

                  NOTES TO FINANCIAL STATEMENTS--(Continued)


sale, whether previously held and used or newly acquired. This statement was
effective for the Trust beginning January 1, 2002. The adoption of SFAS 144 did
not have a material effect on the Trust's financial statements.



   In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
The Statement updates, clarifies and simplifies existing accounting
pronouncements. Provisions of SFAS 145 related to the rescission of Statement 4
are effective for the Trust on January 1, 2003. The provisions of SFAS 145
related to SFAS 13 are effective for transactions occurring after May 15, 2002.
The Trust is assessing the new standard and has not yet determined the impact
on its consolidated results of operations, cash flows, or financial position.



7.  Registration Statement





   In December 2001, the Trust filed a registration statement on Form S-4
offering to exchange its registered 8.75% senior secured notes due 2011 for all
of its outstanding Notes. The terms of the new notes are identical to the terms
of the Notes except that the new notes are freely transferable under the
Securities Act and do not have any exchange or registration rights. Because the
exchange offer has not been completed, the Trust will receive additional rent
in the amount of approximately $48,000 per week and is required to pay this
amount as additional interest to the holders of the Notes. The additional
rental income and interest expense began accruing on January 28, 2002 and will
end when the exchange offer is completed.




                                     F-11

<PAGE>


            PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS OF

                        HANOVER COMPRESSOR COMPANY AND
                    HANOVER COMPRESSION LIMITED PARTNERSHIP

                                  (unaudited)

   Hanover Compression Limited Partnership ("HCLP") is an indirect wholly-owned
subsidiary of Hanover Compressor Company ("Hanover" or "Ultimate Parent").
Substantially all of Hanover's assets and operations are owned or conducted by
HCLP and its subsidiaries.


   On August 31, 2001, HCLP acquired the Production Operators Corporation
natural gas compression business, ownership interests in certain joint venture
projects in South America, and related assets (collectively, "POI" and formerly
"The Gas Compression Business of Schlumberger") from Schlumberger for $761
million in cash, Hanover common stock and indebtedness, subject to certain
post-closing adjustments pursuant to the purchase agreement (the "POI
Acquisition") which to date have resulted in an increase in the purchase price
to approximately $771 million due to an increase in the assets acquired. The
POI Acquisition was accounted for as a purchase and is included in HCLP's
financial statements commencing on September 1, 2001.



   The pro forma financial data is not adjusted to reflect the pro forma effect
of HCLP's acquisition of OEC Compression Corporation, completed in March 2001,
which is not significant.



   In addition, on August 31, 2001, HCLP completed two sale-leaseback
transactions totaling $567 million (the "Sale-leaseback Transactions"). Under
the terms of the transactions, Hanover Equipment Trust 2001A and Hanover
Equipment Trust 2001B (the "Trusts") purchased equipment from HCLP that was
then leased back to HCLP pursuant to two operating leases for a seven-year
period and a ten-year period, respectively. The equipment will continue to be
deployed in HCLP's normal operations. HCLP used approximately $311 million of
the proceeds of the sale to fund the cash portion of the POI Acquisition
including the post closing adjustment related to the increase in assets and to
pay expenses of the acquisition and the Sale-leaseback Transactions and used
$200 million to exercise its equipment purchase option under an existing
operating lease entered into in 1998. HCLP intends to use the remaining $56
million of the proceeds for general corporate purposes.



   The accompanying unaudited pro forma combined condensed statements of
operations for the year ended December 31, 2001 have been prepared as if the
POI Acquisition, the sale of equipment and exercise of HCLP's equipment
purchase option under the existing operating lease (collectively, the
"Transactions") had occurred on January 1, 2001.



   The accompanying unaudited pro forma combined condensed statements of
operations should be read in conjunction with Hanover's consolidated financial
statements and related notes thereto for the year ended December 31, 2001
included in the Hanover's Annual Report on Form 10-K/A; HCLP's financial
statements for the year ended December 31, 2001 attached herewith; and POI's
combined financial statements for the year ended December 31, 2000 and the six
months ended June 30, 2001 included in Hanover's Current Report on Form 8-K/A
filed on November 9, 2001.


                                     F-12

<PAGE>


        UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS



                         Year Ended December 31, 2001

                   (in thousands, except per share amounts)



<TABLE>
<CAPTION>
                                              Historical                              Pro Forma
                                         -------------------  ----------------------------------------------------------
<S>                                      <C>        <C>       <C>              <C>        <C>                 <C>
                                                                POI & Sale-
                                                                 leaseback      Hanover          HCLP            HCLP
                                          Hanover    POI(a)     Adjustments     Combined    Adjustments(a)     Combined
                                         ---------- --------  ------------     ----------   --------------    ----------
Revenues and other...................... $1,078,209 $105,653                   $1,183,862                     $1,183,862
Expenses:
  Operating.............................    649,687   59,357  $     (3,337)(b)    705,707                        705,707
  Selling, general and administrative...    100,980    8,724                      109,704                        109,704
  Depreciation and amortization.........     90,560   12,324       (12,324)(c)     98,259 $          (714)(m)     97,545
                                                                     4,088(d)
                                                                     3,611(e)
  Leasing expense.......................     70,435                 18,545(f)      93,309                         93,309
                                                                    15,567(f)
                                                                      (544)(g)
                                                                   (10,694)(g)
  Interest expense......................     17,540      (25)        8,525(h)      26,040          (7,093)(m)     18,947
  Translation expense...................      6,658                                 6,658                          6,658
  Distributions on mandatorily
   redeemable convertible preferred
   securities...........................      6,373                                 6,373          (6,373)(n)
  Other.................................     18,566                                18,566                         18,566

                                         ---------- --------  ------------     ---------- ---------------     ----------
                                            960,799   80,380        23,437      1,064,616         (14,180)     1,050,436

                                         ---------- --------  ------------     ---------- ---------------     ----------
Income (loss) before income taxes.......    117,410   25,273       (23,437)       119,246          14,180        133,426
Provision (benefit) for income taxes....     44,609    7,886        (7,188)(i)     45,307           5,388(i)      50,695

                                         ---------- --------  ------------     ---------- ---------------     ----------
Net income before cummulative effect of
  accounting change..................... $   72,801 $ 17,387  $    (16,249)    $   73,939 $         8,792     $   82,731
                                         ========== ========  ============     ========== ===============     ==========
Weighted average common and common
  equivalent shares outstanding:
     Basic..............................     72,355                  5,805(j)      78,160
     Diluted............................     81,175                  5,805(j)      86,980
Earnings per common share(o):
     Basic.............................. $     1.00                            $     0.95
     Diluted(k)......................... $     0.95                            $     0.90
</TABLE>


        The accompanying notes are an integral part of these unaudited
             pro forma combined condensed statement of operations.


                                     F-13

<PAGE>


  NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS OF
    HANOVER COMPRESSOR COMPANY AND HANOVER COMPRESSION LIMITED PARTNERSHIP



   The accompanying unaudited pro forma combined condensed statement of
operations for Hanover and HCLP have been prepared based upon certain pro forma
adjustments to the historical consolidated financial statements of Hanover and
HCLP for the year ended December 31, 2001. The historical information for POI
has been obtained from the historical unaudited combined financial statements
of POI for the eight months ended August 31, 2001. Historical financial
statements for POI as of June 30, 2001 and December 31, 2000, 1999 and 1998
have been included in Hanover's Current Report on Form 8-K/A dated November 9,
2001. The pro forma statements of operations do not purport to be indicative of
the results which would actually have been obtained had the acquisitions been
completed on the date indicated or which may be obtained in the future.





   In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 142, Goodwill and Other Intangible
Assets. Under SFAS 142, amortization of goodwill to earnings will be
discontinued. However, goodwill will be reviewed for impairment annually or
whenever events indicate impairment may have occurred. SFAS 142 is effective
for Hanover and HCLP on January 1, 2002. However, under the transition
provisions of SFAS 142, goodwill acquired in a business combination for which
the acquisition date is after June 30, 2001, will not be amortized. Since the
acquisition of POI was consummated after June 30, 2001, the goodwill of
approximately $67 million related to the POI acquisition has not been amortized
in the pro forma combined condensed statements of operations. The goodwill
related to business combinations completed before June 30, 2001 was amortized
in the pro forma combined condensed statements of operations since Hanover and
HCLP had not adopted SFAS 142.


   The pro forma adjustments to the accompanying unaudited Pro Forma Combined
Condensed Statements of Operations are described below:

   a) The historical results of operations of POI have been reclassified to
conform with Hanover and HCLP's presentation. These reclassifications had no
impact on net income. The column labeled HCLP adjustments when combined with
the historical results of Hanover would reflect the historical results of HCLP.




   b) Reflects the reversal of certain historical operating expenses to conform
to Hanover and HCLP's accounting policies for capitalization of fixed assets.
Hanover capitalizes major improvements that extend the life of its compression
assets. The additional depreciation related to these improvements is included
in adjustment (d).



   c) Reflects the elimination of POI historical depreciation and amortization
expense.





   d) Reflects the depreciation expense on the fair value of POI's property,
plant and equipment, which was reduced by approximately $14.7 million for the
2001 period, due to the sale-leaseback transactions. The fair value of POI's
property, plant and equipment acquired was approximately $488 million. The
depreciation for POI was based on the estimated value of property, plant and
equipment acquired, net of the sale of $367 million of compression equipment to
the Trusts. For the purposes of this adjustment, Hanover and HCLP utilized a
fifteen-year average depreciable life through June 30, 2001, a thirty-year
average depreciable life after June 30, 2001, and a twenty-percent salvage
value for compression equipment. These estimates are consistent with Hanover
and HCLP's estimate for similar equipment and facilities for the periods
included in these pro forma combined condensed financial statements.



   e) Reflects the amortization of $8.2 million of identifiable intangibles
over the estimated lives of these intangible assets which ranges from eighteen
months to five years. In addition, this adjustment reflects the amortization of
the excess of the estimated fair value of the joint venture investments
acquired from Schlumberger over HCLP's share of the underlying net assets,
which is approximately $6.7 million. This balance will be amortized over a
period of 15 years, which reflects the estimated lives of the joint venture
agreements.




                                     F-14

<PAGE>


   f) Reflects the operating lease expenses related to the sale and lease back
of equipment from the Trusts, including the amortization of estimated deferred
lease transaction costs of $11.2 million over the seven year lease term and
$7.5 million over the ten year lease term with interest rates of 8.50% and
8.75% on the 2008 and 2011 notes, respectively.



   g) Reflects the write off of unamortized deferred lease transaction costs of
$544,000, relating to the 1998 operating lease and the reversal of the
historical leasing expense related to the 1998 operating lease, including the
amortization of the related deferred lease transaction costs.



   h) Reflects the interest expense resulting from the $150 million
subordinated acquisition note issued to Schlumberger. The interest rate on the
subordinated acquisition note was initially set at 8.5%. A 1% increase or
decrease in the interest rate on the subordinated acquisition note would change
interest expense by approximately $1.5 million. Please see note 9 to Hanover's
consolidated financial statements, which are incorporated by reference in this
prospectus, and to HCLP's consolidated financial statements, which are included
in this prospectus.



   i) Reflects the adjustment to the pro forma combined provision for income
taxes related to the foregoing adjustments based on the statutory rate.



   j) Reflects the additional weighted average common and common equivalent
shares outstanding as if the common stock issued for the acquisition of POI
occurred on January 1, 2001. The total number of shares of Hanover common stock
that were issued for the POI acquisition was 8.7 million shares.



   k) For the purposes of calculating diluted net income per share, the
distributions on mandatorily redeemable convertible preferred securities have
been added back to net income. The after tax impact of this adjustment was
approximately $4.2 million for the year ended December 31, 2001.





   (m) Reflects the removal of interest expense and amortization of deferred
issuance costs on the 4.75% convertible senior notes since issuance in March
2001 which are obligations of the Ultimate Parent of HCLP.



   (n) Reflects the removal of distributions on mandatorily redeemable
convertible securities held by the Ultimate Parent of HCLP.



   (o) Earnings per share data are applicable to Hanover only as HCLP is a
limited partnership.


                                     F-15

<PAGE>

                       Report of Independent Accountants

To the Managers of the General Partner of
Hanover Compression Limited Partnership:


   In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income, of cash flows and
of partners' equity present fairly, in all material respects, the financial
position of Hanover Compression Limited Partnership and its subsidiaries at
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



   As discussed in Note 17 to the financial statements, the Company, changed
its method of accounting for derivatives in 2001. As discussed in Note 19, the
December 31, 2000 consolidated financial statements have been restated for
certain revenue recognition matters.


/S/PRICEWATERHOUSECOOPERS LLP

Houston, Texas

May 2, 2002


                                     F-16

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

                          CONSOLIDATED BALANCE SHEET


<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                                ------------------------
                                                                                   2001         2000
                                                                                ----------  -------------
                                                                                              Restated
                                                                                            (See Note 19)
                                                                                (in thousands of dollars)
<S>                                                                             <C>         <C>
                                    ASSETS
Current assets:
   Cash and cash equivalents................................................... $   23,191   $   45,484
   Accounts receivable, net....................................................    272,450      223,022
   Inventory...................................................................    216,405      145,442
   Costs and estimated earnings in excess of billings on uncompleted contracts.     59,099       24,976
   Prepaid taxes...............................................................     19,990       19,948
   Other current assets........................................................     25,081       12,384
                                                                                ----------   ----------
       Total current assets....................................................    616,216      471,256
Property, plant and equipment, net.............................................  1,153,691      573,596
Goodwill, net..................................................................    245,478      141,973
Intangible and other assets....................................................     72,691       36,571
Investment in non-consolidated affiliates......................................    178,328       26,452
                                                                                ----------   ----------
       Total assets............................................................ $2,266,404   $1,249,848
                                                                                ==========   ==========
                       LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
   Current maturities of long-term debt........................................ $    5,553   $    2,423
   Short-term notes payable....................................................                  10,073
   Accounts payable, trade.....................................................    119,077       88,651
   Accrued liabilities.........................................................    152,435       46,524
   Advance billings............................................................     53,140       32,292
   Billings on uncompleted contracts in excess of costs and estimated earnings.      7,152        5,669
                                                                                ----------   ----------
       Total current liabilities...............................................    337,357      185,632
Long-term debt.................................................................    312,260      110,935
Other liabilities..............................................................    131,519      132,895
Deferred income taxes..........................................................    175,563      105,875
                                                                                ----------   ----------
       Total liabilities.......................................................    956,699      535,337
                                                                                ----------   ----------
Commitments and contingencies (Note 16)
Partners' equity:
   Partners' capital...........................................................  1,316,262      714,968
   Accumulated other comprehensive loss........................................     (6,557)        (457)
                                                                                ----------   ----------
       Total partners' equity..................................................  1,309,705      714,511
                                                                                ----------   ----------
          Total liabilities and partners' equity............................... $2,266,404   $1,249,848
                                                                                ==========   ==========
</TABLE>




  The accompanying notes are an integral part of these financial statements.


                                     F-17

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

           CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME


<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                       ----------------------------------
                                                                          2001         2000        1999
                                                                       ----------  ------------- --------
                                                                                     Restated
                                                                                   (See Note 19)
                                                                            (in thousands of dollars)
<S>                                                                    <C>         <C>           <C>
Revenues and other:
   Rentals............................................................ $  400,776    $254,515    $192,655
   Parts, service and used equipment..................................    251,816     132,203      42,518
   Compressor fabrication.............................................    223,519      90,270      52,531
   Production and processing equipment fabrication....................    184,040      79,121      28,037
   Equity in income of non-consolidated affiliates....................      9,350       3,518       1,188
   Gain on change in interest in non-consolidated affiliate...........                    864
   Other..............................................................      8,708       5,590       6,291
                                                                       ----------    --------    --------
                                                                        1,078,209     566,081     323,220
                                                                       ----------    --------    --------
Expenses:
   Rentals............................................................    140,998      87,992      64,949
   Parts, service and used equipment..................................    172,743      89,128      27,916
   Compressor fabrication.............................................    188,122      76,754      43,663
   Production and processing equipment fabrication....................    147,824      62,684      20,833
   Selling, general and administrative................................    100,980      54,632      33,782
   Depreciation and amortization......................................     89,846      52,882      37,337
   Leasing expense....................................................     70,435      45,484      22,090
   Interest expense...................................................     10,447       8,685       8,786
   Foreign currency translation.......................................      6,658
   Other..............................................................     18,566
                                                                       ----------    --------    --------
                                                                          946,619     478,241     259,356
                                                                       ----------    --------    --------
Income before income taxes............................................    131,590      87,840      63,864
Provision for income taxes............................................     49,997      32,676      23,246
                                                                       ----------    --------    --------
Net income before cumulative effect of accounting change..............     81,593      55,164      40,618
   Cumulative effect of accounting change for derivative instruments,
     net of tax.......................................................       (164)
                                                                       ----------    --------    --------
Net income............................................................     81,429      55,164      40,618
Other comprehensive (loss) income, net of tax:
   Change in fair value of derivative financial instruments...........     (6,073)
   Foreign currency translation adjustment............................        (27)       (146)       (463)
                                                                       ----------    --------    --------
Comprehensive income.................................................. $   75,329    $ 55,018    $ 40,155
                                                                       ==========    ========    ========
</TABLE>



  The accompanying notes are an integral part of these financial statements.

