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                                                                   Exhibit 10.77

                              SEPARATION AGREEMENT

     This agreement ("Agreement") is made among Michael J. McGhan, an individual
residing in Spring, Texas ("McGhan"), Hanover Compressor Company, a Delaware
corporation ("HCC"), and Hanover Compression Limited Partnership ("Hanover
Compression," and together with HCC, "Hanover") following significant
negotiation by both parties, fully represented by counsel.

     WHEREAS, McGhan has served as the Chief Executive Officer and President of
HCC since October 1991, and as a Director of HCC since March 1992;

     WHEREAS, McGhan is one of the founders of Hanover, which was founded in
1990;

     WHEREAS, McGhan has provided years of valuable service to Hanover;

     WHEREAS, today, HCC is a global market leader in full service natural gas
compression and a leading provider of service, fabrication and equipment for
contract natural gas application;

     WHEREAS, HCC believes it is currently the largest natural gas compressor
company in the United States on the basis aggregate market horsepower;

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Hanover and McGhan, intending to be
legally bound, hereby agree as follows:

1.   Effective Date. The Agreement will become final, binding and enforceable on
     August 1, 2002 (the "Effective Date").

2.   Resignations. Hanover and McGhan have mutually determined that it is in the
     best interest of both parties to sever the current relationships with each
     other, including the employment relationships of McGhan with Hanover and
     its affiliates. Hanover agrees that McGhan may resign from employment, and
     McGhan hereby resigns as of the Effective Date from all positions he holds
     as an employee, agent, officer, director and/or representative of (i) HCC
     and its subsidiaries and affiliates (collectively, the "Hanover Entities")
     and (ii) any entity in which HCC may hold, directly or indirectly, any
     interest.

3.   Payments to McGhan.  Hanover agrees as follows:

          a. Within three (3) business days after the Effective Date, Hanover
          will deliver to McGhan a final paycheck for all wages earned through
          the Effective Date, plus three (3) weeks vacation, less any and all
          customary and usual deductions or withholdings.

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          b. Within thirty (30) days after the Effective Date, Hanover will
          reimburse McGhan for all necessary and reasonable expenses that McGhan
          has incurred on behalf of Hanover or any of its affiliates prior to
          the Effective Date, according to the standard policies and procedures
          of Hanover regarding reimbursement of such expenses.

          c. Hanover shall make the monthly payments specified in Paragraph 9.

          d. Except as otherwise specifically provided in this Agreement, McGhan
          will not be eligible to participate in or accumulate any credit under
          the provisions of any retirement plan, the vacation policy, or any
          other employee benefit plan or policy of Hanover as of the Effective
          Date. No further bonus will be paid to McGhan under any bonus plan or
          policy. It is understood that McGhan maintains the right to and
          ownership of all vested amounts in his name as of the Effective Date
          in any existing 401(k) plan, other pension or retirement plan
          maintained by Hanover.

4.   Stock Options. It is expressly agreed that McGhan may exercise any
     unexercised vested outstanding options ("Stock Options") granted to McGhan
     pursuant to any of HCC's various stock option plans and stock option
     agreements between McGhan and HCC (such stock option plans and stock option
     agreements being herein collectively referred to as the "Stock Option
     Agreements"), but only in accordance with the terms and provisions of the
     operative Stock Option Agreement, including those provisions relating to
     termination of employment. Stock Options that have not vested before the
     Separation Date shall be forfeited. No further stock option awards,
     accruals, vesting, or payments of any kind will be made to McGhan for any
     plan year. In connection with any exercise of any Stock Options, McGhan
     shall first fully satisfy and fund HCC's tax withholding obligations, if
     any, that may arise in connection with McGhan's exercise of such Stock
     Option. In addition, McGhan agrees that (i) in connection with each
     exercise of any Stock Option, McGhan will immediately deliver the
     certificates evidencing the resulting shares of stock (the "Option Shares")
     to HCC in freely transferable form as collateral for the repayment of the
     Existing Loans (as defined below) together with such stock powers,
     financing statements and security agreements as HCC shall reasonably
     require to evidence and perfect a first priority security interest in the
     Option Shares and (ii) within five (5) business days after Hanover presents
     initial drafts to McGhan, McGhan will execute and deliver to HCC such
     security agreements and financing statements as HCC shall reasonably
     require to evidence and perfect a first priority security interest in any
     Option Shares that have been, or may in the future be, issued pursuant to
     the Stock Options (collectively the "2002 Stock Pledge Agreements"). All
     Option Shares shall secure the Existing Loans pursuant to the terms of the
     2002 Stock Pledge Agreements and on terms consistent with this Agreement.
     The 2002 Stock Pledge Agreements shall include provisions that allow or
     require, as indicated below, the sale of all or a portion of the Option
     Shares covered thereby and the application of the resulting proceeds to the
     following in the following order of priority:

