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                                                                   EXHIBIT 10.63

                           HANOVER COMPRESSOR COMPANY
                             STOCK COMPENSATION PLAN

                                    ARTICLE I

                                    The Plan

         1.1      Name. This plan shall be known as the "Hanover Compressor
Company Stock Compensation Plan" (the "Plan").

         1.2      Purpose. The purpose of the Plan is to promote the growth and
general prosperity of Hanover Compressor Company, a Texas corporation (the
"Company"), by permitting the Company to grant to its Directors, Officers,
Employees and Advisors options to purchase Common Stock of the Company (the
"Options"). The Plan is designed to help the Company and its subsidiaries and
affiliates attract and retain superior personnel for positions of substantial
responsibility and to provide Directors, Officers, Employees and Advisors with
an additional incentive to contribute to the success of the Company. The Company
intends that Options granted pursuant to the Plan will be nonstatutory options
and will not be classified as "incentive stock options" within the meaning of
Section 422 of the Code.

         1.3      Effective Date. The Plan shall become effective upon the
Effective Date.

         1.4      Eligibility to Participate. Any Director, Officer, Employee or
Advisor shall be eligible to participate in the Plan. The Committee may grant
Options to a Director, Officer, Employee or Advisor in accordance with such
determinations as the Committee from time to time in its sole discretion shall
make.

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         1.5      Shares Subject to the Plan. The shares available for issuance
upon exercise of Options granted under the Plan shall be shares of Common Stock
(the "Plan Shares").

         1.6      Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 5.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum number of Plan Shares that may be issued and
sold hereunder shall be equal to 15% of the total shares of Common Stock
outstanding, computed on a fully diluted basis and including the unissued Plan
Shares, at the time of the grant of an Option.

         1.7      Options Granted Under Plan. Plan Shares with respect to which
an Option shall have been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to which
such Option termination relates.

         1.8      Conditions Precedent. The Company shall not issue or deliver
any Option Agreement or any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:

                  (a) The admission of the Plan Shares to listing on all stock
         exchanges on which the Common Stock is then listed, unless the
         Committee determines in its sole discretion that such listing is
         neither necessary nor advisable;

                  (b) The completion of any registration or other qualification
         of the Plan Shares under any federal or state

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         law or under the rulings or regulations of the Securities and Exchange
         Commission or any other governmental regulatory body that the Committee
         shall in its sole discretion deem necessary or advisable; and

                  (c) The obtaining of any approval or other clearance from any
         federal or state governmental agency that the Committee shall in its
         sole discretion determine to be necessary or advisable.

         1.9      Reservation of Shares of Common Stock. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the number of Plan Shares. In addition, the Company will from time to
time, as is necessary to accomplish the purposes of the Plan, seek or obtain
from any regulatory agency having jurisdiction any requisite authority that is
necessary to issue Plan Shares hereunder. The inability of the Company to obtain
from any regulatory agency having jurisdiction the authority deemed by the
Company's counsel to be necessary to the lawful issuance of any Plan Shares
shall relieve the Company of any liability in respect of the non-issuance of
Plan Shares as to which the requisite authority shall not have been obtained.

         1.10     Tax Withholding.

                  (a) Condition Precedent. The issuance, delivery, exercise or
         vesting of any Options under the Plan is subject to the condition that
         if at any time the Committee shall

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         determine, in its discretion, that the satisfaction of withholding tax
         or other withholding liabilities under any state or federal law is
         necessary or desirable as a condition of, or in connection with, the
         issuance, delivery, exercise or vesting of the Options, then the
         issuance, delivery, exercise or vesting of the Options shall not be
         effective unless the withholding shall have been effected or obtained
         in a manner acceptable to the Committee.

                  (b) Manner of Satisfying Withholding Obligation. When a
         Director, Officer, Employee or Advisor participating in the Plan is
         required to pay to the Company an amount required to be withheld under
         applicable income tax laws in connection with the exercise of an
         Option, subject to Section 1.10(c), such individual may satisfy the
         obligation, in whole or in part, by electing to (i) have the Company
         withhold a portion of the Plan Shares acquired upon the exercise of the
         Option and having a Fair Market Value on the date the amount of tax to
         be withheld is to be determined (the "Tax Date") equal to the amount
         required to be withheld or (ii) deliver to the Company shares of Common
         Stock already owned and having a Fair Market Value on the Tax Date
         equal to the amount required to be withheld. The amount to be withheld
         shall be the minimum amount that is required to be withheld under
         applicable federal and state income tax laws; provided, however, in the
         event a request is made by a Director, Officer, Employee or Advisor,
         the amount to be withheld shall be the approximate

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         without cause and appoint successor or additional Committee members at
         any time.

