<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1998
REGISTRATION NO. 333-48283
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNIVERSAL COMPRESSION HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 13-3989167
------------------------ ------------------------ ------------------------
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
150 EAST 58TH STREET
NEW YORK, NEW YORK 10155
(212) 644-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERNIE DANNER
CHIEF FINANCIAL OFFICER AND EXECUTIVE VICE PRESIDENT
4430 BRITTMOORE ROAD
HOUSTON, TEXAS 77041
(713) 466-4103
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Please send copies of all communications to:
ANDRE WEISS, ESQ.
SCHULTE ROTH & ZABEL LLP
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
------------------------
If the only securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box: / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS
EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THE REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR
UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION
RELATING TO THE COMPANY, ITS INDUSTRY AND THE U.S. AND INTERNATIONAL OIL AND GAS
BUSINESS THAT IS BASED ON THE BELIEFS OF THE MANAGEMENT OF THE COMPANY, AS WELL
AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE MANAGEMENT OF
THE COMPANY. WHEN USED IN THIS PROSPECTUS, THE WORDS "ESTIMATE," "PROJECT,"
"BELIEVE," "ANTICIPATE," "INTEND," "EXPECT," AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE
CURRENT VIEWS OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS, INCLUDING THOSE
DISCUSSED UNDER "RISK FACTORS." READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE ANY
REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES
AFTER THE DATE HEREOF OR TO REFLECT THE OCCURENCE OF UNANTICIPATED EVENTS.
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED [ ], 1998
[ LOGO ]
UNIVERSAL COMPRESSION HOLDINGS, INC.
OFFER TO EXCHANGE UP TO $43,500,000 OF NEW
11 3/8% SENIOR DISCOUNT NOTES DUE 2009
FOR UP TO $43,500,000 OF ANY AND ALL OUTSTANDING
11 3/8% SENIOR DISCOUNT NOTES DUE 2009
------------------------------
Universal Compression Holdings, Inc., a Delaware corporation ('Holdings'),
hereby offers to exchange (the 'Exchange Offer'), upon the terms and conditions
set forth in this Prospectus (the 'Prospectus') and the accompanying Letter of
Transmittal (the 'Letter of Transmittal'), up to $43,500,000 in aggregate
principal amount of its 11 3/8% Senior Discount Notes due 2009 (the 'Exchange
Notes') for a like principal amount of its 11 3/8% Senior Discount Notes due
2009 (the 'Original Notes' and, together with the Exchange Notes, the 'Notes').
The terms of the Exchange Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes will generally be freely transferable by holders
thereof, and are not subject to any covenant of Holdings regarding registration.
The Exchange Notes will be issued under the indenture governing the Original
Notes. For a complete description of the terms of the Exchange Notes, see
'Description of the Exchange Notes.'
Interest on the Exchange Notes will begin to accrue commencing February 15,
2003 until maturity and will be payable semi-annually on August 15 and February
15 of each year, commencing August 15, 2003. The Notes will be redeemable, in
whole or in part, at the option of Holdings on or after February 15, 2003, at
the redemption prices set forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, at any time on or prior to February 15, 2001,
Holdings may, at its option, redeem up to 35% of the aggregate principal amount
of the Notes originally issued with the net cash proceeds of one or more Public
Equity Offerings (as defined), at a redemption price equal to 109.875% of the
Accreted Value (as defined) of the Notes to be redeemed plus accrued and unpaid
interest to the date of redemption; provided, however, that, after giving effect
to any such redemption, at least 65% of the aggregate principal amount of the
Notes originally issued remain outstanding. The Exchange Notes will not be
subject to any mandatory sinking fund. Upon a Change of Control (as defined),
each holder will have the right, subject to certain conditions, to require
Holdings to repurchase such holder's Notes at a price equal to 101% of the
Accreted Value thereof plus accrued and unpaid interest to the date of
repurchase. See 'Description of the Exchange Notes' and 'Capitalization.'
(Continued on next page)
------------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 11, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS [ ], 1998
<PAGE>
(Cover page continued)
The Original Notes were issued and sold on February 20, 1998, in a
transaction (the 'Offering') not registered under the Securities Act of 1933, as
amended (the 'Securities Act'), in reliance upon the exemptions provided in
Section 4(2) of the Securities Act and Rule 144A under the Securities Act.
Accordingly, the Original Notes may not be reoffered, resold or otherwise
pledged, hypothecated or transferred unless so registered or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
certain of the obligations of Holdings under the Registration Rights Agreement,
dated February 20, 1998, among Holdings and BT Alex. Brown Incorporated (the
'Initial Purchaser'). See 'The Exchange Offer--Purpose of the Exchange Offer.'
Holdings is making the Exchange Offer in reliance upon an interpretation by the
staff of the Securities and Exchange Commission (the 'Commission') set forth in
a series of no-action letters issued to third parties, although Holdings has not
sought, and does not intend to seek, its own no-action letter and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. Based upon the Commission's interpretations,
Holdings believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Original Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any holder that is (i) an 'affiliate'
of Holdings within the meaning of Rule 405 under the Securities Act (an
'Affiliate'), (ii) a broker-dealer who acquired Original Notes directly from
Holdings or (iii) a broker-dealer who acquired Original Notes as a result of
market making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes. Any such holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
Each broker-dealer who receives Exchange Notes pursuant to the Exchange
Offer in exchange for Original Notes acquired for its own account as a result of
market-making activities or other trading activities may be a statutory
underwriter and must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes. The Letter of Transmittal that is filed as an exhibit to the
Registration Statement of which this Prospectus is part states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an 'underwriter' within the meaning of the Securities Act.
Broker-dealers who acquired Original Notes as a result of market making or other
trading activities may use this Prospectus, as supplemented or amended, in
connection with resales of the Exchange Notes.
The Original Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ('PORTAL') market. The Exchange
Notes constitute a new issue of securities for which there is no established
trading market. Any Original Notes not tendered and accepted in the Exchange
Offer will remain outstanding. To the extent Original Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, and
tendered but unaccepted, Original Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of Original Notes will continue
to be subject to the existing restrictions on transfer thereof and Holdings may
have no further obligations to such holders to provide for the registration
under the Securities Act of the Original Notes. No assurance can be given as to
the liquidity of the trading market for either the Original Notes or the
Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange but is otherwise subject to
customary conditions. The Exchange Offer will expire at 5:00 p.m., New York City
time, on [ ], unless extended by Holdings to such other date as
Holdings, in its sole discretion, may determine (the 'Expiration Date'). The
date of acceptance for exchange of the Original Notes (the 'Exchange Date') will
be the first business day following the Expiration Date. Original Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date; otherwise such tenders are irrevocable. There will be no cash
proceeds to Holdings from the Exchange Offer.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with resales of Exchange Notes received
for Original Notes where such Original Notes were acquired for its own account
as a result of market-making activities or other trading activities. Holdings
will make copies of this Prospectus available to any broker-dealer for use in
connection with any such resale.
<PAGE>
AVAILABLE INFORMATION
Holdings has filed with the Commission a Registration Statement on Form S-4
(the 'Registration Statement') under the Securities Act with respect to the
Exchange Notes being offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission. Statements made in this
Prospectus as to any contract, agreement or other document are summaries of the
material terms of such contracts, agreements or other documents and are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
Holdings is not currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'). Holdings has
agreed that, whether or not it is required to do so by the rules and regulations
of the Commission, for so long as any of the Notes remain outstanding, it will
furnish to the holders of the Notes and, following consummation of the Exchange
Offer and to the extent permitted by applicable law or regulations, file with
the Commission (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if Holdings were required to file such Forms, including for each a 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and,
with respect to the annual consolidated financial statements only, a report
thereon by Holdings' independent auditors and (ii) all reports that would be
filed with the Commission on Form 8-K if Holdings were required to file such
reports. In addition, for so long as any of the Notes remain outstanding,
Holdings has agreed to make available to any prospective purchaser of the Notes
or beneficial owner of the Notes, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
Reports and other information filed by Holdings with the Commission, and the
Registration Statement and the exhibits and schedules thereto, may be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
will also be available for inspection and copying at the regional offices of the
Commission at 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of such materials may also be obtained from the public reference section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Also, Holdings will file such reports and other information with the
Commission pursuant to the Commission's EDGAR system. The Commission maintains a
Web site that contains reports and other information regarding registrants that
file electronically with the Commission pursuant to the EDGAR system. The
address of the Commission's Web site is http://www.sec.gov.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE INITIAL PURCHASERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING, MAY BID FOR AND PURCHASE NOTES IN THE OPEN MARKET AND MAY IMPOSE
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE 'PLAN OF DISTRIBUTION.'
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION
RELATING TO THE COMPANY, ITS INDUSTRY AND THE U.S. AND INTERNATIONAL OIL AND GAS
BUSINESS THAT IS BASED ON THE BELIEFS OF THE MANAGEMENT OF THE COMPANY, AS WELL
AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE MANAGEMENT OF
THE COMPANY. WHEN USED IN THIS PROSPECTUS, THE WORDS 'ESTIMATE,' 'PROJECT,'
'BELIEVE,' 'ANTICIPATE,' 'INTEND,' 'EXPECT' AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT
VIEWS OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS, INCLUDING THOSE DISCUSSED UNDER
'RISK FACTORS.' READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including risk factors, the financial statements and other
financial data appearing elsewhere in this Prospectus. References hereinafter in
this Prospectus except where the context otherwise requires to (i) the 'Company'
or 'Universal Compression' means Universal Compression, Inc. and its
predecessor, Tidewater Compression Service, Inc., and (ii) 'fiscal year' means
the fiscal year of Holdings and the Company commencing April 1 through March 31;
for example, fiscal 1996 is the fiscal year ended March 31, 1996.
RISK FACTORS
See 'Risk Factors' beginning on page 11 for a discussion of certain factors
that should be considered in evaluating an investment in the Notes.
THE EXCHANGE OFFER
On February 20, 1998, Holdings completed the Offering (the 'Offering') of
$43,500,000 aggregate principal amount of 11 3/8 Senior Discount Notes due 2009
for an aggregate purchase price of $25,056,435.
Holdings entered into a Registration Rights Agreement with the Initial
Purchaser in connection with the Offering in which it agreed, among other
things, to deliver to holders this Prospectus and to complete the Exchange Offer
on or prior to October 18, 1998. Holders are entitled to exchange in the
Exchange Offer their Original Notes for Exchange Notes with substantially
identical terms. If Holdings fails to file the Registration Statement within 90
days after the Issue Date (as defined), cause the Registration Statement to be
declared effective within 210 days after the Issue Date or consummate the
Exchange Offer on or prior to October 18, 1998, interest will accrue at a rate
of .5% per annum for the first 90 days following such date, such rate increasing
by .5% per annum at the beginning of each subsequent 90-day, such interest to be
payable in cash semiannually in arrears. See the discussion under the heading
'the Offering' and 'Description of the Exchange Notes' for further information
regarding the Exchange Notes.
Holdings believes that the Exchange Notes may be resold by holders without
compliance with the registration and prospectus delivery provisions of the
Securities Act, subject to certain conditions. Holders should read the
discussions under the headings 'Summary of the Exchange Offer' and 'the Exchange
Offer' for further information regarding the Exchange Offer and resales of the
Exchange Notes.
THE COMPANY
Universal Compression is a leading provider of natural gas compressor
rental, maintenance and operations services to the domestic oil and gas
industry, owning the second largest domestic gas compressor fleet, and has a
growing presence in key international markets, including Argentina, Venezuela,
the Pacific Rim, Europe and Canada. The Company has a broad base of over 500
customers and its 512,000 horsepower ('HP') gas compression rental fleet is
comprised of over 2,700 units. Founded in 1954, Universal Compression is the
only compression rental company with an operating presence in all active
domestic gas compression markets. As a complement to its rental operations,
Universal Compression designs and fabricates compression units for its own fleet
as well as for its global customer base. Universal Compression's involvement in
natural gas and oil production activities, rather than drilling, its geographic
diversity and its fleet standardization have contributed to the Company's high
operating margins and stable revenue and EBITDA. For the fiscal year ended March
31, 1997, the Company generated revenue of $113.9 million, net income of $7.8
million and EBITDA of $38.7 million. For the fiscal year ended March 31, 1998,
on a pro forma basis (giving effect to the Transactions), Holdings generated
revenue of $108.8 million, a net loss of $(3.2) million and EBITDA of $46.7
million.
Compression equipment is primarily utilized in the production, processing,
transportation and storage of natural gas and in certain applications
facilitating the production of oil. Rental units are primarily employed in the
field compression segment encompassing production and gas gathering. Renting
compression equipment affords customers: (i) the ability to efficiently meet
changing compression requirements while limiting capital investments in such
equipment, (ii) access to the compression rental companies' technical skills
which often
1
<PAGE>
leads to improved production rates and (iii) overall reduction in compression
costs through the elimination of expenditures associated with owning and
maintaining compressor units.
The total domestic natural gas field compression market is approximately
16.0 million HP in size, including both operator owned and rental company units.
The domestic field compression segment grew by a compound annual growth rate
('CAGR') of approximately 8% from 1992 through 1996, driven by the growth in
natural gas consumption and, more significantly, by the increase in compression
required to service the nation's aging gas fields and new gas discoveries.
Throughout the same period, the domestic field compression rental market grew at
a CAGR of 13% to approximately 4.0 million HP. The higher growth in the rental
market as compared to the overall market is primarily attributable to the trend
by energy producers towards outsourcing their compression requirements. From
1992 to 1996, rental companies' share of the domestic field compression market
grew from 20% to 25%. In addition, industry sources expect significant growth in
the international field compression market, driven by anticipated high growth
rates in natural gas consumption and by an increased emphasis on cost effective
operations resulting from the ongoing privatization of national energy
organizations and by environmental restrictions on the 'flaring' of natural gas.
THE TRANSACTIONS
Pursuant to a Stock Purchase Agreement, dated as of December 18, 1997 (the
'Stock Purchase Agreement'), between Tidewater Inc., a Delaware corporation
('Tidewater'), and TW Acquisition Corporation, a Delaware Corporation ('TW'), on
February 20, 1998, TW acquired (the 'Acquisition') 100% of the voting securities
of Tidewater Compression Service, Inc. for a purchase price of approximately
$350 million (the 'Purchase Price'). Immediately following the Acquisition, TW
was merged with and into Tidewater Compression Service, Inc., which changed its
name to Universal Compression, Inc. See 'Description of the Company
Acquisition.' Universal Compression is a wholly-owned subsidiary of Holdings,
both of which were organized and are controlled by Castle Harlan Partners III,
L.P., a Delaware limited partnership ('CHP'). CHP, a private investment fund, is
managed by Castle Harlan, Inc. ('CHI'), a merchant banking firm.
The following table sets forth the sources and uses of funds for the
Acquisition:
<TABLE>
<CAPTION>
AMOUNT
(DOLLARS
SOURCES OF FUNDS: IN THOUSANDS)
----------------
<S> <C>
Revolving Credit Facility(1)................................................... $ 35,000
Term Loan Credit Facility...................................................... 75,000
Net Proceeds of the Notes contributed to the Company as equity................. 25,056
Gross Proceeds of the 9 7/8% Senior Discount Notes due 2008 (the 'Company
Notes') issued by the Company................................................ 149,962
Equity Contribution............................................................ 79,900
----------------
$ 364,918
----------------
----------------
<CAPTION>
USE OF FUNDS:
<S> <C>
Purchase Price................................................................. $ 349,335
Fees and Expenses(2)........................................................... 13,903
Working Capital................................................................ 1,680
----------------
$ 364,918
----------------
----------------
</TABLE>
- ------------------
(1) Total availability of $85 million.
(2) Additional fees of approximately $3 million were paid subsequent to
closing.
2
<PAGE>
COMPANY STRENGTHS
The Company believes it has certain strengths that provide it with
significant competitive advantages and a solid base from which to enhance its
leadership position and achieve growth, including the following:
LEADING DOMESTIC RENTAL FLEET WITH NATIONWIDE COVERAGE. The Company owns
the second largest domestic rental fleet of natural gas compressors and is the
only compression rental company that has an operating presence in all active gas
compressor markets in the U.S. The Company employs a highly trained staff of
over 250 field and shop service technicians operating from 23 field service and
three overhaul facilities. The Company's geographic diversity and nationwide
operations enable the Company to (i) provide responsive and cost effective
service to its rental customers, as well as for units owned by others, (ii)
increase revenue with relatively little incremental overhead expense and (iii)
offer its customers the ability to deal with one nationwide provider for their
compression equipment and service needs.
STRONG STABLE CASH FLOW. Over the past ten years, the Company's financial
performance has been generally unaffected by the short-term market cycles of the
oil and gas industry. The Company's historical results reflect stable operating
performance and attractive operating margins that are attributable to (i)
compression being an essential component of gas production, (ii) its operations
being tied to gas production, as opposed to drilling, which is more cyclical in
nature, (iii) compression equipment rental often being a lower cost alternative
for natural gas production companies, (iv) its broad customer base, (v) its
presence in diverse geographic regions, (vi) its compressors remaining on-site
for an average of two years and (vii) the durability of the Company's compressor
fleet.
STANDARDIZED, DURABLE AND WELL-MAINTAINED RENTAL FLEET. Universal
Compression has standardized its rental fleet around two equipment platforms,
including the world's largest rental fleet of the highly durable Ajax
compressors. This high level of fleet standardization and durability (i) enables
the Company to minimize its fleet maintenance capital requirements, (ii) enables
the Company to minimize inventory costs, (iii) facilitates low-cost compressor
resizing and (iv) allows the Company to develop strong technical proficiency in
its maintenance and overhauling operations. The Company believes its deployed
rental fleet is in excellent condition as the Company provides full maintenance
on substantially all of its deployed units.
STRATEGIC INTERNATIONAL POSITION. The Company has a growing presence in
the developing international gas compression markets of Argentina, Venezuela,
the Pacific Rim, and Canada. As of June 30, 1998, the Company had 37 units
aggregating approximately 21,000 HP operating on contract in these markets. The
Company's international compression operations typically involve larger projects
with higher operating margins and longer-term contracts providing the Company
with a strong incentive to increase its focus in these markets. The Company's
growing international operating presence positions it to address the compression
needs of a broad international market which looks to proven and globally
experienced compression companies.
PROVEN MANAGEMENT. The Company has a senior management team that (other
than its Chief Financial Officer and General Counsel, who were hired upon
consummation of the Acquisition (as defined)) averages over 18 years of
compression industry experience. This team has been working together since
January 1994 during which period the Company approximately doubled revenue and
profits. Management has achieved these results primarily by successfully
integrating and consolidating several acquisitions, including the 1994
acquisitions of Halliburton Compression Service ('Halliburton') and Brazos Gas
Compressing Company ('Brazos'), which in total added approximately 287,000 HP to
the Company's fleet, as well as by (i) improving its nationwide field service
and marketing capabilities, (ii) centralizing decision-making at its
headquarters, (iii) instituting uniform quality controls, (iv) standardizing
maintenance and central overhaul procedures and (v) implementing consistent
Company-wide pricing. For details on the qualifications of the Company's Chief
Financial Officer, Mr. Ernie Danner and General Counsel, Ms. Valerie L. Banner,
see the discussion under the heading 'Management.'
BUSINESS STRATEGY
Management and CHP (as defined) have developed a focused business strategy
designed to increase revenue and EBITDA which comprises the following key
elements:
INCREASE SIZE AND AVERAGE HP OF RENTAL FLEET. The Company recently
accelerated its fabrication of upper mid-range (over 500 HP) units for its
rental fleet in an effort to increase the overall size and average HP of its
fleet. Larger HP units are typically used in centralized field gathering and gas
processing, a rapidly growing segment of the compression industry. Larger HP
units are (i) leased under long-term contracts and (ii) experience lower per HP
operating and maintenance costs. The Company believes that its increased
penetration of this
3
<PAGE>
market segment will broaden its product line resulting in enhanced cross-selling
opportunities and increased utilization of its existing fleet. Management
believes that the Acquisition and related financings positions Universal
Compression to achieve its goal of increasing the overall size and average HP of
its fleet.
EXPAND IN SELECT INTERNATIONAL MARKETS. Increased international demand for
field gas compression is driven by rising natural gas demand and production due
to environmental concerns, growing local economies and the desire to develop a
stable local energy source permitting greater oil exports. International demand
for rental units is expected to grow as national oil entities increasingly
privatize and seek to eliminate capital expenditures, lower overall costs and
take advantage of greater technical skills afforded by gas compression rental
companies. With approximately 21,000 HP operating internationally, Universal
Compression has a strategic presence in the rapidly growing rental compression
markets of South America and the Pacific Rim. The Company plans to leverage its
existing presence and strong global reputation for the engineering and
fabrication of high specification gas and air compressors to expand its
offerings in these markets. Further, with increased capital directed toward
larger HP units, Universal Compression will aggressively pursue higher dollar
value, more lucrative international contracts.
EXPAND RENTAL FLEET AND CUSTOMER BASE THROUGH THE ACQUISITION AND LEASEBACK
OF COMPRESSORS. The Company estimates that domestic energy producers,
transporters and processors own and operate approximately 12.0 million HP of
field compression equipment, representing approximately 75% of the total
domestic field compression base. Producers and other industry participants are
increasingly outsourcing essential but non-core activities, including gas
compression services, to focus on core activities and reduce capital investment.
These outsourcing opportunities typically involve sizable fleets of operating
units that are purchased in place and leased back on a long-term basis. The
Company believes that with improved capital availability resulting from the
Acquisition and related financings, it is well positioned to capitalize on such
opportunities for significant fleet growth.
PURSUE INDUSTRY CONSOLIDATION OPPORTUNITIES. The rental compression
services industry has experienced significant consolidation over the past
several years but remains fragmented. In addition to opportunities to achieve
significant integration cost savings, consolidation is being driven by the
expanding needs of customers for the full range of compression services,
equipment and attendant technical skills. The Company initiated the current
phase of industry consolidation in 1994 with the acquisition of Halliburton and
Brazos. The Company believes that continuing industry consolidation will present
it with opportunities to acquire both smaller regional operators and larger
compression service companies and that, as a result of the Acquisition and
related financings, the Company is well positioned to pursue such opportunities.
COMPLEMENT CORE RENTAL BUSINESS WITH ANCILLARY SERVICES. The Company
offers a broad array of services to complement its core rental business. These
services include maintenance, turnkey installation, contract operations and unit
fabrication. These ancillary services enable Universal Compression to (i)
increase its customer base, (ii) increase rental revenue from its existing
fleet, (iii) improve customer loyalty and (iv) diversify its revenue base. In
addition, contract operations enable the Company to grow its business with
limited capital expenditures.
PROMOTE GROWTH THROUGH EMPLOYEE INCENTIVE PROGRAMS. The Company has begun
implementation of an employee incentive program that correlates annual and
long-term compensation with individual and Company performance. That program is
designed to result in the Company's management and employees being given the
opportunity to beneficially own approximately 12% of the common stock of
Holdings on a fully-diluted basis through cash investment, stock grants and
stock option awards. The Company believes such incentives will promote internal
growth and facilitate the successful implementation of the Company's goals. See
'Financial Statements of Universal Compression Holdings, Inc.'
HOLDINGS
Holdings was formed in December 1997 for the purpose of facilitating the
Acquisition and related financings. Holdings is a holding company with no
material operations of its own. Accordingly, Holdings is dependent upon the
distribution of the earnings of its subsidiaries, whether in the form of
dividends, advances or payments on intercompany obligations, to service its debt
obligations. As of this date, Holdings' sole assets are 100% of the common stock
of the Company. Other than matters incidental to the Acquisition and related
financings, Holdings has engaged in no activities.
Holdings principal executive offices are located at c/o Castle Harlan,
Inc., 150 East 58th Street, New York, New York 10155. Its main telephone number
is (212) 644-8600.
4
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
Registration Rights Agreement............. Holders are entitled, pursuant to the Registration Rights Agreement
(as defined), to exchange the Original Notes for Exchange Notes
having substantially identical terms. The Exchange Offer is intended
to satisfy these rights. After the Exchange Offer is complete,
holders may no longer be entitled to any exchange or registration
rights with respect to the Original Notes. Holders of the Original
Notes who do not tender their Original Notes in the Exchange Offer or
whose Original Notes are not accepted for exchange will continue to
hold such Original Notes and will be entitled to all the rights and
preferences and will be subject to the limitations applicable thereto
set forth in the Indenture except for any such rights or limitations
which by their terms, terminate or cease to be effective as a result
of the making, and the acceptance for exchange of all validly
tendered Original Notes pursuant to the Exchange Offer.
The Exchange Offer........................ Up to $43,500,000 aggregate principal amount of Exchange Notes are
being offered in exchange for a like aggregate principal amount of
Original Notes. Holdings will issue registered Exchange Notes on or
promptly after the expiration of the Exchange Offer. For a
description of the procedures for tendering Original Notes, see 'The
Exchange Offer--Procedures for Tendering Original Notes.' Holdings
may also be required to issue to the Initial Purchaser Private
Exchange Notes (as defined) in the event the Initial Purchaser is
holding Original Notes having, or reasonably likely to be determined
to have, the status of an unsold allotment in the initial
distribution. The Private Exchange Notes will be identical in all
material respects to Exchange Notes.
Resales................................... Based on an interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, Holdings believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for
Original Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any such holder which
is an 'affiliate' of Holdings within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who acquired the Original
Notes directly from Holdings or (iii) broker-dealers who acquired the
Original Notes as a result of market-making or other trading
activities) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders'
business, such holders have no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and
neither such holders nor any such other person is engaging in or
intends to engage in a distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired
by such broker-dealer as a result of market-making or other
activities must acknowledge that it will deliver a prospectus in
connection with any sale of such Exchange Notes. Any broker-dealer
that participates in a distribution of the Exchange Notes may not
participate in the Exchange Offer and will be deemed to be an
underwriter for purposes of the Securities Act. Any Holder who is an
affiliate of Holdings or who uses the Exchange Offer to
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
participate in a distribution of the Exchange Notes to be acquired in
the Exchange Offer may not rely on such interpretation by the staff
of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with any resales of such Exchange Notes. See 'Plan of Distribution.'
Expiration Date........................... The Exchange Offer will expire at 5:00 p.m., New York City time, on
(such time on such date being hereinafter called
the 'Expiration Date'), unless Holdings decides to extend the
expiration date.
Conditions to the Exchange Offer.......... The Exchange Offer is not subject to any condition other than that
the Exchange Offer not violate applicable law or any applicable
interpretation of the Staff of the Commission.
Procedures for Tendering Outstanding Notes
held in the Form of Book-Entry
Interests............................... The Original Notes were issued as global securities without interest
coupons. The Original Notes were deposited with The United States
Trust Company of New York, as book-entry depositary, when they were
issued. The United States Trust Company of New York issued a
certificateless depositary interest in each Original Note, which
represents a 100% interest in the Original Note, to The Depositary
Trust Company ('DTC'). Beneficial interests in the Original Notes,
which are held by direct or indirect participants in DTC through the
certificateless depositary interests (the 'Book-Entry Interests'),
are shown on, and transfers of such Original Notes can be made only
through, records maintained in book-entry form by DTC (with respect
to its participants) and its participants.
Holders of Original Notes held in the form of a Book-Entry Interest
who wish to tender their Book-Entry Interest for exchange pursuant to
the Exchange Offer must transmit to The United States Trust Company
of New York, as exchange agent (the 'Exchange Agent'), on or prior to
the Expiration Date:
(i) either:
(a) a properly completed and duly executed Letter of Transmittal,
which accompanies this Prospectus, or a facsimile of the Letter
of Transmittal, including all other documents required by the
Letter of Transmittal, to the Exchange Agent at the address set
forth on the cover page of the Letter of Transmittal; or
(b) a computer-generated message transmitted by means of DTC's
Automated Tender Offer Program system and received by the
Exchange Agent and forming a part of a confirmation of book entry
transfer in which such Holder acknowledges and agrees to be bound
by the Letter of Transmittal;
and (ii) either:
(a) a timely confirmation of book-entry transfer of such holder's
Original Notes into the Exchange Agent's account at DTC, pursuant
to the procedure for book-entry transfers described in this
Prospectus under the heading 'The Exchange Offer-- Book-Entry
Transfer' must be received by the Exchange Agent on or prior to
the Expiration Date; or
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
(b) the documents necessary for compliance with the guaranteed
delivery procedures described below.
Procedures for Tendering Definitive
Registered Notes........................ Subject to certain conditions, a holder of Book-Entry Interests in
the Original Notes is entitled to receive, in exchange for its
Book-Entry Interests, registered Original Notes which are in equal
principal amounts to its Book-Entry Interests. However, as of this
date, no registered Original Notes are issued and outstanding. If a
holder acquires registered Original Notes prior to the Expiration
Date, such holder must tender its registered Original Notes in
accordance with the procedures described in this Prospectus under the
heading 'The Exchange Offer--Procedures for Tendering Definitive
Registered Notes.'
Special Procedures for Beneficial
Owners.................................. A beneficial owner of Book-Entry Interests whose name does not appear
on a security position listing of DTC as the holder of such
Book-Entry Interests or a beneficial owner of registered Original
Notes that are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee that wishes to tender such
Book-Entry Interests or registered Original Notes in the Exchange
Offer should contact such person in whose name its Book-Entry
Interest or registered Original Notes are registered promptly and
instruct such person to tender on its behalf.
Guaranteed Delivery Procedures............ If holders wish to tender their Original Notes and time will not
permit the required documents to reach the Exchange Agent by the
Expiration Date, or the procedure for book-entry transfer cannot be
completed on time or certificates for registered Original Notes
cannot be delivered on time, such holders may tender their Original
Notes pursuant to the procedures described in this Prospectus under
the heading 'The Exchange Offer--Guaranteed Delivery Procedures.'
Withdrawal Rights......................... Holders may withdraw the tender of their Original Notes at any time
prior to 5:00 p.m. New York City time on the Expiration Date.
Certain U.S. Federal Income Tax
Consequences............................ The exchange of Notes will not be a taxable exchange for United
States federal income tax purposes. Holders will not recognize any
taxable gain or loss or any interest income as a result of such
exchange.
Use of Proceeds........................... Holdings will not receive any proceeds from the issuance of the
Exchange Notes pursuant to the Exchange Offer. Holdings will pay all
expenses incident to the Exchange Offer.
Exchange Agent............................ The United States Trust Company of New York is serving as Exchange
Agent in connection with the Exchange Offer.
</TABLE>
THE ORIGINAL NOTES
THE OFFERING
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes, except that the Exchange Notes will be registered under
the Securities Act and, therefore, will not have legends restricting their
transfer and generally will not be entitled to registration under the Securities
Act. The Exchange Notes will evidence the same debt as the Original Notes and
both the Original Notes and the Exchange Notes are governed by the same
indenture.
7
<PAGE>
<TABLE>
<S> <C>
SECURITIES OFFERED........................ $43,500,000 aggregate principal amount at maturity of 11 3/8% Senior
Discount Notes due 2009.
ISSUER.................................... Universal Compression Holdings, Inc.
MATURITY DATE............................. February 15, 2009.
INTEREST PAYMENT DATES.................... The Original Notes were offered by Holdings at a substantial discount
from their principal amount. Commencing February 15, 2003, interest
will accrue until maturity on the Notes at the rate of 11 3/8% per
annum and will be payable semi-annually on August 15 and February 15,
commencing August 15, 2003.
RANKING................................... The Original Notes are general unsecured senior obligations of
Holdings and will rank pari passu in right of payment to existing and
future senior indebtedness of Holdings, including indebtedness under
the Senior Secured Credit Facilities (as defined). As of March 31,
1998, other than the Original Notes, Holdings had $110.0 million of
senior secured indebtedness outstanding as a consequence of the
obligations of Holdings under the Senior Secured Credit Facilities;
and Holdings' sole subsidiary, the Company, had approximately $262
million of senior indebtedness outstanding, of which $110.0 million
would have been secured. The Notes are structurally junior to the
Company Notes. Holdings is a holding company with no material
operations of its own. Accordingly, Holdings is dependent upon the
distribution of the earnings of its subsidiaries, whether in the form
of dividends, advances or payments on account of intercompany
obligations, to service its debt obligations. The Original Notes are
effectively subordinated to all liabilities of Holdings' subsidiaries
(including trade payables and obligations under the Senior Secured
Credit Facilities). See 'Risk Factors--Holding Company
Structure--Limitation on Access to Cash Plan of
Subsidiaries--Structural Subordination.'
OPTIONAL REDEMPTION....................... The Original Notes are redeemable in whole at the option of Holdings
at any time prior to February 15, 2003 at a redemption price equal to
100% of the Accreted Value thereof plus the Applicable Premium as of
the date of redemption. The Original Notes are redeemable, in whole
or in part, at the option of Holdings on or after February 15, 2003,
at the redemption prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition, at any time on or
prior to February 15, 2001, Holdings may, at its option, redeem all
of the then outstanding Original Notes originally issued with the net
cash proceeds of one or more Public Equity Offerings, at a redemption
price equal to 111.375% of the Accreted Value of the Original Notes
to be redeemed plus accrued and unpaid interest to the date of
redemption.
CHANGE OF CONTROL......................... Upon a Change of Control, each holder will have the right, subject to
certain conditions, to require Holdings to repurchase such holder's
Original Notes at a price equal to 101% of the Accreted Value thereof
plus accrued and unpaid interest to the date of repurchase.
CERTAIN COVENANTS......................... The Indenture governing the Original Notes (the 'Indenture') contains
certain covenants that limit the ability of Holdings and its
subsidiaries to, among other things, incur additional indebtedness,
pay dividends or make investments and certain other restricted
payments, consummate certain asset sales, enter into certain
transactions with affiliates, incur liens, impose restrictions on the
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
ability of a subsidiary to pay dividends or make certain payments to
Holdings and its subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the assets of Holdings. In addition,
under certain circumstances, Holdings will be required to offer to
purchase the Original Notes, in whole or in part, at a purchase price
equal to 100% of the Accreted Value thereof plus accrued and unpaid
interest, if any, to the date of repurchase, with the proceeds of
certain Asset Sales. All of such covenants are subject to significant
qualifications and exceptions.
ORIGINAL ISSUE DISCOUNT................... The Exchange Notes should be treated as a continuation of the
Original Notes for Federal income tax purposes. The Original Notes
were issued with original issue discount for Federal income tax
purposes. See 'Certain United States Federal Income Tax
Considerations.'
</TABLE>
For additional information regarding the Notes, see 'Description of the
Notes.'
USE OF PROCEEDS
There will be no cash proceeds to Holdings from the Exchange Offer.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The following table sets forth summary historical financial data for
Universal Compression Holdings, Inc. and its predecessor, Tidewater Compression
Service, Inc. ('Predecessor') for each of the years in the two-year period ended
March 31, 1997 and for the period from April 1, 1997 through February 20, 1998.
The table also includes summary historical consolidated financial data for
Holdings for the 39 day period ending March 31, 1998 and summary pro forma
consolidated data for Holdings for the fiscal year ended March 31, 1998. The
summary historical financial data for the Company and the summary historical
consolidated financial data for Holdings have been derived from the respective
audited financial statements, included elsewhere herein. The pro forma
consolidated financial information has been derived from and reflects the
Acquisition and related financings in the manner described under 'Holdings
Unaudited Pro Forma Consolidated Financial Statements and Other Data.' The pro
forma consolidated financial information is not necessarily indicative of either
future results of operations or the results that might have occurred if the
Acquisition and related financings had been consummated on the indicated dates.