          a. First, at McGhan's option, to pay or prepay any principal or
          interest under the Existing Loans (as defined below);



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         b. Second, at the time of the last exercise (or lapse, if earlier) of
         the foregoing Stock Options, a determination shall be made of the
         federal income taxes that will accrue (at the maximum marginal federal
         income tax rate for the year 2002 for individuals filing jointly) as a
         result of the grant and exercise of the foregoing Stock Options (less
         the amount of required tax withholding by HCC) and a number of Option
         Shares having a market value at such time equal to the amount of such
         taxes, plus cost of sale, shall be released from the 2002 Stock Pledge
         Agreements and delivered to McGhan; and

         c. Third, at McGhan's option, the remaining Option Shares may be sold
         and the resulting proceeds, less actual cost of sale, shall be
         delivered to HCC as substitute cash collateral for the repayment of for
         the $1,700,000 Loan and the $500,000 Loan and deposited by HCC into an
         interest bearing depository account under the control of HCC (such sums
         being referred to herein as the "Cash Collateral"), with such interest
         to accrue in such account to McGhan.

5.   Property. Except as otherwise provided herein, no equipment or materials or
     property owned by Hanover or McGhan shall be transferred between McGhan and
     Hanover. McGhan agrees that, on or prior to the Effective Date, McGhan will
     return or relinquish all Hanover credit cards, computers (including all
     files saved thereon), office space, furniture, equipment, files, books, and
     other company equipment, materials or property in his possession. McGhan is
     entitled to all of his personal property that is currently on Hanover
     premises, and Hanover agrees to return and relinquish the same.

6.   Existing Loans. McGhan and wife, Ruth McGhan (collectively, "Makers"),
     agree as follows with respect to the three (3) loans evidenced by the
     following described Promissory Notes (collectively the "Existing Loans"):

         a. Promissory Note dated April 12, 2001 executed by Makers and payable
         to the order of Hanover Compression in the original principal amount of
         $1,700,000.00 as therein provided (the loan evidenced by such
         Promissory Note being herein referred to as the "$1,700,000.00 Loan");

         b. Promissory Note dated April 12, 2001 executed by Makers and payable
         to the order of Hanover Compression in the original principal amount of
         $500,000.00 as therein provided (the loan evidenced by such Promissory
         Note being herein referred to as the "$500,000.00 Loan"); and

         c. Unsecured Promissory Note dated January 29, 2002 executed by McGhan
         and payable to the order of Hanover Compression in the original
         principal amount of $400,000.00 as therein provided (the loan evidenced
         by such Promissory Note being herein referred to as the "$400,000.00
         Loan").

         6.1 Status of Existing Loans. With respect to each of the Existing
     Loans, Makers represent and warrant to Hanover that (i) Makers do not have
     any right of offset or setoff against the payment of any such Existing Loan
     or any defenses to payment of such Existing Loan, and (ii) the Promissory
     Note evidencing such Existing Loan, as described above, has


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     not been modified or amended, represents the entire agreement between
     Makers and Hanover concerning such Existing Loan, is in full force and
     effect, is a valid and subsisting obligation of Makers and is enforceable
     in accordance with the its terms.