                                     F-18

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENT OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                                        ----------------------------------
                                                                           2001        2000         1999
                                                                        ---------  ------------- ---------
                                                                                     Restated
                                                                                   (See Note 19)
                                                                             (in thousands of dollars)
<S>                                                                     <C>        <C>           <C>
Cash flows from operating activities:
 Net income............................................................ $  81,429    $  55,164   $  40,618
 Adjustments:
   Depreciation and amortization.......................................    89,846       52,882      37,337
   Amortization of debt issuance costs and debt discount...............       831        1,050         884
   Bad debt expense....................................................     4,860        3,198       1,475
   Gain on sale of property, plant and equipment.......................    (4,208)     (10,421)     (5,927)
   Equity in income of non-consolidated affiliates.....................    (9,350)      (3,518)     (1,188)
   Loss (gain) on non-consolidated affiliates..........................     4,629         (864)
   Loss on derivative instruments......................................     9,092
   Deferred income taxes...............................................    37,733       31,212      11,497
   Changes in assets and liabilities, excluding business combinations:.
     Accounts receivable and notes.....................................   (17,212)     (90,149)    (23,974)
     Inventory.........................................................   (45,633)     (38,774)     (1,918)
     Costs and estimated earnings versus billings on uncompleted
       contracts.......................................................   (32,640)      (7,964)      3,293
     Accounts payable and other liabilities............................    18,652       45,790      11,691
     Advance billings..................................................    20,848       (4,031)      3,634
     Other.............................................................     3,984        6,579      (1,665)
                                                                        ---------    ---------   ---------
       Net cash provided by operating activities.......................   162,861       40,154      75,757
                                                                        ---------    ---------   ---------
Cash flows from investing activities:
 Capital expenditures..................................................  (661,391)    (275,128)   (282,940)
 Payments for deferred lease transaction costs.........................   (18,177)      (4,547)
 Proceeds from sale of property, plant and equipment...................   590,763      410,915     223,037
 Proceeds from sale of investment in non-consolidated subsidiary.......     3,143
 Cash used for business acquisitions, net..............................  (386,056)    (196,562)    (35,311)
 Cash returned from unconsolidated subsidiary..........................                              8,000
 Cash used to acquire investments in unconsolidated subsidiaries.......   (11,865)      (4,071)     (4,900)
                                                                        ---------    ---------   ---------
       Net cash used in investing activities...........................  (483,583)     (69,393)    (92,114)
                                                                        ---------    ---------   ---------
Cash flows from financing activities:
 Net borrowings (repayments) on revolving credit facility..............    54,500       40,400     (64,400)
 Payments for debt issue costs.........................................    (3,390)
 Partners' contribution, net...........................................   262,948       56,388      83,440
 Repayment of long-term debt and short-term notes......................   (15,580)     (27,695)     (8,357)
                                                                        ---------    ---------   ---------
       Net cash provided by financing activities.......................   298,478       69,093      10,683
                                                                        ---------    ---------   ---------
Effect of exchange rate changes on cash and equivalents................       (49)        (126)        (73)
                                                                        ---------    ---------   ---------
Net increase (decrease) in cash and cash equivalents...................   (22,293)      39,728      (5,747)
Cash and cash equivalents at beginning of year.........................    45,484        5,756      11,503
                                                                        ---------    ---------   ---------
Cash and cash equivalents at end of year............................... $  23,191    $  45,484   $   5,756
                                                                        =========    =========   =========
</TABLE>



  The accompanying notes are an integral part of these financial statements.

                                     F-19

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

                     CONSOLIDATED STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                           -----------------------------
                                                                              2001       2000      1999
                                                                           ---------  ---------  -------
                                                                             (in thousands of dollars)
<S>                                                                        <C>        <C>        <C>
Supplemental disclosure of cash flow information:
   Interest paid, net of capitalized amounts.............................. $   4,049  $   8,874  $ 7,897
                                                                           =========  =========  =======
   Income taxes paid...................................................... $   1,723  $   1,639  $12,065
                                                                           =========  =========  =======
Supplemental disclosure of noncash transactions:
   Debt issued for property, plant and equipment..........................            $  12,922
                                                                                      =========
   Assets (received) sold in exchange for note receivable................. $  (1,601) $   2,783  $ 3,538
                                                                           =========  =========  =======
   Notes receivable received for partner's non-cash capital contributions. $   1,069             $   731
                                                                           =========             =======
Acquisitions of businesses:
   Property, plant and equipment acquired................................. $ 606,271  $ 202,893  $39,105
                                                                           =========  =========  =======
   Other assets acquired, net of cash acquired............................ $  87,865  $  89,989  $ 2,784
                                                                           =========  =========  =======
   Investments in non-consolidated affiliates............................. $ 140,081
                                                                           =========
   Goodwill............................................................... $ 115,131  $ 117,262  $ 6,927
                                                                           =========  =========  =======
   Liabilities assumed.................................................... $(118,388) $ (64,679) $(1,578)
                                                                           =========  =========  =======
   Debt issued............................................................ $(155,462)
                                                                           =========
   Deferred taxes......................................................... $ (35,212) $  (9,029) $(8,627)
                                                                           =========  =========  =======
   Partners' non-cash capital contributions............................... $(254,230) $(139,874) $(3,300)
                                                                           =========  =========  =======
</TABLE>




  The accompanying notes are an integral part of these financial statements.

                                     F-20

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

                  CONSOLIDATED STATEMENT OF PARTNERS' EQUITY

                 Years Ended December 31, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                                 Accumulated
                                                                                    other
                                                                    Partners'   comprehensive
                                                                     capital    income (loss)
                                                                    ----------  -------------
                                                                    (in thousands of dollars)
<S>                                                                 <C>         <C>
Balance at December 31, 1998....................................... $  325,464     $   152
Partners' contributions, net.......................................     87,471
Foreign currency translation adjustment............................                   (463)
Income tax benefit from stock options exercised....................      1,176
Net income.........................................................     40,618
                                                                    ----------     -------
Balance at December 31, 1999.......................................    454,729        (311)
Partners' contributions, net.......................................    196,262
Foreign currency translation adjustment............................                   (146)
Income tax benefit from stock options exercised....................      8,813
Net income.........................................................     55,164
                                                                    ----------     -------
Balance at December 31, 2000 (Restated See Note 19)................    714,968        (457)
Partners' contributions, net.......................................    518,247
Foreign currency translation adjustment............................                    (27)
Change in fair value of derivative financial instrument, net of tax                 (6,073)
Income tax benefit from stock options exercised....................      1,618
Net income.........................................................     81,429
                                                                    ----------     -------
Balance at December 31, 2001....................................... $1,316,262     $(6,557)
                                                                    ==========     =======
</TABLE>




  The accompanying notes are an integral part of these financial statements.

                                     F-21

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

1. The Company, Business and Significant Accounting Policies

   Hanover Compression Limited Partnership ("HCLP" or the "Company") is a
Delaware limited partnership and an indirect wholly-owned subsidiary of Hanover
Compressor Company ("Hanover"). HCLP was formed on December 7, 2000 by the
filing of a certificate of limited partnership with the Secretary of State of
the State of Delaware. HCLP operates under a limited partnership agreement
between Hanover Compression General Holdings, LLC, a Delaware limited liability
company and a direct wholly-owned subsidiary of Hanover, as general partner
(the "general partner"), and HCL Holdings, LLC, a Delaware limited liability
company and a direct wholly-owned subsidiary of Hanover, as limited partner
(the "limited partner"). The general partner has exclusive control over the
business of HCLP and holds 1% of HCLP's partnership interests. The limited
partner has no right to participate in or vote on the business of HCLP and
holds 99% of HCLP's partnership interests. Prior to December 7, 2000, the
Company operated under various legal forms. These financial statements reflect
HCLP's historical operations in its current legal form.

   HCLP and its subsidiaries are a leading provider of a broad array of natural
gas compression, gas handling and related services in the United States and
international markets. HCLP provides compressor fabrication and oil and gas
production equipment fabrication operations in addition to gas processing, gas
treatment, gas measurement and power generation services to complement its
compression services.

  Principles of Consolidation

   The accompanying consolidated financial statements include HCLP and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Investments in affiliated
entities in which the Company owns more than a 20% interest and does not have a
controlling interest are accounted for using the equity method.

  Use of Estimates in the Financial Statements

   The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses, as well as the disclosures of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date. Management believes
that the estimates are reasonable.

  Cash and Cash Equivalents

   The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

  Revenue Recognition

   Revenue from equipment rentals is recorded when earned over the period of
rental and maintenance contracts which generally range from one month to five
years. Parts, service and used equipment revenue is recorded as products are
delivered and title is transferred or services are performed for the customer.

   Compressor, production and processing equipment fabrication revenue is
recognized using the percentage-of-completion method. The Company estimates
percentage-of-completion for compressor and processing

                                     F-22

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

equipment fabrication on a direct labor hour-to-total labor hour basis.
Production equipment fabrication percentage-of-completion is estimated using
the cost-to-total cost basis. The average duration of these projects is
typically between four to six months.

  Concentrations of Credit Risk

   Financial instruments that potentially subject the Company to concentrations
of credit risk consist of cash and cash equivalents, accounts receivable,
advances to non-consolidated affiliates and notes receivable. The Company
believes that the credit risk in temporary cash investments that the Company
has with financial institutions is minimal. Trade accounts receivable are due
from companies of varying size engaged principally in oil and gas activities
throughout the world. The Company reviews the financial condition of customers
prior to extending credit and generally does not obtain collateral for trade
receivables. Payment terms are on a short-term basis and in accordance with
industry standards. The Company considers this credit risk to be limited due to
these companies' financial resources, the nature of the services it provides
them and the terms of its rental contracts. Trade accounts receivable is
recorded net of estimated doubtful accounts of approximately $6,300,000 and
$2,659,000 at December 31, 2001 and 2000, respectively.

  Inventory

   Inventory consists of parts used for fabrication or maintenance of natural
gas compression equipment and facilities, processing and production equipment,
and also includes compression units and production equipment that are held for
sale. Inventory is stated at the lower of cost or market using the average-cost
method

  Property, Plant and Equipment

   Property, plant and equipment are recorded at cost and are depreciated using
the straight-line method over their estimated useful lives as follows:

<TABLE>
             <S>                                      <C>
             Compression equipment and facilities.... 4 to 30 years
             Buildings...............................      30 years
             Transportation, shop equipment and other 3 to 12 years
</TABLE>

   Major improvements that extend the useful life of an asset are capitalized.
Repairs and maintenance are expensed as incurred. When property, plant and
equipment is sold, retired or otherwise disposed of, the cost, net of
accumulated depreciation is recorded in parts, service and used equipment
expenses. Sales proceeds are recorded in parts, service and used equipment
revenues. Interest is capitalized in connection with the compression equipment
and facilities that are constructed for the Company's use in its rental
operations until such equipment is complete. The capitalized interest is
recorded as part of the assets to which it relates and is amortized over the
asset's estimated useful life.


   Prior to July 1, 2001, compression equipment in the rental fleet was
depreciated using the straight-line method over an estimated useful life of 15
years. After a review of the useful lives of its compression fleet, effective
July 1, 2001, the Company changed its estimate of the useful life of certain
compression equipment to range from 15 to 30 years instead of a 15 year life.
The Company's new estimated lives are based upon our experience, maintenance
program and the different types of compressors presently in the Company's
rental fleet, rather than a uniform estimated life applied to all compressors
regardless of type or age, and more accurately


                                     F-23

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


reflects the economic lives of the compressors. The effect of this change in
estimate on the year ended December 31, 2001 was a decrease in depreciation
expense of approximately $5,000,000 and an increase in net income of
approximately $3,100,000. The Company anticipates this change in estimated
useful life will reduce future depreciation expense, based on the Company's
depreciable assets at December 31, 2001, by approximately $16,000,000 per year.


  Long-Lived Assets

   The Company reviews for the impairment of long-lived assets, including
property, plant and equipment, goodwill, intangibles and investments in
non-consolidated affiliates whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss exists when estimated undiscounted cash flows expected to
result from the use of the asset and its eventual disposition are less than its
carrying amount. The impairment loss recognized represents the excess of the
assets carrying value as compared to its estimated fair market value.

  Goodwill

   The excess of cost over net assets of acquired businesses is recorded as
goodwill and amortized on a straight-line basis over 15 or 20 years commencing
on the dates of the respective acquisitions except for goodwill related to
business acquisitions after June 30, 2001 (see Note 18). Accumulated
amortization was $20,528,000 and $8,902,000 at December 31, 2001 and 2000,
respectively. Amortization of goodwill totaled $11,626,000, $5,080,000 and
$2,048,000 in 2001, 2000 and 1999, respectively.

  Sale and Leaseback Transactions

   The Company from time to time enters into sale and leaseback transactions of
compression equipment with special purpose entities. Sale and leaseback
transactions of compression equipment are evaluated for lease classification in
accordance with Statement of Financial Accounting Standards No. 13 "Accounting
for Leases." The special purpose entities are not consolidated by the Company
when the owners of the special purposes entities have made a substantial
residual equity investment of at least three percent that is at risk during the
entire term of the lease.

  Stock-Based Compensation


   In accordance with Statement of Financial Accounting Standards No. 123
("SFAS 123") "Accounting for Stock-Based Compensation," the Company measures
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed in APB Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees," and has provided, in Note 13, pro forma
disclosures of the effect on net income as if the fair value-based method
prescribed by FAS 123 had been applied in measuring compensation expense.


  Income Taxes

   The Company's operating results have historically been included in Hanover's
consolidated US and state income tax returns. The provision for income taxes
reflected in the Company's consolidated financial statements has been
determined on a separate return basis. The Company accounts for income taxes
using an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
In

                                     F-24

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

estimating future tax consequences, all expected future events are considered
other than enactments that would change the tax law or rates. A valuation
allowance is recognized for deferred tax assets if it is more likely than not
that some or all of the deferred tax asset will not be realized.

  Foreign Currency Translation

   The financial statements of subsidiaries outside the U.S., except those
located in Latin America and highly inflationary economies, are measured using
the local currency as the functional currency. Assets and liabilities of these
subsidiaries are translated at the rates of exchange at the balance sheet date.
Income and expense items are translated at average monthly rates of exchange.
The resulting gains and losses from the translation of accounts are included in
accumulated other comprehensive income. For subsidiaries located in Latin
America and highly inflationary economies, translation gains and losses are
included in net income.

  Comprehensive Income

   Components of comprehensive income are net income and all changes in equity
during a period except those resulting from transactions with owners.
Accumulated other comprehensive income consists of the foreign currency
translation adjustment and changes in the fair value of derivative financial
instruments net of tax.

  Financial Instruments

   The Company utilizes derivative financial instruments to minimize the risks
and/or costs associated with financial and global operating activities by
managing its exposure to interest rate fluctuation on a portion of its leasing
obligations. The Company does not utilize derivative financial instruments for
trading or other speculative purposes. The cash flow from hedges is classified
in the Consolidated Statements of Cash Flows under the same category as the
cash flows from the underlying assets, liabilities or anticipated transactions.

   In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133, as amended by SFAS
137 and SFAS 138, requires that, upon adoption, all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recognized in the balance sheet at fair value, and that changes in such fair
values be recognized in earnings unless specific hedging criteria are met.
Changes in the values of derivatives that meet these hedging criteria will
ultimately offset related earnings effects of the hedged item pending
recognition in earnings. The Company adopted SFAS 133 beginning January 1, 2001.

  Reclassifications

   Certain amounts in the prior years' financial statements have been
reclassified to conform to the 2001 financial statement classification. These
reclassifications have no impact on net income.

2. Business Combinations

   Acquisitions were accounted for under the purchase method of accounting.
Results of operations of companies acquired are included from the date of
acquisition. The Company allocates the cost of the acquired business to the
assets acquired and the liabilities assumed based upon fair value estimates
thereof. These estimates are revised during the allocation period as necessary
when information regarding contingencies becomes available to redefine and
requantify assets acquired and liabilities assumed. The allocation period
varies for each acquisition but does not exceed one year. To the extent
contingencies are resolved or settled during the

                                     F-25

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

allocation period, such items are included in the revised purchase price
allocation. After the allocation period, the effect of changes in such
contingencies is included in results of operations in the periods the
adjustments are determined.

  Year Ended December 31, 2001


   In August 2001, the Company acquired 100% of the issued and outstanding
shares of the Production Operators Corporation's natural gas compression
business, ownership interests in certain joint venture projects in South
America, and related assets ("POI") from Schlumberger for $761,000,000 in cash,
Hanover common stock and indebtedness, subject to certain post-closing
adjustments pursuant to the purchase agreement (the "POI Acquisition"). To
date, post closing adjustments have resulted in an increase in the purchase
price to approximately $771,000,000 due to an increase in net assets acquired.
Under the terms of the definitive agreement, Schlumberger received
approximately $270,000,000 in cash (excluding the amounts paid for the increase
in net assets), $150,000,000 in a long-term subordinated note and approximately
8,708,000 Hanover common shares, or approximately 11% of the outstanding
shares, of Hanover common stock which are required to be held by Schlumberger
for at least three years following the closing date. The ultimate number of
shares issued under the purchase agreement was determined based on the nominal
value of $283,000,000 divided by the 30 day average closing price of Hanover
common stock as defined under the agreement and subject to a collar of $41.50
and $32.50. The estimated fair value of the stock issued was $212,468,000,
based on the market value of the shares at the time the number of shares issued
was determined reduced by an estimated 20% discount due to the restrictions on
the stock's marketability. Additionally, under the terms of the agreement, the
Company is required to pay up to $58,000,000 upon the occurrence of certain
events (see Note 15) relating to one of the joint ventures a minority interest
of which was acquired by HCLP in the transaction. The purchase price was a
negotiated amount between the Company and Schlumberger and the Company expects
the acquisition to be accretive to earnings in future periods. The Company
believes the purchase price represents the fair market value of the POI
business based on its assets, customer base, reputation, market position
(domestic and international) and potential for long term growth. The Company
incurred approximately $14,975,000 in expenses in connection with the
acquisition. The POI Acquisition was accounted for as a purchase and is
included in our financial statements commencing on September 1, 2001.


   As of December 31, 2001 the Company has recorded approximately $67,476,000
in goodwill, of which none will be deductible for tax purposes, related to the
POI acquisition which will not be amortized in accordance with the transition
provisions of SFAS 142 (See Note 18). In addition, as of December 31, 2001, the
Company recorded $8,210,000 in estimated value of identifiable intangible
assets which will be amortized over a 24 month weighted average life. The
purchase price is subject to a contingent payment by HCLP to Schlumberger based
on the realization of certain tax benefits by the Company over the next 15
years.

   In June 2001, the Company acquired the assets of J&R International for
approximately $3,700,000 in cash and 17,598 shares of Hanover's common stock
valued at $654,000.

   In April 2001, the Company acquired certain assets of Power Machinery, Inc.
for approximately $2,569,000 in cash and 108,625 shares of Hanover's common
stock valued at approximately $3,853,000.

   In March 2001, the Company purchased OEC Compression Corporation ("OEC") in
an all-stock transaction for approximately $101,849,000, including the
assumption and payment of approximately $64,594,000 of OEC

                                     F-26

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

indebtedness. The Company paid an aggregate of approximately 1,145,706 shares
of Hanover common stock to stockholders of OEC. The acquisition was accounted
for under the purchase method of accounting and is included in our financial
statements commencing in April 2001.


