10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO                     .

Commission File No. 001-33666

EXTERRAN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization) 74-3204509
(I.R.S. Employer
Identification No.)

4444 Brittmoore Road, Houston, Texas	77041
(Address of principal executive offices)	(Zip Code)

(713) 335-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one):

Large accelerated þ      Accelerated filer o      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of the Common Stock of the registrant outstanding as of October 29, 2007: 65,723,546 shares.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Statements of Comprehensive Income (Loss)		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Unaudited Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 3. Quantitative and Qualitative Disclosures About Market Risk		50
Item 4. Controls and Procedures		51
PART II. OTHER INFORMATION		52
Item 1. Legal Proceedings		52
Item 1A. Risk Factors		52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		59
Item 4. Submission of Matters to a Vote of Security Holders		59
Item 6. Exhibits		61
SIGNATURES		65
2007 Stock Incentive Plan
Amended and Restated Omnibus Agreement
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of dollars, except for par value and share amounts)

	September 30,			December 31,
	2007			2006
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	95,524		$	73,286
Accounts receivable, net of allowance of $10,825 and $4,938, respectively		500,880			283,073
Inventory, net		427,865			308,093
Costs and estimated earnings in excess of billings on uncompleted contracts		189,478			109,732
Current deferred income taxes		38,391			20,129
Other current assets		135,586			86,350
Total current assets		1,387,724			880,663
Property, plant and equipment, net		3,495,237			1,863,452
Goodwill, net		1,461,907			181,098
Intangible and other assets		375,187			55,702
Investments in non-consolidated affiliates		89,926			89,974
Total assets	$	6,809,981		$	3,070,889
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	3,051		$	4,433
Current maturities of long-term debt		—			455
Accounts payable, trade		240,689			136,908
Accrued liabilities		266,371			147,320
Advance billings		157,864			170,859
Billings on uncompleted contracts in excess of costs and estimated earnings		87,328			94,123
Total current liabilities		755,303			554,098
Long-term debt		2,243,012			1,365,043
Other liabilities		96,180			48,953
Deferred income taxes		372,099			76,522
Total liabilities		3,466,594			2,044,616
Commitments and contingencies (Note 12)
Minority interest		192,028			11,991
Stockholders’ equity:
Preferred stock, $0.01 and $0.001 par value, respectively; 50,000,000 and 975,000 shares authorized, respectively; zero issued		—			—
Common stock, $0.01 and $0.001 par value, respectively, 250,000,000 and 65,000,000 shares authorized respectively; 66,209,371 and 33,743,363 shares issued, respectively		662			104
Additional paid-in capital		3,300,235			1,104,730
Accumulated other comprehensive income		27,671			12,983
Accumulated deficit		(127,212	)		(99,565	)
Treasury stock— 658,339 and 146,173 common shares, at cost, respectively		(49,997	)		(3,970	)
Total stockholders’ equity		3,151,359			1,014,282
Total liabilities and stockholders’ equity	$	6,809,981		$	3,070,889

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2007			2006		2007			2006
Revenues and other income:
U.S. contract operations	$	145,913		$	98,030	$	345,110		$	282,746
International contract operations		91,530			63,792		228,467			193,818
Aftermarket services		150,202			47,951		304,206			152,959
Compressor and accessory fabrication		174,235			90,141		392,451			214,960
Production and processing equipment fabrication		191,649			115,890		447,482			298,162
Equity in income (loss) of non-consolidated affiliates		(5,005	)		6,313		6,957			17,391
Gain on sale of business and other income		5,006			1,667		17,803			42,216
		753,530			423,784		1,742,476			1,202,252
Costs and Expenses:
Cost of sales (excluding depreciation and amortization expense):
U.S. contract operations		62,184			39,557		141,318			114,377
International contract operations		36,731			25,528		87,712			70,551
Aftermarket services		127,519			37,894		250,400			124,017
Compressor and accessory fabrication		134,916			74,371		304,177			179,546
Production and processing equipment fabrication		164,661			97,675		380,535			255,841
Selling, general and administrative		73,025			50,913		181,059			148,751
Merger and integration expenses		34,008			—		37,397			—
Depreciation and amortization		67,133			45,307		170,801			130,352
Fleet impairment		61,945			—		61,945			—
Interest expense		37,483			28,802		91,123			89,729
Foreign currency translation (gain) loss		(4,673	)		905		(4,662	)		(2,828	)
Debt extinguishment costs		70,255			—		70,255			5,902
Other		—			—		—			1,204
		865,187			400,952		1,772,060			1,117,442
Income (loss) from continuing operations before income taxes and minority interest		(111,657	)		22,832		(29,584	)		84,810
Provision (benefit) for income taxes		(38,692	)		11,216		(8,085	)		29,209
Income (loss) from continuing operations before minority interest		(72,965	)		11,616		(21,499	)		55,601
Minority interest, net of taxes		(2,426	)		93		(2,426	)		—
Income (loss) from continuing operations		(75,391	)		11,709		(23,925	)		55,601
Income from discontinued operations, net of tax		—			570		—			368
Gain from sales of discontinued operations, net of tax		—			—		—			63
Income (loss) before cumulative effect of accounting changes		(75,391	)		12,279		(23,925	)		56,032
Cumulative effect of accounting changes, net of tax		—			—		—			370
Net income (loss)	$	(75,391	)	$	12,279	$	(23,925	)	$	56,402
Basic income (loss) per common share:
Income (loss) from continuing operations	$	(1.55	)	$	0.37	$	(0.61	)	$	1.69
Income from discontinued operations, net of tax		—			—		—			0.03
Cumulative effect of accounting changes, net of tax		—			—		—			—
Net income (loss)	$	(1.55	)	$	0.37	$	(0.61	)	$	1.72
Diluted income (loss) per common share:
Income (loss) from continuing operations	$	(1.55	)	$	0.34	$	(0.61	)	$	1.66
Income from discontinued operations, net of tax		—			0.03		—			0.03
Cumulative effect of accounting changes, net of tax		—			—		—			—
Net income (loss)	$	(1.55	)	$	0.37	$	(0.61	)	$	1.69
Weighted average common and equivalent shares outstanding:
Basic		48,771			32,948		38,983			32,842
Diluted		48,771			33,605		38,983			33,336

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands of dollars)

(unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007			2006		2007			2006
Net income (loss)	$	(75,391	)	$	12,279	$	(23,925	)	$	56,402
Other comprehensive income (loss), net of tax:
Interest rate swap loss		(1,568	)		—		(1,568	)		—
Foreign currency translation adjustment		14,419			1,793		16,256			(2,143	)
Comprehensive income (loss)	$	(62,540	)	$	14,072	$	(9,237	)	$	54,259

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

EXTERRAN HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

(unaudited)

	Nine Months Ended
	September 30,
	2007			2006
Cash flows from operating activities:
Net income (loss)	$	(23,925	)	$	56,402
Adjustments:
Depreciation and amortization		170,801			130,352
Fleet impairment		61,945			—
Deferred financing cost write-off		16,385			—
Income from discontinued operations, net of tax		—			(431	)
Cumulative effect of accounting changes, net of tax		—			(370	)
Minority interest		2,426			—
Bad debt expense		1,752			3,169
Gain on sale of property, plant and equipment		(8,941	)		(11,282	)
Equity in (income) loss of non-consolidated affiliates, net of dividends received		1,560			(1,125	)
Gain on remeasurement of intercompany balances		(74	)		(1,858	)
Net realized gain on trading securities		(13,903	)		(2,208	)
Zero coupon subordinated notes accreted interest paid by refinancing		—			(86,084	)
Gain on sale of business		—			(28,476	)
Stock compensation expense		21,366			6,543
Pay-in-kind interest on zero coupon subordinated notes		—			6,282
Sales of trading securities		30,848			13,679
Purchases of trading securities		(16,945	)		(11,471	)
Deferred income taxes		(29,363	)		10,703
Changes in assets and liabilities, net of acquisition:
Accounts receivable and notes		(23,446	)		(50,189	)
Inventory		78,935			(69,325	)
Costs and estimated earnings versus billings on uncompleted contracts		(76,510	)		69,820
Prepaid and other current assets		(10,634	)		(38,526	)
Accounts payable and other liabilities		23,864			28,476
Advance billings		(92,573	)		56,091
Other		(5,727	)		(4,930	)
Net cash provided by continuing operations		107,841			75,242
Net cash provided by discontinued operations		—			431
Net cash provided by operating activities		107,841			75,673
Cash flows from investing activities:
Capital expenditures		(232,911	)		(173,172	)
Proceeds from sale of property, plant and equipment		29,814			23,473
Cash invested in non-consolidated affiliates		(3,095	)		—
Cash paid in merger		(10,709	)		—
Cash acquired in merger		36,582			—
Proceeds from sale of business		—			52,125
Net cash used in investing activities		(180,319	)		(97,574	)

6

	Nine Months Ended
	September 30,
	2007			2006
Cash flows from financing activities:
Borrowings on revolving credit facilities		721,900			161,500
Repayments on revolving credit facilities		(654,900	)		(140,500	)
Repayment of debt assumed in merger		(601,970	)		—
Proceeds from issuance of senior notes		—			150,000
Repayment of 2001A equipment lease notes		(137,123	)		—
Repayment of 2001B equipment lease notes		(257,750	)		—
Proceeds from issuance of term loan		800,000			—
Proceeds from ABS credit facility		800,000			—
Proceeds from the Partnership credit facility		9,000			—
Repayment of senior notes		(549,915	)		—
Payments for debt issue costs		(11,365	)		(3,832	)
Repayment of zero coupon subordinated notes principal		—			(150,000	)
Proceeds from stock options exercised		15,474			4,626
Purchases of treasury stock		(49,997	)		—
Proceeds (repayments) of other debt, net		(2,897	)		5,994
Stock-based compensation excess tax benefit		9,580			—
Net cash provided by financing activities		90,037			27,788
Effect of exchange rate changes on cash and equivalents		4,679			991
Net increase in cash and cash equivalents		22,238			6,878
Cash and cash equivalents at beginning of period		73,286			48,233
Cash and cash equivalents at end of period	$	95,524		$	55,111
Supplemental disclosure of non-cash transactions:
Conversion of debt to common stock	$	84,392		$	—
Stock issued in the merger	$	2,003,524			—
Conversion of Universal stock options to Exterran stock options	$	67,574			—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

EXTERRAN HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Exterran Holdings, Inc. (“Exterran”, “we”, “us”, “our” or the “Company”) 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) are not required in these interim financial statements and 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 Exterran for the periods indicated.

We were incorporated on February 2, 2007 as Iliad Holdings, Inc., a wholly owned subsidiary of Universal Compression Holdings, Inc. (“Universal”), and thereafter changed our name to Exterran Holdings, Inc. On August 20, 2007, in accordance with their previously announced merger agreement, Universal and Hanover Compressor Company (“Hanover”) merged into wholly owned subsidiaries of ours. As a result of the merger, we became the parent entity of Universal and Hanover. Hanover was determined to be the acquirer for accounting purposes and, therefore, our financial statements reflect Hanover’s historical results for periods prior to the merger date. We have included the financial results of Universal in our consolidated financial statements beginning August 20, 2007. References to “we” or the “Company” refer to Hanover for periods prior to the merger date and to Exterran for periods on or after the merger date. The financial statement information included herein should be read in conjunction with the consolidated financial statements and notes thereto included in Hanover’s Annual Report on Form 10-K for the year ended December 31, 2006, as amended by Amendment No. 1 thereto. For additional information about Universal, please see the consolidated financial statements and notes thereto included in Universal’s Annual Report on Form 10-K for the year ended December 31, 2006, as amended by Amendment No. 1 thereto. These interim results are not necessarily indicative of results for a full year.

As a result of the merger between Hanover and Universal, each outstanding share of common stock of Universal was converted into one share of Exterran common stock and each outstanding share of Hanover common stock was converted into 0.325 shares of Exterran common stock. All share and per share amounts in these consolidated financial statements and related notes have been retroactively adjusted to reflect the conversion ratio of Hanover common stock for all periods presented.

Earnings Per Common Share

Basic income (loss) per common share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted income (loss) per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options to purchase common stock, restricted stock, convertible senior notes and convertible junior subordinated notes, unless their effect would be anti-dilutive.

8

The table below indicates the potential shares of common stock that were included in computing the dilutive potential shares of common stock used in diluted income (loss) per common share (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Weighted average common shares outstanding—used in basic income (loss) per common share		48,771		32,948		38,983		32,842
Net dilutive potential common stock issuable:
On exercise of options and vesting of restricted stock		**		657		**		494
On conversion of convertible senior notes due 2008		**		**		**		**
On conversion of convertible junior subordinated notes due 2029		—		**		**		**
On conversion of convertible senior notes due 2014		**		**		**		**
Weighted average common shares and dilutive potential common shares— used in diluted income (loss) per common share		48,771		33,605		38,983		33,336

** Excluded from diluted income (loss) per common share as the effect would have been anti-dilutive.

The table below indicates the potential shares of common stock issuable that were excluded from net dilutive potential shares of common stock issuable as their effect would have been anti-dilutive (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Net dilutive potential common shares issuable:
On exercise of options and vesting of restricted stock		658		—		569		—
On exercise of options-exercise price greater than average market value at end of period		32		14		17		18
On conversion of convertible junior subordinated notes due 2029		—		1,568		431		1,568
On conversion of convertible senior notes due 2008		1,420		1,420		1,420		1,420
On conversion of convertible senior notes due 2014		3,115		3,115		3,115		3,115
Net dilutive potential common shares issuable		5,225		6,117		5,552		6,121

Stock Options and Stock-based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payments,” (“SFAS No. 123R”) using the modified prospective transition method. Under that transition method, compensation cost recognized beginning in the first quarter of 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value, and (b) compensation cost for any share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value.

On January 1, 2006, we recorded the cumulative effect of a change in accounting related to our adoption of SFAS No. 123R of $0.4 million (net of tax of $0), which relates to the requirement to estimate future forfeitures of restricted stock awards.

Minority Interest

As of September 30, 2007, minority interest is primarily comprised of the portion of Exterran Partners, L.P.’s (together with its subsidiaries, the “Partnership”) capital and earnings that is applicable to the 49% limited partner interest in the Partnership not owned by the Company (see further discussion of the Partnership in Note 2, below). As of December 31, 2006, minority interest primarily represented the equity of the entities that leased compression equipment to us. These equity interests were settled as part of the redemption of Hanover’s equipment lease obligations, as discussed in Note 8 below.

9

Reclassifications

Certain amounts in the prior periods’ financial statements have been reclassified to conform to the 2007 financial statement classification. These reclassifications have no impact on our consolidated results of operations, cash flows or financial position.

2. HANOVER AND UNIVERSAL MERGER

On August 20, 2007, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated as of February 5, 2007, as amended, by and among us, Hanover, Universal, Hector Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Exterran, and Ulysses Sub, Inc., a Delaware corporation and a wholly owned subsidiary Exterran, Ulysses Sub, Inc. merged with and into Universal and Hector Sub, Inc. merged with and into Hanover. As a result of the merger, each of Universal and Hanover became a wholly owned subsidiary of Exterran. Immediately following the completion of the merger, Universal merged with and into Exterran.

As a result of the merger, each outstanding share of common stock of Universal was converted into one share of Exterran common stock, which resulted in the issuance of approximately 30.3 million shares of Exterran common stock. Additionally, each outstanding share of Hanover common stock was converted into 0.325 shares of common stock of Exterran, which resulted in the issuance of approximately 35.6 million shares of Exterran common stock. Exterran’s common stock, listed on the New York Stock Exchange under the symbol “EXH,” began trading on August 21, 2007, concurrent with the cessation of the trading of Hanover and Universal common stock. The merger has been accounted for as a purchase business combination. We determined that Hanover was the acquirer for accounting purposes and therefore our financial statements reflect Hanover’s historical results for periods prior to the merger date. We have included the financial results of Universal in our consolidated financial statements beginning August 20, 2007.

The total preliminary purchase price of Universal is $2.1 billion, including fair value of Universal stock options assumed and acquisition related transaction costs. Assets acquired and liabilities assumed were recorded at their fair values as of August 20, 2007. The purchase price has been calculated as follows (in thousands except share and per share amounts and ratios):

Number of shares of Universal common stock outstanding at August 20, 2007		30,273,866
Conversion ratio		1.0
Number of shares of Exterran that were issued		30,273,866
Assumed market price of an Exterran share that was issued (1)	$	66.18
Aggregate value of the Exterran shares that were issued	$	2,003,524
Fair value of vested and unvested Universal stock options outstanding as of August 20, 2007, which were converted into options to purchase Exterran common stock (2)		67,574
Capitalizable transaction costs		10,709
Preliminary purchase price	$	2,081,807

(1)	The stock price is based on the average close price of Hanover’s stock for the two days before and through the two days after the announcement of the merger on February 5, 2007, divided by the exchange ratio.
(2)	The majority of the Universal’s stock options and stock-based compensation vested upon consummation of the merger.

The completion of the merger resulted in the acceleration of vesting of certain long-term incentive awards held by Hanover employees, including executive officers. On the merger date of August 20, 2007, there was approximately $13.1 million of unrecognized compensation expense related to long-term incentive awards that was subject to acceleration of vesting and was expensed upon completion of the merger. Additionally, we recorded a charge of approximately $8.4 million related to executives with change of control agreements who were entitled to payments under those agreements as a result of the merger.

Prior to the completion of the merger, the Hanover and Universal boards of directors both adopted a retention bonus plan of up to $10 million for each company. These plans provide for awards to certain key employees if such individuals remain employed by Hanover or Universal, including their successor, through a specific date or dates in 2008 or are terminated without cause prior to such date. As of September 30, 2007, $15.3 million of retention awards have been granted under these plans. During the three and nine months ended September 30, 2007, we expensed $3.2 million and $5.6 million, respectively, related to the retention bonus plans.

Under the purchase method of accounting, the total preliminary purchase price was allocated to Universal’s net tangible and identifiable intangible assets based on their estimated fair values as of August 20, 2007, as set forth below. The excess of the purchase price over net tangible and identifiable intangible assets was recorded as goodwill. The goodwill resulting from the allocation of the purchase price was primarily associated with Universal’s market presence in certain geographic locations where Hanover did not have

10

a presence, favorable cost of capital as a result of the Partnership, growth opportunities in the markets that the combined companies serve, the expected cost saving synergies from the merger, the expertise of Universal’s experienced workforce and its established operating infrastructure.

The preliminary allocation of the purchase price was based upon preliminary valuations and our estimates and assumptions are subject to change upon the completion of management’s review of the final valuations. The primary areas of the purchase price allocation which are not yet finalized relate to identifiable intangible assets, property, plant and equipment, capitalized transaction costs, certain acquired contracts and residual goodwill. Changes to the preliminary purchase price could impact future depreciation and amortization expense as well as income tax expense. In addition, upon the finalization of our legal entity structure, additional adjustments to deferred taxes may be required. The final valuation of net assets is expected to be completed as soon as possible, but no later than one year from the acquisition date, in accordance with accounting principles generally accepted in the United States.

The table below indicates the preliminary purchase price allocation to Universal’s net tangible and identifiable intangible assets based on their estimated fair values as of August 20, 2007 (in thousands):

	Preliminary
	Fair Value
Current assets	$	488,590
Property, plant and equipment		1,630,708
Goodwill		1,278,249
Intangible and other assets		318,971
Current liabilities		(285,286	)
Long-term debt		(812,969	)
Deferred income taxes		(307,927	)
Other long-term liabilities		(36,069	)
Minority interest		(192,460	)
Preliminary purchase price	$	2,081,807

Goodwill and Intangible Assets Acquired

The preliminary amount of goodwill of $1,278.2 million resulting from the merger is considered to have an indefinite life and will not be amortized. Instead, goodwill will be reviewed annually for impairment or more frequently if indicators of impairment exist. Approximately $90.9 million of the goodwill is expected to be deductible for tax purposes.

The preliminary amount of finite life intangible assets includes $232.1 million and $54.2 million associated with customer relationships and contracts, respectively. The intangible assets for customer relationships and contracts will be amortized through 2024 and 2015, respectively, based on the present value of expected cash flows used to value these assets. Finite life intangible assets also include $14.4 million for the Universal backlog that existed on the date of merger and will be amortized over 15 months.

Exterran Partners, L.P. (formerly Universal Compression Partners, L.P.)

As a result of the merger, we became the indirect majority owner of the Partnership. The Partnership is a master limited partnership that was formed to provide natural gas contract operations services to customers throughout the United States. In October 2006, the Partnership completed its initial public offering, as a result of which the common units owned by the public represented a 49% limited partner ownership interest in the Partnership and Universal owned the remaining equity interest in the Partnership. The general partner of the Partnership is a subsidiary of Exterran and Exterran consolidates the financial position and results of operations of the Partnership. It is our intention for the Partnership to be our primary growth vehicle for the U.S. contract operations business and continue to contribute U.S. contract operations customers and assets in exchange for cash and/or additional interest in the Partnership. As of September 30, 2007, the Partnership had a fleet of approximately 1,700 compressor units comprising approximately 703,000 horsepower, or 16% (by available horsepower) of the Company’s and Partnership’s combined total U.S. horsepower.

Universal and the Partnership entered into an omnibus agreement, the terms of which included, among other things, Universal’s agreement to provide to the Partnership operational staff, corporate staff and support services, the terms under which Universal may sell to the Partnership newly fabricated equipment and under which it may transfer to and receive from the Partnership idle compression equipment and an agreement by Universal to provide caps on the amount of cost of sales and selling, general and administrative costs that the Partnership must pay. For the three months and nine months ended September 30, 2007, the Partnership’s

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cost of sales exceeded the cap by $2.8 million and $5.9 million, respectively. For the three months and nine months ended September 30, 2007, the Partnership’s selling, general and administrative expense exceeded the cap by zero and $0.3 million, respectively. These caps expire on December 31, 2008 and the amended and restated omnibus agreement discussed below retained those provisions.

The closing of the merger constituted a change of control of Universal under the omnibus agreement, which caused a termination of the non-competition and equipment-sharing provisions of the omnibus agreement. On August 20, 2007, in connection with the closing of the merger, the Partnership entered into an amended and restated omnibus agreement with Exterran and others, which reinstated the non-competition and equipment-sharing provisions that terminated under substantially the same terms.

Pro Forma Financial Information

The unaudited financial information in the table below summarizes the combined results of operations of Hanover and Universal, on a pro forma basis, as though the companies had been combined as of the beginning of each of the periods presented. The unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have occurred had the transaction been consummated at the beginning of each period presented, nor is it necessarily indicative of future results. The pro forma information for the three months and nine months ended September 30, 2007 excludes non-recurring items related to merger and integration expenses. The pro forma information for the three and nine months ended September 30, 2007 includes $77.2 million of debt extinguishment related charges and $61.9 million of fleet impairment charges incurred in the third quarter of 2007, as discussed in Note 8 and Note 16, respectively, below. The pro forma amounts represent the historical operating results of Hanover and Universal with adjustments for purchase accounting expenses and to conform accounting policies that affect revenues, cost of sales, selling, general and administrative expenses, depreciation and amortization, interest expense, other income (expense) and income taxes (in thousands, except per share amounts).

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2007			2006		2007		2006
Total revenues	$	905,111		$	680,408	$	2,474,247	$	1,918,234
Income (loss) before discontinued operations and cumulative effect of accounting change	$	(41,997	)	$	35,467	$	50,779	$	121,545
Net income (loss)	$	(41,997	)	$	36,130	$	50,779	$	122,346
Basic income (loss) per common share	$	(0.65	)	$	0.57	$	0.79	$	1.95
Diluted income (loss) per common share	$	(0.65	)	$	0.55	$	0.77	$	1.87

3. INVENTORY

Inventory, net of reserves, consisted of the following amounts (in thousands):

	September 30,		December 31,
	2007		2006
Parts and supplies	$	228,652	$	135,632
Work in progress		176,939		162,096
Finished goods		22,274		10,365
Inventory, net of reserves	$	427,865	$	308,093

As of September 30, 2007 and December 31, 2006, we had inventory reserves of approximately $22.8 million and $11.9 million, respectively.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	September 30,			December 31,
	2007			2006
Compression equipment, facilities and other fleet assets	$	4,328,087		$	2,587,377
Land and buildings		169,326			107,444
Transportation and shop equipment		138,414			89,673
Other		48,914			58,788
		4,684,741			2,843,282
Accumulated depreciation		(1,189,504	)		(979,830	)
Property, plant and equipment, net	$	3,495,237		$	1,863,452

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5. INTANGIBLES AND OTHER ASSETS

Intangibles and other assets consisted of the following (in thousands):

	September 30,		December 31,
	2007		2006
Deferred debt issuance costs	$	15,245	$	26,553
Notes and other receivables		6,818		9,714
Intangible assets		302,677		5,524
Deferred taxes		22,366		7,085
Other		28,081		6,826
Intangibles and other assets	$	375,187	$	55,702

Notes receivable result primarily from customers for sales of equipment or advances to other parties in the ordinary course of business.

Intangible assets and deferred debt issuance costs consisted of the following (in thousands):

	As of September 30, 2007					As of December 31, 2006
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization
Deferred debt issuance costs	$	23,481	$	(8,236	)	$	58,037	$	(31,484	)
Marketing related (20 yr life)		2,139		(520	)		2,256		(524	)
Customer related (17-20 yr life)		235,380		(6,210	)		3,022		(621	)
Technology based (5 yr life)		710		(604	)		1,259		(497	)
Contract based (1-17 yr life)		75,715		(3,933	)		1,326		(697	)
Intangible assets and deferred debt issuance costs	$	337,425	$	(19,503	)	$	65,900	$	(33,823	)

Amortization of intangible assets and deferred debt issuance costs totaled $7.7 million and $10.9 million for the three months and nine months ended September 30, 2007, respectively. Customer related intangible assets acquired in connection with the merger are being amortized based upon the expected cash flows over a seventeen year period. This amortization methodology will result in a substantial amount of the amortization occurring over the next five years. Deferred financing costs of $16.4 million were written off in conjunction with the refinancing completed during the third quarter of 2007 and recorded to debt extinguishment costs in our consolidated statements of operations. Amortization of intangibles and deferred debt issuance costs totaled $1.5 million and $4.6 million for the three months and nine months ended September 30, 2006, respectively. Estimated future intangible and deferred debt issuance cost amortization expense is as follows (in thousands):

2007	$	10,821
2008		46,959
2009		34,589
2010		33,609
2011		31,616
Thereafter		160,328
Estimated future intangible and deferred debt issuance cost amortization expense	$	317,922

6. GOODWILL

Goodwill and intangible assets acquired in connection with business combinations represent the excess of consideration over the fair value of tangible net assets acquired. Certain assumptions and estimates are employed in determining the fair value of assets acquired and liabilities assumed, as well as in determining the allocation of goodwill to the appropriate reporting units.

The Company performs an impairment test of goodwill assets annually or more often if indicators of potential impairment exist. The Company’s goodwill impairment test involves a comparison of the fair value of each of its reporting units with their carrying value. The fair value is determined using the expected present value of future cash flows and a market approach. Certain estimates and judgments are required in the application of the fair value models. In the fourth quarter of 2006, the Company performed its annual impairment analysis in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” and determined that no impairment had occurred. If for any reason the fair value of the Company’s goodwill or that of any of its reporting units declines below the carrying value in the future, the Company may incur charges for the impairment.

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The table below presents the change in the net carrying amount of goodwill, including the impact of our preliminary purchase price allocation of universal, for the nine months ended September 30, 2007 (in thousands):

								Impact of
								Foreign
	December 31,					Goodwill		Currency		September 30,
	2006		Dispositions			Acquired		Translation		2007
U.S. contract operations	$	97,071	$	—		$	856,140		—	$	953,197
International contract operations		37,654		—			314,516		2,629		354,799
Aftermarket services		31,982		(55	)		59,416		—		91,343
Compressor and accessory fabrication		14,391		—			48,177		—		62,568
Production and processing fabrication –surface equipment		—		—			—		—		—
Production and processing fabrication — Belleli		—		—			—		—		—
Goodwill	$	181,098	$	(55	)	$	1,278,249	$	2,629	$	1,461,907

7. ACCRUED LIABILITIES

Accrued liabilities consisted of the following amounts (in thousands):

	September 30,		December 31,
	2007		2006
Accrued interest	$	11,592	$	22,744
Accrued salary and other benefits		96,541		51,299
Accrued income and other taxes		77,330		36,188
Accrued professional fees		6,311		2,450
Accrued warranty expense		5,941		2,759
Accrued agent fees		4,458		1,305
Other accrued liabilities		64,198		30,575
Accrued liabilities	$	266,371	$	147,320

8. DEBT

Long-term debt consisted of the following (in thousands):

	September 30,		December 31,
	2007		2006
Bank credit facility due November 2010	$	—	$	20,000
Bank credit facility due August 2012		87,000		—
Bank senior term loan		800,000		—
2007 ABS Facility notes due 2012		800,000		—
The Partnership’s revolving credit facility due 2011		220,000		—
4.75% convertible senior notes due 2008		192,000		192,000
4.75% convertible senior notes due 2014		143,750		143,750
8.625% senior notes due 2010		85		200,000
7.5% senior notes due 2013		—		150,000
9.0% senior notes due 2014		—		200,000
2001A equipment lease notes, interest at 8.5%, due September 2008		—		133,000
2001B equipment lease notes, interest at 8.75%, due September 2011		—		250,000
7.25% convertible junior subordinated notes due 2029		—		84,803
Fair value adjustment — fixed to floating interest rate swaps		—		(8,732	)
Other, interest at various rates, collateralized by equipment and other assets		177		677
		2,243,012		1,365,498
Less current maturities		—		(455	)
Long-term debt	$	2,243,012	$	1,365,043

Following the merger of Hanover and Universal, Exterran completed a refinancing of a significant amount of our outstanding debt. We entered into a $1.65 billion senior secured credit facility and a $1.0 billion asset-backed securitization facility.

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Exterran Senior Secured Credit Facility

On August 20, 2007, the Company, as U.S. Borrower, and its wholly owned subsidiary, Exterran Canada, Limited Partnership, as Canadian Borrower (together the “Borrowers”), entered into a credit agreement (the “Credit Agreement”) with various financial institutions as the lenders and Wachovia Bank, National Association, as U.S. Administrative Agent (“Wachovia”) and Wachovia Capital Finance Corporation (Canada), as Canadian Administrative Agent. The Credit Agreement consists of (a) a revolving senior secured credit facility (the “Revolver”) in the aggregate amount of $850 million, which includes a variable allocation for a Canadian tranche and the ability to issue letters of credit under the facility and (b) a term loan (the “Term Loan”) senior secured credit facility, in the aggregate amount of $800 million with principal payments due on multiple dates through June 2013 (collectively, the “Credit Facility”). Subject to certain conditions, at the request of the Company, the aggregate commitments of the lenders under the Credit Facility may be increased by an additional $400 million less the amount of any outstanding borrowing under the 2007 ABS Facility, described below, in excess of $800 million.

As of September 30, 2007, the Company had $87.0 million in outstanding borrowings and $260.1 million in letters of credit outstanding under the Revolver. Additional borrowings of up to approximately $502.9 million were available under that facility as of September 30, 2007.

The Credit Agreement bears interest, if the borrowings are in U.S. dollars, at the Company’s option, at a Base Rate as defined in the Credit Agreement or LIBOR plus an applicable margin or, if the borrowings are in Canadian dollars, at the Company’s option, U.S. dollar LIBOR, U.S. dollar Base Rate or Canadian prime rate plus the applicable margin or the Canadian Dollar bankers’ acceptance (“CDOR”) rate. The applicable margin varies depending on the Company’s debt ratings (i) in the case of LIBOR loans, from 0.65% to 1.75% or (ii) in the case of Base Rate or Canadian prime rate loans, from 0.0% to 0.75%. The Base Rate is the higher of the U.S. Prime Rate or the Federal Funds Rate plus 0.5%. At September 30, 2007 substantially all amounts outstanding were LIBOR loans. The initial applicable margin was 1.0% and declined to 0.825% on October 1, 2007. The weighted average interest rate at September 30, 2007 on the outstanding balance excluding the effect of related cash flow hedges was 6.5%.

The Credit Agreement contains various covenants with which the Borrowers and their subsidiaries must comply with, including, but not limited to, limitations on incurrence of indebtedness, limitations on investments, liens on assets, transactions with affiliates, mergers, consolidations, sales of assets and other provisions customary in similar types of agreements. The Company must also maintain, on a consolidated basis, required leverage and interest coverage ratios. We are in compliance with all applicable covenants for the Credit Agreement as of September 30, 2007. Additionally, the Credit Agreement contains customary conditions, representations and warranties, events of default and indemnification provisions. The Company’s indebtedness under the Credit Facility is collateralized by liens on substantially all of the personal property of the Company in the United States, as defined in the U.S. Collateral Agreement between the Company and others in favor of Wachovia, as U.S. Administrative Agent. The assets of the Partnership and Exterran ABS 2007 LLC are not collateral under the Credit Agreement. Exterran Canada’s indebtedness under the Credit Facility is collateralized by liens on substantially all of its personal property in Canada, as defined in the Canadian Collateral Agreement between it and Wachovia Capital Finance Corporation (Canada). The Company has executed a U.S. Pledge Agreement in favor of Wachovia pursuant to which the Company and its significant subsidiaries (as defined in the Credit Agreement) are required to pledge their equity and the equity of certain subsidiaries to Wachovia. The Partnership and Exterran ABS 2007 LLC are not pledged under this agreement and do not guarantee debt under the Credit Facility. The U.S. Borrower guarantees the payment of the principal and interest on each Canadian tranche loan made to the Canadian Borrower under the Credit Agreement.

Exterran Asset-Backed Securitization Facility

On August 20, 2007, the Company’s wholly owned subsidiary, Exterran ABS 2007 LLC (along with its subsidiaries, “Exterran ABS”), entered into a $1.0 billion asset-backed securitization facility (the “2007 ABS Facility”) and issued $400 million of Series 2007-1 notes at a price equal to 100% of the principal amount thereof. On September 18, 2007, an additional $400 million of Series 2007-1 notes (collectively with the August 20, 2007 issuance, the “Series 2007-1 Notes”) were issued. The Series 2007-1 Notes were issued pursuant to an Indenture, dated as of August 20, 2007 (the “Indenture”), and the related Series 2007-1 Supplement of the same date. Interest and fees payable to the noteholders will accrue on the Series 2007-1 Notes at a variable rate consisting of an applicable margin plus, at the option of Exterran ABS either (a) LIBOR plus an applicable margin or (b) a Base Rate. For outstanding amounts up to $800 million, the applicable margin is 0.825%. For amounts outstanding over $800 million, the applicable margin will be 1.35%. The Base Rate is defined as the higher of the Prime Rate or the Federal Funds

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Rate plus 1.50%. The weighted average interest rate at September 30, 2007 on the Series 2007-1 Notes excluding the effect of related cash flow hedges was 6.6%. The Series 2007-1 Notes are revolving in nature and are payable in July 2012. The amount outstanding at any time is limited to the lower of (i) 80% of the appraised value of the natural gas compression equipment owned by Exterran ABS and its subsidiaries (ii) 4.5 times free cash flow or (iii) the amount calculated under an interest coverage test, each as defined in the indenture. The Indenture contains customary terms and conditions with respect to an issuance of asset-backed securities, including representations and warranties, covenants and events of default. We are in compliance with all such covenants as of September 30, 2007.

Repayment of the Series 2007-1 Notes has been secured by a pledge of all of the assets of Exterran ABS, consisting primarily of a fleet of natural gas compressors and the related contracts to provide compression services to the Company’s customers.

Hanover’s Senior Notes

Hanover commenced tender offers and consent solicitations in July 2007 for (1) $200 million in aggregate principal amount of its 8.625% Senior Notes due 2010 (the “8.625% Notes”), (2) $200 million in aggregate principal amount of its 9.0% Senior Notes due 2014 (the “9.0% Notes”) and (3) $150 million in aggregate principal amount of its 7.5% Senior Notes due 2013 (the “7.5% Notes”). On August 20, 2007, following completion of the merger, Hanover satisfied and discharged all of its outstanding 9.0% Notes and 7.5% Notes and all of its 8.625% Notes that were tendered. The indenture governing the 8.625% Notes that remain outstanding was amended to eliminate substantially all of the restrictive covenants and to eliminate or modify certain events of default.

Hanover’s Credit Facility

In connection with the closing of the refinancing on August 20, 2007, Hanover repaid in full all outstanding term loans and revolving loans, together with interest and all other amounts due in connection with such repayment, under the credit agreement, dated as of November 21, 2005, by and among Hanover, EESLP, The Royal Bank of Scotland plc as Syndication Agent, JPMorgan Chase Bank, N.A. as Administrative Agent, and the several lenders parties thereto.

Hanover’s Equipment Lease Obligations

On August 17, 2007, Hanover Equipment Trust 2001A, a special purpose Delaware business trust (“HET 2001A”), called for redemption all $133 million of its outstanding 8.5% Senior Secured Notes due 2008 (the “2001A Notes”), and Hanover Equipment Trust 2001B, a special purpose Delaware business trust (“HET 2001B”), called for redemption all $250 million of its outstanding 8.75% Senior Secured Notes due 2011 (the “2001B Notes” and, together with the 2001A Notes, the “Equipment Trust Notes”). The Equipment Trust Notes and the related trust equity certificates were redeemed on September 17, 2007.

The 2001A Notes were issued and the redemption was effected pursuant to the provisions of the Indenture dated as of August 30, 2001 among HET 2001A, as issuer, EESLP and certain subsidiaries, as guarantors, and U.S. Bank, as Indenture Trustee and Collateral

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Agent. The 2001A Notes were redeemed at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.

The 2001B Notes were issued and the redemption was effected pursuant to the provisions of the Indenture dated as of August 30, 2001 among HET 2001B, as issuer, EESLP and certain subsidiaries, as guarantors, and U.S. Bank, as Indenture Trustee and Collateral Agent. The 2001B Notes were redeemed at a redemption price of 102.917% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.

Hanover’s 4.75% Convertible Senior Notes

In connection with the closing of the merger, on August 20, 2007, the Company executed supplemental indentures between Hanover and the trustees, pursuant to which Exterran agreed to fully and unconditionally guarantee the obligations of Hanover relating to Hanover’s 4.75% Convertible Senior Notes due 2008 and Hanover’s 4.75% Convertible Senior Notes due 2014 (collectively, the “Convertible Notes”). Hanover, the issuer of the Convertible Notes, is a wholly owned subsidiary of Exterran that has no independent assets or operations, as defined in Regulation S-X Article 3-10. Exterran does not have any other subsidiaries that are not owned by Hanover. There are no significant restrictions on the ability of Exterran to obtain funds from Hanover by dividend or loan.

The 4.75% Convertible Senior Notes due 2008 with an aggregate principal amount of $192 million are due March 15, 2008. These notes are classified as long-term debt as we have the intent and ability to refinance the notes using available credit on our 2007 ABS Facility or senior secured credit facility.

The Convertible Notes will be convertible into a whole number of shares of Exterran common stock and cash in lieu of fractional shares. The 4.75% Convertible Senior Notes due 2008 are convertible at the option of the holder into shares of Exterran common stock at a conversion rate of 7.3969 shares of common stock per $1,000 principal amount of convertible senior notes, which is equivalent to a conversion price of approximately $135.19 per share.

The 4.75% Convertible Senior Notes due 2014 are convertible at the option of the holder into shares of Exterran common stock at a conversion rate of 21.6667 shares of common stock per $1,000 principal amount of convertible senior notes, which is equivalent to a conversion price of approximately $46.15 per share.

Hanover’s 7.25% Convertible Junior Subordinated Notes due 2029

From December 2006 through May 2007, Hanover called for redemption portions of its 7.25% Convertible Junior Subordinated Notes due 2029 (“Jr. TIDES Notes”). The Jr. TIDES Notes were owned by the Hanover Compressor Trust (the “Trust”), a subsidiary of Hanover. The Trust was required to call a like amount of the 7.25% Convertible Preferred Securities (“TIDES Preferred Securities”)held by the public. Holders of the TIDES Preferred Securities converted into 4.8 million shares of Hanover common stock prior to their respective redemption dates; the remaining TIDES Preferred Securities were redeemed and discharged on their respective redemption dates. All of the $86.3 million of Jr. TIDES Notes and TIDES Preferred Securities have now been redeemed and discharged.