         2.3      Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute the action of the Committee. Meetings of the
Committee may take place by telephone conference call.

         2.4      Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Directors, Officers,
Employees and Advisors, their employment, death, retirement, disability, or
other termination of employment, and such other pertinent facts as the Committee
may require. The Company shall furnish the Committee with such clerical and
other assistance as is necessary in the performance of its duties.

                                   ARTICLE III

                                  Stock Options

         3.1      Option Terms and Conditions. The terms and conditions of
Options granted under this Article may differ from one another as the Committee
shall, in its discretion, determine as long as all Options granted under this
Article satisfy the requirements of this Article.

         3.2      Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option

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granted under this Article expire later than 15 years after the date on which
the Option is granted. In addition, each Option shall be subject to early
termination as provided elsewhere in the Plan.

         3.3      Purchase Price. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option shall be determined
by the Committee at the time of the grant of the Option.

         3.4      Individual Option Agreements. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan, the awards made pursuant hereto, and such
other matters as the Committee deems appropriate.

         3.5      Non-Competition and Confidential Information. Each Optionee
receiving Options pursuant to this Article shall be subject to the restriction
that during the term of the Option Agreement and for a period of one year
thereafter, he or she will not compete with any business of the Company, and
will not disclose to persons outside the Company confidential information
concerning the Company without the Company's consent.

         3.6      Exercise of Options.

                  (a) Method of Exercise. Each Option shall be exercisable in
         accordance with the terms of the Option Agreement

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         pursuant to which the Option was granted. No Option may be exercised
         for a fraction of a Plan Share.

                  (b) Payment of Purchase Price.  The purchase price of any Plan
         Shares purchased shall be paid at the time of exercise of the Option
         either (i) in cash, (ii) by certified or cashier's check, (iii) if
         permitted by the Committee, by shares of Common Stock, (iv) if
         permitted by the Committee, by cash or certified or cashier's check for
         the par value of the Plan Shares plus a promissory note for the balance
         of the purchase price, which note shall provide for full personal
         liability of the maker and shall contain such other terms and
         provisions as the Committee may determine, including without limitation
         the right to repay the note partially or wholly with Common Stock, or
         (v) by delivery of a copy of irrevocable instructions from the Optionee
         to a broker or dealer, reasonably acceptable to the Company, to sell
         certain of the Plan Shares purchased upon exercise of the Option or to
         pledge them as collateral for a loan and promptly deliver to the
         Company the amount of sale or loan proceeds necessary to pay such
         purchase price. If any portion of the purchase price or a note given at
         the time of exercise is paid in shares of Common Stock, those shares
         shall be valued at the then Fair Market Value.

         3.7      Written Notice Required. Any Option shall be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office

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from the person entitled to exercise the Option and payment for the Plan Shares
with respect to which the Option is exercised has been received by the Company
in accordance with Section 3.6.

         3.8      Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed) and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.

         3.9      Employment of Participant or Optionee. Nothing in the Plan or
in any Option granted or Restricted Stock issued hereunder shall confer upon any
Participant or Optionee any right to

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continued employment by the Company or any of its subsidiaries or affiliates or
limit in any way the right of the Company or any subsidiary or affiliate at any
time to terminate or alter the terms of that employment.

         3.10     Option Rights Upon Termination of Employment. If an Optionee
that is an Employee ceases to be employed by the Company or any subsidiary or
affiliate for any reason other than death, Permanent Disability, or for Cause
(as defined in Section 3.11), his Option shall be exercisable (to the extent
exercisable on the date of termination of employment) at any time within 90 days
after the date of termination of employment unless by its terms the Option
expires sooner or the Committee agrees, in its sole discretion, to extend the
term of such Option.