         6.2. Collateral Test. In the event the sum of the total of the
     following is ever less than seventy-five percent (75%) of the unpaid
     principal balance of all of the Existing Loans, plus unpaid accrued
     interest thereon, all of the Option Shares shall be sold and the resulting
     proceeds thereof less actual cost of sale, shall be delivered to HCC as
     substitute cash collateral for the repayment of the Existing Loans and
     deposited into an interest bearing account under the control of HCC, with
     interest to accrue in such account to McGhan: (i) the market value of any
     unexercised, unexpired Stock Options described in Paragraph 4 above, being
     an amount equal to the difference between the then market value of the
     shares of stock of HCC (based on the average closing price of HCC stock
     over the immediately preceding thirty (30) day period) and the purchase
     price under such Stock Options, less usual and customary cost of sale; (ii)
     the market value of any Option Shares (based on the average closing price
     of HCC stock over the immediately preceding thirty (30) day period) pledged
     as security for the Existing Loans in accordance in with the requirements
     of Paragraph 4 above; plus; (iii) the amount of any Cash Collateral pledged
     as security for the Existing Loans in accordance with the requirements of
     Paragraph 4 above. No sale pursuant to this paragraph shall occur until ten
     (10) business days after Hanover has provided McGhan with written notice of
     the shortfall in collateral, and only, then, if within such ten (10) day
     period McGhan fails to grant Hanover a properly perfected first security
     interest in additional collateral of the type described above sufficient to
     allow the above 75% test to be satisfied. The foregoing collateral test
     shall not take into account any other collateral securing the Existing
     Loans, including, but not limited to any real estate.

         6.3 Partial Release at Deed of Trust Liens. As provided in the
     Promissory Notes evidencing the $1,700,000 Loan and $500,000 Loan, Makers
     have agreed to secure such Existing Loans by a Deed of Trust and Security
     Agreement covering, among other property, Lot 25, Block 9, in Walden on
     Lake Conroe, Section 2, a subdivision in Montgomery County, Texas,
     according to map or plat thereof recorded in Cabinet A, Sheet 62 (formerly
     Volume 10, Page 18) of the Map Records of Montgomery County Texas, together
     with easement rights to that certain 0.083 acre tract line adjacent to such
     Lot 25, as set forth in Easement Agreement filed under Clerk's File No.
     8941887 of the Real Property Records of Montgomery County, Texas
     (collectively herein referred to as the "Montgomery County Property" and
     such Deed of Trust and Security Agreement being herein referred to as the
     "McGhan Deed of Trust"). Hanover agrees that upon payment by Makers to
     Hanover of a prepayment of principal on the $1,700,000 Loan or $500,000
     Loan, or any combination thereof, in an amount equal to $500,000, Hanover
     will release the Montgomery County Property from the liens and security
     interest granted to Hanover in the McGhan Deed of Trust, but any such
     release shall not release any other liens or security interest securing the
     Existing Loans, including, but not limited to any liens or security
     interests against any other property covered by the McGhan Deed Trust or
     any replacement thereof.

          6.4. Further Assurances. Makers agree that they shall promptly execute
     and deliver all further agreements, and take all further action, that may
     be reasonably necessary or that Hanover may reasonably request, in order to
     further evidence the Existing Loans and/or the