The Partnership’s Revolving Credit Facility

The Partnership, as guarantor, and EXLP Operating LLC, a wholly owned subsidiary of the Partnership (“the Operating Partnership” and together with the Partnership the “Partnership Borrowers”), entered into a senior secured credit agreement in 2006. The credit facility under the credit agreement was expanded in 2007 and consists of a five-year $315 million revolving credit facility, which matures in October 2011. As of September 30, 2007, there was $220.0 million in outstanding borrowings under the revolving credit facility and $95.0 million was available for additional borrowings.

The Partnership’s revolving credit facility bears interest at a Base Rate as defined in the credit agreement or LIBOR, at the Partnership’s option, plus an applicable margin. The applicable margin, depending on the Partnership’s Leverage Ratio, varies (i) in the case of LIBOR loans, from 1.0% to 2.0% or (ii) in the case of Base Rate loans, from 0.0% to 1.0%. The Base Rate is the higher of the U.S. Prime Rate or the Federal Funds Rate plus 0.5%. At September 30, 2007 all amounts outstanding were LIBOR loans and the applicable margin was 1.25%. The weighted average interest rate on the outstanding balance at September 30, 2007 excluding the effect of related cash flow hedges was 6.7%.

Borrowings under the credit agreement are secured by substantially all of the personal property assets of the Partnership Borrowers. In addition, all of the capital stock of the Partnership’s U.S. restricted subsidiaries has been pledged to secure the obligations under the credit agreement.

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Under the credit agreement, the Operating Partnership and the Partnership are subject to certain limitations, including limitations on their ability to incur additional debt or sell assets, with restrictions on the use of proceeds; to make certain investments and acquisitions; to grant liens; and to pay dividends and distributions. The Partnership Borrowers are also subject to financial covenants which include a total leverage and an interest coverage ratio. The Partnership Borrowers were in compliance with such covenants as of September 30, 2007.

Debt Extinguishment Charges

The refinancing discussed above and completed in the third quarter of 2007 in connection with the completion of the merger resulted in various debt extinguishment charges. A summary of these charges is shown below (in thousands):

Tender fees for the 9.0% Notes, 7.5% Notes and 8.625% Notes	$	46,373
Call premium on 2001B Notes		7,497
Unamortized deferred financings costs – Hanover revolving credit facility, Hanover senior notes and Equipment Trust Notes		16,385
Charges included in debt extinguishment costs		70,255
Termination of Hanover interest rate swaps (included in interest expense)		6,964
Total debt extinguishment costs and related charges	$	77,219

Long-term Debt Maturity Schedule

Maturities of long-term debt (excluding interest to be accrued thereon) at September 30, 2007 are (in thousands):

	September 30,
	2007
2007	$	—
2008		192,045
2009		20,049
2010		40,138
2011		280,030
Thereafter		1,710,750
Total debt	$	2,243,012

9. ACCOUNTING FOR DERIVATIVES

The Company uses derivative financial instruments from time to time to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes. Cash flows from hedges are classified in our consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions.

In March 2004, the Company entered into two interest rate swaps, which we designated as fair value hedges, to hedge the risk of changes in fair value of our 8.625% Senior Notes due 2010 resulting from changes in interest rates. These interest rate swaps, under which we received fixed payments and made floating payments, resulted in the conversion of the hedged obligation into floating rate debt. As a result of the repayment of the 8.625% Senior Notes in August 2007, we terminated these interest rate swaps which resulted in a charge to interest expense of $7.0 million.

As a result of the merger we assumed ten interest rate swaps with a total notional amount of $639.3 million that we designated as cash flow hedges to hedge the risk of variability of LIBOR based interest rate payments related to variable rate debt.

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In September 2007, we entered into three interest rate swaps that we designated as cash flow hedges to hedge the risk of variability of LIBOR interest rate payments related to variable rate debt under our 2007 ABS Facility. The three swap agreements have notional amounts of $221.8 million, $150.0 million and $150.0 million, respectively.

The following table summarizes, by individual hedge instrument, our interest rate swaps as of September 30, 2007 (dollars in thousands):

								Fair Value of
				Floating Rate to be	Notional			Swap at
Fixed Rate to be Paid			Maturity Date	Received	Amount			September 30, 2007
	4.035	%	March 31, 2010	Three Month LIBOR	$	62,500	(1)	$	880
	4.007	%	March 31, 2010	Three Month LIBOR	$	62,500	(1)	$	908
	3.990	%	March 31, 2010	Three Month LIBOR	$	62,500	(1)	$	925
	4.037	%	March 31, 2010	Three Month LIBOR	$	62,500	(1)	$	878
	4.675	%	August 20, 2012	One Month LIBOR	$	150,000	(2)	$	415
	4.744	%	July 20, 2012	One Month LIBOR	$	221,818	(2)	$	(57	)
	4.668	%	July 20, 2012	One Month LIBOR	$	150,000	(2)	$	434
	5.210	%	January 20, 2013	One Month LIBOR	$	62,912	(2)	$	(824	)
	4.450	%	September 20, 2019	One Month LIBOR	$	43,636	(2)	$	917
	5.020	%	September 20, 2019	One Month LIBOR	$	51,634	(2)	$	(499	)
	5.275	%	December 1, 2011	Three Month LIBOR	$	125,000		$	(2,369	)
	5.343	%	October 20, 2011	Three Month LIBOR	$	40,000		$	(904	)
	5.315	%	October 20, 2011	Three Month LIBOR	$	40,000		$	(859	)

(1)	These swaps amortize ratably over the life of the swap.
(2)	Certain of these swaps amortize while the notional amount of others increase in corresponding amounts to maintain a consistent outstanding notional amount of 85% of the variable rate debt to which they are currently hedged.

All of the swaps, which we have designated as cash flow hedging instruments, meet the specific hedge criteria of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”) so that any changes in their fair values are recognized as a component of comprehensive income or loss and are included in accumulated other comprehensive income or loss. Swaps entered into after the merger date with terms that substantially coincide with the hedged item are expected to offset changes in expected cash flows due to fluctuations in the variable rate, and therefore the Company currently does not expect a significant amount of ineffectiveness on these hedges. For the swaps that we assumed as part of the merger, the fair value of these swaps was not zero on the merger date and therefore the Company is precluded from using the shortcut method allowed under SFAS No. 133 to determine the effectiveness of the hedges. For these swap agreements, the Company performs quarterly calculations to determine if the swap agreements are still effective and to calculate any ineffectiveness because the terms of the hedged item and the swap do not exactly coincide. For the three months ended September 30, 2007, the Company recorded approximately $1.8 million of interest expense due to the ineffectiveness related to these swaps.

The counterparties to our interest rate swap agreements are major international financial institutions. We 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.

10. STOCK-BASED COMPENSATION AND AWARDS

Upon the closing of the merger, each share of restricted stock issued by Hanover and each Hanover stock option was converted into Exterran restricted stock and stock options, respectively, based on the applicable exchange ratio, and each Hanover stock option and each share of restricted stock or restricted stock unit of Hanover granted prior to the date of the merger agreement and outstanding as of the effective time of the merger vested in full. As a result of the merger, $11.0 million related to the accelerated vesting of Hanover’s restricted stock and $0.7 million related to the accelerated vesting of Hanover’s stock options were included within the stock-based compensation expense for both the three months and nine months ended September 30, 2007. There was no stock-based compensation cost capitalized during the three months and nine months ended September 30, 2007.

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Stock Incentive Plan

On August 20, 2007, the Company adopted the Exterran Holdings, Inc. 2007 Stock Incentive Plan (the “2007 Plan”), which was previously approved by each of the shareholders of Hanover and Universal and provides for the granting of stock-based awards in the form of options, restricted stock, restricted stock units, stock appreciation rights and performance awards to employees and directors of the Company. Under the 2007 Plan, the aggregate number of shares of common stock that may be issued shall not exceed 4,750,000. Grants of options and stock appreciation rights count as one share against the aggregate share limit and grants of restricted stock and restricted stock units count as two shares against the aggregate share limit. Awards granted under the 2007 Plan that are subsequently cancelled, terminated or forfeited remain available for future grant. Grants under the plan expire no later than seven years from the date of grant. The 2007 Plan is administered by the Compensation Committee of the Company’s Board of Directors (“Compensation Committee”).

Stock Options

Under the 2007 Plan, stock options are granted at fair market value at the date of grant, are exercisable in accordance with the vesting schedule established by the Compensation Committee in its sole discretion and expire no later than seven years after the date of grant. Options generally vest 33 1/3% on each of the first three anniversaries of the grant date.

The weighted average fair values at date of grant for options granted during the nine months ended September 30, 2007 was $23.90, and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

	Nine Months
	Ended
	September 30,
	2007
Expected life in years		4.50
Risk-free interest rate		4.27	%
Volatility		27.18	%
Dividend yield		0.00	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for a period commensurate with the estimated expected life of the stock options. Expected volatility is based on the historical volatility of the Company’s stock over the most recent period commensurate with the expected life of the stock options and other factors. The Company has not historically paid a dividend and does not expect to pay a dividend during the expected life of the stock options.

At the time of the merger, each outstanding stock option granted prior to the date of the merger agreement under the Hanover equity incentive plans, whether vested or unvested, was fully vested. Stock options granted under the Hanover equity incentive plans outstanding on the merger date were converted into an option to acquire a number of shares of Exterran common stock equal to the number of shares of Hanover common stock subject to that stock option immediately before the merger multiplied by 0.325, and at a price per share of Exterran common stock equal to the price per share under that Hanover option divided by 0.325. Similarly, each outstanding stock option granted prior to the date of the merger agreement under the Universal equity incentive plans (other than options to purchase Universal common stock under the Universal employee stock purchase plan), whether vested or unvested, was fully vested. Stock options granted under the Universal equity incentive plans outstanding on the merger date were converted into an option to acquire the same number of shares of Exterran common stock at the same price per share.

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The following table presents stock option activity for the nine months ended September 30, 2007 (in thousands, except per share data and remaining life in years). The number of stock options and related exercise prices has been adjusted to reflect the exchange ratio in the merger.

						Weighted
				Weighted		Average		Aggregate
	Stock			Average		Remaining		Intrinsic
	Options			Exercise Price		Life		Value
Options outstanding, December 31, 2006		767		$	36.95
Options assumed in merger		1,789			33.20
Granted		69			78.25
Exercised		(465	)		33.77
Cancelled		(5	)		38.57
Options outstanding, September 30, 2007		2,155		$	35.84		5.62	$	95,886
Options exercisable, September 30, 2007		1,980		$	32.25		5.36	$	95,204

Intrinsic value is the difference between the market value of the Company’s stock and exercise price of each option multiplied by the number of options outstanding. The total intrinsic value of stock options exercised during the nine months ended September 30, 2007 and 2006 was $19.7 million and $3.3 million, respectively. The total grant date fair value of stock options that vested during the nine months ended September 30, 2007 and 2006 was $2.0 million and $2.2 million, respectively. As of September 30, 2007, $4.5 million of unrecognized compensation cost related to non-vested stock options is expected to be recognized over the weighted-average period of 2.7 years.

Restricted Stock

For grants of restricted stock, the Company recognizes compensation expense over the vesting period equal to the fair value of the restricted stock at the date of grant. Common stock subject to restricted stock grants generally vests 33 1/3% on each of the first three anniversaries of the grant date.

The following table presents restricted stock activity for the nine months ended September 30, 2007 (shares in thousands). The number of non-vested restricted shares and grant-date fair value has been adjusted to reflect the exchange ratio in the merger.

				Weighted
				Average
				Grant-Date
				Fair Value
	Shares			Per Share
Non-vested restricted stock, December 31, 2006		633		$	43.96
Restricted stock assumed in merger		95			75.00
Granted		239			69.70
Vested		(614	)		44.41
Change in expected vesting of performance shares		(16	)		35.05
Cancelled		(26	)		59.31
Non-vested restricted stock, September 30, 2007		311		$	71.51

The total grant date fair value of restricted stock that vested during the nine months ended September 30, 2007 was $27.2 million. As of September 30, 2007, $19.2 million of unrecognized compensation cost related to non-vested restricted stock is expected to be recognized over the weighted-average period of 2.6 years.

Employee Stock Purchase Plan

On August 20, 2007, the Company adopted the Exterran Holdings, Inc. Employee Stock Purchase Plan (“ESPP”), which is intended to provide employees with an opportunity to participate in the Company’s long-term performance and success through the purchase of shares of common stock at a price that may be less than fair market value. The ESPP is designed to comply with Section 423 of the Internal Revenue Code of 1986, as amended. Each quarter, an eligible employee may elect to withhold a portion of their salary up to the lesser of $25,000 per year or 10% of his or her eligible pay to purchase shares of the Company’s common stock at a price equal to

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85% to 100% of the fair market value of the stock as of the first trading day of the quarter or the last trading day of the quarter, the purchase date, whichever is lower. The ESPP will terminate on the date that all shares of common stock authorized for sale under the ESPP have been purchased, unless it is extended. A total of 650,000 shares of the Company’s common stock have been authorized and reserved for issuance under the ESPP. Under SFAS No. 123R, the Company’s ESPP plan is compensatory, and as a result, the amount of the discount from the fair market value of the stock price at the end of the quarter received by the employee upon purchase of the stock is recorded as expense in that quarter.

Directors’ Stock and Deferral Plan

On August 20, 2007, the Company adopted the Exterran Holdings, Inc. Directors’ Stock and Deferral Plan. The purpose of the Directors’ Stock and Deferral Plan is to provide non-employee directors of the Board of Directors with an opportunity to elect to receive common stock from the Company as payment for a portion or all of their retainer and meeting fees. The number of shares to be paid each quarter will be determined by dividing the dollar amount of fees elected to be paid in common stock by the closing sales price per share of the common stock on the last day of the quarter. In addition, directors who elect to receive a portion or all of their fees in the form of common stock may also elect to defer, until a later date, the receipt of a portion or all of their fees to be received in common stock. We have reserved 100,000 shares under the Directors’ Stock and Deferral Plan, and as of September 30, 2007 all shares remain available to be issued under the plan.

Unit Appreciation Rights

As a result of the merger, the Company assumed approximately 0.3 million outstanding unit appreciation rights (“UARs”). These UARs entitle the holder to receive a payment from the Company in cash equal to the excess of the fair market value of a common unit of the Partnership on the date of exercise over the exercise price. These UARs vest on January 1, 2009 and expire on December 31, 2009.

Because the holders of the UARs will receive a cash payment from the Company, these awards have been recorded as a liability, and the Company is required to remeasure the fair value of these awards at each reporting date under the guidance of SFAS No. 123R. At September 30, 2007, the fair value of each UAR was $6.85 and was estimated using the Black-Scholes option valuation model with the following weighted average assumptions:

	September 30,
	2007
Expected life in years		1.86
Risk-free interest rate		4.01	%
Volatility		24.12	%
Dividend yield		4.40	%

The expected life represents the period of time the UARs are expected to be outstanding prior to exercise and is based on the simplified model. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of remeasurement for a period commensurate with the estimated expected life of the UARs. Expected volatility is based on the historical volatility of comparable partnerships’ units over the most recent period commensurate with the expected life of the UAR and other factors. The dividend yield is the expected dividend rate that will be paid out on the underlying units during the expected term of the options.

As of September 30, 2007, the outstanding UARs had an aggregate intrinsic value of $2.0 million and no UARs were exercisable. As of September 30, 2007, $1.4 million of unrecognized compensation cost related to non-vested UARs is expected to be recognized over the weighted-average period of 1.3 years.

Partnership Long-Term Incentive Plan

The Partnership has a long-term incentive plan that was adopted by UCO GP, LLC, the general partner of the general partner of the Partnership, in October 2006, for its employees, directors and affiliates who perform services for the Partnership. The long-term incentive plan currently permits the grant of awards covering an aggregate of 625,000 common units, common unit options, restricted units and phantom units. The long-term incentive plan is administered by the Board of Directors of UCO GP, LLC or a committee thereof (the “plan administrator”).

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Unit options have an exercise price that is not less than the fair value of the units on the date of grant and become exercisable over a period determined by the plan administrator. Phantom units are notional units that entitle the grantee to receive a common unit upon the vesting of the phantom unit or, in the discretion of the plan administrator, cash equal to the fair value of a common unit.

As of September 30, 2007, the Partnership had 593,572 outstanding unit options and 5,607 outstanding phantom units. The unit options vest on January 1, 2009 and have a contractual life of three years. The phantom units will vest and settle on January 1, 2009.

As of September 30, 2007, the outstanding unit options and phantom units had an aggregate intrinsic value of $5.0 million and no unit options or phantom units were exercisable. As of September 30, 2007, $0.6 million of unrecognized compensation cost related to non-vested unit options and phantom units is expected to be recognized over the weighted-average period of 1.3 years.

No awards have been granted by the Partnership under the long-term incentive plan since the merger date of August 20, 2007.

11. STOCKHOLDERS’ EQUITY

Upon the closing of the merger, the Company had an aggregate of 300,000,000 shares authorized, of which 250,000,000 can be issued as common stock and 50,000,000 can be issued as preferred stock. All shares have a par value of $0.01 per share.

On August 20, 2007, the Company’s board of directors authorized the repurchase of up to $200 million of the Company’s common stock through August 19, 2009. Under the stock repurchase program, the Company may repurchase shares in open market purchases or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations. The Company may also implement all or part of the repurchases under a Rule 10b5-1 trading plan, so as to provide the flexibility to extend its share repurchases beyond the quarterly purchasing window. The timing and extent to which the Company repurchases its shares will depend upon market conditions and other corporate considerations, and will be in management’s discretion. Repurchases under the program may commence or be suspended at any time without prior notice. The stock repurchase program may be funded through cash provided by operating activities or borrowings. During the period August 20, 2007 through September 30, 2007, the Company repurchased 641,300 shares of its common stock at an aggregate cost of approximately $50.0 million.

In connection with the merger, all of Hanover’s treasury stock that existed on the date of the merger was retired.

12. COMMITMENTS AND CONTINGENCIES

Exterran has issued the following guarantees that are not recorded on our accompanying balance sheet (dollars in thousands):

			Maximum Potential
			Undiscounted
			Payments as of
	Term		September 30, 2007
Indebtedness of non-consolidated affiliates:
El Furrial (1)		2013	$	25,016
Other:
Performance guarantees through letters of credit (2)		2007-2010		262,354
Standby letters of credit		2007-2008		17,075
Commercial letters of credit		2007		12,553
Bid bonds and performance bonds (2)		2007-2012		150,006
Maximum potential undiscounted payments			$	467,004

(1)	We have guaranteed the amounts included above, which is a percentage of the total debt of this non-consolidated affiliate equal to our ownership percentage in such affiliate.
(2)	We have issued guarantees to third parties to ensure performance of our obligations, some of which may be fulfilled by third parties.

As part of our acquisition of Production Operators Corporation in 2001, the Company may be required to make a contingent payment to Schlumberger based on the realization of certain tax benefits by the Company through 2016. To date we have not realized any of such tax benefits that would require a payment or made any payments to Schlumberger in connection with them.

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The natural gas service operations business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of gas or well fluids and fires or explosions. As is customary in the natural gas service operations industry, we review our safety equipment and procedures and carry insurance against some, but not all, risks of our business. Our insurance coverage includes property damage, general liability and commercial automobile liability and other coverage we feel is appropriate. We have elected to fully self-insure some of our offshore assets. We believe that these insurance coverages are customary for the industry and adequate for our business, however, losses and liabilities not covered by insurance would increase our costs.

Additionally, we are substantially self-insured for worker’s compensation and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses up to the deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

We are involved in the Cawthorne Channel Project in Nigeria, a project in which Global Gas and Refining Ltd., a Nigerian entity (“Global”), has contracted with an affiliate of Royal Dutch Shell plc (“Shell”) to process gas from some of Shell’s Nigerian oil and gas fields. Pursuant to a contract between us and Global, we provide gas compression and gas processing services from a barge-mounted facility we own that is stationed in a Nigerian coastal waterway. We completed the building of the required barge-mounted facility and our portion of the project was declared commercial by Global in November 2005. The contract runs for a ten-year period which commenced when the project was declared commercial, subject to a purchase option by Global, that is exercisable for the remainder of the term of the contract. Under the terms of a series of contracts between Global and Hanover, Shell and several other counterparties, Global is primarily responsible for the overall project.

During 2006, the area in Nigeria where the Cawthorne Channel Project is located experienced civil unrest and violence, and gas delivery from Shell to the Cawthorne Channel Project was stopped from June 2006 to June 2007. As a result, the Cawthorne Channel Project did not operate from early June 2006 to June 2007. In July 2007, through the end of the quarter, we received gas from Shell and we have begun processing the gas received.

During the nine months ended September 30, 2007, we received approximately $1.3 million in payments, but we did not recognize any revenues related to the Cawthorne Channel Project. Even though we believe we are entitled to payments from Global and have accordingly invoiced Global for such, collectibility is not reasonably assured due to uncertainty regarding when the Cawthorne Channel Project’s operations will be fully operational and Global’s dependence on gas production by the Cawthorne Channel Project to pay its rents to us. Therefore, we billed but did not recognize revenue of approximately $12.6 million related to the Cawthorne Channel Project during the nine months ended September 30, 2007. Based on our analysis of estimated future cash flows, we believe we will recover all of our receivables and our full investment in the Cawthorne Channel Project over the term of the contract.

However, if Shell does not provide gas to the project or if Shell were to terminate its contract with Global for any reason or if we were to terminate our involvement in the Cawthorne Channel Project, we would be required to find an alternative use for the barge facility, which could potentially result in an impairment and write-down of our investment and receivables related to this project and could have a material impact on our consolidated financial position or results of operation. Additionally, due to the environment in Nigeria and Global’s capitalization level, inexperience with projects of a similar nature and lack of a successful track record with respect to this project as well as other factors, there is no assurance that Global can satisfy its obligations under its various contracts, including its contract with us.

This project and our other projects in Nigeria are subject to numerous risks and uncertainties associated with operating in Nigeria. Such risks include, among other things, political, social and economic instability, civil uprisings, riots, terrorism, kidnapping, the taking of property without fair compensation and governmental actions that may restrict payments or the movement of funds or result in the deprivation of contract rights. Any of these risks, including risks arising from the recent increase in violence and local unrest, could adversely impact any of our operations in Nigeria, and could affect the timing and decrease the amount of revenue we may ultimately realize from our investments in Nigeria. At September 30, 2007, we had net assets of approximately $82.3 million related to projects in Nigeria, a majority of which are related to our capital investment and advances/accounts receivable for the Cawthorne Channel Project.

In the ordinary course of business we are involved in various pending or threatened legal actions. 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 our consolidated financial position, results of operations or cash flows; however, because of the inherent uncertainty of litigation, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our financial position, results of operation or cash flows for the period in which the resolution occurs.

13. RECENT ACCOUNTING PRONOUNCEMENTS

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b)

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clarifies which interest-only strips and principal-only strips are not subject to the requirements of FASB No. 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and (e) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS No. 155 did not have a material impact on our consolidated results of operations, cash flows or financial position.

In June 2006, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on Issue 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation),” that concludes that the presentation of taxes within EITF 06-3’s scope is an accounting policy decision that should be disclosed. If the taxes are reported on a gross basis, companies are required to disclose the amounts of those taxes if such amounts are deemed significant. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2006. The Company presents the taxes within the scope of EITF 06-3 on a net basis. The adoption of EITF 06-3 did not impact the Company’s consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation is effective for fiscal years beginning after December 15, 2006. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes”. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Differences between the amounts recognized on the balance sheet prior to adoption of FIN 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings (accumulated deficit). The adoption of FIN 48 on January 1, 2007 resulted in a reduction to stockholders’ equity of $3.7 million.

On the date of our adoption of FIN 48, we had $12.7 million of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. Our policy is to classify interest and penalties in our provision for income taxes in our consolidated statements of operations. We did not change our policy on the classification of interest and penalties in conjunction with our adoption of FIN 48. We had $1.1 million of accrued interest and $2.7 million of accrued penalties as of the date of our adoption of this interpretation. Tax years beginning in 1999 are still subject to examination by major tax jurisdictions.

The Company does not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits and the expiration of statute of limitations prior to September 30, 2008.  However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of these matters may result in liabilities which could be materially different from these estimates.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 provides a single definition of fair value, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value to measure assets and liabilities. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the provisions of SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities” (“SFAS No. 159”). SFAS No. 159 provided entities the one-time election to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under a fair value option. SFAS No. 159 is effective for financial statements as of the beginning of the first fiscal year that begins after November 15, 2007. Its provision may be applied to an earlier period only if the following conditions are met: (1) the decision to adopt is made after the issuance of SFAS No. 159 but within 120 days after the first day of the fiscal year of adoption, and no financial statements, including footnotes, for any interim period of the adoption year have yet been issued and (2) the requirements of SFAS No. 157 are adopted concurrently with or prior to the adoption of SFAS No. 159. We are currently evaluating the provisions of SFAS No. 159.

14. REPORTABLE SEGMENTS

We manage our business segments primarily based upon the type of product or service provided. We have six principal industry segments: U.S. Contract Operations; International Contract Operations; Aftermarket Services; Compressor and Accessory Fabrication;

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Production and Processing Fabrication - Surface Equipment; and Production and Processing Fabrication – Belleli. The U.S. and International Contract Operations segments primarily provide natural gas compression services, production and processing equipment services and maintenance services to meet specific customer requirements on Exterran-owned assets. The Aftermarket Services segment provides a full range of services to support the surface production needs of customers, from installation and normal maintenance and services to full operation of a customer’s owned assets and surface equipment as well as sales of parts and used equipment. The Compressor and Accessory Fabrication segment involves the design, fabrication and sale of natural gas compression units and accessories to meet standard or unique customer specifications. The Production and Processing Fabrication – Surface Equipment segment designs, fabricates and sells equipment used in the production, treating and processing of crude oil and natural gas. Production and Processing Fabrication – Belleli segment provides engineering, procurement and construction services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities and construction of tank farms and evaporators and brine heaters for desalination plants.

In the third quarter of 2007, we renamed three of our segments as follows: U.S. Rentals is now referred to as U.S. Contract Operations; International Rentals is now referred to as International Contract Operations; and Parts, Service and Used Equipment is now referred to as Aftermarket Services.

We evaluate the performance of our segments based on segment gross margin. Revenues include only sales to external customers. We do not include intersegment sales when we evaluate the performance of our segments. Our chief executive officer does not review asset information by segment.

The following tables present sales and other financial information by industry segment for the three months and nine months ended September 30, 2007 and 2006. The results below for the three months and nine months ended September 30, 2007 include 42 days of Universal’s operations from the merger date of August 20, 2007 through September 30, 2007.

									Production and
									processing fabrication
	U.S.		International				Compressor and						Reportable
	contract		contract		Aftermarket		accessory		Surface				segments
Three months ended	operations		operations		services		fabrication		equipment		Belleli		total
							(in thousands)
September 30, 2007:
Revenue from external customers	$	145,913	$	91,530	$	150,202	$	174,235	$	115,461	$	76,188	$	753,529
Gross margin(1)		83,729		54,799		22,683		39,319		23,655		3,333		227,518
September 30, 2006:
Revenue from external customers	$	98,030	$	63,792	$	47,951	$	90,141	$	50,776	$	65,114	$	415,804
Gross margin(1)		58,473		38,264		10,057		15,770		10,471		7,744		140,779

	Three Months Ended
	September 30,
	2007		2006
	(in thousands)
Total revenue for reportable segments	$	753,529	$	415,804
Gain on sale of business and other income(2)		1		7,980
Total revenues and other income	$	753,530	$	423,784

(1)	Gross margin, a non-GAAP financial measure, is reconciled to net income (loss) below.
(2)	Includes equity in income of non-consolidated affiliates and gain on sale of business and other income.

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									Production and
									processing fabrication
							Compressor
	U.S.		International				and						Reportable
	contract		contract		Aftermarket		accessory		Surface				segments
Nine months ended	operations		operations		services		fabrication		equipment		Belleli		total
	(in thousands)
September 30, 2007:
Revenue from external customers	$	345,110	$	228,467	$	304,206	$	392,451	$	192,682	$	254,800	$	1,717,716
Gross margin(1)		203,792		140,755		53,806		88,274		44,937		22,010		553,574
September 30, 2006:
Revenue from external customers	$	282,746	$	193,818	$	152,959	$	214,960	$	133,992	$	164,170	$	1,142,645
Gross margin(1)		168,369		123,267		28,942		35,414		24,888		17,433		398,313

	Nine Months Ended
	September 30,
	2007		2006
	(in thousands)
Total revenue for reportable segments	$	1,717,716	$	1,142,645
Gain on sale of business and other income(2)		24,760		59,607
Total revenues and other income	$	1,742,476	$	1,202,252

(1)	Gross margin, a non-GAAP financial measure, is reconciled to net income (loss) below.
(2)	Includes equity in income of non-consolidated affiliates and gain on sale of business and other income.

The Company defines gross margin as total revenue less cost of sales (excluding depreciation and amortization expense). Gross margin is included as a supplemental disclosure because it is a primary measure used by the Company’s management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of the Company’s operations. As an indicator of the Company’s operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. The Company’s gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

     The following table reconciles net income (loss) to gross margin (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Net income (loss)	$	(75,391	)	$	12,279		$	(23,925	)	$	56,402
Equity in (income) loss of non-consolidated affiliates		5,005			(6,313	)		(6,957	)		(17,391	)
Gain on sale of business and other income		(5,006	)		(1,667	)		(17,803	)		(42,216	)
Selling, general and administrative		73,025			50,913			181,059			148,751
Merger and integration expenses		34,008			—			37,397			—
Depreciation and amortization		67,133			45,307			170,801			130,352
Fleet impairment		61,945			—			61,945			—
Interest expense		37,483			28,802			91,123			89,729
Foreign currency translation (gain) loss		(4,673	)		905			(4,662	)		(2,828	)
Debt extinguishment costs		70,255			—			70,255			5,902
Other		—			—			—			1,204
Provision (benefit) for income taxes		(38,692	)		11,216			(8,085	)		29,209
Minority interest, net of tax		2,426			(93	)		2,426			—
Income from discontinued operations, net of tax		—			(570	)		—			(368	)
Gain from sale of discontinued operations, net of tax		—			—			—			(63	)
Cumulative effect of accounting change, net of tax		—			—			—			(370	)
Gross margin	$	227,518		$	140,779		$	553,574		$	398,313

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15. DISPOSITIONS

In February 2006, we sold our U.S. amine treating assets to Crosstex Energy Services L.P. (“Crosstex”) for approximately $51.5 million and recorded a pre-tax gain of $28.4 million that is included in gain on sale of business and other income in our consolidated statement of operations. The disposal of these assets did not meet the criteria established for recognition as discontinued operations under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). Our U.S. amine treating assets had revenues of approximately $7.6 million in 2005. Because Hanover leased back from Crosstex one of the facilities sold in this transaction, approximately $3.3 million of additional gain was deferred into future periods. We also entered into a three-year strategic alliance with Crosstex.

During the first quarter of 2006, Hanover’s board of directors approved management’s plan to dispose of the assets used in our fabrication facility in Canada, which was part of our Production and Processing Fabrication-Surface Equipment segment. These assets were sold in May 2006 as part of management’s plan to improve overall operating efficiency in this line of business. The Canadian assets were sold for approximately $10.1 million and we recorded a pre-tax gain of approximately $8.0 million as a result of the transaction in gain on sale of business and other income in our consolidated statement of operations. The disposal of these assets did not meet the criteria established for recognition as discontinued operations under SFAS No. 144.

16. FLEET IMPAIRMENT

Following completion of the merger between Hanover and Universal, Exterran’s management reviewed the compression fleet assets used in our U.S. Contract Operations segment that existed at the merger date. Management reviewed the Company’s fleet for units that would not be of the type, configuration, make or model that management would want to continue to offer due to the cost to refurbish the equipment, the incremental costs of maintaining more types of equipment and the increased financial flexibility of the new company to build new units in the configuration currently in demand by our customers. Prior to the merger, we had planned to rebuild or reconfigure these units over time to make them into the configurations currently in demand by customers.

We performed a cash flow analysis of the expected proceeds from the disposition to determine the fair value for the fleet assets we decided to dispose of. The net book value of the fleet assets to be disposed of, previously owned by Hanover, exceeded the fair value by $61.9 million, which is recorded as an impairment of our long-lived assets in the current quarter. The impairment is recorded in fleet impairment expense in the consolidated statements of operations. Our plan to dispose of the identified fleet assets did not meet the criteria to be classified as assets held for sale under SFAS No. 144. No impairment charge was recorded on units previously owned by Universal as the intended use/disposition was considered as part of fair value of these units in the allocation of the purchase price.

17. INVESTMENTS IN NON-CONSOLIDATED AFFILIATES

Investments in affiliates that are not controlled by Exterran but where we have the ability to exercise significant influence over the operations are accounted for using the equity method of accounting. Our share of net income or losses of these affiliates is reflected in the consolidated statements of operations as equity in income of non-consolidated affiliates. Our primary equity method investments are comprised of entities that own, operate, service and maintain compression and other related facilities as well as water injection plants.

We own 35.5% of the SIMCO and Harwat Consortium, which owns, operates and services water injection plants in Venezuela. During the third quarter of 2007, we determined that the financial condition and near and long-term prospects of our investment in SIMCO and Harwat Consortium had declined and that we had a loss in our investment that was not temporary. This decline was primarily caused by increased costs to operate their business that is not expected to improve in the near term. In the third quarter of 2007, we recorded an impairment of our investment in the SIMCO and the Harwat Consortium of $6.7 million, which is reflected as a charge in equity in income (loss) of non-consolidated affiliates in our consolidated statements of operations.

18. INCOME TAXES

The decrease in income taxes for the three and nine months ended September 30, 2007 compared to the three and nine months ended September 30, 2006 was primarily caused by a reduction in income before income taxes. The decrease in the effective tax rate was primarily due to the benefits realized from reversing $4.0 million of valuation allowances previously recorded against certain non-U.S. subsidiaries’ deferred tax assets and also from claiming approximately $2.8 million in foreign taxes as credits rather than deductions. The decrease in income taxes and effective tax rate was partially offset by the benefit previously recognized during the three months and nine

28

months ended September 30, 2006 from the use of net operating loss carryforwards and capital loss carryforwards in the U.S. that allowed us to reverse a portion of our valuation allowance.

Due to income before taxes from the results of U.S. operations in 2006 and our expectations for income before taxes in 2007 and future years, we reached the conclusion in the fourth quarter of 2006 that it is more likely than not that our net deferred tax assets in the U.S. would be realized. Previously, because of cumulative tax losses in the U.S., we were not able to reach the “more likely than not” criteria of SFAS No. 109 and had recorded a valuation allowance on our net U.S. deferred tax assets. We have recorded valuation allowances for certain other deferred tax assets that are not likely to be realized. If we are required to record and/or reverse additional valuation allowances in the U.S. or any other jurisdictions, our effective tax rate will be impacted, perhaps substantially, compared to the U.S. federal statutory rate.

As a result of the merger between Hanover and Universal, we have changed our position with respect to foreign taxes by treating foreign taxes as credits rather than deductions. Foreign tax credits that are not utilized in the year they are generated can be carried forward for 10 years offsetting payments of U.S. federal income taxes on a dollar-for-dollar basis. We believe that we will generate sufficient taxable income in the future from our operating activities as well as from the transfer of contract compression assets to the Partnership that will cause us to use our net operating loss carryforwards earlier than we had expected prior to the merger. We expect that the utilization of our net operating carryforwards will allow us to utilize our foreign tax credits within the 10-year carryforward period. We intend to amend our 2005 and 2006 U.S. federal income tax returns to elect the foreign tax credit. A $30.6 million benefit for foreign tax credits generated prior to the merger has been recorded as a purchase accounting adjustment.

Pursuant to Sections 382 and 383 of the Internal Revenue Code, utilization of loss carryforwards and credit carryforwards, such as foreign tax credits, will be subject to annual limitations due to the ownership changes of both Hanover and Universal. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The merger resulted in such an ownership change for both Hanover and Universal. Our ability to utilize loss carryforwards and credit carryforwards against future U.S. federal taxable income and future U.S. federal income tax may be limited. The limitations may cause us to pay U.S. federal income taxes earlier; however, it is not currently expected that any loss carryforwards or credit carryforwards will expire as a result of these limitations.

We record valuation allowances when it is more likely than not that some portion or all of our deferred tax assets (e.g., net operating loss carryforwards, capital loss carryforwards, foreign tax credits, etc.) will not be realized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the appropriate character and in the appropriate taxing jurisdictions in the future. We believe the transfer of contract compression assets to the Partnership will generate sufficient capital gains in the future that will allow us to use all of our capital loss carryforwards. The benefit of reversing a $4.4 million valuation allowance related to the capital loss carryforwards was recorded as a purchase accounting adjustment.

19. RELATED-PARTY TRANSACTION

On August 20, 2007, Mr. Ernie L. Danner, a non-employee director of the Company, entered into a consulting agreement with the Company pursuant to which the Company engaged Mr. Danner, on a month-to-month basis, to provide consulting services. In consideration of the services to be rendered, the Company will pay Mr. Danner a consulting fee of approximately $29,500 per month and will reimburse Mr. Danner for expenses incurred on the Company’s behalf.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this report are forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding future financial position, business strategy, proposed acquisitions, budgets, litigation, projected costs and plans and objectives of management for future operations, and are intended to come within the safe harbor protection provided by that section. You can identify many of these statements by looking for words such as “believes,” “expects,” “will,” “intends,” “projects,” “anticipates,” “estimates” or similar words or the negative thereof.

Such forward-looking statements in this report include, without limitation, statements regarding:

• our business growth strategy and projected costs;

• our future financial position;

• the sufficiency of available cash flows to fund continuing operations;

• the expected amount of our capital expenditures;

• anticipated cost savings, future revenue, gross margin and other financial or operational measures related to our business and our primary business segments;

• the future value of our equipment; and

• plans and objectives of our management for our future operations.

Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this report. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. These forward-looking statements are also affected by the risk factors described below in Part II, Item 1A. “Risk Factors,” those described in Universal’s Annual Report on Form 10-K for the year ended December 31, 2006, as amended by Amendment No. 1 thereto, Hanover’s Annual Report on Form 10-K for the year ended for the year ended December 31, 2006, as amended by Amendment No. 1 thereto and those set forth from time to time in our filings with the Securities and Exchange Commission (“SEC”), which are available through our website at www.exterran.com and through the SEC’s Electronic Data Gathering and Retrieval System (“EDGAR”) at www.sec.gov. Important factors that could cause our actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things:

• conditions in the oil and gas industry, including a sustained decrease in the level of supply or demand for natural gas and the impact on the price of natural gas, which could cause a decline in the demand for our compression and oil and natural gas production and processing equipment and services;

• reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies;

• the success of our subsidiaries, including Exterran Partners, L.P.;

• our inability to realize the anticipated benefits from the merger of Hanover and Universal;

• changes in economic or political conditions in the countries in which we do business, including civil uprisings, riots, terrorism, kidnappings, the taking of property without fair compensation and legislative changes;

• changes in currency exchange rates;

• the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters;

• our ability to timely and cost-effectively obtain components necessary to conduct our business;

• employment workforce factors, including our ability to hire, train and retain key employees;

• our inability to implement certain business and financial objectives, such as:

• international expansion;

• timely and cost-effective execution of integrated projects,

• integrating acquired businesses;

• generating sufficient cash; and

• accessing the capital markets;

• liability related to the use of our products and services;

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• changes in governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; and

• our level of indebtedness and ability to fund our business.

All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this report.

GENERAL

Exterran Holdings, Inc., together with its subsidiaries (“we”, “us”, “our”, “Exterran”, or the “Company”), is a global market leader in the full-service natural gas compression business and is also a leading provider of service, fabrication and equipment for oil and natural gas production, processing and transportation applications. We sell this equipment and provide complete operation and maintenance services, including run-time guarantees, for both customer-owned equipment and our fleet of contract equipment. Our customers include both major and independent oil and natural gas producers and distributors as well as national oil and gas companies in the countries in which we operate. Our maintenance business, together with our parts and service business, provides solutions to customers that own their own compression and surface production and processing equipment, but want to outsource their operations. We also fabricate compressor and oil and gas production and processing equipment, and provide gas processing and treating and oilfield power generation services, primarily to our U.S. and international customers as a complement to our compression services. In addition, through our subsidiary, Belleli Energy S.p.A. (“Belleli”), we provide engineering, procurement and construction services primarily related to the manufacturing and construction of critical process equipment and tank farms for refinery and petrochemical facilities and evaporators and brine heaters for desalination plants.

In the third quarter of 2007, we renamed three of our segments as follows: U.S. Rentals is now referred to as U.S. Contract Operations; International Rentals is now referred to as International Contract Operations; and Parts, Service and Used Equipment is now referred to as Aftermarket Services.