See 'Management's Discussion and Analysis of Universal Compression Financial
Condition and Results of Operations.'
The following table should be read in conjunction with 'Holdings Unaudited
Pro Forma Consolidated Financial Statements and Other Data,' 'Management's
Discussion and Analysis of Universal Compression Financial Condition and Results
of Operations' and the Financial Statements of Tidewater Compression Service,
Inc., and Holdings, including the related notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------- HOLDINGS
PERIOD FROM
FISCAL YEAR ENDED DECEMBER 12, 1997
MARCH 31, PERIOD FROM THROUGH
---------------------- APRIL 1, 1997 TO MARCH 31,
1996 1997 FEBRUARY 20, 1998 1998(8)
--------- --------- ----------------- -----------------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C>
Revenue............................................ $ 110,464 $ 113,886 $ 95,686 $ 13,119
Gross margin(1).................................... 51,685 48,332 47,752 6,891
Depreciation and amortization...................... 26,997 26,163 23,310 1,560
General and administrative expenses................ 10,508 11,004 8,669 1,305
Operating income(2)................................ 14,180 11,165 15,773 4,026
Interest expense, net.............................. 3,706 -- -- 3,203
Income tax expense (benefit)....................... 3,745 4,724 6,271 409
Net income (loss).................................. 5,972 7,842 10,759 430
OTHER DATA:
EBITDA(3).......................................... $ 40,420 $ 38,729 $ 40,340 $ 5,602
Acquisition(4)..................................... -- -- -- 351,872
Cash flows from (used in):
Operating activities............................. 50,810 41,923 33,491 (1,005)
Investing activities............................. (1,270) (8,836) (13,797) (353,145)
Financing activities............................. (49,506) (33,121) (17,870) 356,226
Ratio of earnings to fixed charges(5).............. 3.5x 88.9x 132.1x 1.3x
Pro Forma ratio of EBITDA to adjusted interest
expense(6)....................................... -- -- -- --
<CAPTION>
PRO FORMA
FISCAL YEAR
ENDED
MARCH 31, 1998
--------------
INCOME STATEMENT DATA:
<S> <C>
Revenue............................................ $108,805
Gross margin(1).................................... 58,443
Depreciation and amortization...................... 19,307
General and administrative expenses................ 13,037
Operating income(2)................................ 26,099
Interest expense, net.............................. 32,474
Income tax expense (benefit)....................... (1,888)
Net income (loss).................................. (3,214)
OTHER DATA:
EBITDA(3).......................................... $ 46,679
Acquisition(4)..................................... --
Cash flows from (used in):
Operating activities............................. --
Investing activities............................. --
Financing activities............................. --
Ratio of earnings to fixed charges(5).............. .9x
Pro Forma ratio of EBITDA to adjusted interest
expense(6)....................................... 1.6x
<CAPTION>
MARCH 31,
1998
-----------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(7)............................... $ 13,882
Total assets..................................... 380,226
Total debt....................................... 286,862
Stockholder's equity............................. 81,680
</TABLE>
- ------------------
(1) Gross margin is defined as total revenue less (i) rental expense, (ii) cost
of sales (exclusive of depreciation and amortization) (iii) gain on asset
sales and (iv) interest income.
(2) Operating income is defined as income before income taxes less gain on asset
sales and interest income plus interest expense.
(3) EBITDA is defined as net income plus income taxes, interest expense,
depreciation and amortization. EBITDA represents a measure upon which
management assesses financial performance and certain covenants in the
Company's borrowing arrangements will be tied to similar measures. EBITDA is
not a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to operating income
or net income as an indicator of the Company's operating performance or to
net cash provided by operating activities as a measure of its liquidity.
(4) On February 20, 1998, the Company acquired 100% of the voting securities of
TCS for approximately $350 million. The results of TCS' operations have been
included in the Company's operations from the date of Acquisition.
(5) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes, plus fixed charges. Fixed
charges include interest expense on all indebtedness, amortization of
deferred financing fees, and one-third of rental expense on operating leases
representing that portion of rental expense deemed to be attributable to
interest.
(6) Adjusted interest expense is defined as total pro forma estimated interest
expense excluding amortization of deferred financing costs of $1.1 million.
(7) Working capital is defined as current assets minus current liabilities.
(8) Holdings' financial information shown in this column is for the period from
December 12, 1997 (inception) through March 31, 1998. However, Holdings had
no operations prior to the Acquisition on February 20, 1998.
10
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, including
'Universal Compression Selected Historical Financial Data,' 'Management's
Discussion and Analysis of Universal Compression Financial Condition and Results
of Operations,' and the Company's financial statements and notes thereto
included elsewhere herein, the following risk factors should be considered
carefully by holders of Original Notes prior to making an investment in the
Exchange Notes. The term 'Note' or 'Notes' includes the Original Notes and the
Exchange Notes.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
As a result of the Acquisition, Holdings and its consolidated subsidiaries
have indebtedness that is substantial in relation to their respective
stockholder's equity, as well as interest and debt service requirements which
are significant compared to its cash flow from operations. As of March 31, 1998,
after giving effect to the Acquisition and related financings (the
'Transactions'), Holdings had consolidated outstanding indebtedness, including
accounts payable and accrued liabilities, of approximately $299 million
including the Notes which represented 79% of total capitalization.
See 'Capitalization.' In addition, the Company is permitted to incur up to
approximately $48 million of additional indebtedness under the
Senior Secured Credit Facilities.
The degree to which Holdings is leveraged could have important consequences
to holders of the Notes, including, but not limited to the following: (i) a
substantial portion of Holdings' cash flow from operations must be dedicated to
debt service and will not be available for operations and other purposes, except
that for the first five years immediately following the Offering, debt service
as to the Notes and the Company Notes will be satisfied on a non-cash payment
basis; (ii) Holdings' ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; (iii) certain of Holdings' borrowings are and will
continue to be at variable rates of interest, which exposes Holdings to the risk
of increased interest rates and (iv) Holdings' level of indebtedness could make
it more vulnerable to economic downturns and limit its ability to withstand
competitive pressures.
Holdings' ability to pay interest on the Notes and to satisfy its other
obligations will depend upon Holdings' future operating performance, which will
be affected by prevailing economic conditions and financial, business and other
factors, many of which are beyond Holdings' control. There can be no assurance
that Holdings' operating results will be sufficient for Holdings to meet its
obligations. Holdings may be required to refinance the Notes at maturity. No
assurance can be given that, if required, Holdings will be able to refinance the
Notes on terms acceptable to it, if at all. If Holdings is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures or the
expansion of Holdings, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on terms acceptable to Holdings,
if at all. See 'Management's Discussion and Analysis of Universal Compression
Financial Condition and Results of Operations--Liquidity and Capital Resources.'
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The indenture governing the Notes (the 'Indenture') and the indenture
governing the Company Notes (the 'Company Indenture') contain certain
restrictive covenants which will affect, and in many respects significantly
limit or prohibit, among other things, the ability of Holdings and the Company,
respectively, to incur indebtedness, make prepayments of certain indebtedness,
make investments, engage in transactions with affiliates, create liens, sell
assets and engage in mergers and consolidations. The Company believes that such
restrictive covenants are not likely to have a materially adverse effect on its
ability to make necessary capital investments. The borrowings under the Senior
Secured Credit Facilities are secured by substantially all the assets of the
Company. If borrowings under the Senior Secured Credit Facilities are not repaid
in accordance with their terms, the lenders thereunder could proceed against the
collateral securing the Senior Secured Credit Facilities. If the indebtedness
under the Senior Secured Credit Facilities were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay such
indebtedness, the Company Notes and the Notes. See 'Description of Other
Indebtedness.'
11
<PAGE>
HOLDING COMPANY STRUCTURE; LIMITATION ON ACCESS TO CASH FLOW OF SUBSIDIARIES;
STRUCTURAL SUBORDINATION
Holdings is a holding company, and its ability to pay interest on the Notes
is dependent upon the receipt of dividends from its direct and indirect
subsidiaries. At present, the Company is the sole subsidiary of Holdings.
Holdings does not have, and in the future may not have, any assets other than
the common stock of the Company, which common stock has been pledged as
collateral under the Senior Secured Credit Facilities. The Senior Secured Credit
Facilities and the Company Indenture each imposes substantial restrictions on
the Company's ability to pay dividends to Holdings. Any payment of dividends
will be subject to the satisfaction of certain financial conditions set forth in
the Company Indenture and the Senior Secured Credit Facilities. The ability of
the Company to comply with such conditions in the Company Indenture may be
affected by events that are beyond the control of Holdings. The breach of any
such conditions could result in a default under the Company Indenture, the Term
Loan Credit Facility and/or the Revolving Credit Facility, and in the event of
any such default, the holders of the Company Notes or the lenders under the
Senior Secured Credit Facilities could elect to accelerate the maturity of all
the Company Notes or the loans under such facilities. If the maturity of the
Company Notes or the loans under the Senior Secured Credit Facilities were to be
accelerated, all such outstanding debt would be required to be paid in full
before the Company would be permitted to distribute any assets or cash to
Holdings. There can be no assurance that the assets of the Company would be
sufficient to repay all of such outstanding debt and to meet its obligations
under the Company Indenture. Future borrowings by the Company can be expected to
contain restrictions or prohibitions on the payment of dividends by the Company
and its subsidiaries to Holdings. In addition, under Delaware law, a subsidiary
of a company is permitted to pay dividends on its capital stock only out of its
surplus or, in the event that it has no surplus, out of its net profits for the
year in which a dividend is declared or for the immediately preceding fiscal
year. Surplus is defined as the excess of a company's total assets over the sum
of its total liabilities plus the par value of its outstanding capital stock. In
order to pay dividends in cash, the Company must have surplus or net profits
equal to the full amount of the cash dividend at the time such dividend is
declared. In determining the Company's ability to pay dividends, Delaware law
permits the Board of Directors of a company to revalue its assets and
liabilities from time to time to their fair market values in order to create
surplus. Holdings cannot predict what the value of its subsidiaries' assets or
the amounts of their liabilities will be in the future and, accordingly, there
can be no assurance that Holdings will be able to pay its debt service
obligations on the Notes. In addition, indebtedness outstanding under the Senior
Secured Credit Facilities is secured by substantially all of the assets of the
Company (including the common stock of the Company.) As secured creditors, the
lenders under the Senior Secured Credit Facilities would control the disposition
and sale of the common stock of Holdings after an event of default under the
Senior Secured Credit Facilities and would not be legally required to take into
account the interest of unsecured creditors of Holdings, such as the holders of
the Notes, with respect to any such disposition or sale. There can be no
assurance that the assets of Holdings after the satisfaction of claims of its
secured creditors would be sufficient to satisfy any payments owing with respect
to the Notes.
As a result of the holding company structure of Holdings, the holders of
the Notes are structurally junior to all existing and future creditors of the
Holdings' subsidiaries and holders of preferred stock interests, except to the
extent that Holdings is itself recognized as a creditor of any such subsidiary,
in which case the claims of Holdings would still be subordinate to any security
in the assets of such subsidiary and any indebtedness of such subsidiary senior
to that held by Holdings. In the event of insolvency, liquidation,
reorganization, dissolution or other winding-up of the Holdings' subsidiaries,
Holdings will not receive any funds available to pay to creditiors of the
subsidiaries. As of March 31, 1998, after giving effect to the Acquisition and
related financings the aggregate amount of indebtedness and other obligations of
Holdings' subsidiaries (including trade payables and other accrued liabilities)
was $273 million.
The Company Notes and all amounts owing under the Senior Secured Credit
Facilities will mature prior to the maturity of the Notes. There could be no
assurance that if the Company is required to refinance the Company Notes or any
amounts under the Senior Secured Credit Facilities, it will be able to do so
upon acceptable terms, if at all.
RISK OF FRAUDULENT TRANSFER LIABILITY
Management of Holdings believes that the indebtedness represented by the
Notes was incurred for proper purposes and in good faith, and that, based on
present forecasts, asset valuations and other financial information, Holdings is
solvent, has sufficient capital for carrying on its business and is able to pay
its debts as they mature.
12
<PAGE>
Notwithstanding management's belief, if a court of competent jurisdiction in a
suit by an unpaid creditor or a representative of creditors (such as a trustee
in bankruptcy or a debtor-in-possession) were to find that Holdings did not
receive fair consideration or reasonably equivalent value for incurring the
Notes and, at the time of the incurrence of the Notes or such indebtedness,
Holdings was insolvent, was rendered insolvent by reason of such incurrence, was
engaged in a business or transaction for which its remaining assets constituted
unreasonably small capital, intended to incur, or believed that it would incur,
debts beyond its ability to pay as such debts matured, or intended to hinder,
delay or defraud its creditors, such court could avoid such indebtedness. A
likely consequence of such avoidance would be the subordination of the
indebtedness represented by the Notes to existing and possibly future
indebtedness and other liabilities of Holdings. The measure of insolvency for
purposes of the foregoing will vary depending upon the law of the relevant
jurisdiction. Generally, however, a company would be considered insolvent for
purposes of the foregoing if the sum of that company's liabilities is greater
than all the company's properties at a fair valuation, or if the present fair
salable value of the company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. There can be no assurance as to what standards a court
would apply to determine whether Holdings was solvent at the relevant time, or
whether, whatever standard was applied, the Notes would not be avoided on
another of the grounds set forth above.
INDUSTRY CONDITIONS
Gas compression operations may be materially dependent upon the levels of
activity in natural gas development, production, processing and transportation.
Such activity levels may be affected both by short-term and long-term trends in
natural gas prices. In recent years, natural gas prices and, therefore, the
level of drilling and exploration activity, have been extremely volatile. Any
prolonged substantial reduction in natural gas prices would, in all likelihood,
depress the level of exploration and development activity and result in a
decline in the demand for the Company's compression equipment and services. A
prolonged and significant decline in natural gas prices could have a material
adverse effect on the Company's business, results of operations and financial
condition.
SHORT-TERM LEASES; POSSIBLE INABILITY TO RE-LEASE COMPRESSORS
The initial term of the Company's leases generally varies based on
operating conditions and customer needs. In most events, the Company's initial
lease terms, unless extended by the lessee, are not generally sufficient for the
Company to recoup the average cost of acquiring or fabricating compressors under
currently prevailing lease rates. Accordingly, the Company assumes substantial
risk of not recovering its entire investment in the equipment it acquires or
fabricates through the initial term of the given lease. Although the Company has
historically been successful in re-leasing units in its inventory, there can be
no assurance that the Company will continue to be able to do so or that a
substantial number of its lessees will not terminate their leases at
approximately the same time, thereby causing an adverse accumulation of unleased
compressors in the Company's inventory. The inability of the Company to lease a
substantial portion of its compressors would have a material adverse effect upon
the Company's business, results of operations and financial condition. See
'Business--Operations.'
DEPENDENCE ON SUPPLIERS
As a consequence of its highly standardized fleet, certain of the
components used in the Company's products are obtained from a single source or a
limited group of suppliers. The Company's reliance on such suppliers involves
several risks, including a potential inability to obtain an adequate supply of
required components in a timely manner, price increases and component quality.
Although the Company seeks to reduce dependence on those sole and limited source
suppliers, the partial or complete loss of certain of those sources could have
at least a temporary material adverse effect on the Company's results of
operations and damage customer relationships. Further, a significant increase in
the price of one or more of these components could materially adversely affect
the Company's results of operations.
SUBSTANTIAL CAPITAL INVESTMENTS
The Company currently anticipates it will continue to make substantial
capital investments in the expansion of the compressor rental fleet. The Company
believes that the restrictive covenants contained in the Indenture are not
likely to have a material adverse effect on its ability to make necessary
capital investments. Historically, the Company has financed these investments
through internally generated funds and contributions from Tidewater. If
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the Company does not incur these expenditures while its competitors make
substantial fleet investments, the Company's market share may decline and its
business may be adversely affected. See '-- Limitations Imposed by Certain
Indebtedness.'
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company intends to continue to expand its business in South America and
the Pacific Rim and, ultimately, other international markets, directly and
through joint ventures. The Company's international operations are affected by
global economic and political conditions. In addition, changes in economic or
political conditions in any of the countries in which the Company operates could
result in exchange rate movement, new currency or exchange controls, other
restrictions being imposed on the operations of the Company or expropriation.
The Company's operations may also be adversely affected by significant
fluctuations in the value of the U.S. dollar to meet its obligations. See
'--Foreign Exchange Rate Risks; Repatriation Risks,' 'Management's Discussion
and Analysis of Universal Compression Financial Condition and Results of
Operations' and 'Business.'
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of key management, engineering, sales and marketing, customer
support, finance and manufacturing personnel, certain of whom would be difficult
to replace. See 'Management--Directors and Executive Officers.' The Company does
not maintain and does not intend to obtain key man life insurance for any of its
employees. The loss of the services of certain of these individuals could have a
material adverse effect on the Company. There can be no assurance that the
services of such personnel will continue to be available to the Company. In
connection with the Acquisition, the Company entered into employment agreements
with Messrs. Stephen A. Snider, Ernie Danner, Thomas E. Hartford, Robert D. Ryan
and Newton Schnoor, members of its senior management team. See
'Management--Executive Compensation; Employment Agreements.' In addition, the
Company believes that its success depends on its ability to attract and retain
additional qualified employees and that the failure to recruit such other
skilled personnel could have a material adverse effect on the Company.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that improvements in management and operational
controls, and operational, financial and management information systems are
needed to manage further growth. The Company also currently plans to augment its
information systems. In addition, Tidewater is conducting a program to review
and correct data processing issues relating to whether its systems will
recognize the year 2000 or will treat any date after December 31, 1999 as a date
during the twentieth century. The Company will be entitled to the benefits of
such program. There can be no assurance that the management information system
will produce the desired efficiencies or that other improvements will not be
needed. The failure to implement such improvements successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations.
AVAILABILITY AND INTEGRATION OF ACQUISITIONS
Since the Acquisition, the Company has adopted a new growth strategy and
plans to pursue the acquisition of other companies, assets and product lines
that either complement or expand its existing business. Any such acquisition may
be effected by Holdings, the Company or a subsidiary of either. Each such
acquisition will involve a number of potential risks, such as the diversion of
management's attention to the assimilation of the operations and personnel of
the acquired businesses and possible short-term adverse effects on the Company's
operating results during the integration process.
The Company is unable to predict whether or when any prospective candidate
will become available or the likelihood of a material acquisition being
completed. The Company may seek to finance any such acquisition through the
issuance of new debt and/or equity securities. If the Company proceeds with an
acquisition, and if such acquisition is relatively large and consideration is in
the form of cash, a substantial portion of the Company's financial resources
could be used in order to consummate any such acquisition. In addition, due to
the relatively large size of several potential acquisition opportunities, the
general risks inherent in acquisitions described above could be particularly
acute.
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POTENTIAL LIABILITY AND INSURANCE
Natural gas service operations are subject to inherent risks, such as
equipment defects, malfunction and failures and natural disasters with resultant
uncontrollable flows of gas or well fluids, fires and explosions. These risks
could expose the Company to substantial liability for personal injury, wrongful
death, property damage, pollution and other environmental damages.
Although the Company has obtained insurance against certain of these risks,
no assurance can be given that such insurance will be adequate to cover the
Company's liabilities or will be generally available in the future or, if
available, that premiums will be commercially justifiable. If the Company were
to incur substantial liability and such damages were not covered by insurance or
were in excess of policy limits, or if the Company were to incur such liability
at a time when it is not able to obtain liability insurance, its business,
results of operations and financial condition could be materially adversely
affected.
ENVIRONMENTAL REGULATION
The Company is subject to various federal, state and local laws and
regulatory standards in the areas of safety, health and the environment,
including regulations regarding emission controls. The Company believes that it
is in substantial compliance with such laws and regulations and that the phasing
in of emission controls and other known standards at the rate currently
contemplated by existing laws and regulations will not have a material adverse
effect on the Company's business, results of operations or financial condition.
However, various state and federal agencies from time to time may adopt new laws
and regulations or amend existing laws and regulations regarding environmental
protection that may impose stricter and more costly requirements. Such changes
to existing laws or regulations could require the Company to undertake
significant capital expenditures and could otherwise have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company routinely deals with natural gas, oil and other petroleum
products. As a result of its fabrication and overhaul operations, the Company
will generate, manage and dispose of hazardous wastes, such as solvents,
thinner, waste paint, waste oil, washdown wastes, and sandblast material.
Although the Company attempts to identify and address contamination before
acquiring properties, and although the Company attempts to utilize generally
accepted operating and disposal practices, hydrocarbons or other wastes may have
been disposed or released on or under properties owned, leased, or operated by
the Company or on or under other locations where such wastes have been taken for
disposal. These properties and the wastes disposed thereon may be subject to
federal or state environmental laws that could require the Company to remove the
wastes or remediate sites, which could have a material adverse effect on the
Company. See also 'Business--Environmental Regulation.'
COMPETITION
The natural gas compression service and fabrication business is highly
competitive. Overall, the Company experiences considerable competition from
companies with significantly greater financial resources and, on a regional
basis, from several smaller companies which compete directly with the Company.
The Company believes it is currently one of the largest natural gas compression
companies in the United States on the basis of aggregate rental HP.
FOREIGN EXCHANGE RATE RISKS; REPATRIATION RISKS
Although the Company and its subsidiaries attempt to match costs and
revenues in terms of local currencies, the Company anticipates that as it
continues its expansion on a global basis, there will be many instances in which
costs and revenues will not be matched with respect to currency denomination. As
a result, the Company anticipates that increasing portions of its revenues,
costs, assets and liabilities will be subject to fluctuations in foreign
currency valuations, and that such changes in exchange rates may have a material
adverse effect on the Company's business, results of operations, financial
condition and cash flow. While the Company may utilize foreign currency forward
contracts or other currency hedging mechanisms to minimize exposure to currency
fluctuation, there can be no assurance that such hedges will be implemented, or
if implemented, will achieve the desired effect. The Company may experience
economic loss and a negative impact on earnings solely as a result of foreign
currency exchange rate fluctuations. The markets in which the Company's
subsidiaries may conduct business could restrict the removal or conversion of
the local or foreign currency.
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CONTROL OF COMPANY BY PRINCIPAL STOCKHOLDERS
Certain principal stockholders own and control in excess of 95% of
Holdings' outstanding voting stock. Accordingly, they have the ability to elect
the entire Board of Directors of the Company and, in general, to determine the
outcome of any other matter submitted to stockholders for their approval,
including the power to determine the outcome of all corporate transactions, such
as mergers, consolidations, and the sale of all or substantially all of the
assets of Holdings. See 'Principal Stockholders.'
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Original Notes were issued at a substantial discount from their
principal amount. The Exchange Notes will be treated as continuations of the
Original Notes for Federal income tax purposes. Consequently, the holders of the
Exchange Notes generally will be required to include amounts in gross income for
federal income tax purposes in advance of receipt of any cash payment on the
Exchange Notes to which the income is attributable. See 'Certain United States
Federal Income Tax Considerations' for a more detailed discussion of the federal
income tax consequences to the holders of the Exchange Notes of the purchase,
ownership and disposition of the Exchange Notes.
If a bankruptcy case is commenced by or against Holdings under the United
States Bankruptcy Code, the claim of a holder of Exchange Notes with respect to
the principal amount thereof will likely be limited to an amount equal to the
sum of the Accreted Value as of the commencement of such case.
CONSEQUENCES OF FAILURE TO EXCHANGE
The issuance of the Exchange Notes in exchange for the Original Notes
pursuant to the Exchange Offer will be made only after a timely receipt by
Holdings of such Original Notes, a properly completed and duly executed Letter
of Transmittal and all other required documents. Therefore, holders of Original
Notes desiring to tender such Original Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under no
duty to give notification of defects or irregularities with respect to the
tenders of Original Notes for exchange.
Original Notes that are not tendered will, following the consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof and Holdings will generally have no further obligation to
provide for the registration under the Securities Act of such Original Notes. In
addition, any holder of Original Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. To the extent that Original Notes are
tendered in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Original Notes could be adversely affected. Each broker or dealer
that receives Exchange Notes for its own account in exchange for Original Notes
where such Exchange Notes were acquired by such broker or dealer as a result of
market-making activities or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See 'Plan of Distribution.'
LACK OF PUBLIC MARKET; RESTRICTIONS ON TRANSFERABILITY
The Exchange Notes are new securities for which there currently is no
market. Although the Initial Purchaser has informed Holdings that it currently
intends to make a market in the Notes, it is not obligated to do so and any such
market making may be discontinued at any time without notice. In addition, such
market making activity may be limited during the pendency of the Exchange Offer
or the effectiveness of a shelf registration statement in lieu thereof.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Notes. The Notes have been designated for trading by qualified
buyers in the PORTAL Market. Holdings does not intend to apply for listing of
the Notes on any securities exchange or for quotation through the Nasdaq
National Market.
The liquidity of, and trading market for the Exchange Notes may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, Holdings.
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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words 'believes,' 'anticipates,'
'intends,' 'expects' and words of similar import, constitute 'forward-looking
statements.' Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, Holdings or the oil and gas industry to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; prospects
for the oil and gas industry; competition; changes in business strategy or
development plans; the loss of key personnel; the availability of capital;
regulatory developments; and other factors referenced in this Prospectus,
including, without limitation, regulatory developments; and other factors
referenced under the captions 'Prospectus Summary,' 'Description of The Company
Acquisition,' 'Risk Factors,' 'Management's Discussion and Analysis of Universal
Compression Financial Condition and Results of Operations' and 'Business.' Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. Holdings disclaims any obligation
to update any such factors or to publicly announce the results of any revisions
to any of the forward-looking statements contained herein to reflect future
events or developments.
USE OF PROCEEDS
The net proceeds to Holdings (after discounts, commissions and estimated
fees and expenses in the aggregate amount of approximately $877,000 related to
the Offering) from the sale of the Notes in the Offering were approximately
$24.1 million. Such proceeds, which were contributed to the Company as equity,
together with the proceeds of the Company Notes, the Senior Secured Credit
Facilities (see 'Description of Other Indebtedness'), and the proceeds from the
Castle Harlan Investment, which also were contributed to the Company as a
capital contribution, were used to pay (i) the Purchase Price, (ii) the fees and
expenses incurred in connection with the Acquisition and related financings, and
(iii) the ongoing working capital and capital expenditure requirements of the
Company. See 'Description of the Company Acquisition.'
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were initially issued and sold by Holdings on February
20, 1998, to the Initial Purchaser pursuant to a Purchase Agreement (the
'Purchase Agreement') entered into on February 13, 1998. The Initial Purchaser
subsequently sold the Original Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. Pursuant to the Purchase
Agreement, Holdings and the Initial Purchaser entered into a Registration Rights
Agreement on February 20, 1998 (the 'Registration Rights Agreement'). Pursuant
to the Registration Rights Agreement, Holdings agreed to use its best efforts to
consummate the Exchange Offer on or prior to October 18, 1998. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and the description of the terms of
the Registration Rights Agreement is qualified in its entirety by reference
thereto. The Registration Statement of which this Prospectus is a part is
intended to satisfy Holdings' obligations with respect to the registration of
Notes in accordance with the terms of the Registration Rights Agreement and the
Indenture.
Following the consummation of the Exchange Offer, holders of Original Notes
not tendered in the Exchange Offer or whose tenders are not accepted in the
Exchange Offer will not have any further registration rights. Such holders will
continue to hold such Original Notes and will be entitled to all the rights and
preferences and will be subject to the limitations applicable thereto set forth
in the Indenture except for any such rights or limitations which, by their
terms, terminate or cease to be effective as a result of the making, and the
acceptance for exchange of all validly tendered Original Notes pursuant to the
Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, Holdings will accept any and all
Original Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time on [ ], or such later time and date to which the Exchange Offer
is extended by Holdings in its sole discretion (the 'Expiration Date'). Holdings
will issue up to $43,500,000 aggregate principal amount of Exchange Notes in
exchange for a like principal amount of Original Notes. Holders may
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tender some or all of their Original Notes pursuant to the Exchange Offer.
Holdings will issue registered Exchange Notes on or promptly after the
expiration of the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will have been
registered under the Securities Act and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act and (ii) the Exchange
Notes will not be subject to any covenant regarding registration under the
Securities Act, including any such rights under the Registration Rights
Agreement or the Indenture, which rights, in any event, may terminate with
respect to the Original Notes upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt as the Original Notes (which they
replace) and will be issued under, and be entitled to the benefits of, the
Indenture, which also authorized the issuance of the Original Notes, such that
both the Exchange Notes and the Original Notes will be treated as a single class
of debt securities under the Indenture.
In addition to the Exchange Notes, Holdings, pursuant to the Registration
Rights Agreement, may be required, upon the written request of the Initial
Purchaser, to issue to the Initial Purchaser notes identical in all material
respects to the Exchange Notes (except for the placement of a restrictive
legend) (the 'Private Exchange Notes') in the event that, prior to the
consummation of the Exchange Offer, the Initial Purchaser holds Notes having, or
that are reasonably likely to be determined to have, the status of an unsold
allotment in the initial distribution. In this event, Holdings may be required
to file a shelf registration statement with respect to such Private Exchange
Notes.
Holdings shall be deemed to have accepted validly tendered Original Notes
when, as and if Holdings has given oral or written notice thereof (oral notice
being promptly confirmed in writing) to The United States Trust Company of New
York, as Exchange Agent (the 'Exchange Agent'). The Exchange Agent will act as
agent for the tendering holders of the Original Notes for the purposes of
receiving the Exchange Notes from Holdings.
Holders of Notes who tender Original Notes in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer.
EXTENSION; AMENDMENTS
In order to extend the Exchange Offer, Holdings will notify the Exchange
Agent of any extension by oral or written notice (oral notice being promptly
confirmed in writing) and will make public announcement thereof, each prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
Holdings reserves the right, in its sole discretion, (i) to delay accepting
any Original Notes, (ii) to extend the Expiration Date, (iii) if any of the
conditions set forth below under, '--Conditions of the Exchange Offer' shall not
have been satisfied, to terminate the Exchange Offer or (iv) to amend the terms
of the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to the holders of the Original Notes, whether before or after any
tender of the Original Notes. Any such delay, extension, termination or
amendment shall be effected by giving oral or written notice (oral notice being
promptly confirmed in writing) to the Exchange Agent, followed as promptly as
practicable by a public announcement thereof.
Without limiting the manner in which Holdings may choose to make a public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, Holdings shall not have an obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
PROCEDURES FOR TENDERING BOOK-ENTRY INTERESTS
The Original Notes (which for purposes of the Exchange Offer include
Book-Entry Interests therein and Original Notes in registered form ('Definitive
Registered Notes'), if any) were issued as global securities without interest
coupons (each, a 'Global Note'). Concurrently with the issuance thereof, the
Global Notes were deposited with The United States Trust Company of New York, as
Book-Entry Depositary (the 'Book-Entry Depositary'), which issued a
certificateless depositary interest (each, a 'Depositary Interest') in each
Global Note representing a 100% interest therein to DTC. Beneficial interests in
the Global Notes held by direct or indirect participants in DTC through the
Depositary Interests (the 'Book-Entry Interests') are shown on, and transfers
thereof are effected only through, records maintained in book-entry form by DTC
(with respect to its participants) and its participants.
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Each holder (which for purposes of the Exchange Offer, includes any
participant in DTC whose name appears on a security position listing as a holder
of Book-Entry Interests) of Original Notes held in the form of Book-Entry
Interests who wishes to tender such Book-Entry Interests for exchange pursuant
to the Exchange Offer must transmit to the Exchange Agent on or prior to the
Expiration Date either (i) a properly completed and duly executed Letter of
Transmittal or a facsimile thereof, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at the address set forth on
the cover page of the Letter of Transmittal or (ii) a computer-generated message
(an 'Agent's Message'), transmitted by means of DTC's Automated Tender Offer
Program ('ATOP') system and received by the Exchange Agent and forming a part of
a book-entry transfer (a 'Book-Entry Confirmation'), in which such holder
acknowledges and agrees to be bound by the terms of the Letter of Transmittal.
In addition, in order to deliver Original Notes held in the form of Book Entry
Interests (i) a timely Book-Entry Confirmation of book-entry transfer of such
Original Notes into the Exchange Agent's account at DTC pursuant to the
procedure for book-entry transfers described below under '--Book-Entry Transfer'
must be received by the Exchange Agent prior to the Expiration Date or (ii) the
holder must comply with the guaranteed delivery procedures described below.
The tender of an Original Note by a holder that is not withdrawn prior to
the Expiration Date will constitute an agreement between such holder and
Holdings in accordance with the terms and subject to the conditions set forth
hereunder and in the Letter of Transmittal.
DELIVERY OF BOOK-ENTRY INTERESTS MUST BE EFFECTED BY BOOK-ENTRY TRANSFER AS
DESCRIBED UNDER '--BOOK-ENTRY TRANSFER.' THE METHOD OF DELIVERY OF THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL SHOULD BE SENT TO THE
ISSUER.
PROCEDURES FOR TENDERING DEFINITIVE REGISTERED NOTES
Only registered holders of Definitive Registered Notes may tender such
Original Notes in the Exchange Offer. Each holder of Definitive Registered Notes
who wishes to tender such Definitive Registered Notes for exchange pursuant to
the Exchange Offer must transmit to the Exchange Agent on or prior to the
Expiration Date a properly completed and duly executed Letter of Transmittal or
a facsimile thereof, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth below under
'--Exchange Agent.' In addition, in order to deliver Definitive Registered Notes
(i) the certificates representing such Definitive Registered Notes must be
received by the Exchange Agent prior to the Expiration Date or (ii) the holder
must comply with the guaranteed delivery procedures described below.
The tender by a holder (not withdrawn prior to Expiration Date) will
constitute an agreement between such holder and Holdings in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF THE DEFINITIVE REGISTERED NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR CERTIFICATES FOR DEFINITIVE
REGISTERED NOTES SHOULD BE SENT TO HOLDINGS. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THE ABOVE TRANSACTION FOR SUCH HOLDERS.
PROCEDURES APPLICABLE TO ALL HOLDERS
Any beneficial owner of Book-Entry Interests whose name does not appear on
a security position listing of DTC as a holder of such Book-Entry Interests and
any beneficial owner of Definitive Registered Notes that are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender such Book-Entry Interests or Definitive Registered Notes in
the Exchange Offer should contact such
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person in whose name such Book-Entry Interests or Definitive Registered Notes
are registered promptly and instruct such holder to tender on such beneficial
owner's behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Original Notes surrendered for
exchange pursuant to the Letter of Transmittal or to which the notice of
withdrawal pertains are tendered (i) by a holder of the Original Notes who has
not completed the box entitled 'Special Issuance Instructions' on the Letter of
Transmittal or (ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a member of a registered national securities exchange
or a member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the United
States (collectively, 'Eligible Institutions').
If the Letter of Transmittal or notice of withdrawal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing and, unless waived by Holdings,
proper evidence satisfactory to Holdings of its authority to so act must be
submitted.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by Holdings in its sole discretion, which determination will be final
and binding. Holdings reserves the absolute right to reject any and all Original
Notes not properly tendered or any Original Notes Holdings' acceptance of which
would, in the opinion of counsel for Holdings, be unlawful. Holdings also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Original Notes. Holdings' interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of the Original Notes must
be cured within such time as Holdings shall determine. Although Holdings intends
to notify holders of defects or irregularities with respect to tenders of the
Original Notes, none of Holdings, the Exchange Agent or any other person shall
incur any liability for failure to give such notification. Tenders of the
Original Notes will not be deemed to have been made until any and all such
defects or irregularities have been cured or waived.