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     liens, security interests, and assignments granted or purported to be
     granted as security for the Existing Loans and perfect and protect the same
     or to enable Hanover to exercise and enforce Hanover's rights and remedies
     thereunder. Without limiting the foregoing, Makers shall at Hanover's
     reasonable request: (i) execute security agreements, deeds of trust,
     financing statements, amendments and continuations of financing statements,
     assignments, notices, and such other documents and agreements as Hanover
     may reasonably request in order to perfect and preserve the liens and
     security interests granted or purported to be granted as security for the
     Existing Loans and (ii) use reasonable efforts to obtain any
     acknowledgements from the obligors under any instruments securing or
     purporting to secure the Existing Loans reasonably requested by Hanover to
     confirm the status of such instruments and verify the rights of Hanover.
     Makers also hereby authorize Hanover to execute on behalf of Makers, as
     debtor, and to file financing statements necessary or desirable in
     Hanover's sole discretion to perfect and to maintain the perfection and
     priority of Hanover's security interest in the collateral securing or
     purporting to secure the Existing Loans. Without limiting the foregoing,
     Makers agree that within five (5) business days after Hanover presents
     initial drafts to McGhan, Makers will properly execute, acknowledge and
     deliver to Hanover such deeds of trust and security agreements as Hanover
     shall reasonably require to grant Hanover valid and perfected deed of trust
     lien and security interest in the real property purported to be covered by
     the McGhan Deed of Trust.

7.   Release and Waiver by McGhan. In partial exchange for the agreements of
     Hanover contained herein, McGhan, on behalf of himself, his heirs,
     executors, successors, administrators and assigns and subject to the
     provisions set forth below in this Paragraph 7, does hereby knowingly and
     voluntarily release, acquit and forever discharge Hanover, its officers,
     shareholders, employees, directors, attorneys, subscribers, parent
     companies, subsidiaries, affiliates, successors and assigns (collectively,
     the "Hanover Parties") from any and all claims, charges, complaints,
     grievances or promises of any and every kind, whether known or unknown,
     that are based upon facts occurring prior to the Effective Date of this
     Agreement, including but not limited to, the following: (a) any contractual
     claims arising under any written or oral agreements between McGhan and
     Hanover Entities, (b) any statutory claims under the Age Discrimination in
     Employment Act of 1967, the Americans with Disabilities Act of 1990, the
     Family and Medical Leave Act of 1993, the Civil Rights Acts of 1964 and
     1991, the Employee Retirement Income Security Act, Chapter 451 of the Texas
     Labor Code, the Texas Payday Law, and/or the Texas Commission on Human
     Rights Act, or arising from any federal, state, or local statute, ordinance
     or regulation, (c) any tort or contract claims, (d) any claims, matters or
     actions related to McGhan's employment and/or affiliation with, or
     separation from Hanover. It is further agreed that, in the event Hanover
     initiates any claim, charge, complaint or grievance by Hanover against
     McGhan, other than a claim, charge, complaint or grievance regarding the
     obligations of McGhan or Makers under (a) this Agreement, (b) any of the
     Existing Loans, (c) the 2002 Stock Pledge Agreements or (d) any other
     instruments securing or executing in connection with the Existing Loans,
     the foregoing release of claims by McGhan shall be extinguished and no
     longer in effect to the extent necessary to defend or respond to such
     claim, charge, complaint or grievance, including any counterclaims, cross
     claims, demands or other actions. The above notwithstanding, it is
     expressly agreed that McGhan is not releasing and does not release or waive
     any right to (i) indemnification from any of the Hanover Entities, to the
     extent he is entitled to such indemnification under Delaware or applicable
     law, or the bylaws, charters or



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     partnership agreements of the Hanover Entities and (ii) from the D&O
     insurance carrier to the extent the McGhan is determined to be entitled to
     the benefits offered under any directors and officers insurance policy
     maintained by any of the Hanover Entities. In addition, Hanover agrees that
     attorneys' fees and expenses incurred by McGhan in defending civil or
     criminal actions as provided for under Section 7.1 of Hanover's bylaws
     (including proceedings prosecuted by the United States Securities and
     Exchange Commission) shall be advanced to McGhan; provided that McGhan's
     signature on this Agreement shall constitute an undertaking to reimburse
     such expenses as provided for in Section 7.1 of Hanover's bylaws.