Hanover and Universal Merger

On August 20, 2007, Hanover and Universal completed their business combination pursuant to the Merger Agreement by and among the Company, Hanover, Universal, and two wholly owned subsidiaries of the Company. As a result of the merger, each of Universal and Hanover became a wholly owned subsidiary of the Company, and Universal merged with and into the Company. Hanover was determined to be the acquirer for accounting purposes and, therefore, our financial statements and the financial information included in this Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” reflect Hanover’s historical results for the periods prior to the merger date. For more information regarding the merger, please see Note 2 to the Consolidated Financial Statements included in Part I, Item 1 (“Financial Statements”) of this report.

Exterran Partners, L.P. (formerly Universal Compression Partners, L.P.)

As a result of the merger, we became the indirect majority owner of Exterran Partners, L.P. (along with its subsidiaries, the “Partnership”). The Partnership is a master limited partnership that was formed to provide natural gas contract operations services to customers throughout the United States. In October 2006, the Partnership completed its initial public offering, as a result of which the common units owned by the public represented a 49% limited partner ownership interest in the Partnership and Universal owned the remaining equity interest in the Partnership.

In July 2007, the Partnership acquired from Universal contract operations customer service agreements with eight customers and a fleet of 722 compressor units, comprising 281,992 horsepower, or 13% (by then available horsepower) of the combined U.S. contract operations business of Universal and the Partnership. These compressor units serve the compression service needs of the eight customers that became customers of the Partnership upon the closing of the acquisition. In connection with this acquisition, the Partnership assumed $159.6 million in debt from Universal and issued to Universal approximately 2.0 million common units and approximately 82,000 general partner units. Additionally, the Partnership issued approximately 2.0 million common units for proceeds of $69.0 million (net of private placement fees of $1.0 million) to institutional investors in a private placement. The Partnership entered into a Registration Rights Agreement with the purchasers of the units offered in the private placement that, among other things, requires the Partnership to (a) file a shelf registration statement with the Securities and Exchange Commission covering the common units within 180 days of closing and (b) have the shelf registration statement declared effective within 270 days of the closing. The Partnership used the proceeds from the private placement to repay a portion of the debt assumed from Universal.

Additionally, in connection with this acquisition, the Partnership expanded its revolving credit facility from $225 million to $315 million and borrowed an additional $90 million under that facility, which it used, along with available cash, to repay the remainder of the debt assumed from Universal in conjunction with this acquisition. In July 2007, the Partnership entered into two interest rate swap

31

agreements related to its revolving credit facility. Each swap agreement has a notional amount of $40 million. These swap agreements both terminate in October 2011 and have a weighted average fixed rate of 5.33%.

Also, in connection with the closing of the acquisition, the Partnership entered into an amendment (the “First Amendment”) to the Omnibus Agreement. The First Amendment, among other things, increased the cap on selling, general and administrative costs allocable from Universal to the Partnership based on such costs incurred by Universal Compression Holdings on behalf of the Partnership from $2.5 million per quarter to $4.75 million (after taking into account any such costs that the Partnership incurs and pays directly) per quarter and increased the cap on cost of sales from $16.95 per horsepower per quarter to $18.00 per horsepower per quarter (after taking into account any such costs that the Partnership incurs and pays directly). These caps are scheduled to terminate on December 31, 2008.

The general partner of the Partnership is a subsidiary of the Company and the Company consolidates the financial position and results of operations of the Partnership. It is our intention for the Partnership to be our primary growth vehicle for our U.S. contract operations business and to continue to contribute U.S. contract operations customer contracts and assets in exchange for cash or additional interest in the Partnership. As of September 30, 2007, the Partnership had a fleet of approximately 1,700 compressor units comprising approximately 703,000 horsepower, or 16% (by available horsepower) of the Company’s and the Partnership’s combined total U.S. horsepower. For more information regarding the Partnership, please see Note 2 to the Financial Statements.

Debt Refinancing

On August 20, 2007, we completed a refinancing of much of the outstanding debt of Hanover and Universal by entering into two new debt facilities. We entered into a $1.65 billion senior secured credit facility, consisting of an $850 million five-year revolving line of credit and an $800 million six-year term loan, with a syndicate of financial institutions, as well as a $1.0 billion asset-backed securitization facility. As a result of these new credit facilities, all of the debt of Universal and Hanover that existed on the merger date has been replaced, other than Hanover’s convertible debt securities and the credit facility of the Partnership. For more information regarding the refinancing including a summary of the debt extinguishment charges, please see Note 8 to the Financial Statements.

OVERVIEW

Industry Conditions

Natural gas consumption in the United States for the seven months ended July 31, 2007 increased by approximately 5% over the seven months ended July 31, 2006 and is expected to increase by 0.7% per annum until 2030 according to the Energy Information Administration. We believe the outlook for contract operations in the United States will continue to benefit from aging producing natural gas fields that will require more compression to continue producing the same volume of natural gas, and from increasing production from unconventional sources, which include coal beds, shales and tight sands, which generally require more compression than has been required for conventional sources. Recently, the smaller horsepower segments of our compression fleet have experienced some weakness due to shifts in market demands, including more demand for higher horsepower compression, which has benefited the larger horsepower segments of our compression fleet.

Natural gas consumption in areas outside the United States is projected to increase by 2.9% per annum until 2030 according to the Energy Information Administration. We believe this increase in consumption will positively impact the market for contract operations in areas outside the United States as infrastructure will need to be built to accommodate such growth. Additionally, we believe fabrication of production and processing and compression equipment will need to increase to support the infrastructure required to meet this increasing demand.

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Financial Highlights

Financial highlights for the three months and nine months ended September 30, 2007, as compared to the prior year periods, which are discussed in greater detail below in “Results of Operations,” were as follows:

• Revenue and Other Income. Revenue and other income for the three months ended September 30, 2007 was $753.5 million compared to $423.8 million for the prior year period, an increase of 78%. Revenue and other income for the nine months ended September 30, 2007 was $1,742.5 million compared to $1,202.3 million for the prior year period, an increase of 45%. Approximately $150.4 million and $52.3 million of the increase in revenues and gross margin (defined as revenues less cost of sales, excluding depreciation and amortization expense), respectively, was due to the inclusion of Universal’s financial results after the merger date on August 20, 2007. Revenues in the current year benefited from an improvement in market conditions compared to the prior year. Revenue and other income for the nine months ended September 30, 2006 benefited from an $8.0 million gain on the sale of assets in Canada and a $28.4 million gain on the sale of our U.S. amine treating business.

• Net Income (Loss). Net loss for the three months ended September 30, 2007 was $75.4 million a decrease of $87.7 million and was $23.9 million, a decrease of $80.3 million for the nine months ended September 30, 2007, as compared to the prior year periods.

Net income (loss) for the three and nine months ended September 30, 2007 and 2006 was impacted by the following charges (in millions):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2006		2007		2006
Merger and integration expense	$	34.0	$	—	$	37.4	$	—
Debt extinguishment charges		70.3		—		70.3		5.9
Fleet impairment		61.9		—		61.9		—
Impairment of investment in non-consolidated affiliate (recorded in Equity in income (loss) of non-consolidated affiliates)		6.7		—		6.7		—
Interest rate swap termination (recorded in Interest expense)		7.0		—		7.0		—
Total	$	179.9	$	—	$	183.3	$	5.9

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Operating Highlights

The following table summarizes total available horsepower, average operating horsepower, horsepower utilization percentage and compressor and accessory and production and processing fabrication backlog.

	Three Months Ended
	September 30, 2007
	(Horsepower in thousands)
Total Available Horsepower (at period end):
U.S. contract operations		4,365
International contract operations		1,550
Total		5,915
Average Operating Horsepower:
U.S. contract operations		3,662
International contract operations		1,375
Total		5,037
Horsepower Utilization:
Spot (at period end)		84.9	%

	September 30, 2007		December 31, 2006		September 30, 2006
			(In millions)
Compressor and Accessory Fabrication Backlog	$	395.3	$	325.1	$	192.4
Production and Processing Equipment Fabrication Backlog(1)	$	720.2	$	482.5	$	496.4

(1) Includes Belleli backlog of $517.7 million, $414.0 million, and $454.0 million as of September 30, 2007, December 31, 2006, and September 30, 2006, respectively.

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RESULTS OF OPERATIONS

The results of operations for the three months and nine months ended September 30, 2007 include Universal’s operations for the 42 days from the date of the merger, August 20, 2007, through September 30, 2007. Accordingly, these results of operations are not representative of a full quarter of operating results for Exterran.

THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006

Summary of Business Line Results

U.S. Contract Operations
(in thousands)

	Three months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	145,913		$	98,030			49	%
Cost of sales		62,184			39,557			57	%
Gross margin	$	83,729		$	58,473			43	%
Gross margin percentage		57	%		60	%		(3	)%

The increase in revenue and gross margin (defined as revenues less cost of sales, excluding depreciation and amortization expense) was primarily due to the inclusion of the Universal results after the merger and accounted for approximately $47.0 million and $27.8 million of the increase in revenue and gross margin, respectively. Gross margin percentage (defined as revenue less cost of sales, excluding depreciation and amortization expense, divided by revenue) was negatively impacted in the current quarter as compared to the same period last year due to higher repair and maintenance expenses. Gross margin, a non-GAAP financial measure, is reconciled, in total, to net income (loss), its most directly comparable financial measure calculated and presented in accordance with GAAP within Part I, Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures”) of this report.

International Contract Operations
(in thousands)

	Three months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	91,530		$	63,792			43	%
Cost of sales		36,731			25,528			44	%
Gross margin	$	54,799		$	38,264			43	%
Gross margin percentage		60	%		60	%		0	%

The increase in revenue and gross margin was primarily due to the inclusion of the Universal results after the merger and accounted for approximately $18.9 million and $13.5 million of the increase in revenue and gross margin of international contract operations, respectively. The remaining increase in international contract operations revenue during the three months ended September 30, 2007, compared to the three months ended September 30, 2006, is due primarily to increased revenue in Latin America of approximately $6.5 million. Inclusion of the results of Universal after the merger date improved our gross margin percentage by approximately 3% for the three months ended September 30, 2007. The gross margin percentage improvement from the inclusion of Universal’s results was offset by higher labor and repair and maintenance costs in Argentina and higher repair and maintenance costs in the Eastern Hemisphere, including costs related to the start-up of a new operation.

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Aftermarket Services
(in thousands)

	Three months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	150,202		$	47,951			213	%
Cost of sales		127,519			37,894			237	%
Gross margin	$	22,683		$	10,057			126	%
Gross margin percentage		15	%		21	%		(6	)%

Aftermarket services revenue includes two business components: (1) parts and services and (2) used equipment sales and installation revenues. Our used equipment sales and installation revenue and gross margin percentages vary significantly from period to period and are dependent on the exercise of purchase options on fleet equipment by customers and timing of the start-up of new projects by customers. The increase in aftermarket services revenue during the three months ended September 30, 2007, compared to the three months ended September 30, 2006, is due primarily to the inclusion of Universal’s results after the merger as well as the completion of a $65.9 million installation project at a 3% margin in the Eastern Hemisphere.

For the three months ended September 30, 2007, parts and services revenue was $75.0 million including approximately $25.3 million from the inclusion of Universal’s results after the merger compared to $43.7 million for the three months ended September 30, 2006. Installation revenue and used equipment sales for the three months ended September 30, 2007 was $75.2 million compared to $4.2 million for the three months ended September 30, 2006.

The inclusion of Universal’s results after the merger accounted for approximately $6.1 million of the increase in gross margin for the three months ended September 30, 2007. Aftermarket services gross margin percentage decreased for the three months ended September 30, 2007 to 15% primarily due to the significantly higher installation revenues which had lower margins than parts and services and used equipment sales. For the three months ended September 30, 2007 and 2006, parts and services had a gross margin percentage of 24%. Installation revenue and used equipment sales had a gross margin percentage of 7%, compared to a (6)% gross margin percentage for the three months ended September 30, 2006.

Compressor and Accessory Fabrication
(in thousands)

	Three months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	174,235		$	90,141			93	%
Cost of sales		134,916			74,371			81	%
Gross margin	$	39,319		$	15,770			149	%
Gross margin percentage		23	%		17	%		6	%

The inclusion of the Universal results after the merger accounted for approximately $29.7 million and $4.9 million of the increase in revenue and gross margin, respectively. The remaining increase in compressor and accessory fabrication revenue, gross margin and gross margin percentage during the three months ended September 30, 2007, compared to the three months ended September 30, 2006, is due primarily to improved market conditions that led to higher sales levels and better pricing.

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Production and Processing Equipment Fabrication
(in thousands)

	Three months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	191,649		$	115,890			65	%
Cost of sales		164,661			97,675			69	%
Gross margin	$	26,988		$	18,215			48	%
Gross margin percentage		14	%		16	%		(2	%)

Production and processing equipment fabrication revenue increased by $75.8 million primarily due to an increase in product sales resulting from improved market conditions as well as $29.7 million of revenues due to the inclusion of Universal’s results after the merger. The Universal revenues related to a project in the Eastern Hemisphere accounted for under the completed contract method of accounting that was near completion on the merger date and was completed by September 30, 2007. Due to the adjustment to record Universal’s inventory at fair value pursuant to the allocation of the purchase price on the date of merger, the inventory related to this project was increased to its sales price which resulted in a gross margin percentage of 0% on this project. This project reduced our production and processing fabrication equipment gross margin percentage by approximately 3%. For further information regarding the purchase price allocation with the merger, see Note 2 to the Financial Statements. Gross margin percentage for the three months ended September 30, 2007 decreased compared to the three months ended September 30, 2006 primarily due to approximately $9.6 million of cost over-runs on one of Belleli’s large projects and the inclusion of Universal’s results after the merger as discussed above. The decrease in gross margin percentage was partially offset by improved pricing related to an improvement in market conditions in the three months ended September 30, 2007 compared to the three months ended September 30, 2006.

Equity in income of non-consolidated affiliates and gain on sale of business and other income
(in thousands)

	Three months ended
	September 30,					Increase
	2007			2006		(Decrease)
Equity in income of non-consolidated affiliates	$	(5,005	)	$	6,313		(179	%)
Gain on sale of business and other income	$	5,006		$	1,667		200	%

The decrease in equity in income of non-consolidated affiliates was partially caused by lower equity in earnings from our Venezuelan joint venture El Furrial. El Furrial is a joint venture which we have a 33.3% ownership interest in, that operates gas compression plants in Venezuela. During the three months ended September 30, 2007 we recorded an equity loss of $2.5 million related to El Furrial compared to $2.2 million in equity income for the three months ended September 30, 2006. In addition, we recorded a charge of $6.7 million in the third quarter of 2007 on our investment in the SIMCO and Harwat Consortium due to an impairment of our investment that was determined to be other than temporary. For further information regarding the SIMCO and Harwat Consortium charge, please see Note 17 to the Financial Statements.

The increase in gain on sale of business and other income was primarily due to $3.6 million of gains on sales of trading securities for the three months ended September 30, 2007 compared to $0.7 million for the three months ended September 30, 2006. From time to time, we purchase short-term debt securities denominated in U.S. dollars and exchange them for short-term debt securities denominated in local currency in Latin America to achieve more favorable exchange rates. These funds are utilized in our international contract operations which have experienced an increase in operating costs due to local inflation.

37

Expenses
(in thousands)

	Three months ended
	September 30,					Increase
	2007			2006		(Decrease)
Selling, general and administrative	$	73,025		$	50,913		43	%
Merger and integration expenses		34,008			—		n/a
Depreciation and amortization		67,133			45,307		48	%
Fleet impairment		61,945			—		n/a
Interest expense		37,483			28,802		30	%
Foreign currency translation (gain) loss		(4,673	)		905		(616	)%
Debt extinguishment costs		70,255			—		n/a

The increase in selling, general and administrative expenses (“SG&A”) was primarily due to the inclusion of Universal’s results after the merger and accounted for approximately $16.2 million of the increase in SG&A expense. The remaining increase in SG&A expense is primarily due to higher incentive compensation expenses and costs associated with the increase in business activity. As a percentage of revenue and other income, SG&A for Exterran for the three months ended September 30, 2007 was 10%, compared to 12% for the three months ended September 30, 2006.

Merger and integration expenses related to the merger between Hanover and Universal were $34.0 million during the three months ended September 30, 2007. These expenses are primarily made up of amortization of retention bonus awards, acceleration of vesting of Hanover restricted stock, stock options and long-term cash incentives, change of control payments for Hanover executives and severance for Hanover employees. Acceleration of vesting of restricted stock and stock options, change of control payments, and severance related to Universal employees were recorded as part of the purchase price allocation and therefore are not reflected in merger and integration expenses. For further information regarding merger and integration expenses, please see Note 2 to the Financial Statements.

The inclusion of Universal’s results after the merger accounted for approximately $16.8 million of the increase in depreciation and amortization expense. The remaining increase in depreciation and amortization expense during the three months ended September 30, 2007 as compared to the three months ended September 30, 2006 was primarily due to property, plant and equipment additions since September 30, 2006.

The Company recorded an impairment of fleet equipment of $61.9 million in the three months ended September 30, 2007. For further information regarding the impairment, please see Note 16 to the Financial Statements.

The increase in interest expense during the three months ended September 30, 2007 compared to the three months ended September 30, 2006, was primarily due to the inclusion of additional interest related to Universal’s debt after the merger compared to interest on our debt before the merger and a $7.0 million charge to interest expense in the three months ended September 30, 2007 from the termination of two fair value hedges. For further information regarding the debt refinancing, please see Note 8 to the Financial Statements.

Foreign currency translation for the three months ended September 30, 2007 and 2006 was a gain of $4.7 million and a loss of $0.9 million, respectively. The inclusion of Universal’s results after the merger accounted for $1.4 million of the increase in foreign currency translation gain. The increase in foreign exchange gain is primarily due to the strengthening of the Euro against the U.S. Dollar during the three months ended September 30, 2007, while the exchange rate between the Euro and the U.S. Dollar remained relatively flat during the three months ended September 30, 2006.

38

The following table summarizes the exchange gains and losses we recorded for assets exposed to currency translation (in thousands):

	Three Months Ended
	September 30,
	2007			2006
Canada	$	525		$	(61	)
Argentina		(22	)		(73	)
Venezuela		(28	)		6
Brazil		752			74
Italy		2,923			(637	)
All other countries		523			(214	)
Exchange gain (loss)	$	4,673		$	(905	)

The impact of foreign exchange on our statements of operations will depend on the amount of our net asset and liability positions exposed to currency fluctuations in future periods.

The increase in debt extinguishment costs was due to call premium and tender fees paid to retire various Hanover notes that was part of the debt refinancing and a charge of $16.4 million related to the write-off of deferred financing costs in conjunction with the refinancing completed during the three months ended September 30, 2007. For further information regarding the debt refinancing, please see Note 8 to the Financial Statements.

Income Taxes
(in thousands)

	Three months ended
	September 30,						Increase
	2007			2006			(Decrease)
Income taxes	$	(38,692	)	$	11,216			(445	)%
Effective tax rate		35	%		49	%		(14	)%

The decrease in income taxes for the three months ended September 30, 2007 compared to the three months ended September 30, 2006 was primarily caused by a reduction in income before income taxes. The decrease in the effective tax rate was primarily due to benefits realized from reversing $4.0 million of valuation allowances previously recorded against certain non-U.S. subsidiaries’ deferred tax assets and claiming approximately $2.8 million in foreign taxes as credits rather than deductions. The decrease in income taxes and effective tax rate was also partially offset by the benefit previously recognized during the three months ended September 30, 2006 from the use of net operating loss carryforwards and capital loss carryforwards in the U.S. that allowed us to reverse a portion of our valuation allowances.

Due to income before income taxes from the results of U.S. operations in 2006 and our expectations for income before income taxes in 2007 and future years, we reached the conclusion in the fourth quarter of 2006 that it is more likely than not that our net deferred tax assets in the U.S. would be realized. Previously, because of cumulative tax losses in the U.S., we were not able to reach the “more likely than not” criteria of SFAS No. 109 and had recorded a valuation allowance on our net U.S. deferred tax assets. We have recorded valuation allowances for certain other deferred tax assets that are not likely to be realized. If we are required to record and/or reverse additional valuation allowances in the U.S. or any other jurisdictions, our effective tax rate will be impacted, perhaps substantially, compared to the U.S. federal statutory rate.

39

NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006

Summary of Business Line Results

U.S. Contract Operations
(in thousands)

	Nine months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	345,110		$	282,746			22	%
Cost of sales		141,318			114,377			24	%
Gross margin	$	203,792		$	168,369			21	%
Gross margin percentage		59	%		60	%		(1	)%

The increase in revenue and gross margin was primarily due to the inclusion of the Universal results after the merger and accounted for approximately $47.0 million and $27.8 million of the increase in revenue and gross margin, respectively. The remaining increase in U.S. contract operations revenue during the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006, is due primarily to an improvement in market conditions for large horsepower units that has led to growth in contracted horsepower for those larger horsepower units and an improvement in pricing. The improvement in market conditions for large horsepower units was partially offset by lower utilization of smaller horsepower units. Gross margin percentage decreased from 60% in the prior year to 59% in the current year primarily due to higher repair and maintenance expenses.

International Contract Operations
(in thousands)

	Nine months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	228,467		$	193,818			18	%
Cost of sales		87,712			70,551			24	%
Gross margin	$	140,755		$	123,267			14	%
Gross margin percentage		62	%		64	%		(2	)%

The increase in revenue and gross margin was primarily due to the inclusion of the Universal results after the merger and accounted for approximately $18.9 million and $13.5 million of the increase in revenue and gross margin, respectively. The remaining increase in international contract operations revenue and gross margin during the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006, is due primarily to increased revenue in Latin America of approximately $16.9 million. Inclusion of the results of Universal after the merger date improved our gross margin percentage by approximately 1% during the nine months ended September 30, 2007. This increase in gross margin percentage was offset by higher labor and repair and maintenance costs in Argentina as well as higher repair and maintenance costs in the Eastern Hemisphere. Gross margin percentage was also negatively impacted by lower revenues and margins in Nigeria during the nine months ended September 30, 2007. Revenue related to our Nigerian Cawthorne Channel Project was not recognized during the nine months ended September 30, 2007; however, we recorded expenses of $3.7 million related to this project. The nine months ended September 30, 2006 included $7.4 million in revenue and $4.0 million in costs related to the project. For further information regarding the Cawthorne Channel Project, please see Note 12 to the Financial Statements.

40

Aftermarket Services
(in thousands)

	Nine months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	304,206		$	152,959			99	%
Cost of sales		250,400			124,017			102	%
Gross margin	$	53,806		$	28,942			86	%
Gross margin percentage		18	%		19	%		(1	)%

Aftermarket services revenue includes two business components: (1) parts and services and (2) used equipment sales and installation revenues. Our used equipment sales and installation revenue and gross margin percentages vary significantly from period to period and are dependent on the exercise of purchase options on fleet equipment by customers and timing of the start-up of new projects by customers. The increase in aftermarket services revenue during the nine months ended September 30, 2007, compared to the nine months ended September 30, 2006, was due primarily to the inclusion of Universal’s results after the merger and an $87.8 million increase in installation sales including the completion of a $65.9 million installation project at a 3% margin in the Eastern Hemisphere.

For the nine months ended September 30, 2007, parts and services revenue was $172.2 million including approximately $25.3 million from the inclusion of Universal’s results after the merger compared to $128.6 million for the nine months ended September 30, 2006. Installation revenue and used equipment sales for the nine months ended September 30, 2007 was $132.0 million compared to $24.4 million for the nine months ended September 30, 2006.

The inclusion of Universal’s results after the merger accounted for approximately $6.1 million of the increase in gross margin for the nine months ended September 30, 2007. Aftermarket services gross margin percentage decreased for the nine months ended September 30, 2007 to 18% primarily due to the significantly higher installation revenues which had lower margins than parts and services and used equipment sales. For the nine months ended September 30, 2007, parts and services had a gross margin percentage of 25% compared to 23% for the nine months ended September 30, 2006. Installation revenue and used equipment sales had a gross margin percentage of 8%, compared to a (4)% gross margin percentage for the nine months ended September 30, 2006.

Compressor and Accessory Fabrication
(in thousands)

	Nine months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	392,451		$	214,960			83	%
Cost of sales		304,177			179,546			69	%
Gross margin	$	88,274		$	35,414			149	%
Gross margin percentage		22	%		16	%		6	%

The inclusion of the Universal results after the merger accounted for approximately $29.7 million and $4.9 million of the increase in revenue and gross margin, respectively. The remaining increase in compressor and accessory fabrication revenue, gross margin and gross margin percentage during the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006, was due primarily to improved market conditions that led to higher sales levels and better pricing.

41

Production and Processing Equipment Fabrication
(in thousands)

	Nine months ended
	September 30,						Increase
	2007			2006			(Decrease)
Revenue	$	447,482		$	298,162			50	%
Cost of sales		380,535			255,841			49	%
Gross margin	$	66,947		$	42,321			58	%
Gross margin percentage		15	%		14	%		1	%

Production and processing equipment fabrication revenue increased $149.3 million primarily due to an increase in product sales resulting from improved market conditions as well as $29.7 million of revenues due to the inclusion of Universal’s results after the merger. The Universal revenues related to a project in the Eastern Hemisphere accounted for under the completed contract method of accounting that was near completion on the merger date and was completed by September 30, 2007. Due to the adjustment to record Universal’s inventory at fair value pursuant to the allocation of the purchase price on the date of merger, the inventory related to this project was increased to its sales price which resulted in a gross margin percentage of 0% on this project. This project reduced our production and processing fabrication equipment gross margin percentage by approximately 1% for the nine months ended September 30, 2007. For further information regarding the purchase price allocation with the merger, see Note 2 to the Financial Statements. Gross margin percentage for the nine months ended September 30, 2007 increased due to improved pricing related to an improvement in market conditions in the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006. The impact of improved pricing on gross margin percentage was partially offset by the Universal revenues discussed above and approximately $16.3 million of cost over-runs on one of Belleli’s large projects.

Equity in income of non-consolidated affiliate and gain on sale of business and other income
(in thousands)

	Nine months ended
	September 30,				Increase
	2007		2006		(Decrease)
Equity in income of non-consolidated affiliates	$	6,957	$	17,391		(60	%)
Gain on sale of business and other income	$	17,803	$	42,216		(58	%)

The decrease in equity in income of non-consolidated affiliates was partially caused by lower equity in earnings from our Venezuelan joint venture El Furrial. El Furrial is a joint venture in which we have a 33.3% ownership interest, that operates gas compression plants in Venezuela. During the nine months ended September 30, 2007 we recorded equity income of $0.8 million related to El Furrial compared to $5.4 million in equity income for the nine months ended September 30, 2006. In addition, we also recorded a charge of $6.7 million in the third quarter of 2007 on our investment in the SIMCO and Harwat Consortium due to an impairment of our investment that was determined to be other than temporary. For further information regarding the SIMCO and Harwat Consortium charge, please see Note 17 to the Financial Statements.

The decrease in gain on sale of business and other income was primarily due to a pre-tax gain of $28.4 million on the sale of our U.S. amine treating business in the first quarter of 2006 and an $8.0 million pre-tax gain on the sale of assets used in our production and processing fabrication facility in Canada during the second quarter of 2006. This decrease was partially offset by $11.7 million of higher gains on trading securities in the nine months ended September 30, 2007. From time to time, we purchase short-term debt securities denominated in U.S. dollars and exchange them for short-term debt securities denominated in local currency in Latin America to achieve more favorable exchange rates. These funds are utilized in our international contract operations which have experienced an increase in operating costs due to local inflation.

42

Expenses
(in thousands)

	Nine months ended
	September 30,						Increase
	2007			2006			(Decrease)
Selling, general and administrative	$	181,059		$	148,751			22	%
Merger and integration expenses		37,397			—			n/a
Depreciation and amortization		170,801			130,352			31	%
Fleet impairment		61,945			—			n/a
Interest expense		91,123			89,729			2	%
Foreign currency translation (gain) loss		(4,662	)		(2,828	)		65	%
Debt extinguishment costs		70,255			5,902			1,090	%
Other		—			1,204			(100	)%

The inclusion of Universal’s results after the merger accounted for approximately $16.2 million of the increase in SG&A. The remaining increase in SG&A expense was primarily due to higher incentive compensation expenses and costs associated with the increase in business activity. For Exterran, as a percentage of revenue and other income, SG&A for the nine months ended September 30, 2007 was 10%, compared to 12% for the nine months ended September 30, 2006.

Merger and integration expenses related to the merger between Hanover and Universal were $37.4 million during the nine months ended September 30, 2007. These expenses are primarily made up of amortization of retention bonus awards, acceleration of vesting of Hanover restricted stock and stock options and long-term cash incentives, change of control payments for Hanover executives and severance for employees. Acceleration of vesting of restricted stock and stock options, change of control payments, and severance related to Universal employees were recorded as part of the purchase price allocation and therefore are not reflected in merger and integration expenses. For further information regarding merger and integration expenses, please see Note 2 to the Financial Statements.

The inclusion of Universal’s results after the merger accounted for approximately $16.8 million of the increase in depreciation and amortization expense. The remaining increase in depreciation and amortization expense during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 was primarily due to property, plant and equipment additions since September 30, 2006.

The Company recorded an impairment of fleet equipment of $61.9 million in the third quarter of 2007. For further information regarding the impairment, please see Note 16 to the Financial Statements.

The increase in interest expense during the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 was primarily due to the inclusion of additional interest related to Universal’s debt after the merger compared to interest on our debt before the merger and a $7.0 million charge to interest expense in the third quarter of 2007 from the termination of two fair value hedges. For further information regarding the debt refinancing, please see Note 8 to the Financial Statements.

Foreign currency translation for the nine months ended September 30, 2007 and 2006 was a gain of $4.7 million and a gain of $2.8 million, respectively. The inclusion of Universal’s results after the merger accounted for $1.4 million of the increase in foreign currency translation gain. The increase in foreign currency translation gain is primarily due to the decrease in exchange losses realized in Canada and Argentina in the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006.

43

The following table summarizes the exchange gains and losses we recorded for assets exposed to currency translation (in thousands):

	Nine Months Ended
	September 30,
	2007			2006
Canada	$	473		$	(1,078	)
Argentina		(48	)		(1,020	)
Venezuela		(41	)		581
Brazil		1,116			97
Italy		3,272			3,617
All other countries		(110	)		631
Exchange gain/(loss)	$	4,662		$	2,828

The impact of foreign exchange on our statements of operations will depend on the amount of our net asset and liability positions exposed to currency fluctuations in future periods.

The increase in debt extinguishment costs was due to a call premium and tender fees paid to retire various Hanover notes that was part of the debt refinancing completed by the Company and a charge of $16.4 million related to the write-off of deferred financing costs in conjunction with the refinancing completed during the third quarter of 2007. For further information regarding the debt refinancing, please see Note 8 to the Financial Statements. Debt extinguishment costs during the nine months ended September 30, 2006 relate to the call premium to repay Hanover’s 11% Zero Coupon Subordinated Notes due March 31, 2007.

Income Taxes
(in thousands)

	Nine months ended
	September 30,						Increase
	2007			2006			(Decrease)
Income taxes	$	(8,085	)	$	29,209			(128	)%
Effective tax rate		27	%		34	%		(7	)%

The decrease in income taxes for the nine months ended September 30, 2007 compared to nine months ended September 30, 2006 was primarily caused by a reduction in income before income taxes. The decrease in the effective tax rate was primarily due to benefits realized from reversing $4.0 million of valuation allowances previously recorded against certain non-U.S. subsidiaries’ deferred tax assets and claiming approximately $2.8 million in foreign taxes as credits rather than deductions. The decrease in income taxes and effective tax rate was also partially offset by the benefit previously recognized during the nine months ended September 30, 2006 from the use of net operating loss carryforwards and capital loss carryforwards in the U.S. that allowed us to reverse a portion of our valuation allowances.

Due to income from the results of U.S. operations in 2006 and our expectations for income in 2007 and future years, we reached the conclusion in the fourth quarter of 2006 that it is more likely than not that our net deferred tax assets in the U.S. would be realized. Previously, because of cumulative tax losses in the U.S., we were not able to reach the “more likely than not” criteria of SFAS No. 109 and had recorded a valuation allowance on our net U.S. deferred tax assets. We have recorded valuation allowances for certain other deferred tax assets that are not likely to be realized. If we are required to record and/or reverse additional valuation allowances in the U.S. or any other jurisdictions, our effective tax rate will be impacted, perhaps substantially, compared to the U.S. federal statutory rate.

Cumulative Effect of Accounting Change, Net of Tax

On January 1, 2006, we recorded the cumulative effect of change in accounting related to our adoption of SFAS No. 123R, “Stock-Based Payments”), of $0.4 million (net of tax of $0) which related to the requirement to estimate future forfeitures on restricted stock awards.

44

LIQUIDITY AND CAPITAL RESOURCES

The results of operations for the three months and nine months ended September 30, 2007 include Universal’s operations for the 42 days from the date of the merger, August 20, 2007, through September 30, 2007. Accordingly, these results of operations are not representative of a full quarter of operating results for Exterran.

Our unrestricted cash balance was $95.5 million at September 30, 2007, compared to $73.3 million at December 31, 2006. Working capital increased to $632.4 million at September 30, 2007 from $326.6 million at December 31, 2006. The increase in working capital was primarily attributable to the addition of Universal’s working capital and an increase in accounts receivable, partially offset by an increase in accrued liabilities.

Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flows, are summarized in the table below (dollars in thousands):

	Nine Months Ended
	September 30,
	2007			2006
Net cash provided by (used in) continuing operations:
Operating activities	$	107,841		$	75,242
Investing activities		(180,319	)		(97,574	)
Financing activities		90,037			27,788
Effect of exchange rate changes on cash and cash equivalents		4,679			991
Net cash provided by discontinued operations		—			431
Net change in cash and cash equivalents	$	22,238		$	6,878

Operating Activities: The increase in cash provided by operating activities for the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006, was primarily due to the payment during the nine months ended September 30, 2006 of $86.1 million of interest that had accreted from August 31, 2001 to March 31, 2006 on our 11% Zero Coupon Subordinated Notes, which were redeemed in the first quarter of 2006. Our 2007 cash flows also benefited from a decrease in inventory, excluding the impact of the merger, and the inclusion of operating cash flows from Universal after the merger date of August 20, 2007. Partially offsetting these increases to cash provided by operating activities during the nine months ended September 30, 2007 were decreases in advance billings and an increase in cost in excess of billings, excluding the impact of amounts acquired in the merger. The decrease in inventory and advance billings, excluding the impact of amounts acquired in the merger, was due to the completion of a large project in the Eastern Hemisphere.

Investing Activities: The increase in cash used in investing activities during the nine months ended September 30, 2007 as compared to the nine months ended September 30, 2006 was primarily attributable to higher capital expenditures during the nine months ended September 30, 2007 and $52.1 million of proceeds from sales of businesses in the nine months ended September 30, 2006. This increase in cash used in investing activities was partially offset by cash acquired in the Universal merger during the nine months ended September 30, 2007.

Financing Activities: The increase in cash provided by financing activities was primarily due to increased borrowings to fund increased capital expenditures and an increase in cash provided from stock option exercises. Cash provided by financing activities was also impacted by approximately $50.0 million of stock repurchases made by us during the nine months ended September 30, 2007.

Capital Expenditures: We generally invest funds necessary to fabricate fleet additions when our idle equipment cannot be reconfigured to economically fulfill a project’s requirements and the new equipment expenditure is expected to generate economic returns, over its expected useful life, that exceed our return on capital targets. We currently plan to spend approximately $325 million to $350 million on net capital expenditures during 2007 including (1) fleet equipment additions and (2) approximately $110 million to $120 million on equipment maintenance capital. Capital expenditures include Universal’s capital expenditures beginning on the merger date of August 20, 2007. See additional cash contractual obligations existing at September 30, 2007 within Part I, Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cash Contractual Obligations”) of this report.

Long - Term Debt and Debt Refinancing: Following the merger of Hanover and Universal, we completed a refinancing of a significant amount of our outstanding debt on the merger date. We entered into a $1.65 billion senior secured credit facility and a $1.0 billion asset-backed securitization facility. As a result of this refinancing, substantially all of the debt of Universal and Hanover outstanding on the merger date has been retired or redeemed, with the exception of Hanover’s convertible senior debt securities and the credit facility of the Partnership. For more information regarding the refinancing and the repayment of debt, please see Note 8 to the Financial Statements.

45

On August 20, 2007, the Company, as U.S. Borrower, and our wholly owned subsidiary, Exterran Canada, Limited Partnership, as Canadian Borrower (together the “Borrowers”), entered into a credit agreement (the “Credit Agreement”) with various financial institutions as the lenders and Wachovia Bank, National Association, as U.S. Administrative Agent (“Wachovia”) and Wachovia Capital Finance Corporation (Canada), as Canadian Administrative Agent. The Credit Agreement consists of (a) a revolving senior secured credit facility (the “Revolver”) in the aggregate amount of $850 million, which includes a variable allocation for a Canadian tranche and the ability to issue letters of credit under the facility and (b) a term loan (the “Term Loan”) senior secured credit facility, in the aggregate amount of $800 million (collectively, the “Credit Facility”). Subject to certain conditions, at the request of the Company, the aggregate commitments of the lenders under the Credit Facility may be increased by an additional $400 million less the amount of any outstanding borrowing under the 2007 ABS Facility in excess of $800 million. At September 30, 2007 substantially all amounts outstanding were LIBOR loans.

The Credit Agreement bears interest, if the borrowings are in U.S. dollars, at the Company’s option, at a Base Rate or LIBOR plus an applicable margin or, if the borrowings are in Canadian dollars, at the Company’s option, U.S. dollar LIBOR, U.S. dollar Base Rate or Canadian prime rate plus the applicable margin or the Canadian Dollar bankers’ acceptance (“CDOR”) rate. The applicable margin varies depending on the Company’s debt ratings (i) in the case of LIBOR loans, from 0.65% to 1.75% or (ii) in the case of Base Rate or Canadian prime rate loans, from 0.0% to 0.75%. The initial applicable margin was 1.00% and declined to 0.825% on October 1, 2007. The Base Rate is the higher of the U.S. Prime Rate or the Federal Funds Rate plus 0.5%. The weighted average interest rate at September 30, 2007 on the outstanding balance excluding the effect of related cash flow hedges was 6.5%.

The Credit Agreement contains various covenants with which the Borrowers and their subsidiaries must comply with, including, but not limited to, limitations on incurrence of indebtedness, limitations on investments, liens on assets, transactions with affiliates, mergers, consolidations, sales of assets and other provisions customary in similar types of agreements. The Company must also maintain, on a consolidated basis, required leverage and interest coverage ratios. Additionally, the Credit Agreement contains customary conditions, representations and warranties, events of default and indemnification provisions. The Company’s indebtedness under the Credit Facility is collateralized by liens on substantially all of the personal property in the United States of the Company, as defined in the U.S. Collateral Agreement between the Company and others in favor of Wachovia, as U.S. Administrative Agent. The assets of the Partnership and Exterran ABS 2007 LLC are not collateral under the Credit Agreement. Exterran Canada’s indebtedness under the Credit Facility is collateralized by liens on substantially all of our personal property in Canada, as defined in the Canadian Collateral Agreement between it and Wachovia Capital Finance Corporation (Canada). The Company has executed a U.S. Pledge Agreement in favor of Wachovia pursuant to which the Company and our Significant Subsidiaries (as defined in the Credit Agreement) are required to pledge their equity and the equity of certain subsidiaries to Wachovia. The Partnership and Exterran ABS 2007 LLC are not pledged under this agreement and do not guarantee debt under the Credit Facility. The U.S. Borrower guarantees the payment of the principal and interest on each Canadian tranche loan made to the Canadian Borrower under the Credit Agreement.

As of September 30, 2007, we had $87.0 million in outstanding borrowings and approximately $260.1 million in letters of credit outstanding under our Revolver. Additional borrowings of up to approximately $502.9 million were available under that facility as of September 30, 2007.