   The following table summarizes the estimated values of the assets acquired
and liabilities assumed as of the acquisition dates for the OEC and POI
acquisitions (in thousands):


<TABLE>
<CAPTION>
                                                       OEC      POI
                                                      March    August
                                                      2001      2001
                                                    --------  --------
         <S>                                        <C>       <C>
         Current assets............................ $  4,451  $ 80,091
         Property, plant and equipment.............  114,841   487,880
         Intangible assets.........................              8,210
         Goodwill..................................             67,476
         Investments in non-consolidated affiliates            140,081
                                                    --------  --------
         Total assets acquired.....................  119,292   783,738
         Current liabilities.......................   (3,114)  (47,667)
         Other liabilities.........................  (15,531)  (20,978)
         Long term debt............................  (62,057)
                                                    --------  --------
         Total liabilities assumed.................  (80,702)  (68,645)
                                                    --------  --------
         Net assets acquired....................... $ 38,590  $715,093
                                                    ========  ========
</TABLE>

   During the year ended December 31, 2001, the Company completed other
acquisitions which were not significant either individually or in the aggregate.

  Year Ended December 31, 2000

   In October 2000, the Company purchased the common stock of Servicios TIPSA
S.A. for approximately $7,750,000 in cash and a $7,750,000 note payable. The
note payable was repaid in January 2001.

   In September 2000, the Company purchased the Dresser-Rand Company's
compression services division ("DR") for $177,000,000 including approximately
$1,200,000 of acquisition costs. Under the terms of the agreement, $95,000,000
of the purchase price was paid in cash with the balance being paid through the
issuance to Ingersoll-Rand of 2,919,681 shares of Hanover's newly issued
restricted common stock. The estimated value of the stock issued was
approximately $80,539,000, based upon quoted market price for Hanover's common
stock reduced by a discount due to the restriction on the stock's marketability
based upon a third party appraisal. The purchase price is subject to certain
post-closing adjustments pursuant to the acquisition agreement which have
resulted in approximately a $21,400,000 increase in the purchase price due to
increases in the net assets acquired. In connection with the acquisition, the
Company has agreed to purchase under normal business terms $25,000,000 worth of
products, goods and services from Dresser-Rand Company over a three-year period
beginning December 2001.

   In September 2000, the Company acquired the common stock of Gulf Coast
Dismantling, Inc. for approximately $2,947,000 in cash and 9,512 shares of
Hanover's treasury stock valued at $300,000.

   In July 2000, the Company completed its acquisition of PAMCO Services
International's natural gas compressor assets for approximately $45,210,000 in
cash and a $12,922,000 note payable due on April 10, 2001.

                                     F-27

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

The note is payable periodically as idle horsepower is contracted.
Approximately $10,599,000 of the note payable was repaid in 2000. In connection
with the acquisition, the Company agreed to purchase under normal business
terms specified levels of equipment over a three-year period beginning October
2000.

   In June 2000, the Company purchased common stock of Applied Process
Solutions, Inc. ("APSI") for 2,303,294 shares of Hanover's common stock and
assumption of $16,030,000 of APSI's outstanding debt. The estimated value of
the stock issued was approximately $54,816,000, based upon quoted market price
for Hanover's common stock reduced by a discount due to the restriction on the
stock's marketability based upon a third party appraisal. The assumed debt has
been repaid.

   In June 2000, the Company purchased the assets of Rino Equipment, Inc. and
K&K Compression, Ltd. for approximately $15,679,000 in cash and 54,810 shares
of Hanover's treasury stock valued at $2,000,000.

   In June 2000, the Company purchased the common stock of Compression
Components Corporation for approximately $7,972,000 in cash and 27,405 shares
of Hanover's treasury stock valued at $1,000,000.

   In March 2000, the Company purchased the common stock of Southern
Maintenance Services, Inc. ("SMS") for approximately $1,500,000 in cash, 46,512
shares of Hanover's common stock valued at $1,000,000 and $1,000,000 in notes
payable that mature on March 1, 2003.

  Year Ended December 31, 1999

   In August 1999, the Company purchased the stock of Victoria Compression
Services, Inc., Contract Engineering and Operating, Inc. and Unit Partners,
Inc. for approximately $16,786,000 in cash, 183,700 shares of Hanover's
treasury stock valued at $3,300,000 and notes payable of approximately $452,000.

   In July 1999, the Company purchased preferred stock and a purchase option
for the common stock of CDI Holdings, Inc. and its subsidiary Compressor
Dynamics, Inc. ("CDI"). In August 1999, the Company exercised its option to
purchase CDI. The total cost for CDI was approximately $18,525,000 in cash.

  Pro Forma Information

   The pro forma information set forth below assumes the POI, OEC, APSI and DR
acquisitions are accounted for had the purchases occurred at the beginning of
2000. The remaining acquisitions were not considered material for pro forma
purposes. The pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisitions been consummated at that
time (in thousands):


<TABLE>
<CAPTION>
                                                         Years Ended December 31,
                                                         -----------------------
                                                            2001         2000
                                                         -----------  -----------
                                                         (unaudited)  (unaudited)
<S>                                                      <C>          <C>
Revenue................................................. $1,188,602    $831,991
Net income before cumulative effect of accounting change     79,589      50,486
</TABLE>


                                     F-28

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


3. Inventory

   Inventory consisted of the following amounts (in thousands):

<TABLE>
<CAPTION>
                                           December 31,
                                         -----------------
                                           2001     2000
                                         -------- --------
                      <S>                <C>      <C>
                      Parts and supplies $147,627 $ 93,308
                      Work in progress..   46,091   47,193
                      Finished goods....   22,687    4,941
                                         -------- --------
                                         $216,405 $145,442
                                         ======== ========
</TABLE>

4. Compressor and Production Equipment Fabrication Contracts

   Costs, estimated earnings and billings on uncompleted contracts consisted of
the following (in thousands):

<TABLE>
<CAPTION>
                                                      December 31,
                                                  -------------------
                                                     2001      2000
                                                  ---------  --------
          <S>                                     <C>        <C>
          Costs incurred on uncompleted contracts $ 129,952  $ 58,302
          Estimated earnings.....................    25,654     8,414
                                                  ---------  --------
                                                    155,606    66,716
          Less--billings to date.................  (103,659)  (47,409)
                                                  ---------  --------
                                                  $  51,947  $ 19,307
                                                  =========  ========
</TABLE>

   Presented in the accompanying financial statements as follows (in thousands):


<TABLE>
<CAPTION>
                                                                               December 31,
                                                                            ------------------
                                                                              2001      2000
                                                                            --------  --------
<S>                                                                         <C>       <C>
Costs and estimated earnings in excess of billings on uncompleted contracts $ 59,099  $ 24,976
Billings on uncompleted contracts in excess of costs and estimated earnings   (7,152)   (5,669)
                                                                            --------  --------
                                                                            $ 51,947  $ 19,307
                                                                            ========  ========
</TABLE>


5. Property, plant and equipment

   Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                              December 31,
                                                          --------------------
                                                             2001       2000
                                                          ----------  --------
<S>                                                       <C>         <C>
Compression equipment, facilities and other rental assets $1,173,460  $576,328
Land and buildings.......................................     55,570    35,233
Transportation and shop equipment........................     61,848    44,202
Other....................................................     23,848    15,279
                                                          ----------  --------
                                                           1,314,726   671,042
Accumulated depreciation.................................   (161,035)  (97,446)
                                                          ----------  --------
                                                          $1,153,691  $573,596
                                                          ==========  ========
</TABLE>

                                     F-29

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


   Depreciation expense was $73,821,000, $46,211,000, and $34,696,000 in 2001,
2000 and 1999, respectively. Assets under construction of $98,538,000 and
$66,203,000 are included in compression equipment, facilities and other rental
assets at December 31, 2001 and 2000, respectively. The Company capitalized
$2,899,000, $1,823,000 and $1,533,000 of interest related to construction in
process during 2001, 2000, and 1999, respectively.

   In August 2001, the Company exercised its purchase option under the 1998
operating lease (see Note 10) for $200,000,000. The depreciable basis of the
compressors purchased has been reduced by the deferred gain of approximately
$41,993,000 which was recorded at inception of the lease and previously
included as an other liability on the Company's balance sheet.

6. Intangible and Other Assets

   Intangible and other assets consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                            December 31,
                                                          ----------------
                                                            2001     2000
                                                          -------  -------
    <S>                                                   <C>      <C>
    Deferred debt issuance and leasing transactions costs $32,133  $12,536
    Notes receivable.....................................  28,174   16,506
    Other................................................  21,355   12,828
                                                          -------  -------
                                                           81.662   41,870
    Accumulated amortization.............................  (8,971)  (5,299)
                                                          -------  -------
                                                          $72,691  $36,571
                                                          =======  =======
</TABLE>


   Amortization of intangible and other assets totaled $4,399,000, $1,591,000
and $593,000 in 2001, 2000 and 1999, respectively, exclusive of amortization of
debt issuance costs.

   Certain notes receivable result from an agreement entered into in 2001 to
advance funds to a third party in connection with various power generation
development projects. Under the agreement, the Company agreed to advance
working capital of up to $12,500,000. At December 31, 2001, $7,500,000 was
funded under the agreement. The notes bear interest at the prime lending rate
that ranged from 5.5% to 8%, are secured by equipment and mature on April 30,
2002. The notes may be repaid in cash or by exchanging each note with an
identical promissory note collateralized by equipment and payable from the net
operating revenue of a related power generation project.

   The remaining notes receivable result primarily from customers for sales of
equipment or advances to other parties in the ordinary course of business. The
notes vary in length, bear interest at rates ranging from prime to 15% and are
collateralized by equipment.


   See Note 15 for related party notes receivable.


7. Investments in Non-Consolidated Affiliates

   Investments in affiliates that are not controlled by the Company but where
the Company has the ability to exercise significant influence over the
operations are accounted for using the equity method. The Company's

                                     F-30

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

share of net income or losses of these affiliates is reflected in the
Consolidated Statements of Income as Equity in income of non-consolidated
affiliates. The Company's primary equity method investments are comprised of
entities that own, fabricate, operate, service and maintain compression and
other related facilities. These entities maintain independent capital
structures and have financed their operations on a limited or no recourse basis
to the Company. The Company's equity method investments totaled approximately
$169,222,000 and $19,627,000 at December 31, 2001 and 2000, respectively.

   The most significant investments are the joint ventures (Pigap II, El
Furrial and Simco) acquired in connection with the POI acquisition completed in
August 2001. At December 31, 2001, these ventures account for approximately
$152,443,000 of the equity investments and generated equity in earnings for
2001 of approximately $8,053,000. At December 31, 2001, the Company's
investment in these joint ventures exceeded its equity in underlying assets by
approximately $6,700,000.

   The Company's ownership interest and location of each equity investee is as
follows:



<TABLE>
<CAPTION>
                                        Ownership
                                        Interest    Location          Type of Business
                                        --------- ------------- ----------------------------
<S>                                     <C>       <C>           <C>
Wilpro--Pigap II.......................   30.0%     Venezuela   Gas Compression Plant
Wilpro--El Furrial.....................   33.3%     Venezuela   Gas Compression Plant
Simco Consortium.......................   35.5%     Venezuela   Gas Compression Plant
Hanover Measurement Services Company LP   50.5%   United States Monitoring Services
Servi Compressores, CA.................   50.0%     Venezuela   Compression Service Provider
Collicutt Mechanical Services Ltd......   24.1%      Canada     Compression Service Provider
Belleli Energy Srl.....................   20.2%       Italy     Fabricator
</TABLE>


   Summarized balance sheet information for investees accounted for by the
equity method follows (on a 100% basis, in thousands):

<TABLE>
<CAPTION>
                                            December 31,
                                          ----------------
                                            2001    2000
                                          -------- -------
                      <S>                 <C>      <C>
                      Current assets..... $330,542 $67,785
                      Non-current assets.  620,951  89,798
                      Current liabilities  113,255  44,073
                      Debt payable.......  620,884  48,129
                      Owners equity......  217,354  65,381
</TABLE>

   Summarized earnings information for these entities for the years ended
December 31, 2001, 2000 and 1999 follows (on a 100% basis, in thousands):

<TABLE>
<CAPTION>
                                    Years ended December 31,
                                    ------------------------
                                    2001(1)   2000    1999
                                    -------- ------- -------
                   <S>              <C>      <C>     <C>
                   Revenues........ $201,581 $86,059 $60,364
                   Operating income   46,097  17,290   9,566
                   Pretax income...   25,417  10,500   5,924
</TABLE>
--------
(1) Amounts for the joint ventures acquired in connection with the POI business
    acquisition are included from September 1, 2001.

                                     F-31

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


   The financial data for 2000 and 1999 includes the Company's 20% interest in
Meter Acquisition Company LP and its 60% interest in Hanover/Enron Venezuela
Ltd. The Company sold Meter Acquisition Company LP in 2001 for cash of
approximately $3,143,000. The Company purchased the remaining 40% interest in
Hanover/Enron Venezuela Ltd. during 2001 for $3,050,000.

   In January 2001, the Company entered into a facilitation agreement with
Belleli Energy SRL ("Belleli"), a fabrication company based in Italy. In
connection with the agreement, the Company agreed to provide Belleli with
project financing including necessary guarantees, bonding capacity and other
collateral on an individual project basis. Under the agreement, Belleli must
present each project to the Company which must be approved at the Company's
sole discretion. The Company received $1,723,000 from Belleli in 2001 for its
services under the facilitation agreement, and as of December 31, 2001, no
amounts were outstanding under the facilitation agreement. Under a separate
agreement with Belleli, the Company has issued letters of credit on Belleli's
behalf totaling approximately $11,100,000 at December 31, 2001.

   During 2000, Collicutt Mechanical Services sold additional shares that
reduced the Company's ownership percentage to approximately 24%, accordingly, a
change in interest gain of $864,000 was recorded in the statement of income.

   In the normal course of business, HCLP engages in purchase and sale
transactions with Collicut Mechanical Services, which is owned 24% by HCLP.
During the period ended December 31, 2001, HCLP had sales to this related party
of $2,579,000; and purchases of $19,197,000. At December 31, 2001, HCLP had a
net payable to this related party of $1,691,000.

   In the normal course of business, HCLP engages in purchase and sale
transactions with Servi- Compressor, which is owned 50% by HCLP. During the
period ended December 31, 2001, HCLP had sales to this related party of
$849,000; and purchases of $1,859,000. At December 31, 2001, HCLP had a net
receivable from this related party of $464,000.

   The Company also holds interests in companies in which it does not exercise
significant influence over the operations. These investments are accounted for
using the cost method. Cost method investments totaled approximately $9,106,000
and $6,825,000 at December 31, 2001 and 2000, respectively.

   In May 2000, the Company acquired common stock of Aurion Technologies, Inc.
("Aurion"), a technology company formed to develop remote monitoring and data
collection services for the compression industry, for $2,511,000 in cash. In
2001, the Company purchased additional shares for approximately $1,250,000,
advanced $2,700,000 to Aurion and had an accounts receivable of $1,103,000.
Aurion filed for bankruptcy protection in March 2002, and accordingly, the
Company recorded other expense of approximately $5,013,000 at December 31, 2001
to impair its investment and the unrecoverable amount of the advances.

                                     F-32

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


8. Accrued Liabilities

   Accrued liabilities are comprised of the following (in thousands):


<TABLE>
<CAPTION>
                                                             December 31,
                                                           ----------------
                                                             2001    2000
                                                           -------- -------
     <S>                                                   <C>      <C>
     Accrued salaries, bonuses and other employee benefits $ 14,843 $ 6,356
     Accrued income and other taxes.......................   15,536   2,812
     Accrued leasing expense..............................   21,990   3,389
     Additional purchase price for DR (Note 2)............    1,798  16,562
     Additional purchase price for POI (Note 2)...........   58,000
     Accrued other........................................   40,268  17,405
                                                           -------- -------
                                                           $152,435 $46,524
                                                           ======== =======
</TABLE>

9. Long-Term Debt

   Long-term debt consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                       ------------------
                                                                                         2001      2000
                                                                                       --------  --------
<S>                                                                                    <C>       <C>
Bank credit facility.................................................................. $157,000  $102,500
Schlumberger note, interest at 8.5%...................................................  150,000
Real estate mortgage, interest at 7.5%, collateralized by certain land and buildings,
  payable through 2002................................................................    3,583     4,000
Other, interest at various rates, collateralized by equipment and other assets, net of
  unamortized discount................................................................    7,230     6,858
                                                                                       --------  --------
                                                                                        317,813   113,358
Less--current maturities..............................................................   (5,553)   (2,423)
                                                                                       --------  --------
                                                                                       $312,260  $110,935
                                                                                       ========  ========
</TABLE>


   The Company's primary credit facility as amended and restated provides for a
$350,000,000 revolving credit facility that matures on November 30, 2004.
Advances bear interest at the bank's prime or a negotiated rate (3.9% and 7.5%
at December 31, 2001 and 2000, respectively). A commitment fee of 0.35% per
annum on the average available commitment is payable quarterly. The credit
facility contains certain financial covenants and limitations on, among other
things, indebtedness, liens, leases and sales of assets. The credit facility
also limits the payment of cash dividends on Hanover's common stock to 25% of
net income for the respective period. The credit facility was amended in
December 2001. The credit facility was increased from $200,000,000 and the term
was extended for three years to mature November 2004. The Company paid fees of
approximately $3,390,000 related to this amendment.


   As a result of the restatement of its consolidated financial statements (for
the period ended December 31, 2000 and for the nine months ended September 30,
2001) and other compliance provisions, the Company was not

                                     F-33

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

in compliance with certain covenants of its bank credit facility and lease
agreements. The Company has obtained waivers and amendments and is now in
compliance.

   In connection with the POI Acquisition on August 31, 2001, the Company
issued a $150,000,000 subordinated acquisition note to Schlumberger, which
matures December 15, 2005. Interest on the subordinated acquisition note
accrues and is payable-in-kind at the rate of 8.5% annually for the first six
months after issuance and periodically increases in increments of 1% to 2% per
annum to a maximum interest rate 42 months after issuance of 15.5%. In the
event of an event of default under the subordinated acquisition note, interest
will accrue at a rate of 2% above the then applicable rate. The subordinated
acquisition note is subordinated to all of the Company's indebtedness other
than indebtedness to fund future acquisitions. In the event that the Company
completes an offering of equity securities, the Company is required to apply
the proceeds of the offering to repay amounts outstanding under the
subordinated acquisition note as long as no default exists or would exist under
our other indebtedness as a result of such payment.