By transmitting an Agent's Message or executing a Letter of Transmittal,
each holder will represent to Holdings and agree that, among other things, (i)
the Exchange Notes or interests therein to be acquired by such holder and any
beneficial owners thereof (the 'Beneficial Owner(s)') in the Exchange Offer are
being acquired by such holder and any Beneficial Owner(s) in the ordinary course
of business of the holder and any such Beneficial Owner(s), (ii) the holder and
each Beneficial Owner are not participating, do not intend to participate and
have no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person who is a broker-dealer registered under
the Exchange Act or is participating in the Exchange Offer for the purpose of
distributing the Exchange Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the Exchange Notes and any interest therein acquired by
such person and cannot rely on the position of the staff of the SEC set forth in
certain no-action letters (see '--Resales of the Exchange Notes'), (iv) the
holder and each Beneficial Owner understands that a secondary resale transaction
described in clause (iii) above and any resales of the Exchange Notes and any
interest therein obtained by such holder in exchange for the Original Notes
originally acquired by such holder directly from Holdings should be covered by
an effective registration statement containing the selling security holder
information required by Items 507 and 508, as applicable, of Regulation S-K of
the Commission and (v) neither the holder nor any Beneficial Owner(s) is an
'affiliate,' as defined in Rule 405 promulgated under the Securities Act, of
Holdings. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes must represent that the Original Notes tendered in
the Exchange Offer were acquired by such broker-dealer as a result of
market-making activities or other trading activities and must acknowledge that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. By so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an 'underwriter' within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with the resales of Exchange Notes received in
exchange for Original Notes where Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. Holdings has indicated its intention to make this Prospectus (as it
20
<PAGE>
may be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for a period of 180 days after the Expiration
Date. See 'Plan of Distribution.'
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
Holdings will accept, promptly after the Expiration Date, all Original Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Original Notes. See '--Conditions of the Exchange Offer.' For purposes of
the Exchange Offer, Holdings shall be deemed to have accepted properly tendered
Original Notes for exchange when, as and if Holdings has given oral or written
notice thereof (oral notice being promptly confirmed in writing) to the Exchange
Agent.
RETURN OF ORIGINAL NOTES
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
thereof desire to exchange, then such unaccepted, withdrawn or non-exchanged
Original Notes will be returned without expense to the tendering holder thereof.
Under such circumstances, Book-Entry Interests in Original Notes will be
credited to an account maintained with DTC as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Book-Entry
Interests at DTC for purposes of the Exchange Offer promptly after the date of
this Prospectus. All deliveries of Book-Entry Interests must be made by
book-entry transfer to the account maintained by the Exchange Agent at DTC. Any
financial institution that is a participant in DTC's systems may make book-entry
delivery of Book-Entry Interests by causing DTC to transfer such Book-Entry
Interests into the Exchange Agent's account in accordance with DTC's ATOP
procedures for transfer. Holders of Book-Entry Interests who are unable to
deliver a Book-Entry Confirmation of the tender of their Book-Entry Interests
into the Exchange Agent's account at DTC or all other documents required by the
Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date,
must tender their Book-Entry Interests according to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a holder of Original Notes desires to tender such Original Notes and
time will not permit such holder's required documents to reach the Exchange
Agent, or the procedure for book-entry transfer cannot be completed or the
certificates relating to Definitive Registered Notes cannot be delivered, in
each case, on or prior to the Expiration Date, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) on or prior to the
Expiration Date, the Exchange Agent receives from such Eligible Institution (a)
either a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) or a properly transmitted Agent's Message and (b) a Notice of
Guaranteed Delivery, substantially in the form provided by Holdings (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of such holder of Original Notes and the amount of Original Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ('NYSE') trading days after the date of
execution of the Notice of Guaranteed Delivery, a Book-Entry Confirmation or the
certificates relating to the Definitive Registered Notes and all other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) a Book-Entry Confirmation or the
certificates relating to the Definitive Registered Notes and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
five NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL OF TENDERS
A tender of Original Notes may be withdrawn any time prior to the
Expiration Date.
For a withdrawal to be effective, (i) a written notice must be received by
the Exchange Agent at the address set forth below under '--Exchange Agent' or
(ii) the appropriate procedures of DTC's ATOP system must be complied with. Any
such notice of withdrawal with respect to Book-Entry Interests must (i) specify
the name of the person having tendered the Original Notes to be withdrawn and
identify the Original Notes to be withdrawn (including the principal amount of
such Original Notes) and (ii) specify the name and number of the account at DTC
to be credited with the withdrawn Original Notes and otherwise comply with the
procedures of DTC. Any such notice of withdrawal with respect to Definitive
Registered Notes must (x) specify the name of the person
21
<PAGE>
having tendered the Definitive Registered Notes to be withdrawn and (y) identify
the Definitive Registered Notes to be withdrawn (including the certificate
number and principal amount of Original Notes). Any such written withdrawal must
be signed by the holder in the same manner as the original signature on the
Letter of Transmittal by which such Original Notes were tendered (including
required signature guarantees). All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
Holdings, in its sole discretion and whose determination shall be final and
binding on all parties. Any Original Notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer.
Properly withdrawn Original Notes may be retendered by following one of the
procedures described above at any time on or prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, Holdings shall not be
required to accept for exchange, or exchange Exchange Notes for, any Original
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Original Notes:
(a) if, in the sole judgment of Holdings, the Exchange Offer would
violate any law, statute, rule or regulation or an interpretation thereof of the
staff of the Commission; or
(b) with respect to all Book-Entry Interests tendered, if on the
Expiration Date, the Book-Entry Depositary does not present the Global Notes to
The United States Trust Company of New York, as trustee ('Trustee').
If Holdings determines in its sole discretion that any of the conditions
are not satisfied, Holdings may (i) refuse to accept any Original Notes and
return all tendered Original Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Original Notes tendered prior to the Expiration
Date, subject, however, to the rights of holders to withdraw such Original Notes
(see '--Withdrawal of Tenders') or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all validly tendered Original Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, Holdings will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered holders and
Holdings will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
EXCHANGE AGENT
The United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests of or Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL, BY OVERNIGHT COURIER OR BY HAND:
The United States Trust
Company of New York
114 West 47th Street
New York, New York 10036
Attention: Gerard F. Ganey
or
BY FACSIMILE:
The United States Trust
Company of New York
Attention: Gerard F. Ganey
Facsimile Number: (212) 852-1627
In addition, Letters of Transmittal and any other required documentation
should be sent to the Exchange Agent at the address set forth above, except
where facsimile transmission is specifically authorized (e.g., withdrawals and
Notices of Guaranteed Delivery). DELIVERY OF THE LETTER OF TRANSMITTAL TO AN
22
<PAGE>
ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Holdings. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telecopy, telephone or in person by officers and regular employees of
Holdings and its affiliates.
Holdings has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. Holdings, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
its reasonable out-of-pocket expenses in connection therewith.
Holdings will pay all transfer taxes, if any, applicable to the exchange of
the Original Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to the tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Original Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities within the meaning of Rule 144
of the Securities Act. Accordingly, such Original Notes may be resold only (i)
to Holdings or any subsidiary thereof, (ii) so long as the Original Notes are
eligible for resale pursuant to Rule 144A, to a person whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act, purchasing for its own account or for the
account of a qualified institutional buyer to whom notice is given that the
resale, pledge or other transfer is being made in reliance on Rule 144A, (iii)
outside the United States to non-U.S. persons in an offshore transaction in
compliance with Rule 904 under the Securities Act, (iv) pursuant to an exemption
from registration in accordance with Rule 144 (if available), (v) to an
institutional 'accredited investor' that, prior to such transfer, furnishes to
the Trustee a signed letter containing certain representations and agreements
relating to the registration of transfer of the Original Notes and, if such
transfer is in respect of a principal amount of Original Notes at the time of
transfer of less than $250,000, an opinion of counsel acceptable to Holdings
that such transfer is in compliance with the Securities Act and (vi) pursuant to
an effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United States
and subject to certain requirements of the Trustee being met. The liquidity of
the Original Notes could be adversely affected by the Exchange Offer. See 'Risk
Factors--Consequences of Failure to Exchange.' Following the consummation of the
Exchange Offer, holders of the Original Notes may have no further registration
rights under the Registration Rights Agreement.
RESALES OF THE EXCHANGE NOTES
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, Holdings believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Original Notes may be
offered for resale, resold and otherwise transferred by holders thereof (other
than (i) any such holder which is an 'affiliate' of Holdings within the meaning
of Rule 405 under the Securities Act (ii) a broker-dealer who acquired the
Original Notes directly from Holdings or (iii) broker-dealers who acquired the
Original Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, such holders have no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes and neither such holders nor any such other person is engaging in
or intends to engage in a distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Original Notes, where such Original Notes were acquired by such broker-dealer as
a result of market-making or other activities, must acknowledge that it will
deliver a prospectus in connection with any sale of such Exchange Notes. Any
broker-dealer that participates in a distribution of the Exchange Notes may not
particiapte in the Exchange Offer and will be deemed to be an underwriter for
purposes of the Securities Act. Any holder who is an affiliate of Holdings or
who uses the Exchange Offer to participate in a
23
<PAGE>
distribution of the Exchange Notes to be acquired in the Exchange Offer may not
rely on such interpretation by the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resales of such Exchange Notes. See 'Plan of Distribution.'
DESCRIPTION OF THE COMPANY ACQUISITION
On February 20, 1998, TW acquired 100% of the voting securities of
Tidewater Compression Service, Inc. for a cash payment of approximately $350
million (the 'Acquisition'). TW was formed by CHP for the purpose of
facilitating the Acquisition. TW obtained the funds required to finance the
cash payment, as well as the fees and expenses incurred in connection with the
Acquisition, in the following manner: (i) an aggregate cash contribution of
$104.02 million by Holdings derived from the Castle Harlan Investment and net
proceeds of the issuance of Holdings Notes of $24.17 million; (ii) a Term Loan
Credit Facility of $75 million and a Revolving Credit Facility of $85 million
($35 million of which was drawn down at the closing of the Acquisition), each
with Bankers Trust Company, as agent, and other lending institutions
(collectively, the 'Senior Secured Credit Facilities'); and (iii) net proceeds
from the issuance of the Company Notes, in the amount of $145.3 million
(together with clause (i) and clause (ii), the 'Financing', and together with
the Acquisition, the 'Transactions'). Immediately following the consummation of
the Acquisition, TW was merged into Tidewater Compression Service, Inc., which
changed its name to Universal Compression, Inc. See 'Description of Other
Indebtedness.'
Pursuant to the Stock Purchase Agreement, TW and Tidewater agreed to
allocate responsibility for various actual and potential liabilities in the
areas of employee benefits, insurance, environmental matters and tax. In
particular, with respect to employee benefits, Tidewater is required to make all
matching contributions that relate to contributions made by employees of the
Company to Tidewater's 401(k) savings plan prior to closing and to insure that
payments due under the plan with respect to former employees be made in
accordance with the terms of such plan. With respect to Tidewater's non-pension
benefit arrangements, Tidewater is responsible for all costs of coverage and all
amounts payable by reason of claims incurred by the Company's employees prior to
the closing date. TW, for its part, is obligated to honor all terms of a
severance policy covering the Company employees. In the area of insured
liabilities, Tidewater assumed certain of the Company's liabilities.
In addition, the Stock Purchase Agreement gave TW the right to cause its
environmental engineer to make an environmental assessment of the operations and
physical premises of the Company between December 18, 1997 and February 17, 1998
(the 'Environmental Assessment'). The Environmental Assessment identified
conditions that may give rise to liabilities and estimated the costs of
remediating those conditions (the 'Estimated Remediation Costs'). In the event
that remediation is undertaken by the Company, then, pursuant to the Stock
Purchase Agreement, the cost, to the extent identified as part of the
Environmental Assessment (the 'Actual Remediation Costs') shall be paid as
follows: (i) Tidewater shall pay 75% and the Company shall pay 25% of the first
$4 million of Actual Remediation Costs; (ii) Tidewater shall pay 83.33% and the
Company shall pay 16.67% of the next $6 million of Actual Remediation Costs; and
(iii) Tidewater shall pay 100% of the amount by which the Actual Remediation
Costs exceed $10 million, but only to the extent the Actual Remediation Costs do
not exceed the Estimated Remediation Cost. Based upon the results of the
Environmental Assessment, Tidewater's obligation under the Stock Purchase
Agreement and potential obligations by third parties, the Company does not
believe that the Actual Remediation Costs will be material to the business,
results of operations, financial conditions or cash flow of the Company.
The Stock Purchase Agreement also requires Tidewater to indemnify the
Company from any taxes which are (i) imposed on Tidewater or (ii) imposed on the
Company in respect of its income, business, property or operations or for which
the Company may otherwise be liable for any taxable period ending on or before
the closing date. This indemnity survives the closing date and shall terminate
thirty (30) days after the expiration of the applicable statute of limitations.
Tidewater is also required to join the Company in an election to have the
provisions of Internal Revenue Code Section 338(h)(10) and similar provisions of
state law apply to the Acquisition. The effect of the election will be to enable
the Company to treat the Acquisition as an asset sale for tax purposes.
The Purchase Price was to be increased or decreased depending on whether
the Closing Date Working Capital (as defined in the Stock Purchase Agreement) of
the Company exceeded or was less than approximately $14.1 million. The final
calculation resulted in Closing Date Working Capital of $15.3 million.
24
<PAGE>
For purposes of the Stock Purchase Agreement, Working Capital is generally
defined as current assets (net of all liabilities) of the Company plus capital
expenditures for new compression equipment by the Company on or after January 1,
1998 through the closing date and minus any equipment sales proceeds on or after
January 1, 1998 through the closing date.
The Company or Holdings may be required, pursuant to the Purchase Price
Adjustment Agreement (the 'PPA Agreement') entered into with Tidewater, to make
additional payments upon the occurrence of one of the following 'Liquidity
Events': (i) any public or private sale of common stock of the Company or
Holdings; (ii) the sale of all or substantially all of the assets of the Company
or Holdings; (iii) the merger or consolidation of the Company or Holdings into
or with any other entity or entities; (iv) any recapitalization of the Company
that has the direct or indirect effect of changing the par value of its capital
stock, its stated capital or capital surplus; or (v) any similar transaction
involving Holdings or the Company. The payment, which will be in the same form
as the consideration is paid to CHP upon the completion of such transaction,
will not be required to be paid unless the initial investors in Holdings named
under 'Principal Stockholders' below, other than directors, officers and
employees of Holdings or its subsidiaries have recognized a return upon their
entire initial investment in Holdings or the Company. The amount required to be
paid would be equal to 10% of their return over their investment in Holdings or
the Company adjusted upwards by 6.25% per quarter measured through the date of
any of the foregoing Liquidity Events.
Tidewater is also obligated, pursuant to the Transition Services Agreement,
to provide to the Company, for a term of 180 days from the closing date, certain
services, including, but not limited to, computer data processing services and
administrative services. The maximum payment that would be made if all of the
services are provided for the full 180-day term of the agreement is $105,000
plus out-of-pocket expenses.
25
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash and cash equivalents
and capitalization of Holdings as of March 31, 1998. See 'Use of Proceeds,'
'Universal Compression Selected Historical Financial Data,' 'Management's
Discussion and Analysis of Universal Compression Financial Condition and Results
of Operations' and the Company's financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and cash equivalents.................................................................... $ 2,382
-----------
-----------
Total debt (including current portion):
Revolving Credit Facility.................................................................. $ 35,150
Term Loan Credit Facility.................................................................. 74,814
Senior discount notes due 2009............................................................. 25,354
Company Notes.............................................................................. 151,544
-----------
Total debt......................................................................... $286,862
Stockholder's equity
Series A Preferred Stock, $.01 par value; 5,000,000 shares authorized; 1,300,000 shares
issued and outstanding; $50 per share liquidation value................................. $ 3
Common Stock, $.01 par value; 1,000,000 shares authorized; 325,000 shares issued and
outstanding............................................................................. 13
Additional paid-in-capital................................................................. 81,234
Retained earnings.......................................................................... 430
-----------
Total stockholder's equity.............................................................. 81,680
-----------
Total capitalization............................................................... $368,542
-----------
-----------
</TABLE>
26
<PAGE>
HOLDINGS UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND OTHER DATA
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussions containing
such forward-looking statements may be found in the material set forth below and
under 'Prospectus Summary,' 'Risk Factors,' 'Management's Discussion and
Analysis of Universal Compression Financial Condition and Results of Operations'
and 'Business' and as well as in the Prospectus generally. Actual events or
results may differ materially from those discussed in the forward-looking
statements as a result of various factors, including, without limitation, the
factors set forth below and the other matters set forth in the Prospectus
generally.
The unaudited pro forma consolidated statements of operations were prepared
as if the Transactions had occurred on April 1, 1996.
The unaudited pro forma consolidated financial statements and other data
have been prepared under the purchase method of accounting. Under this method of
accounting, based on a preliminary allocation of the purchase price of the
Company, its identifiable assets and liabilities have been adjusted to their
estimated fair values.
The unaudited pro forma consolidated financial statements and other data
have been prepared based on the foregoing and on certain assumptions described
in the notes thereto. Such statements should be read in conjunction with the
historical financial statements of the Company including the notes thereto, and
'Management's Discussion and Analysis of Universal Compression Financial
Condition and Results of Operations,' that are included elsewhere herein. The
following unaudited pro forma consolidated financial statements and other data
do not purport to be indicative of the results of operations that would have
been reported had the Transactions been effected on the dates indicated, or that
may be reported in the future.
27
<PAGE>
HOLDINGS UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TIDEWATER HOLDINGS
COMPRESSION ACQUISITION HOLDINGS
SERVICE, INC.(1) ADJUSTMENTS PRO FORMA
---------------- ----------- ---------
<S> <C> <C> <C>
Revenue
Rentals............................................................ $ 72,695 $ -- $ 72,695
Sales.............................................................. 36,592 -- 36,592
Other.............................................................. 3,477 -- 3,477
Gain on asset sales................................................ 1,122 -- 1,122
---------------- ----------- ---------
Total Revenue........................................................ 113,886 -- 113,886
Costs and Expenses
Rentals............................................................ 33,814 (4,000)(a) 29,814
Cost of sales...................................................... 30,339 -- 30,339
Depreciation and amortization...................................... 26,163 (7,256)(b) 18,907
General and administrative......................................... 11,004 3,500(c) 14,504
Interest expense................................................... -- 30,575(d) 30,575
---------------- ----------- ---------
101,320 22,819 124,139
Income (loss) before income taxes.................................... 12,566 (22,819) (10,253 )
Income tax expense (benefit)......................................... 4,724 (8,518)(e) (3,794 )
---------------- ----------- ---------
Net income (loss).................................................. $ 7,842 $ (14,301) $ (6,459 )
---------------- ----------- ---------
---------------- ----------- ---------
Other Data
Cash interest expense (f).......................................... -- $ 11,148 $ 11,148
Ratio of earnings to fixed charges (g)............................. 88.9 -- .7
</TABLE>
- ------------------
(1) Represents the historical financial statements of Tidewater Compression
Service, Inc. for the fiscal year ended March 31, 1997.
See Notes to Holdings Unaudited Pro Forma Consolidated Financial Statements
28
<PAGE>
HOLDINGS UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TIDEWATER UNIVERSAL HOLDINGS
COMPRESSION COMPRESSION ACQUISITION HOLDINGS
SERVICE, INC.(1) HOLDINGS, INC.(2) ADJUSTMENTS PRO FORMA
---------------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue
Rentals............................................ $ 71,644 $ 8,929 $ -- $ 80,573
Sales.............................................. 19,924 3,814 -- 23,738
Other.............................................. 3,024 363 -- 3,387
Gain on asset sales................................ 1,094 13 -- 1,107
---------------- ----------------- ----------- ---------
Total revenue........................................ 95,686 13,119 -- 108,805
Costs and Expenses
Rentals............................................ 31,924 2,979 (3,800)(a) 31,103
Cost of sales...................................... 14,753 3,233 17,986
Depreciation and amortization...................... 23,310 1,560 (5,563)(b) 19,307
General and administrative......................... 8,669 1,305 3,063(c) 13,037
Interest expense................................... -- 3,203 29,271(d) 32,474
---------------- ----------------- ----------- ---------
78,656 12,280 22,971 113,907
Income (loss) before income taxes.................... 17,030 839 (22,971) (5,102 )
Income tax expense (benefit)......................... 6,271 409 (8,568)(e) (1,888 )
---------------- ----------------- ----------- ---------
Net income (loss).................................. $ 10,759 $ 430 $ (14,403) $ (3,214 )
---------------- ----------------- ----------- ---------
---------------- ----------------- ----------- ---------
Other Data
Cash interest expense (f).......................... -- $ 1,202 $ 9,946 $ 11,148
Ratio of earnings to fixed charges (g)............. 132.13 1.26 -- 0.90
</TABLE>
- ------------------
(1) Represents the historical financial statements of Tidewater Compression
Service, Inc. for the period from April 1, 1997 through February 20, 1998.
(2) Represents the historical consolidated financial statements of Holdings for
the period from December 12, 1997 (inception) through March 31, 1998.
However, the Company had no operations until the Acquisition on February 20,
1998.
See Notes to Holdings Unaudited Pro Forma Consolidated Financial Statements
29
<PAGE>
NOTES TO HOLDINGS UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(a) Reflects the effect of a change in accounting policy for capitalization
of major overhauls.
(b) Reflects an adjustment to depreciation expense resulting from the
allocation of purchase price and the change in accounting policy referred to in
note (a). Depreciation and amortization expense for rental equipment is
calculated using a 20% salvage value and an estimated useful life of 15 years.
All remaining depreciation for property and equipment is calculated on the
straight-line basis with estimated useful lives ranging from 2 to 25 years.
Depreciation for capitalized overhauls is calculated using a five year estimated
useful life. Goodwill amortization is calculated over an estimated 40-year life.
(c) Reflects the management fee paid to Castle Harlan, Inc. of $3 million
and estimated incremental costs associated with being a stand-alone public
company. Such stand-alone costs include legal, accounting and personnel costs.
(d) Interest expense adjustments are as follows based on the following
assumptions:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Revolving Credit Facility, $35 million at 9.75%.............................. $ 3,427 $ 3,427
Senior Discount Notes, $25 million at 11.375%, due 2009...................... 2,966 3,313
Senior Discount Notes, $152 million at 9.875%, due 2008...................... 15,334 16,886
Term Loan Credit Facility, $75 million at 10%................................ 7,481 7,481
Commitment Fee, $48 million at 0.5%.......................................... 239 239
------- -------
29,447 31,346
Amortization of deferred financing costs..................................... 1,128 1,128
------- -------
Total Interest Expense....................................................... $30,575 $32,474
------- -------
------- -------
</TABLE>
Interest on the Revolving Credit Facility and the Term Loan Credit Facility
is based on LIBOR plus 2.25% and LIBOR plus 2.50%, respectively. The interest
rates on the Revolving Credit Facility and the Term Loan Credit Facility at
March 31, 1998 under an available Prime Rate option were 9.75% and 10.0%,
respectively. Interest on each of the Senior Discount Notes due 2009 and the
Senior discount Notes due 2008 has been calculated based on the fixed rate of
11.375% and 9.875%, respectively, compounded semiannually on principal plus
accumulated interest.
(e) Reflects an adjustment to income tax expense to effect a statutory tax
rate of 37%.
(f) Cash interest expense is defined as total interest expense less
interest on the Senior Discount Notes and amortization of deferred financing
costs.
(g) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges. Fixed
charges include interest expense on all indebtedness, amortization of deferred
financing fees, and one-third of rental expense on operating leases representing
that portion of rental expense deemed to be attributable to interest.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain financial information for Universal
Compression Holdings, Inc. and its predecessor, Tidewater Compression Service,
Inc. ('Predecessor') as of and for each of the years in the four years ended
March 31, 1997 and for the period from April 1, 1997 through February 20, 1998.
The table also includes certain financial information for Holdings for the
period from December 12, 1997 through March 31, 1998. This financial information
has been derived from the respective companies' audited financial statements.
The following financial information should be read in conjunction with
'Management's Discussion and Analysis of Universal Compression Financial
Condition and Results of Operations', Tidewater Compression Service, Inc.
financial statements and notes thereto, the Company's financial statements and
notes thereto, and Holdings consolidated financial statements and notes thereto
all appearing elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR HOLDINGS
-------------------------------------------------------------- -----------------
PERIOD FROM PERIOD FROM
YEAR ENDED MARCH 31 APRIL 1, 1997 TO DECEMBER 12, 1997
------------------------------------------- FEBRUARY 20, THROUGH MARCH 31,
1994 1995 1996 1997 1998 1998(8)
-------- --------- --------- -------- ---------------- -----------------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $ 56,978 $ 84,682 $ 110,464 $113,886 $ 95,686 $ 13,119
Gross margin(1).................... 25,133 37,604 51,685 48,332 47,752 6,891
Depreciation and amortization...... 9,144 15,472 26,997 26,163 23,310 1,560
General and administrative
expenses......................... 10,602 8,888 10,508 11,004 8,669 1,305
Operating income(2)................ 5,387 13,244 14,180 11,165 15,773 4,026
Interest expense, net.............. -- 3,469 3,706 -- -- 3,203
Income tax expense................. 2,551 4,648 3,745 4,724 6,271 409
Net income......................... 4,343 6,319 5,972 7,842 10,759 430
OTHER DATA:
EBITDA(3).......................... $ 16,038 $ 29,908 $ 40,420 $ 38,729 $ 40,340 $ 5,602
Acquisitions(4)(5)................. -- 240,000 -- -- -- 350,000
Cash flows from (used in):
Operating activities............. 11,279 35,880 50,810 41,923 33,491 (1,005)
Investing activities............. (18,192) (256,752) (1,270) (8,836) (13,797) (353,145)
Financing activities............. 6,913 220,872 49,506 (33,121) (17,870) 356,532
Ratio of earnings to fixed
charges(6)....................... 71.4x 4.1x 3.5x 88.9x 132.1x 1.3x
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(7)....................... $ 8,949 $ 18,686 $ 16,192 $ 13,953 $ 13,882
Total assets............................. 68,285 308,339 274,312 257,090 380,226
Total debt (including intercompany)...... 27,428 249,430 229,657 194,371 286,862
Stockholders' equity..................... 37,414 43,733 49,705 57,547 81,680
</TABLE>
- ------------------
(1) Gross margin is defined as total revenue less (i) rental expense, (ii) cost
of sales (exclusive of depreciation and amortization), (iii) gain on asset
sales and (iv) interest income.
(2) Operating income is defined as income before income taxes less gain on asset
sales and interest income plus interest expense.
(3) EBITDA is defined as net income plus income taxes, interest expense,
depreciation and amortization. EBITDA represents a measure upon which
management assesses financial performance and certain covenants in the
Company's borrowing arrangements will be tied to similar measures. EBITDA is
not a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to operating income
or net income as an indicator of the Company's operating performance or to
net cash provided by operating activities as a measure of its liquidity.
(4) The Company acquired the assets of Brazos for $35 million in October 1994,
and the natural gas compression assets of Halliburton for $205 million in
December 1994. The results of Brazos' and Halliburton's operations have been
included in the Company's results of operations from the respective dates of
acquisition.
(5) On February 20, 1998, the Company acquired 100% of the voting securities of
TCS for approximately $350 million. The results of TCS' operations have been
included in the Company's operations from the date of the Acquisition.
(6) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before income taxes, plus fixed charges. Fixed
charges include interest expense on all indebtedness, amortization of
deferred financing fees, and one-third of rental expense on operating leases
representing that portion of rental expense deemed to be attributable to
interest.
(7) Working capital is defined as current assets minus current liabilities.
(8) Holdings' financial information shown in this column is for the period from
December 12, 1997 (inception) through March 31, 1998. However, Holdings had
no operations prior to the Acquisition on February 20, 1998.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF UNIVERSAL COMPRESSION
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and performance of the
Company should be read in conjunction with the financial statements and related
notes and other detailed information regarding the Company included elsewhere in
this Prospectus. Certain information contained below and elsewhere in this
Prospectus, including information with respect to the Company's plans and
strategy for its business, are forward-looking statements. See 'Risk Factors'
for a discussion of important factors which could cause actual results to differ
materially from the forward-looking statements contained herein.
OVERVIEW
The Company is a leading provider of natural gas compressor rental,
maintenance and operations to the domestic oil and gas industry with a growing
presence in several key international markets. Management believes that the key
drivers in the natural gas compression rental industry are: (i) the demand for
natural gas compression, which is principally tied to the production of natural
gas as opposed to drilling activity which tends to be cyclical, (ii) the aging
of producing gas fields in the United States which require more compression to
continue producing at the ideal economic rate, (iii) the trend by natural gas
producers to outsource gas compression requirements to reduce their overall cost
of compression and (iv) the rapidly increasing production of natural gas in
international markets which is being driven by demand for energy and
environmental concerns curtailing the historical practice of flaring natural
gas. Since natural gas compression is tied to production of gas, the demand for
compression services has not historically been affected by short-term movements
in the pricing of natural gas.
The rental compression services industry has experienced significant
consolidation over the past several years but remains fragmented. In October
1994 the Company initiated the current phase of industry consolidation through
its acquisition of Brazos and Halliburton increasing its aggregate HP from
193,000 to 480,000. For the year prior to these acquisitions, the acquired
companies' fleet utilizations were approximately 60% and 70%, respectively, as
compared to the Company's fleet utilization of 86%.
Following these acquisitions, the Company's parent, Tidewater, increasingly
concentrated on its core marine support business limiting growth capital
available to the Company. Since 1995, the Company has focused its efforts on
optimizing the efficiency of its existing operations. In particular the Company
focused on integrating these acquisitions as well as (i) improving its
nationwide field service and marketing capabilities, (ii) centralizing
management at its Houston headquarters, (iii) instituting uniform quality
controls, (iv) standardizing maintenance and central overhaul procedures and (v)
implementing consistent Company-wide policies. Because of limited growth
capital, the Company has not fully participated in the growth in the higher HP
market. The Company intends to expend a majority of its capital budget on this
market.
Although, prior to the Acquisition, the Company was a wholly-owned
subsidiary of Tidewater, the Company historically operated as an autonomous
business with limited administrative and financial services provided by
Tidewater, including treasury, legal, information systems and employee benefits.
In fiscal 1997, the Company was charged approximately $200,000 for these
services. Management estimates that the costs of providing these services and
other services required of a stand-alone public company will be approximately
$700,000 per year. To assist the Company in its transition following the
Acquisition, Tidewater has agreed to provide these services to the Company for a
period of six months for an aggregate fee not to exceed $105,000 plus
out-of-pocket expenses.
32
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the major components of the Company's
revenue with the contribution of such components to the Company's revenue
expressed as a percentage of revenue:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FISCAL YEAR ENDED MARCH 31, APRIL 1, 1997 FEB. 20, 1998 PRO FORMA FISCAL
------------------------------------ TO TO YEAR ENDED
1996 1997 FEB. 20, 1998 MARCH 31, 1998 MARCH 31, 1998
---------------- ---------------- --------------- --------------- --------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Rental............... $ 72,765 66% $ 72,695 64% $71,644 75% $ 8,929 68% 80,573 74%
Fabrication and
Sales.............. 32,319 29% 36,592 32% 19,924 21% 3,814 29% 23,738 22%
Other(1)............. 5,380 5% 4,599 4% 4,118 4% 376 3% 4,494 4%
-------- ---- -------- ---- ------- ---- ------- ---- --------- -------
Total Revenue........ $110,464 100% $113,886 100% $95,686 100% $13,119 100% $ 108,805 100%
-------- ---- -------- ---- ------- ---- ------- ---- --------- -------
-------- ---- -------- ---- ------- ---- ------- ---- --------- -------
United States........ 91,824 83% 92,615 81% 80,158 84% 11,408 17% 90,895 83%
International........ 18,640 17% 21,271 19% 15,528 16% 1,711 13% 17,910 17%
-------- ---- -------- ---- ------- ---- ------- ---- --------- -------
Total Revenue........ $110,464 100% $113,886 100% $95,686 100% $13,119 100% $ 108,805 100%
-------- ---- -------- ---- ------- ---- ------- ---- --------- -------
-------- ---- -------- ---- ------- ---- ------- ---- --------- -------
</TABLE>
- ------------------
(1) Other income includes primarily service fees, gains on asset sales, rental
revenue on air compressors and interest. The Company disposed of its air
compression rental business during the second quarter of fiscal 1997.
PRO FORMA FISCAL 1998 COMPARED TO PRO FORMA FISCAL 1997
The acquisition of the Company occurred on February 20, 1998. The Company
has accounted for the acquisition as a purchase. To provide a more consistent
view of the operating results, the discussion below for the aforementioned
fiscal periods is based on the pro forma financial statements for the two fiscal
periods.
Revenue. Pro forma revenue for fiscal 1998 declined $5.1 million, or 4%,
to $108.8 million compared to $113.9 million for fiscal 1997 as an increase in
rental revenue partially offset a decline in revenue from fabrication and
equipment sales. Rental revenue increased 11% to $80.6 million principally due
to a 6% increase in utilized horsepower and a 1% increase in rental pricing.
Additionally, the Company increased the amount of HP rented in internatonal
markets by 54%, principally through additional service in Argentina. Revenue
from fabrication and saled declined to $23.7 million from $36.6 million, a
decline of 35%, due to a shift of the focus of the Company's sales force away
from low margin sales of third-party fabricated Ajax gas compressor units.
Gross Margin. Pro forma gross margin before depreciation and amortization
for fiscal 1998 increased $6.0 million, or 11%, to $58.4 million from $52.3
million for fiscal 1997. The increase was due to higher utilization and
resulting operating efficiencies related to the rental fleet. The rental gross
margin before depreciation and amortization for fiscal 1998 increased $6.5
million, or 15%, to $49.5 million compared to $42.9 million for fiscal 1997.
General and Administrative Expenses. Pro forma general and administrative
expenses for fiscal 1998 declined $1.5 million to $13.0 million compared to
$14.5 million for fiscal 1997. The decline was principally due to continued
consolidation and centralization of operating expenses. As a percent of revenue,
pro forma general and administrative expenses declined to 12% of revenue from
13% of revenue for fiscal 1997.
Net Income. Primarily as a result of the factors discussed above, pro
forma net (loss) for fiscal 1998 decreased to $(3.2) million from $(6.5) million
for fiscal 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Revenue. Revenue for fiscal 1997 increased $3.4 million, or 3%, to $113.9
million from $110.5 million in fiscal 1996 as increased revenue from fabrication
and sales and gains on sale of rental equipment offset a decline in service and
other revenue. Rental revenue was unchanged from the prior year at $72.7
million. A decline in average rental rates per HP due to competitive pricing
pressure was offset by higher utilization rates. The Company's rental fleet
utilization rose to 77% from 74% in the prior year as the Company was successful
in increasing the utilization of units acquired in the Brazos and Halliburton
acquisitions. During fiscal 1997, the Company increased its presence in the
international rental market by deploying an additional 5,000 HP in Argentina.
Fabrication and sales revenue increased 13% from the prior year due to increased
sales of third-party fabricated Ajax compressors. Revenue from international
operations increased $2.7 million to $21.3 million from $18.6 million with a
$1.8 million increase in rental revenue and a $0.9 million increase in
fabrication and sales revenue.