8.   Confidential Information. McGhan acknowledges that in the course of
     McGhan's employment by Hanover, McGhan had access to information relating
     to the business and affairs of the Hanover Entities, including, without
     limitation, trade secrets, designs, technology, processes, data,
     techniques, inventions (whether patentable or not), works of authorship,
     formulas, business and development plans, customer lists, software programs
     and subroutines, source and object code, algorithms, terms of compensation
     and personnel assessments of the Hanover Entities' employees, information
     regarding the Hanover Entities' facilities, processes, operating
     procedures, financial data, purchasing practices, marketing, management
     procedures, books and records, employee or personnel data, contractual
     arrangements or proposals, properties and business affairs of the Hanover
     Entities, as well as the Hanover Entities' business plans and budgets,
     information concerning the Hanover Entities' actual or anticipated
     business, research or development, and may have received information in
     confidence by or for any of the Hanover Entities from any other person
     (collectively "Confidential Information"). McGhan agrees that following the
     Effective Date, McGhan will not, at any time, directly or indirectly, for
     any reason whatsoever, with or without cause, unless pursuant to a lawful
     subpoena, disclose or disseminate any Confidential Information to any
     person or entity, nor will McGhan use any Confidential Information in
     competing with any of the Hanover Entities for any purpose. It is expressly
     understood that the Confidential Information covered by this paragraph
     includes only information that is confidential or proprietary information
     of one or more of the Hanover Entities and therefore does not include
     information which is available to the public. This provision may be
     specifically enforced by Hanover through an action at law or in equity at
     any time Hanover deems necessary.

9.   Non-Competition. As partial exchange for the consideration referred to
     herein and in further consideration of the payment by Hanover to McGhan of
     $33,333.33 per month for a period of eighteen (18) months and pursuant to
     McGhan's recognition that a material part of Hanover's willingness to enter
     into this Agreement centers upon its concern that a breach of this
     Paragraph 9 by McGhan would materially damage the Hanover Entities, McGhan
     further agrees that from the Effective Date up to and including a two (2)
     year period following the Effective Date of this Agreement, McGhan will
     not, either directly or indirectly, for himself or on behalf of any other
     person, persons, company, partnership, corporation or business of whatever
     nature:

          a. except for the Permitted Activities (as defined below), engage in,
          carry on, or have a financial interest in (in any capacity whatsoever,
          including, without limitation, as an officer, director, shareholder,
          owner, partner, joint venturer,



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         manager, advisor, employee, independent contractor or consultant) the
         Applicable Businesses (as defined below) anywhere except Asia, due to
         the broad geographic nature of the Hanover Entities' business or
         otherwise compete with the Hanover Entities in the Applicable
         Businesses;

         b. employ any employee, consultant or independent contractor of any of
         Hanover, or solicit or call upon any person or entity who is, at that
         time, an employee, consultant or independent contractor of any of the
         Hanover Entities, for the purpose of or with the intent or effect of
         employing, contracting for services, or enticing such employee,
         independent contractor or consultant away from or out of the employ or
         contract with any of the Hanover Entities, whether through a Qualified
         Investment or otherwise, or

         c. call upon any person or entity which is, at that time, or which has
         been within one (1) year prior to that time, a customer of any of the
         Hanover entities for the purpose of proposing a Qualified Investment or
         soliciting, selling, leasing or outsourcing management of services or
         products relating to the Applicable Businesses anywhere except Asia.

     As referenced above, the "Applicable Businesses" will mean the hydrocarbon
     compression and hydrocarbon processing, treating, parts and services and
     production equipment businesses conducted by any of the Hanover Entities.

     Notwithstanding anything in subparagraph (a) of this Paragraph 9 to the
     contrary, McGhan may (i) acquire, for investment purposes only, not more
     than two percent (2%) of the capital stock of a business competing with
     Hanover, provided that such stock is traded on a national securities
     exchange, an automated quotation system, or over-the-counter, or (ii) after
     offering a Qualified Investment (as defined below) to HCC pursuant to the
     procedures set forth in this Paragraph 9, make a Qualified Investment (the
     activities described in clauses (i) and (ii) being collectively referred to
     as the "Permitted Activities").