On August 20, 2007, the Company’s wholly owned subsidiary, Exterran ABS 2007 LLC (along with its subsidiaries “Exterran ABS”), entered into a $1.0 billion asset-backed securitization facility (the “2007 ABS Facility”) and issued $400 million of Series 2007-1 notes under this facility at a price equal to 100% of the principal amount thereof. On September 18, 2007, an additional $400 million of Series 2007-1 notes (collectively with the August 20, 2007 issuance, the “Series 2007-1 Notes”) were issued under this facility. The Series 2007-1 Notes were issued pursuant to an Indenture, dated as of August 20, 2007 (the “Indenture”), and the related Series 2007-1 Supplement of the same date. Interest and fees payable to the noteholders will accrue on the Series 2007-1 Notes at a variable rate consisting of an applicable margin plus, at the option of the Exterran ABS either (a) LIBOR plus an applicable margin or (b) a Base Rate. For outstanding amounts up to $800 million, the applicable margin is 0.825%. For amounts outstanding over $800 million, the applicable margin will be 1.35%. The Base Rate is defined as the higher of the Prime Rate or the Federal Funds Rate plus 1.50%. The weighted average interest rate at September 30, 2007 on the Series 2007-1 Notes excluding the effect of related cash flow hedges was 6.6%. The Series 2007-1 Notes are revolving in nature and are payable in July 2012. The amount outstanding at any time is limited to the lower of (i) 80% of the appraised value of the natural gas compression equipment owned by Exterran ABS and its subsidiaries (ii) 4.5 times free cash flow or (iii) the amount calculated under an interest coverage test, each as defined in the indenture. The Indenture contains customary terms and conditions with respect to an issuance of asset-backed securities, including representations and warranties, covenants and events of default.

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Repayment of the Series 2007-1 Notes has been secured by a pledge of all of the assets of Exterran ABS, consisting primarily of a fleet of natural gas compressors and related contracts to provide compression services to the Company’s customers.

The Partnership, as guarantor, and EXLP Operating LLC, a wholly owned subsidiary of the Partnership (“the Operating Partnership” and together with the Partnership “Partnership Borrowers”), entered into a senior secured credit agreement in 2006. The credit facility under the credit agreement was expanded in 2007 and consists of a five-year $315 million revolving credit facility, which matures in October 2011. As of September 30, 2007, there was $220.0 million in outstanding borrowings under the revolving credit facility and $95.0 million was available for additional borrowings.

The Partnership’s revolving credit facility bears interest at a Base Rate as defined in the credit agreement or LIBOR, at the Partnership’s option, plus an applicable margin. The applicable margin, depending on the Partnership’s Leverage Ratio, varies (i) in the case of LIBOR loans, from 1.0% to 2.0% or (ii) in the case of Base Rate loans, from 0.0% to 1.0%. The Base Rate is the higher of the U.S. Prime Rate or the Federal Funds Rate plus 0.5%. At September 30, 2007 all amounts outstanding were LIBOR loans and the applicable margin was 1.25%. The weighted average interest rate on the outstanding balance at September 30, 2007, excluding the effect of related cash flow hedges was 6.7%.

Borrowings under the credit agreement are secured by substantially all of the personal property assets of the Partnership Borrowers. In addition, all of the capital stock of the Partnership’s U.S. restricted subsidiaries has been pledged to secure the obligations under the credit agreement.

Under the credit agreement, the Operating Partnership and the Partnership are subject to certain limitations, including limitations on their ability to incur additional debt or sell assets, with restrictions on the use of proceeds; to make certain investments and acquisitions; to grant liens; and to pay dividends and distributions. The Partnership Borrowers are also subject to financial covenants which include a total leverage and an interest coverage ratio.

As of September 30, 2007, we had approximately $2.2 billion in outstanding debt obligations, consisting of $800 million outstanding under the 2007 ABS facility, $800 million outstanding under our term loan, $87 million outstanding under our $850 million revolving credit facility, $335.8 million outstanding under our 4.75% convertible notes and $220.0 million outstanding under the Partnership’s revolving credit facility. The Company and the Partnership Borrowers were in compliance with their debt covenants as of September 30, 2007.

The interest rate we pay on some of our variable rate debt can be affected by changes in our credit rating. As of September 30, 2007, our credit ratings as assigned by Moody’s and Standard & Poor’s were:

			Standard
	Moody’s		& Poor’s
Outlook	Stable		Stable
Corporate Family Rating	Ba2		BB
Exterran Senior Secured Credit Facility	Ba2		BB+
4.75% convertible senior notes due 2008		—		B+
4.75% convertible senior notes due 2014		—		B+

Historically, we have financed capital expenditures with a combination of net cash provided by operating and financing activities. Based on current market conditions, we expect that net cash provided by operating activities will be sufficient to finance our operating expenditures, capital expenditures and scheduled interest and debt repayments through December 31, 2007, but to the extent it is not, we may borrow additional funds under our revolving credit facilities or we may obtain additional debt or equity financing.

Stock Repurchase Program. On August 20, 2007, our board of directors authorized the repurchase of up to $200 million of our common stock through August 19, 2009. See further discussion of the stock repurchase program in Note 11 to the Financial Statements. During the nine months ended September 30, 2007, we repurchased 641,300 shares of our common stock at an aggregate cost of $50.0 million. See Part II, Item 2 (“Unregistered Sales of Equity Securities and Use of Proceeds”) for information regarding these repurchases.

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Office Lease. In August 2007, we entered into an office lease agreement to lease approximately 235,000 square feet of space in Houston that will serve as our worldwide headquarters. Our obligation to make lease payments will commence in March 2008 and will continue for 10 years. Base rent under the lease agreement is an aggregate of $13.8 million over the first five years and an aggregate of $14.6 million over the last five years. We have the right to extend the lease for up to ten years at the conclusion of the initial ten year term.

Dividends: None of Hanover, Universal or Exterran has paid any cash dividends on their common stock since formation, and we do not anticipate paying such dividends in the foreseeable future. Our board of directors anticipates that all cash flow generated from operations in the foreseeable future will be retained and used to repay our debt, repurchase our stock or develop and expand our business. Any future determinations to pay cash dividends on our common stock will be at the discretion of our board of directors and will depend on our results of operations and financial condition, credit and loan agreements in effect at that time and other factors deemed relevant by our board of directors.

Partnership Distributions to Unitholders. The Partnership’s partnership agreement requires it to distribute all of its “available cash” quarterly. Under the partnership agreement, available cash is defined to generally mean, for each fiscal quarter, (1) cash on hand at the Partnership at the end of the quarter in excess of the amount of reserves its general partner determines is necessary or appropriate to provide for the conduct of its business, to comply with applicable law, any of its debt instruments or other agreements or to provide for future distributions to its unitholders for any one or more of the upcoming four quarters, plus, (2) if the Partnership’s general partner so determines, all or a portion of the Partnership’s cash on hand on the date of determination of available cash for the quarter.

Under the terms of the partnership agreement, there is no guarantee that unitholders will receive quarterly distributions from the Partnership. The Partnership’s distribution policy is subject to certain restrictions and may be changed at any time, including (1) restrictions contained in the Partnership’s $315 million revolving credit facility, (2) the general partner of the Partnership’s establishment of reserves to fund future operations or cash distributions to the Partnership’s unitholders, (3) restrictions contained in the Delaware Revised Uniform Limited Partnership Act or (4) the Partnership’s lack of sufficient cash to pay distributions.

Through our ownership of common and subordinated units and all of the equity interests in the general partner of the Partnership, we expect to receive cash distributions from the Partnership. Our rights to receive distributions of cash from the Partnership as holder of subordinated units are subordinated to the rights of the common unitholders to receive such distributions.

On October 30, 2007, the board of directors of the general partner of the Partnership approved a cash distribution of $0.40 per unit, or $6.8 million. The distribution covers the time period from July 1, 2007 to September 30, 2007. The record date for this distribution is November 9, 2007 and payment is expected to occur on November 14, 2007.

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Contractual cash obligations. The following summarizes our contractual cash obligations at September 30, 2007 and the effect such obligations are expected to have on our liquidity and cash flow in future periods:

	Total		2007		2008-2009		2010-2011		Thereafter
	(In thousands)
Long term Debt(1)
4.75% convertible senior notes due 2008	$	192,000	$	—	$	192,000	$	—	$	—
4.75% convertible senior notes due 2014		143,750		—		—		—		143,750
Other		262		—		94		168		—
Bank credit facility due 2012		87,000		—		—		—		87,000
Bank senior term loan		800,000		—		20,000		100,000		680,000
The Partnership’s revolving credit facility due 2011		220,000		—		—		220,000		—
2007 ABS Facility notes due 2012		800,000		—		—		—		800,000
Total long-term debt		2,243,012		—		212,094		320,168		1,710,750
Interest on long-term debt(2)		594,120		29,186		232,338		223,226		109,370
Purchase commitments		756,619		651,287		105,332		—		—
Facilities and other equipment operating leases		49,317		4,051		13,663		8,265		23,338
Total contractual cash obligations	$	3,643,068	$	684,524	$	563,427	$	551,659	$	1,843,458

(1)	For more information on our long-term debt see Note 8 to the Financial Statements.
(2)	Interest amounts calculated using interest rates in effect as of September 30, 2007, including the effect of interest rate swaps.

NEW ACCOUNTING PRONOUNCEMENTS

For a discussion of recent accounting pronouncements that may affect us, please see Note 13 to the Financial Statements.

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NON-GAAP FINANCIAL MEASURES

We define gross margin as total revenue less cost of sales (excluding depreciation and amortization expense). Gross margin is included as a supplemental disclosure because it is a primary measure used by our management as it represents the results of revenue and cost of sales (excluding depreciation and amortization expense), which are key components of our operations. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.

The following table reconciles net income (loss) to gross margin (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Net income (loss)	$	(75,391	)	$	12,279		$	(23,925	)	$	56,402
Equity in (income) loss of non-consolidated affiliates		5,005			(6,313	)		(6,957	)		(17,391	)
Gain on sale of business and other income		(5,006	)		(1,667	)		(17,803	)		(42,216	)
Selling, general and administrative		73,025			50,913			181,059			148,751
Merger and integration expenses		34,008			—			37,397			—
Depreciation and amortization		67,133			45,307			170,801			130,352
Fleet impairment		61,945			—			61,945			—
Interest expense		37,483			28,802			91,123			89,729
Foreign currency translation (gain) loss		(4,673	)		905			(4,662	)		(2,828	)
Debt extinguishment costs		70,255			—			70,255			5,902
Other		—			—			—			1,204
Provision (benefit) for income taxes		(38,692	)		11,216			(8,085	)		29,209
Minority interest, net of tax		2,426			(93	)		2,426			—
Income from discontinued operations, net of tax		—			(570	)		—			(368	)
Gain from sale of discontinued operations, net of tax		—			—			—			(63	)
Cumulative effect of accounting change, net of tax		—			—			—			(370	)
Gross margin	$	227,518		$	140,779		$	553,574		$	398,313

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are exposed to market risk due to variable interest rates under our financing arrangements.

As of September 30, 2007, after taking into consideration interest rate swaps, we had approximately $772.0 million of outstanding indebtedness that was effectively subject to floating interest rates. A 1.0% increase in interest rates would result in an approximate $7.7 million annual increase in our interest expense.

Interest Rate Swap Arrangements: We are a party to interest rate swap agreements that are recorded at fair value in our financial statements. We do not use derivative financial instruments for trading or other speculative purposes. A change in the underlying interest rates may also result in a change in their recorded value.

As of September 30, 2007, the notional amount of the interest rate swap agreements related to our ABS facility was $680.0 million and the fair value of these interest rate swap agreements was a derivative asset of approximately $0.4 million. The interest rate swap agreements remain at a notional amount of $680.0 million through July 2012 then decline to a notional amount of $93.8 million which amortizes ratably through 2019. The weighted average fixed rate of these interest rate swap agreements is 4.8%.

As of September 30, 2007, the notional amount of the interest rate swap agreements related to our variable rate debt, excluding the ABS facility and the Partnership’s debt, was $250.0 million. The fair value of these interest rate swap agreements was a derivative asset of approximately $3.6 million. The interest rate swap agreements amortize ratably from September 2007 through March 2010. The weighted average fixed rate of these interest rate swap agreements is 4.0%.

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As of September 30, 2007, the notional amount of the interest rate swap agreements related to the Partnership’s variable rate debt was $205.0 million and the fair value of these interest rate swap agreements was a derivative liability of approximately $4.1 million. These interest rate swap agreements terminate in 2011 and have a weighted average fixed rate of 5.3%.

Foreign Currency Exchange Risk

We operate in numerous countries throughout the world and a fluctuation in the value of the currencies of these countries relative to the U.S. dollar could reduce our profits from international operations and the value of the net assets of our international operations when reported in U.S. dollars in our financial statements. The impact of foreign exchange on our statements of operations will depend on the amount of our net asset and liability positions exposed to currency fluctuations in future periods.

For a summary of exchange gains and losses recorded for assets exposed to currency translation during the nine months ended September 30, 2007 see Part I, Item 2 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006”) of this report.

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of September 30, 2007. Based on the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

On August 20, 2007 the merger was completed and Hanover and Universal become wholly owned subsidiaries of Exterran. Hanover was determined to be the acquiring entity for accounting purposes. Exterran believes that the systems, internal controls and procedures of Universal have a material effect on Exterran’s internal controls and therefore resulted in a reportable material change in internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business we are involved in various pending or threatened legal actions. 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 our consolidated financial position, results of operations or cash flows; however, because of the inherent uncertainty of litigation, we cannot provide assurance that the resolution of any particular claim or proceeding to which we are a party will not have a material adverse effect on our financial position, results of operation or cash flows for the period in which the resolution occurs.

Item 1A. Risk Factors

As described in the “Special Note Regarding Forward-Looking Statements,” this report contains forward-looking statements regarding us, our business and our industry. The risk factors described below, among others, could cause our actual results to differ materially from the expectations reflected in the forward-looking statements. If any of the following risks actually occur, our business, financial condition and operating results could be negatively impacted. 

The anticipated benefits of the merger of Hanover and Universal may not be realized.

We expect the merger of Hanover and Universal to result in various benefits, including, among other things, annual synergies and cost savings of approximately $50 million and other operating efficiencies that cannot be quantified at this time. We may not achieve these benefits at the levels expected or at all. If we fail to achieve these expected benefits, the results of operations and the enterprise value of the combined company may be adversely affected.

The integration of Hanover and Universal following the merger will present significant challenges that may reduce the anticipated potential benefits of the merger.

We will face significant challenges in consolidating functions and integrating the Hanover and Universal organizations, procedures and operations in a timely and efficient manner, as well as retaining key personnel. The integration of Hanover and Universal will be costly, complex and time-consuming due to the size and complexity of each organization. The principal challenges may include the following:

• integrating Hanover’s and Universal’s existing businesses;

• combining diverse product and service offerings and sales and marketing approaches;

• preserving customer, supplier and other important relationships and resolving potential conflicts that may arise as a result of the merger;

• consolidating and integrating duplicative facilities and operations, including back-office systems such as Hanover’s and Universal’s different enterprise resource planning (“ERP”) systems; and  

• addressing differences in business cultures, preserving employee morale and retaining key employees, while maintaining focus on providing consistent, high quality customer service and meeting our operational and financial goals.

We will have to dedicate substantial cost and effort to integrate the businesses. These efforts could divert our focus and resources from other day-to-day tasks, corporate initiatives or strategic opportunities during the integration process.

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We have a substantial amount of debt that could limit our ability to fund future growth and operations and increase our exposure during adverse economic conditions.

At September 30, 2007, we had approximately $2.2 billion in outstanding debt obligations, including approximately $87 million in borrowings under our bank credit facility and $800 million under our asset-backed securitization facility. Additional borrowings of up to $502.9 million and $200.0 million were available under our bank credit facility and asset-backed securitization facility, respectively as of September 30, 2007.

Our substantial debt could have important consequences. For example, these commitments could:

• make it more difficult for us to satisfy our contractual obligations;

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

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

• increase our vulnerability to interest rate fluctuations because the interest payments on a portion of our debt is based upon variable interest 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 fewer operating lease commitments; and  

• limit our ability to borrow additional funds.

A substantial portion of our future cash flows may be used to service our indebtedness, and our ability to generate cash will depend on many factors beyond our control.

As of September 30, 2007, we had approximately $2.2 billion in outstanding indebtedness. Factors beyond our control will continue to affect our ability to make payments on our refinancing of our outstanding indebtedness. These factors include those discussed elsewhere in these “Risk Factors” and those listed in the “Cautionary Information Regarding Forward-Looking Statements” section of this report. Further, our ability to fund working capital and capital expenditures will also depend on our ability to generate cash. If, in the future, sufficient cash is not generated from our operations to meet our debt service obligations, we may need to reduce or delay funding for capital investment, operations or other purposes.

We may be vulnerable to interest rate increases due to our floating rate debt obligations.

As of September 30, 2007, after taking into consideration interest rate swaps, we had approximately $772.0 million of outstanding indebtedness subject to interest at floating rates. Changes in economic conditions outside of our control could result in higher interest rates, thereby increasing our interest expense and reducing the funds available for capital investment, operations or other purposes.

Our indebtedness imposes restrictions on us that may affect our ability to successfully operate the business.

Our bank credit facility, asset-backed securitization facility and the agreements governing certain of our indebtedness include covenants that, among other things, will restrict our ability to:

•   borrow money;  

•   create liens;  

•   make investments;

•   declare dividends or make certain distributions;

•   sell or dispose of property; or

•   merge into or consolidate with any third party or sell or transfer all or substantially all of our property.

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These facilities and other agreements also require us to maintain various financial ratios. Such covenants may restrict our ability to expand or to pursue our business strategies. Our ability to comply with these and any other provisions of such agreements may be affected by changes in our operating and financial performance, changes in business conditions or results of operations, adverse regulatory developments or other events beyond our control. The breach of any of these covenants could result in a default, which could cause our indebtedness to become due and payable. If any of our indebtedness were to be accelerated, we may not be able to repay or refinance it.

A reduction in oil or natural gas prices, or instability in U.S. or global energy markets, could adversely affect our business.

Our results of operations depend upon the level of activity in the global energy market, including natural gas development, production, processing and transportation. Oil and natural gas prices and the level of drilling and exploration activity can be volatile. For example, oil and natural gas exploration and development activity and the number of well completions typically decline when there is a significant reduction in oil and natural gas prices or significant instability in energy markets. As a result, the demand for our gas compression services and oil and gas production and processing equipment would be adversely affected. Any future decline in oil and natural gas prices could have a material adverse effect on our business, consolidated financial condition, results of operations and cash flows.

Erosion of the financial condition of our customers could also have an adverse effect on our business. During times when the oil or natural gas markets weaken, the likelihood of the erosion of the financial condition of customers increases. If and to the extent the financial condition of our customers declines, those customers could seek to preserve capital by canceling any month-to-month natural gas compression contracts, canceling or delaying scheduled maintenance of their existing gas compression and oil and gas production and processing equipment or determining not to enter into any new natural gas compression service contracts or purchase new gas compression and oil and gas production and processing equipment, thereby reducing demand for our products and services. The reduced demand for our services as described above could adversely affect our business, financial condition and operations results. In addition, in the event of the financial failure of a customer, we could experience a loss associated with the unsecured portion of any of our outstanding accounts receivable.

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

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

•  difficulties in managing international operations, including our ability to timely and cost effectively execute projects;  

•  training and retaining qualified personnel in international markets;

•  inconsistent product regulation or sudden policy changes by foreign agencies or governments;

•  the burden of complying with multiple and potentially conflicting laws;

•  tariffs and other trade barriers that may restrict our ability to enter new markets;

•  governmental actions that result in the deprivation of contract rights and other difficulties in enforcing contractual obligations;

•  foreign exchange rate risks;

•  difficulty in collecting international accounts receivable;

•  potentially longer receipt of payment cycles;

•  changes in political and economic conditions in the countries in which we operate, including the nationalization of energy related assets, civil uprisings, riots, kidnappings and terrorist acts, particularly with respect to operations in Nigeria and Venezuela;

•  potentially adverse tax consequences;

•  restrictions on repatriation of earnings or expropriation of property without fair compensation;

•  the geographic, time zone, language and cultural differences among personnel in different areas of the world; and

•  difficulties in establishing new international offices and risks inherent in establishing new relationships in foreign countries.

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In addition, we plan to expand our business into international markets where we have not previously conducted business. The risks inherent in establishing new business ventures, especially in international markets where local customs, laws and business procedures present special challenges, may affect our ability to be successful in these ventures or avoid losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

There are risks associated with our operations in Nigeria. Local unrest and violence in Nigeria has adversely affected our historical financial results and could result in possible impairment and write-downs of our assets in Nigeria if the political situation in Nigeria does not improve.

Our operations in Nigeria are subject to numerous risks and uncertainties associated with operating in Nigeria. These risks include, among other things, political, social and economic instability, civil uprisings, riots, terrorism, kidnapping, the taking of property without fair compensation and governmental actions that may restrict payments or the movement of funds or result in the deprivation of contract rights. Any of these risks, including risks arising from the increase in violence and local unrest in Nigeria over the past year, could adversely impact our operations in Nigeria and could affect the timing and decrease the amount of revenue we may realize from our assets in Nigeria.

For example, we are involved in a project called the Cawthorne Channel Project in Nigeria in which we provide gas compression and gas processing services from a barge-mounted facility we own that is stationed in a Nigerian coastal waterway. Because of unrest and violence in the region and a lack of natural gas provided to the project, the project was offline from June 2006 through July 2007. We have not recognized revenue on the Cawthorne Channel Project for the first nine months of 2007 and may not be able to recognize revenue from this project in the future.

At September 30, 2007, we had tangible net assets of approximately $82.3 million related to projects in Nigeria. If we are unable to operate our assets under current projects, we may be required to find alternative uses for those assets, which could potentially result in an impairment and write-down of the investment in those assets in Nigeria, which could adversely impact our consolidated financial position or results of operations.

There are risks associated with our operations in Venezuela. Further changes to the laws and regulations of Venezuela could adversely impact our results of operations and require us to write-down certain of our assets in Venezuela.

Recently, laws and regulations in Venezuela have been subject to frequent and significant changes. These changes have included currency controls, restrictions on repatriation of capital, expropriation and nationalization of certain firms and industries and changes to the tax laws. While these changes have not had a material impact on us to date, future changes could have a material impact on us. For example, if the government of Venezuela institutes further changes to the laws and regulations of Venezuela, those changes could increase the expenses incurred by our Venezuelan operations, resulting in a reduction in our net income or a write-down of our investments in Venezuela. At September 30, 2007, we had tangible net assets in Venezuela, including investments in non-consolidated affiliates, of approximately $421.1 million.

We are exposed to exchange rate fluctuations in the international markets in which we operate. A decrease in the value of any of these currencies relative to the U.S. dollar could reduce profits from international operations and the value of international net assets of the Company.

Our reporting currency is the U.S. dollar. Gains and losses from the remeasurement of balances that are receivable or payable in currency other than functional currency are included in the consolidated statements of operations. The remeasurement has caused the U.S. dollar value of our international results of operations to vary with exchange rate fluctuations, and the U.S. dollar value of our international results of operations will continue to vary with exchange rate fluctuations. We have not hedged exchange rate exposures, which exposes us to the risk of exchange rate losses.

A fluctuation in the value of any of these currencies relative to the U.S. dollar could reduce our profits from international operations and the value of the net assets of our international operations when reported in U.S. dollars in our financial statements. This could have a negative impact on our business, financial condition or results of operations as reported in U.S. dollars. For example, in February 2004 and March 2005, the Venezuelan government devalued their currency to 1,920 bolivars and 2,148 bolivars, respectively, for each U.S. dollar.

In addition, fluctuations in currencies relative to currencies in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.

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Although we attempt to match costs and revenues in local currencies, we anticipate that there will be instances in which costs and revenues will not be exactly matched with respect to currency denomination. As a result, to the extent we expand geographically, we expect that increasing portions of our revenues, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations. We may experience economic loss and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations. Further, the markets in which we operate could restrict the removal or conversion of the local or foreign currency, resulting in our inability to hedge against these risks.

Many of our compressor contracts with customers have short initial terms, and we cannot be sure that the contracts for these compressors will be renewed after the end of the initial contractual term.

The length of our compressor contracts with customers varies based on operating conditions and customer needs. In most cases, under currently prevailing contract compression rates, our initial contract 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 these customers will continue to renew their contracts, that we will be able to enter into new contracts for the equipment with new customers or that any renewals will be at comparable rates. The inability to renew contracts with respect to a substantial portion of our compressor fleet would have a material adverse effect upon our business, consolidated financial condition, results of operations and cash flows.

We are dependent on particular suppliers and are vulnerable to product shortages and price increases.

Some of the components used in our products are obtained from a single source or a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of required components in a timely manner. The partial or complete loss of certain of these sources could have a negative impact on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these components could have a negative impact on our results of operations.

The tax treatment of the Partnership depends on its status as a partnership for U.S. federal income tax purposes, as well as its not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service treats the Partnership as a corporation or it becomes subject to a material amount of entity-level taxation for state tax purposes, it would substantially reduce the amount of cash available for distribution to the Partnership’s unitholders and undermine the Partnership’s cost of capital advantage, which would diminish one of the anticipated benefits of the merger.

The anticipated after-tax economic benefit of an investment in the Partnership’s common units depends largely on its being treated as a partnership for U.S. federal income tax purposes. The Partnership has not received a ruling from the Internal Revenue Service, or IRS, on this or any other tax matter affecting it.

If the Partnership were treated as a corporation for federal income tax purposes, it would pay U.S. federal income tax at the corporate tax rate and would also likely pay state income tax. Treatment of the Partnership as a corporation for U.S. federal income tax purposes would result in a material reduction in the anticipated cash flow and after-tax return to its unitholders, likely causing a substantial reduction in the value of its common units.

Current law may change so as to cause the Partnership to be treated as a corporation for U.S. federal income tax purposes or otherwise subject it to entity-level taxation. In addition, because of widespread state budget deficits and other reasons, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. The Partnership’s partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects it to taxation as a corporation or otherwise subjects it to entity-level taxation for U.S. federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution levels of the Partnership may be adjusted to reflect the impact of that law on it at the option of its general partner without the consent of its unitholders. If the Partnership were to be taxed as at the entity level, it would lose its comparative cost of capital advantage over a corporation structure, thereby undermining one of Hanover’s and Universal’s key strategic reasons for the merger.

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We face significant competition that may cause us to lose market share and harm our financial performance.

The U.S. compression business is highly competitive and there are low barriers to entry. We expect to experience competition from companies that may be able to adapt more quickly to technological changes within our industry and throughout the economy as a whole, more readily take advantage of acquisitions and other opportunities and adopt more aggressive pricing policies. Our ability to renew or replace existing contracts with our customers at rates sufficient to maintain current revenue and cash flows could be adversely affected by the activities of our competitors and customers. If our competitors substantially increase the resources they devote to the development and marketing of competitive services or substantially decrease the price at which they offer their services, we may not be able to compete effectively. Some of these competitors may expand or construct newer or more powerful compression systems that would create additional competition for the services we currently provide to our customers. In addition, customers that are significant producers of natural gas may purchase their own compression systems in lieu of using our contract compression services. In addition, our other lines of business will face significant competition.

We also may not be able to take advantage of certain opportunities or make certain investments because of our significant leverage and our other obligations. All of these competitive pressures could have a material adverse effect on our business, results of operations and financial condition.

Natural gas operations entail inherent risks that may result in substantial liability. We do not insure against all potential losses and could be seriously harmed by unexpected liabilities.

Natural gas operations entail inherent risks, including equipment defects, malfunctions and failures and natural disasters, which could result in uncontrollable flows of natural 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. Although we have obtained insurance against many of these risks, this insurance may be inadequate to cover our liabilities. For example, we have elected to fully self-insure some of our offshore assets. Further, insurance covering the risks we expect to face or in the amounts we desire may not be available in the future or, if available, the premiums may not be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time when we were not able to obtain liability insurance, our business, results of operations and financial condition could be negatively impacted.

We are subject to a variety of governmental regulations.

We are subject to a variety of U.S. federal, state, local and international laws and regulations relating to the environment, health and safety, export controls, currency exchange, labor and employment and taxation. 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 administrative, civil and criminal enforcement measures, including assessment of monetary penalties, imposition of remedial requirements and issuance of injunctions as to future compliance. From time-to-time as part of the regular overall evaluation of our operations, including newly acquired operations, we may be subject to compliance audits by regulatory authorities in the various countries in which we operate.

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Environmental laws and regulations may, in certain circumstances, impose strict liability for environmental contamination, which may render us liable for remediation costs, natural resource damages and other damages as a result of conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. In addition, where contamination may be present, it is not uncommon for neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of new environmental laws and regulations could be substantial and could negatively impact our financial condition or results of operations.

We may need to apply for or amend facility permits or licenses from time to time with respect to storm water or wastewater discharges, waste handling, or air emissions relating to manufacturing activities or equipment operations, which subjects us to new or revised permitting conditions that may be onerous or costly to comply with. 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 and permitting obligations.

We conduct operations at numerous facilities in a wide variety of locations across the country. The operations at many of these facilities require U.S. federal, state or local environmental permits or other authorizations. Additionally, natural gas compressors at many of our customer facilities require individual air permits or general authorizations to operate under various air regulatory programs established by rule or regulation. These permits and authorizations frequently contain numerous compliance requirements, including monitoring and reporting obligations and operational restrictions, such as emission limits. Given the large number of facilities in which we operate, and the numerous environmental permits and other authorizations that are applicable to our operations, we may occasionally identify or be notified of technical violations of certain requirements existing in various permits or other authorizations. Occasionally, we have been assessed penalties for our non-compliance, and we could be subject to such penalties in the future.

In addition, future events, such as compliance with more stringent laws, regulations or permit conditions, a major expansion of our operations 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.

The price of our common stock may experience volatility.

The price of our common stock may be volatile. Some of the factors that could affect the price of our common stock are quarterly increases or decreases in revenue or earnings, changes in revenue or earnings estimates by the investment community, our ability to implement our merger integration strategy and to realize the expected synergies and other benefits from the merger between Hanover and Universal and speculation in the press or investment community about our financial condition or results of operations. General market conditions and U.S. or international economic factors and political events unrelated to our performance may also affect our stock price. For these reasons, investors should not rely on recent trends in the price of our common stock to predict the future price of our common stock or our financial results.

Our charter and bylaws contain provisions that may make it more difficult for a third party to acquire control of us, even if a change in control would result in the purchase of your shares of common stock at a premium to the market price or would otherwise be beneficial to our stockholders.

There are provisions in our restated certificate of incorporation and bylaws that may make it more difficult for a third party to acquire control of us, even if a change in control would result in the purchase of our stockholders’ shares of common stock at a premium to the market price or would otherwise be beneficial to our stockholders. For example, our restated certificate of incorporation authorizes the board of directors to issue preferred stock without stockholder approval. If our board of directors elects to issue preferred stock, it could be more difficult for a third party to acquire it. In addition, provisions of our restated certificate of incorporation and bylaws, such limitations on stockholder actions by written consent and on stockholder proposals at meetings of stockholders, could make it more difficult for a third party to acquire control of us. Delaware corporation law may also discourage takeover attempts that have not been approved by the board of directors.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Universal’s Restricted Stock Plan, as amended, permitted the netting of common stock upon vesting of restricted stock awards to satisfy individual tax withholding requirements. The following table provides information with respect to Universal’s purchases of its common shares during the three months ended September 30, 2007 pursuant to the netting provisions of Universal’s Restricted Stock Plan:

	Total Number of
	Shares Redeemed		Weighted
	to Satisfy		Average Fair
	Employee Tax		Market Value
	Withholding		per Share
Period	Requirements		Redeemed
07/01/07 — 07/31/07		208	$	73.25
08/01/07 — 08/31/07		77,608		78.25
09/01/07 — 09/30/07		—		—
Total		77,816	$	78.24

On August 20, 2007, our board of directors authorized the repurchase of up to $200 million of our common stock through August 19, 2009. Under the stock repurchase program, the Company may repurchase shares in open market purchases or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations. The Company may also implement all or part of the repurchases under a Rule 10b5-1 trading plan, so as to provide the flexibility to extend its share repurchases beyond the quarterly purchasing window. The following table provides information with respect to our purchases of our common shares during the three months ended September 30, 2007 pursuant to our stock repurchase program:

					Total Number of		Maximum Dollar
					Shares Purchased		Value of Shares that
	Total Number of				as Part of Publicly		may yet be
	Shares		Average Price		Announced		Purchased under the
Period	Purchased		Paid per Share		Programs		Programs
07/01/07 — 07/31/07		—	$	—		—	$	—
08/01/07 — 08/31/07		114,900		77.14		114,900		191,136,876
09/01/07 — 09/30/07		526,400		78.12		526,400		150,015,416
Total		641,300	$	77.94		641,300	$	150,015,416

Item 4. Submission of Matters to a Vote of Security Holders

On August 16, 2007, Hanover held its annual meeting of stockholders. The matters voted upon at the meeting and the results of those votes were as follows:

     1. Adoption of the Agreement and Plan of Merger involving Hanover and Universal, as amended:

For	Against		Abstain		Broker Non-Votes
93,868,602		158,797		174,723		7,115,540

     2. Approval of the Exterran Holdings, Inc. 2007 Stock Incentive Plan:

For	Against		Abstain		Broker Non-Votes
91,154,569		2,676,042		371,511		7,115,540

     3. Approval of the Exterran Holdings, Inc. Employee Stock Purchase Plan:

For	Against		Abstain		Broker Non-Votes
93,315,587		515,579		370,956		7,115,540

     4. Election of Directors:

	For		Withhold
I. Jon Brumley		101,046,119		271,453
Ted Collins, Jr.		98,165,514		3,152,058
Margaret K. Dorman		101,161,700		155,872
Robert R. Furgason		101,050,895		266,677
Victor E. Grijalva		101,061,184		256,388
Gordon T. Hall		101,168,989		148,583
John E. Jackson		101,169,344		148,228
Peter H. Kamin		101,047,133		270,439
William C. Pate		101,165,386		152,186
Stephen M. Pazuk		101,142,153		175,419
L. Ali Sheikh		101,152,414		165,158

     5. Ratification of the appointment of PricewaterhouseCoopers LLP as Hanover’s independent registered public accounting firm:

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For	Against		Abstain
101,210,593		83,754		23,224

On August 16, 2007, Universal held its annual meeting of stockholders. The matters voted upon at the meeting and the results of those votes were as follows:

     1. Election of Directors:

	For		Withheld
Thomas C. Case		26,597,984		43,435
Janet F. Clark		26,597,138		44,281
Uriel E. Dutton		26,511,872		129,547

     2. Adoption of the Agreement and Plan of Merger, as amended:

For	Against		Abstain		Broker non-votes
24,699,355		11,235		246,786		1,684,043

     3. Adoption of the Exterran Holdings, Inc. 2007 Stock Incentive Plan:

For	Against		Abstain		Broker non-votes
22,226,702		2,237,482		493,192		1,684,043

     4. Adoption of the Exterran Holdings, Inc. 2007 Employee Stock Purchase Plan:

For	Against		Abstain		Broker non-votes
24,292,233		193,699		471,444		1,684,043

     5. Ratification of the appointment of Deloitte & Touche LLP as Universal’s independent registered public accounting firm:

For	Against		Abstain
26,355,932		13,522		271,965

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Item 6 Exhibits:

Exhibit No.	Description
2.1**	Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Iliad Holdings, Inc., Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.1 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007
2.2	Amendment No. 1, dated as of June 25, 2007, to Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Exterran Holdings, Inc. (formerly Iliad Holdings, Inc.), Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.2 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007
2.3	Amended and Restated Contribution Conveyance and Assumption Agreement, dated July 6, 2007, by and among Universal Compression, Inc., UCO Compression 2005 LLC, UCI Leasing LLC, UCO GP, LLC, UCI GP LP LLC, UCO General Partner, LP, UCI MLP LP LLC, UCLP Operating LLC, UCLP Leasing LLC and Universal Compression Partners, L.P., incorporated by reference to Exhibit 2.1 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed July 11, 2007*
3.1	Restated Certificate of Incorporation of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007.
3.2	Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.2 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007.
4.1	First Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and Wilmington Trust Company, as Trustee, for the 4.75% Convertible Senior Notes due 2008, incorporated by reference to Exhibit 10.14 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
4.2	Eighth Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and U.S. Bank National Association, as Trustee, for the 4.75% Convertible Senior Notes due 2014, incorporated by reference to Exhibit 10.15 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.1*	Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.2*	Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.3	Senior Secured Credit Agreement, dated August 20, 2007, by and among Exterran Holdings, Inc., as the U.S. Borrower and a Canadian Guarantor, Exterran Canada, Limited Partnership, as the Canadian Borrower, Wachovia Bank, National Association, individually and as U.S. Administrative Agent, Wachovia Capital Finance Corporation (Canada), individually and as Canadian Administrative Agent, JPMorgan Chase Bank, N.A., individually and as Syndication Agent; Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc. as the Joint Lead Arrangers and Joint Book Runners, Bank of America, N.A., Calyon New York Branch and Fortis Capital Corp., as the Documentation Agents, and each of the lenders parties thereto or which becomes a signatory thereto (the “Credit Agreement”), incorporated by reference to Exhibit 10.3 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007

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Exhibit No.	Description
10.4	U.S. Guaranty Agreement, dated as of August 20, 2007, made by Exterran, Inc., EI Leasing LLC, UCI MLP LP LLC, Exterran Energy Solutions, L.P. and each of the subsidiary guarantors that become a party thereto from time to time, as guarantors, in favor of Wachovia Bank, National Association, as the U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.4 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.5	U.S. Pledge Agreement made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., Hanover Compression General Holdings LLC, Hanover HL, LLC, Enterra Compression Investment Company, UCI MLP LP LLC, UCO General Partner, LP, UCI GP LP LLC, and UCO GP, LLC, and each of the subsidiaries that become a party thereto from time to time, as the Pledgors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.5 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.6	U.S. Collateral Agreement, dated as of August 20, 2007, made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., EI Leasing LLC, UCI MLP LP LLC and each of the subsidiaries that become a party thereto from time to time, as grantors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent, for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.6 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.7	Canadian Collateral Agreement, dated as of August 20, 2007 made by Exterran Canada, Limited Partnership, together with any other significant Canadian subsidiary that executes a joinder agreement and becomes a party to the Credit Agreement, in favor of Wachovia Capital Finance Corporation (Canada), as Canadian Administrative Agent, for the Canadian Tranche Revolving Lenders under the Credit Agreement, incorporated by reference to Exhibit 10.7 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.8	Indenture, dated August 20, 2007, by and between Exterran ABS 2007 LLC, as Issuer, Exterran ABS Leasing 2007 LLC and Wells Fargo Bank, National Association, as Indenture Trustee, with respect to the $1,000,000,000 asset-backed securization facility consisting of $1,000,000,000 of Series 2007-1 Notes (the “Indenture”), incorporated by reference to Exhibit 10.8 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.9	Series 2007-1 Supplement, dated as of August 20, 2007, to the Indenture, incorporated by reference to Exhibit 10.9 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.10	Guaranty, dated as of August 20, 2007, issued by Exterran Holdings, Inc. for the benefit of Exterran ABS 2007 LLC as Issuer, and Wells Fargo Bank, National Association, , as Indenture Trustee, incorporated by reference to Exhibit 10.10 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.11	Management Agreement, dated as of August 20, 2007, by and between Exterran, Inc., as Manager, Exterran ABS Leasing 2007 LLC and Exterran ABS 2007 LLC, as Issuer, incorporated by reference to Exhibit 10.11 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.12	Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran, Inc., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wells Fargo Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and JP Morgan Chase Bank, N.A., in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.12 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007

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Exhibit No.	Description
10.13	Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran Energy Solutions, L.P., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wachovia Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and Wells Fargo Bank, National Association, in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.13 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.14*	Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.15*	Consulting Agreement between Exterran Holdings, Inc. and Ernie L. Danner, dated August 20, 2007, incorporated by reference to Exhibit 10.17 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.16*	Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan
10.17*	Form of Exterran Holdings, Inc. Change of Control Agreement, incorporated by reference to Exhibit 10.20 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.18*	Form of Amendment No. 1 to Hanover Compressor Company Change of Control Agreement, incorporated by reference to Exhibit 10.20 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.19	Office Lease Agreement by and between RFP Lincoln Greenspoint, LLC and Exterran Energy Solutions, L.P., incorporated by reference to Exhibit 10.1 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 30, 2007
10.20	First Amended and Restated Omnibus Agreement, dated as of August 20, 2007, by and among Exterran Holdings, Inc., Exterran, Inc., UCO GP, LLC, UCO General Partner, LP, Exterran Partners, L.P., EXLP Operating LLC and Exterran Energy Solutions, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended)
10.21*	Amendment Number Two to Universal Compression Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.22*	First Amendment to Universal Compression, Inc. 401(k) Retirement and Savings Plan, incorporated by reference to Exhibit 10.2 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.23*	Form of Amendment to Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.3 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.24*	Form of Amendment to Incentive and Non-Qualified Stock Option Award Agreements of Ernie L. Danner, incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.25*	Form of Amendment to Unit Option Award Agreement, incorporated by reference to Exhibit 10.5 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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Exhibit No.	Description
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Management contract or compensatory plan or arrangement.
**	The registrant hereby agrees to supplementally furnish the staff, on a confidential basis, a copy of any omitted schedule upon the staff’s request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXTERRAN HOLDINGS, INC.
Date: November 5, 2007
By:	/s/ J. MICHAEL ANDERSON J. Michael Anderson Senior Vice President and Chief Financial Officer (Principal Financial Officer)
Date: November 5, 2007
By:	/s/ KENNETH R. BICKETT Kenneth R. Bickett Vice President, Accounting and Corporate Controller