Gross Margin. Gross margin before depreciation and amortization for fiscal
1997 declined $1.2 million, or 2%, to $49.7 million from $50.9 million due to
higher cost of sales related to low margin sales of third party
33
<PAGE>
fabricated Ajax compressor units. The rental gross margin for fiscal 1997
declined $0.7 million, or 2%, to $38.9 million as the efficiencies from
increased utilization of the rental fleet were offset by a 4% decline in average
rental rate per HP.
General and Administrative Expenses. General and administrative expenses
for fiscal 1997 increased $0.5 million to $11.0 million from $10.5 million for
fiscal 1996. The increase is principally due to increased selling expenses
related to the sale of the Ajax units. When expressed as a percentage of
revenue, general and administrative expenses were unchanged at approximately 9%
of revenue.
Net Income. Primarily as a result of the factors discussed above and the
elimination of $3.7 million of interest expense on allocated debt from the
parent company present in the prior year, net income for fiscal 1997 increased
$1.8 million, or 31%, to $7.8 million from $6.0 million for fiscal 1996.
EFFECTS OF INFLATION
In recent years, inflation has been modest and has not had a material
impact upon the results of the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
For the period from April 1, 1997 through February 20, 1998, the Company
generated cash flow from operations of $33.5 million and an additional $3.8
million from the sale of assets. The Company utilized $17.6 million of this cash
flow primarily to add rental equipment to its fleet and $17.9 million to repay
intercompany debt. For the period from February 20, 1998 through March 31, 1998
the Company used approximately $(1.0) million in cash flow for operations,
$(2.0) primarily for the addition of rental equipment, and $(351.9) to acquire
Tidewater Compression Service, Inc. Also during this period, the Company
received approximately $285.0 million in proceeds from issuance of long-term
debt, approximately $16.3 million from the issuance of Common Stock, and $69.8
million from the issuance of prefered stocks.
The Company expects to expend $39 million on capital projects in fiscal
1999. Approximately $20 million is budgeted for expansion of the domestic fleet,
$6 million is for additional expansion into international markets, $10 million
is for maintaining and updating the existing fleet, with the balance of $3
million being for expansion of the fabrication shop in Houston and for new
vehicles for the service technicians and other capital projects. The Company's
principal sources of cash to fund capital requirements will be net cash provided
by operating activities and borrowings under the Revolving Credit Facility.
The Company has elected to treat the Acquisition as a purchase of assets
for federal income tax purposes, substantially increasing the tax basis of its
property and equipment, which will be depreciated over their useful lives. This
will result in approximately $94 million of goodwill, which will be amortized
for federal income tax purposes over a fifteen year period. As a result of the
Transactions, management anticipates that, for federal income tax purposes, the
Company will generate net operating losses; however, the Company may be
obligated to pay federal income taxes as a result of the alternative minimum tax
and to pay foreign income taxes.
The Company's principal uses of liquidity will be to provide working
capital, to fund capital expenditures for both maintenance purposes as well as
to grow the Company's business, to meet required principal and interest payments
on debt obligations and to finance future acquisitions and investments. As a
result of the Transactions, Holdings has incurred a substantial amount of
indebtedness. As of March 31, 1998, Holdings had consolidated indebtedness of
$287 million, and the Company had approximately $48 million of available credit
under the Revolving Credit Facility. Based on this capital structure,
anticipated interest rates and capital spending, Holdings total interest expense
for an entire year would be expected to be $32.5 million of which only $11.1
million will be payable in cash.
The Senior Secured Credit Facilities will be comprised of the Term Loan
Credit Facility and the Revolving Credit Facility. As of February 20, 1998, the
Company had approximately $35 million outstanding on the Revolving Credit
Facility. See 'Description of Other Indebtedness.' The required quarterly
principal repayments under the Term Loan Credit Facility are approximately $0.75
million per year for the first five years, $26.25 million for year six and $45.0
million for year seven. The Company will not be required to make any principal
payments on the Notes prior to maturity other than as described under
'Description of the Notes.' Additionally, no cash interest payments are required
on the Notes until the sixth year.
The Company anticipates that internally generated cash flow coupled with
availability under the Revolving Credit Facility, will be sufficient to fund
domestic and international operations, capital investments and its obligations
to its creditors on both a short and long term basis. The Company's ability to
borrow additional funds
34
<PAGE>
is limited by the Senior Secured Credit Facilities, the Indenture and the
indenture governing the Holdings Notes. See 'Description of Other Indebtedness'
and the 'Description of the Notes.'
RECENTLY ANNOUNCED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ('SFAS 130'), which establishes standards for reporting and display of
comprehensive income and its components. The components of comprehensive income
refer to revenues, expenses, gains and losses that are excluded from net income
under current accounting standards, including foreign currency translation
items, minimum pension liability adjustments and unrealized gains and losses on
certain investments in debt and equity securities. SFAS 130 requires that all
items that are recognized under accounting standards as components of
comprehensive income be reported in a financial statement displayed in equal
prominence with other financial statements; the total of other comprehensive
income for a period is required to be transferred to a component of equity that
is separately displayed in a statement of financial position at the end of an
accounting period. SFAS 130 is effective for both interim and annual periods
begining after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of an Enterprise and Related Information
('SFAS 131'). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS 131 is effective for periods beginning after December
15, 1997.
SEASONAL FLUCTUATIONS
The Company's results of operations have not historically reflected any
material seasonal tendencies.
35
<PAGE>
BUSINESS
GENERAL
Universal Compression is a leading provider of natural gas compressor
rental, maintenance and operations services to the domestic oil and gas
industry, owning the second largest domestic gas compressor fleet, and has a
growing presence in key international markets, including Argentina, Venezuela,
the Pacific Rim, Europe and Canada. The Company has a broad base of over 500
customers and its 512,000 HP gas compression rental fleet is comprised of over
2,700 units. Founded in 1954, Universal Compression is the only compression
rental company with an operating presence in all active domestic gas compression
markets. As a complement to its rental operations, Universal Compression designs
and fabricates compression units for its own fleet as well as for its global
customer base. Universal Compression's involvement in natural gas and oil
production activities, rather than drilling, its geographic diversity and its
fleet standardization have contributed to the Company's high operating margins
and stable revenue and EBITDA. For the fiscal year ended March 31, 1997, the
Company generated revenue of $113.9 million, net income of $7.8 million and
EBITDA of $38.7 million. For the fiscal year ended March 31, 1998, on a pro
forma basis (giving effect to the Transactions) Holdings generated revenue of
$108.8 million, net loss of $(3.2) million and EBITDA of $46.7 million.
Compression equipment is primarily utilized in the production, processing,
transportation and storage of natural gas and in certain applications
facilitating the production of oil. Rental units are primarily employed in the
field compression segment encompassing production and gas gathering. Renting
compression equipment affords customers: (i) the ability to efficiently meet
changing compression requirements while limiting capital investments in such
equipment, (ii) access to the compression rental companies' technical skills
which often leads to improved production rates and (iii) overall reduction in
compression costs through the elimination of expenditures associated with owning
and maintaining compressor units.
The total domestic natural gas field compression market is approximately
16.0 million HP in size, including both operator owned and rental company units.
The domestic field compression segment grew by a compound annual growth rate
('CAGR') of approximately 8% from 1991 through 1996, driven by the growth in
natural gas consumption and, more significantly, by the increase in compression
required to service the nation's aging gas fields and new gas discoveries.
Throughout the same period, the domestic field compression rental market grew at
a CAGR of 13% to approximately 4.0 million HP. The higher growth in the rental
market as compared to the overall market is primarily attributable to the trend
by energy producers towards outsourcing their compression requirements. From
1991 to 1996, rental companies' share of the domestic field compression market
grew from 20% to 25%. In addition, industry sources expect significant growth in
the international field compression market, driven by anticipated high growth
rates in natural gas consumption and by an increased emphasis on cost effective
operations resulting from the ongoing privatization of national energy
organizations and by environmental restrictions on the 'flaring' of natural gas.
36
<PAGE>
BUSINESS STRATEGY
Management and CHP have developed a focused business strategy designed to
increase revenues and EBITDA which comprises the following key elements:
INCREASE SIZE AND AVERAGE HP OF RENTAL FLEET. The Company recently
accelerated its fabrication of upper mid-range (over 500 HP) units for its
rental fleet in an effort to increase the overall size and average HP of its
fleet. Larger HP units are typically used in centralized field gathering and gas
processing, a rapidly growing segment of the compression industry. Larger HP
units are (i) leased under long-term contracts and (ii) experience lower per HP
operating and maintenance costs. The Company believes that its increased
penetration of this market segment will broaden its product line resulting in
enhanced cross-selling opportunities and increased utilization of its existing
fleet. Management believes that the Acquisition and related financings positions
Universal Compression to achieve its goal of increasing the overall size and
average HP of its fleet.
EXPAND IN SELECT INTERNATIONAL MARKETS. Increased international demand for
field gas compression is driven by increasing natural gas demand and production
due to environmental concerns, growing local economies and the desire to develop
a stable local energy source permitting greater oil exports. International
demand for rental units is expected to grow as national oil entities
increasingly privatize and seek to eliminate capital expenditures, lower overall
costs and take advantage of greater technical skills afforded by gas compression
rental companies. With approximately 21,000 HP operating internationally,
Universal Compression has a strategic presence in the rapidly growing rental
compression markets of South America and the Pacific Rim. The Company plans to
leverage its existing presence and strong global reputation for the engineering
and fabrication of high specification gas and air compressors to expand its
offerings in these markets. Further, with increased capital directed toward
larger HP units, Universal Compression will aggressively pursue higher dollar
value, more lucrative international contracts.
EXPAND RENTAL FLEET AND CUSTOMER BASE THROUGH THE ACQUISITION AND LEASEBACK
OF COMPRESSORS. The Company estimates that domestic energy producers,
transporters and processors own and operate approximately 12.0 million HP of
field compression equipment, representing approximately 75% of the total
domestic field compression base. Producers and other industry participants are
increasingly outsourcing essential but non-core activities, including gas
compression services, to focus on core activities and reduce capital investment.
These outsourcing opportunities typically involve sizable fleets of operating
units that are purchased in place and leased back on a long-term basis. The
Company believes that with improved capital availability resulting from the
Acquisition and related financings, it is well positioned to capitalize on such
opportunities for significant fleet growth.
PURSUE INDUSTRY CONSOLIDATION OPPORTUNITIES. The rental compression
services industry has experienced significant consolidation over the past
several years but remains fragmented. In addition to opportunities to achieve
significant integration cost savings, consolidation is being driven by the
expanding needs of customers for the full range of compression services,
equipment and attendant technical skills. The Company initiated the current
phase of industry consolidation in 1994 with the acquisition of Halliburton and
Brazos. The Company believes that continuing industry consolidation will present
it with opportunities to acquire both smaller regional operators and larger
compression service companies and that, as a result of the Acquisition and
related financings, the Company is well positioned to pursue such opportunities.
COMPLEMENT CORE RENTAL BUSINESS WITH ANCILLARY SERVICES. The Company
offers a broad array of services to complement its core rental business. These
services include maintenance, turnkey installation, contract operations and unit
fabrication. These ancillary services enable Universal Compression to (i)
increase its customer base, (ii) increase rental revenue from its existing
fleet, (iii) improve customer loyalty and (iv) diversify its revenue base. In
addition, contract operations enable the Company to grow its business with
limited capital expenditures.
PROMOTE GROWTH THROUGH EMPLOYEE INCENTIVE PROGRAMS. The Company has begun
implementation of an employee incentive program that correlates annual and
long-term compensation with individual and Company performance. That program is
designed to result in the Company's management and employees being given the
opportunity to beneficially own approximately 12% of the common stock of the
Company's parent on a fully-
37
<PAGE>
diluted basis through cash investment, stock grants and stock option awards. The
Company believes such incentives will promote internal growth and facilitate the
successful implementation of the Company's goals.
NATURAL GAS COMPRESSION
OVERVIEW
Compression equipment is utilized in the production, transportation,
processing and storage of natural gas and in certain applications facilitating
the production of oil. Gas compression that is utilized prior to the 'main line
transmission system,' which transports gas from production to storage or the end
user is considered 'field' compression. The Company has been active in both
segments of the field compression market: (i) production and (ii) gas-gathering.
During the production phase, compression is used to boost the pressure of
natural gas from the wellhead so that it can be moved from the well to a
pipeline for transmission to an end-user. Typically, these applications require
portable low to mid-range HP compression equipment located at or near the
wellhead. As wells age and domestic gas reservoir pressure recedes, larger HP
compression equipment is frequently introduced. The continually dropping
pressure levels in gas fields require constant modification and variation of
on-site compression equipment. In addition, gas compression is utilized to
enhance the production of mature oil wells through gas-lift and gas-injection
operations.
During the gas-gathering phase, compression is used to combine gas flowing
from several wells into a gathering line leading to a transmission line. Because
gathering lines are frequently undersized and are used to transmit the combined
production of several wells, higher HP compression applications become
necessary. As noted above, the Company's strategy is to increase the number of
larger HP compression units in its fleet thereby expanding its presence in this
segment of the compression market.
Gas producers, transporters and processors have historically owned most of
the compression equipment used in their operations. At present, owned field
compression equipment is estimated to comprise 75% of total domestic field
compression HP. Owned equipment is usually maintained and operated by these
entities. Gas production and transportation companies that rent compression
equipment (25% of the total domestic field compression HP) have the option of
maintaining and/or operating such equipment themselves or contracting with the
rental company to maintain and/or operate such equipment. Maintenance services
usually call for the rental company to be responsible for the repair and general
up-keep of the equipment while the customer usually remains responsible for
installing and handling the day-to-day operation of the equipment. Operations
services, on the other hand, require the rental company to maintain and operate
and, in many cases, to install the equipment. Often, a rental company providing
operations services will inspect the equipment daily, provide consumables such
as oil and antifreeze and, if necessary, be present at the site for several
hours each day.
By renting compression equipment and/or contracting for the maintenance of
such equipment, the producers, transporters and processors are able to avoid the
costs of (i) purchasing a full line of compression equipment necessary to
service their changing needs, (ii) maintaining a spare parts inventory and (iii)
retaining dedicated compression personnel, including engineers and field service
employees. Management believes that rental companies achieve run times of over
97%, significantly higher than those achieved by owners operating their own
equipment.
NATURAL GAS INDUSTRY
The Company believes that a significant factor in the growth of the gas
compression equipment market is the increasing consumption of natural gas both
domestically and internationally.
In the United States, natural gas is the second leading fuel in terms of
total consumption and is the fuel of choice for power generation and industrial
use. In recent years, natural gas has increased its market share of total
domestic energy consumption. The closure of nuclear power plants and the current
economic expansion have further contributed to the increased consumption of
natural gas. Domestic consumption of natural gas grew from 20.24 trillion cubic
feet ('TCF') in 1991 to 23.32 TCF in 1996, representing a CAGR of 2.9%. Industry
sources forecast a CAGR of 2.3% in domestic natural gas consumption from 1997 to
2015.
Natural gas consumption is growing in the international markets as well,
and it is anticipated that natural gas will overtake coal as the second leading
fuel in terms of total consumption over the next 20 years. Increasing
international natural gas consumption is partially attributable to a growing
environmental awareness and to a
38
<PAGE>
desire by a number of oil exporting nations to develop a local energy source
that permits greater oil exports. Countries that historically treated natural
gas as a by-product of the more valuable oil products and flared gas at the
wellhead are now enacting no-flare requirements and building in-country
infrastructures to utilize natural gas as a clean and viable fuel for local
consumption. Furthermore, electrical power generation requirements are
escalating rapidly in developing countries, and the fuel of choice appears to be
natural gas.
Between 1991 and 1996, natural gas consumption in non-U.S. energy markets
grew from 53.50 TCF to 57.45 TCF, representing a CAGR of 1.4%. Industry sources
forecast natural gas consumption worldwide to grow at a CAGR of 3.8% from 1997
to 2015. It is estimated that natural gas consumption in South America, the
Middle East and the Pacific Rim is expected to grow at a CAGR of 5.9% from 1997
to 2015 with consumption in countries such as Argentina (where natural gas
constitutes 40% of total energy consumption) and Venezuela growing at a CAGR of
3.1% and 6.5%, respectively from 1997 to 2015.
FIELD COMPRESSION INDUSTRY
Increased utilization of natural gas compression equipment is directly
related to changing gas reservoir pressures. As gas is released from gas
formations, the natural reservoir pressure of those formations continually
declines. As the declining pressure approaches the line pressure of the
gas-gathering or pipeline system used to transport the gas, compression
equipment must be applied to boost the pressure in order to allow the gas to be
brought to market. Due in part to declining reservoir pressures, field
compression HP has grown more quickly than gas consumption in the U.S. from 1991
to 1996, with CAGR's (measured in HP) of approximately 8% and 2.9%,
respectively.
The international field gas compression market is substantially smaller
than the domestic market. However, international gas compression is expected to
grow at a faster pace than domestic compression due to accelerating gas
production internationally.
FIELD COMPRESSION RENTAL INDUSTRY
The Company primarily competes in the market for field natural gas
compression equipment. In the United States, this market constitutes compressors
aggregating approximately 16.0 million HP of which approximately 4.0 million HP
is rented. Total domestic rental and other contract field compression service
annual revenue for 1997 has been estimated at $530 million. From 1991 to 1996,
total domestic field compression HP has grown at CAGR of approximately 8% while
total domestic rental compression HP has grown at a 13% CAGR over the same
period. The rented share of total domestic field compression market grew from
20% to approximately 25% between 1991 and 1996.
The domestic rental market growth is driven by increasing natural gas
production, greater compression needs due to declining reservoir pressures and a
continuing trend towards outsourcing by energy producers and processors. Rental
of compression equipment improves the efficiency and financial performance of
their operations through greater availability of a wide variety of gas
compressors, higher rates of mechanical reliability and higher run-time rates.
As contrasted to the domestic market, the international rental compression
market is substantially comprised of large HP compressors which are maintained
and operated by compressor rental providers. A significant portion of the market
is comprised of turnkey installation projects, which includes the design,
delivery, installation, operation and maintenance of the compression and
ancillary gas treating equipment by the rental company. The only matter left to
the responsibility of the customer is to provide fuel gas. Turnkey installation
projects are generally anticipated to remain on-site for five years on average
and result in higher monthly payments due to higher installation costs.
International rental and contract compression revenue are minor in
comparison to total compression revenues. Historically, many international
energy producers have been state-owned entities that are less sensitive or
indifferent to traditional capital markets-influenced concerns about
profitability and cash flow. As state-owned entities privatize, the desire to
enhance cash flow and profitability is expected to motivate these entities to
rent rather than to purchase compression requirements. Energy producers are
replacing the outdated compressors currently being utilized in many
international areas. As a result of these factors, the market for rental
compression is expected by industry experts to grow as more companies realize
the benefits of rental compression.
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<PAGE>
COMPANY OPERATIONS
HISTORY
The Company was originally incorporated in 1954 under the name South Coast
Gas Company. Tidewater acquired South Coast Gas Company in 1968 and renamed it
Tidewater Compression Service, Inc. At the time of its acquisition by Tidewater,
the Company had five employees and a fleet of natural gas compressors consisting
of 35 units that generated approximately $500,000 of annual rental revenue.
Between 1968 and 1992, the Company increased its fleet of natural gas
compressors to 800 units, through both internal growth and the acquisition of
three gas compression rental companies. From 1993 to 1995, the Company grew
dramatically through the acquisition of four rental compression companies:
Allison Production Services and BJC Operating Company in 1993 and Halliburton
and Brazos in 1994.
Since 1995, the Company has focused on integrating these acquisitions as
well as (i) improving its nationwide field service and marketing capabilities,
(ii) centralizing management at its headquarters, (iii) instituting uniform
quality controls, (iv) standardizing maintenance and central overhaul procedures
and (v) implementing consistent Company-wide pricing. During this period,
management also focused its attention on creating a strong base of international
operations. At the same time, the former parent of the Company, Tidewater,
focused on its core marine support business thereby limiting growth capital
available to the Company.
OVERVIEW
The Company provides a full range of compressor rental, maintenance and
operations services to a broad base of over 500 customers. These operations are
complemented by its compressor design and fabrication operations, through which
the Company produces compressors for sale to third parties, as well as for its
own rental fleet.
RENTAL COMPRESSOR FLEET
At June 30, 1998, the Company owned over 2,700 natural gas compressors
ranging in size from 15 HP to 1,300 HP, with an average of 185 HP as reflected
in the following table.
FLEET BREAKDOWN
DECEMBER 31, 1997
<TABLE>
<CAPTION>
HP RANGE TOTAL HP % OF TOTAL
- -------- -------- ----------
<S> <C> <C>
0 - 100........................................ 67,060 13.1%
101- 200........................................ 118,651 23.2%
201- 500........................................ 174,377 34.0%
501-1,300....................................... 152,298 29.7%
--------- ------------
Total......................................... 512,386 100.0%
--------- ------------
--------- ------------
</TABLE>
The Company has standardized its rental fleet around two equipment
platforms: Ajax for smaller HP applications and Ariel for larger HP
applications. Over 90% of the HP of the Company is of these two types. This high
level of fleet standardization and durability (i) enables the Company to
minimize its fleet maintenance capital requirements, (ii) enables the Company to
minimize inventory costs, (iii) facilitates low-cost compressor resizing, and
(iv) allows the Company to develop strong technical proficiency in its
maintenance and overhauling operations. The Company believes that this
standardization has allowed it to realize high run-time rates while maintaining
low operating costs, which benefits both the Company and its customers.
The Company's Ajax fleet is a significant factor in the Company's stable
customer base. Many customers have exhibited loyalty to Ajax compressors because
of their high reliability. Also, due to its design, the Ajax compressor burns
the broadest variety of fuel gas, including 'sour' gas, which is produced in a
number of domestic and international regions.
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<PAGE>
There has been substantial growth in customer demand in recent years in the
over 500 HP category, and management intends to focus future growth on this
segment of the market. In developing the Company's higher HP fleet of
compressors, the Company intends to fabricate units for its fleet primarily
utilizing Ariel compressors driven by Caterpillar engines. These compressors
operate at higher speeds and, although larger than the low HP compressors, are
transportable. The Company believes that the combination of these larger HP
units and the lower HP Ajax units position the Company to offer services to all
segments of field gas production and gathering.
RENTAL CUSTOMERS
The Company's customer base consists of over 500 U.S. and international
companies engaged in all aspects of the oil and gas industry, including major
integrated oil and gas companies, large and small independent producers, natural
gas processors, gatherers and pipelines. No single rental customer accounts for
as much as 10% of the Company's total revenues. The Company's top 20 customers
accounted in fiscal 1998 for approximately 50% of rental revenues. The Company
maintains no exclusive contractual relationships with any of its customers,
although three of its top 20 customers deal on a substantially exclusive basis
with the Company. All but one of the Company's top 20 customers have been
customers of the Company for more than three years, reflecting stability in the
Company's customer base.
DOMESTIC OPERATIONS
The Company's domestic operations account for over 95% of its deployed
rental fleet, which has been installed in a diverse geographic area. The Company
has compressor services operations in 23 of the 48 contiguous states. The
Company's marketing and client service functions are performed on a coordinated
basis by the Company's salesmen, field service personnel and engineers. Salesmen
regularly visit their customers to determine customer satisfaction and needs
with respect to current services being provided to that customer and to
ascertain potential future compressor requirements. Salesmen also communicate
regularly with field service employees who, in many cases, have day-to-day
relationships with key customer personnel and may have advance notice of
customer planning. When a salesman is advised of a new rental opportunity, that
salesman obtains relevant information concerning the project including gas flow,
pressure and composition. The salesman will then search a computerized data base
to determine the availability of an appropriate compressor unit in the Company's
fleet for that project. The salesman will also determine if the available unit
requires maintenance, reconfiguration or major overhaul. If providing the
appropriate unit would entail significant overhaul cost, the salesman will
communicate with the engineer and field service personnel for the customer as
well as contact a supervisor to determine the timing of the required maintenance
or overhaul, whether a competitive price can be offered and the ultimate pricing
of such bid. This ongoing communication between the sales, field service and
overhaul personnel allows the Company to quickly identify and respond to
customer requests.
For larger HP installation, including turnkey opportunities, the Company's
engineers are highly involved in the early stages of the bidding process. For
these projects, the proposal is reviewed at the Company's headquarters.
INTERNATIONAL OPERATIONS
In recent years, the Company has been expanding its presence in the
developing international compression rental markets including Argentina,
Venezuela, the Pacific Rim, Europe and Canada. As of June 30, 1998, the Company
had 37 units aggregating approximately 21,000 HP operating under contract in
these markets. The Company has three international sales offices with three
salespeople dedicated to the international business. The Company's presence in
the international compression markets, which dates back five years, has
generated higher margins for the Company and has produced longer-term contracts
than its domestic business. For the twelve months ended March 31, 1998,
approximately 7.0% of the Company's rental revenue was generated
internationally.
The Company's international operations are oriented to larger HP compressor
markets and frequently involve turnkey projects, as discussed above. These
projects require the Company to provide complete engineering and design in the
bidding process. Commercial negotiations proceed only after the acceptance of
the proposed engineering designs and concepts. The Company believes that, due to
this necessity for a high level of
41
<PAGE>
technical capabilities, its experience and reputation provides it with a
competitive advantage in gaining future business internationally.
RENTAL CONTRACTS
The Company's rental contracts utilize variable formats of a standard
rental contract associated with a Master Service Agreement ('MSA'). The standard
rental contract documents the technical specifications, equipment selection and
performance, site location and pricing of the individual project and
incorporates the MSA by reference. When issued by sales personnel in the field,
the standard rental contract is called a 'Quick Quote,' which can be computer
generated when quoting equipment to a customer in his office. By referencing the
MSA, the Quick Quote becomes the contract as soon as it is signed by the
customer. Rental rates are generally determined by compressor category based on
the Company's standardized rental rates with variations as necessary to secure
the rental contract and assure profitability of that contract.
Over 98% of the Company's rental agreements provide for full maintenance.
Optional items such as oil, antifreeze, freight, insurance and other items may
be either itemized or included in the basic monthly rental rate. Initial rental
terms are usually six months with some projects committed for as long as five
years. After the initial term, rentals continue at the option of the lessee on a
month to month basis. The average length of time that a compressor is on a
single location with a single configuration is 24 months. After that time, the
compressor is either reconfigured for the current conditions or installed in a
different location. This constant need for varying the configuration of
compressor packages in the same location is a significant advantage for leased
compressors as compared to owned compression equipment.
The Company's international contracts are substantively similar to domestic
contracts subject to language and local law modifications. In the
Spanish-speaking countries of South America, the contracts differ significantly
from domestic contracts because individual contracts are negotiated for each
project.
MAINTENANCE AND OVERHAUL SERVICES
The Company maintains two major overhaul facilities, one in Houston, Texas
and the other in Mineral Wells, Texas. The Company maintains a third overhaul
facility located in Grand Junction, Colorado as well as 23 field service
facilities. The Company provides maintenance services on substantially all of
its rental fleet and operations services for most of its larger HP units.
Maintenance services include the repair and general up-keep of compressor
equipment. As an adjunct to its maintenance business, the Company offers (at
additional cost) supplies and services such as antifreeze, lubricants, property
damage insurance on the equipment, and prepaid freight to the job site. The
Company also may provide for installation, which for its typical lower,
mid-range and smaller HP units involves significantly less engineering and cost
than the turnkey concept prevalent in the international markets as discussed
above.
The Company's field gas compressors are maintained in accordance with
daily, weekly, monthly and annual maintenance schedules that have been developed
and refined over the Company's long history of maintaining and operating its
compressors. These procedures are constantly updated as technology changes and
operations develop new techniques and procedures. In addition, by providing
maintenance on substantially all of the Company's installed compression
equipment, its field technicians are able to know the status of that equipment
and identify potential problems.
At the termination of a unit's rental, the field service representative who
has been maintaining the equipment completes a comprehensive report detailing
the mechanical condition of the unit. Based on this report and depending upon
whether the unit is scheduled for immediate redeployment, the unit is then
either overhauled in the field, shipped to a field service location for a
maintenance overhaul or directed to one of the two major overhaul facilities.
When units are scheduled for immediate redeployment, the Company will typically
perform necessary overhauls in the field if the requirements are minor. On
average, each of the Company's units undergoes a major overhaul once every five
years. A major overhaul involves the rebuilding of the unit in order to
materially extend its useful life. Approximately one half of the units which are
being prepared for a new site are overhauled in the field or at a field service
facility, while the other half are sent in for major overhauls or
reconfigurations.
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<PAGE>
The Company has over 200 well trained and equipped field service
representatives located throughout the United States. These employees are
responsible for preventive maintenance, repair, preparation and installation of
rental units. In addition, over 50 trained mechanics perform major overhaul and
unit rework in the major shops. Each overhaul facility is capable of overhauling
approximately 200 compressor packages per year and is equipped with in-house
engine rebuild and test equipment, full machine shops, environmentally-approved
painting facilities and high capacity cranes. The Mineral Wells location also
operates a state-of-the-art unit test loop and functions as a full time training
center.
The Company also has a technical service group which is involved in the
Company's turnkey proposals and monitors the Company's larger HP units. This
group is assisted by equipment that permits field diagnostic analyses of engines
and compressors, as well as emission analyses ascertaining compliance with
regulatory requirements.
OPERATIONS SERVICES
The Company provides complete operations services on most of its larger HP
units, including its international units, and on customer-owned units. Operating
a compressor involves working closely with a customer's field service personnel
so that the compressor can be adjusted to efficiently match changing
characteristics of the gas produced. The Company generally operates large HP
compressors, the fee for which is included as part of the rental rate. Large HP
units are more complex and by operating the equipment the Company reduces its
maintenance and overhaul expenses. While the Company does not require its
customers to retain the Company to operate smaller HP units, the Company trains
its customers' personnel in fundamental compressor operations.
FABRICATION AND SALES
As a complement to its compressor services operations, the Company designs,
engineers, assembles and sells gas and air compressors for engineering and
construction firms, as well as for exploration and production companies both
domestically and internationally. Twenty-five percent of the Company's total
revenues for the twelve months ended December 31, 1997 were generated from its
fabrication and sales operations. In addition, the Company produces compressors
for its own fleet. When servicing third-party customers, the Company provides
its customers with compressors that are built in accordance with specific
criteria of the purchaser ('engineered products') as well as compressors that
are prepackaged ('standard products'). The Company utilizes both Caterpillar and
Waukesha gas engines for larger HP compressor units. Also, the Company acts as a
distributor for Ariel gas compressors. The Company's standard products
operations acts as a distributor in the Houston area for Atlas Copco, the
largest manufacturer of air compressors in the world. Certain of the compressors
manufactured by these entities are also used by the Company in its design and
fabrication operations. In addition to these services, the Company has developed
a significant position as a provider of complex fuel gas booster systems for the
co-generation industry both domestically and abroad.
EMPLOYEES
As of June 30, 1998, the Company had 490 employees. None of the Company's
employees are covered by a collective bargaining agreement. Management believes
that the Company's relationship with its employees is satisfactory.
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<PAGE>
PROPERTIES
The following table describes the Company's owned facilities:
OWNED FACILITIES
<TABLE>
<CAPTION>
LOCATION SQUARE FEET ACREAGE USES
- -------- ----------- ------- ----
<S> <C> <C> <C>
Houston, TX.................................. 94,000 30.0 Overhaul
Mineral Wells, TX............................ 83,000 37.0 Overhaul
Bridgeport, TX............................... 18,000 2.5 Field service
Grand Junction, CO........................... 11,000 2.8 Overhaul
Stinett, TX.................................. 4,000 4.0 Field service
</TABLE>
In addition to the Company's owned facilties, the Company leases 21 field
service offices and three international sales offices.
COMPETITION
The natural gas compression service and fabrication business is highly
competitive. The Company is the second largest natural gas compression company
in the United States on the basis of aggregate rental HP. As of December 31,
1997, the Company's main competitors were Hanover Compressor Company, Production
Operators, Weatherford Enterra, Global Compression, Compressor Systems, J-W
Operating, Dresser Rand and Equity Compression. The Company believes that it
competes effectively on the basis of customer service (including the
availability of personnel in remote locations), price flexibility in meeting
customer needs and quality and reliability of its compressors and related
services.
Compressor industry participants can achieve significant advantages through
increased size and geographic breadth. As the number of rental units increases
in a rental fleet, the number of sales, engineering, administrative and
maintenance personnel required does not increase proportionately. As a result,
companies with larger rental fleets have relatively lower operating costs and
higher margins due to economies of scale than smaller companies.
One of the significant cost items in the compressor rental business is the
amount of inventory required to service rental units. Each rental company must
maintain a minimum amount of inventory to stay competitive. As the size of the
rental fleet increases, the required amount of inventory does not increase in
the same proportion. The larger rental fleet companies can generate cost of
capital savings through reduced percentage of inventory. These cost savings are
particularly significant for a company which has a reduced inventory on account
of its standardized fleet.
The Company's compressor fabrication business competes with other
fabricators of compressor units. The compressor fabrication business is
dominated by a few major competitors, several of which also compete with the
Company in the compressor rental business.
GOVERNMENTAL REGULATION
The Company is subject to various federal and state laws and regulations
relating to environmental protection, including, but not limited to, regulations
regarding emission controls. These laws and regulations may affect the costs of
the Company's operations. As with any owner of property, the Company is also
subject to clean-up costs and liability for hazardous materials, asbestos, or
any other toxic or hazardous substance that may exist on or under any of its
properties.
The Company believes that it is in substantial compliance with
environmental laws and regulations and that the phasing in of emission controls
and other known regulatory requirements at the rate currently contemplated by
such laws and regulations will not have a material adverse effect on the
Company's financial condition or results of operations. Notwithstanding the
foregoing, the Company may not be in full compliance with certain
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<PAGE>
environmental requirements, in part because of the Company's growth through
several acquisitions. For example, some of the Company's facilities may not
possess proper waste generation identification numbers, may not be in compliance
with underground storage tank ('UST') registration requirements, and may require
the installation of secondary containment around various material storage areas.
In addition, the Company is in the process of determining whether it needs
certain permits (such as stormwater and waste water discharge permits and air
emission permits) or certain plans (such as SPCC Plans) at several of its
facilities. If the Company determines it is not in full compliance with all
applicable environmental laws, it intends to take the necessary action to bring
itself into compliance.
The Comprehensive Environmental Response, Compensation and Liability Act
('CERCLA'), also known as the 'Superfund' law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
considered responsible for the release of 'hazardous substances' into the
environment. These persons include the generator of hazardous substances, the
past or present owner or operator of the disposal site where the release
occurred and companies that transported the hazardous substances to the site.
Under CERCLA, such responsible persons may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources, for the costs
of certain health studies and other costs. Furthermore, it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by hazardous substances or other
pollutants released into the environment. The Company could incur future
liability under Federal, state and common law, including CERCLA and its state
law counterparts, for any such damages that occur as a result of its past
operations.
The Resource Conservation and Recovery Act ('RCRA') and regulations
promulgated thereunder govern the generation, storage, transfer and disposal of
hazardous wastes. The Company must comply with RCRA regulations for any of its
operations that involve the generation, management, or disposal of hazardous
wastes (such as painting activities or the use of solvents).
Studies performed prior to the Acquisition indicated that conditions at
certain properties previously or currently owned or operated by the Company may
require remediation under environmental laws. Additional studies of Company
properties are ongoing, which may further define remedial obligations, the costs
of which may be material. The Company believes that former owners and operators
of many of these properties, including but not limited to Tidewater (see
'Description of the Company Acquisition'), are responsible under environmental
laws and contractual agreements to pay for or perform such remediations, or to
indemnify the Company for its remedial costs. There can be no assurance that
such other entities will fulfill their legal or contractual obligations, and
their failure to do so could result in material costs to the Company.