     If, from the Effective Date up to and including the last day of the
     twenty-four (24) month period following the Effective Date of this
     Agreement, McGhan desires to make a Qualified Investment, McGhan shall give
     written notice to HCC at least thirty (30) days prior to the proposed date
     such Qualified Investment is to be consummated by McGhan (the "First
     Notice"). The First Notice shall contain a detailed description of the
     terms and timing of such Qualified Investment, the dollar amount of such
     Qualified Investment, and contact information for representatives of the
     entity or business in which such Qualified Investment is to be made, and
     shall be accompanied by written authorization from the Qualified Entity (as
     defined below) offering the Qualified Investment to Hanover in lieu of
     McGhan. McGhan hereby consents to HCC's contact with such representatives
     to the extent deemed necessary by HCC for its evaluation of the Qualified
     Investment. HCC shall have ten (10) days from the date of its receipt of
     the First Notice to notify McGhan in writing of Hanover's intention to make
     the Qualified Investment in lieu of McGhan making such investment (the
     "First Acceptance Notice"). If HCC shall deliver a First Acceptance


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     Notice to McGhan, the Qualified Investment shall not be considered a
     Permitted Activity, and McGhan hereby consents to Hanover's negotiation and
     consummation of such Qualified Investment on behalf of itself. If, however,
     HCC does not deliver an First Acceptance Notice within such ten (10)-day
     period, McGhan may continue to negotiate the terms of such Qualified
     Investment and shall give a second written notice to HCC (directed to the
     attention of the CEO office at least ten (10) days prior to the proposed
     date such Qualified Investment is to be consummated by McGhan (the "Second
     Notice"). The Second Notice shall contain updated versions of the
     information contained in the First Notice. HCC shall have five (5) days
     from the date of its receipt of the Second Notice to notify McGhan in
     writing of Hanover's intention to make the Qualified Investment in lieu of
     McGhan making such investment (the "Second Acceptance Notice"). If HCC
     shall deliver a Second Acceptance Notice to McGhan, the Qualified
     Investment shall not be considered a Permitted Activity, and McGhan hereby
     consents to Hanover's negotiation and consummation of such Qualified
     Investment behalf of itself. If, however, HCC shall not have delivered
     either a First Acceptance Notice within the ten (10)-day period described
     herein or a Second Acceptance Notice with the five (5)-day period described
     herein, the Qualified Investment shall be considered a Permitted Activity
     so long as it shall be consummated by McGhan under substantially the same
     terms as such Qualified Investment was presented to HCC on the proposed
     consummation date as stated in the Second Notice or within five (5) days
     thereafter (the "Deadline"). Any Qualified Investment not consummated by
     the McGhan on or prior to the Deadline shall not be considered a Permitted
     Investment unless re-offered to Hanover in accordance with the procedures
     specified in this Paragraph 9.

     For purposes of this Agreement, the term (i) "Qualified Investment" shall
     mean a passive investment, whether as a shareholder, limited partner,
     member, or other owner, in a Qualified Entity, and (ii) "Qualified Entity"
     shall mean any entity or business that (a) competes with any Hanover Entity
     anywhere, and (b) with respect to which (or its subsidiaries or
     affiliates), McGhan has no employment, consulting, contractor or management
     relationship.

     Should McGhan fail to perform any provision of this Agreement, including
     this Paragraph 9, then the payments provided for under this Paragraph 9
     shall cease immediately. Notwithstanding the foregoing, Hanover agrees that
     prior to exercising the foregoing right to cease such payments on the basis
     of McGhan's perceived failure to perform any provision of this Agreement or
     instituting any proceedings for injunctive relief for such failure by
     McGhan, Hanover will first deliver written notice of such failure to McGhan
     and make reasonable efforts to have a senior officer of HCC meet with
     McGhan to discuss any alleged violation during the seven (7) day period
     immediately following the delivery of such notice. In the event at the
     expiration of such seven (7) day period Hanover still believes that McGhan
     has failed to perform any provisions of this Agreement, Hanover shall not
     be limited in exercising any rights available to Hanover for such failure,
     whether arising under this Agreement, at law or in equity.