   Approximately $11,191,000 of subordinated promissory notes were owed to
related parties and were repaid on December 31, 2000. The Company incurred
interest to these parties of $784,000 during 2000 and 1999.

   Maturities of long-term debt at December 31, 2001 are (in thousands):
2002--$5,553; 2003--$1,382; 2004 $158,037; 2005--$150,871; 2006--$656; and
$1,314 thereafter.

10. Leasing Transactions


   In August 2001 and in connection with the POI Acquisition, the Company
completed two sale and leaseback transactions involving certain compression
equipment. Concurrent with the transactions, the Company exercised its purchase
option under its 1998 operating lease for $200,000,000. In the first
transaction, the Company received $309,300,000 proceeds from the sale of
compression equipment to an independent special purpose entity. In the second
transaction, the Company received $257,750,000 for the sale of additional
compression equipment to an independent special purpose entity. Both
transactions are recorded as a sale and leaseback of the equipment and are
recorded as operating leases. Under the first transaction, the equipment was
sold and leased back by the Company for a seven year period and will continue
to be deployed by the Company under its normal operating procedures. The
agreement calls for semi-annual rental payments of approximately $12,750,000 in
addition to quarterly rental payments of approximately $245,000. Under the
second transaction, the equipment was sold and leased back by the Company for a
10 year period and will continue to be deployed by the Company under its normal
operating procedures. The agreement calls for semi-annual rental payments of
approximately $10,938,000 in addition to quarterly rental payments of
approximately $213,000. The Company has options to repurchase the equipment
under certain conditions as defined by the lease agreement. The Company
incurred transaction costs of approximately $17,900,000 related to the
transactions. These costs are included in intangible and other assets and are
being amortized over the respective lease terms.



   In October 2000, the Company completed a $172,589,000 sale and leaseback of
certain compression equipment with an independent special purpose entity. In
March 2000, the Company entered into a separate $200,000,000 sale and leaseback
of certain compression equipment with an independent special purpose entity.
Under the March agreement, the Company received $100,000,000 proceeds from the
sale of compression equipment at closing and in August 2000, the Company
completed the second half of the equipment lease and received an additional
$100,000,000 for the sale of additional compression equipment. In June 1999 and
in July 1998 the Company completed two other separate $200,000,000 sale and
leaseback transactions of certain compression equipment with an independent
special purpose entity. Under the 2000 and 1999 lease agreements, the equipment
was sold and leased back by the Company for a five year period and will be
deployed by the Company under its normal operating procedures. At any time, the
Company has options to repurchase the


                                     F-34

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

equipment under the 2000 and 1999 leases under certain conditions as defined by
the lease agreement. The 2000 and 1999 lease agreements call for variable
quarterly payments that fluctuate with the London Interbank Offering Rate. The
Company incurred an aggregate of approximately $8,100,000 in transactions costs
for the leases entered into in 2000 and 1999, which are included in intangible
and other assets on the balance sheet and are being amortized over the
respective lease terms of the respective transactions.

   The following table summarizes the proceeds, net book value of equipment
sold, deferred gain on equipment sale, the residual guarantee and the lease
termination date for equipment leases (in thousands of dollars):

<TABLE>
<CAPTION>
                                                   Residual
                          Sale   Net Book Deferred   Value   Lease Termination
                        Proceeds  Value     Gain   Guarantee       Date
          Lease         -------- -------- -------- --------- -----------------
  <S>                   <C>      <C>      <C>      <C>       <C>
  June 1999............ $200,000 $166,356 $33,644  $166,000   June 2004
  March and August 2000  200,000  166,922  33,078   166,000   March 2005
  October 2000.........  172,589  155,692  16,897   142,299   October 2005
  August 2001..........  309,300  306,034   3,266   232,000   September 2008
  August 2001..........  257,750  235,877  21,873   175,000   September 2011
</TABLE>

   All transactions are recorded as a sale and leaseback of the equipment and
the leases are treated as operating leases. The Company issued guarantees under
the lease agreements that are due upon termination of the leases and which may
be satisfied by a cash payment or the exercise of our equipment purchase
options under the terms of the lease agreements. The residual value guarantees
and other lease terms, which are based on negotiation between HCLP and third
party lessors, were supported by equipment appraisals and analysis. The Company
believes that the market value of the equipment at the end of the lease will
exceed the guaranteed residual values due to our predictive and preventive
maintenance programs, routine overhaul practices and the expected demand for
compression equipment in the future. The Company reviews the value of the
equipment whenever events or circumstances indicate that a decrease in market
value may have occurred as a result of foreseeable obsolescence or a decrease
in market demand. If the fair value of the equipment was less than the
guaranteed residual value, the Company would accrue additional lease expense
for the amount that would be payable upon termination of the lease. Any gains
on the sale of the equipment are deferred until the end of the respective lease
terms. Should the Company not exercise its purchase options under the lease
agreements, the deferred gains will be recognized to the extent they exceed any
final rent payments and any other payments required under the lease agreements.

   As a result of the lease transactions, the Company incurred approximately
$70,435,000, $45,484,000, and $22,090,000 in lease expense for the years ended
December 31, 2001, 2000 and 1999, respectively. The following future minimum
lease payments are due under the leasing arrangements, exclusive of any final
rent payments or purchase option payments (in thousands): 2002--$88,111;
2003--$84,941; 2004--$77,536; 2005--$62,780; 2006--$49,072, and $149,779
thereafter.

   In connection with the leases entered into in August 2001, the Company is
obligated to prepare registration statements and complete an exchange offering
to enable the holders of the notes issued by the lessors to exchange their
notes with notes which are registered under the Exchange Act of 1933. Because
the exchange offering has not been completed, the Company is required to pay
additional lease expense in the amount equal to $105,600 per week, until the
exchange offering is completed. The additional lease expense began accruing on
January 28, 2002.

                                     F-35

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999



11. Income Taxes

   The components of income before income taxes were as follows (in thousands):


<TABLE>
<CAPTION>
                                Years ended December 31,
                                ------------------------
                                  2001    2000    1999
                                -------- ------- -------
                       <S>      <C>      <C>     <C>
                       Domestic $ 81,718 $67,576 $48,019
                       Foreign.   49,872  20,264  15,845
                                -------- ------- -------
                                $131,590 $87,840 $63,864
                                ======== ======= =======
</TABLE>

   The provision for income taxes consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                            Years ended December 31,
                                            ------------------------
                                             2001     2000    1999
                                            ------- -------  -------
           <S>                              <C>     <C>      <C>
           Current tax provision (benefit):
              Federal...................... $ 1,136 $ 3,526  $ 6,958
              State........................     654     499    1,412
              Foreign......................  10,474  (2,561)   3,379
                                            ------- -------  -------
                  Total current............  12,264   1,464   11,749
                                            ------- -------  -------
           Deferred tax provision:
              Federal......................  32,600  19,614   10,771
              State........................                      151
              Foreign......................   5,133  11,598      575
                                            ------- -------  -------
                  Total deferred...........  37,733  31,212   11,497
                                            ------- -------  -------
           Total provision................. $49,997 $32,676  $23,246
                                            ======= =======  =======
</TABLE>

   The income tax expense for 2001, 2000 and 1999 resulted in effective tax
rates of 38.0%, 37.2% and 36.4%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% are as
follows (in thousands):


<TABLE>
<CAPTION>
                                                         Years ended December 31,
                                                         ------------------------
                                                          2001     2000     1999
                                                         ------- -------  -------
<S>                                                      <C>     <C>      <C>
Federal income tax at statutory rates................... $46,056 $30,744  $22,352
State income taxes, net of federal income tax benefit...     425     324    1,016
Impact of foreign operations, net of federal tax benefit     683   1,241      211
Nondeductible goodwill..................................   1,289     964      583
Other, net..............................................   1,544    (597)    (916)
                                                         ------- -------  -------
                                                         $49,997 $32,676  $23,246
                                                         ======= =======  =======
</TABLE>


                                     F-36

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


   Deferred tax assets (liabilities) are comprised of the following (in
thousands):


<TABLE>
<CAPTION>
                                                      December 31,
                                                  --------------------
                                                     2001       2000
                                                  ---------  ---------
         <S>                                      <C>        <C>
         Deferred tax assets:
            Net operating losses................. $  55,415  $  27,942
            Investment in joint ventures.........    11,145
            Inventory............................     3,039        811
            Alternative minimum tax carryforward.    15,152     14,623
            Derivative instruments...............     6,452
            Accrued liabilities..................     3,980      1,168
            Other................................     9,004      1,142
                                                  ---------  ---------
         Gross deferred tax assets...............   104,187     45,686
            Valuation allowance..................   (11,145)
                                                  ---------  ---------
                                                     93,042     45,686
                                                  ---------  ---------
         Deferred tax liabilities:
            Property, plant and equipment........  (263,108)  (145,892)
            Other................................    (5,497)    (5,669)
                                                  ---------  ---------
         Gross deferred tax liabilities..........  (268,605)  (151,561)
                                                  ---------  ---------
                                                  $(175,563) $(105,875)
                                                  =========  =========
</TABLE>


   The Company has net operating loss carryforwards at December 31, 2001 of
approximately $158,329,000 expiring in 2006 to 2021. In addition, the Company
has an alternative minimum tax credit carryforward of approximately $15,152,000
that does not expire.

   In 2001, the Company recorded approximately $35,212,000 of additional
deferred income tax liabilities resulting from the 2001 acquisition
transactions. In 2000, the Company recorded approximately $9,029,000 of
additional deferred income tax liability resulting from the 2000 acquisition
transactions. See Note 2 for a description of the transactions.

   The Company has not recorded a deferred income tax liability for additional
income taxes that would result from the distribution of earnings of its foreign
subsidiaries if they were actually repatriated. The Company intends to reinvest
the undistributed earnings of its foreign subsidiaries indefinitely.

12. Partners' Capital

   Partners'capital consists of capital contributions from partners and
undistributed partnership income.

13. Stock Options

   Certain Company employees participate in stock option plans that provide for
the granting of options to purchase Hanover common shares. The options are
generally issued with an exercise price equal to the fair market value on the
date of grant and are exercisable over a ten-year period. No compensation
expense related to stock options was recorded in 2001, 2000 and 1999.

                                     F-37

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


   Of the options granted in 1999 and 1998, 700,000 vested on July 1, 2001 and
320,000 vested immediately. The remaining options granted vest over the
following schedule, which may accelerate upon a change in the Company's
controlling ownership.

<TABLE>
                                  <S>    <C>
                                  Year 1  10%
                                  Year 2  30%
                                  Year 3  60%
                                  Year 4 100%
</TABLE>

   In June 2000, the Company purchased APSI, which had existing stock option
programs in place. The Company converted the outstanding APSI stock options
into Hanover's stock options as of the purchase date at a conversion ratio
equal to the exchange ratio under the merger agreement. As a result, 127,813
options were converted at a weighted-average per share exercise price of
approximately $12.88. Approximately 60,307 of the options vested at acquisition
with the remaining options vesting at varying dates through 2003.

   The following is a summary of stock option activity for the years ended
December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                         Weighted average
                                                Shares   price per share
                                              ---------  ----------------
      <S>                                     <C>        <C>
      Options outstanding, December 31, 1998. 8,790,430       $ 5.95
         Options granted.....................   272,156        13.79
         Options canceled....................   (68,230)        9.72
         Options exercised...................  (197,352)        2.76
                                              ---------
      Options outstanding, December 31, 1999. 8,797,004         6.24
         Options granted.....................
         APSI acquisition....................   127,813        12.88
         Options canceled....................   (11,562)        9.78
         Options exercised...................  (994,572)        3.68
                                              ---------
      Options outstanding, December 31, 2000. 7,918,683         6.63
         Options granted.....................    43,575        25.00
         Options canceled....................   (47,622)       12.48
         Options exercised...................  (250,161)        9.12
                                              ---------
      Options outstanding, December 31, 2001. 7,664,475         6.62
                                              =========
</TABLE>

   The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 2001:

<TABLE>
<CAPTION>
                                 Options outstanding      Options exercisable
                             ---------------------------- ------------------
                                       Weighted
                                        average  Weighted            Weighted
                                       remaining average             average
                                        life in  exercise            exercise
    Range of exercise prices  Shares     years    price    Shares     price
    ------------------------ --------- --------- -------- ---------  --------
    <S>                      <C>       <C>       <C>      <C>        <C>
         $0.01..............    71,686    2.1     $ 0.01     71,686   $ 0.01
         $2.30--$3.48....... 3,371,834    1.5       2.37  3,371,834     2.37
         $4.57--$6.96.......   255,276    4.3       5.36    255,276     5.36
         $9.57--$14.50...... 3,884,395    6.3      10.17  3,316,084     9.93
         $20.09--$25.00.....    81,284    9.2      22.72      2,293    20.09
                             ---------                    ---------
                             7,664,475                    7,017,173
                             =========                    =========
</TABLE>

                                     F-38

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


   The weighted-average fair value at date of grant for options where the
exercise price equals the market price of Hanover's stock on the grant date was
$25.00 and $6.10 per option during 2001 and 1999, respectively.

   The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because Hanover's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The Company did
not grant any stock options in 2000. The fair value of options at date of grant
was estimated using the Black-Scholes model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
                                      2001   2000   1999
                                    -------  ---- -------
                     <S>            <C>      <C>  <C>
                     Expected life. 6 years  N/A  6 years
                     Interest rate.     4.0% N/A      6.0%
                     Volatility....    35.4% N/A     29.4%
                     Dividend yield       0% N/A        0%
</TABLE>

   Stock-based compensation costs, computed in accordance with FAS 123, would
have reduced net income by $3,804,000, $4,598,000, and $2,194,000 in 2001, 2000
and 1999, respectively.

14. Benefit Plans

   The Company's 401(k) retirement plan provides for optional employee
contributions up to the IRS limitation and discretionary employer matching
contributions. The Company recorded matching contributions of $1,062,000,
$594,000, and $399,000 during the years ended December 31, 2001, 2000 and 1999,
respectively.

15. Related Party and Certain Other Transactions

Transactions with GKH Entities

   Hanover and GKH Investments ("GKH"), a major stockholder of Hanover, are
parties to a stockholders agreement which provides, among other things, for
GKH's rights of visitation and inspection and Hanover's obligation to provide
Rule 144A information to prospective transferees of GKH's Hanover common stock.

   Hanover, GKH and other stockholders (collectively, the "Holders"), who
together currently beneficially own approximately 23% of the outstanding
Hanover common stock are parties to a Registration Rights Agreement (the "GKH
Rights Agreement"). The GKH Rights Agreement generally provides that, if
Hanover proposes to register shares of its capital stock or any other
securities under the Securities Act, then upon the request of those Holders
owning in the aggregate at least 2.5% of Hanover common stock or derivatives
thereof (the "Registrable Securities") then held by all of the Holders, Hanover
will use its reasonable best efforts to cause the Registrable Securities so
requested by the Holders to be included in the applicable registration
statement, subject to underwriters' cutbacks. Hanover is required to pay all
registration expenses in connection with registrations of Registrable
Securities effected pursuant to the GKH Rights Agreement. In addition, any
single Holder of Hanover common stock that owns 18% or more of the common stock
has the right to demand, on one occasion, the registration of its common stock.

                                     F-39

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


   HCLP and GKH were parties to an agreement whereby, in exchange for
investment banking and financial advisory services rendered, the Company agreed
to pay a fee to GKH. In February 2001, in full satisfaction of its obligations
under this agreement, HCLP paid a one time fee of $2,048,000 to GKH for
services rendered under the agreement and the amount was included in accrued
liabilities as of December 31, 2000.

   In August 2001, HCLP paid a $4,650,000 fee to GKH as payment for services
rendered in connection with HCLP's acquisition of POI and related assets.

   Pursuant to an agreement with GKH which provides for compensation to GKH for
services, the Company paid a management fee of $45,000 per month from November
2001 until terminated in early 2002.

   HCLP leases certain compression equipment to an affiliate of Cockrell Oil
and Gas, LP, which was owned 50% by GKH until January 2001. The lease is on a
month-to-month basis and, for the years ended 2001, 2000 and 1999,
approximately $76,000, $228,540 and $228,540, respectively, was billed under
the leases. In 2000 and 1999, the Company leased compressors to other companies
owned or controlled by or affiliated with related parties. Rental and
maintenance revenues billed to these related parties totaled $708,000 and
$738,000 during 2000 and 1999, respectively.

Transactions with Schlumberger Entities


   Pursuant to the Lock-Up, Standstill and Registration Rights Agreement, dated
as of August 31, 2001 (the "Schlumberger Rights Agreement"), between Hanover
and Schlumberger Technology Company, Camco International Inc., Schlumberger
Surenco, S.A., Schlumberger Oilfield Holdings Limited, Operational Services,
Inc. (collectively, the "Schlumberger Companies"), Hanover granted to each of
the Schlumberger Companies certain registration rights in connection with
shares of Hanover common stock (the "Hanover Stock") received by the
Schlumberger Companies as consideration for the Company's acquisition of
Production Operators Corporation and related assets. The registration rights
granted to the Schlumberger Companies include (i) the right, subject to certain
restrictions, to register the Hanover Stock in any registration of securities
initiated by Hanover within the period of time beginning on the third
anniversary of the date of the Schlumberger Rights Agreement and ending on the
tenth anniversary of the date of the Schlumberger Rights Agreement (such period
of time, the "Registration Period"), and (ii) the right, subject to certain
restrictions, to demand up to five registrations of the Hanover Stock within
the Registration Period. Hanover is required to pay all registration expenses
in connection with registrations of Hanover Stock pursuant to the Schlumberger
Rights Agreement. For a period of three years from the date of the Schlumberger
Rights Agreement, the Schlumberger Companies are prohibited from, directly or
indirectly, selling or contracting to sell any of the Hanover Stock. The
Schlumberger Rights Agreement also provides that none of the Schlumberger
Companies shall, without Hanover's written consent, (i) acquire or propose to
acquire, directly or indirectly, greater than 25% of the shares of Hanover
common stock, (ii) make any public announcement with respect to, or submit a
proposal for, any extraordinary transaction involving Hanover, (iii) form or
join in any group with respect to the matters set forth in (i) above, or (iv)
enter into discussions or arrangements with any third party with respect to the
matters set forth in (i) above.