Stricter standards in environmental legislation or regulations that may
affect the Company may be imposed in the future, such as proposals to make
hazardous wastes subject to more stringent and costly handling, disposal and
clean-up requirements. Accordingly, new laws or regulations or amendments to
existing laws or regulations could require the Company to undertake significant
capital expenditures and could otherwise have a material adverse effect on the
Company's business, results of operations and financial condition. See 'Risk
Factors-- Environmental Regulation.'
Since 1992, there have been various proposals to impose taxes with respect
to the energy industry, none of which have been enacted and all of which have
received significant scrutiny from various industry lobbyists. At the present
time, given the uncertainties regarding the proposed taxes, including the
uncertainties regarding the terms which the proposed taxes might ultimately
contain and the industries and persons who may ultimately be the subject of such
taxes, it is not possible to determine whether any such tax will have a material
adverse affect on the Company.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or
proceeding and is not aware of any such litigation or proceeding threatened
against it.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each
person who is an executive officer or director of Holdings:
DIRECTORS AND EXECUTIVE OFFICERS:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Thomas C. Case..................................... Director
John K. Castle..................................... Director
Ernie Danner....................................... Chief Financial Officer, Executive Vice President
and Director
William J. Lovejoy................................. Director
C. Kent May........................................ Director
Jeffrey M. Siegal.................................. Director
Stephen A. Snider.................................. President, Chief Executive Officer and Director
Samuel Urcis....................................... Director; Chairman of the Executive Committee of
the Board of Directors
Valerie L. Banner.................................. Senior Vice President and General Counsel
Thomas E. Hartford................................. Executive Vice President
Robert D. Ryan..................................... Senior Vice President
Newton Schnoor..................................... Senior Vice President and Controller
</TABLE>
The Company is party to employment agreements with respect to Messrs.
Danner, Snider, Schnoor, Ryan and Hartford. For a description of the current
employment arrangements with respect to Messrs. Danner, Snider, Schnoor, Ryan
and Hartford, and Ms. Banner, see '--Executive Compensation; Employment
Agreements.' No family relationship exists between any of the executive officers
or between any of them and any director of the Company.
The following individuals serve as Directors of Holdings:
Thomas C. Case (49) is the General Manager of Global Bas Marketing at Mobil
and he is responsible for coordinating Mobil's interests in gas marketing
worldwide. From 1996 to 1997, Mr. Case was the Executive Vice President of Pan
Energy Trading and Market Services, a joint venture between Pan Energy and
Mobil. From 1991 to 1997, he held various positions with Mobil serving at
various times as President and Executive Vice President/Chief Operating Officer
of Mobil Natural Gas Inc., Manager of Strategic Planning for Exploration and
Production of Mobil and President of Mobil Russia.
John K. Castle (57) has been Chairman of CHI since 1987. Mr. Castle is
Chairman of Castle Harlan Partners III G.P., Inc., which is the general partner
of the general partner of CHP, Holdings' controlling stockholder. Immediately
prior to forming CHI, Mr. Castle was President and Chief Executive Officer and a
Director of Donaldson, Lufkin and Jenrette, Inc., one of the nation's leading
investment banking firms. Mr. Castle is a Director of Sealed Air Corporation,
Morton's Restaurant Group, Inc., Dearborn Risk Management, Inc. and
Commemorative Brands, Inc., a Managing Director of Statia Terminals Group, N.V.,
and is a member of the corporation of the Massachusetts Institute of Technology.
Mr. Castle is also a Trustee of the New York and Presbyterian Hospitals, Inc.,
the Whitehead Institute of Biomedical Research and New York Medical College (for
11 years serving as Chairman of the Board). Formerly, Mr. Castle was a Director
of the Equitable Life Assurance Society of the United States.
Ernie Danner (44) joined the Company and Holdings as Chief Financial
Officer and Executive Vice President upon consummation of the Acquisition. Most
recently, Mr. Danner has served as Chief Financial Officer and Senior Vice
President of MidCon Corp., an interstate pipeline company, which was a
wholly-owned
46
<PAGE>
subsidiary of Occidental Petroleum Corporation. From 1988 until May of 1997, Mr.
Danner served as Vice President, Chief Financial Officer and Treasurer of
INDSPEC Chemical Company and he also served as a director of INDSPEC. Prior
to that time, he was the Executive Vice President-Finance, Administration and
Planning of Adams and Porter, an international agency specializing in marine and
energy insurance, from 1984 to December 1988.
William J. Lovejoy (30) is a Vice President of CHI, with which he has been
associated since 1994. During 1992, and from 1993 to 1994, Mr. Lovejoy was a
management consultant at The Boston Consulting Group, Inc. From 1991 to 1993 he
attended Harvard Business School, and prior to that worked as an analyst at
Wasserstein Perella & Co., Inc. Mr. Lovejoy serves as a Director of
Commemorative Brands, Inc. and Homestead Insurance Company.
C. Kent May (58) is a Senior Vice President, General Counsel, Secretary and
a Director of Anchor Glass Container Corporation. He is General Counsel and a
Director of Consumers Packaging Inc., Canada's largest glass container
manufacturer, and a Director of Fabrica de Envases de Vidrio, S.A. de C.V., a
Mexican glass container manufacturer. He serves as General Counsel to Glenshaw
Glass Company and G&G Investments, Inc., a privately-held investment company. He
is also a manager and secretary of Main Street Capital Holdings, L.L.C., a
merchant banking firm and a Director of The Stiffel Company. He has been an
associate, partner or Member of the law firm of Eckert Seamans Cherin & Mellott,
L.L.C. since 1964 and was Managing Partner of the firm from 1991 to 1996. Mr.
May is a Trustee of the Pittsburgh Public Theater, a Director of the Mendelssohn
Choir and a Director of the Mario Lemieux Foundation and the John Ghaznavi
Foundation. He is a graduate of the University of Pittsburgh School of Law,
where he was elected to the Order of the Coif and served as managing editor of
the University of Pittsburgh Law Review.
Jeffrey M. Siegal (38) is a Managing Director of CHI, with which he has
been associated since 1989. He is a Director of Dearborn Risk Management, Inc.
From 1987 to 1989, Mr. Siegal attended the Harvard Business School. From 1984 to
1987 he served in the Air Force Systems Command of the United States Air Force,
ultimately as a Captain and program manager. Before joining the Air Force, Mr.
Siegal worked at Woodward & Dickerson, an international trading company.
Stephen A. Snider (50) has been President of the Company since 1991. Mr.
Snider joined Tidewater in 1975 as General Manager of the Company's fabrication
operations. In 1979, Mr. Snider established the Company's operation in the
Northeastern United States. In 1981, he assumed responsibility for the Western
United States operations of the Company. Mr. Snider left the Company in 1983 to
own and operate businesses unrelated to the energy industry. He returned to the
Company in 1991 in his current position. Mr. Snider has 22 years of experience
in senior management of operating companies.
Samuel Urcis (63) is a General Partner of Alpha Partners, a venture capital
firm which he co-founded in 1982. From 1979 to 1982, and since 1997, Mr. Urcis
has been an investor and advisor in the energy field, primarily in the oilfield
services and equipment sector. From 1972 to 1979, Mr. Urcis was with Geosource
Inc., a diversified services and equipment company, which he conceptualized and
co-founded. Mr. Urcis served in the capacity of Chief Operating Officer and Vice
President of Corporate Development. From 1955 to 1972, Mr. Urcis served in
various technical and management capacities at Rockwell International, Hughes
Aircraft, Aerolab Development Company and Sandberg-Serrell Corporation. He
currently serves on the Board of Accuwave Corporation, a privately held company.
Mr. Urcis is currently a Director of the Glaucoma Research Foundation, and has
served as Trustee of the Monterey Institute of International Studies.
The following individuals serve as additional Executive Officers of
Holdings:
Valerie L. Banner (43) has been Senior Vice President and General Counsel
of the Company since June 1998. Ms. Banner was in private practice from March
1996 to May 1998. From 1990 to 1996, Ms. Banner was employed as Vice President
and General Counsel of Team Industry Inc., an American Stock Exchange Company
providing industrial services.
Thomas E. Hartford (49) has been Executive Vice President and General
Manager of the Company since 1994. Mr. Hartford joined the Company in 1982 as a
District Manager, and transferred to Houston in 1986 where he became Regional
Sales Manager. In 1987, Mr. Hartford assumed responsibility for Western United
States operations of the Company's rental operations. From 1973 to 1982, Mr.
Hartford held sales and management
47
<PAGE>
positions in the agricultural industry. He has 16 years of experience in senior
management of operating companies.
Robert D. Ryan (42) has been a Senior Vice President and General Manager of
the Company since 1994. Prior to this position, Mr. Ryan was the Branch Manager
of the Company's Houston office for one year, as well as for the Dallas office
for seven years. Mr. Ryan's first appointment to management was to Branch
Manager of the Odessa office where he served for two years. In 1980, he was
hired at the Dallas office in a sales position for the Company's fabrication
operations. Prior to his tenure at the Company, Mr. Ryan worked for Air
Compressor Sales and Service in Dallas, Texas and for Worthington Compressors in
Midland, Texas. Mr. Ryan has 22 years of experience in the compression industry.
Newton Schnoor (50) has been Vice President and Controller of the Company
since 1985. Mr. Schnoor joined Tidewater in 1979 as Controller of the Western
Division of the Company's rental operations. In 1985, Mr. Schnoor supervised the
national consolidation and reorganization of the accounting group in Houston.
These actions merged accounting groups from three different groups of the
Company. Mr. Schnoor was made an officer of the Company in 1987.
COMPENSATION OF DIRECTORS
Directors who are not (i) officers of the Company, (ii) affiliated with CHI
and (iii) otherwise being paid directly or indirectly from the Company will
receive an annual fee of $20,000, $750 per Board of Directors or committee
meeting attended and reasonable out-of-pocket expenses. At present, only C. Kent
May and Thomas C. Case would be entitled to such compensation. Except as set
forth above, Directors are not provided with any compensation for their services
other than the reimbursement of expenses associated with attending meetings of
the Board of Directors or any committee thereof.
LIMITATIONS ON OFFICER'S AND DIRECTOR'S LIABILITY
Holdings' Certificate of Incorporation, in the case of directors, and
Holdings By-Laws, in the case of officers, provide that such directors and
officers are indemnified to the fullest extent permitted by law.
The Company and Holdings have entered into indemnification agreements with
its directors that, among other things, require the Company and Holdings to
indemnify the directors to the fullest extent permitted by law, and to advance
to the directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. The Company and
Holdings are also required to indemnify and advance all expenses incurred by
directors seeking to enforce their rights under the indemnification agreements,
and cover directors under Holdings' directors' and officers' liability
insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors pursuant to the foregoing provision, Holdings has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
Prior to the consummation of the Acquisition, the Company and Holdings
entered into a Management Agreement (the 'Management Agreement') with CHI, as
Manager, pursuant to which the Manager agreed to provide business and
organizational strategy, financial and investment management and merchant and
investment banking services to the Company and Holdings upon the terms and
conditions set forth therein. As compensation for such services, the Company
will pay to the Manager $3.0 million per year, which amount was paid in advance
for the first year and will be payable quarterly in advance thereafter. The
agreement is for a term of five years, renewable automatically from year to year
thereafter unless CHP or its affiliates then beneficially owns less than 20% of
the then outstanding capital stock of Holdings. The Company and Holdings agreed
to indemnify the Manager against liabilities, costs, charges and expenses
relating to the Manager's performance of its duties, other than such of the
foregoing resulting from the Manager's gross negligence or willful misconduct.
In addition, the
48
<PAGE>
Company agreed to reimburse CHI for any reasonable out-of-pocket expenses
incurred by CHI in connection with the Transactions.
Registration Rights Agreement
Prior to the consummation of the Acquisition, Holdings entered into a
registration rights agreement (the 'Holdings Registration Rights Agreement')
with CHP and certain other stockholders of Holdings (the 'Stockholders'). Under
the Holdings Registration Rights Agreement, the Stockholders have the right,
subject to certain conditions, to require Holdings to register any or all of its
shares of common stock of Holdings under the Securities Act at Holdings'
expense. In addition, the Stockholders are entitled to inclusion (subject to
limitations) of any shares of common stock of Holdings subject to the Holdings
Registration Rights Agreement in any registration statement at Holdings' expense
whenever Holdings proposes to register any of its common stock under the
Securities Act. In connection with all such registrations, Holdings has agreed
to indemnify all of the Stockholders against certain liabilities, including
liabilities under the Securities Act.
Stock Repurchase Agreement
Prior to the consummation of the Acquisition, Holdings entered into a Stock
Repurchase Agreement with certain of the Company's employees. This agreement,
among other things, gives Holdings the right, and, in certain limited
circumstances, the obligation, to repurchase the common stock of Holdings upon
certain triggering events at an appraised value or at cost.
Samuel Urcis Arrangements
In consideration for finder services rendered by Samuel Urcis ('Urcis') to
TW, Holdings and Urcis have entered into an agreement with the following terms:
1. Urcis will be elected as a director of Holdings and as Chairman of
the Executive Committee.
2. Urcis will be paid a finders fee of $1,750,000, $1,100,000 of which
was used to purchase shares of capital stock of Holdings at the same price
per share as was paid by CHP.
3. Urcis will be granted an option to purchase the number of shares of
Holdings common stock equivalent to 1.8% of the Holdings common stock
outstanding at the closing of the Acquisition.
4. Urcis will perform consulting services for the Company and be
entitled to a consulting fee of $150,000 per year.
The obligations set forth under items 1-3 were satisfied at the
closing of the Acquisition.
Urcis' rights and obligations under items 1 and 4 above extend for five
years from consummation of the Acquisition and thereafter automatically for one
year periods unless either of the parties elect to terminate these provisions.
In addition, the Company reimbursed CHP for advances made by CHP to Urcis for
out-of-pocket expenses incurred by him in connection with the Acquisition, which
reimbursement did not exceed $50,000 in the aggregate.
Stockholders Agreement
Holdings, CHP and certain stockholders of Holdings entered into a
stockholders agreement providing for the following: (i) the right of such
holders to join in certain sales of capital stock of Holdings by CHP; (ii) the
right of CHP and each such holder to purchase capital stock of Holdings to
maintain its percentage ownership in the event of certain sales by Holdings of
such stock; (iii) the right of CHP to require such holders to sell their shares
of such stock upon a sale by CHP of substantially all of its interest in
Holdings; (iv) the obligation of each such holder to offer Holdings or CHP the
opportunity to purchase the capital stock of Holdings owned by such holder in
the event of a proposed sale by such holder of such stock; (v) the restrictions
on sales or transfers of such stock; and (vi) certain obligations of Holdings,
including reporting and Board of Director observer rights in favor of such
holders.
49
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John K. Castle and Jeffrey M. Siegal are the sole members of the
Compensation Committee. No other employee or director of the Company or
Holdings is a member of the Compensation Committee. There are no compensation
committee interlocks (i.e., no executive officer of the Company serves as a
member of the board of directors or the compensation committee or another
entity which has an executive officer serving on the Board of Directors or
the compensation committee of the Company).
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
The following table sets forth the annual and long-term compensation for
the Chief Executive Officer of the Company and the five highest paid officers
(other than the Chief Executive Officer), as well as the total compensation paid
to, or earned by, each such individual for fiscal year 1998.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
-------------------- UNDERLYING ALL OTHER
SALARY BONUS OPTIONS(2) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- ---------------------------------------------------- ---- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen A. Snider................................... 1998 170,000 172,500 6,619 1,128,976(3)
President & Chief Executive Officer
Thomas E. Hartford.................................. 1998 117,083 69,250 4,780 352,389(4)
Executive Vice President
Robert D. Ryan...................................... 1998 89,250 38,800 2,206 80,072(5)
Senior Vice President
Newton Schnoor...................................... 1998 78,354 48,600 2,206 106,245(6)
Senior Vice President & Controller
Ernie Danner........................................ 1998 13,836 -- 4,780 350,492(7)
Chief Financial Officer
Valerie L. Banner................................... 1998 -- -- 2,206 --
Senior Vice President & General Counsel
</TABLE>
- ------------------
(1) Salaries and bonuses paid to Messrs. Snider, Hartford, Ryan, Schnoor and
Danner reflect compensation paid during fiscal year 1998, including salaries
and bonuses payable pursuant to the employment agreements, which became
effective on February 20, 1998. Ms. Banner has been employed with the
Company since June 1, 1998. Her annual base salary is $100,000 with a target
bonus of 50% of her base salary (see below).
(2) Includes options to purchase shares of common stock of Holdings only.
(3) Includes (a) a matching contribution by Tidewater and the Company to Mr.
Snider's 401K account of $2,069, (b) $3,876 in health premiums paid by the
Company on behalf of Mr. Snider under Tidewater's and the Company's
Executive Medical Plans, (c) $3,031 paid by Tidewater on behalf of Mr.
Snider pursuant to Tidewater's Supplemental Savings Plan, and (d) $1,120,000
paid to Mr. Snider as incentive compensation pursuant to the consummation of
the Transactions.
(4) Includes (a) a matching contribution by Tidewater and the Company to Mr.
Hartford's 401K account of $2,075, (b) $3,876 in health care premiums paid
by the Company on behalf of Mr. Hartford under the Company's Executive
Medical Plan, (c) $1,438 paid by Tidewater on behalf of Mr. Hartford
pursuant to Tidewater's Supplemental Savings Plan, and (d) $345,000 paid
to Mr. Hartford as incentive compensation pursuant to the consummation
of the Transactions.
(5) Includes (a) a matching contribution by the Company to Mr. Ryan's 401K
account of $2,678, (b) $394 in health care premiums paid by the Company on
behalf of Mr. Ryan under the Company's Executive Medical
(Footnotes continued on next page)
50
<PAGE>
(Footnotes continued from previous page)
Plan, and (c) $77,000 paid to Mr. Ryan as incentive compensation pursuant to
the consummation of the Transactions.
(6) Includes (a) a matching contribution by the Company to Mr. Schnoor's 401K
account of $2,351, (b) $394 in health care premiums paid by the Company on
behalf of Mr. Schnoor under the Company's Executive Medical Plan, and (c)
$103,500 paid to Mr. Schnoor as incentive compensation pursuant to the
consummation of the Transactions.
(7) Includes (a) a matching contribution by the Company to Mr. Danner's 401K
account of $169, (b) $323 in health care premiums paid by the Company on
behalf of Mr. Danner under the Company's Executive Medical Plan, and (c)
$100,000 in cash and $250,000 in Holdings' capital stock (valued at the CHP
purchase price) paid to Mr. Danner as incentive compensation pursuant to the
consummation of the Transactions.
The following table sets forth grants of options to purchase shares of
Common Stock of Holdings during fiscal year 1998 to such persons.
OPTION GRANTS IN 1998(1)
OPTIONS GRANTED IN LAST FISCAL YEAR AND POTENTIAL REALIZABLE VALUES
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES
PERCENT OF OF STOCK PRICE
NUMBER OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS OPTIONS
UNDERLYING GRANTED TO EXERCISE OR TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------
NAME GRANTED(2) 1998 ($/SHARE) DATE 5% 10%
- ---- ---------- ------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Snider....................... 6,619 18.94 $50 2/20/08 208,133 527,449
Thomas E. Hartford...................... 4,780 13.68 $50 2/20/08 150,306 380,904
Robert D. Ryan.......................... 2,206 6.31 $50 2/20/08 69,367 175,790
Newton Schnoor.......................... 2,206 6.31 $50 2/20/08 69,367 175,790
Ernie Danner............................ 4,780 13.68 $50 2/20/08 150,306 380,904
Valerie L. Banner....................... 2,206 6.31 $50 6/01/08 69,367 175,790
</TABLE>
- ------------------
(1) Includes only options granted by Holdings.
(2) For all options (other than options granted to Ernie Danner, which vested
immediately), one-third of each option vests on each of the first, second,
and third anniversary of the option grant date.
(3) The hypothetical potential appreciation shown in these columns reflects the
required calculations at annual assumed appreciation rates of 5% and 10%,
as set by the Commission, and therefore is not intended to represent either
historical appreciation or anticipated future appreciation of the Holdings
common stock.
None of the Executive Officers exercised any options of the Company during
fiscal year 1998.
The Company does not have a Defined Benefit Pension Plan or a Supplemental
Executive Retirement Plan. However, during the fiscal year 1998 period, Mr.
Snider and Mr. Hartford received $20,475.19 and $2,474.40, respectively, under
Tidewater's Supplemental Executive Retirement Plan, which plan has not been
continued by the Company.
The Company has entered into employment agreements with (i) Stephen A.
Snider pursuant to which Mr. Snider serves as President for an annual base
salary of $170,000, plus a target bonus of up to 70% of such base salary; (ii)
Thomas E. Hartford pursuant to which Mr. Hartford serves as Executive Vice
President for an annual base salary of $135,000, plus a target bonus of up to
60% of such base salary; (iii) Robert D. Ryan pursuant to which Mr. Ryan serves
as Senior Vice President for an annual base salary of $100,000, plus a target
bonus of up to 50% of such base salary; (iv) Newton Schnoor pursuant to which
Mr. Schnoor serves as Senior Vice President for an annual base salary of
$90,000, plus a target bonus of up to 50% of such base salary; and (v) Ernie
Danner pursuant to which Mr. Danner serves as Chief Financial Officer and
Executive Vice President for an annual base salary of $135,000 plus a target
bonus of up to 60% of such base salary (collectively, the
51
<PAGE>
'Employment Agreements'). The Company has an employment arrangement with Valerie
L. Banner pursuant to which Ms. Banner serves as General Counsel and Senior Vice
President for an annual base salary of $100,000 plus a target bonus up to 50% of
such base salary. Upon consummation of the Transactions, Mr. Danner also
received $250,000 in Holdings capital stock (valued at the CHP purchase price)
and $100,000 in cash. Each of the Employment Agreements has a stated duration of
three years. If during such stated duration (or during any extension of such
duration), a 'change of control' (as such term is defined in the Employment
Agreements) occurs, each agreement shall automatically extend to a date that is
the second anniversary of the occurrence of such event.
Messrs. Snider, Hartford, Danner, Ryan and Schnoor and Ms. Banner each
received certain stock options-- see 'Management Options' and 'Principal
Stockholders'--and have registration rights with respect to such stock. The
Employment Agreements also provide that if the Company terminates any of the
foregoing individual's employment without cause, such individual will be
entitled to receive severance payments for up to the remaining term of the
relevant employment agreement. The foregoing agreements also place certain
restrictions on the ability of these individuals to disclose certain
confidential information, to compete against the Company and to hire or solicit
certain employees of the Company should such individual's employment with the
Company be terminated.
BENEFIT PLANS
Pursuant to the Stock Purchase Agreement, the Company is obligated to cause
its employees to be eligible to participate in an employee welfare benefit plan
and an employee pension benefit plan (within the meaning of Section 3(1) and
3(3) of ERISA, respectively), which plans shall credit, for purposes of any
length of service requirements, waiting periods, vesting periods or differential
benefits based on length of service in such plans, service by such employees
with the Company prior to the Acquisition. Furthermore, pursuant to the Stock
Purchase Agreement, the Company is obligated to waive any waiting period for
participation or coverage in any welfare benefit plans or policies of the
Company and, to the extent an employee was a participant in Tidewater's medical
benefits plan and such condition was covered under such plan, to waive any
pre-existing medical condition provision of such plan or policy.
Additionally, pursuant to the Stock Purchase Agreement, the Company is
obligated to honor the terms of a severance policy covering the Company's
employees.
MANAGEMENT OPTIONS
In order to motivate and retain key executive employees of the Company, the
Company is in the process of establishing a stock option plan and an incentive
bonus plan or policy. Under the stock option plan, the Company will have the
ability to award to such key employees as it may notify in writing either
incentive stock options of Holdings common stock, meeting the requirements of
Section 422 of the Code, or non-qualified stock options of Holdings common
stock, which will not be subject to Section 422 of the Code. The decision
whether to grant options, the key executive employees to whom to grant such
options, the type of options to be granted (whether incentive stock options or
non-qualified stock options), the number of shares of common stock of Holdings
to be the subject of each option, as well as other matters concerning the
administration of the plan and the interpretation of its provisions shall be
solely within the power of the Board of Directors of the Company or of a
committee of such Board of Directors acting as administrator of the plan. Under
an incentive bonus plan or policy, the Company will have the ability to award to
such key employees as it may notify in writing a bonus, in an amount of up to
20% of such employee's compensation, in cash or, with respect to amounts
exceeding 10% of such employee's compensation, Holdings stock or either
incentive stock options of Holdings stock or non-qualified stock options under
the terms of the Company's stock option plan, as the Company may determine in
its discretion.
Options to purchase an aggregate number of shares of Common Stock equal to
approximately 10% of the outstanding Common Stock were granted to the employees
and directors of the Company upon the closing of the Transactions. Such options
have a ten year term, may be subject to vesting, and will have an exercise price
per share equal to the purchase price per share of Common Stock paid by CHP to
acquire its Common Stock upon such closing.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
Upon the closing of the Transactions, Holdings had outstanding
approximately 325,000 shares of Common Stock ('Common Stock'), $.01 par value
per share, and approximately 1,300,000 shares of Series A Preferred Stock
('Series A Preferred Stock'), $.01 par value per share. Each share of Common
Stock and Series A Preferred Stock carry one vote and holders of both classes
generally vote on all matters as a single class. See 'Description of Capital
Stock of Holdings.' The following table sets forth certain information regarding
beneficial ownership of Holdings, voting securities with respect to (i) each
person known by the Company to beneficially own five percent or more of any
class of Holdings' capital stock, (ii) each director of the Company, (iii) each
executive officer of the Company and (iv) all directors and executive officers
of the Company as a group. All information with respect to beneficial ownership
has been furnished to the Company by the respective stockholders of Holdings.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF OF NUMBER OF SHARES TOTAL SERIES A
SHARES OF TOTAL COMMON OF SERIES A PREFERRED
NAME AND ADDRESS OF BENEFICIAL OWNER(1) COMMON STOCK STOCK PREFERRED STOCK STOCK
- ------------------------------------------------ ------------ ------------ ---------------- --------------
<S> <C> <C> <C> <C>
CHP and affiliated holders(2)................... 184,660 56.8% 738,560 56.8%
John K. Castle(3)............................... 325,000 100% 1,300,000 100%
BT Capital Partners, Inc........................ 32,000 9.8% 128,000 9.8%
First Union Capital Partners, Inc............... 32,000 9.8% 128,000 9.8%
Mellon Bank N.A., as Trustee for the
Bell Atlantic Master Trust.................... 32,000 9.8% 128,000 9.8%
Wilmington Trust, as Trustee of Du Pont Pension
Trust......................................... 32,000 9.8% 128,000 9.8%
Brown University Third Century Fund............. 2,000 * 8,000 *
Samuel Urcis(4)................................. 12,757 3.9% 27,200 2.1%
Stephen Snider(5)............................... 8,619 2.6% 8,000 *
Ernie Danner(6)................................. 6,780 2.1% 12,000 *
Thomas Hartford(7).............................. 5,940 1.8% 4,640 *
Newton Schnoor(8)............................... 2,606 * 1,600 *
Robert Ryan(9).................................. 2,606 * * *
Valerie Banner(10).............................. 2,206 * -- --
All directors and executive officers as group
(11 persons).................................. 325,000 100% 1,300,000 100%
</TABLE>
* Indicates less than 1% of the outstanding stock.
- ------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated in the footnotes to
this table, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name. The address for each such stockholder or director
identified above is c/o Universal Compression Holdings, Inc., 150 East 58th
Street, New York, New York 10155.
(2) CHP acquired 178,097 and 712,388 shares of Common Stock and Series A
Preferred Stock, respectively, for its own account and the remaining shares
for the account of related entities and persons.
(3) Includes 186,440 shares of Common Stock and 745,760 shares of Series A
Preferred Stock held by CHP and its affiliates. John K. Castle is a director
of the Company and Holdings and, along with Leonard M. Harlan, is the
controlling stockholder of Castle Harlan Partners III G.P., Inc., the
general partner of the general partner of CHP, and as such may be deemed to
be a beneficial owner of the shares owned by CHP. Also includes 128,000
shares of Common Stock and 512,000 shares of Series A Preferred Stock the
voting of which Mr. Castle may direct pursuant to the Voting Agreement
entered into among Holdings, CHP and the five entities listed immediately
below Mr. Castle's name. Each of the other persons who acquired Common Stock
and Series A Preferred Stock upon the consummation of the Acquisition
entered into a Voting Trust Agreement with Mr. Castle pursuant to which Mr.
Castle acts as voting trustee. Mr. Castle and Mr. Harlan disclaim beneficial
ownership of such shares in excess of their respective pro rata partnership
interests.
(4) Includes 4,400 shares of Common Stock and 17,600 Series A Preferred Stock
purchased by Mr. Urcis with $1,100,000 of his finders fee as well as such
shares subject to the option granted to him upon consummation
(Footnotes continued on next page)
53
<PAGE>
(Footnotes continued from previous page)
of the Transactions. Also includes 2,400 shares of Common Stock and 9,600
shares of Series A Preferred Stock owned by CHP, which shares CHP has
agreed to sell to Mr. Urcis at a purchase price of $50 per share.
(5) Includes 6,619 shares of Common Stock subject to an option granted by
Holdings to Mr. Snider upon the closing of the Acquisition. Such option
will vest over three years and will be exercisable for $50 per share.
(6) Includes 4,780 shares of Common Stock subject to an option granted by
Holdings to Mr. Danner upon the closing of the Acquisition. Such option
will be exercisable for $50 per share.
(7) Includes 4,780 shares of Common Stock subject to an option granted by
Holdings to Mr. Hartford upon the closing of the Acquisition. Such option
will vest over three years and will be exercisable for $50 per share.
(8) Includes 2,206 shares of Common Stock subject to an option granted by
Holdings to Mr. Schnoor upon the closing of the Acquisition. Such option
will vest over three years and will be exercisable for $50 per share.
(9) Includes 2,206 shares of Common Stock subject to an option granted by
Holdings to Mr. Ryan upon the closing of the Acquisition. Such option will
vest over three years and will be exercisable for $50 per share.
(10) Consists of 2,206 shares of Common Stock subject to an option granted by
Holdings to Ms. Banner on June 1, 1998. Such option will vest over three
years and be excercisable for $50 per share.
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under the indenture (the 'Indenture'),
dated as of February 20, 1998 by and between Holdings and United States Trust
Company of New York, as Trustee. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Indenture Act of 1939, as
amended (the 'TIA'), and to all of the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. A
copy of the Indenture may be obtained from Holdings or the Initial Purchaser.
The definitions of certain capitalized terms used in the following summary are
set forth below under '-- Certain Definitions.' For purposes of this section,
references to the 'Company' or 'Holdings' include only the Company or Holdings,
as the case may be, and not their respective subsidiaries.
The Notes are unsecured obligations of Holdings, ranking pari passu in
right of payment to all existing and future senior indebtedness of Holdings.
The Notes have been issued in fully registered form only, without coupons,
in denominations of $1,000 and integral multiples thereof. Initially, the
Trustee is acting as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration of transfer and exchange at the offices of the
Registrar, which initially is the Trustee's corporate trust office. No service
charge will be made for any registration of transfer or exchange or redemption
of Notes, but Holdings may require payment in certain circumstances of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Holdings may change any Paying Agent and Registrar without
notice to holders of the Notes (the 'Holders'). Holdings will pay principal of
(and premium, if any on) the Notes at the Trustee's corporate office in New
York, New York. At Holdings' option, interest may be paid at the Trustee's
corporate trust office or by check mailed to the registered addresses of
Holders. Any Original Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in connection with the
Exchange Offer, will be treated as a single class of securities under the
Indenture.
54
<PAGE>
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount at maturity to $43.5
million and will mature on February 15, 2009. The Notes have been issued at a
substantial discount from the aggregate stated principal amount thereof at
maturity. For federal income tax purposes, significant amounts of original issue
discount, taxable as ordinary income, will be recognized by Holders annually as
long as they hold the Notes, including in advance of receipt of cash interest
payments thereon. See 'Certain Federal Income Tax Considerations'. Cash interest
on the Notes will not accrue or be payable prior to February 15, 2003.
Thereafter, interest on the Notes will accrue at the rate of 11 3/8% per annum
and will be payable semiannually in cash on each August 15 and February 15
commencing on August 15, 2003, to the persons who are registered Holders at the
close of business on the and immediately preceding the applicable interest
payment date. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from and
including the date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes are redeemable, at Holdings' option, in
whole at any time or in part from time to time, on and after February 15, 2003,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount at maturity thereof) if
redeemed during the twelve-month period commencing on February 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003.......................................................... 105.688%
2004.......................................................... 103.792%
2005.......................................................... 101.896%
2006 and thereafter........................................... 100.000%
</TABLE>
Optional Redemption Upon Public Equity Offerings. At any time, or from
time to time, on or prior to February 15, 2001, Holdings may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined below)
to redeem all of the Notes at a redemption price equal to 111.375% of the
Accreted Value of the Notes to be redeemed plus accrued and unpaid interest, if
any, to the date of redemption. In order to effect the foregoing redemption
with the proceeds of any Public Equity Offering, Holdings shall make such
redemption not more than 120 days after the consummation of any such Public
Equity Offering.
As used in the preceding paragraph, 'Public Equity Offering' means an
underwritten public offering of Qualified Capital Stock of Holdings pursuant to
a registration statement filed with the Commission in accordance with the
Securities Act.
Optional Redemption Prior to February 15, 2003. Prior to February 15, 2003,
the Notes will be redeemable, at the option of Holdings, in whole at any time,
upon not less than 30 nor more than 60 days' notice, at a redemption price on
the redemption date equal to the Accreted Value of each Note on the redemption
date plus the Applicable Premium.
'Applicable Premium' means with respect to a Note for any redemption date,
the excess of (i) the present value at the redemption date of the redemption
price of such Note at February 15, 2003 (such redemption price being described
under '--Optional Redemption'), computed using a discount rate equal to the
Treasury Rate plus 75 basis points over (ii) the Accreted Value of such Note at
the redemption date.
'Treasury Rate' means the yield to maturity determined two business days
prior to any applicable redemption date of United States Treasury securities
with a constant maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H. 15(519) which has become publicly available at
least two Business Days prior to the redemption date (or, if such Statistical
Release is no longer published, any publicly available source or similar market
data) most nearly equal to the period from the redemption date to February 15,
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2003, provided, however, that if the period from the redemption date to February
15, 2003 is not equal to the constant maturity of such United States Treasury
security for which such yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yield of such United States Treasury securities for which such
yields are given, except that if the period from the redemption date to February
15, 2003 is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount at maturity of $1,000 or less shall be redeemed in part;
provided, further, that if a partial redemption is made with the proceeds of a
Public Equity Offering, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to DTC procedures), unless such
method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount at maturity thereof to
be redeemed. A new Note in a principal amount at maturity equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, Accreted
Value will cease to accrete or interest will cease to accrue on Notes or
portions thereof called for redemption as long as Holdings has deposited with
the Paying Agent funds in satisfaction of the applicable redemption price
pursuant to the Indenture.
HOLDING COMPANY STRUCTURE
Holdings is a holding company with no material operations of its own.