         3.11     Termination of Employment for Cause. If an Optionee that is an
Employee ceases to be employed by the Company or any subsidiary or affiliate of
the company because the optionee is terminated for Cause, the Option shall
automatically expire. For purposes of this Article III and Section 4.3,"Cause"
shall mean an act or acts involving a felony, fraud, willful misconduct, the
commission of any act that causes or reasonably may be expected to cause
substantial injury to the Company, a violation of the restrictions imposed by
Section 3.5, or other good cause. The term "other good cause" as used in this
Section shall include, but shall not be limited to, habitual impertinence, a
pattern of conduct that tends to hold the Company up to ridicule in the
community, conduct disloyal to the Company, conviction of any crime of moral
turpi-

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tude, and substantial dependence, as judged by the Committee, on alcohol or any
controlled substance. "Controlled substance" means a drug, immediate precursor,
or other substance listed in Schedules I-V of the Federal Comprehensive Drug
Abuse Prevention and Control Act of 1970, as amended.

         3.12     Option Rights Upon Permanent Disability of Optionee. Unless
either the Option or the Option Agreement pursuant to which it was issued
otherwise provides, an Option that is issued to (a) an Employee shall become
fully exercisable on the date of the Optionee's termination of employment if the
Optionee ceases to be an Employee as a result of his or her Permanent Disability
and shall expire 1 year thereafter unless by its terms it expires sooner or (b)
a Non-employee Director or Advisor that is not also classified as an Employee
shall not be affected as a result of the Permanent Disability of the Optionee.

         3.13     Option Rights Upon Death of Optionee. Unless either the
Optionor the Option Agreement pursuant to which it was issued otherwise
provides, an Option that is issued to (a) an Employee shall become fully
exercisable on the date of the Employee's death and shall expire 1 year
thereafter unless by its terms its expires sooner or (b) a Non-employee Director
or Advisor that is not also classified as an Employee shall not be affected as a
result of the Death of the Optionee. Following the death of an Optionee, the
Option may be fully exercised, to the extent that it remains unexercised on the
date of death, by the Optionee's personal representative or by the distributee
to whom the Optionee's rights

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under the Option shall pass by will or by the laws of descent and distribution.

         3.14     Options Not Transferable and Subject to Certain Restrictions.
Options may not be sold, pledged, assigned, or transferred in any manner other
than by will or the laws of descent and distribution and may be exercised during
the lifetime of an Optionee only by that Optionee or by his legally authorized
representative.

                                   ARTICLE IV

                              Change in Control and
                     Constructive Termination of Employment

         4.1      Consequences of Change in Control and Constructive Termination
of Employment. Notwithstanding any other term or provision of this Plan, upon
the occurrence of a Change in Control of the Company followed or accompanied
within two years thereafter by a Constructive Termination of Employment of a
person who holds an Option, that portion of each such Option that is not then
exercisable shall become exercisable.

         4.2      Change in Control Defined. As used herein, a "Change in
Control of the Company" sha11 be deemed to have occurred if, after the Effective
Date (a) any "person", or persons acting as a "group" (as such terms are used in
Sections 13 (d) and 14 (d) (2) of the Securities Exchange Act of 1934, as
amended, but excluding any Company employee stock ownership plan and any person
that was a stockholder of the Company at the Effective Date), (i) becomes the
beneficial owner, directly or indirectly, of securities of the

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Company representing 50% or more of the combined voting power of the Company's
then outstanding securities, or (ii) acquires or obtains, directly or
indirectly, the power, authority or ability, whether through share ownership,
contract, proxy, voting agreement or any other arrangement, understanding or
circumstance, to mange or direct the operations of the Company, (b) the Company
or its stockholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means of a sale, merger, or other
reorganization or liquidation, or otherwise in a reorganization transaction in
which the Company is not the surviving corporation, or (c) the Board of
Directors of the Company ceases to consist of a majority of Continuing
Directors. For purposes hereof, "Continuing Director" shall mean a member of the
Board of Directors of the Company who either (1) was a member of the Board of
Directors as of the Effective Date or (2) was nominated, appointed or approved
(before initial election as a director) to serve as a director by a majority of
the then Continuing Directors.