   In August 2001, HCLP purchased POI from Schlumberger. As part of the
purchase agreement entered into with respect to the POI Acquisition, the
Company is required to make a payment of up to $58,000,000 due upon the
completion of a financing of a South American joint venture acquired by the
Company. If the joint venture fails to execute the financing or such financing
fails to be non-recourse to HCLP, in either case, on or before December 31,
2002, the Company will have the right to put its interest in the joint venture
back to Schlumberger

                                     F-40

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

in exchange for a return of the purchase price allocated to the joint venture,
plus the net amount of any capital contributions by HCLP to the joint venture.
The Company's right to exercise the put expires on January 31, 2003.


   In connection with the POI Acquisition, HCLP issued a $150,000,000
subordinated acquisition note to Schlumberger, which matures December 15, 2005.
Interest on the subordinated acquisition note accrues and is payable-in-kind at
the rate of 8.5% annually for the first six months after issuance and
periodically increases in increments of 1% to 2% per annum to a maximum
interest rate 42 months after issuance of 15.5%. In an event of default under
the subordinated acquisition note, interest will accrue at a rate of 2% above
the then applicable rate. The subordinated acquisition note is subordinated to
all of HCLP's indebtedness other than indebtedness to fund future acquisitions.
In the event that HCLP completes an offering of equity securities, HCLP is
required to apply the proceeds of the offering to repay amounts outstanding
under the subordinated acquisition note as long as no default exists or would
exist under our other indebtedness as a result of such payment.


   Schlumberger has the right under the POI acquisition agreement, so long as
Schlumberger owns at least 5% of Hanover common stock and subject to certain
restrictions, to designate one representative to sit on our board of directors.

   For each of the years ended December 31, 2001, 2000 and 1999, HCLP generated
revenues of approximately $1,379,000, $918,000 and $1,979,000, respectively, in
business dealings with Schlumberger.

   In August 2001, HCLP entered into a five-year strategic alliance with
Schlumberger intended to result in the active support of Schlumberger in
fulfilling certain of our business objectives. The principal components of the
strategic alliance include (1) establishing HCLP as Schlumberger's most favored
supplier of compression, natural gas treatment and gas processing equipment
worldwide, (2) Schlumberger's coordination and cooperation in further
developing our international business by placing our personnel in
Schlumberger's offices in six top international markets and (3) providing us
with access to consulting advice and technical assistance in enhancing our
field automation capabilities.

   During 2001, the Company sold equipment totaling approximately $12,004,000
to an affiliate of Enron Capital and Trade Resources Corp ("Enron").

   In 2000, HCLP advanced cash to certain management employees in return for
notes. At December 31, 2001, the notes receivable totaled approximately
$1,212,000, bear interest at the prime rate, mature in June 2004 and are
collateralized by Hanover common stock owned by the employees with full
recourse. The notes and related interest will be forgiven over a four-year
period should the employee continue his employment with HCLP. The forgiveness
will accelerate upon a change in control of HCLP. HCLP recognized compensation
expense related to the forgiveness of these notes receivable that totaled
$263,000 and $105,000 during 2001 and 2000, respectively.


   In 2001, HCLP advanced cash of $2,200,000 to Michael McGhan, Chief Executive
Officer and President of HCLP, in return for notes. The notes bear interest at
4.88%, mature on April 11, 2006 and are collateralized by personal real estate
with full recourse.


                                     F-41

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999



   Set forth below is certain information concerning the indebtedness of
executive officers to HCLP:


<TABLE>
<CAPTION>
                         Aggregate Amount Largest Aggregate  Weighted Average
                          Outstanding at  Amount Outstanding Rate of Interest
                    Year     Year End      during each Year    at Year End
                    ---- ---------------- ------------------ ----------------
  <S>               <C>  <C>              <C>                <C>
  Michael J. McGhan 2001    $2,200,000        $2,200,000           4.88%
  Charles D. Erwin. 2001    $  632,000        $  769,000            4.8%
  Joe C. Bradford.. 2001    $  580,000        $  706,000            4.8%
</TABLE>

   The Company believes that the terms of the foregoing transactions were no
less favorable to HCLP than those that would otherwise be obtainable in an
arms' length transactions with unaffiliated third parties.

16. Commitments and Contingencies

   Rent expense, excluding lease payments for the leasing transactions
described in Note 10, for 2001, 2000 and 1999 was approximately $4,008,000,
$2,159,000, and $1,320,000 respectively. Commitments for future minimum rental
payments exclusive of those disclosed in Note 10 under noncancelable operating
leases with terms in excess of one year at December 31, 2001 are (in thousands
of dollars): 2002--$4,238; 2003--$3,536; 2004--$2,903; 2005--$2,078; 2006--$830
and none thereafter.

   As part of the POI Acquisition, the Company is required to make a payment of
$58,000,000 due upon the completion of a refinancing of a South American joint
venture acquired by HCLP. If the joint venture fails to execute the refinancing
or such financing fails to be non-recourse to HCLP, in either case, on or
before December 31, 2002, the Company will have the right to put its interest
in such joint venture back to Schlumberger in exchange for the purchase price
allocated to the joint venture, plus the net amount of any capital
contributions by the Company to the joint venture. The Company's right to
exercise the put expires on January 31, 2003. Since the Company expects the
financing to be completed and the $58,000,000 obligation paid in 2002, this
obligation is recorded in accrued liabilities in the accompanying balance
sheet. The purchase price is also subject to a contingent payment by HCLP to
Schlumberger based on the realization of certain tax benefits by HCLP over the
next 15 years.

   In the ordinary course of business the Company is involved in various
pending or threatened legal actions, including environmental matters. While
management is unable to predict the ultimate outcome of these actions, it
believes that any ultimate liability arising from these actions will not have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows. See Note 20.

17. Accounting for Derivatives

   The Company adopted SFAS 133 on January 1, 2001. SFAS 133 requires that all
derivative instruments (including certain derivative instruments embedded in
other contracts) be recognized in the balance sheet at fair value, and that
changes in such fair values be recognized in earnings unless specific hedging
criteria are met. Changes in the values of derivatives that meet these hedging
criteria will ultimately offset related earnings effects of the hedged item
pending recognition in earnings. Prior to 2001, the Company entered into two
interest rate swaps which are outstanding at December 31, 2001 with notional
amounts of $75,000,000 and $125,000,000 and strike rates of 5.51% and 5.56%,
respectively. These swaps were to expire in July 2001, however, they were
extended for an additional two years at the option of the counterparty. The
difference paid or received on the

                                     F-42

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

swap transactions is recognized in leasing expense. These swap transactions
expire in July 2003. On January 1, 2001, in accordance with the transition
provisions of SFAS 133, the Company recorded a loss resulting from the
cumulative effect of an accounting change in the statement of income of
approximately $164,000, net of tax benefit of $89,000. During 2001, the Company
recognized an additional unrealized loss of approximately $8,839,000 related to
the change in the fair value of these interest rate swaps in other expense in
the statement of income because these swaps did not meet the specific hedge
criteria as a result of the counterparty's option to extend the interest rate
swaps. Further, management decided not to designate the interest rate swaps as
hedges at the time they were extended by the counterparty. At December 31,
2001, the Company recorded a $5,673,000 in accrued liabilities and $3,419,000
in other long-term liabilities related to these interest rate swaps. The fair
value of these interest rate swaps will fluctuate with changes in interest
rates over their remaining terms and the fluctuations will be recorded in the
statement of income. During the second quarter of 2001, the Company entered
into three additional interest rate swaps to convert variable lease payments
under certain lease arrangements to fixed payments as follows:


<TABLE>
<CAPTION>
                                Maturity Strike     Amount
                      Lease       Date    Rate     Notional
                      -----     -------- ------  ------------
                   <S>          <C>      <C>     <C>
                   March 2000..  3/11/05 5.2550% $100,000,000
                   August 2000.  3/11/05 5.2725% $100,000,000
                   October 2000 10/26/05 5.3975% $100,000,000
</TABLE>

   These three swaps, which the Company has designated as cash flow hedging
instruments, meet the specific hedge criteria and any changes in their fair
values have been recognized in other comprehensive income. During 2001, the
Company recorded a $6,073,000 loss, net of tax in other comprehensive income,
$2,569,000 in accrued current liabilities and $6,774,000 in other long-term
liabilities with respect to these three swaps.

   The counterparty to all of the Company's interest rate swap agreements are
major international financial institutions. The Company continually monitors
the credit quality of these financial institutions and does not expect
non-performance by any counterparty.

18. New Accounting Pronouncements

   In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 141, Business
Combinations. This Statement is effective for all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001, or later. All business combinations in the scope of this
statement are to be accounted for using one method, the purchase method.
Companies may no longer use the pooling method for future combinations.

   In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets
("SFAS 142"). Under SFAS 142, amortization of goodwill over an estimated useful
life will be discontinued. Instead, goodwill amounts will be subject to a
fair-value-based annual impairment assessment. The standard also requires
acquired intangible assets to be recognized separately and amortized as
appropriate. SFAS 142 is effective for HCLP on January 1, 2002. However, under
the transition provisions of SFAS 142, goodwill acquired in a business
combination for which the acquisition date is after June 30, 2001, shall not be
amortized. Because the acquisition of POI was consummated after June 30, 2001,
the goodwill related to the POI acquisition was not amortized in 2001. The
goodwill related to business combinations completed before June 30, 2001
continued to be amortized

                                     F-43

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999

in 2001 because HCLP had not adopted SFAS 142. The Company expects the adoption
of SFAS No. 142 to have an impact on future financial statements, due to the
discontinuation of goodwill amortization expense. For 2001, goodwill
amortization expense was $11,626,000 based on goodwill of approximately
$195,991,000 related to acquisitions which were completed before June 30, 2001.
The transition provisions of SFAS 142 require the Company to perform an initial
impairment assesment of goodwill by June 30, 2002. The Company is currently
performing the initial assessment and evaluating the effect the implementation
of the impairment assessment provisions of SFAS 142 will have on its financial
statements.

   In June 2001, the FASB issued SFAS 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets ("SFAS 143"). SFAS 143
establishes the accounting standards for the recognition and measurement of an
asset retirement obligation and its associated asset retirement cost. This
statement is effective for HCLP effective January 1, 2003. The Company is
currently assessing the new standard and has not yet determined the impact on
its consolidated results of operations, cash flows or financial position.

   In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The new rules supersede SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The new rules retain many of the fundamental recognition
and measurement provisions of SFAS No. 121, but significantly change the
criteria for classifying an asset as held-for-sale. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. The Company has evaluated
the new standard and believes that it will have no material effect on its
consolidated results of operations, cash flows or financial position.

19. Restatement


   In conjunction with a review of our joint ventures and other transactions
conducted by our management and Hanover's Board of Directors in early 2002, the
Company determined that restatement was appropriate for the year ended December
31, 2000. The net effect of this restatement was as follows: (i) a decrease in
revenues of $37,748,000, from $603,829,000 to $566,081,000; (ii) a decrease in
income before taxes of $11,999,000, from $99,839,000 to $87,840,000; and (iii)
a decrease in net income of $7,535,000, from $62,699,000 to $55,164,000.


                                     F-44

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999



   The transactions involved in the restatement, which are detailed further
below are: (i) the Cawthorne Channel project in Nigeria initially conducted
through the Hampton Roads joint venture; (ii) the acquisition of two
compressors in a non-monetary exchange transaction; (iii) a compressor sale
transaction; and (iv) the sale of a turbine engine. The impact of the
restatement for the year ended December 31, 2000 is summarized in the tables
below (in thousands):


<TABLE>
<CAPTION>
                                                                    Acquisition of
                                                 Cawthorne Channel   Compressors
                                                Project in Nigeria/    In Non-     Compressor  Sale of
                                                   Hampton Roads       Monetary       Sale     Turbine
                                       As Filed    Joint Venture       Exchange    Transaction Engine   Restated
                                       -------- ------------------- -------------- ----------- -------  --------
<S>                                    <C>      <C>                 <C>            <C>         <C>      <C>
Revenues:
  Rentals............................. $254,515                                                         $254,515
  Parts, service and used equipment...  151,707                                     $(12,004)  $(7,500)  132,203
  Compressor fabrication..............   96,838      $ (6,568)                                            90,270
  Production and processing
   equipment fabrication..............   88,572        (9,451)                                            79,121
  Gain on sale of other assets........    4,113                        $(2,225)                            1,888
  Gain on change in interest in non-
   consolidated affiliate.............      864                                                              864
  Other...............................    7,220                                                            7,220
                                       --------      --------          -------      --------   -------  --------
    Total revenues....................  603,829       (16,019)          (2,225)      (12,004)   (7,500)  566,081
                                       --------      --------          -------      --------   -------  --------
Expenses:
  Rentals.............................   87,992                                                           87,992
  Parts, service and used equipment...  103,276                                       (7,954)   (6,194)   89,128
  Compressor fabrication..............   81,996        (5,242)                                            76,754
  Production and processing
   equipment fabrication..............   69,281        (6,597)                                            62,684
  Selling, general and administrative.   54,606            26                                             54,632
  Depreciation and amortization.......   52,882                                                           52,882
  Lease expense.......................   45,484                                                           45,484
  Interest expense....................    8,473           212                                              8,685
                                       --------      --------          -------      --------   -------  --------
    Total expenses....................  503,990       (11,601)                        (7,954)   (6,194)  478,241
                                       --------      --------          -------      --------   -------  --------
Income before income taxes............   99,839        (4,418)          (2,225)       (4,050)   (1,306)   87,840
Provision for income taxes............   37,140        (1,644)            (827)       (1,507)     (486)   32,676
                                       --------      --------          -------      --------   -------  --------
Net income............................ $ 62,699      $ (2,774)         $(1,398)     $ (2,543)  $  (820) $ 55,164
                                       ========      ========          =======      ========   =======  ========
</TABLE>

                                     F-45

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


<TABLE>
<CAPTION>
                                                                             Restatement
                                                                   As filed     Items     Restated
                                                                  ---------- ----------- ----------
<S>                                                               <C>        <C>         <C>
Accounts receivable, net......................................... $  242,526  $(19,504)  $  223,022
Inventory........................................................    139,248     6,194      145,442
Costs and estimated earnings in excess of billings on uncompleted
  contracts......................................................     38,665   (13,689)      24,976
Property, plant and equipment, net...............................    583,586    (9,990)     573,596
Intangible and other assets, net.................................     63,799      (776)      63,023
Total assets.....................................................  1,287,613   (37,765)   1,249,848
Accrued liabilities..............................................     49,024    (2,500)      46,524
Other liabilities................................................    158,661   (25,766)     132,895
Deferred income taxes............................................    107,839    (1,964)     105,875
Total liabilities................................................    565,567   (30,230)     535,337
Partner's capital................................................    722,503    (7,535)     714,968
Total liabilities and partners' capital..........................  1,287,613   (37,765)   1,249,848
</TABLE>

Cawthorne Channel Project in Nigeria/Hampton Roads Joint Venture

   Cawthorne Channel is a project to build, own and operate barge-mounted gas
compression and gas processing facilities to be stationed off the coast of
Nigeria in performance of a contract between Global Energy and Refining Ltd
("Global") and Shell Petroleum Development Company of Nigeria Limited, the
Nigerian operating unit of The Royal/Dutch Shell Group ("Shell"). The Company
entered into a contract with Global in June 1999 to fabricate and lease the
facilities to Global to fulfill the Shell contract. Subsequently, the Company
acquired a 10% interest in Global.

   In September 2000, a joint venture known as Hampton Roads Shipping Investors
II, L.L.C. ("Hampton Roads") was formed to own the gas processing facilities
and lease them to Global. The Company purchased a 25% interest in Hampton Roads
for $1,250,000 and entered into a turn-key construction contract with Hampton
Roads to construct the facilities. The equipment, which had a sale price of
$51,000,000, was to be used pursuant to a 10-year contract on behalf of Shell
to commence September 30, 2001. In the first quarter of 2001, the scope of the
project was reduced to approximately $43,000,000 and the contract term was
extended to 15 years with a projected start date of September 2003. As the
project has not yet started, the Company has recorded no income attributable to
its equity ownership in the venture.

   The Company was constructing the equipment to be used in the gas compression
and processing project with Shell under the turn-key construction contract with
Hampton Roads and had accounted for this activity under the percentage of
completion method of accounting. Based upon the evaluation of new information
related to these transactions, the Company determined that it should not have
recognized revenue for this activity during these periods. The restatement
treats the project as if the Company had owned 100% of the project since
inception and reverses the revenue and related costs recognized under the
percentage of completion method.

   In February 2002, the Company purchased the 75% interest in Hampton Roads
that it did not own. The Company now owns 100% of the venture and will
recognize the rental revenues pursuant to its contract with Global once startup
begins.

                                     F-46

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


Acquisition of Compressors In Non-Monetary Exchange

   In the third quarter of 2000, the Company entered into an acquisition of two
compressors in a non-monetary exchange transaction with an independent oil and
gas producer. In the transaction, the Company acquired the two compressors in
exchange for certain gas reservoir rights that the Company had obtained in
settlement of a payment default by one of its customers. The Company accounted
for the transaction as an exchange of non-monetary assets and recorded
$2,225,000 in revenue and pre-tax income in 2000. Based upon the evaluation of
new information related to this transaction, the Company has determined that it
should not have recognized a gain on this transaction.

Compressor Sale Transaction

   The Company sold 33 gas compressors to a gas pipeline system then controlled
by Enron for $12,004,000 pursuant to invoices issued in December 2000. The
Company recorded $4,050,000 of pre-tax income from the transaction in the
fourth quarter of 2000. In January 2001, the Company entered into an agreement
with its customer to provide transition services and settle claims between the
parties arising from the operation of the compressors prior to their sale. The
agreement also provided for the issuance of a bill of sale. Upon further
evaluation of the transaction, the Company has determined that it should have
recognized the gain on this transaction when it issued the bill of sale in
January 2001 rather than in December 2000.

Sale of Turbine Engine

   In the fourth quarter of 2000, the Company entered the non-oil field power
generation market to take advantage of rising electricity demand and purchased
used turbines to carry out this effort. In connection with this effort, the
Company agreed to sell a turbine on extended credit and recognized revenues of
$7,500,000 and $1,306,000 of pre-tax income in the fourth quarter of 2000. Upon
further evaluation of the transaction, the Company determined that revenue
should have been recognized for this transaction at the time that
collectibility of the sales price was reasonably assured. Since full payment on
the $7,500,000 turbine sale was received in the fourth quarter of 2001, the
Company recorded the sale and related $1,306,000 of pre-tax income in that
quarter.