Accordingly, Holdings is dependent upon the distribution of the earnings of its
subsidiaries, whether in the form of dividends, advances or payments on account
of intercompany obligations, to service its debt obligations. In addition, the
claims of the holders of Notes are subject to the prior payment of all
liabilities (whether or not for borrowed money) and to any preferred stock
interest of such subsidiaries. There could be no assurance that, after providing
for all prior claims, there would be sufficient assets available from its
subsidiaries to satisfy the claims of the holders of Notes. See 'Risk
Factors--Holding Company Structure; Limitation on Access to Cash Flow of
Subsidiaries; Structural Subordination.'
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that Holdings purchase all or a
portion of such Holder's Notes pursuant to the offer described below (a 'Change
of Control Offer'), at a purchase price equal to 101% of the Accreted Value
thereof plus accrued and unpaid interest to the date of purchase.
The Indenture will provide that, prior to the mailing of the notice
referred to below, but in any event within 30 days following any Change of
Control, Holdings will either (i) repay in full and terminate all commitments
under Indebtedness under the Senior Secured Credit Facilities and all other
Indebtedness of Holdings' Restricted Subsidiaries, the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate all
commitments under all Indebtedness under the Senior Secured Credit Facilities
and such Indebtedness of Holdings' Restricted Subsidiaries and to repay the
Indebtedness owed to each lender which has accepted such offer or (ii) obtain
the requisite consents under the Senior Secured Credit Facilities and all other
such Indebtedness of Restricted Subsidiaries to permit the repurchase of the
Notes as provided below. Holdings shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase the
Notes pursuant to the provisions described below. Holdings' failure to comply
with the covenant
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described in the second preceding sentence or the immediately succeeding
paragraph shall constitute an Event of Default described in clause (iii) (and
not in clause (ii)) under 'Events of Default' below.
Within 30 days following the date upon which a Change of Control occurs,
Holdings must send, by first class mail, a notice to each Holder, with a copy to
the Trustee, which notice shall govern the terms of the Change of Control Offer.
Such notice shall state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 45 days from the date such notice is mailed,
other than as may be required by law (the 'Change of Control Payment Date').
Holders electing to have a Note purchased pursuant to a Change of Control Offer
will be required to surrender the Note, with the form entitled 'Option of Holder
to Elect Purchase' on the reverse of the Note completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the third
business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that
Holdings will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. The Senior Secured Credit Facilities and the
Company Indenture may restrict the Company from making payments to Holdings in
amounts sufficient to repurchase the Notes upon the occurrence of a Change of
Control. The failure of Holdings to make or consummate the Change of Control
Offer or pay the applicable Change of Control purchase price when due would
result in an Event of Default and would give the Trustee and the Holders of the
Notes the rights described under 'Events of Default'. In addition to the
obligations of Holdings under the Indenture with respect to the Notes in the
event of a Change of Control, the Senior Secured Credit Facilities contain a
provision designating a change of control as described therein as an event of
default, which would obligate Holdings to repay amounts outstanding under the
Credit Agreement upon an acceleration of the indebtedness outstanding
thereunder.
The existence of a Holder's right to require Holdings to purchase such
Holder's Notes upon a Change of Control may deter a third party from acquiring
Holdings in a transaction that constitutes a Change of Control.
The definition of 'Change of Control' in the Indenture is limited in scope.
The provisions of the Indenture may afford Holders the right to require Holdings
to repurchase such Notes in the event of a highly leveraged transaction or
certain transactions with Holdings' management or its affiliates, including a
reorganization, restructuring, merger or similar transaction involving Holdings
(including, in certain circumstances, an acquisition of Holdings by management
or its affiliates) that may adversely affect Holders, if such transaction is not
a transaction defined as a Change of Control. See 'Certain Definitions' below
for the definition of 'Change of Control'. A transaction involving a
recapitalization of Holdings' management or its affiliates, or a transaction
involving a recapitalization of Holdings, would result in a Change of Control if
it is the type of transaction specified in such definition.
One of the events that constitutes a Change of Control under the Indenture
is the disposition of 'all or substantially all' of Holdings' assets under
certain circumstances. This term has not been interpreted under New York law
(which is the governing law of the Indenture) to represent a specific
quantitative test. As a consequence, in the event Holders elect to require
Holdings to purchase the Notes and Holdings elects to contest such election,
there can be no assurance as to how a court interpreting New York law would
interpret the phrase in many circumstances.
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Holdings will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to a Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the 'Change of Control' provisions
of the Indenture, Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
'Change of Control' provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. Holdings will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, 'incur') any Indebtedness (other than Permitted Indebtedness);
provided, however, that if no Event of Default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of any such
Indebtedness, Holdings and its Restricted Subsidiaries may incur Indebtedness
(including, without limitation, Acquired Indebtedness) if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence thereof,
the Consolidated Fixed Charge Coverage Ratio of Holdings is greater than 1.75 to
1.0 on or before February 15, 2000, greater than 2.0 to 1.0 after February 15,
2000 and greater than 2.25 to 1.0 after February 15, 2002.
For purposes of determining compliance with this covenant, (i) in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness permitted by this covenant, Holdings in its sole discretion will
classify such item of Indebtedness and will only be required to include the
amount and type of each class of Indebtedness in the test specified in the first
paragraph of this covenant or in one of the clauses of the definition of the
term 'Permitted Indebtedness', (ii) the amount of Indebtedness issued at a price
which is less than the principal amount thereof shall be equal to the amount of
liability in respect thereof determined in accordance with GAAP, (iii)
Indebtedness incurred in connection with, or in contemplation of, any
transaction described in the definition of the term 'Acquired Indebtedness'
shall be deemed to have been incurred by Holdings or one of its Restricted
Subsidiaries, as the case may be, at the time an acquired Person becomes such a
Restricted Subsidiary (or is merged into Holdings or such a Restricted
Subsidiary) or at the time of the acquisition of assets, as the case may be,
(iv) the maximum amount of Indebtedness that Holdings and its Restricted
Subsidiaries may incur pursuant to this covenant shall not be deemed to be
exceeded, with respect to any outstanding Indebtedness, due solely to the result
of fluctuations in the exchange rates of currencies, and (v) guarantees or Liens
supporting Indebtedness permitted to be incurred under this covenant may be
issued or granted if otherwise issued or granted in accordance with the terms of
the Indenture.
Limitation on Restricted Payments. Holdings will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of Holdings or in options,
warrants, or other rights to purchase such Qualified Capital Stock (but
excluding any debt security or Disqualified Capital Stock convertible into, or
exchangeable for, such Qualified Capital Stock)) on or in respect of shares of
Holdings' Capital Stock to holders of such Capital Stock, (b) purchase, redeem
or otherwise acquire or retire for value any Capital Stock of Holdings or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock (in each case, other than in exchange for Qualified Capital Stock
of Holdings or options, warrants or other rights to purchase such Qualified
Capital Stock (but excluding any debt security, or Disqualified Capital Stock
convertible into, or exchangeable for, such Qualified Capital Stock)), (c) make
any principal payment on, purchase, defease, redeem, prepay, decrease or
otherwise acquire or retire for value, prior to any scheduled final maturity,
scheduled repayment or scheduled sinking fund payment, any Indebtedness of
Holdings that is subordinate or junior in right of payment to the Notes or (d)
make any Investment (other than Permitted Investments) (each of the foregoing
actions set forth in clauses (a), (b), (c) and (d) being referred to as a
'Restricted Payment'), if at the time of such Restricted Payment or immediately
after giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) Holdings is not able to incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) in compliance
with the 'Limitation on Incurrence of Additional Indebtedness' covenant or (iii)
the aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date (the amount expended for such
purposes,
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if other than in cash, being the fair market value of such property as
determined reasonably and in good faith by the Board of Directors of Holdings)
shall exceed the sum of: (v) 50% of the cumulative Consolidated Net Income (or
if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss)
of Holdings earned subsequent to the Issue Date and on or prior to the date the
Restricted Payment occurs (the 'Reference Date') (treating such period as a
single accounting period); plus (w) 100% of the aggregate net cash proceeds
received by Holdings from any Person (other than a Subsidiary of Holdings) from
the issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of Holdings or options, warrants or
other rights to purchase such Qualified Capital Stock (but excluding any debt
security or Disqualified Capital Stock convertible into, or exchangeable for,
such Qualified Capital Stock); plus (x) without duplication of any amounts
included in clause (iii)(w) above, 100% of the aggregate net cash proceeds of
any equity contribution received by Holdings from a holder of Holdings' Capital
Stock (excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds
from a Public Equity Offering to the extent used to redeem the Notes in
compliance with the provisions set forth under 'Redemption--Optional Redemption
Upon Public Equity Offerings'); plus (y) 100% of the aggregate net cash proceeds
received by Holdings from any Person (other than a Subsidiary of Holdings) from
the issuance and sale (subsequent to the Issue Date) of debt securities or
shares of Disqualified Capital Stock that have been converted into or exchanged
for Qualified Capital Stock of Holdings, together with the aggregate cash
received by Holdings at the time of such conversion or exchange; plus (z)
without duplication, the sum of (1) the aggregate amount returned in cash to
Holdings or a Restricted Subsidiary of Holdings on or with respect to
Investments (other than Permitted Investments) made subsequent to the Issue Date
whether through interest payments, principal payments, dividends or other
distributions or payments, (2) the net cash proceeds received by Holdings or any
of its Restricted Subsidiaries from the disposition of all or any portion of
such Investments (other than to a Subsidiary of Holdings) and (3) upon
redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair
market value of such Subsidiary; provided, however, that the sum of clauses (1),
(2) and (3) above shall not exceed the aggregate amount of all such Investments
made subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) the acquisition of any shares of
Capital Stock of Holdings, either (i) solely in exchange for shares of Qualified
Capital Stock of Holdings or options, warrants, or other rights to purchase such
Qualified Capital Stock (other than any debt security or Disqualified Capital
Stock convertible into, or exchangeable for, such Qualified Capital Stock) or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of Holdings) of shares of Qualified Capital
Stock of Holdings or options, warrants, or other rights to purchase such
Qualified Capital Stock (other than any debt security or Disqualified Capital
Stock convertible into, or exchangeable for, such Qualified Capital Stock); (3)
the acquisition of any Indebtedness of Holdings that is subordinate or junior in
right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of Holdings, or options, warrants, or other rights to
purchase such qualified Capital Stock or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of Holdings) of (A) shares of Qualified Capital Stock of Holdings or (B)
Refinancing Indebtedness; (4) repurchases by Holdings of Qualified Capital Stock
of Holdings or options to purchase such Qualified Capital Stock from directors
or employees or former directors or former employees of Holdings or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such persons or pursuant to the terms of any
customary agreement under which such Qualified Capital Stock or options were
issued, in an aggregate amount not to exceed $1,000,000 plus any life insurance
proceeds in any calendar year; (5) the repurchase of any Indebtedness which is
subordinated to the Notes at a purchase price not greater than 101% of the
principal amount of such Indebtedness in the event of a change of control in
accordance with provisions similar to the 'Change of Control' covenant; provided
that, prior to or simultaneously with such repurchase, Holdings has made the
Change of Control Offer as provided in such covenant with respect to the Notes
and has repurchased all Notes validly tendered for payment in connection with
such Change of Control Offer; (6) the declaration or payment of dividends on the
Common Stock of Holdings following a Public Equity Offering of Holdings in an
amount per annum not to exceed 6% of the net cash proceeds received by Holdings
in all Public Equity Offerings; (7) payments or distributions to dissenting
stockholders pursuant to applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indenture applicable to
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mergers, consolidating and transfers of all or substantially all of the property
and assets of Holdings and provided that, except in the case of clauses (l) and
(2), no Default or Event of Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth therein. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended, without duplication, pursuant to clauses (1),
(2)(ii) and (4) through (7) shall be included in such calculation.
Not later than 10 days after the date of making any Restricted Payment (but
not including any transaction described in the preceding paragraph), Holdings
shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment complies with the Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon Holdings' latest available internal quarterly
financial statements.
Limitation on Asset Sales. Holdings will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) Holdings or
the applicable Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the Board
of Directors of Holdings or the Company), and (ii) at least 75% of the
consideration received by Holdings or the Restricted Subsidiary, as the case may
be, from such Asset Sale shall be in the form of cash or Cash Equivalents;
provided that (A) the amount of any liabilities of Holdings or any such
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes) that are assumed by the transferee of any such assets
and (B) the fair market value of any marketable securities received by Holdings
or any such Restricted Subsidiary in exchange for any such assets that are
promptly converted into cash shall be deemed to be cash for purposes of this
provision; and provided, further, that in no event shall the aggregate fair
market value at the time of receipt of consideration received by Holdings in a
form other than cash or Cash Equivalents exceed 5% of Holdings' Consolidated
Total Assets. In the event of an Asset Sale, Holdings shall apply, or cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 360 days of receipt thereof either (A) to repay or prepay any
indebtedness under the Credit Agreement, and effect a permanent reduction
thereof, (B) to make an investment either (x) in properties and assets that
replace the properties and assets that were the subject of such Asset Sale or
(y) any other properties or assets that will be used in the business of Holdings
and its Restricted Subsidiaries as existing on the Issue Date or in businesses
similar or reasonably related thereto or in the capital stock of any entity a
majority of whose assets consist of the properties or assets described under (x)
or (y) ('Replacement Assets'), or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). After 360 days from
the day on which the aggregate amount of Net Cash Proceeds which have not been
applied as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next
preceding sentence (a 'Net Proceeds Offer Amount') exceeds $7,500,000 (the 'Net
Proceeds Offer Trigger Date'), and, to the extent necessary, the Company has the
ability to provide such amounts to Holdings, shall make an offer to purchase
(the 'Net Proceeds Offer') from all Holders on a pro rata basis, that amount of
Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the
Accreted Value of the Notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase. If at any time any non-cash
consideration received by Holdings or any Restricted Subsidiary of Holdings, as
the case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to any
such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant. To the extent that the
aggregate Accreted Value of Notes tendered pursuant to such Net Proceeds Offer
is less than the Net Proceeds Offer Amount Holdings and its Restricted
Subsidiaries may use such deficiency for general corporate purposes. If the
aggregate Accreted Value of Notes validly tendered and not withdrawn by Holders
thereof exceeds the Net Proceeds Offer Amount, the Notes to be purchased will be
selected on a pro rata basis. Upon completion of such Net Proceeds Offer, the
amount of Net Proceeds Offer Amount will be reset to zero.
Notwithstanding the immediately preceding paragraph, Holdings and its
Restricted Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent (i) at least 80% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by Holdings or any of its
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Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the preceding paragraph.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders not less than 30 days nor more than 45 days following
the Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in
part in integral multiples of $1,000 principal amount at maturity in exchange
for cash. To the extent Holders properly tender Notes in an amount exceeding the
Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro
rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open
for a period of 20 business days or such longer period as may be required by
law, and the purchase of such Note shall be consummated within 60 days following
the mailing of the Net Proceeds Offer.
Holdings will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the 'Asset Sale' provisions of the
Indenture, Holdings shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
'Asset Sale' provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. Holdings will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of Holdings to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to Holdings or any
other Restricted Subsidiary of Holdings; or (c) transfer any of its property or
assets to Holdings or any other Restricted Subsidiary of Holdings, except for
such encumbrances or restrictions existing under or by reason of: (1) applicable
law; (2) the Indenture; (3) any encumbrances or restrictions contained in, or
that are no more restrictive than those contained in, the Credit Agreement or
the Company Indenture; (4) any agreement or instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (5) agreements existing on the
Issue Date to the extent and in the manner such encumbrances and restrictions
went into effect on the Issue Date; (6) in the case of clause (c) above: (A)
agreements or instruments arising or agreed to in the ordinary course of
business that restrict in a customary manner the subletting, assignment or
transfer of any property or asset subject to a lease, license, conveyance or
other contract and (B) any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of Holdings or any
Restricted Subsidiary entered into in compliance with the Indenture; (7) an
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, any
Restricted Subsidiary of Holdings; (8) provisions in agreements or instruments
which prohibit the payment of dividends or the making of other distributions
with respect to any Capital Stock of a Person other than on a pro rata basis; or
(9) an agreement governing Indebtedness incurred to Refinance the Indebtedness
issued, assumed or incurred pursuant to an agreement referred to in clause (2),
(3), (4) or (5) above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any such Indebtedness are no less
favorable to Holdings or the relevant Restricted Subsidiaries of Holdings in any
material respect as determined by the Board of Directors of Holdings in its
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such clause
(2), (3), (4) or (5). Nothing contained in clause (c) of this 'Limitation on
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries'
covenant shall prevent Holdings or any of its Restricted Subsidiaries from
creating, incurring, assuming or suffering to exist any Lien created, incurred,
assumed or suffered to exist in accordance with the other terms of the
Indenture.
Limitation on Preferred Stock of Restricted Subsidiaries. Holdings will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to Holdings or to a Wholly Owned Restricted Subsidiary of Holdings)
or permit any Person (other than Holdings or a Wholly Owned Restricted
Subsidiary of Holdings) to own any Preferred Stock of any Restricted Subsidiary
of Holdings; provided that the foregoing shall not prohibit the creation of a
Lien in any such Preferred Stock under the Credit Agreement and otherwise
created in accordance with the Indenture.
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Limitation on Liens. Holdings will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of Holdings or any of its Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (i) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are secured by
a Lien on such property, assets or proceeds that is senior in priority to such
Liens and (ii) in all other cases, the Notes are equally and ratably secured,
except for (A) Liens existing as of the Issue Date (other than Liens securing
Indebtedness under the Credit Agreement or the Company Indenture) to the extent
and in the manner such Liens were in effect on the Issue Date; (B) Liens
securing Indebtedness under the Credit Agreement; (C) Liens securing the Notes
and the Guarantees, if any; (D) Liens of Holdings or a Wholly Owned Restricted
Subsidiary of Holdings on assets of any Restricted Subsidiary of Holdings; (E)
Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture and
which has been incurred in accordance with the provisions of the Indenture;
provided, however, that such Liens (a) are no less favorable to the Holders and
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (b) do not extend to
or cover any property or assets of Holdings or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted
Liens. In the event that the Lien the existence of which gives rise to a Lien
securing the Notes pursuant to the provisions of this covenant ceases to exist,
the Lien securing the Notes required by this covenant shall automatically be
released and the Trustee shall execute appropriate documentation.
Merger, Consolidation and Sale of Assets. Holdings will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of Holdings to sell, assign, transfer,
lease, convey or otherwise dispose of) all or substantially all of Holdings'
assets (determined on a consolidated basis for Holdings and Holdings' Restricted
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) Holdings shall be the surviving or continuing
corporation or (2) the Person (if other than Holdings) formed by such
consolidation or into which Holdings is merged or the Person which acquires by
sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of Holdings and of Holdings' Restricted Subsidiaries
substantially as an entirety (the 'Surviving Entity') (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form satisfactory in all respects to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of Holdings to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred in connection with or in respect
of such transaction), Holdings or such Surviving Entity, as the case may be, (1)
shall have a Consolidated Net Worth equal to or greater than the Consolidated
Net Worth of Holdings immediately prior to such transaction, and (2) shall be
able to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the '-- Limitation on Incurrence of Additional
Indebtedness' covenant; (iii) immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) Holdings or the Surviving
Entity shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture shall comply with the applicable provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Holdings the Capital Stock of which constitutes all or
substantially all of the properties and assets of Holdings, shall be deemed to
be the transfer of all or substantially all of the properties and assets of
Holdings and Holdings, if surviving, will be automatically discharged from all
of its obligations under the Indenture and the Notes.
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The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of Holdings in
accordance with the foregoing, in which Holdings is not the continuing
corporation, the successor Person formed by such consolidation or into which
Holdings is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
Holdings under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Limitations on Transactions with Affiliates. (a) Holdings will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an 'Affiliate Transaction'), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of Holdings or such Restricted Subsidiary. All
Affiliate Transactions (and each series of related Affiliate Transactions which
are similar or part of a common plan) involving aggregate payments or other
property with a fair market value in excess of $1,000,000 shall be approved by
the Board of Directors of Holdings or such Restricted Subsidiary, as the case
may be, such approval to be evidenced by a Board Resolution stating that such
Board of Directors has determined that such transaction complies with the
foregoing provisions. If Holdings or any Restricted Subsidiary of Holdings
enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $5,000,000, Holdings or such Restricted Subsidiary, as the
case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to Holdings or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from a nationally recognized firm qualified to do the
business for which it is engaged and file the same with the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of Holdings or any Restricted
Subsidiary of Holdings as determined in good faith by Holdings' Board of
Directors or senior management; (ii) transactions exclusively between or among
Holdings and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) any agreement
as in effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; (iv) Restricted
Payments permitted by the Indenture; (v) the Tax Sharing Agreement; (vi)
employment agreements with officers and employees of Holdings and its Restricted
Subsidiaries, in the ordinary course of business; (vii) loans and advances to
employees not to exceed $500,000 outstanding at any one time, in the ordinary
course of business; (viii) provided that there is no existing Event of Default,
payments pursuant to the terms of the Management Agreement and (ix) arrangements
with directors of Holdings existing on the Issue Date as disclosed in the
Prospectus.
Limitation of Guarantees by Restricted Subsidiaries. Holdings will not
permit any of its Restricted Subsidiaries, directly or indirectly, by way of the
pledge of any intercompany note or any Preferred Stock or otherwise, to assume,
guarantee or in any other manner become liable with respect to any Indebtedness
of Holdings unless, in any such case (a) such Restricted Subsidiary executes and
delivers a supplemental indenture to the Indenture, providing a senior guarantee
of payment of the Notes by such Restricted Subsidiary (the 'Guarantee') and (b)
if such assumption, guarantee or other liability of such Restricted Subsidiary
is provided in respect of Indebtedness that is expressly subordinated to the
Notes, the guarantee or other instrument provided by such Restricted Subsidiary
in respect of such subordinated Indebtedness shall be subordinated to the
Guarantee pursuant to subordination provisions no less favorable to the Holders
of the Notes than the provisions subordinating such Indebtedness to the Notes;
provided that the foregoing shall not be applicable to any guarantee of the
Obligations of Holdings under the Senior Secured Credit Facilities.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action
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required on the part of the Trustee or any Holder, upon: (i) the unconditional
release of such Restricted Subsidiary from its liability in respect of the
Indebtedness in connection with which such Guarantee was executed and delivered
pursuant to the preceding paragraph; or (ii) any sale or other disposition (by
merger or otherwise) to any Person which is not a Restricted Subsidiary of
Holdings of all of Holdings direct or indirect Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary; provided that
(a) such sale or disposition of such Capital Stock or assets is otherwise in
compliance with the terms of the Indenture and (b) such assumption, guarantee or
other liability of such Restricted Subsidiary has been released by the holders
of the other Indebtedness so guaranteed.
Conduct of Business. Holdings and its Restricted Subsidiaries will not
engage in any businesses which are not the same, similar or reasonably related
to the businesses in which Holdings and its Restricted Subsidiaries were engaged
on the Issue Date.
Reports to Holders. The Indenture provides that Holdings will deliver to
the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which Holdings is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that Holdings may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, Holdings will provide
the Trustee and Holders with such annual reports and such information, documents
and other reports specified in Sections 13 and 15(d) of the Exchange Act.
Holdings will also comply with the other provisions of TIA Section 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as 'Events of Default':
(i) the failure to pay interest on any Note when the same becomes due
and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal of any Notes, when the same
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after Holdings receives written notice specifying the
default (and demanding that such default be remedied and stating that such
notice is a 'Notice of Default') from the Trustee or the Holders of at
least 25% of the outstanding principal amount of the Notes (except in the
case of a default with respect to the 'Merger, Consolidation and Sale of
Assets' covenant, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of Holdings or any Restricted Subsidiary (other than a
Foreign Restricted Subsidiary that is not a Significant Subsidiary) of
Holdings, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $5,000,000 or more;
(v) one or more judgments (not covered by insurance as to which the
carrier has assumed the defense or acknowledged coverage) in an aggregate
amount in excess of $5,000,000 shall have been rendered against Holdings or
any of its Restricted Subsidiaries (other than a Foreign Restricted
Subsidiary that is not a Significant Subsidiary) and such judgments shall
remain undischarged, unpaid or unstayed in such aggregate amount for a
period of 60 consecutive days after such judgment or judgments become final
and non-appealable;
(vi) certain events of bankruptcy affecting Holdings or any of its
Significant Subsidiaries; or
(vii) any of the Guarantees, if any, ceases to be in full force and
effect or any of the Guarantees is declared to be null and void and
unenforceable or any of the Guarantees is found to be invalid or any of the
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Guarantors denies its liability under its Guarantee (other than by reason
of release of a Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to Holdings) shall occur and be continuing, the Trustee
or the Holders of at least 25% in principal amount of outstanding Notes may
declare the Accreted Value of and accrued and unpaid interest on all the Notes
to be due and payable by notice in writing to Holdings and the Trustee
specifying the respective Event of Default and that it is a 'notice of
acceleration' (the 'Acceleration Notice'), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Senior Secured Credit Facilities, shall become immediately due and payable
upon the first to occur of an acceleration under the Senior Secured Credit
Facilities or 5 business days after receipt by Holdings and the representative
under the Senior Secured Credit Facilities of such Acceleration Notice. In the
event of an acceleration because an Event of Default set forth in clause (iv)
above has occurred and is continuing, such acceleration shall be automatically
rescinded and annulled if the event of default triggering such Event of Default
pursuant to clause (iv) shall be remedied or cured by Holdings or the relevant
Restricted Subsidiary or waived by the holders of the relevant Indebtedness
within 20 days after the date of the Acceleration Notice with respect thereto.
If an Event of Default specified in clause (vi) above with respect to Holdings
occurs and is continuing, then all unpaid principal of, and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of Accreted Value or interest that
has become due solely because of the acceleration, (iii) to the extent the
payment of such interest is lawful, if interest on overdue installments of
interest and overdue principal, which has become due otherwise than by such
declaration of acceleration, has been paid, (iv) if Holdings has paid the
Trustee its reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing or past Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the Accreted Value of or
interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, Holdings is required to provide an officers'
certificate to the Trustee promptly upon obtaining knowledge of any Default or
Event of Default (provided that Holdings shall provide such certification at
least annually whether or not it knows of any Default or Event of Default) that
has occurred and, if applicable, describe such Default or Event of Default and
the status thereof.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Holdings may, at its option and at any time, elect to have its obligations
and the obligations of the Guarantors discharged with respect to the outstanding
Notes ('Legal Defeasance'). Such Legal Defeasance means that Holdings shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Notes, except for (i) the rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on the Notes when
such payments are due from the trust referred to below, (ii) Holdings'
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and Holdings' obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, Holdings may, at its option and at any time, elect to have the
obligations of Holdings released with respect to certain covenants that are
described in the Indenture ('Covenant Defeasance') and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under 'Events of Default' will
no longer constitute Events of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
Holdings must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, Holdings shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) Holdings has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date of the Indenture,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, Holdings shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default arising in
connection with the substantially contemporaneous borrowing of funds to fund the
deposit referenced in clause (i) above) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period ending
on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under the Indenture or any other material agreement or instrument to which
Holdings or any of its Subsidiaries is a party or by which Holdings or any of
its Subsidiaries is bound; (vi) Holdings shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by Holdings with the
intent of preferring the Holders over any other creditors of Holdings or with
the intent of defeating, hindering, delaying or defrauding any other creditors
of Holdings or others; (vii) Holdings shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) Holdings shall have
delivered to the Trustee an opinion of counsel to the effect that after the 91st
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (ix) certain other customary conditions
precedent are satisfied. Notwithstanding the foregoing, the opinion of counsel
required by clause (ii) above with respect to a Legal Defeasance need not be
delivered if all Notes not theretofore delivered to the Trustee for cancellation
(x) have become due and payable or (y) will become due and payable on the
maturity date within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of Holdings.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by Holdings and thereafter repaid to Holdings or
discharged from such trust) have been delivered to the Trustee for cancellation
or (b) all Notes not theretofore delivered to the Trustee for cancellation have
become due and payable or, by their terms, are to become due and payable, or are
to be called for redemption upon delivery of notice, within one year and
Holdings has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay all principal of, premium, if any, and
interest on the Notes to the date of maturity or redemption, as the case may be,
together with irrevocable instructions from Holdings directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) Holdings has paid all other sums payable under the Indenture by
Holdings; and (iii) Holdings has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, Holdings, the Guarantors and the Trustee, without the
consent of the Holders, may amend, waive or otherwise modify provisions of the
Indenture for certain specified purposes, including curing ambiguities, defects
or inconsistencies, so long as such change does not, in the opinion of the
Trustee, adversely affect the rights of any of the Holders in any material
respect. In formulating its opinion on such matters, the Trustee will be
entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel. Other amendments, waivers and other
modifications of provisions of the Indenture may be made with the consent of the
Holders of a majority in principal amount of the then outstanding Notes issued
under the Indenture, except that, without the consent of each Holder affected
thereby, no such amendment, waiver or other modification may: (i) reduce the
principal amount at maturity of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; or
change or have the effect of changing the definition of Accreted Value; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price therefor;
(iv) make any Notes payable in money other than that stated in the Notes; (v)
make any change in provisions of the Indenture protecting the right of each
Holder to receive payment of principal of and interest on such Holder's Note or
Notes on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Notes to waive
Defaults or Events of Default; (vi) amend, change or modify in any material
respect the obligation of Holdings (or any of the provisions or definitions with
respect thereto) to (A) make and consummate a Change of Control Offer in the
event of a Change of Control or (B) make and consummate a Net Proceeds Offer
with respect to any Asset Sale that has been consummated; or (vii) release any
Guarantor from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees, if any, will
be governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of Holdings, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to
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engage in other transactions; provided that if the Trustee acquires any
conflicting interest as described in the TIA, it must eliminate such conflict or
resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
'Accreted Value' means (i) as of any date on or prior to February 15, 2003,
an amount per $1,000 principal amount at maturity of the Notes that is equal to
the sum of (a) the original issue price of each Note and (b) the portion of the
excess of the principal amount at maturity of each Note over such original issue
price which shall have been amortized through such date, such amount to be so
amortized on a daily basis and compounded semi-annually on each August 15 and
February 15 at the rate of 11 3/8% per annum from the Issue Date through the
date of determination computed on the basis of a 360-day year of twelve 30-day
months and (ii) after February 15, 2003, principal amount of the Notes.
'Acquired Indebtedness' means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
Holdings or at the time it merges or consolidates with Holdings or any of
Holdings' Subsidiaries or assumed in connection with the acquisition of assets
from such Person and in each case not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of Holdings or such acquisition, merger or consolidation.
'Affiliate' means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
'control' means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms 'controlling' and 'controlled' have meanings correlative of the foregoing.
'Asset Acquisition' means (a) an Investment by Holdings or any Restricted
Subsidiary of Holdings in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of Holdings or any Restricted Subsidiary of
Holdings, or shall be merged with or into Holdings or any Restricted Subsidiary
of Holdings, or (b) the acquisition by Holdings or any Restricted Subsidiary of
Holdings of the assets of any Person (other than a Restricted Subsidiary of
Holdings) which constitute all or substantially all of the assets of such Person
or comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
'Asset Sale' means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business or sales of equipment pursuant to purchase options entered into by
Holdings or a Restricted Subsidiary of Holdings in the ordinary course of
business), assignment or other transfer for value by Holdings or any of its
Restricted Subsidiaries (excluding any Lien granted in accordance with the
'Limitation on Liens' covenant, but including any Sale and Leaseback
Transaction) to any Person other than Holdings or a Wholly Owned Restricted
Subsidiary of Holdings of (a) any Capital Stock of any Restricted Subsidiary of
Holdings; or (b) any other property or assets of Holdings or any Restricted
Subsidiary of Holdings other than in the ordinary course of business; provided,
however, that Asset Sales shall not include (i) a transaction or series of
related transactions for which Holdings or its Restricted Subsidiaries receive
aggregate consideration of less than $750,000, (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of
Holdings as permitted under 'Merger, Consolidation and Sale of Assets' and (iii)
a Restricted Payment permitted under the 'Limitation on Restricted Payments'
covenant.
'Board of Directors' means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
'Board Resolution' means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
'Capitalized Lease Obligation' means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
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'Capital Stock' means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
'Cash Equivalents' means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services, a division of McGraw
Hill, Inc. ('S&P') or Moody's Investors Service, Inc. ('Moody's'); (iii)
commercial paper maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having a rating of at least A-1 from
S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers'
acceptances maturing within one year from the date of acquisition thereof issued
by any bank organized under the laws of the United States of America or any
state thereof or the District of Columbia or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $250,000,000; (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; (vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above; and (vii) investments made by Foreign Restricted Subsidiaries in local
currencies in instruments issued by or with entities of such jurisdiction having
correlative attributes to the foregoing.
'Change of Control' means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions, but other than by the granting of a Lien in
accordance with the Indenture or by way of consolidation or merger in accordance
with the Indenture) of all or substantially all of the assets of Holdings and
its Subsidiaries, taken as a whole, to any Person or 'group' (as defined in
Section 13(d)(3) of the Exchange Act) (whether or not otherwise in compliance
with the provisions of the Indenture) other than to the Permitted Holders; (ii)
the approval by the holders of Capital Stock of Holdings of any plan or proposal
for the liquidation or dissolution of Holdings (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) (A) prior to the initial
public offering of Common Stock of Holdings, the Permitted Holders shall own,
directly or indirectly, less than 50% of the aggregate voting power of the
Capital Stock of Holdings or (B) after the initial public offering of Common
Stock of Holdings, (1) the Permitted Holders shall own, directly or indirectly,
less than 20% of the aggregate voting power of the Capital Stock of Holdings or
(2) any Person or 'group' within the meaning of Section 13(d) of the Exchange
Act (other than the Permitted Holders) shall become the 'beneficial owner' as
defined in Rule 13d-3 under the Exchange Act, of shares representing more than
the aggregate voting power represented by the Capital Stock of Holdings owned
directly or indirectly, by the Permitted Holders; or (iv) the replacement of a
majority of the Board of Directors of Holdings over a two-year period from the
directors who constituted the Board of Directors of Holdings, at the beginning
of such period, and such replacement shall not have been approved by a vote of
at least a majority of the Board of Directors of Holdings then still in office
who either were members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors was previously
so approved.
'Common Stock' of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
'Consolidated EBITDA' means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries paid or accrued in accordance with
GAAP for such period (other than income taxes attributable to extraordinary or
nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense, (C)
Consolidated Non-cash Charges less any non-cash items increasing Consolidated
Net Income for such period, all as determined on a consolidated basis for such
Person and its Restricted Subsidiaries in accordance with
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GAAP, (D) any fee to CHP under the Management Agreement paid or accrued, (E) any
expense of Holdings or its Restricted Subsidiaries incurred in connection with
the overhaul of equipment that can be reclassified as a capital expenditure in
accordance with GAAP and (F) any write-off or amortization of fees and expenses
incurred in connection with the financing for the Acquisition.