         4.3      Constructive Termination of Employment. As used herein,
"Constructive Termination of Employment" shall mean the termination of an
Employee's employment by the Company for reasons other than Cause (as defined in
Section 3.11) or Permanent Disability, or if any of the following shall occur
without the Employee's written consent:

                  (a) The assignment of duties and responsibilities materially
         inconsistent with or of materially lesser statute than, the Employee's
         positions, duties, responsibilities and

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         status with the Company immediately prior to the first Change in
         Control of the Company that occurred prior to such assignment;

                  (b) The removal of the Employee from, or any failure to
         re-elect the Employee to, any office of the Company or any successor of
         the Company, except in connection with his termination of employment
         for cause, death, disability or retirement;

                  (c) A reduction by the Company or any successor of the Company
         in the Employee's annual base salary in effect immediately prior to the
         first Change in Control of the Company that occurred prior to such
         reduction or as the said salary may thereafter be increased from time
         to time;

                  (d) Failure by the Company or any successor to the Company to
         permit the Employee to continue to participate in incentive
         compensation and benefit programs (other than stock-related plans or
         arrangements) comparable to those in effect immediately prior to the
         first Change in Control of the Company that occurred prior to such
         failure; or

                  (e) Any purported termination of the Employee's employment for
         Cause or Permanent Disability not in accordance with the provisions of
         this Plan with respect thereto.

                                    ARTICLE V

                     Termination, Amendment, and Adjustment

         5.1      Termination and Amendment. The Plan shall terminate 10 years
after the Effective Date. No Options shall be granted under

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the Plan after that date of termination. The Committee may at any time amend or
revise the terms of the Plan, including the form and substance of the Option
Agreements to be used in connection herewith. No amendment, suspension, or
termination of the Plan shall, without the consent of the individual who has
received an Option hereunder, alter or impair any of that individual's rights or
obligations under any Option granted under the Plan prior to that amendment,
suspension, or termination.

         5.2      Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment shall
be made in the maximum number and kind of Plan Shares as to which Options may be
granted under the Plan. A corresponding adjustment changing the number or kind
of shares allocated to unexercised Options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in outstanding Options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the Option, but with a
corresponding adjustment in the price for each share covered by the Option. The
foregoing adjustments and the manner of application of the forgoing provisions
shall be determined solely by the Committee, and any such adjustment may provide
for the elimination of fractional share interests.

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                                   ARTICLE VI

                                  Miscellaneous

         6.1      Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in effect
for the Company or any subsidiary or affiliate of the Company, nor shall the
Plan preclude the Company or any subsidiary or affiliate thereof from
establishing any other forms of incentive or other compensation plans.

         6.2      Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company and any subsidiary or affiliate of the
Company that adopts the Plan.

         6.3      Number and Gender. Whenever used herein, nouns in the singular
shall include the plural where appropriate, and the masculine pronoun shall
include the feminine gender.

         6.4      Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.

                                   ARTICLE VII

                                   Definitions

         As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:

         7.1      "Advisor" shall mean any person performing services for the
Company or any subsidiary or affiliate of the Company, with or without
compensation, to whom the Company chooses to grant Options in accordance with
the Plan, provided that bona fide services must

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be rendered by such person and such services shall not be rendered in connection
with the offer or sale of securities in a capital raising transaction.

         7.2      "Board" shall mean the Board of Directors of the Company.

         7.3      "Code" shall mean the Internal Revenue Code of 1986, as
amended.

         7.4      "Committee" shall mean the Committee appointed in accordance
with Section 2.2.

         7.5      "Common Stock" shall mean the Common Stock, par value $ .01
per share, of the Company or, in the event that the outstanding shares of such
Common Stock are hereafter changed into or exchanged for shares of a difference
stock or security of the Company or some other corporation, such other stock or
security.

         7.6      "Company" shall mean Hanover Compressor Company, a Texas
corporation.

         7.7      "Director" shall mean a member of the Board of Directors of
the Company or any subsidiary or affiliate of the Company.

         7.8      "Effective Date" shall meant the date of the Plan's adoption
by the Board.

         7.9      "Employee" shall mean an employee of the Company, or of any
subsidiary or affiliate of the Company the board of directors of which adopts
the Plan, as determined under Section 3401 (c) of the Code and the regulations
thereunder. Unless the context otherwise indicates, the term "Employee" shall
include Officers and Directors that are not Non-employee Directors.

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         7.10     "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.

         7.11     "Fair Market Value" shall mean such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided that if
the Common Stock is traded on a national securities exchange or transactions in
the Common Stock are quoted on the NASDAQ National Market System, such value as
shall be determined by the Committee on the basis of the average reported sales
price for the Common Stock for the ten days preceding the date for which such
determination is relevant, as reported on the national securities exchange or
the NASDAQ National Market System, as the case may be.

         7.12     "Non-employee Director" shall mean a Director who is not an
Officer or Employee.

         7.13     "Officer" shall mean an officer of the Company or any
subsidiary or affiliate of the Company.