Reclassification

   The Company determined that the deferred gain related to the 1999 and 2000
leases was calculated in error. A reclassification between property, plant and
equipment and other liabilities has been made to correct this matter. This
reclassification had no impact on net income.

20. Subsequent Events


   Commencing in February 2002, approximately 14 class action lawsuits were
filed against Hanover and certain officers and directors of Hanover in the
United States District Court for the Southern District of Texas. The plaintiffs
in the actions purport to represent purchasers of Hanover's common stock during
various periods ranging from May 15, 2000 through January 28, 2002. The
complaints assert various claims under Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 and seek unspecified amounts of compensatory
damages, interest and costs, including legal fees. In addition, commencing in
February 2002, three derivative actions were filed in various state and federal
courts. Hanover believes the allegations in these cases are without merit and
intends to defend them vigorously. The lawsuits are at a very early stage.
Consequently, it is not possible at this time to predict whether Hanover will
incur any liability or to estimate the damages, or the range of damages, if


                                     F-47

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


any, that Hanover might incur in connection with such actions, or whether an
adverse outcome could have a material adverse impact on our business,
consolidated financial condition or results of operations or cash flows.



   The Fort Worth District Office of the Securities and Exchange Commission has
requested Hanover to provide information relating to the matters involved in
Hanover's restatement of its financial results for the year ended December 31,
2000 and the nine months ended September 30, 2001. Hanover is cooperating fully
with the SEC's request. It is too soon to tell whether the outcome of this
inquiry will have a material effect on Hanover's results of operations or cash
flows


21. Industry Segments and Geographic Information

   The Company manages its business segments primarily on the type of product
or service provided. The Company has five principal industry segments:
Rentals--Domestic, Rentals--International, Parts, Service and Used Equipment,
Compressor Fabrication and Production and Processing Equipment Fabrication. The
Rentals segments provide natural gas compression rental and maintenance
services to meet specific customer requirements. The Compressor Fabrication
Segment involves the design, fabrication and sale of natural gas compression
units to meet unique customer specifications. The Production and Processing
Equipment Fabrication Segment designs, fabricates and sells equipment utilized
in the production of crude oil and natural gas.

   The Company evaluates the performance of its segments based on segment gross
profit. Segment gross profit for each segment includes direct operating
expenses. Costs excluded from segment gross profit include selling, general and
administrative, depreciation and amortization, leasing, interest and income
taxes. Amounts defined as "Other" include equity in income of nonconsolidated
affiliates, results of other insignificant operations and corporate related
items primarily related to cash management activities. Revenues include sales
to external customers and intersegment sales. Intersegment sales are accounted
for at cost, except for compressor fabrication sales which are accounted for on
an arms length basis. Intersegment sales and any resulting profits are
eliminated in consolidation. Identifiable assets are tangible and intangible
assets that are identified with the operations of a particular segment or
geographic region, or which are allocated when used jointly. Capital
expenditures include fixed asset purchases.

   No single customer accounts for 10% or more of the Company's revenues for
all periods presented. One vendor accounted for approximately $41,200,000 of
the Company's purchases in 2000.

                                     F-48

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


   The following tables present sales and other financial information by
industry segment and geographic region for the years ended December 31, 2001,
2000 and 1999.

  Industry Segments


<TABLE>
<CAPTION>
                                                  Parts,
                                                  service              Production
                         Domestic  International and used  Compressor   equipment
                         rentals      rentals    equipment fabrication fabrication  Other  Eliminations Consolidated
                        ---------- ------------- --------- ----------- ----------- ------- ------------ ------------
                                                         (in thousands of dollars)
<S>                     <C>        <C>           <C>       <C>         <C>         <C>     <C>          <C>
2001:
  Revenues from
   external
   customers........... $  269,874   $130,902    $251,816   $223,519    $184,040   $18,058               $1,078,209
  Intersegment sales...                 2,858      72,930    112,748       7,110     4,600  $(200,246)
                        ----------   --------    --------   --------    --------   -------  ---------    ----------
   Total revenues......    269,874    133,760     324,746    336,267     191,150    22,658   (200,246)    1,078,209
  Gross profit.........    174,671     85,107      79,073     35,397      36,216    18,058                  428,522
  Identifiable assets..  1,335,313    479,281      74,251    227,721     126,275    23,563                2,266,404
  Capital expenditures.    471,680    137,805       6,763        399      24,626    20,118                  661,391
  Depreciation and
   amortization........     45,029     33,685       2,996      4,774       3,362                             89,846
2000:
  Revenues from
   external
   customers........... $  173,195   $ 81,320    $132,203   $ 90,270    $ 79,121   $ 9,972               $  566,081
  Intersegment sales...                 1,200      31,086     89,963       3,653     7,413  $(133,315)
                        ----------   --------    --------   --------    --------   -------  ---------    ----------
   Total revenues......    173,195     82,520     163,289    180,233      82,774    17,385   (133,315)      566,081
  Gross profit.........    112,859     53,664      43,075     13,516      16,437     9,972                  249,523
  Identifiable assets..    491,820    286,747      21,627    311,568      92,601    45,485                1,249,848
  Capital expenditures.    214,730     58,801                    874         723                            275,128
  Depreciation and
   amortization........     30,102     15,117         160      4,381       3,122                             52,882
1999:
  Revenues from
   external
   customers........... $  136,430   $ 56,225    $ 42,518   $ 52,531    $ 28,037   $ 7,479               $  323,220
  Intersegment sales...                 1,200      38,656     75,139       4,821            $(119,816)
                        ----------   --------    --------   --------    --------   -------  ---------    ----------
   Total revenues......    136,430     57,425      81,174    127,670      32,858     7,479   (119,816)      323,220
  Gross profit.........     90,246     37,460      14,602      8,868       7,204     7,479                  165,859
  Identifiable assets..    529,744    149,968                 47,608      23,511     5,756                  756,587
  Capital expenditures.    180,593     99,535                  1,469       1,343                            282,940
  Depreciation and
   amortization........     24,448     11,158                    702       1,029                             37,337
</TABLE>


                                     F-49

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                       December 31, 2001, 2000 and 1999


  Geographic Data


<TABLE>
<CAPTION>
                                          United
                                          States   International Consolidated
                                        ---------- ------------- ------------
                                              (in thousands of dollars)
   <S>                                  <C>        <C>           <C>
   2001:
      Revenues from external customers. $  767,951   $310,258     $1,078,209
      Identifiable assets(1)...........  1,706,555    559,849      2,266,404
   2000:
      Revenues from external customers.    444,094    121,987        566,081
      Identifiable assets..............    934,380    315,468      1,249,848
   1999:
      Revenues from external customers.    263,082     60,138        323,220
      Indentifiable assets.............    603,445    153,142        756,587
</TABLE>

--------
(1) Identifiable assets for international operations include approximately
    $264,000,000 related to Venezuela, of which approximately $152,443,000
    relates to the joint ventures acquired in connection with the POI
    acquisition completed in August 2001.

23. Other Expenses


   Other expenses during 2001 were $18,566,000, which included a $2,750,000
bridge loan commitment fee associated with HCLP's acquisition of POI, a
$5,013,000 write down of an investment in Aurion, a $965,000 litigation
settlement, $8,839,000 from the recognition of an unrealized loss related to
the change in fair value of the interest rate swaps as required under SFAS 133
(see Note 17) and $999,000 in other non-operating expenses.




                                     F-50

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

                  SELECTED QUARTERLY UNAUDITED FINANCIAL DATA

   The table below sets forth selected unaudited financial information for each
quarter of the two years:


<TABLE>
<CAPTION>
                         1st quarter 2nd quarter 3rd quarter 4th quarter(1)
                         ----------- ----------- ----------- --------------
                                    (in thousands of dollars)//
     <S>                 <C>         <C>         <C>         <C>
     2001:
        Revenue(2)......  $229,944    $245,429    $282,294      $320,542
        Gross profit(2).    93,368      97,722     113,583       123,849
        Net income (2)..    20,952      23,608      22,533        14,336
     2000:
        Revenue.........  $ 90,557    $117,084    $148,960      $209,480
        Gross profit....    48,326      55,931      64,745        80,521
        Net income......    12,164      13,773      13,395        15,832
</TABLE>

--------
(1) The Company incurred other expenses during the fourth quarter of 2001 which
    included a $5,013,000 write down of an investment in Aurion, a $965,000
    litigation settlement, and $999,000 in other non-operating expenses. In
    addition, the Company incurred a $5,511,000 translation loss related to its
    foreign operations, primarily in Argentina and Venezuela.
(2) The Company restated the 2001 1st, 2nd and 3rd quarters for certain revenue
    recognition matters as disclosed in each of Hanover's Form 10-Q/As. The
    impact is as follows:

<TABLE>
<CAPTION>
                                 1st        2nd        3rd
                               quarter    quarter    quarter
                              ---------- ---------- ----------
                              Increase/  Increase/  Increase/
                              (Decrease) (Decrease) (Decrease)
                              ---------- ---------- ----------
                                 (in thousands of dollars)
                 <S>          <C>        <C>        <C>
                 Revenue.....  $10,025    $(17,657)  $(17,489)
                 Gross profit    3,480      (2,248)    (3,366)
                 Net income..    1,180      (2,210)    (2,616)
</TABLE>


                                     F-51

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP
                     CONDENSED CONSOLIDATED BALANCE SHEET

                           (in thousands of dollars)

                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                 March 31,  December 31,
                                                                                   2002         2001
                                                                                ----------  ------------
<S>                                                                             <C>         <C>
                                    ASSETS
Current assets:
   Cash and cash equivalents................................................... $    3,155   $   23,191
   Accounts receivable, net....................................................    241,274      272,450
   Inventory...................................................................    244,752      216,405
   Costs and estimated earnings in excess of billings on uncompleted contracts.     45,322       59,099
   Prepaid taxes...............................................................     15,036       19,990
   Other current assets........................................................     20,401       25,081
                                                                                ----------   ----------
       Total current assets....................................................    569,940      616,216
Property, plant and equipment, net.............................................  1,179,498    1,153,691
Goodwill, net..................................................................    243,023      245,478
Intangible and other assets....................................................     81,381       72,691
Investment in non-consolidated affiliates......................................    189,733      178,328
                                                                                ----------   ----------
          Total assets......................................................... $2,263,575   $2,266,404
                                                                                ==========   ==========
                       LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
   Current maturities of long-term debt........................................ $    5,298   $    5,553
   Accounts payable, trade.....................................................     63,959      119,077
   Accrued liabilities.........................................................    132,640      152,435
   Advance billings............................................................     53,758       53,140
   Billings on uncompleted contracts in excess of costs and estimated earnings.      7,850        7,152
                                                                                ----------   ----------
       Total current liabilities...............................................    263,505      337,357
Long-term debt.................................................................    382,880      312,260
Other liabilities..............................................................    127,563      131,519
Deferred income taxes..........................................................    175,830      175,563
                                                                                ----------   ----------
       Total liabilities.......................................................    949,778      956,699
                                                                                ----------   ----------
Commitments and contingencies (Note 7).........................................
Partners' equity:..............................................................
   Partners' capital...........................................................  1,318,390    1,316,262
   Accumulated other comprehensive income......................................     (4,593)      (6,557)
                                                                                ----------   ----------
       Total partners' equity..................................................  1,313,797    1,309,705
                                                                                ----------   ----------
          Total liabilities and partners' equity............................... $2,263,575   $2,266,404
                                                                                ==========   ==========
</TABLE>


  The accompanying notes are an integral part of these financial statements.

                                     F-52

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

      CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

                           (in thousands of dollars)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                       March 31,
                                                                                  ------------------
                                                                                    2002      2001
                                                                                  --------  --------
<S>                                                                               <C>       <C>
Revenues:
   Rentals....................................................................... $128,871  $ 79,862
   Parts, service and used equipment.............................................   67,587    50,334
   Compressor fabrication........................................................   26,058    54,651
   Production and processing equipment fabrication...............................   33,132    41,612
   Equity in income of non-consolidated affiliate................................    4,932       750
   Other.........................................................................      326     2,735
                                                                                  --------  --------
                                                                                   260,906   229,944
                                                                                  --------  --------
Expenses:
   Rentals.......................................................................   42,674    26,712
   Parts, service and used equipment.............................................   56,194    29,840
   Compressor fabrication........................................................   22,399    46,256
   Production and processing equipment fabrication...............................   28,537    33,768
   Selling, general and administrative...........................................   34,671    20,736
   Depreciation and amortization.................................................   24,143    17,403
   Leasing expense...............................................................   22,928    15,288
   Interest expense..............................................................    5,982     2,736
   Foreign currency translation..................................................   12,681       155
   Change in fair value of derivative financial instruments......................   (2,010)    2,992
   Other.........................................................................      211
                                                                                  --------  --------
                                                                                   248,410   195,886
                                                                                  --------  --------
Income before income taxes.......................................................   12,496    34,058
Provision for income taxes.......................................................    4,998    12,942
                                                                                  --------  --------
Net income before cumulative effect of accounting change.........................    7,498    21,116
   Cumulative effect of accounting change for derivative instruments, net of tax.               (164)
                                                                                  --------  --------
Net income.......................................................................    7,498    20,952
Other comprehensive income (loss), net of tax:...................................
   Change in fair value of derivative financial instruments......................    1,959
   Foreign currency translation adjustment.......................................        4       (27)
                                                                                  --------  --------
Comprehensive income............................................................. $  9,461  $ 20,925
                                                                                  ========  ========
</TABLE>


  The accompanying notes are an integral part of these financial statements.

                                     F-53

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                           (in thousands of dollars)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                       Three Months
                                                                                     Ended March 31,
                                                                                   -------------------
                                                                                     2002       2001
                                                                                   --------  ---------
<S>                                                                                <C>       <C>
Cash flows from operating activities:.............................................
  Net income...................................................................... $  7,498  $  20,952
  Adjustments:....................................................................
   Depreciation and amortization..................................................   24,143     17,403
   Amortization of debt issuance costs and debt discount..........................      350        587
   Bad debt expense...............................................................      467        468
   Gain on sale of property, plant and equipment..................................   (2,065)    (4,034)
   Equity in income of non-consolidated affiliates................................   (4,932)      (750)
   (Gain) loss on derivative instruments..........................................   (2,010)     3,245
   Deferred income taxes..........................................................    1,520      8,682
   Changes in assets and liabilities, excluding business combinations:............
    Accounts receivable and notes.................................................   20,312     16,289
    Inventory.....................................................................  (28,347)   (51,323)
    Costs and estimated earnings in excess of billings on uncompleted contracts...   14,475     (7,275)
    Accounts payable and other liabilities........................................  (73,719)     8,326
    Advance billings..............................................................      618      8,868
    Other.........................................................................    5,716       (177)
                                                                                   --------  ---------
      Net cash provided by (used in) operating activities.........................  (35,974)    21,261
                                                                                   --------  ---------
Cash flows from investing activities:.............................................
  Capital expenditures............................................................  (67,893)   (72,733)
  Payments for deferred lease transaction costs...................................     (326)      (131)
  Proceeds from sale of property, plant and equipment.............................   27,445     14,067
  Cash used for business combinations, net........................................       --    (61,515)
  Cash used to acquire investments in non-consolidated subsidiaries...............   (6,474)    (4,225)
                                                                                   --------  ---------
      Net cash used in investing activities.......................................  (47,248)  (124,537)
                                                                                   --------  ---------
Cash flows from financing activities:.............................................
  Net borrowings (repayments) on revolving credit facility........................   71,000   (102,500)
  Payments for debt issue costs...................................................     (125)        --
  Partners' contribution (distribution), net......................................   (5,471)   268,558
  Repayment of long-term debt and short-term notes................................     (635)    (8,653)
                                                                                   --------  ---------
      Net cash provided by financing activities...................................   64,769    157,405
                                                                                   --------  ---------
Effect of exchange rate changes on cash and equivalents...........................   (1,583)      (177)
                                                                                   --------  ---------
Net (decrease) increase in cash and cash equivalents..............................  (20,036)    53,952
Cash and cash equivalents at beginning of period..................................   23,191     45,484
                                                                                   --------  ---------
Cash and cash equivalents at end of period........................................ $  3,155  $  99,436
                                                                                   ========  =========
Acquisitions of businesses:.......................................................
  Property, plant and equipment acquired..........................................           $  84,764
  Other assets acquired, net of cash acquired.....................................              11,250
  Goodwill........................................................................              18,500
  Liabilities.....................................................................              (7,000)
  Debt issued.....................................................................              (2,764)
  Deferred taxes..................................................................              (6,000)
  Partner's non-cash capital contributions........................................             (37,235)
</TABLE>


  The accompanying notes are an integral part of these financial statements.

                                     F-54

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

             NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

   The accompanying unaudited consolidated financial statements of Hanover
Compression Limited Partnership ("HCLP" or the "Company"), an indirectly wholly
owned subsidiary of Hanover Compressor Company ("Hanover"), included herein
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and the rules
and regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is the opinion of
management that the information furnished includes all adjustments, consisting
only of normal recurring adjustments, which are necessary to present fairly the
financial position, results of operations, and cash flows of the Company for
the periods indicated. The financial statement information included herein
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 2001. These interim results are
not necessarily indicative of results for a full year.

2. BUSINESS COMBINATIONS

   In August 2001, the Company acquired 100% of the issued and outstanding
shares of the Production Operators Corporation natural gas compression
business, ownership interests in certain joint venture projects in South
America, and related assets ("POI") from Schlumberger for $761 million in cash,
Hanover common stock and indebtedness, subject to certain post-closing
adjustments that to date have resulted in an increase in the purchase price to
approximately $771 million. Under the terms of the definitive agreement,
Schlumberger received approximately $280 million in cash, $150 million in a
long-term subordinated note and approximately 8,708,000 Hanover common shares,
or approximately 11% of the outstanding shares of Hanover common stock, which
are required to be held by Schlumberger for at least three years following the
closing date.

   In March 2001, the Company purchased OEC Compression Corporation ("OEC") in
an all-stock transaction for approximately $101.8 million, including the
assumption and subsequent payment of approximately $64.6 million of OEC
indebtedness. We issued an aggregate of approximately 1,146,000 shares of
Hanover common stock to stockholders of OEC.