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10.  Injunctive Relief. It is agreed by the parties that the foregoing covenants
     in Paragraph 9 impose a reasonable restraint on the McGhan in light of the
     activities and business of Hanover on the date of the execution of this
     Agreement. All of the covenants in Paragraph 9 shall be construed as an
     agreement independent of any other provision in this Agreement or any other
     relationship or dealings between the parties. Because of the difficulty of
     measuring economic losses to Hanover as a result of a breach of any
     covenant in Paragraph 9 above, and because of the immediate and irreparable
     damage that could be caused to Hanover for which they would have no other
     adequate remedy, McGhan agrees that in the event of an alleged breach by
     McGhan, the foregoing covenants may be enforced by Hanover by injunctions,
     restraining orders and other equitable actions.

11.  Cooperation. McGhan agrees that he will act at all times hereafter in a
     manner consistent with the interests of Hanover with respect to their
     shareholders, customers, employees, agents, and lenders. Neither McGhan nor
     Hanover will defame or disparage each other. McGhan further agrees that he
     will provide reasonable cooperation to Hanover in response to reasonable
     requests made by Hanover in matters relating to internal investigations,
     external investigations, and/or judicial or administrative proceedings,
     including but not limited to, participating upon reasonable notice in
     conferences and meetings, making himself available upon reasonable notice
     of reasonable times for interviews, providing non-privileged documents or
     information, aiding in the analysis of documents, or complying with any
     other reasonable requests by Hanover including execution of such agreements
     as are reasonably necessary. Nothing in this paragraph is intended to
     constitute or be construed as a waiver of the attorney-client privilege or
     any other privileges that McGhan may be entitled to assert. This
     cooperation is an integral part of this Agreement. Hanover agrees that it
     will provide reasonable cooperation to McGhan in response to reasonable
     requests by McGhan in matters relating to internal investigations, external
     investigations, and/or judicial or administrative proceedings arising out
     of or relating in any way to any fact related to McGhan as an officer or
     director of Hanover which occurred prior to the Effective Date of this
     Agreement, including but not limited to providing non-privileged documents
     or information, aiding in the analysis of documents or complying with any
     other reasonable requests by McGhan.

12.  Indemnification of Hanover. McGhan agrees to pay federal and state taxes,
     if any, that he is required by law to pay with respect to this Agreement.
     If McGhan fails to pay any required taxes with respect to this Agreement,
     McGhan agrees to indemnify and hold Hanover harmless from any claims,
     demands, deficiencies, levies, assessments, penalties or recoveries by any
     government or entity against McGhan for any amounts claimed due on account
     of McGhan's failure to pay any required taxes with respect to the amounts
     designated in this Agreement, including Hanover's reasonable attorneys'
     fees in any disputes related to those payments.

13.  Consulting Services. For a period thirty-six (36) months from the Effective
     Date, the McGhan agrees to provide reasonable consulting services to
     Hanover that do not materially interfere with McGhan's business activities
     (the "Consulting Services"). McGhan shall provide the consulting services
     at the direction of the Chairman of the Board of Directors of Hanover.
     McGhan will be an independent contractor and is not authorized to represent
     any of the Hanover Parties. The McGhan shall be entitled to cease providing
     Consulting Services to Hanover by giving Hanover thirty (30) days prior
     written notice. In consideration for the


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     McGhan's agreement to provide Consulting Services, Hanover shall provide
     health and medical benefits to the McGhan and his family on a basis (and at
     a cost) substantially similar to those benefits provided to Hanover's
     employees. At such time as McGhan elects to terminate McGhan's obligations
     to provide Consulting Services, Hanover shall cease providing such health
     and medical benefits.