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EXHIBIT INDEX

Exhibit No.	Description
2.1**	Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Iliad Holdings, Inc., Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.1 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007
2.2	Amendment No. 1, dated as of June 25, 2007, to Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Exterran Holdings, Inc. (formerly Iliad Holdings, Inc.), Hector Sub, Inc. and Ulysses Sub, Inc., incorporated by reference to Exhibit 2.2 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007
2.3	Amended and Restated Contribution Conveyance and Assumption Agreement, dated July 6, 2007, by and among Universal Compression, Inc., UCO Compression 2005 LLC, UCI Leasing LLC, UCO GP, LLC, UCI GP LP LLC, UCO General Partner, LP, UCI MLP LP LLC, UCLP Operating LLC, UCLP Leasing LLC and Universal Compression Partners, L.P., incorporated by reference to Exhibit 2.1 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed July 11, 2007*
3.1	Restated Certificate of Incorporation of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.1 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007.
3.2	Amended and Restated Bylaws of Exterran Holdings, Inc., incorporated by reference to Exhibit 3.2 of Exterran Holdings, Inc.’s Current Report on Form 8-K filed August 20, 2007.
4.1	First Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and Wilmington Trust Company, as Trustee, for the 4.75% Convertible Senior Notes due 2008, incorporated by reference to Exhibit 10.14 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
4.2	Eighth Supplemental Indenture, dated August 20, 2007, by and between Hanover Compressor Company, Exterran Holdings, Inc., and U.S. Bank National Association, as Trustee, for the 4.75% Convertible Senior Notes due 2014, incorporated by reference to Exhibit 10.15 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.1*	Exterran Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.2*	Form of Indemnification Agreement, incorporated by reference to Exhibit 10.2 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.3	Senior Secured Credit Agreement, dated August 20, 2007, by and among Exterran Holdings, Inc., as the U.S. Borrower and a Canadian Guarantor, Exterran Canada, Limited Partnership, as the Canadian Borrower, Wachovia Bank, National Association, individually and as U.S. Administrative Agent, Wachovia Capital Finance Corporation (Canada), individually and as Canadian Administrative Agent, JPMorgan Chase Bank, N.A., individually and as Syndication Agent; Wachovia Capital Markets, LLC and J.P. Morgan Securities Inc. as the Joint Lead Arrangers and Joint Book Runners, Bank of America, N.A., Calyon New York Branch and Fortis Capital Corp., as the Documentation Agents, and each of the lenders parties thereto or which becomes a signatory thereto (the “Credit Agreement”), incorporated by reference to Exhibit 10.3 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007

66

Exhibit No.	Description
10.4	U.S. Guaranty Agreement, dated as of August 20, 2007, made by Exterran, Inc., EI Leasing LLC, UCI MLP LP LLC, Exterran Energy Solutions, L.P. and each of the subsidiary guarantors that become a party thereto from time to time, as guarantors, in favor of Wachovia Bank, National Association, as the U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.4 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.5	U.S. Pledge Agreement made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., Hanover Compression General Holdings LLC, Hanover HL, LLC, Enterra Compression Investment Company, UCI MLP LP LLC, UCO General Partner, LP, UCI GP LP LLC, and UCO GP, LLC, and each of the subsidiaries that become a party thereto from time to time, as the Pledgors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.5 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.6	U.S. Collateral Agreement, dated as of August 20, 2007, made by Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., EI Leasing LLC, UCI MLP LP LLC and each of the subsidiaries that become a party thereto from time to time, as grantors, in favor of Wachovia Bank, National Association, as U.S. Administrative Agent, for the lenders under the Credit Agreement, incorporated by reference to Exhibit 10.6 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.7	Canadian Collateral Agreement, dated as of August 20, 2007 made by Exterran Canada, Limited Partnership, together with any other significant Canadian subsidiary that executes a joinder agreement and becomes a party to the Credit Agreement, in favor of Wachovia Capital Finance Corporation (Canada), as Canadian Administrative Agent, for the Canadian Tranche Revolving Lenders under the Credit Agreement, incorporated by reference to Exhibit 10.7 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.8	Indenture, dated August 20, 2007, by and between Exterran ABS 2007 LLC, as Issuer, Exterran ABS Leasing 2007 LLC and Wells Fargo Bank, National Association, as Indenture Trustee, with respect to the $1,000,000,000 asset-backed securization facility consisting of $1,000,000,000 of Series 2007-1 Notes (the “Indenture”), incorporated by reference to Exhibit 10.8 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.9	Series 2007-1 Supplement, dated as of August 20, 2007, to the Indenture, incorporated by reference to Exhibit 10.9 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.10	Guaranty, dated as of August 20, 2007, issued by Exterran Holdings, Inc. for the benefit of Exterran ABS 2007 LLC as Issuer, and Wells Fargo Bank, National Association, , as Indenture Trustee, incorporated by reference to Exhibit 10.10 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.11	Management Agreement, dated as of August 20, 2007, by and between Exterran, Inc., as Manager, Exterran ABS Leasing 2007 LLC and Exterran ABS 2007 LLC, as Issuer, incorporated by reference to Exhibit 10.11 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.12	Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran, Inc., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wells Fargo Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and JP Morgan Chase Bank, N.A., in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.12 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007

67

Exhibit No.	Description
10.13	Intercreditor and Collateral Agency Agreement, dated as of August 20, 2007, by and among Exterran Energy Solutions, L.P., in its individual capacity and as Manager, Exterran ABS 2007 LLC, as Issuer, Wells Fargo Bank, National Association, as Indenture Trustee, Wachovia Bank, National Association, as Bank Agent, various financial institutions as lenders thereto and Wells Fargo Bank, National Association, in its individual capacity and as Intercreditor Collateral Agent, incorporated by reference to Exhibit 10.13 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.14*	Exterran Holdings, Inc. Directors’ Stock and Deferral Plan, incorporated by reference to Exhibit 10.16 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.15*	Consulting Agreement between Exterran Holdings, Inc. and Ernie L. Danner, dated August 20, 2007, incorporated by reference to Exhibit 10.17 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.16*	Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan
10.17*	Form of Exterran Holdings, Inc. Change of Control Agreement, incorporated by reference to Exhibit 10.20 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.18*	Form of Amendment No. 1 to Hanover Compressor Company Change of Control Agreement, incorporated by reference to Exhibit 10.20 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 23, 2007
10.19	Office Lease Agreement by and between RFP Lincoln Greenspoint, LLC and Exterran Energy Solutions, L.P., incorporated by reference to Exhibit 10.1 of Exterran Holdings, Inc. Current Report on Form 8-K filed on August 30, 2007
10.20	First Amended and Restated Omnibus Agreement, dated as of August 20, 2007, by and among Exterran Holdings, Inc., Exterran, Inc., UCO GP, LLC, UCO General Partner, LP, Exterran Partners, L.P., EXLP Operating LLC and Exterran Energy Solutions, L.P. (portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under Rule 24b-2 of the Securities Exchange Act of 1934, as amended)
10.21*	Amendment Number Two to Universal Compression Holdings, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.22*	First Amendment to Universal Compression, Inc. 401(k) Retirement and Savings Plan, incorporated by reference to Exhibit 10.2 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.23*	Form of Amendment to Grant of Unit Appreciation Rights, incorporated by reference to Exhibit 10.3 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.24*	Form of Amendment to Incentive and Non-Qualified Stock Option Award Agreements of Ernie L. Danner, incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
10.25*	Form of Amendment to Unit Option Award Agreement, incorporated by reference to Exhibit 10.5 of Universal Compression Holdings, Inc. Current Report on Form 8-K filed on August 3, 2007
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

68

Exhibit No.	Description
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Management contract or compensatory plan or arrangement.
**	The registrant hereby agrees to supplementally furnish the staff, on a confidential basis, a copy of any omitted schedule upon the staff’s request.

69

EX-10.16

Exhibit 10.16

EXTERRAN HOLDINGS, INC.
AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

I. PURPOSE

     The purpose of the EXTERRAN HOLDINGS, INC. 2007 STOCK INCENTIVE PLAN is to provide a means through which Exterran Holdings, Inc., a Delaware corporation, and its Affiliates may attract highly-qualified persons to serve as Directors or to enter the employ of the Company and its Affiliates and to provide a means whereby those individuals, whose present and potential contributions to the Company and its Affiliates are of importance, can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company and its Affiliates. A further purpose of the Plan is to provide such individuals with additional incentive and reward opportunities designed to enhance the profitable growth of the Company and its Affiliates. Accordingly, the Plan provides for the grant of Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights and Performance Awards, or any combination of the foregoing, as is best suited to the circumstances of the particular Employee or Director as determined by the Committee in its sole discretion.

II. DEFINITIONS

     The following definitions shall be applicable throughout the Plan unless specifically modified by any paragraph:

     (a) “Affiliate” means any corporation, partnership, limited liability company or partnership, association, trust or other organization which, directly or indirectly, controls, is controlled by, or is under common control with, the Company. For purposes of the preceding sentence, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any entity or organization, shall mean the possession, directly or indirectly, of the power (i) to vote more than 50% of the securities having ordinary voting power for the election of directors of the controlled entity or organization, or (ii) to direct or cause the direction of the management and policies of the controlled entity or organization, whether through the ownership of voting securities or by contract or otherwise.

     (b) “Award” means, individually or collectively, any Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights or Performance Awards granted under the terms of the Plan.

     (c) “Award Notice” means a written notice setting forth the terms of an Award.

     (d) “Board” means the Board of Directors of the Company.

     (e) “Cause” means (i) the commission by a Participant of an act of fraud, embezzlement or willful breach of a fiduciary duty to the Company or an Affiliate (including the unauthorized disclosure of confidential or proprietary material information of the Company or an Affiliate), (ii) a conviction of a Participant (or a plea of nolo contendere in lieu thereof) for a felony or a crime involving fraud, dishonesty or moral turpitude, (iii) willful failure of a Participant to follow the written directions of the chief executive officer of the Company or the Board, in the case of executive officers of the Company; (iv) willful misconduct as an Employee of the Company or an Affiliate; (v) willful failure of a Participant to render services to the Company or an Affiliate in accordance with his employment arrangement, which failure amounts to a material neglect of his duties to the Company or an Affiliate or (vi) substantial dependence, as determined by the Committee, in its sole discretion, on any drug, immediate precursor or other substance listed on Schedule IV of the Federal Comprehensive Drug Abuse Prevention and Control

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Act of 1970, as amended. With respect to any Participant residing outside of the United States, the Committee may revise the definition of “Cause” as appropriate to conform to the laws of the applicable non-U.S. jurisdiction.

     (f) “Code” means the U.S. Internal Revenue Code of 1986, as amended. References in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section.

     (g) “Committee” means the Committee defined in Paragraph IV(a) of the Plan.

     (h) “Common Stock” means the common stock, par value $.01 per share, of the Company, or any security into which such common stock may be changed by reason of any transaction or event of the type described in Paragraph XII.

     (i) “Company” means Exterran Holdings, Inc., a Delaware corporation, or any successors thereto.

     (j) “Corporate Change” means:

     (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 40% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), any acquisition by any Person pursuant to a transaction which complies with clause (A) of subsection (iii) of this definition shall not constitute a Corporate Change; or

     (ii) Individuals, who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered for purposes of this definition as though such individual was a member of the Incumbent Board, but excluding, for these purposes, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

     (iii) The consummation of a reorganization, merger or consolidation involving the Company or any of its subsidiaries, or the sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole (other than to an entity wholly owned, directly or indirectly, by the Company) (each, a “Corporate Transaction”), in each case, unless, following such Corporate Transaction, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the Resulting Corporation in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, and (B) at least a majority of the members of the board of directors of the Resulting Corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Transaction. The term

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“Resulting Corporation” means (1) the Company or its successor, or (2) if as a result of a Corporate Transaction the Company or its successor becomes a subsidiary of another entity, then such entity or the parent of such entity, as applicable, or (3) in the event of a Corporate Transaction involving the sale, lease or other disposition of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, then the transferee of such assets in such Corporate Transaction. Notwithstanding the foregoing, neither the sale, lease or other disposition of assets by the Company or its subsidiaries to Universal Compression Partners, L.P. or its subsidiaries or their successor nor the sale, lease or other disposition of any interest in Universal Compression Partners, L.P., its general partner or its subsidiaries or their successors shall, in and of itself, constitute a Corporate Change for purposes of this Plan.

     (k) “Director” means an individual elected to the Board by the stockholders of the Company or by the Board under applicable corporate law and who is serving on the Board on the date the Plan is adopted by the Board, or is subsequently elected to the Board, and is not an Employee.

     (l) “Disability” means any physical or mental condition for which the Participant would be eligible to receive long-term disability benefits under the Company’s long-term disability plan. With respect to any Participant residing outside of the United States, the Committee may revise the definition of “Disability” as appropriate to conform to the laws of the applicable non-U.S. jurisdiction.

     (m) “Employee” means any person who is an employee of the Company or any Affiliate. If an entity ceases to be an Affiliate of the Company, a Participant employed by such entity shall be deemed to have terminated his employment with the Company and its Affiliates and shall cease to be an Employee under the Plan. For any and all purposes under the Plan, the term “Employee” shall exclude an individual hired as an independent contractor, leased employee, consultant, or a person otherwise designated by the Committee, the Company or an Affiliate at the time of hire as not eligible to participate in or receive benefits under the Plan, even if such ineligible individual is subsequently determined to be an employee by any governmental or judicial authority. For purposes of any Award granted to a person residing outside of the United States, the Committee may revise the definition of “Employee” as appropriate to conform to the laws of the applicable non-U.S. jurisdiction.

     (n) “Fair Market Value” of a share of Common Stock means, as of any specified date: (i) if the Common Stock is listed on a national securities exchange or quoted on the National Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ”), the closing sales price of a share of Common Stock on that date, or if no prices are reported on that date, on the last preceding day on which the Common Stock was traded, as reported by such exchange or NASDAQ, as the case may be; and (ii) if the Common Stock is not listed on a national securities exchange or quoted on the NASDAQ, but is traded in the over-the-counter market, the average of the bid and asked prices for a share of Common Stock on the most recent date on which the Common Stock was publicly traded. In the event the Common Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its Fair Market Value shall be made by the Committee in such manner as it deems appropriate.

     (o) “Incentive Stock Option” means an Option granted under Paragraph VII of the Plan that is an incentive stock option within the meaning of Section 422 of the Code.

     (p) “1934 Act” means the U.S. Securities Exchange Act of 1934, as amended.

     (q) “Non-Qualified Option” means an Option granted under Paragraph VII of the Plan that is not an Incentive Stock Option.

     (r) “Option” means an option to purchase shares of Common Stock granted under Paragraph VII of the Plan that may be either an Incentive Stock Option or a Non-Qualified Option.

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     (s) “Participant” means an Employee or Director who has been granted an Award under the Plan.

     (t) “Performance Award” means an opportunity for a Participant to earn additional compensation if certain Performance Measures or other criteria are met, as described in Paragraph XI of the Plan.

     (u) “Performance Measure” means any performance objective established by the Committee in its sole discretion, including, but not limited to, one or more of the following:

     (1) the price of a share of Common Stock;

     (2) the Company’s earnings per share;

     (3) the Company’s market share;

     (4) the market share of a business unit of the Company designated by the Committee;

     (5) the Company’s sales;

     (6) the sales of a business unit of the Company designated by the Committee;

     (7) the net income (before or after taxes) of the Company or any business unit of the Company designated by the Committee;

     (8) the cash flow return on investment, cash value added, and/or working cash flow of the Company or any business unit of the Company designated by the Committee;

     (9) the earnings before or after interest, leasing expense, taxes, depreciation, distributions on mandatorily redeemable preferred stock, and/or amortization of the Company or any business unit of the Company designated by the Committee;

     (10) the economic value added;

     (11) the return on stockholders’ equity achieved by the Company;

     (12) the return on capital employed of the Company or any business unit of the Company designated by the Committee; or

     (13) the total stockholders’ return achieved by the Company.

A Performance Measure may be subject to adjustment for changes in accounting standards required by the Financial Accounting Standards Board after the goal is established, for specified significant items or events, and may be absolute, relative to one or more other companies, or relative to one or more indexes, and may be contingent upon future performance of the Company or any Affiliate, division, or department thereof.

     (v) “Plan” means the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan, as amended from time to time.

     (w) “Restricted Stock” means Common Stock subject to certain restrictions, as described in Paragraph VIII of the Plan.

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     (x) “Restricted Stock Unit” means a promise to deliver a share of Common Stock, or the Fair Market Value of such share in cash, in the future if certain criteria are met, as described in Paragraph IX of the Plan.

     (y) “Retirement” means a Termination of Service, other than due to Cause or death, on or after the Participant attains (i) age 65 or (ii) age 55 and with the written consent of the Committee. Notwithstanding the foregoing, with respect to a Participant residing outside of the United States, the Committee may revise the definition of “Retirement” as appropriate to conform to the laws of the applicable non-U.S. jurisdiction.

     (z) “Stock Appreciation Right” means a right entitling the Participant to the difference between the Fair Market Value of a share of Common Stock on the date of exercise and the Fair Market Value of a share of Common Stock on the date of grant, as described in Paragraph X of the Plan.

     (aa) “Termination of Service” means a Participant’s termination of employment, if an Employee, or a termination of service, if a Director, as the case may be. A Participant who is both an Employee and a Director shall not incur a Termination of Service until the Participant terminates both positions.

III. EFFECTIVE DATE AND DURATION OF THE PLAN

     The Plan, as amended and restated, shall become effective upon the date of its adoption by the Board. No further Awards may be granted under the Plan after 7 years from the effective date of the Plan. The Plan shall remain in effect until all Awards granted under the Plan have been exercised or expired or vested or forfeited.

     The amendments made to the Exterran Holdings, Inc. 2007 Stock Incentive Plan pursuant to this amendment and restatement shall apply to all Awards granted under the Plan, including Awards made prior to the effective date of this amendment and restatement.

IV. ADMINISTRATION

     (a) Composition of Committee. The Plan shall be administered by the Compensation Committee of the Board or such other committee, if any, that may be designated by the Board to administer the Plan (the “Committee”); provided, however, that any and all members of the Committee shall satisfy any independence requirements prescribed by any stock exchange on which the Company lists its Common Stock; provided, further, that Awards may be granted to individuals who are subject to Section 16(b) of the 1934 Act only if the Committee is comprised solely of two or more “Non-Employee Directors” as defined in Securities and Exchange Commission Rule 16b-3 (as amended from time to time, and any successor rule, regulation or statute fulfilling the same or similar function); provided, further, that any Award intended to qualify for the “performance-based compensation” exception under Section 162(m) of the Code shall be granted only if the Committee is comprised solely of two or more “outside directors” within the meaning of Section l62(m) of the Code and regulations pursuant thereto.

     (b) Powers. Subject to Paragraph IV(d), and the express provisions of the Plan, the Committee shall have authority, in its discretion, to determine which Employees or Directors shall receive an Award, the time or times when such Award shall be made, the terms and conditions of an Award, the type of Award that shall be made, the number of shares subject to an Award and the value of an Award. In making such determinations, the Committee shall take into account the nature of the services rendered by the respective Employees or Directors, their present and potential contribution to the Company’s success and such other factors as the Committee, in its sole discretion, shall deem relevant.

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     (c) Additional Powers. The Committee shall have such additional powers as are delegated to it by the other provisions of the Plan. Subject to the express provisions of the Plan, this shall include the power to construe the Plan and the respective notices provided hereunder, to prescribe rules and regulations relating to the Plan, and to determine the terms, restrictions and provisions of the notice relating to each Award, including such terms, restrictions and provisions as shall be required in the judgment of the Committee to cause designated Options to qualify as Incentive Stock Options, and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any notice relating to an Award in the manner and to the extent it shall deem expedient to carry it into effect. Any determination or decision made by the Committee or its delegate (pursuant to Paragraph IV(d)) under the terms of the Plan shall be made in the sole discretion of the Committee or such delegate and shall be final and binding on all persons, including the Company and Participants, but subject to ratification by the Board if the Board so provides.

     (d) Delegation of Powers. Subject to Paragraph IV(a) above, the Committee may delegate to the Board or to the Chief Executive Officer or one or more other senior officers of the Company the authority to grant Awards to Employees who are not subject to Section 16(b) of the 1934 Act. Further, the Committee may delegate to the Governance Committee of the Board the authority to make non-discretionary (routine) Awards to Directors, including to determine which Director shall receive an Award, the time or times when such an Award shall be made, the terms and conditions of such an Award, the type of Award that shall be made to a Director, the number of shares subject to such an Award, and the value of such an Award; provided, however, that the Committee may not delegate its authority to grant discretionary (non-routine) awards to Directors. The Committee may delegate to the Chief Executive Officer or one or more other senior officers of the Company its administrative functions under this Plan with respect to the Awards. Any delegation described in this paragraph shall contain such limitations and restrictions as the Committee may provide and shall comply in all respects with the requirements of applicable law, including the Delaware General Corporation Law. The Committee may engage or authorize the engagement of a third party administrator or administrators to carry out administrative functions under the Plan.

     No member of the Committee or officer of the Company or an Affiliate to whom the Committee has delegated authority in accordance with the provisions of Paragraph IV of this Plan shall be liable for anything done or omitted to be done by him or her, by any member of the Committee or by any officer of the Company or Affiliate in connection with the performance of any duties under this Plan, except for his or her own willful misconduct or as expressly provided by statute.

     (e) Awards Outside of the United States. With respect to any Participant or eligible Employee who is resident outside of the United States, the Committee may, in its sole discretion, amend or vary the terms of the Plan in order to conform such terms with the requirements of local law, to meet the goals and objectives of the Plan, and may, in its sole discretion, establish administrative rules and procedures to facilitate the operation of the Plan in such non-U.S. jurisdictions. The Committee may, where it deems appropriate in its sole discretion, establish one or more sub-plans of the Plan for these purposes.

V. SHARES SUBJECT TO THE PLAN; AWARD LIMITATIONS

     (a) Shares Subject to the Plan. Subject to adjustment as provided in Paragraph XII, the aggregate number of shares of Common Stock that may be issued under the Plan shall not exceed 4,750,000. The issuance of Common Stock under the Plan shall be counted against the overall number of shares available for delivery under a fungible reserve approach. Any Shares of Common Stock issued or reserved for issuance pursuant to Options or Stock Appreciation Rights shall be counted against the aggregate share limitation of the Plan as one share for every share subject thereto. Each Share of Common Stock issued pursuant to Restricted Stock or Restricted Stock Units shall be counted against the aggregate share

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limitation of the Plan as two shares for every share subject thereto. However, (a) if any Options or other stock-settled Awards are cancelled, expired, forfeited, settled in cash, or otherwise terminated without issuing the underlying shares of Common Stock to the Participant, such shares shall remain available for future grant under the Plan, and (b) if issued but unvested shares of Restricted Stock are forfeited, such shares shall become available for future grant under the Plan. Shares of Common Stock that are otherwise issuable to the Participant pursuant to an Award that are withheld to satisfy tax withholding obligations or to pay the exercise price of an Option shall be counted against the aggregate limitation of the Plan as provided herein and shall not become available for future grant under the Plan.

     (b) Share and Value Limitation on Individual Awards. The maximum number of shares of Common Stock that may be issuable under Awards granted to any one individual during any twelve month period shall not exceed 500,000 shares of Common Stock (subject to adjustment in the manner as provided in Paragraph XII). In addition, the maximum amount of cash compensation that may be paid under Awards intended to qualify for the “performance-based compensation” exception under Section 162(m) of the Code granted to any one individual during any twelve month period may not exceed $5,000,000. The limitations set forth in this paragraph are intended to permit certain awards under the Plan to constitute “performance-based” compensation for purposes of Section 162(m) of the Code.

     (c) Stock Offered. Subject to the limitations set forth in Paragraph V(a), the stock to be offered pursuant to the grant of an Award may be authorized but unissued Common Stock or Common Stock previously issued and outstanding and reacquired by the Company. Any of such shares which remain unissued and which are not subject to outstanding Awards at the termination of the Plan shall cease to be subject to the Plan but, until termination of the Plan, the Company shall at all times make available a sufficient number of shares to meet the requirements of the Plan.

     (d) Vesting Restrictions. Notwithstanding any provision of this Plan to the contrary (other than accelerated vesting in the event of a Participant’s Termination of Service due to death, Disability or Retirement or due to a Corporate Change), the following additional vesting restrictions shall be applied to Awards granted under VIII or IX (collectively, “Full Value Awards”):

(i)	Where the vesting or the right to payment of a Full Value Award is based solely on the Participant’s continued employment with the Company, such Full Value Award shall have a minimum vesting period of three years from the date of grant with no more than one-third of such Full Value Award vesting in any twelve month period, and
(ii)	Where the vesting or the right to payment of a Full Value Award is based upon the attainment of one or more Performance Measures, such Full Value Award shall have a minimum vesting period of one year from the date of grant.

     The Committee may, in its discretion, grant a waiver of these restrictions at the date of grant or at any time during the vesting period; provided, however, that such waiver does not result in a violation of Code Section 409A and that the number of shares of Common Stock underlying Full Value Awards for which waivers have been granted do not exceed in the aggregate 10% of the Common Stock authorized to be issued under the Plan.

VI. ELIGIBILITY AND GRANT OF AWARDS

     Subject to the delegation of power in Paragraph IV(d), the Committee, in its sole discretion, may from time to time grant Awards under the Plan as provided herein to any individual who, at the time of grant, is an Employee or a Director. An Award may be granted on more than one occasion to the same person, and, subject to the limitations set forth in the Plan. Awards may include Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Awards or any combination

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thereof. The Plan is discretionary in nature, and the grant of Awards by the Committee is voluntary and occasional. The Committee’s selection of an eligible Employee or Director to receive an Award in any year or at any time shall not require the Committee to select such Employee or Director to receive an Award in any other year or at any other time. The selection of an Employee or Director to receive one type of Award under the Plan does not require the Committee to select such Employee or Director to receive any other type of Award under the Plan. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the type and amount of their respective Awards.

VII. STOCK OPTIONS

     (a) Option Types and Option Period. Options may be in the form of Incentive Stock Options and/or Non-Qualified Options for eligible Employees (as described below), as determined by the Committee, in its sole discretion. Any Options granted to Directors shall be Non-Qualified Options. Except as otherwise provided in Subparagraph (c) below or such shorter term as may be provided in an Award Notice, each Option shall expire 7 years from its date of grant and, unless provided otherwise in the Award Notice, shall be subject to earlier termination as follows: Options, to the extent vested as of the date a Participant incurs a Termination of Service, may be exercised only within three months of such date, unless such Termination of Service results from (i) death, Retirement or Disability of the Participant, in which case all vested Options held by such Participant may be exercised by the Participant, the Participant’s legal representative, heir or devisee, as the case may be, within two years from the date of the Participant’s Termination of Service, or (ii) Cause, in which event all outstanding vested Options held by such Participant shall be automatically forfeited unexercised on such termination; provided, however, that notwithstanding the foregoing, no termination event described in (i) above shall extend the expiration date of an Option beyond the 7th anniversary of its date of grant or, such shorter period, if any, as may be provided in the Award Notice.

     (b) Vesting. Subject to the further provisions of the Plan, Options shall vest and become exercisable in accordance with such vesting schedule as the Committee may establish in its sole discretion, including vesting upon the satisfaction of one or more Performance Measures. A Participant may not exercise an Option except to the extent it has become vested. Unless otherwise provided in the Award Notice, all unvested Options shall automatically become fully vested upon a Participant’s Termination of Service due to his or her death, Disability or Retirement. Options that are not vested on a Participant’s Termination of Service shall automatically terminate and be cancelled unexercised on such date.

     (c) Special Limitations on Incentive Stock Options. An Incentive Stock Option may be granted only to an Employee of the Company or any parent or subsidiary corporation (as defined in Section 424 of the Code) at the time the Option is granted. To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all incentive stock option plans of the Company and its parent and subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be treated as Non-Qualified Options. The Committee shall determine, in accordance with applicable provisions of the Code, any applicable treasury regulations and other administrative pronouncements, which of a Participant’s Incentive Stock Options will not constitute Incentive Stock Options because of such limitation and shall notify the Participant of such determination as soon as practicable after such determination is made. No Incentive Stock Option shall be granted to an individual if, at the time the Option is granted, such individual owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary corporation, within the meaning of Section 422(b)(6) of the Code, unless (i) at the time such Option is granted the Option price is at least 110% of the Fair Market Value of the Common Stock subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five years from the date of grant. An Incentive Stock Option shall not be transferable

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otherwise than by will or the laws of descent and distribution, and shall be exercisable during the Participant’s lifetime only by such Participant or the Participant’s guardian or legal representative.

     (d) Award Notice. Each Option shall be evidenced by an Award Notice in such form and containing such provisions not inconsistent with the provisions of the Plan and under such terms as the Committee from time to time shall establish, including, without limitation, provisions to qualify an Incentive Stock Option under Section 422 of the Code. An Award Notice may provide for the payment of the Option price, in whole or in part, by cash, a check acceptable to the Company, the delivery of a number of already-owned shares of Common Stock (plus cash if necessary) having a Fair Market Value equal to such Option price (provided such shares have been owned for more than six months by the Participant), a “cashless broker exercise” of the Option through any other procedures established or approved by the Committee with respect thereto, or any combination of the foregoing. Further, an Award Notice may provide, in the sole discretion of the Committee, for the surrender of the right to purchase shares under the Option in return for a payment in cash or shares of Common Stock or a combination of cash and shares of Common Stock equal in value to the excess of the Fair Market Value of the shares with respect to which the right to purchase is surrendered over the Option price therefor, on such terms and conditions as the Committee in its sole discretion may prescribe. In the case of any such right that is granted in connection with an Incentive Stock Option, such right shall be exercisable only when the Fair Market Value of the Common Stock exceeds the price specified therefor in the Option or the portion thereof to be surrendered. The terms and conditions of the respective Award Notices need not be identical. Subject to the consent of the Participant, the Committee may, in its sole discretion, amend an outstanding Award Notice from time to time in any manner that is not inconsistent with the provisions of the Plan (including, without limitation, an amendment that accelerates the time at which the Option, or a portion thereof, may be exercisable).

     (e) Option Price and Payment. The price at which a share of Common Stock may be purchased upon exercise of an Option shall be determined by the Committee but, subject to adjustment as provided in Paragraph XII, such purchase price shall not be less than the Fair Market Value of a share of Common Stock on the date such Option is granted. The Option or portion thereof shall be exercised, and any applicable taxes shall be withheld, in accordance with such procedures as are established or approved by the Committee.

     (f) Restrictions on Repricing of Options. Except as provided in Paragraph XII, the Committee may not amend any outstanding Award Notice to lower the exercise price (or cancel and replace any outstanding Option with Options having a lower exercise price).

     (g) Stockholder Rights and Privileges. The Participant shall be entitled to all the privileges and rights of a stockholder only with respect to such shares of Common Stock as have been purchased upon exercise of the Option and registered in the Participant’s name.

     (h) Options in Substitution for Options Granted by Other Employers. Options may be granted under the Plan from time to time or approved by the Committee or the Board in substitution of options held by individuals providing services to corporations or other entities who become Employees or Directors as result of a merger or consolidation or other business transaction with the Company or any Affiliate.

VIII. RESTRICTED STOCK

     (a) Restrictions to be Established by the Committee. Restricted Stock shall be subject to restrictions on disposition by the Participant and an obligation of the Participant to forfeit and surrender the shares to the Company under certain circumstances, and any other restrictions determined by the

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Committee in its sole discretion on the date of grant; provided, however, that such restrictions shall lapse upon:

     (i) the attainment of one or more Performance Measures;

     (ii) the Participant’s continued employment with the Company and its Affiliates or continued service as a Director for a specified period of time;

     (iii) the occurrence of any event or the satisfaction of any other condition specified by the Committee in its sole discretion; or

     (iv) a combination of any of the foregoing.

     Each grant of Restricted Stock may have different restrictions as established in the sole discretion of the Committee.

     (b) Other Terms and Conditions. Restricted Stock shall be registered in the name of the Participant. Unless provided otherwise in an Award Notice, the Participant shall have the right to receive dividends with respect to Restricted Stock, to vote Restricted Stock, and to enjoy all other stockholder rights, except that: (i) the Company shall retain custody of the Restricted Stock until the Restrictions have expired; (ii) the Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Restricted Stock until the restrictions have expired; and (iii) a breach of the terms and conditions established by the Committee pursuant to the Restricted Stock Notice shall cause a forfeiture of the Restricted Stock. If a Participant’s Termination of Service is due to his or her death or Disability, all Awards of Restricted Stock of such Participant then outstanding shall immediately vest in full and all restrictions applicable to such Awards shall terminate as of such date with all performance criteria, if any, applicable to such Awards deemed met at 100% of target. At the time of grant, the Committee may, in its sole discretion, establish additional terms, conditions or restrictions relating to the Restricted Stock. Such additional terms, conditions or restrictions shall be set forth in an Award Notice delivered in conjunction with the Award.

     (c) Payment for Restricted Stock. The Committee shall determine the amount and form of payment required from the Participant in exchange for a grant of Restricted Stock, if any, provided that in the absence of such a determination, a Participant shall not be required to make any payment for Restricted Stock, except to the extent otherwise required by law.

     (d) Committee’s Discretion to Accelerate Vesting of Restricted Stock. The Committee may, in its discretion and as of a date determined by the Committee, fully vest any or all of a Participant’s Restricted Stock and, upon such vesting, all restrictions applicable to such Restricted Stock shall terminate as of such date. Any action by the Committee pursuant to this Subparagraph may vary among individual Participants and may vary among the Restricted Stock held by any individual Participant. Notwithstanding the preceding provisions of this paragraph, the Committee may not take any action described in this Subparagraph with respect to Restricted Stock that has been granted to a “covered employee” (within the meaning of Treasury Regulation Section 1.162-27(c)(2)) if such Award has been designed to meet the exception for performance-based compensation under Section 162(m) of the Code; provided, however, this prohibition shall not apply to an acceleration pursuant to Paragraph XII or due to death or Disability of the Participant.

     (e) Award Notice. Each grant of Restricted Stock shall be evidenced by an Award Notice in such form and containing such provisions not inconsistent with the provisions of the Plan and under such terms as the Committee from time to time shall establish. The terms and provisions of the respective Award Notices need not be identical. Subject to the consent of the Participant and the restriction set forth in the

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last sentence of Subparagraph (d) above, the Committee may, in its sole discretion, amend an outstanding Award Notice from time to time in any manner that is not inconsistent with the provisions of the Plan.

IX. RESTRICTED STOCK UNITS

     (a) Restrictions to be Established by the Committee. Restricted Stock Units shall be subject to a restriction on disposition by the Participant and an obligation of the Participant to forfeit the Restricted Stock Units under certain circumstances, and any other restrictions determined by the Committee in its sole discretion on the date of grant; provided, however, that such restrictions shall lapse upon:

     (i) the attainment of one or more Performance Measures;

     (ii) the Participant’s continued employment with the Company and its Affiliates or continued service as a Director for a specified period of time;

     (iii) the occurrence of any event or the satisfaction of any other condition specified by the Committee in its sole discretion; or

     (iv) a combination of any of the foregoing.

     Each Award of Restricted Stock Units may have different restrictions as established in the sole discretion of the Committee.

     (b) Other Terms and Conditions. The Participant shall not be entitled to vote the shares of Common Stock underlying the Restricted Stock Units or enjoy any other stockholder rights unless and until the restrictions have lapsed and such shares have been registered in the Participant’s name. If a Participant’s Termination of Service is due to his or her death or Disability, all Restricted Stock Units of such Participant then outstanding shall immediately vest in full and all restrictions applicable to such Restricted Stock Units shall terminate as of such date with all performance criteria, if any, applicable to such Restricted Stock Units deemed met at 100% of target. At the time of grant, the Committee may, in its sole discretion, establish additional terms, conditions or restrictions relating to the Restricted Stock Units. Such additional terms, conditions or restrictions shall be set forth in an Award Notice delivered in conjunction with the Award.

     (c) Payment. Upon the lapse of the restrictions described in the Award Notice, the Participant shall receive as soon as practicable payment equal to the Fair Market Value of the shares of Common Stock underlying the Restricted Stock Units on the vesting date, less applicable withholding. Payment shall be in the form of shares of Common Stock, cash, other equity compensation, or a combination thereof, as determined by the Committee. Any cash payment shall be made in a lump sum or in installments, as prescribed in the Award Notice. Payment shall be made no later than 2-1/2 months following the end of the year in which the Restricted Stock Units vest, unless payment is to be made in installments, in which case such installments shall comply with the rules under Section 409A of the Code.

     (d) Committee’s Discretion to Accelerate Vesting of Restricted Stock Units. The Committee may, in its discretion and as of a date determined by the Committee, fully vest any portion or all of a Participant’s Restricted Stock Units and, upon such vesting, all restrictions applicable to such Restricted Stock Units shall terminate as of such date. Any action by the Committee pursuant to this Subparagraph may vary among Participants and may vary among the Restricted Stock Units held by any Participant. Notwithstanding the preceding provisions of this paragraph, the Committee may not take any action described in this Subparagraph with respect to Restricted Stock Units that have been granted to a “covered employee” (within the meaning of Treasury Regulation Section 1.162-27(c)(2)) if such Award has been designed to meet the exception for performance-based compensation under Section 162(m) of

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the Code; provided, however, this prohibition shall not apply to an acceleration pursuant to Paragraph XII or due to death or Disability of the Participant.

     (e) Award Notice. Restricted Stock Units shall be evidenced by an Award Notice in such form and containing such provisions not inconsistent with the provisions of the Plan and under such terms as the Committee from time to time shall establish. The terms and provisions of the respective Award Notices need not be identical. Subject to the consent of the Participant and the restriction set forth in the last sentence of Subparagraph (d) above, the Committee may, in its sole discretion, amend an outstanding Award Notice from time to time in any manner that is not inconsistent with the provisions of the Plan.

X. STOCK APPRECIATION RIGHTS

     (a) Restrictions to be Established by the Committee. Stock Appreciation Rights shall be subject to a restriction on disposition by the Participant and an obligation of the Participant to forfeit the Stock Appreciation Rights under certain circumstances, and any other restrictions determined by the Committee in its sole discretion on the date of grant; provided, however, that such restrictions shall lapse upon:

     (i) the attainment of one or more Performance Measures;

     (ii) the Participant’s continued employment with the Company and its Affiliates or continued service as a Director for a specified period of time;

     (iii) the occurrence of any event or the satisfaction of any other condition specified by the Committee in its sole discretion; or

     (iv) a combination of any of the foregoing.

     Each Award of Stock Appreciation Rights may have different restrictions as established in the sole discretion of the Committee.

     (b) Other Terms and Conditions. If a Participant’s Termination of Service is due to his or her death or Disability, all Stock Appreciation Rights of such Participant then outstanding shall immediately vest in full and all restrictions applicable to such Stock Appreciation Rights shall terminate as of such date with all performance criteria, if any, applicable to such Stock Appreciation Rights deemed met at 100% of target. At the time of grant, the Committee may, in its sole discretion, establish additional terms, conditions or restrictions relating to the Stock Appreciation Rights. Such additional terms, conditions or restrictions shall be set forth in the Award Notice delivered in conjunction with the Award.