         7.14     "Option" shall mean an option granted pursuant to Article III.

         7.15     "Optionee" shall mean a Director, Officer, Employee or Advisor
to whom an Option has been granted hereunder.

         7.16     "Option Agreement" shall mean an agreement between the Company
and an Optionee with respect to one or more Options.

         7.17     "Permanent Disability" or " Permanently Disabled" shall mean
the Employee's inability, because of mental or physical illness or incapacity,
to perform his or her duties for the Company

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for a continuous period of 120 days or for 120 days out of a 150-day period.

         7.18     "Plan" shall mean Hanover Compressor Company Stock
Compensation Plan, the terms of which are set forth herein.

         7.19     "Plan Shares" shall mean shares of Common Stock issuable
pursuant to the Plan (including, but not limited to, shares of Common Stock
issued or issuable upon exercise of Options granted pursuant to the Plan).

         7.20     "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act or any successor rule.

         7.21     "Securities Act" shall mean the Securities Act of 1933, as
amended.

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                                                                   EXHIBIT 10.70

                                                                  EXECUTION COPY

                           HANOVER COMPRESSOR COMPANY
                             STOCK OPTION AGREEMENT

        THIS STOCK OPTION AGREEMENT ("Agreement") is entered into between
HANOVER COMPRESSOR COMPANY, a Delaware corporation (the "Company"), and
("Optionee"), on this __________ day of _______________ (all capitalized terms
used herein but not otherwise defined shall have the meaning assigned to them in
Section 19). In consideration of the mutual promises and covenants made herein,
the parties hereby agree as follows:

        1.      Grant of Option. Under the terms and conditions set forth
herein, the Company grants to Optionee an option to purchase the Shares at a
purchase price of $__________ per share (the "Option"). The "Shares" shall
consist of ________ shares of the Company's common stock, par value $.001 per
share (the "Common Stock").

        The Option is a non-statutory option and is not intended to qualify for
any special tax benefits in the hands of Optionee. The Option is not intended to
qualify as an incentive stock option described in Section 422 of the Internal
Revenue Code of 1986, as amended. All provisions of this Agreement are to be
construed in conformity with this intention.

        2.      Term. Except as provided below, the Option shall be valid for a
term commencing on the date hereof (the "Date of Grant") and ending 10 years
from the Date of Grant (the "Termination Date").

                (a)     Option Rights Upon Termination of Employment. If
        Optionee ceases to be employed by the Company or any subsidiary or
        affiliate thereof for any reason other than Cause or Optionee's
        Permanent Disability or death, the Option shall be exercisable (to the
        extent exercisable on the date of termination of employment) at any time
        prior to the earlier of (i) the Termination Date or (ii) within 30 days
        after the date of termination of employment.

                (b)     Termination of Employment for Cause. If Optionee ceases
        to be employed by the Company or any subsidiary or affiliate thereof
        because Optionee is terminated for Cause, the Option shall automatically
        expire and Optionee shall have no right to exercise any portion of the
        Option, whether or not vested, thereafter.

                (c)     Option Rights Upon Permanent Disability or Death of
        Optionee. If Optionee ceases to be employed by the Company as a result
        of Optionee's Permanent Disability or death, the Option shall be
        exercisable at any time prior to the earlier of (i) the Termination Date
        or (ii) 30 days after the date of termination of employment. Following
        the death of Optionee, the Option may be exercised by Optionee's
        personal representative or by the distributee to whom Optionee's rights
        under the Option shall pass by will or by the laws of descent and
        distribution.

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        3.      Vesting.  The Option may only be exercised to the extent vested.

                (a)     The Option will vest according to the following
        schedule:

                Number of Years
                Since Grant Date                           Vested Percentage
                ----------------                           -----------------

                Fewer than one                                        0%
                One but fewer than two                               20%
                Two but fewer than three                             40%
                Three but fewer than four                            60%
                Four but fewer than five                             80%
                Five or more                                        100%

        If Optionee's employment with the Company is terminated prior to
becoming fully vested, Optionee will forfeit the non-vested portion of the
Option.

                (b)     Notwithstanding the vesting provisions in Section 3(a),
        if Optionee's employment is terminated for Cause, Optionee's vested
        percentage shall be zero percent (0%) and Optionee shall forfeit any and
        all rights in and to the Option.