'Consolidated Fixed Charge Coverage Ratio' means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the 'Four Quarter Period') ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the 'Transaction Date') to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, 'Consolidated EBITDA' and
'Consolidated Fixed Charges' shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Restricted Subsidiaries (including any Person who becomes a
Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Acquired
Indebtedness) occurred on the first day of the Four Quarter Period. Furthermore,
in calculating 'Consolidated Fixed Charges' for purposes of determining the
denominator (but not the numerator) of this 'Consolidated Fixed Charge Coverage
Ratio,' (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements relating
to Interest Swap Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
'Consolidated Fixed Charges' means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
'Consolidated Interest Expense' means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated basis
in accordance with GAAP; and (iii) after February 15, 2003, interest on the
Notes, excluding, however, (1) any amount of such interest expense of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Consolidated Net Income pursuant to clause (d) of
the definition thereof (but only in the same proportion as the net income of
such Restricted Subsidiary is excluded from the calculation of Consolidated Net
Income pursuant to clause (d) of the definition thereof); (2) any non-cash
amortization or write-off of fees and expenses incurred in connection with
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financing arrangements for the Acquisition and (3) non-cash interest accruing on
the Notes on or before February 15, 2003.
'Consolidated Net Income' means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (without duplication)
(a) after-tax gains or losses from Asset Sales, (b) after-tax items classified
as extraordinary or nonrecurring gains or losses, (c) the net income or loss of
any Person acquired in a 'pooling of interests' transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise (except for restrictions created
under documentation relating to the Company), except for any dividends or
distributions actually paid by such Restricted Subsidiary to the referent
Person, (e) the net income but not loss of any Person, other than a Restricted
Subsidiary of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned Restricted
Subsidiary of the referent Person by such Person and (f) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued).
'Consolidated Net Worth' of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
'Consolidated Non-cash Charges' means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges which
require an accrual of or a reserve for cash charges for any future period and
including any non-cash interest accruing on the Notes on or before February 15,
2003).
'Consolidated Total Assets' of any Person means such Person's total
consolidated assets calculated in accordance with GAAP.
'Credit Agreement' means the Credit Agreement dated as of February 20,
1998, among Holdings, the Company and the lenders party thereto in their
capacities as lenders thereunder and Bankers Trust Company, as agent, and any
Foreign Credit Facility together with the documents related thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding Restricted Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect Holdings
or any of its Restricted Subsidiaries of against fluctuations in currency
values.
'Default' means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
'Disqualified Capital Stock' means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes, provided that any Capital Stock that would not
constitute Disqualified Capital Stock but for provisions thereof giving holders
thereof the right to require such Person to repurchase or redeem such Capital
Stock upon the occurrence of an 'asset sale' or 'change of control' occurring
prior to the stated maturity of the Notes shall not constitute Disqualified
Capital Stock if the 'asset sale' or 'change of control' provisions applicable
to such Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions contained in 'Limitation on Asset Sales' and 'Change of
Control' covenants and such Capital Stock specifically provides that such Person
will not
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repurchase or redeem any such stock pursuant to such provision prior to
Holdings' repurchase of such Notes as are required to be repurchased pursuant to
such covenants.
'Exchange Act' means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
'fair market value' means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of Holdings or the Company acting
in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of Holdings or the Company delivered to the Trustee.
'Foreign Credit Facility' means any credit facility of a Foreign Restricted
Subsidiary.
'Foreign Restricted Subsidiary' means any Restricted Subsidiary of Holdings
(i) whose jurisdiction of incorporation is other than the United States of
America, any state thereof, the District of Columbia or any possession thereof
and (ii) which derives substantially all of its income from jurisdictions other
than the United States of America.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which were in effect as of the Issue Date,
provided, however, that all reports and other financial information provided by
Holdings to the Holders or the Trustee shall be prepared in accordance with GAAP
as in effect on the date of such report or other financial information.
'Guarantor' means each of Holdings' Restricted Subsidiaries that in the
future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor; provided that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
'Indebtedness' means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 120 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) guarantees and other contingent obligations in
respect of Indebtedness of other Persons of the type referred to in clauses (i)
through (v) above and clause (viii) below to the extent such Indebtedness is so
guaranteed, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) above which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset and the amount of the
Obligation so secured, (viii) all Obligations of such Person under currency
agreements and interest swap agreements of such Person and (ix) all Disqualified
Capital Stock issued by such Person with the amount of Indebtedness represented
by such Disqualified Capital Stock being equal to the greater of its voluntary
or involuntary liquidation preference and its maximum fixed repurchase price,
but excluding accrued dividends, if any. For purposes hereof, the 'maximum fixed
repurchase price' of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock. The amount of Indebtedness of any Person at any date
shall be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided that (A) the amount outstanding at any time of any Indebtedness issued
with original issue discount is the original issue price of such indebtedness
and (B) 'Indebtedness' shall not include any money borrowed and set aside, at
the time of the incurrence of related Indebtedness, to fund cash interest
payments on such related Indebtedness.
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'Interest Swap Obligations' means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
'Investment' means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. 'Investment' shall exclude (i) extensions of trade credit by
Holdings and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of Holdings or such Restricted
Subsidiary, as the case may be, and (ii) the acquisition of Capital Stock,
securities or other properties or assets by Holdings or any of its Restricted
Subsidiaries for, and to the extent, consideration consisting of Capital Stock
of Holdings. For the purposes of the 'Limitation on Restricted Payments'
covenant, (i) 'Investment' shall (A) include and be valued at the fair market
value of the net assets of any Restricted Subsidiary at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary and (B) exclude
the fair market value of the net assets of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and
(ii) the amount of any Investment shall be the original cost of such Investment
plus the cost of all additional Investments by Holdings or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment; provided that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If Holdings or any Restricted Subsidiary of Holdings sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Holdings such that, after giving effect to any such sale or
disposition, Holdings no longer owns, directly or indirectly, greater than 50%
of the Common Stock of such Restricted Subsidiary, Holdings shall be deemed to
have made an investment on the date of such sale equal to the fair market value
of the Common Stock of such Restricted Subsidiary not sold or disposed of.
'Issue Date' means the date of original issuance of the Notes.
'Lien' means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
'Management Agreement' means the Management Agreement by and among CHP,
Holdings and their respective affiliates, as in effect on the Issue Date.
'Net Cash Proceeds' means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
Holdings or any of its Restricted Subsidiaries from such Asset Sale net of (a)
reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales or brokerage commissions), (b) net taxes paid or payable as a result
of such Asset Sale, (c) repayment of Indebtedness that is required to be repaid
in connection with such Asset Sale, (d) amounts required to be paid to any
Person (other than Holdings or any of its Restricted Subsidiaries) owning a
beneficial interest in the assets which are subject to such Asset Sale and (e)
appropriate amounts to be provided by Holdings or any Restricted Subsidiary, as
the case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by Holdings or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
'Obligations' means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
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'Permitted Holder(s)' means (i) CHP, Castle Harlan, Inc. and employees,
management and directors of, and Persons owning accounts managed by, any of the
foregoing and their respective Affiliates, including, without limitation,
Holdings and its Subsidiaries and (ii) institutional investors who acquired
Common Stock of Holdings on or within 30 days of the Issue Date.
'Permitted Indebtedness' means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees, if
any;
(ii) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed (A) $75
million with respect to the Indebtedness under the Term Loan Facility, less
the amount of all mandatory principal payments actually made by the Company
in respect of the Term Loan Facility (excluding any such payments to the
extent refinanced at the time of payment under a replacement Credit
Agreement) and (B) $85 million in the aggregate with respect to
Indebtedness under (1) the Revolving Credit Loans, reduced by any required
permanent repayments (which are accompanied by a corresponding permanent
commitment reduction) thereunder and (2) any Foreign Credit Facility,
reduced by any required permanent repayments thereof as a result of any
asset sales, but not to exceed $25 million outstanding at any one time;
(iii) other Indebtedness of Holdings and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon (including the Purchase Price Adjustment
Agreement pursuant to the Stock Purchase Agreement);
(iv) Interest Swap Obligations of Holdings covering Indebtedness of
Holdings or any of its Restricted Subsidiaries and Interest Swap
Obligations of any Restricted Subsidiary of Holdings covering Indebtedness
of such Restricted Subsidiary and its Restricted Subsidiaries; provided,
however, that such Interest Swap Obligations are entered into to protect
Holdings and its Restricted Subsidiaries from fluctuations in interest
rates on Indebtedness incurred in accordance with the Indenture to the
extent the notional principal amount of such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of Holdings and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(vi) Indebtedness of a Restricted Subsidiary of Holdings to Holdings
or to a Restricted Subsidiary of Holdings for so long as such Indebtedness
is held by Holdings or a Restricted Subsidiary of Holdings, in each case
subject to no Lien held by a Person other than Holdings or a Restricted
Subsidiary of Holdings; provided that if as of any date any Person other
than Holdings or a Restricted Subsidiary of Holdings owns or holds any such
Indebtedness or holds a Lien, other than pursuant to the Credit Agreement,
in respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the issuer of
such Indebtedness;
(vii) Indebtedness of Holdings to a Restricted Subsidiary of Holdings
for so long as such Indebtedness is held by a Restricted Subsidiary of
Holdings, in each case subject to no Lien, other than pursuant to the
Credit Agreement; provided that (a) any Indebtedness of Holdings to any
Restricted Subsidiary of Holdings is unsecured and subordinated, pursuant
to a written agreement, to Holdings obligations under the Indenture and the
Notes and (b) if as of any date any Person other than a Restricted
Subsidiary of Holdings owns or holds any such Indebtedness or any Person,
other than pursuant to the Credit Agreement, holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by Holdings;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within three business days of incurrence;
(ix) Indebtedness of Holdings or any of its Restricted Subsidiaries
represented by letters of credit for the account of Holdings or such
Restricted Subsidiary, as the case may be, in order to provide security for
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workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of Holdings and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $10 million at
any one time outstanding;
(xi) Indebtedness (A) in respect of performance, surety or appeal
bonds or letters of credit provided in the ordinary course of business, or
(B) arising, from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from guarantees or letters of
credit, surety bonds or performance bonds securing any such obligations of
Holdings or any of its Restricted Subsidiaries, in any case incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of Holdings (excluding herefrom any guarantees of Indebtedness
incurred by any Person acquiring all or any portion of such business,
assets or Restricted Subsidiary of Holdings for the purpose of financing
such acquisition), in a principal amount not to exceed the gross proceeds
actually received by Holdings or any of its Restricted Subsidiaries in
connection with such disposition;
(xii) Indebtedness of Holdings or any of its Restricted Subsidiaries,
to the extent the net proceeds thereof are substantially contemporaneously
(A) used to purchase Notes or Company Notes tendered in a Change of Control
Offer or (B) deposited to defease the Notes as described above under 'Legal
Defeasance and Covenant Defeasance' or the Company Notes in accordance with
the Company Indenture;
(xiii) guarantees of Indebtedness of Holdings or any of its Restricted
Subsidiaries by any Restricted Subsidiary provided the guarantee of such
Indebtedness is permitted by and made in accordance with the 'Limitation on
Guarantees by Restricted Subsidiaries' covenant; and guarantees of
Indebtedness of any Restricted Subsidiary of Holdings by Holdings provided
that such Indebtedness is permitted by the 'Limitation of Indebtedness'
covenant;
(xiv) Refinancing Indebtedness;
(xv) additional Indebtedness of Holdings and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $10 million at
any one time outstanding; and
(xvi) Indebtedness under the Company Indenture, the Company Notes and
the Company Guaranties, if any.
'Permitted Investments' means (i) Investments by Holdings or any Restricted
Subsidiary of Holdings in any Person that is or will become immediately after
such Investment a Restricted Subsidiary of Holdings or that will merge or
consolidate into Holdings or a Restricted Subsidiary of Holdings; (ii)
Investments in Holdings by any Restricted Subsidiary of Holdings; provided that
any Indebtedness evidencing such Investment in Holdings is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture; (iii) investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of Holdings and
its Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $500,000 at any one time outstanding; (v)
Currency Agreements and Interest Swap Obligations entered into in the ordinary
course of Holdings' or its Restricted Subsidiaries' businesses and otherwise in
compliance with the Indenture; (vi) Investments in Unrestricted Subsidiaries and
joint ventures not to exceed $5.0 million at any one time outstanding; (vii)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; (viii) Investments made by
Holdings or its Restricted Subsidiaries as a result of consideration received in
connection with an Asset Sale made in compliance with the 'Limitation on Asset
Sales' covenant; (ix) other Investments not to exceed $5.0 million at any one
time outstanding and (x) Investments existing on the Issue Date.
'Permitted Liens' means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) being contested in good faith by
appropriate proceedings and as to which Holdings or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for
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sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) Liens arising by reason of any judgment, decree or order of any
court but not giving rise to an Event of Default so long as such Lien is
adequately bonded and any appropriate legal proceedings which may have been
duly initiated for the review of such judgment, decree or order shall not
have been finally terminated or the period within which such proceedings
may be initiated shall not have expired;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of Holdings or
any of its Restricted Subsidiaries;
(vi) Liens representing the interest or title of a lessor under any
Capitalized Lease Obligation; provided that such Liens do not extend to any
property or assets which is not leased property subject to such Capitalized
Lease Obligation;
(vii) Liens upon specific items of inventory or other goods and
proceeds of Holdings or any of its Restricted Subsidiaries securing such
Person's obligations in respect of bankers' acceptances issued or created
for the account of such Person to facilitate the purchase, shipment or
storage of such inventory or other goods;
(viii) Liens securing reimbursement obligations with respect to
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(ix) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of
Holdings or any of its Restricted Subsidiaries, including rights of offset
and set-off;
(x) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xi) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to the 'Limitation on Indebtedness'
covenant; provided, however, that in the case of Purchase Money
Indebtedness (A) the Indebtedness shall not exceed the cost of such
property or assets and shall not be secured by any property or assets of
Holdings or any Restricted Subsidiary of Holdings other than the property
and assets so acquired or constructed and (B) the Lien securing such
Indebtedness shall be created within 180 days of such acquisition or
construction or, in the case of a refinancing of any Purchase Money
Indebtedness, within 180 days of such refinancing;
(xii) Liens securing Indebtedness under Currency Agreements; and
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with the 'Limitation on Incurrence of Additional Indebtedness' covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by Holdings or
a Restricted Subsidiary of Holdings and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness
by Holdings or a Restricted Subsidiary of Holdings and (B) such Liens do
not extend to or cover any property or assets of Holdings or of any of its
Restricted Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of Holdings or a Restricted Subsidiary of Holdings.
'Person' means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
'Preferred Stock' of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
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'Purchase Money Indebtedness' means Indebtedness of Holdings and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
'Qualified Capital Stock' means any Capital Stock that is not Disqualified
Capital Stock.
'Refinance' means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. 'Refinanced' and 'Refinancing'
shall have correlative meanings.
'Refinancing Indebtedness' means any Refinancing by Holdings or any
Restricted Subsidiary of Holdings
of Indebtedness incurred in accordance with the 'Limitation on Incurrence of
Additional Indebtedness' covenant (other than pursuant to clause (ii), (iv),
(v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii) or (xv) of the
definition of Permitted Indebtedness), in each case (other than Refinancing
Indebtedness incurred to Refinance all of the Notes) that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus accrued interest and plus the
amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable fees, expenses and
other amounts payable by Holdings or any of its Restricted Subsidiaries in
connection with such Refinancing) or (2) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average Life to Maturity
of the Indebtedness being Refinanced or (B) a final maturity earlier than the
final maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness solely of Holdings (other than
Refinancing Indebtedness incurred to Refinance all of the Notes), then such
Refinancing Indebtedness shall be Indebtedness solely of Holdings and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
'Restricted Subsidiary' of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
'Revolving Credit Loans' means one or more revolving credit facilities
under the Credit Agreement.
'Sale and Leaseback Transaction' means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to Holdings or a Restricted Subsidiary of Holdings of any property,
whether owned by Holdings or any Restricted Subsidiary of Holdings at the Issue
Date or later acquired, which has been or is to be sold or transferred by
Holdings or such Restricted Subsidiary to such Person or to any other Person
from whom funds have been or are to be advanced by such Person on the security
of such Property.
'Significant Subsidiary', with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a 'significant
subsidiary' set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
'Subsidiary', with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
'Tax Sharing Agreement' means the tax sharing agreement between the Company
and Holdings as in effect on the date hereof, and as thereafter modified in any
way not adverse to the Company or the Holders.
'Term Loan Credit Facility' means one or more term loan facilities under
the Credit Agreement.
'Unrestricted Subsidiary' of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors of such Person may designate any Subsidiary (including any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, Holdings or any other Subsidiary of Holdings that is not a
Subsidiary of the Subsidiary to be so designated; provided that (x) Holdings
certifies to the Trustee that such designation complies with the 'Limitation on
Restricted Payments' covenant and (y) each Subsidiary to be so designated and
each of
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its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of Holdings or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, Holdings is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
'Limitation on Incurrence of Additional Indebtedness' covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
'Weighted Average Life to Maturity' means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
'Wholly Owned Restricted Subsidiary' of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than directors' qualifying shares or an immaterial amount of shares required to
be owned by other Persons, in each case pursuant to applicable law) are owned by
such Person or any Wholly Owned Restricted Subsidiary of such Person.
DESCRIPTION OF THE COMPANY NOTES
Universal Compression, Inc. issued $242,500,000 of 9 7/8% Senior Discount
Notes due February 15, 2008 yielding gross proceeds of $149,962,000 ('Company
Notes') in a private placement. The proceeds from the Company Notes were used by
the Company to finance a portion of the Purchase Price. See 'Use of Proceeds.'
The Company Notes were offered by the Company at a substantial discount
from their principal amount. Commencing February 15, 2003, interest will accrue
until maturity on the Company Notes at the rate of 9 7/8% per annum and will be
payable semi-annually on August 15 and February 15, commencing August 15, 2003.
The Company Notes will be redeemable, in whole or in part, at the option of the
Company on or at any time prior to February 15, 2003. The Company may, at its
option, redeem up to 35% of the aggregate principal amount of the Company Notes
originally issued with the net cash proceeds of one or more Public Equity
Offerings at a redemption price equal to 109.875% of the Accreted Value of the
Company Notes to be redeemed plus accrued and unpaid interest, if any, to the
date of redemption.
In the event of a Change of Control each holder of the Company Notes will
have the right to require the Company to repurchase such holder's Company Notes
at a price equal to 101% of the Accreted Value thereof, plus accrued and unpaid
interest, if any, to the date of purchase. In addition, the Company will be
obligated to offer to repurchase the Company Notes at 100% of the Accreted Value
thereof, plus accrued and unpaid interest, if any, to the date of purchase in
the event of certain Asset Sales.
The Company Notes are general unsecured obligations of the Company and will
be pari passu in right of payment to existing and future senior indebtedness of
the Company.
The Company Indenture contains certain covenants, substantially similar to
those in the Notes, that limit the ability of the Company and its subsidiaries
to, among other things, incur additional indebtedness, pay dividends or make
investments and certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur liens, impose
restrictions on the ability of a subsidiary to pay dividends or make certain
payments to the Company and its subsidiaries, merge or consolidate with any
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the Company. In addition, under
certain circumstances, the Company will be required to offer to purchase the
Company Notes, in whole or in part, at a purchase price equal to 100% of the
Accreted Value thereof plus accrued and unpaid interest, if any, to the date of
repurchase, with the proceeds of certain Asset Sales. All of such covenants are
subject to significant qualifications and exceptions.
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DESCRIPTION OF CAPITAL STOCK OF HOLDINGS
Holdings' Certificate of Incorporation, as amended, provides that Holdings
is authorized to issue 5,000,000 shares of preferred stock, par value $.01 per
share and 1,000,000 shares of Common Stock.
SERIES A PREFERRED STOCK
Dividends. No dividends are payable or shall accrue on the Series A
Preferred Stock.
Redemption and Liquidation. The Series A Preferred Stock is redeemable at
any time as a whole or in part at the option of Holdings for cash in the amount
of $50 per share. In the event of any liquidation, dissolution or winding up of
Holdings or a merger or consolidation of Holdings or a sale of substantially all
of the assets of Holdings, in each case as would constitute a 'Change of
Control' under the Indenture. The holders of the Series A Preferred Stock will
receive payment of the liquidation value of $50 per share plus accrued and
unpaid dividends thereon, if any, in full, prior to the payment of any
distributions to the holders of the Common Stock of Holdings.
Restriction on Payment of Other Dividends. So long as any share of Series A
Preferred Stock shall be issued and outstanding, Holdings shall not declare, pay
or set aside for payment, any dividends on, or make any other distributions with
respect to, any shares of Common Stock or other shares of capital stock of
Holdings ranking junior to the Series A Preferred Stock as to dividend rights or
rights upon liquidation, dissolution or winding up.
Voting. In addition to any voting rights required by law, each share of the
Series A Preferred Stock shall entitle each holder to one vote on all matters
presented to the holders of the Common Stock generally, with the votes of the
holders of the Common Stock and the Series A Preferred Stock to be treated
together as a single class. Notwithstanding the foregoing, unless the consent or
approval of a greater number of shares shall then be required by law, the
affirmative vote of the holders of at least a majority of the outstanding shares
of Series A Preferred Stock, separately as a single class, shall be necessary to
(i) amend, alter or repeal any provision of the Certificate of Incorporation or
Bylaws of Holdings, and (ii) effect the consolidation or merger of Holdings or
sale of all or substantially all of its assets, in each case so as to affect
adversely any of the preferences, rights, powers or privileges of the Series A
Preferred Stock or the holders thereof.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders, including the
election of directors, and shall vote together as a class with the holders of
the Series A Preferred.
Dividends may be paid on the Common Stock, when and as declared by the
Board of Directors out of funds legally available therefor. The Company does not
expect to pay dividends on the Common Stock in the foreseeable future.
DESCRIPTION OF OTHER INDEBTEDNESS
In connection with the Acquisition, the Company entered into a Credit
Agreement (the 'Credit Agreement') with Bankers Trust Company, as agent (the
'Agent'), and other lending institutions party thereto (the 'Banks'), which
agreement provides for senior secured credit facilities (the 'Senior Secured
Credit Facilities') in the aggregate amount of up to $160,000,000. The following
is a summary of the material terms and conditions of the Senior Secured Credit
Facilities and is subject to the detailed provisions of the Credit Agreement and
various related documents entered into in connection with the Senior Secured
Credit Facilities. Terms not otherwise defined herein shall have the meanings
set forth in the Credit Agreement.
General. The Senior Secured Credit Facilities consist of (i) a $75,000,000
senior term loan facility (the 'Term Loan Credit Facility') and (ii) a revolving
credit facility (the 'Revolving Credit Facility') in the amount of $85,000,000
which includes a sublimit for letters of credit.
Loans under the Term Loan Credit Facility ('Term Loans') and $35,000,000 of
loans under the Revolving Credit Facility ('Revolving Credit Loans', and
together with the Term Loans, the 'Loans') were borrowed to
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finance in part the Acquisition. Additional Revolving Loans will be made
available for the Company's and its subsidiaries' working capital and general
corporate purposes, including to make certain permitted acquisitions.
Interest Rates and Fees. Loans under the Senior Secured Credit Facilities
may be maintained from time to time, at the Company's option, as (i) Base Rate
Loans which bear interest at the Base Rate plus the Applicable Margin or (ii)
Eurodollar Loans which bear interest at the Eurodollar Rate (adjusted for
maximum reserves) as determined by the Agent for the applicable interest period
plus the Applicable Margin.
Eurodollar Loans may have one, two, three or six month interest periods.
Interest in Eurodollar Loans will be payable in arrears at the end of the
applicable interest period and every three months where the applicable period
exceeds three months. Interest on Base Rate Loans will be payable in arrears on
the last business day of each quarter. Overdue amounts shall bear interest at a
rate per annum equal to the rate which is 2% in excess of the rate otherwise
applicable to Base Rate Loans.
The Company will pay a commitment fee calculated at a rate of 0.5% per
annum of the unutilized commitments of each lender under the Revolving Credit
Facility. This fee will accrue from the date of the closing of the Acquisition
to and including the date of termination of the Revolving Credit Facility, and
will be payable in arrears.
The Company will pay a letter of credit fee equal to the Applicable Margin
for Revolving Loans maintained as Eurodollar Loans, and a facing fee of 1/4% of
1% per annum, in each case calculated on the aggregate stated amount of each
letter of credit for its stated duration. Such fees will be payable in arrears
at the end of each quarter. In addition, the Company will pay customary
administration charges in connection with the issuance and amendment of, and
draws under, Letters of Credit.
Amortizations; Prepayments. The Revolving Credit Facility is scheduled to
mature on the fifth anniversary of the date of closing of the Acquisition. The
Term Loans are scheduled to mature seven years after the date of the closing of
the Acquisition and will be subject to quarterly amortizations as follows:
<TABLE>
<CAPTION>
QUARTER ANNUAL
YEAR AMOUNT AMOUNT
---- ------ ------
<S> <C> <C>
1........................................................ $ 187,500 $ 750,000
2........................................................ $ 187,500 $ 750,000
3........................................................ $ 187,500 $ 750,000
4........................................................ $ 187,500 $ 750,000
5........................................................ $ 187,500 $ 750,000
6........................................................ $ 6,562,500 $26,250,000
7........................................................ $11,250,000 $45,000,000
</TABLE>
Voluntary prepayments may be made in whole or in part without premium or
penalty (other than the payment of breakage costs for Eurodollar Loans prepaid
on a day other than the last day of an interest period). The Company will be
required to make a mandatory repayment of Loans from (i) 100% of the net
proceeds from asset dispositions, (ii) 100% of the net proceeds of issuances of
indebtedness, (iii) 100% of the net proceeds from insurance recovery and
condemnation events, (iv) 50% of the net proceeds from equity issuances and
capital contributions and (v) 50% of annual excess cash flow (to be calculated
net of capital expenditures), in each case with customary exceptions to be
agreed upon. Upon a change of control of Holdings or the Company, the Company
would be required to repay in full all outstanding Loans and all commitments
under the Revolving Credit Facility would terminate. In addition, outstanding
Revolving Loans under the Revolving Credit Facility shall be required to be
prepaid if at any time the aggregate principal amount thereof exceeds the total
Revolving Credit Facility commitments, with such prepayment to be in an amount
equal to such excess.
Guaranties. Holdings ('Guarantor') has unconditionally guaranteed all
amounts owing under the Senior Secured Credit Facilities (the 'Guaranties').
Security. The Senior Secured Credit Facilities (and all obligations under
the Guaranties) are secured by (i) a first priority perfected pledge of (x) all
notes owned by the Company and the Guarantor and (y) all capital stock owned by
the Company and the Guarantor and two-thirds of the outstanding capital stock of
the foreign subsidiaries of the Company and (ii) a first priority perfected
security interest in all other assets (including
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receivables, contracts, contract rights, securities, inventory, equipment, real
estate, copyrights, patents and trademarks but excluding assets located outside
the United States) owned by the Company and the Guarantor with such exceptions
as Agent has approved (it being understood that, after the final maturity of the
Revolving Credit Facility, the Company and the Guarantor shall be allowed to
grant a first priority perfected lien on all inventory and receivables owned by
them to any lender providing a replacement working capital facility).
Events of Default. The Senior Secured Credit Facilities contain customary
events of default, including the non-payment of principal or interest when due
under the notes issued in connection with the Senior Secured Credit Facilities
or, subject to applicable grace periods in certain circumstances, upon the
non-fulfillment of the covenants described above, certain changes in control of
the ownership of Holdings or the Company, cross-defaults to certain other
indebtedness, certain events of bankruptcy or insolvency, ERISA, judgment
defaults and failure of any security agreement or guarantee supporting the
Senior Secured Credit Facilities to be in full force and effect. If any such
event of default occurs, the Agent will be entitled, on behalf of the Banks, to
take all actions permitted to be taken by a secured creditor under the Uniform
Commercial Code and to accelerate the amounts due under the Senior Secured
Credit Facilities and may require all such amounts outstanding thereunder to be
immediately paid in full.
Definitions.
'Applicable Margin' means a percentage per annum equal to (i) in the case
of Term Loans that are maintained (x) as Base Rate Loans, 1.50%, and (y) as
Eurodollar Loans, 2.50% and (ii) in the case of Revolving Loans that are
maintained (x) as Base Rate Loans, 1.25%, and (y) as Eurodollar Loans, 2.25%. So
long as no default or event of default exists under the Senior Secured Credit
Facilities, the Applicable Margin for Term Loans and Revolving Loans shall be
subject to quarterly reductions based on one or more financial tests to be
determined; provided however, that the Applicable Margin for Term Loans and
Revolving Loans shall not be subject to any such adjustment during the six
months immediately after the date of the Closing of the Senior Secured Credit
Facilities.
'Base Rate' means the higher of (i) the rate that Bankers Trust Company
announces from time to time as its prime lending rate, as in effect from time to
time, and (ii) one-half ( 1/2) of 1% in excess of the overnight federal funds
rate.
In addition, the Company, a wholly owned subsidiary of Holdings, has
outstanding indebtedness comprised of the Company Notes. See 'Description of
Company Notes.'
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS FOR
GENERAL INFORMATION ONLY. PROSPECTIVE PURCHASERS OF THE EXCHANGE NOTES ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL AND OTHER TAX
CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE EXCHANGE NOTES.
The following discussion summarizes certain material United States federal
income tax consequences to beneficial owners arising from the purchase,
ownership and disposition of the Exchange Notes. The discussion is based on the
United States Internal Revenue Code of 1986, as amended (the 'Code'), currently
applicable Treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date hereof.
Such authorities may be repealed, revoked or modified so as to result in federal
income tax consequences different from those discussed below, possibly with
retroactive effect. There can be no assurance that the Internal Revenue Service
('IRS') will not take a contrary view, and no ruling from the IRS has been or
will be sought. The following discussion is intended as a descriptive summary
only and is not intended as tax advice for any particular investor. It is not a
complete analysis and does not address tax consequences of holding the Exchange
Notes which may be relevant to investors in special tax situations, such as
insurance companies, banks, investors subject to the alternative minimum tax,
tax-exempt organizations, dealers in securities or other investors holding the
Exchange Notes as other than capital assets, investors holding the Exchange
Notes as a hedge or as part of a hedging, straddle or conversion transaction,
Non-U.S. Holders (as defined below) that own (directly, indirectly or by
attribution) 10% or more of the outstanding stock of Holdings or holders whose
'functional currency' (as defined in Code Section 985) is not the U.S. dollar.
Finally, the discussion does not address the effect of any United States state
or local tax law or foreign tax law on the Exchange Notes.
U.S. HOLDERS
For purposes of this summary, the term 'U.S. Holder' means a beneficial
owner of an Exchange Note that is (a) an individual who is a United States
citizen or resident, (b) a corporation, partnership or other entity created or
organized under the laws of the United States or any political subdivision
thereof, (c) an estate the income of which is subject to federal income tax
regardless of source, or (d) a trust if a court within the United States is able
to exercise primary supervision over the administration of the trust and one or
more U.S. persons that have the authority to control all substantial decisions
of the trust. The term 'Non-U.S. Holder' means a beneficial owner of an Exchange
Note that is not a U.S. Holder.
Exchange Notes. The exchange of the Original Notes for Exchange Notes will
not be a taxable event to holders of the Notes. Accordingly, holders will not
recognize any taxable gain or loss or any income as a result of such an
exchange. Because the Exchange Notes will be treated as a continuation of the
Original Notes for tax purposes, the remainder of this description refers
generally to 'Notes.'
Original Issue Discount
General. A debt obligation that has an issue price that is less than its
stated redemption price at maturity ('SRPM') by more than a de minimis amount
will be treated as issued with original issue document ('OID') for federal
income tax purposes. As explained below, the issue price of the Notes was
substantially less than their SRPM, so the Notes will be issued with OID.
Generally, the issue price of a Note was the first price at which a
substantial amount of the Notes were sold to the public (ignoring sales to bond
houses, brokers, or similar persons or organizations acting in the capacity of
underwriters, placement agents, or wholesalers). The SRPM of a Note is the sum
of all payments provided by the Note that are not payments of 'qualified stated
interest'. 'Qualified stated interest' generally means stated interest that is
unconditionally payable in cash or property other than debt instruments of the
Company at least annually at a single fixed rate (or at certain qualifying
variable rates) applied to the outstanding principal amount of the Note. The
Notes were issued at a discount from their stated principal amount. In addition,
stated interest on the Notes is not payable until August 15, 2003. As a result,
the stated interest on the Notes is not 'qualified stated interest' and all
payments of stated interest will be included in the SRPM of the Notes.
Accordingly, the Notes were issued with OID.
U.S. Holders must generally include OID in gross income for federal
income tax purposes on an annual basis under a constant yield method
without regard to the holder's method of accounting for tax purposes. As a
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result, U.S. Holders generally will be required to include OID in income in
advance of the receipt of cash attributable to the stated interest. OID accrues
based on a compounded, constant yield to maturity; accordingly U.S. Holders of
Notes issued with OID are required to include in income increasingly greater
amounts of OID in successive accrual periods. However, U.S. Holders generally
are not required to include separately in income cash payments received on the
Notes, even if denominated as interest. The aggregate amount of OID on each Note
equals the excess of such Note's SRPM over such Note's issue price.
The amount of OID includible in income by a U.S. Holder of a Note is the
sum of the 'daily portions' of OID with respect to the Note for each day during
the taxable year (or portion of the taxable year) in which such U.S. Holder held
such Note. The daily portion is determined by allocating to each day in any
'accrual period' a pro rata portion of the OID allocable to that accrual period.
The 'accrual period' for a Note may be of any length and may vary in length over
the term of the Note, provided that each accrual period is no longer than one
year and each scheduled payment of principal or interest occurs on the first day
or the final day of an accrual period.
In general, the amount of OID allocable to an accrual period is an amount
equal to the product of the Note's adjusted issue price at the beginning of such
accrual period and its yield to maturity (determined on the basis of compounding
at the close of each accrual period and properly adjusted for the length of the
accrual period). The Notes' yield to maturity is determined by performing
present value calculations of all principal and interest payments due under the
Note. The rate that produces an amount equal to the issue price of the Note is
the Note's yield to maturity. The yield must be constant over the term of the
Note and must be calculated to at least two decimal places (e.g., 10.50%). OID
allocable to a final accrual period is the difference between the amount payable
at maturity and the adjusted issue price at the beginning of the final accrual
period. The 'adjusted issue price' of a Note at the beginning of any accrual
period is equal to its issue price increased by the accrued OID for each prior
accrual period (determined without regard to the amortization of any acquisition
premium, as described below) and reduced by any payments made on such Note on or
before the first day of the accrual period.
The Treasury regulations contain special rules that allow any reasonable
method to be used in determining the amount of OID allocable to a short initial
accrual period, provided all other accrual periods are of equal length, and
require that the amount of OID allocable to the final accrual period equals the
excess of the amount payable at the maturity of the Note (other than any payment
of qualified stated interest) over the Note's adjusted issue price as of the
beginning of such final accrual period. In addition, if an interval between
payments of qualified stated interest contains more than one accrual period,
then the amount of qualified stated interest payable at the end of such interval
is allocated pro rata (on the basis of their relative lengths) between the
accrual periods contained in the interval.
Contingent Payments. In the event of a Change of Control, Holdings will be
required to offer to repurchase all the Notes at a purchase price of 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. The right of U.S. Holders to require repurchase upon a Change of
Control will not affect the yield or maturity date of the Notes provided that,
based on all the facts and circumstances as of the issue date, the payment
schedule on such Notes that does not reflect a Change of Control is
significantly more likely than not to occur. Holdings does not intend to treat
the Change of Control provisions of the Notes as affecting the computation of
the amount of OID on the Notes.