     (c) Exercise Price and Payment. Subject to adjustment as provided in Paragraph XII, the exercise price of the Stock Appreciation Rights shall not be less than the Fair Market Value of the shares of Common Stock underlying the Stock Appreciation Rights on the date of grant. Upon the lapse of the restrictions described in the Award Notice, the Participant shall be entitled to exercise his or her Stock Appreciation Rights at any time up until the end of the period specified in the Award Notice. The Stock Appreciation Rights, or portion thereof, shall be exercised and any applicable taxes withheld, in accordance with such procedures as are established or approved by the Committee. Upon exercise of the Stock Appreciation Rights, the Participant shall be entitled to receive payment in an amount equal to: (i) the difference between the Fair Market Value of the underlying shares of Common Stock subject to the Stock Appreciation Rights on the date of exercise and the exercise price; times (ii) the number of shares of Common Stock with respect to which the Stock Appreciation Rights are exercised; less (iii) any applicable withholding taxes. Payment shall be made in the form of shares of Common Stock or cash, or a combination thereof, as determined by the Committee. Cash shall be paid in a lump sum payment and shall be based on the Fair Market Value of the underlying Common Stock on the exercise date.

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     (d) Committee’s Discretion to Accelerate Vesting of Stock Appreciation Rights. The Committee may, in its discretion and as of a date determined by the Committee, fully vest any portion or all of a Participant’s Stock Appreciation Rights and, upon such vesting, all restrictions applicable to such Stock Appreciation Rights shall terminate as of such date. Any action by the Committee pursuant to this Subparagraph may vary among Participants and may vary among the Stock Appreciation Rights held by any Participant. Notwithstanding the preceding provisions of this paragraph, the Committee may not take any action described in this Subparagraph with respect to any Stock Appreciation Rights that have been granted to a “covered employee” (within the meaning of Treasury Regulation Section 1.162-27(c)(2)) if such Award has been designed to meet the exception for performance-based compensation under Section 162(m) of the Code; provided, however, this prohibition shall not apply to an acceleration pursuant to Paragraph XII or due to death or Disability of the Participant.

     (e) Award Notice. Stock Appreciation Rights shall be evidenced by an Award Notice in such form and containing such provisions not inconsistent with the provisions of the Plan and under such terms as the Committee from time to time shall establish. The terms and provisions of the respective Award Notices need not be identical. Subject to the consent of the Participant and the restriction set forth in the last sentence of Subparagraph (d) above, the Committee may, in its sole discretion, amend an outstanding Award Notice from time to time in any manner that is not inconsistent with the provisions of the Plan.

XI. PERFORMANCE AWARDS

     (a) Performance Period. The Committee shall establish, with respect to and at the time of each Performance Award, the maximum value of the Performance Award and the performance period over which the performance applicable to the Performance Award shall be measured.

     (b) Performance Measures and Other Criteria. A Performance Award shall be awarded to a Participant contingent upon future performance of the Company or any Affiliate, or a division or department of the Company or any Affiliate, during the performance period. With respect to Performance Awards intended to qualify as performance-based compensation under Section 162(m) of the Code, the Committee shall establish the Performance Measures applicable to such performance either (i) prior to the beginning of the performance period or (ii) within 90 days after the beginning of the performance period if the outcome of the performance targets is substantially uncertain at the time such targets are established, but not later than the date that 25% of the performance period has elapsed. The Committee shall provide that the vesting of the Performance Award will be based upon the Participant’s continued employment with the Company or its Affiliates or continued service as a Director for a specified period of time and

     (i) the attainment of one or more Performance Measures, or a combination thereof:

     (ii) the occurrence of any event or the satisfaction of any other condition specified by the Committee in its sole discretion; or

     (iii) a combination of any of the foregoing.

The Committee, in its sole discretion, may also provide for an adjustable Performance Award value-based upon the level of achievement of Performance Measures.

     (b) Vesting. If a Participant’s Termination of Service is due to his or her death or Disability, all Performance Awards of such Participant then outstanding shall immediately vest in full and all restrictions applicable to such Awards shall terminate as of such date with all performance criteria, if any, applicable to such Awards deemed met at 100% of target.

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     (c) Award Criteria. In determining the value of a Performance Award, the Committee shall take into account a Participant’s responsibility level, performance, potential, other Awards, total annual compensation and such other considerations as it deems appropriate. The Committee, in its sole discretion, may provide for a reduction in the value of a Participant’s Performance Award during the performance period.

     (d) Payment. Following the end of the performance period, the holder of a Performance Award shall be entitled to receive payment as soon as practicable of an amount not exceeding the maximum value of the Performance Award, based on the achievement of the Performance Measures for such performance period, as determined and certified in writing by the Committee. Payment of a Performance Award may be made in cash, Common Stock, Options or other equity compensation, or a combination thereof, as determined by the Committee. Payment shall be made in a lump sum or in installments as prescribed in the Award Notice. If a Performance Award covering shares of Common Stock is to be paid in cash, such payment shall be based on the Fair Market Value of a share of Common Stock on the payment date. Payment shall be made no later than 2-1/2 months following the end of the year in which the Performance Award vests, unless payment is to be made in installments, in which case such installments shall comply with the rules under Section 409A of the Code.

     (e) Award Notice. Each Performance Award shall be evidenced by a Award Notice in such form and containing such provisions not inconsistent with the provisions of the Plan and under such terms as the Committee from time to time shall establish. The terms and provisions of the respective Award Notices need not be identical. Subject to the consent of the Participant, the Committee may, in its sole discretion, amend an outstanding Award Notice from time to time in any manner that is not inconsistent with the provisions of the Plan.

XII. RECAPITALIZATION OR REORGANIZATION

     (a) No Effect on Right or Power. The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s or any Affiliate’s capital structure or its business, any merger or consolidation of the Company or any Affiliate, any issue of debt or equity securities ahead of or affecting Common Stock or the rights thereof, the dissolution or liquidation of the Company or any Affiliate or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.

     (b) Subdivision or Consolidation of Shares; Stock Dividends. If, and whenever, prior to the expiration of an Award previously granted, the Company shall effect a subdivision or consolidation of shares of Common Stock or the payment of a dividend on Common Stock which is paid in the form of Company stock without receipt of consideration by the Company, the number of shares of Common Stock with respect to which such Award may thereafter be exercised or satisfied, shall be adjusted as follows: (i) in the event of an increase in the number of outstanding shares, the number shares of Common Stock subject to the Award shall be proportionately increased, and the purchase price per share shall be proportionately reduced; and (ii) in the event of a reduction in the number of outstanding shares, the number shares of Common Stock subject to the Award shall be proportionately reduced, and the purchase price per share shall be proportionately increased, other than in the event of a Company-directed share repurchase program. Any fractional share resulting from such adjustment shall be rounded up to the next whole share. Such proportionate adjustments will be made for purposes of making sure that to the extent possible, the fair value of the Awards after the subdivision, consolidation or dividend is equal to the fair value before the change.

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     (c) Corporate Changes. Except as otherwise specifically provided in an Award Notice, effective upon a Corporate Change (or at such earlier time as the Committee may provide), all Options then outstanding shall immediately become exercisable in full, all Restricted Stock shall vest in full and cease to be subject to any restrictions, all Restricted Stock Units shall vest in full and cease to be subject to any restrictions, any Stock Appreciation Rights shall immediately be exercisable in full, and all Awards, the payout of which is subject to Performance Measures, shall vest in full and become immediately payable at such levels as the Committee in its sole discretion shall determine. In addition, the Committee, acting in its sole discretion without the consent or approval of any Participant, may effect one or more of the following alternatives, which alternatives may vary among individual Participants and which may vary among Awards held by any individual Participant: (i) require the mandatory surrender to the Company by selected Participants of some or all of the outstanding Options, stock-settled Restricted Stock Units and stock-settled Stock Appreciation Rights held by such Participants as of a date, before or after such Corporate Change, specified by the Committee, in which event the Committee shall thereupon cancel such Awards and the Company shall pay (or cause to be paid) to each such Participant an amount of cash per share equal to the excess, if any, of the amount calculated in Subparagraph (d) below (the “Change of Control Value”) of the shares subject to such Awards over the exercise price(s), if any, under such Awards for such shares, or (ii) provide that the number and class of shares of Common Stock covered by such Awards shall be adjusted so that such Awards shall thereafter cover securities of the surviving or acquiring corporation or other property (including, without limitation, cash) as determined by the Committee in its sole discretion.

     (d) Change of Control Value. For the purposes of clause (i) in Subparagraph (c) above, the “Change of Control Value” shall equal the amount determined in clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per share price offered to stockholders of the Company in any such merger, consolidation, sale of assets or dissolution transaction, (ii) the price per share offered to stockholders of the Company in any tender offer or exchange offer whereby a Corporate Change takes place, or (iii) if such Corporate Change occurs other than pursuant to a tender or exchange offer, the fair market value per share of the shares into which such Awards being surrendered are exercisable or payable, as determined by the Committee as of the date determined by the Committee to be the date of cancellation and surrender of such Awards. In the event that the consideration offered to stockholders of the Company in any transaction described in this Subparagraph (d) or Subparagraph (c) above consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash.

     (e) Other Changes in the Common Stock. In the event of changes in the outstanding Common Stock by reason of recapitalization, reorganization, merger, consolidation, combination, stock split, stock dividend, spin-off, exchange or other relevant changes in capitalization or distributions to the holders of Common Stock occurring after the date of the grant of any Award and not otherwise provided for by this Paragraph XII, which would have the effect of diluting or enlarging the rights of Participants, such Award and any notice evidencing such Award shall be subject to equitable or proportionate adjustment by the Committee at its sole discretion as to the number and price of shares of Common Stock or other consideration subject to such Award. In the event of any such change in the outstanding Common Stock or distribution to the holders of Common Stock, or upon the occurrence of any other event described in this Paragraph XII, the aggregate number of shares available under the Plan and the maximum number of shares that may be subject to Awards granted to any one individual may be appropriately adjusted to the extent, if any, determined by the Committee, whose determination shall be conclusive. Such proportionate adjustments will be made for purposes of making sure that to the extent possible, the fair value of the Awards after the subdivision, consolidation or dividend is equal to the fair value before the change.

     (f) No Adjustments Unless Otherwise Provided. Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to

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subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to Awards theretofore granted or the purchase price per share, if applicable.

XIII. AMENDMENT AND TERMINATION OF THE PLAN

     The Board in its discretion may terminate the Plan at any time with respect to any shares of Common Stock for which Awards have not theretofore been granted. The Board shall have the right to alter or amend the Plan or any part thereof from time to time; provided that no change in the Plan may be made that would impair the rights of a Participant with respect to any outstanding Award without the consent of the Participant, and provided, further, that the Board may not, without approval of the stockholders of the Company (a) amend the Plan to increase the maximum aggregate number of shares that may be issued under the Plan or change the class of individuals eligible to receive Awards under the Plan, (b) amend or delete Paragraphs V(d) and VII(f), or (c) amend Paragraph XII to delete items (a) or (b).

XIV. MISCELLANEOUS

     (a) No Right To An Award. Neither the adoption of the Plan nor any action of the Board or of the Committee shall be deemed to give any individual any right to be granted an Option, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, or a Performance Award, or any other rights hereunder except as may be evidenced by an Award Notice, and then only to the extent and on the terms and conditions expressly set forth therein.

     (b) Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation purposes, including Section 409A of the Code. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver shares of Common Stock or make payments; provided the Committee first determines in its sole discretion that the structure of such trusts or other arrangements shall not cause any change in the “unfunded” status of the Plan.

     (c) No Employment/Membership Rights Conferred. Nothing contained in the Plan or any Award shall (i) confer upon any Employee any right to continued employment with the Company or any Affiliate or (ii) interfere in any way with the right of the Company or any Affiliate to terminate his or her employment at any time. Nothing contained in the Plan shall confer upon any Director any right to service, or interfere in any way with the right of the Company to terminate his or her service at any time.

     (d) Compliance with Securities Laws. The Company shall not be obligated to issue any shares of Common Stock pursuant to an Award granted under the Plan at any time when the shares covered by such Award have not been registered pursuant to applicable U.S. federal, state or non-U.S. securities laws, or, in the opinion of legal counsel for the Company, the issuance and sale of such shares is not covered under an applicable exemption from such registration requirements.

     (e) No Fractional Shares. No fractional shares of Common Stock nor cash in lieu of fractional shares of Common Stock shall be distributed or paid pursuant to an Award. For purposes of the foregoing, any fractional shares of Common Stock shall be rounded up to the nearest whole share.

     (f) Tax Obligations; Withholding of Shares. Except with respect to non-Employee Directors and as otherwise provided under the Plan, no later than the date as of which an amount first becomes includible in a Participant’s taxable income for U.S. federal, state, local or non-U.S. income or social insurance tax purposes with respect to an Award granted under the Plan, the Participant shall pay to the

Page 16

Company or the Affiliate employing the Participant, or make arrangements satisfactory to the Company or the Affiliate employing the Participant for the payment of any such income or social insurance taxes of any kind required by law to be withheld with respect to such taxable amount. Notwithstanding the foregoing, the Company and its Affiliates may, in its sole discretion, withhold a sufficient number of shares of Common Stock that are otherwise issuable to the Participant pursuant to an Award to satisfy any such income or social insurance taxes of any kind required by law to be withheld, as may be necessary in the opinion of the Company or the Affiliate to satisfy all obligations for the payment of such taxes. For purposes of the foregoing, the Committee may establish such rules, regulations and procedures as it deems necessary or appropriate.

     (g) No Restriction on Corporate Action. Nothing contained in the Plan shall be construed to prevent the Company or an Affiliate from taking any action that is deemed by the Company or such Affiliate to be appropriate or in its best interest, regardless of whether such action would have an adverse effect on the Plan or any Award made under the Plan. No Employee, Participant, representative of an Employee or Participant, or other person shall have any claim against the Company or any Affiliate as a result of any such action.

     (h) Restrictions on Transfer. An Award (other than an Incentive Stock Option, which shall be subject to the transfer restrictions set as forth in Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the laws of descent and distribution, (ii) pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, or (iii) if vested, with the consent of the Committee, in its sole discretion provided that any such transfer is permitted under the applicable securities laws. Notwithstanding the foregoing, Restricted Stock, once vested and free of any restrictions, may be transferred at will.

     (i) Limitations Period. Any Participant who believes he or she is being denied any benefit or right under the Plan may file a written claim with the Committee. Any claim must be delivered to the Committee within forty-five (45) days of the specific event giving rise to the claim. Untimely claims will not be processed and shall be deemed denied. The Committee, or its designee, will notify the Participant of its decision in writing as soon as administratively practicable. Claims not responded to by the Committee in writing within one hundred and twenty (120) days of the date the written claim is delivered to the Committee shall be deemed denied. The Committee’s decision is final and conclusive and binding on all persons. No lawsuit relating to the Plan may be filed before a written claim is filed with the Committee and is denied or deemed denied and any lawsuit must be filed within one year of such denial or deemed denial or be forever barred.

     (j) Section 409A of the Code. It is intended that any Awards under the Plan satisfy the requirements of Section 409A of the Code to avoid imposition of applicable taxes thereunder. Thus, notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the Plan would result in the imposition of an applicable tax under Section 409A of the Code and related regulations and Treasury pronouncements, that Plan provision or Award may be reformed by the Committee solely to the extent the Committee, in its sole discretion, determines is necessary to avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be deemed to adversely affect the Participant’s rights to an Award.

     (k) Governing Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflicts of laws principles.

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EX-10.20

Exhibit 10.20

FIRST AMENDED AND RESTATED

OMNIBUS AGREEMENT

AMONG

EXTERRAN HOLDINGS, INC.

EXTERRAN, INC.

EXTERRAN ENERGY SOLUTIONS, L.P.

UCO GP, LLC

UCO GENERAL PARTNER, LP

EXTERRAN PARTNERS, L.P.

AND

EXLP OPERATING LLC

TABLE OF CONTENTS

ARTICLE I DEFINITIONS		2
1.1	Definitions	2
ARTICLE II NON-COMPETITION AND BUSINESS OPPORTUNITIES		10
2.1	Restricted Business	10
2.2	Overlapping Customers	11
2.3	Permitted Exceptions	11
2.4	Restricted Business Procedures	13
2.5	Scope of the Prohibition	15
2.6	New Customers	16
2.7	Enforcement	16
2.8	Termination	16
ARTICLE III SERVICES		16
3.1	Provision, Allocation and Reimbursement for Services	16
3.2	Limitations on Reimbursement	18
ARTICLE IV COMPRESSION EQUIPMENT TRANSFERS		18
4.1	Transfer Mechanics	18
4.2	Settlement; Appraised Value	21
4.3	Appraisal	22
4.4	Like-Kind Exchange Treatment	22
4.5	Other Sales Permitted	22
4.6	Termination	22
4.7	Proration of Ad Valorem Taxes	22
ARTICLE V NEWLY FABRICATED COMPRESSION EQUIPMENT PURCHASES		23
ARTICLE VI LICENSE		23
6.1	Grant of License	23
6.2	Restrictions on Marks	23
6.3	Ownership	24
6.4	Confidentiality	24
6.5	Estoppel	24
6.6	Warranties; Disclaimers	24
6.7	In the Event of Termination	25
ARTICLE VII INDEMNIFICATION		25
7.1	Environmental Indemnification	25
7.2	Additional Indemnification	26
7.3	Limitations Regarding Indemnification	27
7.4	Indemnification Procedures	27
ARTICLE VIII MISCELLANEOUS		28
8.1	Choice of Law; Submission to Jurisdiction	28
8.2	Notice	28

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8.3	Entire Agreement	29
8.4	Termination	29
8.5	Effect of Waiver or Consent	29
8.6	Amendment or Modification	29
8.7	Assignment; Third Party Beneficiaries	29
8.8	Counterparts	30
8.9	Severability	30
8.10	Gender, Parts, Articles and Sections	30
8.11	Further Assurances	30
8.12	Withholding or Granting of Consent	30
8.13	Laws and Regulations	30
8.14	Negation of Rights of Limited Partners, Assignees and Third Parties	30
8.15	No Recourse Against Officers or Directors	30

EXHIBITS AND SCHEDULES

Exhibit A — Form Bill of Sale
Exhibit B — Form Compression Equipment Lease Agreement

Schedule 1.1 — Fixed Margin Percentage
Schedule 3.1(a) — Services
Schedule 3.1(b) — Excluded Services
Schedule 6.1 — Marks

Schedule A — Certain Exterran Customers
Schedule B — Exterran Overlapping Customers
Schedule C — Certain Partnership Customers
Schedule D — Partnership Overlapping Customers

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FIRST AMENDED AND RESTATED
OMNIBUS AGREEMENT

     THIS FIRST AMENDED AND RESTATED OMNIBUS AGREEMENT is entered into on, and effective as of, August 20, 2007 (the “Effective Date”), and is by and among Exterran Holdings, Inc., a Delaware corporation (“Exterran”), Exterran, Inc., a Texas corporation (“EI”), Exterran Energy Solutions, L.P., a Delaware limited partnership (“EES”), UCO GP, LLC, a Delaware limited liability company (“UCO LLC”), UCO General Partner, L.P., a Delaware limited partnership (the “General Partner”), Exterran Partners, L.P., a Delaware limited partnership (the “Partnership”) and EXLP Operating LLC (the “Operating Company”). The above-named entities are sometimes referred to in this Agreement each as a “Party” and collectively as the “Parties.”

RECITALS:

     Certain of the Parties or their predecessors, together with UCLP OLP GP LLC, a Delaware limited liability company (“OLP GP”), and Universal Compression Holdings, Inc., a Delaware corporation (“UCH”), entered into that certain Omnibus Agreement dated as of October 20, 2006 (the “Omnibus Agreement”).

     As a result of a reorganization that occurred on June 29, 2007 (the “Reorganization”), UC Operating Partnership, L.P., a Delaware limited partnership, was merged with and into the Operating Company, and the OLP GP was dissolved.

     The Parties, together with UCH but excluding Exterran, entered into that certain First Amendment to Omnibus Agreement dated as of July 9, 2007 (the “First Amendment”) in connection with the transfer of certain assets pursuant to that certain Amended and Restated Contribution, Conveyance and Assumption Agreement, dated as of July 6, 2007 (the “2007 Contribution Agreement”).

     On August 20, 2007, UCH and Hanover Compressor Company (“Hanover”) consummated the business combination contemplated by that certain Agreement and Plan of Merger, dated as of February 5, 2007, by and among UCH, Hanover, Exterran, Ulysses Sub, Inc. and Hector Sub, Inc., following which UCH was merged with and into Exterran.

     The Parties desire to amend and restate in its entirety the Omnibus Agreement as amended by the First Amendment and to add Exterran and EES as parties to this Agreement, to eliminate UCH as a party to this Agreement, to reflect name changes of certain other parties and to evidence the agreement among the parties as to the matters contained herein.

     In consideration of the premises and the covenants, conditions, and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I
DEFINITIONS

     1.1 Definitions

          (a) Capitalized terms used herein but not defined shall have the meanings given them in the Partnership Agreement.

          (b) As used in this Agreement, the following terms shall have the respective meanings set forth below:

     “2007 Contribution Agreement” has the meaning given such term in the introduction of this Agreement.

     “Acquired Partnership Restricted Business” has the meaning given such term in Section 2.3(h).

     “Acquired Exterran Restricted Business” has the meaning given such term in Section 2.3(g).

     “Acquiring Party” has the meaning given such term in Section 2.4(a).

     “Affiliate” has the meaning given to such term in the Partnership Agreement.

     “Agreement” means this First Amended and Restated Omnibus Agreement, as it may be amended, modified or supplemented from time to time in accordance with the terms hereof.

     “Appraiser” means any of Standard & Poor’s Corporate Value Consulting, Valuation Research Corporation and Marshall and Stevens as selected by Exterran, with the consent of the General Partner, which consent shall not be unreasonably withheld, or any other appraiser that is independent with respect to the Exterran Entities and the Partnership Entities and their respective affiliates within the meaning of the code of professional ethics of the American Society of Appraisers as selected by mutual consent of Exterran and the General Partner.

     “Appraisal” means an appraisal of Compression Equipment prepared by an Appraiser in conformity with, and subject to, the requirements of the code of professional ethics and standards of professional conduct of the American Society of Appraisers.  The Appraisal shall specify value based upon the cost or income approach or a combination thereof for the Compression Equipment appraised.

     “Appraised Value” means an amount equal to (A) either (i) the most recent Appraisal with respect to a particular piece of Compression Equipment owned by the USCSB or the Partnership Group at the time of the Appraisal or (ii) with respect to a particular piece of Compression Equipment for which an Appraisal has not been conducted, the Appraised Value of substantially similar Compression Equipment, plus (B) any costs incurred by the Transferor pursuant to Section 4.1(a)(iv) to the extent such

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costs include overhauls, modifications or retrofittings that are not reflected in the value assigned to the Compression Equipment pursuant to clause (A) above.

     “Average Horsepower” means, with respect to a particular fiscal quarter, the quotient of (i) the sum of the aggregate amount of Compression Equipment horsepower owned or leased by the Partnership Group (excluding units owned by the Partnership Group but leased to USCSB) that was working and not idle on the last day of the month immediately preceding such quarter and on the last day of each of the three months during such quarter, divided by (ii) four.

     “Billed Party” has the meaning set forth in Section 4.7.

     “Business Day” means any day other than a Saturday, a Sunday or a day on which banking institutions in Houston, Texas are authorized or are obligated by law, executive order or governmental decree to be closed.

     “CCSB” means the USCSB and the non-U.S. contract compression services business of any of the Exterran Entities, collectively.

     “Change of Control” means, with respect to any Person (the “Applicable Person”), any of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the Applicable Person’s assets to any other Person, unless immediately following such sale, lease, exchange or other transfer such assets are owned, directly or indirectly, by the Applicable Person; (ii) the dissolution or liquidation of the Applicable Person; (iii) the consolidation or merger of the Applicable Person with or into another Person, other than any such transaction where (a) the outstanding Voting Securities of the Applicable Person are changed into or exchanged for Voting Securities of the surviving Person or its parent and (b) the holders of the Voting Securities of the Applicable Person immediately prior to such transaction own, directly or indirectly, not less than a majority of the outstanding Voting Securities of the surviving Person or its parent immediately after such transaction; and (iv) a “person” or “group” (within the meaning of Sections 13(d) or 14(d)(2) of the Exchange Act) being or becoming the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of more than 50% of all of the then outstanding Voting Securities of the Applicable Person, except in a merger or consolidation which would not constitute a Change of Control under clause (iii) above.

     “Closing Date” means October 20, 2006.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Common Unit” has the meaning given such term in the Partnership Agreement.

     “Compression Equipment” means natural gas compressor units, together with any tangible components thereof, all related appliances, parts, accessories, appurtenances, accessions, additions, improvements and replacements thereto, all other equipment or components of any nature from time to time incorporated or installed therein and all substitutions for any of the foregoing.

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     “Competitive Services” means the provision by a Person of natural gas contract compression services to a third-party customer, whether pursuant to the Form Compression Services Agreement or any other compression services agreement, a lease arrangement pursuant to which such Person leases Compression Equipment to a third-party customer and is required to provide other compression services to such customer (whether as part of one agreement or pursuant to a lease agreement and related services agreement) or otherwise; provided, however, that, for the avoidance of doubt, Competitive Services do not include the fabrication of Compression Equipment by such Person, the sale by such Person of Compression Equipment to a third-party customer, the sale by such Person of materials, parts or equipment that are components of or used in the operation of Compression Equipment, the leasing by such Person of Compression Equipment without the provision of any related services or the operation, maintenance, service, repair or overhaul by such Person of Compression Equipment owned by a third party customer.

     “Conflicts Committee” has the meaning given such term in the Partnership Agreement.

     “Contribution Agreement” means that certain Contribution, Conveyance and Assumption Agreement, dated as of the Closing Date, among Universal Compression, Inc. (now known as EI), UCO LLC, the General Partner, the Partnership and the other parties named thereto, together with the additional conveyance documents and instruments contemplated or referenced thereunder, as such may be amended, supplemented or restated from time to time.

     “Conversion Condition” has the meaning given such term in Section 2.4(b).

     “Cost of Sales” means any costs incurred of the type included in the “Cost of sales (excluding depreciation expense)” line item in the consolidated statement of operations of the Partnership prepared in accordance with GAAP, as presently applied.

     “Cost of Sales Limit” has the meaning given such term in Section 3.2(a).

     “Covered Environmental Losses” is defined in Section 7.1.

     “Direct Compression Equipment Costs and Expenses” means those costs and expenses directly attributable to the transportation, operation, maintenance or repair of any Compression Equipment owned by the Partnership Group.

     “Effective Date” has the meaning given such term in the introduction of this Agreement.

     “Effective Time” has the meaning given such term in Section 4.1(b).

     “EES” has the meaning given such term in the introduction to this Agreement.

     “EI” has the meaning given such term in the introduction to this Agreement.

4

     “Environmental Laws” means all federal, state, and local laws, statutes, rules, regulations, orders and ordinances, legally enforceable requirements and rules of common law relating to protection of the environment including, without limitation, the federal Comprehensive Environmental Response, Compensation, and Liability Act, the Superfund Amendments Reauthorization Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution Control Act, the Toxic Substances Control Act, the Oil Pollution Act, the Safe Drinking Water Act, the Hazardous Materials Transportation Act and other environmental conservation and protection laws, each as amended through the Closing Date.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Exterran” has the meaning given such term in the introduction of this Agreement.

     “Exterran Customers” means (a) the Persons set forth on Schedule A and any of their respective Affiliates, (b) any Exterran Overlapping Customer once the Partnership Entities no longer provide any Compression Services to such Exterran Overlapping Customer and (c) any New Customer that enters into an agreement with an Exterran Entity in accordance with Section 2.6 pursuant to which such Exterran Entity agrees to provide Competitive Services to such New Customer. Exterran Customers shall not include any Released Exterran Customers.

     “Exterran Entities” means Exterran and any Person (other than the Partnership Entities) controlled, directly or indirectly, by Exterran; and “Exterran Entity” means any of the Exterran Entities.

     “Exterran Overlapping Customers” means the Persons set forth on Schedule B and any of their respective Affiliates other than any such Person that becomes an Exterran Customer pursuant to clause (b) of the definition of Exterran Customers.

     “Exterran Restricted Business” has the meaning given such term in Section 2.1(a).

     “Exterran Site” has the meaning given such term in Section 2.2(a).

     “Fabricated Cost” means the total costs (other than any allocations of general and administrative expenses) incurred in fabricating a particular item of Compression Equipment, as determined by the books and records of Exterran, prepared in accordance with GAAP.

     “Fixed Margin Amount” means the amount resulting from the product of (i) the Fabricated Cost and (ii) the percentage, expressed as a decimal, set forth on Schedule 1.1 to this Agreement, which Schedule may be amended from time to time with the approval of the Conflicts Committee.

     “Form Bill of Sale” means the form of Bill of Sale attached hereto as Exhibit A.

5

     “Form Compression Services Agreement” means the standard form of agreement pursuant to which members of the Partnership Group provide Competitive Services to Partnership Customers as of the Effective Date.

     “Form Lease Agreement” means the form of Compression Equipment Lease Agreement attached hereto as Exhibit B, which Exhibit may be amended or replaced with a new form of Compression Equipment Lease Agreement from time to time with the approval of Exterran and the Conflicts Committee.

     “GAAP” means generally accepted accounting principles in the United States, consistently applied

     “General Partner” has the meaning given such term in the introduction to this Agreement.

     “Hazardous Substance” means (a) any substance that is designated, defined or classified as a hazardous waste, hazardous material, pollutant, contaminant or toxic or hazardous substance, or that is otherwise regulated under any Environmental Law, including, without limitation, any hazardous substance as such term is defined under the Comprehensive Environmental Response, Compensation, and Liability Act, as amended, and (b) petroleum, petroleum products, crude oil, gasoline, fuel oil, motor oil, waste oil, diesel fuel, jet fuel and other petroleum hydrocarbons whether refined or unrefined and (c) asbestos, whether in a friable or a non-friable condition, and polychlorinated biphenyls.

     “Indemnified Party” means either the Partnership Group or Exterran, as the case may be, each in its capacity as a party entitled to indemnification in accordance with Article VII.

     “Indemnifying Party” means either the Partnership Group or Exterran, as the case may be, each in its capacity as a party from whom indemnification may be required in accordance with Article VII.

     “Licensees” means, for purposes of Article VI hereof, the Partnership Entities.

     “Licensor” means, for purposes of Article VI hereof, Exterran.

     “Liens” means any mortgages, pledges, security interests, liens, charges, claims, restrictions, easements or other encumbrances of any nature.

     “Limit Period” means the period commencing on July 1, 2007 and ending on the last day of the fiscal quarter in which the second anniversary of the Closing Date occurs.

     “Marks” means all trademarks, trade names, logos and/or service marks identified on Schedule 6.1 attached hereto, which Schedule may be amended from time to time with the approval of Exterran and the Conflicts Committee.

6

     “New Customer” means any Person that is not an Exterran Customer, a Partnership Customer or an Overlapping Customer and that informs any of the Parties hereto of a need for Competitive Services.

     “Non-Qualifying Business” has the meaning given to such term in Section 2.4(b).

     “Offer” has the meaning given such term in Section 2.4(a).

     “Offer Period” has the meaning given such term in Section 2.4(b)(ii)(A).

     “Offered Assets” has the meaning given such term in Section 2.4(a).

     “Offeree” has the meaning given such term in Section 2.4(a).

     “Operating Company” has the meaning given such term in the introduction to this Agreement.

     “Organizational Documents” means certificates or articles of incorporation, by-laws, certificates of formation, limited liability company operating agreements, certificates of limited partnership or limited partnership agreements or other formation or governing documents of a particular entity.

     “Other Losses” is defined in 7.2(a).

     “Overlapping Customer” means an Exterran Overlapping Customer or a Partnership Overlapping Customer.

     “Partnership” has the meaning given such term in the introduction to this Agreement.

     “Partnership Agreement” means the First Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of the Closing Date, as such agreement is in effect on the Closing Date, to which reference is hereby made for all purposes of this Agreement. An amendment or modification to the Partnership Agreement subsequent to the Closing Date shall be given effect for the purposes of this Agreement only if it has received the approval of the Conflicts Committee that would be required, if any, pursuant to Section 8.6 hereof if such amendment or modification were an amendment or modification of this Agreement.

     “Partnership Assets” means the compression services contracts, compression services customer relationships and Compression Equipment, directly or indirectly conveyed, contributed or otherwise transferred to the Partnership Group as of the Closing Date pursuant to the Contribution Agreement.

     “Partnership Customers” means (a) the Persons set forth on Schedule C and any of their respective Affiliates, (b) any Partnership Overlapping Customer once the Exterran Entities no longer provide any Compression Services to such Partnership Overlapping Customer and (c) any New Customer that enters into an agreement with a

7

member of the Partnership Group in accordance with Section 2.6 pursuant to which such member of the Partnership Group agrees to provide Competitive Services to such New Customer. Partnership Customers shall not include any Released Partnership Customers.

     “Partnership Entities” means UCO LLC, the General Partner and each member of the Partnership Group; and “Partnership Entity” means any of the Partnership Entities.

     “Partnership Group” means the Partnership, the Operating Company and any Subsidiary of the Partnership or the Operating Company.

     “Partnership Horsepower” means, with respect to a particular month, the quotient of (i) the sum of the aggregate amount of Compression Equipment horsepower owned or leased by the Partnership Group (excluding units owned by the Partnership Group but leased to USCSB), regardless of whether such Compression Equipment is working or idle, on the last day of the month immediately preceding such month and on the last day of each of such month, divided by (ii) two.

     “Partnership Overlapping Customer” means the Persons listed on Schedule D and any of their respective Affiliates other than any such Person that becomes a Partnership Customer pursuant to clause (b) of the definition of Partnership Customers.

     “Partnership Restricted Business” has the meaning given such term in Section 2.1.(b).

     “Partnership Site” has the meaning given such term in Section 2.2(a).

     “Party” or “Parties” have the meaning given such terms in the introduction to this Agreement.

     “Percentage Interest” means, with respect to a particular month, the value (expressed as a percentage) obtained by multiplying (i) 100 by (ii) the quotient of (x) the Partnership Horsepower divided by (y) the Total Domestic Horsepower.

     “Person” has the meaning given such term in the Partnership Agreement.

     “Purchase Agreement” has the meaning given such term in Section 2.4(a).

     “Qualifying Business” has the meaning given such term in Section 2.4(b).

     “Released Exterran Customers” means those customers of the Exterran Entities that are designated as “Released Exterran Customers” pursuant to Section 2.3(h).

     “Released Partnership Customers” means those customers of the Partnership Group that are designated as “Released Partnership Customers” pursuant to Section 2.3(g).

8

     “Retained Assets” means the assets and investments owned by Exterran or any of its Affiliates that were not conveyed, contributed or otherwise transferred to the Partnership Group pursuant to the Contribution Agreement.

     “Services” has the meaning given such term in Section 3.1(a).

     “Site” means the specific geographic site at which a particular item of Compression Equipment engaged in Competitive Services is fixed, as further specified by the customer contract, or any schedule thereto, pursuant to which such Competitive Services are being provided.

     “Subsidiary” has the meaning given such term in the Partnership Agreement.

     “Total Domestic Horsepower” means, with respect to a particular month, the sum of the USCSB Horsepower and the Partnership Horsepower.

     “Transferee” means a transferee of Compression Equipment pursuant to Article IV.

     “Transferor” means a transferor of Compression Equipment pursuant to Article IV.

     “UCH” has the meaning given such term in the recitals to this Agreement.

     “UCO LLC” has the meaning given such term in the introduction to this Agreement.

     “USCSB” means the U.S. contract compression services business of any of the Exterran Entities conducted through Exterran’s U.S. Contract Compression Segment, excluding the business of the Partnership Entities.

     “USCSB Horsepower” means, with respect to a particular month, the quotient of (i) the sum of the aggregate amount of Compression Equipment horsepower owned or leased by USCSB (excluding units designated “for sale only” by the Exterran Entities or units owned by USCSB but leased to the Partnership Group), regardless of whether such Compression Equipment is working or idle, on the last day of the month immediately preceding such month and on the last day of such month, divided by (ii) two.

     “Voluntary Cleanup Program” means a program of the United States or a state of the United States enacted pursuant to Environmental Laws which provides for a mechanism for the written approval of, or authorization to conduct, voluntary remedial action for the clean-up, removal or remediation of contamination that exceeds actionable levels established pursuant to Environmental Laws.

     “Voting Securities” of a Person means securities of any class of such Person entitling the holders thereof to vote in the election of, or to appoint, members of the board of directors or other similar governing body of the Person; provided, that if such Person is

9

a limited partnership, Voting Securities of such Person shall be the general partner interest in such Person.

ARTICLE II
NON-COMPETITION AND BUSINESS OPPORTUNITIES

     2.1 Restricted Business.

     (a) Subject to Section 2.8 and except as permitted by Section 2.3, each of the Exterran Entities shall be prohibited from providing (whether directly or through the acquisition of or investment in equity or debt securities in any Person) Competitive Services to any Partnership Customer, in any state or territory of the United States (other than on behalf of a member of the Partnership Group) (the “Exterran Restricted Business”).

     (b) Subject to Section 2.8 and except as permitted by Section 2.3, each of the Partnership Entities shall be prohibited from providing (whether directly or through the acquisition of or investment in equity or debt securities in any Person) Competitive Services to any Exterran Customer, in any state or territory of the United States (other than on behalf of any Exterran Entity) (the “Partnership Restricted Business”).

     2.2 Overlapping Customers.

     (a) Except as otherwise provided in this Section 2.2 and except as permitted by Section 2.3, (i) the Exterran Entities shall be prohibited from providing (whether directly or through the acquisition of or investment in equity or debt securities of any Person) Competitive Services to a particular Overlapping Customer at the particular Site at which any member of the Partnership Group was providing Competitive Services to such Overlapping Customer on the Effective Date (each, a “Partnership Site”) and (ii) the Partnership Entities shall be prohibited from providing (whether directly or through the acquisition of or investment in equity or debt securities of any Person) Competitive Services to a particular Overlapping Customer at the particular Site at which any of the Exterran Entities was providing Competitive Services to such Overlapping Customer on the Effective Date (each, an “Exterran Site”).

     (b) Notwithstanding the foregoing, the Parties agree that in the event that, after the date of this Agreement, an Overlapping Customer requests Competitive Services involving the provision of additional Compression Equipment at a Partnership Site or an Exterran Site, whether in addition to or in replacement of Compression Equipment existing at such Site as of the Effective Date, (i) any member of the Partnership Group shall be entitled to provide such Competitive Services if such Overlapping Customer is a Partnership Overlapping Customer and (ii) any Exterran Entity shall be entitled to provide such Competitive Services if such Overlapping Customer is an Exterran Overlapping Customer.

     (c) Except as expressly provided by Sections 2.2(a) or (b), the Parties agree that any offer by any of the Parties hereto to provide Competitive Services to (i) a Partnership Overlapping Customer in any state or territory of the United States shall be

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made solely on behalf of the Partnership Entities and (b) an Exterran Overlapping Customer in any state or territory of the United States shall be made solely on behalf of the Exterran Entities.

          2.3 Permitted Exceptions. Notwithstanding any provision of Sections 2.1 or 2.2 to the contrary, the Parties may engage in any of the following activities to the extent permitted below:

     (a) The Exterran Entities may engage in any Exterran Restricted Business to any Person with the prior written approval of the Conflicts Committee.

     (b) The Exterran Entities may own securities of any class of any member of the Partnership Group.

     (c) The Partnership Entities may engage in any Partnership Restricted Business to any Person with the prior written approval of Exterran.

     (d) The Exterran Entities may purchase and own in the aggregate not more than five percent of any class of securities of any entity engaged in any Exterran Restricted Business (but without otherwise participating in, managing or directing the activities of such entity).

     (e) The Partnership Entities may purchase and own in the aggregate not more than five percent of any class of securities of any entity engaged in any Partnership Restricted Business (but without otherwise participating, managing or directing the activities of such entity).

     (f) If a Partnership Customer (or that customer’s applicable business), on the one hand, and a Exterran Customer (or that customer’s applicable business), on the other hand, merge, consolidate, amalgamate or are otherwise combined, each of the Partnership Entities and the Exterran Entities may continue to provide Competitive Services to the applicable combined entity or business. Upon such an occurrence, Exterran and the Conflicts Committee shall negotiate in good faith, if and to the extent determined in the good faith of Exterran and the Conflicts Committee to be necessary, to implement procedures or such other arrangements to protect the value to each of the Partnership Entities, on the one hand, and the Exterran Entities, on the other hand, of their respective businesses of providing Competitive Services to each such customer or its applicable business, as applicable.