                (c)     Notwithstanding the vesting provisions in Section 3(a),
        (i) if Optionee's employment is terminated because of Optionee's death
        or Permanent Disability or (ii) upon the occurrence of a Capital Event,
        Optionee shall be immediately one hundred percent (100%) fully vested in
        the Option. The Company shall notify Optionee at least 10 days prior to
        a contemplated Capital Event.

        4.      Restriction on Exercise. The Option may not be exercised during
any period in which Optionee is in default under the terms of any loan or other
obligation that Optionee may have with the Company. Upon cure of such default,
the restrictions of this Section 4 will lapse and the Option shall be
exercisable to the extent vested and otherwise exercisable under the terms of
this Agreement.

        5.      Procedure for Exercise. Exercise of the Option or a portion
thereof shall be effected by the giving of written notice by Optionee to the
Company at its principal office and payment of the pro rata portion of the
purchase price prescribed in Section 1 for the number of Shares to be acquired
pursuant to the exercise.

        6.      Payment for Shares. Payment of the purchase price for any shares
purchased pursuant to the exercise of the Option shall be made in (i) cash; (ii)
by certified or cashier's check, (iii) by shares of Common Stock, subject to the
consent of the Board, (iv) by cash or certified or cashier's check for the par
value of the Shares plus a promissory note for the balance of the purchase
price, which note shall not provide for full personal liability of Optionee and
shall contain such other terms and provisions as the Board may determine,
including, without

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limitation, the right to repay the note partially or wholly with Common Stock or
(v) by delivery of a copy of irrevocable instructions from Optionee to a broker
or dealer, reasonably acceptable to the Company, to sell certain of the Shares
purchased upon exercise of the Option or to pledge them as collateral for a loan
and promptly to deliver to the Company the amount of sale or loan proceeds
necessary to pay such purchase price. If any portion of the purchase price or a
note given at the time of exercise is paid in shares of Common Stock, those
shares shall be valued at their then Fair Market Value.

        7.      Option Not Transferable and Subject to Certain Restrictions. The
Option may not be sold, pledged, assigned or transferred in any manner other
than by will or the laws of descent and distribution and may be exercised during
the lifetime of Optionee only by Optionee or by Optionee's legally authorized
representative. Following the death of Optionee, the Option may be exercised by
Optionee's personal representative or by the distributee to whom Optionee's
rights under the Option shall pass by will or by the laws of descent and
distribution.

        8.      Non-Competition and Confidential Information. In consideration
hereof, Optionee agrees that during the term of this Agreement and for a period
of one year thereafter, Optionee (i) will not compete with any business of the
Company or any subsidiary or affiliate thereof and (ii) will not disclose to
persons outside the Company confidential information concerning the Company or
any subsidiary or affiliate thereof without the Company's express written
consent.

        9.      Consent to Stockholders' Agreement. Optionee hereby acknowledges
and confirms that the Shares purchased upon exercise of the Option are subject
to the terms and conditions of the Stockholders' Agreement. Optionee further
acknowledges and agrees that prior to delivery of any Shares by the Company,
Optionee will execute such instruments as are necessary to be bound by the terms
and conditions of the Stockholders' Agreement.

        10.     Investment Purpose. Upon exercise of the Option, Optionee shall
represent and warrant to the Company that Optionee is acquiring the Shares for
Optionee's own account for investment and not with a view to, or for sale in
connection with, any distribution of the Shares and that Optionee consents to be
bound by any transfer restrictions imposed by law, legend, condition or
otherwise. Optionee consents to the imposition of the following legend on all
stock certificates representing the Shares:

                THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
                TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
                UNDER SUCH ACT, OR UNLESS SUCH OFFER, SALE, TRANSFER, PLEDGE OR
                HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
                COMPLIANCE WITH SUCH ACT. THE TRANSFERABILITY OF THIS SECURITY
                IS ALSO SUBJECT TO RESTRICTIONS CONTAINED IN A STOCKHOLDERS
                AGREEMENT WHICH

                                      -3-

<PAGE>

                AGREEMENT THE COMPANY WILL FURNISH TO THE HOLDER OF THIS
                SECURITY UPON REQUEST.

                A STATEMENT SUMMARIZING THE VOTING POWERS, DESIGNATIONS,
                PREFERENCES, LIMITATIONS, RESTRICTIONS AND RELATIVE RIGHTS OF
                THE VARIOUS CLASSES OF STOCK OR SERIES THEREOF MAY BE OBTAINED
                BY THE STOCKHOLDERS OF THE COMPANY, WITHOUT CHARGE, FROM THE
                PRINCIPAL OFFICES OF THE COMPANY.