14.  Acknowledgement. McGhan and Hanover acknowledge, represent and agree that
     they have been fully informed and are fully aware of their rights to
     discuss any and all aspects of this matter with an attorney of choice, that
     they have carefully read and fully understands all of the provisions of
     this Agreement, and that they accept the terms of this Agreement as fair
     and equitable under all the circumstances and voluntarily execute this
     Agreement.

15.  Non-Admission. This Agreement is not an admission by McGhan or Hanover of
     any wrongdoing or liability.

16.  No Future Employment. McGhan agrees to waive any right to reinstatement or
     future employment with any of the Hanover Entities following the Effective
     Date.

17.  Entire Agreement. This Agreement sets forth the entire Agreement between
     McGhan and Hanover. Further, it supercedes and extinguishes any prior
     understandings or written or oral agreements between the parties. No one
     has promised McGhan or Hanover anything that is different from what is set
     forth in this Agreement. No other promises or agreements shall be binding
     upon McGhan or Hanover with respect to the subject matter of this Agreement
     unless separately agreed to in writing.

18.  Assignment. This Agreement and all the provisions hereof shall be binding
     upon and inure to the benefit of the parties hereto and their respective
     successors, heirs, legal representatives and assigns, but neither this
     Agreement nor any of the rights, interests, or obligations hereunder shall
     be assigned by either of the parties hereto without the prior written
     consent of the other party.

19.  Controlling Law. This Agreement has been made in the State of Texas and
     Texas law applies to it. If any part is found to be invalid, the remaining
     parts of the Agreement will remain in effect as if there were no invalid
     part. Any suit, action or proceeding against any party to this Agreement
     shall be brought in any federal or state court located in the City of
     Houston, Texas, and each party hereby submits to the nonexclusive
     jurisdiction of such courts for the purpose of any such suit, action or
     proceeding. McGhan and Hanover agree that this Agreement is intended to,
     and in all respects should be interpreted and enforced in a manner that
     renders it consistent with, and in no manner in violation of, the
     Sarbanes-Oxley Act of 2002.

20.  Miscellaneous. McGhan agrees that, except as provided by this Agreement, he
     is not entitled to any income, payments, salaries, or other financial
     benefits from any of Hanover.

21.  Notices. Except as otherwise specifically provided herein, notices and
     other communications provided for herein shall be in writing and shall be
     hand delivered or mailed;



                                       10

<PAGE>





     If to Hanover:                              With a Copy to:

     Hanover Compressor Company                  Hanover Compressor Company
     12000 N. Houston Rosslyn                    12000 N. Houston Rosslyn
     Houston, Texas 77086                        Houston, Texas 77086
     Attention:  Chief Executive Officer         Attention:  General Counsel

     If to McGhan:                               With a Copy to:

     Michael J. McGhan                           Eric J.R. Nichols
                                                 Beck, Redden & Secrest, L.L.P.
     --------------------------
     Houston, Texas                              1221 McKinney, Suite 4500
                    -----------
                                                 Houston, Texas 77010


22.  Ruth McGhan has joined in the execution of this Agreement for purposes of
     evidencing her agreement to the terms of Paragraphs 6, 17, 18, 19 and 20.



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<PAGE>



                                            HANOVER COMPRESSOR COMPANY
/s/ Michael J. McGhan
-----------------------------------         By: /s/ Victor E. Grijalva
Michael J. McGhan                               --------------------------------
                                                [name]  Victor E. Grijalva
/s/ Ruth Lynn McGhan                            [title] President & Chief
-----------------------------------                     Executive Officer
Ruth McGhan

Date:  8/2/02                               Date:  8/5/02
     -----------------                           -------------

                                            HANOVER COMPRESSION LIMITED
                                            PARTNERSHIP

                                            By: /s/ John E. Jackson
                                                --------------------------------
                                                [name]  John E. Jackson

                                                [title] Chief Financial Officer

                                            Date:  8/5/02
                                                 -------------

                                            It is represented that the
                                            individual(s) signing above on
                                            behalf of Hanover Compressor Company
                                            and Hanover Compression Limited
                                            Partnership have full authorization
                                            to do so.

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