     (g) The Exterran Entities may purchase and own (i) any class of securities in any entity engaged (in whole or in part) in any Exterran Restricted Business or (ii) any business or assets otherwise engaged or deployed in any Exterran Restricted Business; provided, (x) in the good faith judgment of the Board of Directors of Exterran, the aggregate value of the Exterran Restricted Business owned by such entity or otherwise to be acquired by the Exterran Entities shall be less than 50% of the aggregate value of the business and assets owned by such entity or otherwise to be acquired by the Exterran Entities and (y) the Partnership Group is offered the opportunity to acquire the Exterran Restricted Business owned by such entity or otherwise acquired by the Exterran Entities

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(in each case, the “Acquired Exterran Restricted Business”) in accordance with Section 2.4. During the pendency of the procedures described in Section 2.4, the Exterran Entities shall be entitled to own and operate the Acquired Exterran Restricted Business. In the event that the General Partner (with the approval of the Conflicts Committee) elects not to purchase such Acquired Exterran Restricted Business whether pursuant to Section 2.4(b)(i) or Section 2.4(b)(ii)(B)(2), the Exterran Entities shall be entitled to continue to own and operate the Acquired Exterran Restricted Business and the Competitive Services customers of the Acquired Exterran Restricted Business at the time of the consummation of such acquisition shall no longer be Partnership Customers for purposes of this Agreement, but rather shall be designated “Released Partnership Customers.” Without the prior written approval of the Conflicts Committee, subject to Section 2.8, the Exterran Entities shall be prohibited from providing (whether directly or through the acquisition of or investment in equity or debt securities of any Person) Competitive Services to a particular Released Partnership Customer at the particular Site at which the Partnership Group was providing Competitive Services to such Released Partnership Customer on the date of the acquisition by the Exterran Entities of the applicable Exterran Restricted Business pursuant to which such customer was designated a Released Partnership Customer.

     (h) The Partnership Entities may purchase and own (i) any class of securities in any entity engaged (in whole or in part) in any Partnership Restricted Business or (ii) any business or assets otherwise engaged or deployed in any Partnership Restricted Business; provided, (i) in the good faith judgment of the Conflicts Committee, the aggregate value of the Partnership Restricted Business owned by such entity or otherwise to be acquired by the Partnership Entities shall be less than 50% of the aggregate value of the business and assets owned by such entity or otherwise to be acquired by the Partnership Entities and (ii) Exterran is offered the opportunity to acquire the Partnership Restricted Business owned by such entity or otherwise acquired by the Partnership Entities (in each case, the “Acquired Partnership Restricted Business”) in accordance with Section 2.4. During the pendency of the procedures described in Section 2.4, the Partnership Entities shall be entitled to own and operate the Acquired Partnership Restricted Business. In the event that Exterran elects not to purchase such Acquired Partnership Restricted Businesses whether pursuant to Section 2.4(b)(i) or Section 2.4(b)(ii)(B)(2), the Partnership Entities shall be entitled to continue to own and operate the Acquired Partnership Restricted Business and the Competitive Services customers of the Acquired Partnership Restricted Business at the time of the consummation of such acquisition shall no longer be Exterran Customers for purposes of this Agreement, but rather shall be designated “Released Exterran Customers.” Without the prior written approval of Exterran, subject to Section 2.8, the members of the Partnership Group shall be prohibited from providing (whether directly or through the acquisition of or investment in equity or debt securities of any Person) Competitive Services to a particular Released Exterran Customer at the particular Site at which Exterran Entities were providing Competitive Services to such Released Exterran Customer on the date of the acquisition by the Partnership Group of the applicable Partnership Restricted Business pursuant to which such customer was designated a Released Exterran Customer.

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     (i) If a Partnership Overlapping Customer (or that customer’s applicable business), on the one hand, and an Exterran Overlapping Customer (or that customer’s applicable business), on the other hand, merge, consolidate, amalgamate or are otherwise combined, then, following consummation of such transaction, solely for purposes of providing Competitive Services involving additional Compression Equipment under Section 2.2(b) and offering to provide Competitive Services under Section 2.2(c) and for the purposes of the definition of Partnership Customer and Exterran Customer, the combined entity shall be deemed to be (a) a Partnership Overlapping Customer for continuing and future new business if as of the date of the announcement of such transaction the Partnership Entities provide more Competitive Services (as measured by the total amount of horsepower of Compression Equipment utilized in the provision of such Competitive Services on that date of announcement) to such combined entity than are provided by the Exterran Entities and (b) an Exterran Overlapping Customer for continuing and future new business if as of the date of the announcement of such transaction the Exterran Entities provide more Competitive Services (as measured by the total amount of horsepower of Compression Equipment utilized in the provision of such Competitive Services on that date of announcement) to such combined entity than are provided by the Partnership Entities; provided, however, that the provisions of Section 2.2(a) shall continue to apply to any Partnership Site or Exterran Site relating to such newly combined Overlapping Customer on the date of closing of such transaction.

     2.4 Restricted Business Procedures.

     (a) Within 30 days following the consummation of the acquisition of an Acquired Exterran Restricted Business or an Acquired Partnership Restricted Business by an Exterran Entity or a Partnership Entity, as the case may be (in each such case such acquiring Person shall be referred to as an “Acquiring Party”), the Acquiring Party shall notify in writing (x) the Partnership, if the Acquiring Party is a Exterran Entity or (y) Exterran, if the Acquiring Party is a Partnership Entity, of such acquisition. The Person that is so notified shall be referred to herein as the “Offeree.” Such notice shall include an offer (the “Offer”) by the Acquiring Party to sell the Acquired Exterran Restricted Business or the Acquired Partnership Restricted Business, as the case may be (the “Offered Assets”), to the Offeree, together with a proposed definitive agreement to effectuate the purchase and sale of the Offered Assets (the “Purchase Agreement”). The Offer shall set forth the Acquiring Party’s proposed terms relating to the sale of the Offered Assets to the Offeree, including the purchase price, any liabilities to be assumed by the Offeree as part of the Offer and the other terms of the Offer; provided, that the representations and warranties regarding the Offered Assets and the indemnification provision contained in the Purchase Agreement shall be substantially consistent with the terms contained in the definitive purchase agreement pursuant to which the Acquiring Party acquired the Offered Assets or the entity that owned the Offered Assets, subject to such adjustments that the Acquiring Party reasonably determines are necessary to reflect the differences in the transaction.

     (b) As soon as practicable after the Offer is made, the Acquiring Party will deliver to the Offeree all information prepared by or on behalf of or in the possession of such Acquiring Party relating to the Offered Assets and reasonably requested by the

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Offeree. As soon as practicable, but in any event, within 60 days after receipt of the notification called for in Section 2.4(a), the Offeree shall notify the Acquiring Party in writing that either:

     (i) the Offeree (with the concurrence of the Conflicts Committee if the Offeree is the Partnership) has elected not to purchase (or not to cause any of its Subsidiaries to purchase) any of such Offered Assets; or

     (ii) the Offeree (with the concurrence of the Conflicts Committee if the Offeree is the Partnership) has elected to purchase (or to cause any of its Subsidiaries to purchase) all of such Offered Assets; provided, that if the Offeree is the Partnership, and in the opinion of outside counsel to the Partnership Entities, less than 90% of the gross income from the operations of such Offered Assets consists of “qualifying income” under Section 7704 of the Code (such portion of such Offered Assets that does not so qualify being referred to herein as the “Non-Qualifying Business”), then the Partnership (with the concurrence of the Conflicts Committee) may condition its obligation to purchase the Non-Qualifying Business (but not the portion of the Offered Assets that do not constitute the Non-Qualifying Business (the “Qualifying Business”)) on the conversion of the agreements pursuant to which the Non-Qualifying Business provides Competitive Services to its customers to agreements substantively similar to the Form Compression Services Agreement from a federal income tax treatment perspective (from the Partnership’s perspective) and otherwise having substantially the same economic terms as the agreements being converted (the “Conversion Condition”); provided further, that in such event, each of the Exterran Entities and the Partnership Entities shall use commercially reasonable efforts to satisfy the Conversion Condition as soon as commercially practicable. If the Offeree elects to purchase the Offered Assets, the following procedures shall be followed:

     A. After the receipt of the Offer by the Offeree, the Acquiring Party and the Offeree shall negotiate in good faith the fair market value of the Offered Assets that are subject to the Offer (including the specific fair market value of any Offered Assets that constitute a Non-Qualifying Business) and the other terms of the Offer on which the Offered Assets will be sold to the Offeree. If the Acquiring Party and the Offeree agree (with the concurrence of the Conflicts Committee) on the fair market value of the Offered Assets that are subject to the Offer and the other terms of the Offer during the 30-day period (the “Offer Period”) after receipt by the Acquiring Party of the Offeree’s election to purchase (or to cause any Subsidiary of the Offeree to purchase) the Offered Assets, the Offeree shall purchase (or cause any of its Subsidiaries to purchase) and the Acquiring Party shall sell the Offered Assets on such terms as soon as commercially practicable after such agreement has been reached, which obligation may require such parties to consummate the purchase and sale of the Qualifying Business prior to satisfaction of the Conversion Condition.

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     B. If the Acquiring Party and the Offeree are unable to agree on the fair market value of the Offered Assets that are subject to the Offer or on any other terms of the Offer during the Offer Period, the Acquiring Party and the Offeree will engage an independent investment banking firm prior to the end of the Offer Period to determine the fair market value of the Offered Assets (including the specific fair market value of any Offered Assets that constitute a Non-Qualifying Business) and/or the other terms on which the Acquiring Party and the Offeree are unable to agree. In determining the fair market value and other terms on which the Offered Assets are to be sold, the investment banking firm will have access to the proposed sale and purchase values and terms for the Offer submitted by the Acquiring Party and the Offeree, respectively, and to all information prepared by or on behalf of the Acquiring Party relating to the Offered Assets and reasonably requested by the investment banking firm. In determining the terms on which the Offered Assets are to be sold (other than the fair market value of the Offered Assets), the investment banking firm shall give substantial weight to the terms contained in the definitive purchase agreement pursuant to which the Acquiring Party acquired the Offered Assets or the entity that owned the Offered Assets. Such investment banking firm will determine the fair market value of the Offered Assets and/or the other terms on which the Acquiring Party and the Offeree are unable to agree within 60 days of its engagement and furnish the Acquiring Party and the Offeree its determination. The fees and expenses of the investment banking firm will be divided equally between the Acquiring Party and the Offeree. Upon receipt of such determination, the Offeree will have the option, but not the obligation, to (with the concurrence of the Conflicts Committee if the Offeree is the Partnership):

     1. purchase the Offered Assets on such terms as determined above; or

     2. elect not to purchase such Offered Assets.

If the Offeree elects to so purchase the Offered Assets, the Offeree shall purchase (or cause any of its Subsidiaries to purchase) and the Acquiring Party shall sell the Offered Assets on such terms as soon as commercially practicable after such agreement has been reached, which obligation may require such parties to consummate the purchase and sale of the Qualifying Business prior to satisfaction of the Conversion Condition.

          2.5 Scope of the Prohibition. Except as provided in this Article II, each of the Parties shall be free to engage (whether directly or through the acquisition of or investment in equity or debt interests in any Person) in any business activity whatsoever, including those that may be in direct competition with any of the other Parties.

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          2.6 New Customers. The Parties agree that any offer by any of the Parties hereto to provide Competitive Services to New Customers in any state or territory of the United States shall be first made on behalf of the Partnership Entities and shall include an offer to provide such Competitive Services under an agreement substantially in the form of the Form Compression Services Agreement. If the New Customer is unwilling to enter into an agreement with a Partnership Entity that is substantively similar to the Form Compression Services Agreement from a federal income tax treatment perspective (from the Partnership’s perspective), an Exterran Entity may enter into an agreement to provide Competitive Services to such New Customer for its own account provided that any agreement between such Exterran Entity and such New Customer is not substantively similar to the Form Compression Services Agreement from a federal income tax treatment perspective (from the Partnership’s perspective). If a New Customer enters into an agreement with a member of the Partnership Group for Competitive Services, then such New Customer will then constitute a Partnership Customer for the purposes of this Agreement and if, in accordance with this Section 2.6, a New Customer enters into an agreement with an Exterran Entity for Competitive Services, then such New Customer will then constitute an Exterran Customer for the purposes of this Agreement.

          2.7 Enforcement. Each Party agrees and acknowledges that the other Parties hereto do not have an adequate remedy at law for the breach by such Party of the covenants and agreements set forth in this Article II, and that any breach by such Party of the covenants and agreements set forth in this Article II would result in irreparable harm to the other Parties hereto. Each Party further agrees and acknowledges that the other Parties hereto may, in addition to the other remedies that may be available to the other Parties hereto, file a suit in equity to enjoin such Party from such breach, and consents to the issuance of injunctive relief under this Agreement.

          2.8 Termination. Unless this Agreement has otherwise terminated pursuant to Section 8.4, this Article II shall terminate on the third anniversary of the Effective Date. In addition, unless this Agreement has otherwise been terminated pursuant to Section 8.4 or this Article II has otherwise been terminated pursuant to the first sentence of this Section 2.8, Sections 2.1, 2.2, 2.3, 2.4 and 2.6 shall terminate upon a Change of Control of Exterran. Unless this Agreement has otherwise terminated pursuant to Section 8.4 or this Article II has terminated pursuant to the first sentence of this Section 2.8, and in the event that Sections 2.1, 2.2, 2.3, 2.4 and 2.6 terminate pursuant to the immediately preceding sentence, without the prior written approval of the Conflicts Committee, the Exterran Entities shall be prohibited from providing (whether directly or through the acquisition of or investment in equity or debt securities of any Person) Competitive Services to a particular Partnership Customer at the particular Site at which the Partnership Group was providing Competitive Services to such Partnership Customer on the date of the Change of Control of Exterran.

ARTICLE III
SERVICES

        3.1 Provision, Allocation and Reimbursement for Services

     (a) Subject to Article V, the Exterran Entities shall, upon the reasonable request of the General Partner, provide the Partnership Group with all personnel and

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services reasonably necessary to run the business of the Partnership Group, which services may include, without limitation, those services set forth on Schedule 3.1(a) (collectively, the “Services”). For the avoidance of doubt, the Services shall not include the services described on Schedule 3.1(b). These Services shall be substantially similar in nature to the services of such type previously provided by the Exterran Entities in connection with their management and operation of the Partnership Assets and any other assets of a similar nature directly or indirectly conveyed, contributed or otherwise transferred to the Partnership Group, in each case during the 12-month period prior to such transfer.

     (b) The Exterran Entities shall provide the Services to the Partnership Group in a manner that is in the good faith judgment of Exterran commercially reasonable; provided, that for so long as the Exterran Entities exercise at least the same degree of care, skill and prudence in providing the Services as customarily exercised by it for its own operation of the USCSB, then Exterran will be deemed to have provided such Services in a commercially reasonable manner. EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, THE EXTERRAN ENTITIES MAKE NO (AND HEREBY DISCLAIM AND NEGATE ANY AND ALL) WARRANTIES OR REPRESENTATIONS WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE SERVICES. IN NO EVENT SHALL ANY EXTERRAN ENTITY OR ANY OF THEIR AFFILIATES BE LIABLE TO ANY MEMBER OF THE PARTNERSHIP GROUP OR TO ANY OTHER PERSON FOR ANY EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR SPECIAL DAMAGES RESULTING FROM ANY ERROR IN THE PERFORMANCE OF THE SERVICES, REGARDLESS OF WHETHER THE PERSON PROVIDING SUCH SERVICES, ITS AFFILIATES, OR OTHERS MAY BE WHOLLY, CONCURRENTLY, PARTIALLY, OR SOLELY NEGLIGENT OR OTHERWISE AT FAULT.

     (c) Any Direct Compression Equipment Costs and Expenses that are incurred by any Exterran Entity in connection with providing the Services shall be allocated to the Partnership at the actual cost to the applicable Exterran Entity providing such Services.

     (d) The General Partner shall be entitled to allocate to the Partnership any costs and expenses (other than Direct Compression Equipment Costs and Expenses) incurred by any Exterran Entity in connection with providing the Services on any reasonable basis determined by the General Partner. In the event that such Services are associated with Exterran’s operation of both of the businesses of the USCSB and the Partnership Group, including, without limitation, general and administrative functions, such reasonable basis may include, at the election of the General Partner, allocating a portion of such costs and expenses incurred during a particular period to the Partnership on a pro rata basis based on the Partnership Group’s Percentage Interest.

     (e) Subject to Section 3.2, the Partnership Group hereby agrees to reimburse the Exterran Entities for all costs and expenses allocated to the Partnership Group in accordance with the manners set forth in Sections 3.1(c) and (d).

        3.2 Limitations on Reimbursement.

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     (a) Notwithstanding Section 3.1, the amount that the Exterran Entities are entitled to receive from the Partnership Group pursuant to Section 3.1 for selling, general and administrative costs during any particular quarter commencing with the quarter ending September 30, 2007 during the Limit Period shall not exceed $4.75 million (the “SG&A Limit”); provided, that with respect to the quarter ending September 30, 2007, it means $2.12 million. The SG&A Limit shall be reduced by any cash selling, general and administrative costs incurred directly by the Partnership Group during the applicable period. In the event that during the Limit Period the Partnership Group makes any additional acquisitions of assets or businesses or the businesses or the business of the Partnership Group otherwise expands after the date hereof, then the Parties shall negotiate in good faith any appropriate increase in the SG&A Limit in order to account for any adjustments in the nature and extent of the selling, general and administrative services provided by the Exterran Entities to the Partnership Group, with any such increase in the SG&A Limit subject to the approval of the Conflicts Committee

     (b) Notwithstanding Section 3.1, the amount that the Exterran Entities are entitled to receive from the Partnership Group pursuant to Section 3.1 for Cost of Sales during any particular quarter during the Limit Period shall not exceed $18.00 times the Average Horsepower of the Partnership Group during such quarter (the “Cost of Sales Limit”). The Cost of Sales Limit shall be reduced by any Cost of Sales incurred directly by the Partnership Group during the applicable period. In the event that during the Limit Period the Partnership Group makes any additional acquisitions of assets or businesses or the business of the Partnership Group otherwise expands after the date hereof, then the Parties shall negotiate in good faith any appropriate increase in the Cost of Sales Limit in order to account for any adjustments in the Cost of Sales of the Partnership Group (on a per horsepower basis) as a result of such acquisition or expansion, with any such increase in the Cost of Sales Limit subject to the approval of the Conflicts Committee.

ARTICLE IV
COMPRESSION EQUIPMENT TRANSFERS

        4.1 Transfer Mechanics

     (a) In the event that Exterran determines in good faith that there exists a need on the part of the CCSB or on the part of the Partnership Group to transfer Compression Equipment between the Exterran Entities, on the one hand, and the Partnership Group, on the other hand, to meet the compression services obligations of either of the CCSB or the Partnership Group, such Compression Equipment shall be so transferred (or, to the extent provided in Section 4.2, leased), at the election of Exterran, from a member of the Exterran Entities to a member of the Partnership Group, or from a member of the Partnership Group to a member of the Exterran Entities, as the case may be; provided, that all of the following conditions are satisfied with respect to such transfer or lease (each such transfer or lease for the purposes of this Article IV, unless set forth otherwise, a “transfer”) at the Effective Time (as defined below) of such transfer:

     (i) Except as provided in Section 4.2 in respect of Compression Equipment that is leased, such transfer will constitute a valid and absolute transfer

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(each such transfer, as the case may be, constituting a “true sale” for bankruptcy law purposes) of all right, title and interest of the Transferor in, to and under the transferred Compression Equipment, free and clear of any Liens except for any Liens created by the Transferee;

     (ii) Such transfer will not conflict with any of the terms and provisions of, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the organizational documents of the Transferor or the Transferee, or any material term of any indenture, agreement, mortgage, deed of trust, derivative instrument or other instrument to which the Transferor or Transferee or any of their respective subsidiaries is a party or by which either of them is bound, or result in the creation or imposition of any Lien upon any of their respective properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust, derivative instrument or other instrument, or violate any law or any order, rule, or regulation applicable to the Transferor or Transferee or any of their respective subsidiaries of any court or of any federal or state regulatory body, administrative agency, or other governmental authority having jurisdiction over either of them or any of their respective properties;

     (iii) Except as otherwise provided in this Article IV, such transfer will not cause any member of the Partnership Group to suffer a loss of revenue under any existing customer contract for Competitive Services or to incur any material liabilities not reimbursed by the Exterran Entities; and

     (iv) The Compression Equipment will be transferred in a condition appropriate for the Transferee’s anticipated commercial use of such Compression Equipment; provided, that such anticipated commercial use shall be consistent with such equipment’s historical use; provided further, that (A) any repairs or modifications, or any costs associated therewith, required to make such Compression Equipment appropriate for the Transferee’s anticipated commercial use of such Compression Equipment shall be the obligation of the Transferor and (B) the Transferee shall have communicated its anticipated commercial use of such Compression Equipment to the Transferor at least ten (10) Business Days prior to the anticipated date of such transfer, failing which, the Transferor may transfer the Compression Equipment in its then current condition.

In connection with each proposed transfer, each of the Transferee and the Transferor will use their respective commercially reasonable efforts to cause the conditions set forth above to be satisfied as of the Effective Time (as defined below).

     (b) All transfers of Compression Equipment pursuant to this Section 4.1 shall be deemed to take place at 12:01 a.m. on the date of transfer (the “Effective Time”) and shall include all of the following assets, rights and properties of the Transferor with respect to such transferred Compression Equipment; provided, that with respect to transfers that are effected under a lease pursuant to Section 4.2, the following assets,

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rights and properties shall be so transferred to the extent provided for in, and not inconsistent with, the relevant lease agreement, and except as provided below:

     (i) All Transferor-owned appliances, parts, instruments, machinery, accessories and other equipment attached or installed thereto;

     (ii) The rights of the Transferor under all permits relating exclusively to such Compression Equipment, to the extent that such permits are transferable and the transfer of which is authorized or consented to by any third parties required to make such transfer effective as to third parties;

     (iii) Except in the case of a lease, all warranties and guarantees, if any, express or implied, existing for the benefit of the Transferor in connection with such Compression Equipment to the extent assignable;

     (iv) Except in the case of a lease, any fuels, lubricants and maintenance supplies exclusively related to such Compression Equipment;

     (v) Except in the case of a lease, all vendor information, catalogs, technical information, specifications, designs, drawings and maintenance records related to such Compression Equipment and to which the Transferor has ready access without undue effort; and

     (vi) Except in the case of a lease, all rights, claims or choses in action of the Transferor against any Person relating exclusively to such Compression Equipment.

     (c) Except as provided in Section 4.2 in respect of Compression Equipment that is leased, on the date of any transfer of Compression Equipment, the Transferor shall deliver or cause to be delivered to the Transferee the following:

     (i) A general conveyance or bill of sale in the form of the Form Bill of Sale transferring to Transferee, as of the Effective Time, good, marketable and indefeasible title to all of the tangible personal property contemplated by Section 4.2(b) and included in the transferred Compression Equipment, free and clear of any Liens, except for any Liens created by the Transferee;

     (ii) All appropriate documents for the assignment as of the Effective Time of the Transferor’s rights under the permits referred to in Section 4.1(b)(ii), together with all consents of third parties required to make such assignments effective as to such third parties; and

     (iii) Such other instruments of transfer and assignment in respect of the transferred Compression Equipment as the Transferee shall reasonably require and as shall be consistent with the terms and provisions of this Agreement.

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       4.2 Settlement; Appraised Value

     (a) Prior to the Effective Time of any transfer pursuant to Section 4.1, the Partnership Group and Exterran will determine the aggregate Appraised Value of the Compression Equipment to be so transferred.

     (b) In consideration for such transfer, the Transferee, at its discretion (subject to the provisos of Sections 4.2(b)(ii) and (ii) and subject to Sections 4.2(b) and (c)), shall take any one or more of the following actions prior to or contemporaneously with the Effective Time of such transfer:

     (i) Transfer Compression Equipment to the Transferor of equal or greater Appraised Value than the Appraised Value of the Compression Equipment to be transferred to the Transferee pursuant to Section 4.1 (provided, that if such Compression Equipment is of greater Appraised Value than the Appraised Value of the Compression Equipment to be transferred to the Transferee pursuant to Section 4.1, such excess Appraised Value shall be deemed to be a transfer of Compression Equipment with a value equal to such excess Appraised Value and Transferor shall be required to take one or more of the actions contemplated by this Section 4.2(b) in consideration for such excess Appraised Value) in accordance with this Article IV;

     (ii) Execute and deliver a lease agreement substantially in the form of the Form Lease Agreement pursuant to which the Transferee agrees to lease from the Transferor the Compression Equipment to be transferred to the Transferee pursuant to Section 4.1, which lease agreement shall be counter-signed by the Transferor (provided, however, that the ability of the Transferee to execute and deliver such a lease may be limited in the sole discretion of Exterran, to the extent that an Exterran Entity is the Transferor, or in the sole discretion of the Conflicts Committee, to the extent that a member of the Partnership Group is the Transferor); or

     (iii) Deliver to the Transferor cash (or an obligation to make payment in cash no later than the end of the fiscal quarter in which the transfer is effected) in the amount of the aggregate Appraised Value of the Compression Equipment to be transferred to the Transferee pursuant to Section 4.1 (provided, however, that the ability of the Transferee to make such a payment may be limited in the sole discretion of Exterran, to the extent that an Exterran Entity is the Transferor, or in the sole discretion of the Conflicts Committee, to the extent that a member of the Partnership Group is the Transferor).

     (c) In the event that the Transferee cannot through the use of its commercially reasonable efforts provide adequate consideration to the Transferor for Compression Equipment to be transferred in any of the manners set forth in Section 4.2(b), then no such transfer pursuant to the terms of this Article IV shall occur.

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     (d) Notwithstanding Section 4.2(b), if the Transferor is a member of the Partnership Group, the Transferee shall not be entitled to take the actions contemplated by Section 4.2(b)(ii) if such action would cause the Partnership to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes. In such event, if compliance by Exterran with Sections 4.2(i) or (iii) is not commercially practicable, the Partnership and Exterran shall negotiate in good faith to reach agreement on another manner in which to reimburse the Partnership for such Compression Equipment; provided, that the final terms of such reimbursement shall be approved by the Conflicts Committee.

          4.3 Appraisal. Exterran shall, at its sole cost and expense, cause an Appraisal of all Compression Equipment then owned by the CCSB and the Partnership Group to be conducted and prepared (i) no later than the end of the fiscal quarter in which the second anniversary of the Closing Date occurs and (ii) no less frequently than every two years thereafter.

          4.4 Like-Kind Exchange Treatment. Each Party agrees to cooperate to the extent reasonably necessary to allow the other, if the other so desires, to treat the transactions contemplated by Section 4.1(b) as a like-kind exchange under Section 1031 of the Code, and relevant Treasury regulations and/or under relevant state law provisions, if any. Any Party seeking such treatment acknowledges that it has consulted or will consult with independent tax counsel regarding the applicability and benefits/detriments of such treatment and in no way has relied upon any representations of the other party regarding the same.

          4.5 Other Sales Permitted. Nothing otherwise set forth in this Article IV shall be deemed to preclude any of the Exterran Entities and any member of the Partnership Group from negotiating or consummating at any time the purchase and sale of newly fabricated Compression Equipment, existing Compression Equipment or all or any part of the USCSB; provided, however, that such negotiations or purchase and sale shall be conducted pursuant to the terms and procedures then mutually agreed upon by Exterran and the General Partner or the Conflicts Committee, as applicable.

          4.6 Termination. Unless this Agreement has otherwise terminated pursuant to Section 8.4, this Article IV shall terminate on the third anniversary of the Effective Date.

          4.7 Proration of Ad Valorem Taxes. Ad valorem taxes relating to the ownership of Compression Equipment transferred pursuant to Section 4.1 shall be prorated on a daily basis between the Exterran Entities and the Partnership Group with the Exterran Entities and the Partnership Group responsible for the prorated portion of such taxes for the period of their respective ownership of such transferred Compression Equipment. As between the Exterran Entities and the Partnership Group, the party that receives the ad valorem tax billing (the “Billed Party”) shall provide a copy of such billing to the other party together with a calculation of the prorated ad valorem taxes owed by each party. The party that did not receive the ad valorem tax billing shall pay its prorated portion of the ad valorem taxes to the Billed Party prior to the due date of such taxes and the Billed Party shall be responsible for the timely payment of the ad valorem taxes to the taxing authorities.

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ARTICLE V
NEWLY FABRICATED COMPRESSION EQUIPMENT PURCHASES

     The Parties hereby acknowledge that none of the Exterran Entities is under any obligation to offer or sell to any member of the Partnership Group newly fabricated Compression Equipment and no member of the Partnership Group is under any obligation to purchase from any of the Exterran Entities newly fabricated Compression Equipment; provided, that in the event that the General Partner and Exterran mutually agree to enter into, or cause their respective Affiliates to enter into, a purchase and sale agreement for the purchase and sale of newly fabricated Compression Equipment, (i) such purchase and sale shall be subject to the standard terms and conditions then utilized by the Exterran Entities for purchases and sales of newly fabricated Compression Equipment and (ii) any member of the Partnership Group shall be permitted to purchase such Compression Equipment for a price that is not more than the Fabricated Cost of such Compression Equipment plus the Fixed Margin Amount.

ARTICLE VI
LICENSE

     6.1 Grant of License. Subject to the terms and conditions herein, Licensor hereby grants to Licensees the right and license to use the Marks solely in connection with the Licensees’ businesses and the services performed therewith within the United States during the term of this Agreement.

     6.2 Restrictions on Marks. In order to ensure the quality of uses under the Marks, and to protect the goodwill of the Marks, Licensees agree as follows:

     (a) Licensees will use the Marks only in accordance with such quality standards and specifications as may be established by Licensor and communicated to Licensees from time to time, it being understood that Licensor has evaluated Licensees’ businesses and services and determined that they are of a quality that justifies this grant of a license. Licensees recognize the substantial goodwill associated with the Marks and will not permit the quality of the businesses or services with which Licensees use the Marks to deteriorate so as to affect adversely the goodwill associated with the Marks. Licensees will not cause any action, or permit or fail to prevent any action by Licensees’ affiliates or any other party under Licensees’ control, that is deemed to injure, harm or dilute the distinctiveness or goodwill of the Marks.

     (b) Licensees will only use the Marks in formats approved by Licensor and only in strict association with Licensees’ businesses and the services performed therewith;

     (c) Prior to publishing any new format or appearance of the Marks or any new advertising or promotional materials that incorporate the Marks, Licensees shall first provide such format, appearance or materials to Licensor for its approval. If Licensor does not inform Licensees in writing within fourteen (14) days from the date of the receipt of such new format, appearance, or materials that such new format, appearance, or materials is unacceptable, then such new format, appearance or materials shall be deemed

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to be acceptable and approved by Licensor. Licensor may withhold approval of any proposed changes to the format, appearance or materials which Licensees propose to use in Licensor’s sole discretion; and

     (d) Licensees shall not use any other trademarks, service marks, trade names or logos in connection with the Marks.

     6.3 Ownership. Licensor shall own all right, title and interest, including all goodwill relating thereto, in and to the Marks, and all trademark rights embodied therein shall at all times be solely vested in Licensor. Licensees have no right, title, interest or claim of ownership in the Marks, except for the licenses granted in this Agreement. All use of the Marks shall inure to the benefit of Licensor. Licensees agree that they will not attack the title of Licensor in and to the Marks.

     6.4 Confidentiality. The Licensees shall maintain in strictest confidence all confidential or nonpublic information or material disclosed by Licensor and in the materials supplied hereunder in connection with the license of the Marks, whether in writing or orally and whether or not marked as confidential. Such confidential information includes, but is not limited to, algorithms, inventions, ideas, processes, computer system architecture and design, operator interfaces, operational systems, technical information, technical specifications, training and instruction manuals, and the like. In furtherance of the foregoing confidentiality obligation, Licensees shall limit disclosure of such confidential information to those of their employees, contractors or agents having a need to access the confidential information for the purpose of exercising rights granted hereunder.

     6.5 Estoppel. Nothing in this Agreement shall be construed as conferring by implication, estoppel, or otherwise upon Licensees (a) any license or other right under the intellectual property rights of Licensor other than the license granted herein to the Marks as set forth expressly herein or (b) any license rights other than those expressly granted herein.

     6.6 Warranties; Disclaimers.

     (a) The Licensor represents and warrants that (i) it owns and has the right to license the Marks licensed under this Agreement and (ii) the Marks do not infringe upon the rights of any third parties.

     (b) EXCEPT FOR THE WARRANTIES AND REPRESENTATIONS DESCRIBED IN SECTION 6.6(a), LICENSOR DISCLAIMS ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS (EXPRESS OR IMPLIED, ORAL OR WRITTEN) WITH RESPECT TO THE SUBJECT MATTER HEREOF, OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS OR SUITABILITY FOR ANY PURPOSE (WHETHER ANY LICENSEE KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE) WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE OR BY COURSE OF DEALING.

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     6.7 In the Event of Termination. In the event of termination of this Agreement pursuant to Section 8.4 or otherwise, the Licensees’ right to utilize or possess the Marks licensed under this Agreement shall automatically cease, and concurrently with such termination of this Agreement, the Licensees shall (i) cease all use of the Marks and shall adopt new trademarks, service marks, and trade names that are not confusingly similar to the Marks and (ii) no later than ninety (90) days following the termination of this Agreement, the General Partner shall have caused each of the Partnership Entities to change its legal name so that there is no longer any reference therein to the name “Universal Compression,” “Exterran,” “Hanover,” any name or d/b/a then used by any Exterran Entity or any variation, derivation or abbreviation thereof, and in connection therewith, the General Partner shall cause each such Partnership Entity to make all necessary filings of certificates with the Secretary of State of the State of Delaware and to otherwise amend its Organizational Documents by such date.

ARTICLE VII
INDEMNIFICATION

     7.1 Environmental Indemnification.

     (a) Subject to Section 7.3, Exterran shall indemnify, defend and hold harmless the Partnership Group from and against any environmental claims, losses and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent, suffered or incurred by the Partnership Group by reason of or arising out of:

     (i) any violation of Environmental Laws associated with the ownership or operation of the Partnership Assets; or

     (ii) any event or condition associated with ownership or operation of the Partnership Assets (including, without limitation, the presence of Hazardous Substances on, under, about or migrating to or from the Partnership Assets or the disposal or release of Hazardous Substances generated by operation of the Partnership Assets) including, without limitation, (A) the cost and expense of any investigation, assessment, evaluation, monitoring, containment, cleanup, repair, restoration, remediation, or other corrective action required or necessary under Environmental Laws or to satisfy any applicable Voluntary Cleanup Program, (B) the cost or expense of the preparation and implementation of any closure, remedial, corrective action or other plans required or necessary under Environmental Laws or to satisfy any applicable Voluntary Cleanup Program and (C) the cost and expense for any environmental pre-trial, trial, or appellate legal or litigation support work; provided, in the case of clauses (A) and (B) such cost and expense shall not included the costs of and associated with project management and soil and ground water monitoring;

but only to the extent that such violation complained of under Section 7.1(a)(i) or such events or conditions included under Section 7.1(a)(ii) occurred before the Closing Date (collectively, “Covered Environmental Losses”).

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     (b) The Partnership Group shall indemnify, defend and hold harmless Exterran and its Affiliates from and against any Covered Environmental Losses suffered or incurred by Exterran and its Affiliates relating to the Partnership Assets occurring on or after the Closing Date, except to the extent that the Partnership Group is indemnified with respect to any of such Covered Environmental Losses under Section 7.1(a), and unless such indemnification would not be permitted under the Partnership Agreement by reason of one of the provisos contained in Section 7.7(a) of the Partnership Agreement.

     (c) Except for claims for Covered Environmental Losses made before the third anniversary of the Closing Date, which shall not terminate, all indemnification obligations in this Section 7.1 shall terminate on the third anniversary of the Closing Date.

       7.2 Additional Indemnification.

     (a) In addition to and not in limitation of the indemnification provided under Section 7.1(a), subject to Section 7.3 and except as otherwise set forth in any Exhibit hereto, Exterran shall indemnify, defend and hold harmless the Partnership Group from and against any claims, losses and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent, suffered or incurred by the Partnership Group (“Other Losses”) by reason of or arising out of:

     (i) failure to convey good and defensible title to the Partnership Assets to one or more members of the Partnership Group, and such failure render the Partnership Group unable to use or operate the Partnership Assets in substantially the same manner as they were operated by the Exterran Entities immediately prior to the Closing Date;

     (ii) events and conditions associated with the Retained Assets whether occurring before or after the Closing Date; and

     (iii) all federal, state and local income tax liabilities attributable to the operation of the Partnership Assets prior to the Closing Date, including any such income tax liabilities of Exterran that may result from the consummation of the formation transactions for the Partnership Entities;

provided, however, that in the case of clauses (i) and (ii) above, such indemnification obligations shall terminate on the third anniversary of the Closing Date; and that in the case of clause (iii) above, such indemnification obligations shall survive until sixty (60) days after the termination of any applicable statute of limitations.

     (b) In addition to and not in limitation of the indemnification provided under Section 7.1(b) and the Partnership Agreement and except as otherwise set forth in any Exhibit hereto, the Partnership Group shall indemnify, defend and hold harmless Exterran and its Affiliates from and against any claims, losses and expenses (including, without limitation, court costs and reasonable attorney’s and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent, suffered or incurred by Exterran

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and its Affiliates by reason of or arising out of events and conditions associated with the operation of the Partnership Assets and occurring on or after the Closing Date unless such indemnification would not be permitted under the Partnership Agreement by reason of one of the provisos contained in Section 7.7(a) of the Partnership Agreement.

    7.3 Limitations Regarding Indemnification. (a) The aggregate liability of Exterran under Section 7.1(a) shall not exceed $5.0 million.

     (b) No claims may be made against Exterran for indemnification pursuant to Sections 7.1(a) or 7.2(a) unless the aggregate dollar amount of the Losses suffered or incurred by the Partnership Group or the Partnership Indemnitees exceed $250,000, after such time Exterran shall be liable for the full amount of such claims, subject to the limitations of Section 7.3(a).

     (c) Notwithstanding anything herein to the contrary, in no event shall Exterran have any indemnification obligations under Section 7.1(a) for claims made as a result of additions to or modifications of Environmental Laws promulgated after the Closing Date.

    7.4 Indemnification Procedures

     (a) The Indemnified Party agrees that promptly after it becomes aware of facts giving rise to a claim for indemnification under this Article VII, it will provide notice thereof in writing to the Indemnifying Party, specifying the nature of and specific basis for such claim; provided, however, that the Indemnified Party shall not submit claims more frequently than once a calendar quarter (or twice in the case of the last calendar quarter prior to the expiration of the applicable indemnity coverage under this Agreement).

     (b) The Indemnifying Party shall have the right to control all aspects of the defense of (and any counterclaims with respect to) any claims brought against the Indemnified Party that are covered by the indemnification under this Article VII, including, without limitation, the selection of counsel, determination of whether to appeal any decision of any court and the settling of any such matter or any issues relating thereto; provided, however, that no such settlement shall be entered into without the consent of the Indemnified Party (with the concurrence of the Conflicts Committee in the case of the Partnership Group) unless it includes a full release of the Indemnified Party from such matter or issues, as the case may be, and does not include the admission of fault, culpability or a failure to act, by or on behalf of such Indemnified Party.

     (c) The Indemnified Party agrees to cooperate fully with the Indemnifying Party, with respect to all aspects of the defense of any claims covered by the indemnification under this Article VII, including, without limitation, the prompt furnishing to the Indemnifying Party of any correspondence or other notice relating thereto that the Indemnified Party may receive, permitting the name of the Indemnified Party to be utilized in connection with such defense, the making available to the Indemnifying Party of any files, records or other information of the Indemnified Party

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that the Indemnifying Party considers relevant to such defense and the making available to the Indemnifying Party, at no cost to the Indemnifying Party, of any employees of the Indemnified Party; provided, however, that in connection therewith the Indemnifying Party agrees to use reasonable efforts to minimize the impact thereof on the operations of the Indemnified Party and further agrees to endeavor to maintain the confidentiality of all files, records and other information furnished by the Indemnified Party pursuant to this Section 7.4. In no event shall the obligation of the Indemnified Party to cooperate with the Indemnifying Party as set forth in the immediately preceding sentence be construed as imposing upon the Indemnified Party an obligation to hire and pay for counsel in connection with the defense of any claims covered by the indemnification set forth in this Article VII; provided, however, that the Indemnified Party may, at its own option, cost and expense, hire and pay for counsel in connection with any such defense. The Indemnifying Party agrees to keep any such counsel hired by the Indemnified Party informed as to the status of any such defense, but the Indemnifying Party shall have the right to retain sole control over such defense.