        11.     Tax Withholding.

                (a)     Option Conditioned upon Satisfaction of Withholding
        Obligation. The issuance, delivery, exercise or vesting of the Option is
        subject to the condition that if at any time the Board shall determine,
        in its discretion, that the satisfaction of withholding tax or other
        withholding liabilities under any state or federal law is necessary or
        desirable as a condition of, or in connection with, the issuance,
        delivery, exercise or vesting of the Option, then the issuance,
        delivery, exercise or vesting of the Option shall not be effective
        unless the withholding shall have been effected or obtained in a manner
        acceptable to the Company.

                (b)     Manner of Satisfying Withholding Obligation. If Optionee
        is required to pay to the Company an amount required to be withheld
        under applicable income tax laws in connection with the exercise of the
        Option, subject to Section 11(c), Optionee may satisfy the obligation,
        in whole or in part, by electing to (i) have the Company withhold a
        portion of the Shares acquired upon the exercise of the Option having a
        Fair Market Value on the date the amount of tax to be withheld is to be
        determined (the "Tax Date") equal to the amount required to be withheld
        or (ii) deliver to the Company shares of Common Stock already owned
        having a Fair Market Value on the Tax Date equal to the amount required
        to be withheld. The amount to be withheld shall be the minimum amount
        that is required to be withheld under applicable federal and state
        income tax laws; provided, however, in the event a request is made by
        Optionee, the amount to be withheld shall be the approximate amount of
        federal and state income taxes that will be incurred by Optionee with
        respect to such issuance, delivery, exercise or vesting of Options under
        this Agreement.

                (c)     Special Rules for Use of Stock. An election to have
        Shares or other shares of Common Stock withheld or delivered out of
        already-owned Common Stock for the purposes of Section 11(b) (i) must be
        made prior to the Tax Date and (ii) must be irrevocable.

        12.     Compliance with Securities Laws.  Shares shall not be issued
unless the exercise of the Option and the issuance and delivery of the Shares
shall comply, in the opinion of counsel

                                       -4-

<PAGE>

for the Company, with all applicable provisions of state and federal law
including, without limitation, (a) the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder (including Rule 16b-3) and (b)
the requirements of any stock exchange upon which the Shares may then be listed.
Optionee shall furnish evidence showing such compliance, satisfactory to the
Company, including a written and signed representation to such effect.

        13.     Employment of Optionee. Nothing in this Agreement shall confer
upon Optionee any right to continued employment by the Company or any subsidiary
or affiliate thereof or limit in any way the right of the Company or any
subsidiary or affiliate thereof at any time to terminate or alter the terms of
such employment.

        14.     Adjustments. If the outstanding Common Stock of the Company is
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through merger, consolidation, combination, exchange of
shares, other reorganization, recapitalization, reclassification, stock
dividend, stock split or reverse stock split, an appropriate and proportionate
adjustment shall be made in the number and kind of Shares subject to the Option;
provided, however, that no adjustment shall be made upon any conversion of
preferred stock of the Company to Common Stock. Any such adjustment in the
Option shall be made without change in the aggregate purchase price applicable
to the unexercised portion of the Option, but with a corresponding adjustment in
the price for each security covered by the Option. The foregoing adjustments and
the manner of application of the foregoing provisions shall be determined solely
by the Board and any such adjustments may provide for the elimination of
fractional share interests.

        15.     Shares Not Outstanding. Prior to issuance, the Shares are not
deemed to be outstanding for any purpose and Optionee shall have no voting,
preemptive or other shareholder rights with respect to the Shares.

        16.     Number. Whenever used herein, nouns in the singular shall
include the plural where appropriate.

        17.     Headings. Headings of articles and sections hereof are inserted
for convenience of reference only and constitute no part of this Agreement.

        18.     Binding on Successors. This Agreement shall be binding upon the
successors and assigns of the Company and on the heirs, personal
representatives, successors, assigns and distributees of Optionee.

        19.     Definitions. Unless otherwise defined herein, terms used herein
with initial capital letters shall have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:

                (a)     "Board" means the Board of Directors of the Company.