   The pro forma information set forth below assumes the acquisitions of POI
and OEC completed in 2001 are accounted for as if the purchases had occurred at
the beginning of 2001. The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of operations
that would have been achieved had the acquisitions been consummated at that
time (in thousands):




<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                             March 31, 2001
                                                           ------------------
  <S>                                                      <C>
  Revenue.................................................      $272,067
  Net income before cumulative effect of accounting change        20,870
</TABLE>

                                     F-55

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3. INVENTORIES

   Inventory consisted of the following amounts (in thousands):

<TABLE>
<CAPTION>
                                      March 31, December 31,
                                        2002        2001
                                      --------- ------------
                   <S>                <C>       <C>
                   Parts and supplies $153,368    $147,627
                   Work in progress..   65,835      46,091
                   Finished goods....   25,549      22,687
                                      --------    --------
                                      $244,752    $216,405
                                      ========    ========
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                               March 31,  December 31,
                                                 2002         2001
                                              ----------  ------------
         <S>                                  <C>         <C>
         Compression equipment and facilities $1,198,123   $1,173,460
         Land and buildings..................     65,056       55,570
         Transportation and shop equipment...     73,081       61,848
         Other...............................     24,725       23,848
                                              ----------   ----------
                                               1,360,985    1,314,726
         Accumulated depreciation............   (181,487)    (161,035)
                                              ----------   ----------
                                              $1,179,498   $1,153,691
                                              ==========   ==========
</TABLE>

5. LONG-TERM DEBT

   Long-term debt consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                                           March 31, December 31,
                                                                             2002        2001
                                                                           --------- ------------
<S>                                                                        <C>       <C>
Bank credit facility...................................................... $228,000    $157,000
Schlumberger note, interest at 10.50% at March 31, 2002...................  150,000     150,000
Real estate mortgage, interest at 7.5%, collateralized by certain land and
  buildings, payable through 2002.........................................    3,500       3,583
Other, interest at various rates, collateralized by equipment and other
  assets, net of unamortized discount.....................................    6,678       7,230
                                                                           --------    --------
                                                                            388,178     317,813
Less-- current maturities.................................................   (5,298)     (5,553)
                                                                           --------    --------
                                                                           $382,880    $312,260
                                                                           ========    ========
</TABLE>


   The Company's amended and restated bank credit facility provides for a
$350,000,000 revolving credit facility that matures on November 30, 2004.
Advances bear interest at the bank's prime or a negotiated rate (3.7% and 3.9%
at March 31, 2002 and December 31, 2001, respectively). A commitment fee of
0.35% per annum on the average available commitment is payable quarterly. The
credit facility contains certain financial covenants and limitations on, among
other things, indebtedness, liens, leases and sales of assets. The credit
facility also limits the payment of cash dividends on the Hanover's common
stock to 25% of net income for the respective period.


                                     F-56

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   As a result of the restatement of its consolidated financial statements for
the period ended December 31, 2000 and nine months ended September 30, 2001 and
other compliance provisions, the Company was not in compliance with certain
covenants in its bank credit facility and lease agreements. The Company
obtained waivers and amendments during the first quarter of 2002 and is
currently in compliance with all applicable covenants.

   In connection with the POI Acquisition on August 31, 2001, the Company
issued a $150,000,000 subordinated acquisition note to Schlumberger, which
matures December 15, 2005. Interest on the subordinated acquisition note
accrues and is payable-in-kind at the rate of 8.5% annually through February
28, 2002, 10.5% for the following six months and rates periodically increasing
in increments of 1% to 2% per annum thereafter to a maximum interest rate after
March 2005 of 15.5%. In the event of an event of default under the subordinated
acquisition note, interest will accrue at a rate of 2% above the then
applicable rate. The subordinated acquisition note is subordinated to all of
the Company's indebtedness other than indebtedness to fund future acquisitions.
In the event that Hanover completes an offering of equity securities, the
Company is required to apply the proceeds of the offering to repay amounts
outstanding under the subordinated acquisition note as long as no default
exists or would exist under the Company's other indebtedness as a result of
such payment.

6. ACCOUNTING FOR DERIVATIVES

   The Company adopted Statement of Financial Accounting Standard ("SFAS") 133
on January 1, 2001. SFAS 133 requires that all derivative instruments
(including certain derivative instruments embedded in other contracts) be
recognized in the balance sheet at fair value, and that changes in such fair
values be recognized in earnings unless specific hedging criteria are met.
Changes in the values of derivatives that meet these hedging criteria will
ultimately offset related earnings effects of the hedged item pending
recognition in earnings. Prior to 2001, the Company entered into two interest
rate swaps which are outstanding at March 31, 2002 with notional amounts of
$75,000,000 and $125,000,000 and strike rates of 5.51% and 5.56%, respectively.
These swaps were to expire in July 2001, but were extended for an additional
two years at the option of the counterparty. The difference paid or received on
the swap transactions is recognized in leasing expense. These swap transactions
expire in July 2003. During the three months ended March 31, 2002 and 2001, the
Company recognized an unrealized gain of approximately $2,010,000 and a loss of
approximately $2,992,000, respectively, related to the change in the fair value
of these interest rate swaps in the statement of income because management
decided not to designate the interest rate swaps as hedges at the time they
were extended by the counterparty. At March 31, 2002, $5,073,000 was recorded
in accrued liabilities and $2,009,000 in other long-term liabilities related to
these interest rate swaps. The fair value of these interest rate swaps will
fluctuate with changes in interest rates over their remaining terms and the
fluctuations will be recorded in the statement of income.

   During the second quarter of 2001, the Company entered into three additional
interest rate swaps to convert variable lease payments under certain lease
arrangements to fixed payments as follows:

                Lease     Maturity Date Strike Rate Amount Notional
                -----     ------------- ----------- ---------------
             March 2000..   3/11/05       5.2550%    $100,000,000
             August 2000.   3/11/05       5.2725%    $100,000,000
             October 2000   10/26/05      5.3975%    $100,000,000

                                     F-57

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   These three swaps, which the Company has designated as cash flow hedging
instruments, meet the specific hedge criteria and any changes in their fair
values have been recognized in other comprehensive income. During the three
months ended March 31, 2002, the Company recorded a $1,959,000 gain in other
comprehensive income, net of tax, and $2,593,000 was included in accrued
current liabilities and $3,781,000 in other long-term liabilities with respect
to these three swaps.

   The counterparty to all of the Company's interest rate swap agreements are
major international financial institutions. The Company continually monitors
the credit quality of these financial institutions and does not expect
non-performance by any counterparty.

7. COMMITMENTS AND CONTINGENCIES

   Commencing in February 2002, approximately 14 putative class action lawsuits
were filed against Hanover and certain officers and directors of Hanover in the
United States District Court for the Southern District of Texas. The plaintiffs
in the actions each purport to represent purchasers of Hanover's common stock
during various periods ranging from May 15, 2000 through January 28, 2002. The
complaints assert various claims under Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 and seek unspecified amounts of compensatory
damages, interest and costs, including legal fees. In addition, commencing in
February 2002, four derivative lawsuits were filed in the United States
District Court for the Southern District of Texas and one derivative lawsuit
was filed in the Delaware State Court in New Castle County, Delaware. These
derivative lawsuits, which were filed by certain of Hanover's shareholders
against our directors purportedly on behalf of Hanover, allege, among other
things, that Hanover's directors breached their fiduciary duties to
shareholders and seek unspecified amounts of damages, interest and costs,
including legal fees. Hanover intends to defend these cases vigorously. The
Hanover Board of Directors has formed a Special Litigation Committee to address
the issues raised by the derivative suits. The lawsuits are at a very early
stage. Consequently, it is not possible at this time to predict whether Hanover
will incur any liability or to estimate the damages, or the range of damages,
if any, that Hanover might incur in connection with such actions, or whether an
adverse outcome could have a material adverse impact on Hanover's business,
consolidated financial condition, results of operations or cash flows.

   The Fort Worth District Office of the Securities and Exchange Commission has
requested that Hanover provide information relating to the matters involved in
Hanover's restatement of its financial results for the year ended December 31,
2000 and the nine months ended September 30, 2001. Hanover is cooperating fully
with this request. It is too soon to tell whether the outcome of this inquiry
will have a material effect on the Hanover's business, financial condition,
results of operations or cash flows.

   We are involved in various other legal proceedings that are considered to be
in the normal course of business. We believe that these proceedings will not
have a material adverse effect on our business, consolidated financial
condition, results of operations or cash flows.

8. RELATED PARTY TRANSACTIONS

   In 2002, Hanover advanced cash of $400,000 to Mr. Michael J. McGhan,
President and Chief Executive Officer, and $100,000 to Robert O. Pierce, Senior
Vice President--Manufacturing and Fabrication, in return for notes. The notes
bear interest at 4.0%, mature on September 30, 2002 and are unsecured. These
amounts were outstanding at March 31, 2002. In addition, during 2001 Hanover
advanced cash of $2,200,000 to Mr. McGhan which was outstanding as of March 31,
2002.

                                     F-58

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


9. NEW ACCOUNTING PRONOUNCEMENTS

   In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
141, "Business Combinations". This Statement is effective for all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001, or later. All business combinations in the scope
of this statement are to be accounted for using one method, the purchase
method. Companies may no longer use the pooling method for future combinations.

   In June 2001, the FASB issued SFAS 142, "Goodwill and Other Intangible
Assets". Under SFAS 142, amortization of goodwill over an estimated useful life
will be discontinued. Instead, goodwill amounts will be subject to a
fair-value-based annual impairment assessment. The standard also requires
acquired intangible assets to be recognized separately and amortized as
appropriate. SFAS 142 became effective for HCLP on January 1, 2002. For the
three months ended March 31, 2001, goodwill amortization was approximately
$2,479,000. The transition provisions of SFAS 142 require the Company to
perform an initial impairment assessment of goodwill by June 30, 2002. The
Company is currently performing the initial assessment and evaluating the
effect the implementation of the impairment assessment provisions of SFAS 142
will have on its financial statements. The table below presents HCLP results as
if goodwill had not been amortized (in thousands):


<TABLE>
<CAPTION>
                                               March 31, March 31,
                                                 2002      2001
                                               --------- ---------
             <S>                               <C>       <C>
             Reported net income..............  $7,498    $20,952
             Goodwill amortization, net of tax      --      1,537
                                                ------    -------
             Net income.......................  $7,498    $22,489
                                                ======    =======
</TABLE>



   In June 2001, the FASB issued SFAS 143, "Accounting for Obligations
Associated with the Retirement of Long-Lived Assets". SFAS 143 establishes the
accounting standards for the recognition and measurement of an asset retirement
obligation and its associated asset retirement cost. This statement becomes
effective for HCLP on January 1, 2003. The Company is currently assessing the
new standard and has not yet determined the impact on its consolidated results
of operations, cash flows or financial position.


   In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The new rules supersede SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The new rules retain many of the fundamental recognition and
measurement provisions of SFAS 121, but significantly change the criteria for
classifying an asset as held-for-sale. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The Company has adopted the new standard,
which had no material effect on its consolidated results of operations, cash
flows or financial position.

   In April 2002, the FASB issued SFAS 145, "Rescission of FSAB Statements No.
4, 44, and 64, Amendment of FSAB Statement No. 13, and Technical Corrections".
The Statement updates, clarifies and simplifies existing accounting
pronouncements. Provisions of SFAS 145 related to the rescission of Statement 4
are effective for HCLP on January 1, 2003. The provisions of SFAS 145 related
to SFAS 13 are effective for transactions occurring after May 15, 2002. The
Company is assessing the new standard and had not yet determined the impact on
its consolidated results of operations, cash flows, or financial position.

                                     F-59

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


10. REPORTABLE SEGMENTS

   The Company manages its business segments primarily on the type of product
or service provided. The Company has five principal industry segments:
Rentals--Domestic; Rentals--International; Parts, Service and Used Equipment;
Compressor Fabrication and Production and Processing Equipment Fabrication. The
rentals segments provide natural gas compression rental and maintenance
services to meet specific customer requirements. The compressor fabrication
segment involves the design, fabrication and sale of natural gas compression
units to meet unique customer specifications. The production and processing
equipment fabrication segment designs, fabricates and sells equipment utilized
in the production of crude oil and natural gas. Parts, service and used
equipment segment provides used equipment, both new and used parts directly to
customers, as well as complete maintenance services for customer owned packages.

   The Company evaluates the performance of its segments based on segment gross
profit. Segment gross profit for each segment includes direct operating
expenses. Costs excluded from segment gross profit include selling, general and
administrative, depreciation and amortization, leasing, interest, distributions
on mandatorily redeemable convertible preferred securities and income taxes.
Amounts defined as "Other" include equity in income of non-consolidated
affiliates, results of other insignificant operations and corporate related
items primarily related to cash management activities. Revenues include sales
to external customers and inter-segment sales. Inter-segment sales are
accounted for at cost except for compressor fabrication sales which are
accounted for on an arms length basis. Intersegment sales and resulting profits
are eliminated in consolidation. Identifiable assets are tangible and
intangible assets that are identified with the operations of a particular
segment or geographic region, or which are allocated when used jointly.

                                     F-60

<PAGE>

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table presents sales and other financial information by
reportable segment for the three months ended March 31, 2002 and 2001 (in
thousands).


<TABLE>
<CAPTION>
                                                                   Production
                                              Parts,                   and
                                              service              processing
                     Domestic  International and used  Compressor   equipment
                     rentals      rentals    equipment fabrication fabrication  Other  Eliminations Consolidated
-                   ---------- ------------- --------- ----------- ----------- ------- ------------ ------------
<S>                 <C>        <C>           <C>       <C>         <C>         <C>     <C>          <C>
2002:
Revenues from
 external customers $   86,134   $ 42,737     $67,587   $ 26,058    $ 33,132   $ 5,258               $  260,906
Intersegment sales.                   341       8,014     31,284       2,956     1,578   (44,173)
                    ----------   --------     -------   --------    --------   -------   -------     ----------

Total revenues.....     86,134     43,078      75,601     57,342      36,088     6,836   (44,173)       260,906

Gross profit.......     56,261     29,936      11,393      3,659       4,595     5,258                  111,102

Identifiable assets  1,345,517    474,065      70,530    261,759     107,371     4,333                2,263,575

2001:
Revenues from
 external customers     53,729     26,133      50,334     54,651      41,612     3,485                  229,944
Intersegment sales.                 1,834       7,183     19,528         785     1,134   (30,464)
                    ----------   --------     -------   --------    --------   -------   -------     ----------

Total revenues.....     53,729     27,967      57,517     74,179      42,397     4,619   (30,464)       229,944

Gross profit.......     36,382     16,768      20,494      8,395       7,844     3,485                   93,368

Identifiable assets    721,656    251,345      37,270    301,631     109,875    99,436                1,521,213
</TABLE>



11.  Restatement



   In conjunction with a review of the Company's joint ventures and other
transactions conducted by management and Hanover's Board of Directors in early
2002, the Company determined that it was appropriate to restate its financials
for the year ended December 31, 2000 and for each of the quarters in the nine
months ended September 31, 2001. The net effect of this restatement on HCLP for
the three months ended March 31, 2001 was as follows: (i) an increase in
revenues of $10,025,000, from $219,919,000 to $229,944,000; (ii) an increase in
income before taxes of $1,903,000, from $32,155,000 to $34,058,000; and (iii)
an increase in net income of $1,180,000, from $19,772,000 to $20,952,000.


                                     F-61

<PAGE>




       Report of Independent Accountants on Financial Statement Schedule



To the Managers of the General Partner of


Hanover Compression Limited Partnership:



   Our audits of the consolidated financial statements of Hanover Compression
Limited Partnership referred to in our report dated May 2, 2002 appearing on
page F-16 of this Amendment No. 1 to Registration Statement on Form S-4 also
included an audit of the financial statement schedule listed in Item 21(b) of
this Amendment No. 1 to Registration Statement on Form S-4. In our opinion,
this financial statement schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.



/S/  PRICEWATERHOUSECOOPERS LLP



Houston, Texas
May 2, 2002




                                      S-1

<PAGE>



                                  SCHEDULE II

                    HANOVER COMPRESSION LIMITED PARTNERSHIP

                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                                    Additions
                                                        Balance at  Charged to               Balance at
                                                       Beginning of Costs and                  End of
                     Description                          Period     Expenses   Deductions     Period
                     -----------                       ------------ ---------- ----------    ----------
<S>                                                    <C>          <C>        <C>           <C>
Allowance for doubtful accounts deducted from accounts
  receivable in the balance sheet--
   2001...............................................  $2,659,000  $4,860,000 $1,219,000(1) $6,300,000
   2000...............................................   1,730,000   3,198,000  2,269,000(1)  2,659,000
   1999...............................................   1,212,000   1,476,000    958,000(1)  1,730,000
Allowance for obsolete and slow moving inventory
  deducted from inventories in the balance sheet......
   2001(3)............................................  $  560,000  $2,336,000 $  795,000(2) $2,101,000
</TABLE>
--------
(1) Uncollectible accounts written off, net of recoveries.
(2) Obsolete inventory written off at cost, net of value received.
(3) Amounts for 2000 and 1999 were not material.


                                      S-2

<PAGE>

================================================================================

                                  $250,000,00

                      8.75% Senior Secured Notes Due 2011
          that have been registered under the Securities Act of 1933
                                      for


       all outstanding unregistered 8.75% Senior Secured Notes Due 2011

                  ($250,000,000 principal amount outstanding)
                                      of

                         Hanover Equipment Trust 2001B
                       payable from lease obligations of
                               and guaranteed by

                    Hanover Compression Limited Partnership
              which lease obligations and notes are guaranteed by

                          Hanover Compressor Company

                               -----------------
                                  PROSPECTUS

                                          , 2002
                               -----------------

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>

                                    PART II
                  INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20.  Indemnification of Directors and Officers

  Hanover Equipment Trust 2001B

   Hanover Equipment Trust 2001B is a Delaware business trust. Section 3817 of
the Delaware Business Trust Act permits a business trust to indemnify and hold
harmless any trustee or beneficial owner or other person from and against any
and all claims and demands whatsoever.

   Section 4.3 of the Issuer's trust agreement provides that the trustee need
not take any action under the trust agreement unless the trustee has been
indemnified by HCLP, or if the trustee believes that such indemnity is
inadequate, by the Issuer's equity certificate holder against any liability,
fee, cost or expense (including reasonable attorneys' fees) that may be
incurred or charged in connection with such action, except for liability
resulting from the willful misconduct or gross negligence of the Issuer or the
trustee or from the failure of the Issuer or the trustee to use ordinary care
in the receiving, handling and disbursement of funds received by it in
accordance with the terms of the trust agreement.