     (d) In determining the amount of any loss, cost, damage or expense for which the Indemnified Party is entitled to indemnification under this Agreement, the gross amount of the indemnification will be reduced by (i) any insurance proceeds realized by the Indemnified Party and (ii) all amounts recovered by the Indemnified Party under contractual indemnities from third Persons. The Partnership hereby agrees to use commercially reasonable efforts to realize any applicable insurance proceeds or amounts recoverable under such contractual indemnities.

     (e) The date on which the Indemnifying Party receives notification of a claim for indemnification shall determine whether such claim is timely made.

ARTICLE VIII
MISCELLANEOUS

     8.1 Choice of Law; Submission to Jurisdiction. This Agreement shall be subject to and governed by the laws of the State of Texas, excluding any conflicts-of-law rule or principle that might refer the construction or interpretation of this Agreement to the laws of another state. Each Party hereby submits to the jurisdiction of the state and federal courts in the State of Texas and to venue in Texas.

     8.2 Notice. All notices, requests or consents provided for or permitted to be given pursuant to this Agreement must be in writing and must be given by depositing same in the United States mail, addressed to the Person to be notified, postpaid, and registered or certified with return receipt requested or by delivering such notice in person or by telecopier or telegram to such Party. Notice given by personal delivery or mail shall be effective upon actual receipt. Notice given by telegram or telecopier shall be effective upon actual receipt if received during the recipient’s normal business hours, or at the beginning of the recipient’s next business day after receipt if not received during the recipient’s normal business hours. All notices to be sent to a Party pursuant to this Agreement shall be sent to or made at the address set forth below or at such other address as such Party may stipulate to the other Parties in the manner provided in this Section 8.2.

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For notices to any of the Exterran Entities:

4444 Brittmoore Road
Houston, Texas 77041-8004
Phone: (713) 335-7000
Fax: 713-466-6720
Attention: Executive Vice President and Chief Operating Officer

For notices to any of the Partnership Entities:

4444 Brittmoore Road
Houston, Texas 77041-8004
Phone: (713) 335-7000
Fax: 713-466-6720
Attention: Executive Vice President

     8.3 Entire Agreement. This Agreement constitutes the entire agreement of the Parties relating to the matters contained herein, superseding all prior contracts or agreements, whether oral or written, relating to the matters contained herein, other than the 2007 Contribution Agreement.

     8.4 Termination. This Agreement, other than the provisions set forth in Articles VII and VIII hereof, shall terminate upon a Change of Control of UCO LLC, the General Partner or the Partnership, other than any Change of Control of UCO LLC, the General Partner or the Partnership deemed to have occurred pursuant to clause (iv) of the definition of Change of Control solely as a result of a Change of Control of Exterran.

     8.5 Effect of Waiver or Consent. No waiver or consent, express or implied, by any Party to or of any breach or default by any Person in the performance by such Person of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such Person of the same or any other obligations of such Person hereunder. Failure on the part of a Party to complain of any act of any Person or to declare any Person in default, irrespective of how long such failure continues, shall not constitute a waiver by such Party of its rights hereunder until the applicable statute of limitations period has run.

     8.6 Amendment or Modification. This Agreement may be amended or modified from time to time only by the written agreement of all the Parties; provided, however, that the Partnership and the Operating Company may not, without the prior approval of the Conflicts Committee, agree to any amendment or modification of this Agreement that the General Partner determines will adversely affect the holders of Common Units. Each such instrument shall be reduced to writing and shall be designated on its face an “Amendment” or an “Addendum” to this Agreement.

     8.7 Assignment; Third Party Beneficiaries. Any Party shall have the right to assign its rights under this Agreement without the consent of any other Party, but no Party shall have the right to assign its obligations under this Agreement without the consent of the other

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Parties. Subject to the limitations set forth in Section 8.14, each of the Parties hereto specifically intends that each entity comprising the Exterran Entities and each entity comprising the Partnership Entities, as applicable, whether or not a Party to this Agreement, shall be entitled to assert rights and remedies hereunder as third-party beneficiaries hereto with respect to those provisions of this Agreement affording a right, benefit or privilege to any such entity.

     8.8 Counterparts. This Agreement may be executed in any number of counterparts (including facsimile counterparts) with the same effect as if all signatory Parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument.

     8.9 Severability. If any provision of this Agreement or the application thereof to any Person or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other Persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

     8.10 Gender, Parts, Articles and Sections. Whenever the context requires, the gender of all words used in this Agreement shall include the masculine, feminine and neuter, and the number of all words shall include the singular and plural. All references to Article numbers and Section numbers refer to Articles and Sections of this Agreement.

     8.11 Further Assurances. In connection with this Agreement and all transactions contemplated by this Agreement, each Party agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of this Agreement and all such transactions.

     8.12 Withholding or Granting of Consent. Except as otherwise expressly provided in this Agreement, each Party may, with respect to any consent or approval that it is entitled to grant pursuant to this Agreement, grant or withhold such consent or approval in its sole and uncontrolled discretion, with or without cause, and subject to such conditions as it shall deem appropriate.

     8.13 Laws and Regulations. Notwithstanding any provision of this Agreement to the contrary, no Party shall be required to take any act, or fail to take any act, under this Agreement if the effect thereof would be to cause such Party to be in violation of any applicable law, statute, rule or regulation.

     8.14 Negation of Rights of Limited Partners, Assignees and Third Parties. The provisions of this Agreement are enforceable solely by the Parties, and no shareholder, limited partner, member, or assignee of Exterran, EI, UCO LLC, the General Partner, the Partnership or the Operating Company or other Person shall have the right, separate and apart from Exterran, EI, UCO LLC, the General Partner, the Partnership or the Operating Company, to enforce any provision of this Agreement or to compel any Party to comply with the terms of this Agreement.

     8.15 No Recourse Against Officers or Directors. For the avoidance of doubt, the provisions of this Agreement shall not give rise to any right of recourse against any officer or director of any Exterran Entity or any Partnership Entity.

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[Signature pages follow.]

31

     IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective as of, the Effective Date.

EXTERRAN HOLDINGS, INC.
By:	/s/ J. MICHAEL ANDERSON
Name:	J. Michael Anderson
Title:	Senior Vice President
EXTERRAN, INC.
By:	/s/ J. MICHAEL ANDERSON
Name:	J. Michael Anderson
Title:	Senior Vice President
UCO GP, LLC
By:	/s/ J. MICHAEL ANDERSON
Name:	J. Michael Anderson
Title:	Senior Vice President
UCO GENERAL PARTNER, LP
By: UCO GP, LLC, its general partner
By:	/s/ J. MICHAEL ANDERSON
Name:	J. Michael Anderson
Title:	Senior Vice President

Signature Page — Omnibus Agreement

EXTERRAN PARTNERS, L.P.
By: UCO GENERAL PARTNER, LP, its general partner
By: UCO GP, LLC, its general partner
By:	/s/ J. MICHAEL ANDERSON
Name:	J. Michael Anderson
Title:	Senior Vice President
EXLP OPERATING LLC
By: EXTERRAN PARTNERS, L.P., its sole member
By: UCO GENERAL PARTNER, LP, its general partner
By: UCO GP, LLC, its general partner
By:	/s/ J. MICHAEL ANDERSON
Name:	J. Michael Anderson
Title:	Senior Vice President

Signature Page — Omnibus Agreement

Schedule 1.1

Fixed Margin Percentage

11.1%

Schedule 1.1

Schedule 3.1(a)

Services

1)	operations,
2)	marketing,
3)	maintenance and repair of Compression Equipment,
4)	periodic overhauls of Compression Equipment,
5)	inventory management,
6)	legal,
7)	accounting,
8)	treasury,
9)	insurance administration and claims processing,
10)	risk management,
11)	health, safety and environmental,
12)	information technology,
13)	human resources,
14)	credit,
15)	payroll,
16)	internal audit,
17)	taxes,
18)	engineering,
19)	facilities management,
20)	investor relations,
21)	ERP,
22)	training,
23)	executive,
24)	sales, and
25)	business development.

Schedule 3.1(a)

Schedule 3.1(b)

Excluded Services

1. Fabrication and sale of new Compression Equipment.

Schedule 3.1(b)

Schedule 6.1

Marks

Schedule 6.1

Signature Page – Omnibus Agreement

Exhibit A

FORM ASSIGNMENT AND BILL OF SALE

     For valuable consideration, the receipt of which is hereby acknowledged,                                         , a [place of formation] [entity type] (“Seller”) hereby SELLS, GRANTS, ASSIGNS and TRANSFERS to                                         , a [place of formation] [entity type] (“Purchaser”), effective as of                     , 200___, good, marketable and indefeasible title to all of Seller’s right, title and interest in, to and under the Compression Equipment described on Exhibit A attached hereto and made a part hereof for all purposes, together with all assets, rights and properties related to such Compression Equipment of the sort described in Section 4.2(b) of the Omnibus Agreement (as defined below) (collectively, the “Assets”):

     The Seller, in its name and in the name of its successors and assigns, hereby represents that it has the power and authority to sell or otherwise transfer the Assets in the manner provided in this Assignment and Bill of Sale and that the Assets are free and clear of all Liens, except for any Liens created by Purchaser. THE ASSETS ARE BEING SOLD WITHOUT ANY WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF FITNESS FOR USE OR MERCHANTIBILITY.

     Seller does hereby bind itself, its successors and assigns, to forever warrant and defend the title to the Assets unto Purchaser, its successors and assigns against the lawful claim or claims of any person whomsoever claiming an interest in the Assets. Purchaser hereby assumes and agrees to indemnify, protect, defend and hold Seller harmless from and against all of the liabilities and obligations of every kind and nature, arising out of, in connection with or related to, the ownership, operation, use, repair, transfer, transportation or any other activity whatsoever in respect of the Assets on and after the date hereof.

     Seller covenants and agrees to execute and deliver to Purchaser all such other additional instruments and other documents and will do all such other acts and things as may be necessary to fully assign to Purchaser, or its successors and assigns, all of the Assets.

     All of the provisions hereof shall inure to the benefit of and be binding upon the respective heirs, successors and assigns of Seller and Purchaser.

     Terms used herein but not defined herein shall have the meanings assigned to such terms in the First Amended and Restated Omnibus Agreement dated as of August 20, 2007 by and among Exterran Holdings, Inc., a Delaware corporation, Exterran, Inc., a Texas corporation, UCO GP, LLC, a Delaware limited liability company, UCO General Partner, L.P., a Delaware limited partnership, Exterran Partners, L.P., a Delaware limited partnership, and EXLP Operating LLC, a Delaware limited liability company (the “Omnibus Agreement”).

Exhibit A-1

     IN WITNESS WHEREOF, Seller has caused this Assignment and Bill of Sale to be executed on                     , ___200___.

“SELLER”
[     ]

By:

Name:

Title:

“BUYER”
[     ]

By:

Name:

Title:

Exhibit A-2

Exhibit B

FORM COMPRESSION LEASE AGREEMENT

GAS COMPRESSOR EQUIPMENT MASTER RENTAL AGREEMENT

This Gas Compressor Equipment Master Rental Agreement with all Schedule(s), hereinafter referred to as the (“Agreement”), is made between                      (“Lessor”) and                      (“Lessee”).

Lessor and Lessee Agree as follows:

1. Lease. Subject to and on the terms and conditions set forth in Article IV of the First Amended and Restated Omnibus Agreement entered August 20, 2007 by and among Exterran Holdings, Inc., Exterran, Inc., Exterran Energy Solutions, L.P., UCO GP, LLC, UCO General Partner, L.P., Exterran Partners, L.P. and EXLP Operating LLC (the “Omnibus Agreement”) and herein, Lessor hereby agrees to lease to Lessee, and Lessee hereby agrees to lease from Lessor, the personal property described as the “Equipment” on the respective Equipment Lease schedule(s) (each a “Schedule”) executed by Lessee and Lessor from time to time hereunder upon agreement of Lessor and Lessee. Each Schedule shall, upon execution, be deemed to incorporate all of the provisions of this Agreement except as otherwise set forth therein.

2. Term and Rent. Except as otherwise provided herein, this Agreement shall terminate on the later to occur of (i) termination of the Omnibus Agreement and (ii) termination of the last existing Schedule issued hereunder. Each Schedule shall set forth the term of the lease (“Minimum Term”) and the number and amount of rental payments for the Equipment listed thereon, which Lessee shall pay as set forth. If Lessee fails to pay any rental or other sum when due, Lessee also shall pay to Lessor interest thereon from the due date thereof to the date of payment at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law (“Applicable Rate”). All payments by Lessee hereunder shall be payable at the office of Lessor set forth below, or at such other place as Lessor from time to time may designate in writing. It is the intent of the parties that each Schedule shall have a Minimum Term that is no greater than a whole or fractional month less than 75% of the useful life of the Equipment subject to said Schedule. Notwithstanding anything in this Agreement to the contrary, a Schedule may be terminated prior to the expiration of its Minimum Term upon the purchase and sale or exchange between Lessor and Lessee of the Equipment subject to said Schedule in accordance with the term of the Omnibus Agreement.

3. Taxes. Lessee agrees to reimburse, promptly when due, all license fees and assessments and all sales, use, property, excise and other taxes or charges (including any interest and penalties), now or hereafter imposed by any governmental body or agency upon the Equipment or the purchase, ownership, possession, leasing, operation, use, or disposition thereof hereunder, or the rentals or other payments hereunder (excluding taxes on or measured by the net income of Lessor) and prepare and file promptly with the appropriate offices any and all tax and other similar returns required to be filed with respect thereto (sending copies thereof to Lessor) or, if requested by Lessor, notify Lessor of such requirement and furnish Lessor with all information required by Lessor so that it may effect such filing.

4. Inspection and Acceptance. Within 48 hours after delivery of the Equipment to be leased to Lessee under each Schedule, Lessee shall inspect the Equipment. Unless within said 48 hour period Lessee notifies Lessor in writing to the contrary stating the details of any defects, Lessee shall be

Exhibit B-1

conclusively presumed to have accepted the Equipment in its then condition. If within said 48 hour period Lessee notifies Lessor in writing of the unacceptability of the Equipment, Lessor’s obligations to lease the Equipment shall cease forthwith. Upon acceptance of delivery, Lessee assumes the care, custody, supervision and control of the Equipment and of any and all persons or property in the vicinity of the Equipment during the time of delivery, operation and return. Lessee acknowledges that all Equipment rented hereunder and specified in the Schedule(s) is of the size, design and capacity selected for the operating conditions furnished to Lessor by Lessee and is suitable for Lessee’s purposes. Lessee acknowledges that that Lessor is not the manufacturer or supplier of the Equipment and any quotations or recommendations made by Lessor are based on information supplied by Lessee and the manufacturer or supplier of the Equipment.

5. Freight. Lessee agrees to bear all of the cost of connecting the Equipment and of disconnecting the Equipment prior to returning the Equipment to Lessor. Except as otherwise provided in the Schedule, all costs of transporting the Equipment from Lessor’s yard to Lessee’s Site described on the Schedule and of transporting the Equipment from such Site back to Lessor’s yard will be at the expense of Lessee.

6. Insurance. Lessee shall, at Lessee’s sole cost and expense, maintain insurance or Lessor-approved self-insurance in such amounts, against such risks (including, without limitation, all risk and public liability insurance with respect to the Equipment), with such carriers and in such form as shall be satisfactory to Lessor naming Lessee as an insured and Lessor as an additional insured. Lessee shall provide Lessor with evidence of such insurance. The policies for such insurance shall provide that Lessor receive thirty (30) days notice of any termination, cancellation or alteration of the terms of such insurance, shall provide that the coverage afforded to Lessor shall not be rescinded, impaired or invalidated by any act or neglect of lessee and shall provide for waiver of subrogation and contribution by Lessee and Lessee’s insured against Lessor and Lessor’s employees and agents.

7. Use / Lessee’s Responsibilities. Lessee agrees to use the Equipment in a careful and prudent manner with competent agents, employees or subcontractors only for the compression of gas in accordance with the specifications of the manufacturer of the Equipment. Lessee agrees to pay for damages to the Equipment resulting from free water, excessive condensate or foreign solids, or impurities contained in the gas stream. Lessee further agrees to pay for all damages to the Equipment resulting from abusive use, failure to maintain the Equipment in accordance with this agreement or from any negligence on the part of Lessee, its agents, employees or subcontractors.

     In addition to any Lessee obligations contained elsewhere in this Agreement and within any Schedules hereto, Lessee agrees to and shall:

          a. Provide Lessor with authorized ingress and egress to and from the site designated in the Schedule for installation of the Equipment (the “Site”). Should Lessor be denied access to the Site for any reason not reasonably within Lessor’s control, any time lost by Lessor shall be paid for by Lessee at the applicable rate. Recognizing that Lessee has superior knowledge of the Site and access routes to the Site, Lessee must advise Lessor of any conditions or obstructions which Lessor might encounter while en route to the Site. Lessee agrees to maintain the road and Site in such a condition that will allow free access and movement to and from the Site in an ordinarily equipped highway type vehicle. If because of an attribute of Lessee’s operations, Lessor is required to use any specialized transportation equipment, cranes or other services and supplies, Lessee shall furnish the same at its expense and without cost to Lessor;

          b. Prepare a sound location at the Site adequate in size and capable of properly supporting the Equipment; and

Exhibit B-2

          c. Immediately mitigate and repair any stoppage, malfunction or leaks of oil or coolant from the Equipment.

     8. No Maintenance / Bare Rental. Lessee acknowledges that Lessor is providing the Equipment as a “bare rental” and, therefore, Lessor will have no maintenance or inspection obligations with respect to the Equipment.

     9. Inspection. Lessor shall have the right at all reasonable times to enter upon the premises where the Equipment may be located for the purpose of inspecting it or observing its use.

     10. Title; Personal Property; Encumbrances; Location. Lessee covenants that:

          a. The Equipment is and shall remain personal property and shall not be attached to or become part of any realty;

          b. The Equipment will be installed and used at the location specified in the Schedule pertaining thereto and that it shall not be removed therefrom without the permission of Lessor;

          c. That Lessee will not, except as expressly authorized in this Agreement, sell, secrete, mortgage, assign, transfer, lease, sublet, loan part with possession of, or encumber the Equipment or permit any liens or charges to become effective thereon or permit or attempt to do any of the acts aforesaid. Lessee agrees, at Lessee’s own expense, to take such action as may be necessary to remove any such encumbrance, lien or charge and to prevent any third party from acquiring any other interest in the Equipment (including, without limitation, by reason of such Equipment being deemed to be a fixture or a part of any realty); and

          d. Lessee will not change or remove any insignia, serial number or lettering of the Equipment.

11. Licenses, Permits and Compliance. Lessee, at its sole expense, shall;

          a. Comply with all applicable rules and regulations of any Federal, Provincial, State, County, City, local, municipal or regulatory agency (hereinafter referred to as “Governing Bodies”) relating to the construction or operation of the Equipment in the Location, or environmental requirements associated therewith (including but not limited to air emission, noise and environmental discharges); and

          b. Obtain and maintain throughout the Minimum Term, or any extension thereof, any and all licenses and/or permit fees assessed as a result of this Agreement or against said Equipment. Lessee further agrees to defend, protect, indemnify and hold harmless Lessor from any and all liability associated with its failure to comply with the foregoing provision.

     12. Waste Disposal. Lessee bears responsibility for disposal of liquids, solid, and hazardous waste discharged by the Equipment at the location in accordance with federal, state and local environmental rules and regulations.

     13. Events of Default; Remedies; Expenses. In the event that:

          a. Lessee shall default in the payment of any installment of rent or other sum payable under this Agreement or default in the observance or performance of any other covenant or agreement in this Agreement and the failure to cure said default within ten (10) days after notice by Lessor; or

          b. Lessee shall dissolve, or become insolvent (however evidenced) or bankrupt, commit any act of bankruptcy, make an assignment for the benefit of creditors, suspend the transaction of its usual

Exhibit B-3

business or consent to the appointment of a trustee or receiver, or a trustee or a receiver shall be appointed for Lessee or for a substantial part of its property, or bankruptcy, reorganization, insolvency, or similar proceedings shall be instituted by or against Lessee; or

          c. an order, judgment, or decree shall be entered against Lessee by a court of competent jurisdiction and such order, judgment or decree shall continue unpaid or unsatisfied and in effect for any period of sixty (60) consecutive days without a stay of execution, or any execution or writ or process shall be issues in connection with any action or proceeding against Lessee or its property whereby the Equipment or any substantial part of Lessee’s property may be taken or restrained; or

          d. any indebtedness of Lessee for borrowed money shall become due and payable by acceleration of maturity thereof;

          e. Lessor shall in good faith believe that the prospect of payment or performance by Lessee is impaired,

          then and in any such event, Lessor may, by written notice to Lessee:

          (1) Immediately terminate this Agreement as to any or all Schedules, at its option, and Lessee’s rights thereunder; and/or

          (2) Declare immediately due, and payable all rental installments and other sums hereunder forthwith due and payable whereupon the same shall forthwith become due and payable as liquidated damages and not as a penalty; and/or

          (3) Proceed by appropriate court action or actions either at law or in equity, to enforce performance by Lessee of the applicable covenants of this Agreement or to recover damages for the breach thereof; and/or

          (4) Without necessity of process or other legal action, enter onto the premises of Lessee or such other premises as the Equipment may then be located and stop the operation of the Equipment and/or take possession of the Equipment, disconnecting and separating the Equipment from any other property and using all force necessary or permitted by applicable law, without Lessor incurring any liability to Lessee or any other person arising out of the taking of any such action. Lessee agrees to and shall indemnify and hold harmless Lessor from any and all claims, losses, damages, causes of action, suits and liabilities of any kind arising in favor of Lessee, or any interest owner that Lessee represents or serves as operator and arising out of or in connection with the stopping of the operation of the Equipment and/or the removal of the Equipment as aforesaid, whether same result from the forfeiture of any oil, gas or mineral lease, damage to a producing reservoir or lease operations, lost production or other event or condition. In addition, Lessee shall continue to be liable for all other indemnities under this Agreement and for all legal fees and other costs and expenses resulting from the foregoing defaults or the exercise of Lessor’s remedies. Lessor shall be entitled to take or retain, by way of offset against any or all amounts due and owing under this Agreement, any assets, tangible or intangible, of Lessee which may then be in the possession of Lessor, its correspondents or agents, wheresoever situated.

14. Holding Over. Unless a party gives the other party thirty (30) days advance written notice of termination prior to the expiration of the Minimum Term specified in a Schedule, that Schedule will continue to bind the parties on a month-to-month basis as to the Equipment, subject thereafter to termination by either party with thirty (30) days advance written notice.. Notwithstanding the foregoing, after the expiration of the Minimum Term, Lessor may modify the rental fees and other charges assessed under this Agreement.

Exhibit B-4

15. Indemnity of Lessor.

          a. Lessee is responsible and liable for loss of or damage to Equipment arising between the time of delivery and redelivery of the Equipment and Lessee shall protect, defend, indemnify and hold Lessor harmless from and against any such loss or damage, however arising, including but not limited to, improper operation, improper maintenance (unless Lessor performs maintenance), negligent acts of Lessee, compression of dirty or wet gas, fire, freezing, theft, windstorm, hailstorm, flood, riot, insurrection or explosion, except to the extent such loss or damage arises directly as a result of the negligence of Lessor.

          b. Lessee shall protect, defend, indemnify and hold Lessor harmless from and against any loss, damage, liability, suit, expense, cost or claim, however occurring as the result of loss of or damage to property (other than the Equipment), arising between the time of delivery and redelivery of the Equipment, whether such property is owned by Lessee or third party, and for injury to or death of persons, whether Lessee or its employees or third parties.

16. Savings Clause. The parties agree that the indemnities in this Agreement are limited to the extent necessary to comply with applicable state or federal law and that this Agreement shall be deemed to be amended to comply with those laws to the extent their requirements are at variance with any indemnification provisions set forth in this Agreement.

17. Limitation of Liability. In no event shall Lessor, its agents and employees (for purposes of this Paragraph 17, such persons shall collectively be referred to as “Lessor”) be liable to Lessee, for any general, compensatory, special indirect, incidental or consequential damages related to or in connection with the use and operation of the Equipment and/or the performance of this Agreement, including but not limited to any injury, loss or damage to any property, any loss of profits or business opportunity, and any loss of use of the Equipment, irrespective of the reason or cause of such damages, whether any of such damages occur during or after the period of this Agreement, or that the claim for such damages is based on warranty, contract, tort or other theory of any nature whatsoever.

18. Assignment By Lessor. Lessor may assign its rights and delegate its duties under this Agreement. Lessor covenants to Lessee that Lessor is empowered to execute this Agreement. Conditioned upon Lessee’s performing the conditions hereof, Lessee shall peaceably and quietly hold, possess and use the Equipment during the Minimum Term and any extensions thereof without hindrance. If Lessor assigns the rents reserved herein or all or any of Lessor’s rights hereunder, such assignee’s rights shall be independent of any claim of Lessee against Lessor. Lessee on receiving notice of any such assignment shall abide thereby and make payment as may therein be directed. Following such assignment, the term “Lessor’ shall be deemed to include or refer to Lessor’s assignee, except such assignee’s rights shall be independent of any claim of Lessee against Lessor as hereinabove provided.

19. Assignment and Subleasing by Lessee. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS PARAGRAPH 19, LESSEE SHALL NOT, WITHOUT THE PRIOR CONSENT OF LESSOR, ASSIGN, TRANSFER OR ENCUMBER ITS RIGHTS, INTERESTS OR OBLIGATIONS UNDER THIS AGREEMENT. ANY ATTEMPTED ASSIGNMENT, TRANSFER OR ENCUMBRANCE BY LESSEE OF ITS RIGHTS, INTERESTS OR OBLIGATIONS UNDER THIS AGREEMENT SHALL BE NULL AND VOID. So long as no material event of default shall have occurred and be continuing, Lessee may, without the consent of Lessor, sublease one or more of the Equipment to any third party (each third part a “User” and each such lease a “User Lease”), provided that all of the following requirements shall be satisfied with respect to each such User Lease entered into pursuant to this Paragraph 19:

Exhibit B-5

     a. the Equipment is and will remain physically located within the United States;

     b. such User Lease shall be in writing, shall identify the Equipment by unit number, engine, frame and number of cylinders and shall expressly prohibit any further sublease or transfer by User of any rights or interests in the Equipment without Lessee’s permission;

     c. such User Lease shall prohibit the User from making any alterations or modifications to the Compressors that would violate the provisions of Paragraph 23 of this Agreement; and

     d. such User Lease shall require the User (and/or Lessee) (i) to maintain the Equipment in accordance with Paragraph 7 and the relevant Schedule and (ii) to engage in activities with the Equipment in a manner consistent with the Equipment’s intended purpose and in accordance with the Equipment’s specifications.

     No such subleasing by Lessee will reduce or affect any of the obligations of Lessee hereunder or the rights of Lessor under this Agreement, and all of the obligations of Lessee hereunder shall be and remain primary and shall continue in full force and effect as the obligations of a principal and not of a guarantor or surety.

20. No Lessor Equipment Warranties. LESSOR LEASES THE EQUIPMENT TO LESSEE AS-IS AND EXPRESSLY DISCLAIMS AND MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AS TO THE CONDITION, DESIGN, QUALITY, CAPACITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF, OR ANY OTHER MATTER, CONCERNING THE EQUIPMENT. LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT) IT MAY HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSES CAUSED BY OR RELATING TO THE EQUIPMENT.

21. Enforceability. If any part hereof is contrary to, prohibited by or deemed invalid under applicable laws or regulations of any jurisdiction, such provision shall be inapplicable and deemed omitted but shall not invalidate the remaining provisions hereof.

22. No Conditional Sale. It is the intention of the parties hereto to hereby create a lease on the Equipment described herein, and not a conditional sale. To provide solely for the eventuality that a court might hold this to be a conditional sale, Lessor hereby retains a purchase money security interest to secure payment of the sales price of the Equipment as determined by such court, and Lessee grants to Lessor all rights given to a secured party under the Uniform Commercial Code in addition to Lessor’s other rights hereunder. It is the intention of the parties that the Equipment shall be deemed personal property and that it not be deemed a fixture, even though it may be attached in some manner to realty. To provide solely for the eventuality that a court might also hold the Equipment to be a fixture, the parties state for the purpose of complying with the legal requirements for a financing statement that collateral is or includes fixtures and the Equipment is affixed or is to be affixed to the lands described in the Schedule(s).

23. Alterations.

     a. Except as required or permitted by this Agreement, and subject to this Paragraph 23, Lessee shall not modify or alter the Equipment without the prior approval of Lessor.

     b. Lessee may make any optional renovation, improvement, addition, or alteration to the Equipment (“Optional Alteration”) provided that such Optional Alteration does not impair the value, use or remaining useful life of such Equipment. In the event an Optional Alteration is readily removable

Exhibit B-6

without impairing the value, use or remaining useful life of the Equipment, and is not a part or appliance which replaces any part or appliance originally incorporated or installed in or attached to such Equipment on the effective date of the relevant Schedule, Lessee may (or, if requested by Lessor shall) remove such Optional Alteration whereupon such Optional Alteration will remain the property of Lessee. To the extent such Optional Alteration is not readily removable without impairing the value, use or remaining useful life of the Equipment to which such Optional Alteration has been made, or is a part or appliance which replaces any part or appliance originally incorporated or installed in or attached to such Equipment on the effective date of the relevant Schedule, such Optional Alteration shall, without further act, immediately be and become the property of, and title shall vest in, Lessor, free and clear of all liens and shall be subject to the terms of this Agreement. Any parts installed or replacements made by Lessee upon the Equipment pursuant to its obligation to maintain and keep the Equipments in the condition required pursuant to the terms of this Agreement shall be considered accessions to such Equipment and ownership thereof shall be immediately vested in Lessor.

24. Miscellaneous.

     a. No covenant or condition of this Agreement can be waived or changed except by the written consent of both parties. Forbearance or indulgence by Lessor in any regard whatsoever shall not constitute a waiver or change of the covenant or condition to be performed by Lessee to which the same may apply, and until complete performance by Lessee of said covenant or condition, Lessor shall be entitled to invoke any remedy available to Lessor under this Agreement or by law or equity despite said forbearance or indulgence. Waiver of any defaults shall not waive any other default.

     b. Service of all notices under this Agreement shall be sufficient if mailed to the party involved at its respective address set forth below, or at such address as such party may provide in writing. Any such notices mailed to such address shall be effective when deposited in the United States mail, duly addressed and with postage prepaid.

     c. “Lessor” and “Lessee” as used in this Agreement shall include the heirs, executors, administrators, successors, sub-lessees and/or assigns of such parties.

     d. If more than one Lessee executes this Agreement, their obligations under this Agreement shall be joint and several.

     e. Lessee will, if requested by Lessor, join with Lessor in executing one or more financing statements, as may be desired by Lessor, in form satisfactory to Lessor.

     f. In case of conflict between provisions found in this Agreement and those listed in the Schedule(s) hereto, the provisions on the Schedule(s) shall prevail.

     g. The law governing this Agreement shall be that of the State of Texas in force at the date of this Agreement, excepting any conflict of laws provisions that provide for the application of the laws of another jurisdiction.

     h. Lessor and Lessee agree that venue of any lawsuit arising from or in connection with the terms of this Agreement shall be in Houston, Harris County, Texas.

     i. This Agreement contains the full agreement between the parties. No representation or promise has been made by either party to the other as an inducement to enter into this Agreement. Lessor does not in any way or for any purpose become partner of Lessee, or a joint venture, or a member of a joint enterprise with Lessee.

Exhibit B-7

     j. Lessee hereby waives its right to receive a copy of any financing statement or financing change statement registered by Lessor in connection with this Agreement.

     k. Lessor and Lessee hereby agree that no rights or remedies referred to in Article 2A of the Uniform Commercial Code shall be conferred upon either Lessor or Lessee unless expressly granted in this Agreement..

     l. If Lessee at any time shall fail to pay any sum which Lessee is required by this Agreement to pay or shall fail to do or perform any other act Lessee is required by this Agreement to do or perform, Lessor at its option may pay such sum or do or perform such act (or have it performed by a third party), and Lessee shall reimburse Lessor on demand for the amount of such payment and for the cost and expenses which may be incurred by Lessor for such acts or performance, together with interest thereon at the Applicable Rate from the date of demand until paid.

     m. This Agreement is based on the applicable laws existing at the time of its execution.  Any changes, including changes in governmental enforcement practices, revisions or new applicable laws, including without limitation those related to taxes, permits, fees and duties, that have the effect of increasing Lessor’s burden, including but not limited to cost, time-consumption and risk exposure, shall entitle Lessor to fair and equitable Agreement modifications, which modifications the parties agree to work toward in good faith and in a timely fashion, failing which Lessor may terminate this Agreement or any Schedule(s) hereunder immediately upon written notice to Lessee. 

Exhibit B-8

Executed this _____ day of                     , 20___.

LESSOR:

	BY:
	NAME:
	TITLE:
LESSEE:
	BY:
	NAME:
	TITLE:

Exhibit B-9

SCHEDULE ‘A’ TO GAS COMPRESSOR EQUIPMENT MASTER RENTAL
AGREEMENT

(BARE RENTAL)

Lessee:	Date:
Attention:	Quote #

In accordance with your request, we are pleased to offer the herein described compression equipment for your application on the       lease in            (detail, to the extent available, section, township, range, county/parish, state and country) (“Site”). This unit is capable of the following estimated performance. Actual field operating conditions can cause actual compressor capacities to vary.

Unit #	Engine
Frame	Cylinders

SUCTION PRESSURE	PSIG
DISCHARGE PRESSURE	PSIG
COMPRESSOR	BHP
OPERATING	RPM
INTAKE TEMPERATURE	°F
	SPECIFIC	GRAVITY
	ALTITUDE	FT
H2S	Process Gas	(PPM)	*
H2S	Fuel Gas	(PPM)	**
AMBIENT	TEMP.	°F

*	H2S process gas content equal to or greater than 100 PPM triggers the applicability of Lessor’s “High H2S Process Gas Content Schedule.”
**	H2S fuel gas content limits are addressed on Page 2 of this Schedule.

Delivery can be made to Site in              weeks from date of execution of this Schedule but is subject to prior sale or rental and credit approval.

Exhibit B-10

RENTAL RATE is              [The Rental Rate will be determined based on the Appraised Value (as defined in the Omnibus Agreement) of the Equipment in accordance with the following formula:                     ] per month, plus taxes, for a minimum of months guaranteed (“Minimum Term”). (This quote is valid for a period of 30 days. Please check with Lessor prior to ordering after 30 days has expired.) [The Minimum Term will match the term of the underlying customer contract under which the Equipment will be employed.]

The rental rate shall be payable monthly in advance at                     ’s (“Lessor”) Houston office, commencing from the date of shipment or 15 days after unit is ready, whichever occurs first. Upon expiration of the Minimum Term, the rental shall continue from month to month. Either party may terminate this agreement at the expiration of the Minimum Term or thereafter upon thirty (30) days advanced written notice. Lessor’s obligation to provide the Equipment shall cease upon the effective date of termination, but the Rental Rate shall continue to be assessed until the later of expiration of such thirty (30) days or return of the Equipment to designated terminal, in good condition, normal wear and tear excepted.

When executed by Lessor and Lessee, this Schedule A shall apply to the GAS COMPRESSOR EQUIPMENT MASTER RENTAL AGREEMENT (or equivalent master agreement) executed by Lessee and Lessor (or their respective predecessors or affiliates) and dated as shown below (the “Master Agreement”) whether or not attached hereto, and shall be deemed an individual agreement between the parties hereto for the Equipment described herein, upon the terms and conditions stated herein and in the Master Agreement. Unless otherwise defined herein, terms have the meanings set forth in the Master Agreement.

Master Agreement
Date:

Exceptions or adders to the terms and conditions in this agreement are as follows:

Freight Charges To Site From	Paid for by
Freight Charges From Site To	Paid for by

Exhibit B-11

     Quote #:

LESSOR’S AND LESSEE’S RESPONSIBILITIES

Lessor –

In addition to the responsibilities detailed in the Master Agreement, Lessor shall furnish the following:

Equipment described on Page 1 of this Schedule A.

Periodic preventative maintenance and major repairs to all engines, compressors and accessory parts forming the Equipment (both labor and necessary parts), including without limitation:

o Major overhauls of the engine, including without limitation the cylinder heads; and

o Major overhauls on the compressor, including without limitation repair or replacement of major castings on the compressor frame and cylinders.

Lessee –

In addition to the responsibilities detailed in the Master Agreement, Lessee shall furnish the following:

Daily maintenance and inspections of all engines, compressors and accessory parts forming the Equipment (both labor and necessary parts), including without limitation:

o Monthly adjustments on the engine and compressor per Lessor’s guidelines;

o Anti-freeze in accordance with Lessor’s requirements;

o Lubricants and related filters in accordance with Lessor’s requirements; and

o Daily inspections/monitoring.

Competent and prudent Equipment operator for normal operations.

All fees, assessments and taxes (including ad valorem, which will not be prorated) applicable to Equipment.

Provide an inlet separator for the Equipment to remove solids (such as sand) and all entrained liquids from the gas stream; Lessee hereby acknowledging that the scrubber provided by Lessor with the Equipment is only an emergency scrubber.

Site preparation, including suitable sand or gravel pad or concrete base as required.

Valves and piping to suction and discharge flanges, and fuel gas inlet(s) of compressor(s).

Suction to discharge bypass piping and suction pressure control valve (if required).

All installation expenses.

Suitable, sweet, dry natural gas fuel for engine use with 900 to 1100 BTU/ft3 and no more than 10 ppm H₂S.

Air/gas pressure of with sufficient pressure and volume for engine starting.

Provide, connect and maintain a properly functioning waste discharge system downstream of the Equipment, including an outlet connection from the skid drain and all pipes, connections, the blow casing and tank downstream of the skid drain; and remove and dispose of all fluids

Exhibit B-12

discharged by the discharge tank, the blow casing and any pipes or connections to the skid plus collection and disposal of such liquids from the Equipment’s skid and any other liquids incidental to Equipment operations.

Equipment Site with ingress and egress satisfactory to Lessor.

Disconnection of Equipment and Site restoration expenses.

Site fencing, if requested by Lessor.

Any and all necessary equipment, supplies and services not specifically listed as Lessor’s responsibility, above.

The following responsibilities apply when Site is offshore or in inland waterways:

Suitable platform or barge capable of supporting the Equipment.

All transporation (including air and water) and cranes necessary for delivery, installation, maintenance, repair and removal of the Equipment.

All transportation (including air and water) for Lessor personnel, parts, tools and supplies.

Cost for any standby time in excess of 4 hours that is beyond the direct control of Lessor (including due to inclement weather that, in the sole but reasonable discretion of Lessor impedes safe travel).

Exhibit B-13

     Quote #:

     Third party services or materials not listed above as Lessor’s responsibility that are furnished by Lessor at Lessee’s request will be charged to Lessee at Lessor’s actual cost plus 20%.

     Lessor’s services or materials not listed above as Lessor’s responsibility that are furnished by Lessor at Lessee’s request will be charged to Lessee at Lessor’s then-prevailing standard rates.

     ACKNOWLEDGED and ACCEPTED by the undersigned, duly-authorized representatives of the parties as of the date first shown above.

LESSOR:

Submitted by                                                             

Return original and all correspondence to:

LESSEE:

By:

Title:

Exhibit B-14

*** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.

Fourteen pages of Schedule A have been omitted pursuant to the request.

Schedule A

Exterran Customers

     ***

Schedule B

Exterran Overlapping Customers

***

*** in the following counties:

***

Schedule C

Partnership Customers

***

Schedule D

Partnership Overlapping Customers

***

*** in the following counties:

***

EX-31.1

Exhibit 31.1

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     I, Stephen A. Snider, certify that:

     1. I have reviewed this Quarterly Report on Form 10-Q of Exterran Holdings, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Date: November 5, 2007
By:	/s/ STEPHEN A. SNIDER
	Name: Title:	Stephen A. Snider Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     I, J. Michael Anderson, certify that:

     1. I have reviewed this Quarterly Report on Form 10-Q of Exterran Holdings, Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Date: November 5, 2007
By:	/s/ J. MICHAEL ANDERSON
	Name: Title:	J. Michael Anderson Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of CEO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Exterran Holdings, Inc. (the “Company”) for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Stephen A. Snider, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ STEPHEN A. SNIDER Name: Stephen A. Snider
Title: Chief Executive Officer

Date: November 5, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Exterran Holdings, Inc. (the “Company”) for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), J. Michael Anderson, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ J. MICHAEL ANDERSON Name: J. Michael Anderson
Title: Chief Financial Officer

Date: November 5, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.