                                       -5-

<PAGE>

                (b)     "Capital Event" means the first to occur of:

                                (A)     the date that GKH sells or otherwise
                        transfers more than 50% of its Common Stock interest in
                        the Company;

                                (B)     the date all or substantially all the
                        assets or property of the Company are sold or otherwise
                        transferred to an unrelated third-party;

                                (C)     the effective date of a merger or
                        consolidation under which the Company is not the
                        surviving entity or the surviving entity is not
                        controlled by GKH either individually or collectively;

                                (D)     the dissolution or liquidation of the
                        Company; or

                                (E)     the effective date (as declared by the
                        Securities and Exchange Commission) the Common Stock is
                        registered in a public offering and listed on a
                        nationally recognized stock exchange or national
                        inter-dealer quotation system.

                (c)     "Cause" means a termination of Optionee's employment by
        the Company or any subsidiary or affiliate thereof due to (i) the
        commission by Optionee of an act of fraud, embezzlement or willful
        breach of a fiduciary duty to the Company or any subsidiary or affiliate
        thereof (including the unauthorized disclosure of confidential or
        proprietary material information of the Company or any subsidiary or
        affiliate thereof), (ii) a conviction of Optionee (or a plea of nolo
        contendere in lieu thereof) for a felony or a crime involving fraud,
        dishonesty or moral turpitude, (iii) willful misconduct as an employee
        of the Company or any subsidiary or affiliate thereof, (iv) the willful
        failure of Optionee to render services to the Company or any subsidiary
        or affiliate thereof in accordance with Optionee's employment, which
        failure amounts to a material neglect of Optionee's duties to the
        Company or any subsidiary or affiliate thereof or (v) substantial
        dependence, as determined by the Board, on alcohol or any drug,
        immediate precursor or other substance listed in Schedule I-V of the
        Federal Comprehensive Drug Abuse Prevention and Control Act of 1970, as
        amended.

                (d)     "Exchange Act" means the Securities Exchange Act of
        1934, as amended.

                (e)     "Fair Market Value" means such value as determined by
        the Board on the basis of such factors as it deems appropriate;
        provided, however, that if the Common Stock is traded on a national
        securities exchange or transactions in the Common Stock are quoted on
        the NASDAQ National Market System, such value shall be determined by the
        Board on the basis of the average reported sales price of the Common
        Stock on the national securities exchange or the NASDAQ National Market
        System, as the case may be, for the ten days preceding the date for
        which such determination is relevant.

                                       -6-

<PAGE>

                (f)     "GKH" shall mean the collective reference to (i) GKH
        Investments, L.P., a Delaware limited partnership ("Investments"), (ii)
        GKH Partners, L.P., a Delaware limited partnership ("Partners") and
        (iii) the respective affiliates of Investments and Partners.

                (g)     "Permanent Disability" means the inability of Optionee
        to perform substantially all of Optionee's duties and responsibilities
        to the Company for either (i) a continuous period of six months or (ii)
        180 days during any consecutive twelve month period by reason of a
        physical or mental disability or infirmity which is expected to be
        permanent and continuous for life as determined by a physician selected
        by the Board. The date of such Permanent Disability shall be (a) in the
        case of clause (i) above, the last day of such six month period or, if
        later, the day on which Optionee submits satisfactory medical evidence
        of such Permanent Disability or (b) in the case of clause (ii) above,
        such date as is determined in good faith by the Board.

                (h)     "Rule 16b-3" means Rule 16b-3 promulgated under the
        Exchange Act or any successor rule.

                (i)     "Securities Act" means the Securities Act of 1933, as
        amended.

                (j)     "Stockholders' Agreement" means the Amended and Restated
        Stockholders' Agreement of the Company dated as of August 7, 1995.

        20.     Governing Law. The construction and operation of this Agreement
are governed by the laws of the State of Delaware.

        21.     Amendment. This Agreement may be amended only by an instrument
in writing signed by both the Company and Optionee.

        22.     Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto concerning the subject matter hereof and
supersedes all prior and contemporaneous agreements between the Company and
Optionee relating to the subject matter hereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       -7-

<PAGE>

        Executed on the date first written above.

                                                  COMPANY:

                                                  HANOVER COMPRESSOR COMPANY,
                                                  a Delaware corporation

                                                  By:    /s/ Curtis A. Bedrich
                                                        ------------------------
                                                        Curtis A. Bedrich
                                                        Chief Financial Officer
                                                        and Treasurer

                                                  OPTIONEE:

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

                                       -8-

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