  Hanover Compressor Company

   Hanover Compressor Company is a Delaware corporation. It is empowered by
Section 145 of the Delaware General Corporation Law (the "DGCL"), subject to
the procedures and limitations stated therein, to indemnify any person who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit or proceeding by reason of the fact that such person
is or was a director, officer, employee or agent of the company, or is or was
serving at the request of the company as a director, officer, employee or agent
of another corporation or other enterprise, against reasonable expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually incurred by him in connection with such action, suit or proceeding, if
such director, officer, employee or agent acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Hanover is required by
Section 145 to indemnify any person against reasonable expenses (including
attorneys' fees) actually incurred by him in connection with an action, suit or
proceeding in which he is a party because he is or was a director, officer,
employee or agent of the company or is or was serving at the request of the
company as a director, officer, employee or agent of another corporation or
other enterprise, if he has been successful, on the merits or otherwise, in the
defense of the action, suit or proceeding. Section 145 also allows a
corporation to purchase and maintain insurance on behalf of any such person
against any liability asserted against him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of Section 145. In
addition, Section 145 provides that indemnification pursuant to its provisions
is not exclusive of other rights of indemnification to which a person may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise.

   Article Eight of Hanover's charter provides that it shall indemnify and hold
harmless all of its officers and directors and advance expenses reasonably
incurred by such officers and directors in defending any civil, criminal,
administrative or investigative action, suit or proceeding, in accordance with
and to the fullest extent permitted by Section 145 of the DGCL. Hanover
maintains directors and officers insurance covering them for certain
liabilities, including liabilities under the securities laws.

  Hanover Compression Limited Partnership

   Hanover Compression Limited Partnership is a Delaware limited partnership.
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act (the
"DRUPLA") permits a limited partnership to indemnify and hold harmless any
partner or other person from and against any and all claims and demands
whatsoever.

                                     II-1

<PAGE>

   Article VII of HCLP's limited partnership agreement provides that HCLP shall
indemnify and hold harmless each general partner and limited partner and its
respective equity holders, members, directors, officers, employees, agents and
affiliates (each a "Covered Person") against claims or liabilities, including
legal fees and other expenses reasonably incurred, arising out of the
activities of HCLP or any action taken by the Covered Person on behalf of HCLP
pursuant to authority granted by HCLP's limited partnership agreement. This
indemnification does not cover claims or liabilities (i) incurred as a result
of the gross negligence, willful misconduct or bad faith of a Covered Person,
or a knowing and material violation of the provisions of HCLP's limited
partnership agreement, (ii) as to which indemnification is barred under federal
securities law, the DRULPA or other applicable law, or (iii) as to a Covered
Person's share as partner in any losses or expenses of HCLP.

Item 21.  Exhibits and Financial Statement Schedules

   (a)  Exhibits

<TABLE>
<CAPTION>
Exhibit
No.                                             Description of Exhibit
---                                             ----------------------
<C>     <S>

  3.1   Certificate of Trust of Hanover Equipment Trust 2001B *

  3.2   Amended and Restated Trust Agreement of Hanover Equipment Trust 2001B, dated as of August 30,
          2001, between General Electric Capital Corporation, as Certificate Holder, and Wilmington Trust
          Company, as Trustee *

  3.3   Certificate of Limited Partnership of Hanover Compression Limited Partnership *

  3.4   Certificate of Amendment to Certificate of Limited Partnership of Hanover Compression Limited
          Partnership, dated as of January 2, 2001 *

  3.5   Certificate of Amendment to Certificate of Limited Partnership of Hanover Compression Limited
          Partnership, dated as of August 20, 2001 *

  3.6   Limited Partnership Agreement of Hanover Compression Limited Partnership *

  3.7   Amendment to Limited Partnership Agreement of Hanover Compression Limited Partnership *

  4.1   Indenture, dated as of August 30, 2001, between Hanover Equipment Trust 2001B, the Hanover
          Guarantors parties thereto, and Wilmington Trust FSB, as Trustee and Collateral Agent, with
          respect to the 8.75% Senior Secured Notes due 2011 (1) [10.69]

  4.2   Exchange and Registration Rights Agreement with respect to the 8.75% Senior Secured Notes due
          2011, dated as of August 30, 2001, among Hanover Equipment Trust 2001B, Hanover Compressor
          Company, certain Guarantors party thereto, Goldman, Sachs & Co., J.P. Morgan Securities, Inc.,
          Salomon Smith Barney, Inc. and Credit Suisse First Boston Corporation *

  4.3   Participation Agreement, dated as of August 30, 2001, among Hanover Compression Limited
          Partnership, as Lessee, Hanover Equipment Trust 2001B, as Lessor, General Electric Capital
          Corporation, as Certificate Holders, certain Guarantors party thereto, Wilmington Trust FSB, as
          Indenture Trustee, Collateral Agent under the Indenture, and in its individual capacity, only to the
          extent expressly set forth therein, and Wilmington Trust Company, in its individual capacity, only
          to the extent expressly set forth therein (1) [10.66]

  4.4   Annex A to Participation Agreement and other Operative Agreements, containing certain Rules of
          Usage and Definitions *

  4.5   Lease, dated as of August 31, 2001, between Hanover Equipment Trust 2001B, as Lessor, and
          Hanover Compression Limited Partnership, as Lessee (1) [10.64]

  4.6   Guarantee, dated as of August 31, 2001, made by Hanover Compression Limited Partnership,
          Hanover Compressor Company, certain Guarantors party thereto, and certain Beneficiaries party
          thereto (1) [10.65]

  4.7   Security Agreement, dated as of August 31, 2001, made by Hanover Equipment Trust 2001B in favor
          of Wilmington Trust FSB, as Collateral Agent (1) [10.67]
</TABLE>

                                     II-2

<PAGE>


<TABLE>
<CAPTION>
Exhibit
  No.                                            Description of Exhibit
  ---                                            ----------------------
<C>     <S>
  4.8   Assignment of Lease, Rents and Guarantee, dated as of August 31, 2001, from Hanover Equipment
          Trust 2001B to Wilmington Trust FSB, as Collateral Agent (1) [10.68]
  5.1   Opinion of Latham & Watkins **
  5.2   Opinion of Morris, James, Hitchens & Williams LLP **
 12.1   Computation of Ratio of Earnings to Fixed Charges for Hanover Compressor Company **
 12.2   Computation of Ratio of Earnings to Fixed Charges for Hanover Equipment Trust 2001B **
 12.3   Computation of Ratio of Earnings to Fixed Charges for Hanover Compression Limited Partnership **
 21.1   List of Subsidiaries of Hanover Compressor Company **
 23.1   Consent of Latham & Watkins (included as part of its opinion filed as Exhibit 5.1)
 23.2   Consent of PricewaterhouseCoopers LLP **
 23.3   Consent of PricewaterhouseCoopers LLP **
 23.4   Consent of PricewaterhouseCoopers LLP **
 23.5   Consent of PricewaterhouseCoopers LLP **
 23.6   Consent of American Appraisal Associates, Inc. **
 23.7   Consent of Morris, James, Hitchens & Williams LLP (included as part of its opinion filed as Exhibit 5.2)
 24.1   Powers of Attorney (included on the signature page of this Registration Statement) **
 25.1   Statement of Eligibility of Trustee on Form T-1 **
 99.1   Form of Letter of Transmittal for 8.75% Senior Secured Notes due 2011 **
 99.2   Form of Notice of Guaranteed Delivery of 8.75% Senior Secured Notes due 2011 *
 99.3   Form of Letter to DTC Participants *
 99.4   Form of Letter to Beneficial Owners *
 99.5   Guidelines for Certification of Taxpayer Identification Number on Form W-9 *
 99.6   Form of Exchange Agent Agreement *
 99.7   Appraisal Report, dated as of August 16, 2001, covering Synthetic Lease Portfolio Hanover
        Equipment Trust 2001B Natural Gas Compressors prepared by American Appraisal Associates for
        Hanover Compression Limited Partnership **
</TABLE>

--------

(1) Such exhibit previously filed as an exhibit to Hanover's Quarterly Report
    on Form 10-Q for the period ended September 30, 2001, under the exhibit
    number indicated in brackets [ ], and is incorporated by reference herein.



*  Previously filed.


** Filed herewith.


   (b)  Financial Statement Schedules


   Financial statement schedules required pursuant to this Item are presented
on pages S-1 through S-2 of the Prospectus constituting a part of this
Registration Statement for Hanover Compression Limited Partnership. Financial
statement schedules for Hanover Compressor Company are incorporated by
reference to Hanover's annual report on Form 10-K/A for the year ended December
31, 2001.


Item 22.  Undertakings.

   The undersigned registrants hereby undertake:

   (1)  To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

   (i)  To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

   (ii)  To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated

                                     II-3

<PAGE>

maximum offering range may be reflected in the form of prospectus filed with
the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and

   (iii)  To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;

   (2)  That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof; and

   (3)  To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.

   The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' annual reports pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.

   Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the
registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the opinion of
their counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
them is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

   The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, 13, or 19(c) of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.

   The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.


                                     II-4

<PAGE>

                                  SIGNATURES

                   Signatures of Hanover Compressor Company


   Pursuant to the requirements of the Securities Act of 1933, as amended,
Hanover Compressor Company has duly caused this Amendment No. 1 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, as of May 24, 2002.


                                          HANOVER COMPRESSOR COMPANY

                                     By:          /S/  MICHAEL J. MCGHAN
                                            -----------------------------------
                                                             Michael J. McGhan
                                                            President and Chief
                                Executive Officer




   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael J. McGhan and John E. Jackson or either
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.



   Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and as of the dates indicated.



         Signature                         Title                     Date
         ---------                         -----                     ----
   /S/  MICHAEL J. MCGHAN  President and Chief Executive Officer May 24, 2002
  ------------------------   (Principal Executive Officer and
     Michael J. McGhan       Director)

    /S/  JOHN E. JACKSON   Chief Financial Officer (Principal    May 24, 2002
  ------------------------   Financial and Accounting Officer)
      John E. Jackson

  /S/  VICTOR E. GRIJALVA  Director                              May 24, 2002
  ------------------------
     Victor E. Grijalva

   /S/  TED COLLINS, JR.   Director                              May 24, 2002
  ------------------------
      Ted Collins, Jr.

  /S/  ROBERT R. FURGASON  Director                              May 24, 2002
  ------------------------
     Robert R. Furgason

    /S/  MELVYN N. KLEIN   Director                              May 24, 2002
  ------------------------
      Melvyn N. Klein

  /S/  MICHAEL A. O'CONNOR Director                              May 24, 2002
  ------------------------
    Michale A. O'Connor

  /S/  ALVIN V. SHOEMAKER  Director                              May 24, 2002
  ------------------------
     Alvin V. Shoemaker

  /S/  WILLIAM S. GOLDBERG Director                              May 24, 2002
  ------------------------
    William S. Goldberg

    /S/  I. JON BRUMLEY    Director                              May 24, 2002
  ------------------------
       I. Jon Brumley

      /S/  GORDON HALL     Director                              May 24, 2002
  ------------------------
        Gordon Hall

       /S/  RENE HUCK      Director                              May 24, 2002
  ------------------------
         Rene Huck


                                     II-5

<PAGE>

             Signatures of Hanover Compression Limited Partnership


   Pursuant to the requirements of the Securities Act of 1933, as amended,
Hanover Compression Limited Partnership has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, as of May 24, 2002.


                                          HANOVER COMPRESSION LIMITED
                                            PARTNERSHIP


                                                 /S/  MICHAEL J. MCGHAN

                                          By:________________________________
                                                     Michael J. McGhan
                                               President and Chief Executive
                                                          Officer




   KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael J. McGhan and John E. Jackson or either
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.



   Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities and as of the dates indicated.



<TABLE>
<CAPTION>
       Signature                          Title                       Date
       ---------                          -----                       ----
 <C>                    <S>                                       <C>

 /S/  MICHAEL J. MCGHAN President and Chief Executive Officer     May 24, 2002
 ----------------------   (Principal Executive Officer) and
   Michael J. McGhan      Manager of the General Partner

  /S/  JOHN E. JACKSON  Senior Vice President and Chief Financial May 24, 2002
 ----------------------   Officer (Principal Financial and
    John E. Jackson       Accounting Officer) and Manager of
                          the General Partner

 /S/  CHARLES D. ERWIN  Manager of the General Partner            May 24, 2002
 ----------------------
    Charles D. Erwin
</TABLE>


                                     II-6

<PAGE>

                  Signatures of Hanover Equipment Trust 2001B


   Pursuant to the requirements of the Securities Act of 1933, as amended,
Hanover Equipment Trust 2001B has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Wilmington, State of Delaware, as of May 24,
2002.


                                          HANOVER EQUIPMENT TRUST 2001B

                                          By: Wilmington Trust Company, not in
                                            its individual   capacity but
                                            solely as Trustee


                                          By:   /S/   DAVID A. VANASKEY, JR.
                                              ----------------------------------

                                                  David A. Vanaskey, Jr.,
                                                       Vice President

                                     II-7

<PAGE>

                                 EXHIBIT INDEX


<TABLE>
<C>  <S>
 3.1   Certificate of Trust of Hanover Equipment Trust 2001B *
 3.2   Amended and Restated Trust Agreement of Hanover Equipment Trust 2001B, dated as of August 30,
       2001, between General Electric Capital Corporation, as Certificate Holder, and Wilmington Trust
       Company, as Trustee *
 3.3   Certificate of Limited Partnership of Hanover Compression Limited Partnership *
 3.4   Certificate of Amendment to Certificate of Limited Partnership of Hanover Compression Limited
       Partnership, dated as of January 2, 2001 *
 3.5   Certificate of Amendment to Certificate of Limited Partnership of Hanover Compression Limited
       Partnership, dated as of August 20, 2001 *
 3.6   Limited Partnership Agreement of Hanover Compression Limited Partnership *
 3.7   Amendment to Limited Partnership Agreement of Hanover Compression Limited Partnership *
 4.1   Indenture, dated as of August 30, 2001, between Hanover Equipment Trust 2001B, the Hanover
       Guarantors parties thereto, and Wilmington Trust FSB, as Trustee and Collateral Agent, with respect
       to the 8.75% Senior Secured Notes due 2011 (1) [10.69]
 4.2   Exchange and Registration Rights Agreement with respect to the 8.75% Senior Secured Notes due 2011,
       dated as of August 30, 2001, among Hanover Equipment Trust 2001B, Hanover Compressor
       Company, certain Guarantors party thereto, Goldman, Sachs & Co., J.P. Morgan Securities Inc.,
       Salomon Smith Barney, Inc. and Credit Suisse First Boston Corporation *
 4.3   Participation Agreement, dated as of August 30, 2001, among Hanover Compression Limited
       Partnership, as Lessee, Hanover Equipment Trust 2001B, as Lessor, General Electric Capital
       Corporation, as Certificate Holders, certain Guarantors party thereto, Wilmington Trust FSB, as
       Indenture Trustee, Collateral Agent under the Indenture, and in its individual capacity, only to the
       extent expressly set forth therein, and Wilmington Trust Company, in its individual capacity, only to
       the extent expressly set forth therein (1) [10.66]
 4.4   Annex A to Participation Agreement and other Operative Agreements, containing certain Rules of
       Usage and Definitions *
 4.5   Lease, dated as of August 31, 2001, between Hanover Equipment Trust 2001B, as Lessor, and Hanover
       Compression Limited Partnership, as Lessee (1) [10.64]
 4.6   Guarantee, dated as of August 31, 2001, made by Hanover Compression Limited Partnership, Hanover
       Compressor Company, certain Guarantors party thereto, and certain Beneficiaries party thereto (1) [10.65]
 4.7   Security Agreement, dated as of August 31, 2001, made by Hanover Equipment Trust 2001B in favor of
       Wilmington Trust FSB, as Collateral Agent (1) [10.67]
 4.8   Assignment of Lease, Rents and Guarantee, dated as of August 31, 2001, from Hanover Equipment
       Trust 2001B to Wilmington Trust FSB, as Collateral Agent (1) [10.68]
 5.1   Opinion of Latham & Watkins **
 5.2   Opinion of Morris, James, Hitchens & Williams LLP **
12.1   Computation of Ratio of Earnings to Fixed Charges for Hanover Compressor Company **
12.2   Computation of Ratio of Earnings to Fixed Charges for Hanover Equipment Trust 2001B **
12.3   Computation of Ratio of Earnings to Fixed Charges for Hanover Compression Limited Partnership **
21.1   List of Subsidiaries of Hanover Compressor Company **
23.1   Consent of Latham & Watkins (included as part of its opinion filed as Exhibit 5.1) **
23.2   Consent of PricewaterhouseCoopers LLP **
23.3   Consent of PricewaterhouseCoopers LLP **
23.4   Consent of PricewaterhouseCoopers LLP **
23.5   Consent of PricewaterhouseCoopers LLP **
23.6   Consent of American Appraisal Associates, Inc. **
23.7   Consent of Morris, James, Hitchens & Williams LLP (included as part of its opinion filed as Exhibit 5.2)
24.1   Powers of Attorney (included on the signature page of this Registration Statement) **
25.1   Statement of Eligibility of Trustee on Form T-1 **
99.1   Form of Letter of Transmittal for 8.75% Senior Secured Notes due 2011 **
99.2   Form of Notice of Guaranteed Delivery of 8.75% Senior Secured Notes due 2011 *
99.3   Form of Letter to DTC Participants *
99.4   Form of Letter to Beneficial Owners *
99.5   Guidelines for Certification of Taxpayer Identification Number on Form W-9 *
99.6   Form of Exchange Agent Agreement *
99.7   Appraisal Report, dated as of August 16, 2001, covering Synthetic Lease Portfolio Hanover Equipment
       Trust 2001B Natural Gas Compressors prepared by American Appraisal Associates for Hanover
       Compression Limited Partnership **
</TABLE>


<PAGE>

--------
(1) Such exhibit previously filed as an exhibit to Hanover's Quarterly Report
    on Form 10-Q for the period ended September 30, 2001, under the exhibit
    number indicated in brackets [ ], and is incorporated by reference.

*  Previously filed.


** Filed herewith.