Optional Redemption. The Notes are redeemable at the option of Holdings in
whole or in part and subject to certain conditions (see 'Description of the
Notes--Optional Redemption'). For purposes of computing the Notes' yield to
maturity, Holdings will be deemed to exercise its option to redeem the Notes if
such deemed exercise could produce (utilizing the redemption price on any date
on which the option could be exercised as the SRPM) a lower yield on the Notes
than the yield to stated maturity. Holdings' option to redeem the Notes prior to
their stated maturity date at a premium should not affect the computation of the
amount of OID on the Notes.
Applicable High Yield Discount Obligations. The Notes are considered
'applicable high yield discount obligations' ('AHYDOs') under Section 163(i) of
the Code. As a result, Holdings will not be permitted to deduct any OID in
respect to the Notes until amounts corresponding to such OID are paid in cash.
Market Discount. A U.S. Holder that purchases a Note at a market discount
(as described below) generally will be required to treat any principal payments
on, or any gain on the disposition or maturity of, such Note as ordinary income
to the extent of the accrued market discount (not previously included in income)
at the time of
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such payment or disposition. In general, market discount is the amount by which
a Note's adjusted issue price exceeds the U.S. Holder's basis in the Note
immediately after the Note is acquired. If such difference is less than a
specified de minimis amount, the market discount will be disregarded. Market
discount on a Note will accrue ratably during the period from the date of
acquisition to the maturity of a Note, unless the U.S. Holder elects to accrue
such market discount on the constant yield method. This election is irrevocable
and applies only to the Note for which it is made.
The U.S. Holder may also elect to include market discount in income
currently as it accrues. This election, once made, applies to all market
discount obligations acquired on or after the first day of the first taxable
year to which the election applies and may not be revoked without the consent of
the IRS. Generally, if a Note with market discount is transferred in certain
non-taxable transactions, the market discount will be transferred to the
property received in exchange for the Note; however, under certain limited
circumstances, the market discount will be includible as ordinary income as if
such Note had been sold at its fair market value. A U.S. Holder that does not
elect to include market discount in income currently may be required to defer
deductions for interest on borrowings incurred or continued to purchase or carry
such Note in an amount not exceeding the accrued market discount on such Note,
until the maturity of the Note or, in certain circumstances, the earlier
disposition of such Note.
Acquisition Premium. A U.S. Holder that purchases a Note for an amount
that is greater than the adjusted issue price of such Note, but that is less
than or equal to the sum of the amounts payable on the Note after the purchase
date, will be considered to have purchased such Note at an 'acquisition
premium'. Under the acquisition premium rules of the Code and the Treasury
regulations thereunder, the amount of OID that such U.S. Holder must include in
its gross income with respect to such Note will be reduced (but not below zero)
for each accrual period by the portion of acquisition premium properly allocable
to the period.
Purchase, Sale, Retirement and Other Disposition of the Notes. In general,
a U.S. Holder's adjusted tax basis in a Note will equal the cost of such Note to
the U.S. Holder, increased by the amount of any OID or market discount
previously included in the U.S. Holder's income with respect to the Note, and
reduced by the amount of (i) any payments made on the Note and (ii) any
amortizable bond premium applied to reduce interest on the Note.
A U.S. Holder will generally recognize gain or loss on the sale, retirement
or other disposition (including redemption) of a Note in an amount equal to the
difference between (i) the amount of cash and the fair market value of property
received by such U.S. Holder on such disposition (less any amounts attributable
to, and taxable as, accrued but unpaid interest) and (ii) the U.S. Holder's
adjusted tax basis in the Note (as described above). Gain or loss upon the sale,
retirement or other disposition (including redemption) of a Note will be capital
gain or loss (except that any portion of such gain attributable to market
discount will be ordinary income). Under recently enacted legislation, the
maximum individual U.S. federal income tax rate on net capital gains is 20% for
capital assets held for more than 18 months and 28% for capital assets held for
more than 12 months but not more than 18 months. Gains on the sale of capital
assets held for one year or less are subject to U.S. federal income tax at
ordinary income tax rates. Certain limitations exist on the deductibility of
capital losses by both corporations and individual taxpayers.
NON-U.S. HOLDERS
Interest (including OID). Subject to the discussion of backup withholding
below, a Non-U.S. Holder will generally not be subject to U.S. federal income or
withholding tax on payments of principal, premium, if any, and interest
(including OID) on the Notes under the portfolio interest exemption of the Code,
provided that (in the case of interest, including OID): (i) the Non-U.S. Holder
does not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of Holdings entitled to vote; (ii) the Non-U.S.
Holder is not a controlled foreign corporation that is related to Holdings
through stock ownership; (iii) such interest or OID is not effectively connected
with a United States trade or business of the Non-U.S. Holder; (iv) generally
either (a) the beneficial owner of the Notes certifies to Holdings or its agent,
under penalties of perjury, that it is a Non-U.S. Holder and provides a
completed IRS Form W-8 ('Certificate of Foreign Status') or (b) a securities
clearing organization, bank or other financial institution which holds
customers' securities in the ordinary course of its trade or business (a
'financial institution') and which holds the Notes, certifies to Holdings or its
agent, under penalties of perjury, that it has received Form W-8 from the
beneficial owner or that it has received from another financial institution a
Form W-8 and furnishes the payor with a copy thereof; and (v) for payments made
on or after January 1, 1999, the payment can be reliably associated (within the
meaning of applicable Treasury
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Regulations) with IRS Form W-8. If any of the situations described in proviso
(i), (ii) or (iv) of the preceding sentence do not exist, interest on the Notes
when received is subject to United States withholding tax at the rate of 30%
unless an income tax treaty between the United States and the country of which
the Non-U.S. Holder is a tax resident provides for the elimination or reduction
in the rate of U.S. federal withholding tax.
If a Non-U.S. Holder of a Note is engaged in a trade or business in the
United States and interest (including OID) on the Note is effectively connected
with the conduct of such trade or business, such Non-U.S. Holder, although
exempt from U.S. federal withholding tax by reason of the delivery of a properly
completed Form 4224, will be subject to U.S. federal income tax on such interest
(including OID) and on any gain realized on the sale, exchange or other
disposition of a Note in the same manner as if it were a U.S. Holder. In
addition, if such Non-U.S. Holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30% of its effectively connected earnings and
profits for that taxable year, unless it qualifies for a lower rate under an
applicable income tax treaty.
Sale, Retirement and Other Disposition of Notes. A Non-U.S. Holder
generally will not be subject to U.S. federal income tax on any gain realized in
connection with the sale, exchange, retirement or other disposition of Notes
(other than gain attributable to accrued interest or OID, which is addressed in
the preceding paragraph), unless: (i) the gain is effectively connected with a
trade or business carried on by the Non-U.S. Holder within the United States;
(ii) if a tax treaty applies, the gain is attributable to an office or other
fixed place of business maintained in the United Stated by the Non-U.S. Holder;
or (iii) in the case of an individual holder, (a) such holder is present in the
United States for 183 days or more in the taxable year of disposition and
certain other conditions are satisfied, or (b) the Non-U.S. Holder is subject to
tax pursuant to provisions of the Code applicable to United States expatriates.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, under current U.S. federal tax law, payments to a U.S. Holder
of (a) principal, premium (if any) and interest (including OID) on a Note, and
(b) the proceeds of sale or other disposition of a Note before maturity will be
subject to U.S. information reporting requirements. Subject to certain
exceptions, such payments will also generally be subject to 'backup' withholding
tax at a rate of 31% if such U.S. Holder fails to supply a correct taxpayer
identification number and certain other information in the required manner. U.S.
Holders should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption if applicable.
In general, there is no U.S. information reporting requirement or backup
withholding tax on payments to Non-U.S. Holders who provide the appropriate
certification described above regarding qualification for the portfolio interest
exemption from U.S. federal income tax for payments of principal or interest
(including OID) on the Notes.
Payment by Holdings of principal on the Notes or payment by a United States
office of a broker of the proceeds of a sale of Notes is subject to both backup
withholding and information reporting unless the beneficial owner provides a
completed IRS Form W-8 which certifies under penalties of perjury that such
owner is a Non-U.S. Holder who meets all the requirements for exemption from
U.S. federal income tax on any gain from the sale, exchange or retirement of the
Notes.
In general, backup withholding and information reporting will not apply to
a payment of the gross proceeds of a sale of Notes effected at a foreign office
of a broker. If, however, such broker is, for U.S. federal income tax purposes,
a U.S. person, a controlled foreign corporation or a foreign person 50% or more
of whose gross income for certain periods is derived from activities that are
effectively connected with the conduct of a trade or business in the United
States, such payments will not be subject to backup withholding, but will be
subject to information reporting unless (i) such broker has documentary evidence
in its records that the beneficial owner is a Non-U.S. Holder and certain other
conditions are met, or (ii) the beneficial owner otherwise establishes an
exemption, provided such broker does not have actual knowledge that the payee is
a United States person. Non-U.S. Holders should consult their tax advisors
regarding the application of these rules to their particular situations, the
availability of an exemption therefrom and the procedure for obtaining such an
exemption, if available.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability, provided the required information is
furnished to the IRS.
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BOOK-ENTRY; DELIVERY AND FORM
Ownership of beneficial interests in the Global Notes is limited to persons
who have accounts with DTC ('participants') or persons who hold interests
through participants. Ownership of beneficial interests in the Global Notes is
shown on, and the transfer of such ownership is effected only through, records
maintained by DTC or its nominee (with respect to interest of participants) and
the records of participants (with respect to interests of persons other than
participants). Holders may hold their interests in the Global Notes directly
through DTC if they are participants in such system, or indirectly through
organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest (including
Additional Interest) on, the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of Holdings, the Trustee
or any Paying Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
Holdings expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. Holdings also
expects that payments by participants to owners of beneficial interests in the
Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised Holdings that it will take any action permitted to be taken
by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants.
DTC has advised Holdings as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a 'clearing corporation' within the meaning of the Uniform
Commercial Code and a 'Clearing Agency' registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'). DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ('indirect participants').
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither Holdings nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
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Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by Holdings within 90 days, Certificated Securities will be issued in
exchange for the Global Notes.
PLAN OF DISTRIBUTION
Reference is made to 'The Exchange Offer' above for a description of the
Exchange Offer, including the purpose of the Exchange Offer, the basis upon
which the Exchange Notes are offered and expenses incurred in connection with
the Exchange Offer.
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus with any resale of such Exchange Notes. To date, the Commission has
taken the position that a broker-dealer may fulfill its prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange contemplated by the Exchange Offer with a prospectus
meeting the requirements of the Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired as a result of market making
activities or other trading activities. Holdings will, during the period ending
180 days after the consummation of the Exchange Offer, make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
Neither Holdings nor any of its affiliates has entered into any arrangement
or understanding with any broker-dealer to distribute the Exchange Notes and
will not receive any proceeds from any sale of Exchange Notes by any
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of the resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker or dealer and/or the purchaser of any such
Exchange Notes. Any broker or dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an 'underwriter' within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such person may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an 'underwriter' within the meaning of the Securities
Act.
Holdings has agreed in the Registration Rights Agreement to pay all
expenses incident to the Exchange Offer.
In connection with the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Notes, specifically, the Initial Purchaser may bid for and
purchase Notes in the open markets to stabilize the price of the Notes. The
Initial Purchaser may also overallot the Offering, creating a syndicate short
position, and may bid for and purchase Notes in the open market to cover the
syndicate short position. In addition, the Initial Purchaser may bid for and
purchase the Notes in market making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of the Notes above market
levels that may otherwise prevail. The Initial Purchaser is not required to
engage in these activities, and may end these activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will be
passed upon for Holdings by Schulte Roth & Zabel LLP. Certain legal matters in
connection with this Offering will be passed upon for the Initial Purchaser by
Cahill Gordon & Reindel.
EXPERTS
The financial statements of Tidewater Compression Service, Inc. and
subsidiaries as of March 31, 1997, and for each of the years in the two-year
period ended March 31, 1997 have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein and upon the authority
of said firm as experts in accounting and auditing.
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The consolidated financial statements of Universal Compression Holdings,
Inc. as of March 31, 1998 and for the period from December 12, 1997 (inception)
to March 31, 1998 and the financial statements of Tidewater Compression Service,
Inc., as of February 20, 1998 and for the period from April 1, 1997 through
February 20, 1998 included in this Prospectus and the related financial
statement schedules for Tidewater Compression Service, Inc. for the period
ending February 20, 1998 and for Universal Compression Holdings, Inc. for the
period ending March 31, 1998 included elsewhere in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the Registration Statement, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
88
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNIVERSAL COMPRESSION HOLDINGS, INC.
Independent Auditors' Report of Deloitte & Touche LLP...................................................... F-1
Financial Statements:
Consolidated Balance Sheet As of March 31, 1998.......................................................... F-2
Consolidated Statement of Income for the Period from December 12, 1997 (Inception) Through March 31,
1998.................................................................................................. F-3
Consolidated Statement of Stockholders' Equity for the Period from December 12, 1997 (Inception) Through
March 31, 1998........................................................................................ F-4
Consolidated Statement of Cash Flows for the Period from December 12, 1997 (Inception) Through March 31,
1998.................................................................................................. F-5
Notes to Consolidated Financial Statements............................................................... F-6
TIDEWATER COMPRESSION SERVICE, INC.
Independent Auditors' Report of Deloitte & Touche LLP...................................................... F-14
Independent Auditors' Report of KPMG Peat Marwick LLP...................................................... F-15
Financial Statements:
Balance Sheets As of February 20, 1998 and March 31, 1997................................................ F-16
Statements of Income for the Period from April 1, 1997 Through February 20, 1998 and for the Years Ended
March 31, 1997 and 1996............................................................................... F-17
Statements of Stockholder's Equity for the Period From April 1, 1997 Through February 20, 1998 and for
the Years Ended March 31, 1997 and 1996............................................................... F-18
Statements of Cash Flows for the Period from April 1, 1997 Through February 20, 1998 and for the Years
Ended March 31, 1997 and 1996......................................................................... F-19
Notes to Financial Statements............................................................................ F-20
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Universal Compression, Inc.
We have audited the accompanying consolidated balance sheet of Universal
Compression Holdings, Inc. and subsidiary (the 'Company') as of March 31, 1998,
and the related consolidated statements of income, stockholders' equity and cash
flows for the period from December 12, 1997 (inception) through March 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 1998,
and the results of their operations and their cash flows for the period from
December 12, 1997 (inception) through March 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Houston, Texas
June 1, 1998
F-1
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................................... $ 2,382
Receivables, net of allowance for bad debts of $213................................................. 11,662
Inventories......................................................................................... 8,678
Deferred tax asset.................................................................................. 67
Other............................................................................................... 3,121
---------
Total current assets............................................................................. 25,910
---------
Property and equipment:
Rental equipment.................................................................................... 237,795
Other............................................................................................... 14,611
Accumulated depreciation............................................................................ (1,366)
---------
Total............................................................................................ 251,040
---------
Goodwill, net of accumulated amortization of $194..................................................... 93,550
Other assets, net..................................................................................... 9,726
---------
Total............................................................................................ $ 380,226
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................................... $ 750
Accounts payable.................................................................................... 6,054
Accrued expenses.................................................................................... 5,224
---------
Total current liabilities........................................................................ 12,028
Deferred income taxes................................................................................. 406
Long-term debt........................................................................................ 286,112
---------
Total liabilities................................................................................ 298,546
---------
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $.01 par value, 5,000,000 shares authorized, 1,300,000 shares issued and
outstanding and $50-per-share liquidation value.................................................. $ 13
Common stock, $.01 par value; 1,000,000 shares authorized and 325,000 shares issued and
outstanding...................................................................................... 3
Additional paid-in capital.......................................................................... 81,234
Retained earnings................................................................................... 430
---------
Total stockholders' equity....................................................................... 81,680
---------
Total............................................................................................ $ 380,226
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenues:
Rentals.............................................................................................. $ 8,929
Sales................................................................................................ 3,814
Other................................................................................................ 363
Gain on asset sales.................................................................................. 13
---------
Total revenues.................................................................................... 13,119
---------
Costs and Expenses:
Rentals, exclusive of depreciation and amortization.................................................. 2,979
Cost of sales, exclusive of depreciation and amortization............................................ 3,233
Depreciation and amortization........................................................................ 1,560
General and administrative........................................................................... 1,305
Interest expense..................................................................................... 3,203
---------
Total costs and expenses.......................................................................... 12,280
---------
Income Before Income Taxes............................................................................. 839
Income Taxes........................................................................................... 409
---------
Net Income........................................................................................ $ 430
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERRED PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------ --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 12, 1997 (inception)
Common stock issuance (325,000 shares at $.01 par value)... $3 -- $ 16,247 -- $16,250
Preferred stock issuance (1,300,000 shares at $.01 par
value).................................................. -- $13 64,987 -- 65,000
Net income for period...................................... -- -- -- $430 430
-- --- ---------- -------- -------
Balance, March 31, 1998...................................... $3 $13 $ 81,234 $430 $81,680
-- --- ---------- -------- -------
-- --- ---------- -------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income.......................................................................................... $ 430
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................................... 1,560
Gain on asset sales.............................................................................. (13)
Deferred income taxes............................................................................ 339
Deferred interest on notes payable............................................................... 1,880
Amortization of debt issuance costs.............................................................. 121
Increase in receivables.......................................................................... (1,263)
Increase in inventories.......................................................................... (223)
Increase in other current assets................................................................. (2,951)
Decrease in accounts payable..................................................................... (1,472)
Increase in accrued expenses..................................................................... 587
---------
Net cash used in operating activities.......................................................... (1,005)
---------
Cash flows from investing activities:
Proceeds from asset sales........................................................................... 765
Additions to property and equipment................................................................. (2,038)
Acquisition of Tidewater Compression Service, Inc. ................................................. (351,872)
---------
Net cash used in investing activities.......................................................... (353,145)
---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 285,018
Repayments of long-term debt........................................................................ (36)
Common stock issuance............................................................................... 16,250
Preferred stock issuance............................................................................ 64,750
Debt issuance costs................................................................................. (9,450)
---------
Net cash provided by financing activities...................................................... 356,532
---------
Net increase in cash and cash equivalents............................................................. 2,382
Cash and cash equivalents at beginning of period
---------
Cash and cash equivalents at end of period............................................................ $ 2,382
---------
---------
Supplemental cash flow information--cash paid for interest............................................ $ 1,202
---------
---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Universal Compression Holdings Inc. (the 'Company') was formed on December
12, 1997 for the purpose of acquiring Tidewater Compression Service, Inc.
('TCS') from Tidewater Inc. ('Tidewater'). The Company formed an acquisition
subsidiary, TW Acquisition Corporation ('Acquisition Corp.') which acquired 100%
of the voting securities of TCS (the 'Acquisition'). See Note 2. Immediately
following the Acquisition, Acquisition Corp. was merged with and into TCS, which
changed its name to Universal Compression Inc. ('Universal'). The Company is a
holding company which conducts its operations through its wholly owned
subsidiary, Universal. Accordingly, the Company is dependent upon the
distribution of earnings from Universal whether in the form of dividends,
advances or payments on account of intercompany obligations, to service its debt
obligations.
Nature of Operations
The Company operates one of the largest rental fleets of natural gas
compressors in the United States. The compressors are rented to oil and gas
producers and processors and are used primarily to boost the pressure of natural
gas from the wellhead into gas-gathering systems, into nearby gas-processing
plants or into high-pressure pipelines. The Company also designs and fabricates
compression packages for its own fleet as well as for sale to customers.
Principles of Consolidation
The accompanying consolidated financial statements include the Company and
its wholly owned subsidiary, Universal. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates
In preparing the Company's financial statements, management makes estimates
and assumptions that affect the amounts reported in the financial statements and
related disclosures. Actual results may differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Revenue Recognition
Revenue from equipment rentals and parts sales is recognized when earned.
Compressor fabrication revenue is recognized using the completed-contract
method. This method is used because the typical contract is completed within two
months and financial position and results of operations do not vary
significantly from those which would result from use of the
percentage-of-completion method.
Concentration of Credit Risk
Trade accounts receivable are due from companies of varying size engaged
principally in oil and gas activities in the United States and in certain
international locations such as Argentina, Venezuela, Southeast Asia, Europe and
Canada. The Company reviews the financial condition of customers prior to
extending credit and periodically updates customer credit information. Payment
terms are on a short-term basis and in accordance with industry standards. No
single customer accounts for 10% or more of the Company's revenues.
F-6
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventories
Inventories are stated at the lower of cost (first in first out [FIFO]
method) or market (net realizable value). Some items of compression equipment
are acquired and placed in inventories for subsequent sale or rental to others.
Acquisitions of these assets are considered operating activities in the
statement of cash flows, although they later may be transferred to the
compression rental fleet.
Properties and Equipment
Properties and equipment are carried at cost. Depreciation for financial
reporting purposes is computed on the straight-line basis beginning with the
first rental, with salvage values of 20% for compression equipment, using
estimated useful lives of:
<TABLE>
<S> <C>
Compression equipment............................................................ 15 years
Other properties and equipment................................................... 2-25 years
</TABLE>
Maintenance and repairs are charged to expenses as incurred. Overhauls and
major improvements that have the effect of extending the useful life of the
asset are capitalized and depreciated over three years.
Goodwill and Other Assets
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 40 years. At the
balance sheet date, the Company evaluated the recoverability of goodwill based
on expectations of undiscounted cash flows from operations and determined that
no impairment had occurred. Included in other assets are debt issuance costs,
net of accumulated amortization, totaling approximately $9,450,000 at March 31,
1998. Such costs are amortized over the period of the respective debt
agreements.
Stock-Based Compensation
Under Statement of Financial Accounting Standards ('SFAS') No. 123,
'Accounting for Stock-Based Compensation,' the Company elected to measure
compensation cost using the intrinsic value-based method as prescribed by
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees.' As such, the Company is required to make pro forma disclosures of
net income and, if presented, earnings per share as if the fair-value based
method of accounting defined by SFAS No. 123 had been applied. See Note 7.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, all expected future events are considered other than enactments of
changes in the tax law or rates.
Foreign Currency Transactions
Activities outside the United States, except those located in highly
inflationary economies, are measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
rates of exchange at the balance sheet date. Income and expense items are
translated at average monthly rates of exchange. The resultant translation
adjustments for the period from December 12, 1997 (inception) through March 31,
1998 were not significant.
F-7
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fair Value of Financial Instruments
The Company's financial instruments consist of trade receivables and
payables (which have carrying values that approximate fair value) and long-term
debt. At March 31, 1998, the Company estimated that the fair value of its
long-term debt approximated fair value because of the short period of time since
its issuance.
New Accounting Pronouncements
Effective April 1, 1998, the Company adopted SFAS No. 130, 'Reporting
Comprehensive Income.' This statement requires the presentation of total
nonowner changes in equity, including items not currently reflected in net
income. The Company is currently evaluating the effect, if any, this statement
will have on the Company's financial position.
2. TCS ACQUISITION
On February 20, 1998, Acquisition Corp. acquired 100% of the voting
securities of TCS for approximately $350 million. The Acquisition was recorded
using the purchase method of accounting and the purchase price was allocated to
the assets and liabilities acquired based on their fair value. The excess cost
of the Acquisition was recorded as goodwill which is being amortized on a
straight-line basis over its 40 year useful life. The operations of TCS are
included in the financial statements presented herein from February 20, 1998
through March 31, 1998.
The following table presents the (unaudited) pro forma revenue and net
income amounts as if the Acquisition occurred on December 12, 1997 (inception)
(in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 12,1997
(INCEPTION) THROUGH
MARCH 31, 1998
-------------------
(UNAUDITED)
<S> <C>
Revenues.................................................................. $32,630
----------
----------
Net loss.................................................................. $(1,427)
----------
----------
</TABLE>
3. INVENTORIES
Inventories consisted of the following at March 31, 1998 (in thousands):
<TABLE>
<S> <C>
Finished goods............................................................ $ 5,479
Work-in-progress.......................................................... 3,199
-------------------
Total................................................................ $ 8,678
-------------------
-------------------
</TABLE>
F-8
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
4. LONG-TERM DEBT
The Company's debt consisted of the following at March 31, 1998 (in
thousands):
<TABLE>
<S> <C>
Term loan, bearing interest of LIBOR + 2.5%, due February 2005 and collateralized
by property of Universal........................................................ $ 74,814
Revolving credit facility, bearing interest of LIBOR + 2.25%, due February 2003
and collateralized by property of Universal..................................... 35,150
Senior discount notes, bearing interest of 9 7/8% per annum, due 2008, net of
discount of $90,956, unsecured.................................................. 151,544
Senior discount notes, bearing interest of 11 3/8% per annum, due 2009, net of
discount of $18,146, unsecured.................................................. 25,354
----------
Total debt................................................................... 286,862
Less current maturities........................................................... 750
----------
Total long-term debt......................................................... $ 286,112
----------
----------
</TABLE>
The Company's senior secured credit agreement (the 'Credit Agreement')
provides for $75 million under the term loan and $85 million under the revolving
credit facility, which includes a sublimit for letters of credit. The available
capacity on the revolving credit facility at March 31, 1998 was approximately
$47,819,000. The interest rates on the term loan and the revolving credit
facility at March 31, 1998 were 10.0% and 9.75%, respectively. Under the
revolving credit facility a commitment fee of 0.50% per annum on the average
available commitment is payable quarterly.
The Credit Agreement contains certain financial covenants and limitations
on, among other things, acquisitions, sales, indebtedness and liens. The Credit
Agreement also limits the payment of cash dividends related to Universal paying
up to $1 million to the Company in any given fiscal year. In addition, the
Company has substantial dividend payment restrictions under the indenture
related to the senior discount notes. The Company was in compliance with all
such covenants and limitations at March 31, 1998. As defined by the Credit
Agreement, any 'change of control' would result in an 'Event of Default' and all
amounts outstanding under the Credit Agreement will become due and payable. All
principal amounts and accrued interest will become due without further notice.
Interest related to both the 9 7/8% senior discount notes and the 11 3/8%
senior discount notes is payable semi-annually on August 15 and February 15,
commencing August 15, 2003.
Maturities of long-term debt as of March 31, 1998, in thousands, are
1999--$750; 2000--$750; 2001-- $750; 2002--$750; 2003--$61,400; and $222,462
thereafter.
5. INCOME TAXES
For the period from December 12, 1997 (inception) through March 31, 1998,
substantially all of the Company's income before income taxes was derived from
its U.S. operations.
Income tax expense for the period from December 12, 1997 (inception)
through March 31, 1998 consisted of the following (in thousands):
<TABLE>
<S> <C>
Current--foreign...................................................................... $ 71
Deferred:
Federal............................................................................. 303
State............................................................................... 35
---------
Total............................................................................ $ 409
---------
---------
</TABLE>
F-9
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
5. INCOME TAXES--(CONTINUED)
A reconciliation of the provision for income taxes and the amount computed
by applying the federal statutory income tax rate to income before taxes is as
follows (in thousands):
<TABLE>
<S> <C>
Provision for income taxes at statutory rate.......................................... $ 294
State taxes........................................................................... 30
Foreign taxes......................................................................... 71
Other................................................................................. 14
---------
Total............................................................................ $ 409
---------
---------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities were as follows at March 31, 1998 (in
thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss................................................................ $ 1,518
Other............................................................................. 165
---------
Total.......................................................................... 1,683
Valuation allowance................................................................. (71)
---------
Total.......................................................................... 1,612
---------
Deferred tax liabilities:
Depreciation differences on property and equipment................................ (1,924)
Other............................................................................. (27)
---------
Total.......................................................................... (1,951)
---------
Net deferred tax liability..................................................... $ (339)
---------
---------
</TABLE>
A valuation allowance has been established against the Company's deferred
tax assets related to foreign tax credits. The Company believes that it is
probable that all other deferred tax assets will be realized in future tax
returns, primarily from the generation of future taxable income through both
profitable operations and future reversals of existing taxable temporary
differences.
As a result of the activity for the period from December 12, 1997
(inception) through March 31, 1998, the Company has net operating loss ('NOL')
carryforwards available to offset future taxable income. The Company has NOL
carryforwards of approximately $3,893,000 which will expire in 2018.
6. REDEEMABLE PREFERRED STOCK
The Company issued 1,300,000 shares of Series A preferred stock ('Preferred
Stock') which is redeemable at any time as a whole or in part at the option of
the Company for cash in the amount of $50 per share. No dividends are payable at
March 31, 1998 on the Preferred Stock. In the event of any liquidation,
dissolution or winding up of the Company, or a merger or consolidation of the
Company, or a sale of substantially all of the assets of the Company, each case
as would constitute a 'Change of Control' under the indenture, the holders of
the Preferred Stock will receive payment of the liquidation value of $50 per
share plus accrued and unpaid dividends thereon, if any and in full, prior to
the payment of any distributions to the holders of the common stock of the
Company. Each share of Preferred Stock equates to one vote on all matters taken
to the common shareholders. All holders of Preferred Stock and common stock are
treated as one class in relation to voting rights.
F-10
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
7. STOCK OPTIONS
In order to motivate and retain key employees, the Company established an
incentive stock option plan. The incentive stock option plan became effective on
February 20, 1998, and on that date certain key employees were granted stock
options. The Company granted 30,148 options at $50 per share per option on
February 20, 1998. The options are exercisable over a ten-year period, and the
options vest over the following time period:
<TABLE>
<S> <C>
Year 1.............................................................................. 33 1/3%
Year 2.............................................................................. 33 1/3%
Year 3.............................................................................. 33 1/3%
</TABLE>
As of March 31, 1998, the Company had 9,802 stock options available for
grant.
The fair value of options at the date of grant was estimated using the
Black-Scholes model with the following weighted-average assumptions:
<TABLE>
<S> <C>
Expected life....................................................................... 3 years
Interest rate....................................................................... 5.7%
Dividend yield...................................................................... 0%
Expected volatility of the Company's stock price.................................... 0%
</TABLE>
Under SFAS 123, the compensation expense which would be recorded for the
period December 12, 1997 (inception) through March 31, 1998 is approximately
$8,000.
8. EMPLOYEE BENEFITS
The Company has a defined contribution 401(k) plan covering substantially
all employees. The Company makes matching contributions under this plan equal to
50% of each participant's contribution of up to 6% of the participant's
compensation. Company contributions to the plan were approximately $159,000 for
the period from December 12, 1997 (inception) through March 31, 1998.
9. RELATED-PARTY TRANSACTIONS
Management Agreement
Castle Harlan Inc., an affiliate of a major shareholder of Holdings,
entered into an agreement whereby, in exchange for investment banking and
financial advisory services rendered, the Company agreed to pay a fee to Castle
Harlan totaling $3 million per year. The amount was paid in advance for the
first year and quarterly in advance thereafter. The agreement is for a term of
five years, renewable automatically from year to year thereafter unless Castle
Harlan Inc. or its affiliates beneficially own at this time less than 20% of the
then outstanding stock of the Company. The Company paid Castle Harlan Inc. $3
million for the period from December 12, 1997 (inception) through March 31, 1998
for services to be provided by Castle Harlan for the year ending February 20,
1999.
Finders Fee/Consulting Arrangement
The Company paid a member of its Board of Directors (the 'Director')
$1,750,000 (a 'finders fee') related to services provided by the Director for
the Acquisition. Upon consummation of the Acquisition, $1,100,000 of the finders
fee was used to purchase capital stock of the Company at $50 per share. In
addition, the Company will pay the Director an annual consulting fee of $150,000
for consulting services for a stated term of five years. The agreement will
automatically extend for one-year periods unless the parties elect to terminate
the agreement. The Company paid the Director $12,500 for the period December 12,
1997 (inception) through March 31, 1998.
F-11
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
9. RELATED-PARTY TRANSACTIONS--(CONTINUED)
The Company also paid a closing bonus to an officer of the Company
consisting of 1,000 shares of the Company's common stock, 4,000 shares of the
Company's preferred stock, both valued at $50 per share, and $100,000 cash for
services performed in conjunction with the Acquisition prior to his employment.
10. COMMITMENTS AND CONTINGENCIES
Rent expense for the period from December 12, 1997 (inception) through
March 31, 1998 was approximately $43,000. Commitments for future minimum lease
payments were not significant at March 31, 1998.
In the ordinary course of business, the Company is involved in various
pending or threatened legal actions. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
materially adverse effect on the Company's financial position or operating
results.
An environmental assesment (the "Assessment") of the operations, physical
premises and assets of the Company was completed in connection with the
Aquisition. The Assessment indicated that the ultimate cost of remediation could
range up to $18.8 million. In the event that remediation is undertaken by the
Company, then pursuant to the stock purchase agreement, costs of such
remediation shall be paid as follows: Tidewater, Inc. shall pay 75% of the first
$4 million, 83.33% of the next $6 million, and 100% of the costs in excess of
$10 million, although not to exceed the upper limit of the range in Assessment.
Tidewater, Inc. has disputed certain aspects of the Assessment, but has not
disputed its obligation to reimburse the Company for actual costs incurred in
remediating environmental conditions identified in the Assessment. The Company
has not recorded a provision at March 31, 1998 for its share of environmental
remediation costs. The Company's environmental consulting firm continues to
review the Assessment and to further evaluate the Company's remediation
requirements, if any, under existing laws, rules and regulations. The Company
does not currently believe that all such remediation is neccessary and cannot
estimate the amount of remediation, which will ultimately be neccessary. Pending
the outcome of this review and considering Tidewater's obligations pursuant to
the stock purchase agreement, the Company continues to believe that any
remediation obligations will not have a material impact in its financial
condition, results of operations and cash flows.
The Company has no other commitments or contingent liabilities which, in
the judgment of management, would result in losses that would materially affect
the Company's consolidated financial position or operating results.
11. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
The Company has two principal industry segments: Rentals and Maintenance
and Engineered Products. The Rentals and Maintenance Segment provides natural
gas compression rental and maintenance services to meet specific customer
requirements. The Engineered Products Segment involves the design, fabrication
and sale of natural gas and air compression packages to meet unique customer
specifications.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on profit or loss from operations before interest expense and
income taxes.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different marketing strategies because of customer
specifications. The business was acquired as a unit (see Note 1--Organization),
and the management at the time of Acquisition was retained.
F-12
<PAGE>
UNIVERSAL COMPRESSION HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998
11. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION--(CONTINUED)
The following table presents sales and other financial information by
industry segment for the period from December 12, 1997 (inception) through March
31, 1998 (in thousands):
<TABLE>
<CAPTION>
RENTAL
AND ENGINEERED ALL
MAINTENANCE PRODUCTS OTHER(a) TOTAL
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
Revenues......................................................... $ 9,059 $3,165 $ 895 $ 13,119
----------- ---------- -------- --------
----------- ---------- -------- --------
Gross profit..................................................... $ 6,255 $ 340 $ 312 $ 6,907
----------- ---------- -------- --------
----------- ---------- -------- --------
Operating income................................................. $ 3,671 $ 189 $ 182 $ 4,042
----------- ---------- -------- --------
----------- ---------- -------- --------
Depreciation and amortization.................................... $ 1,544 $ 10 $ 6 $ 1,560
----------- ---------- -------- --------
----------- ---------- -------- --------
Identifiable assets.............................................. $ 370,520 $7,865 $1,841 $380,226
----------- ---------- -------- --------
----------- ---------- -------- --------
</TABLE>
- ------------------
(a) All Other segment represents part sales and services and all other items
that could not be allocated to an identifiable segment. The segment serves
the oil and gas market as well as the industry market. A portion of the
amount represents sales of parts and equipment utilized in the extraction of
natural gas and the service that the Company provides to customer's natural
gas compression units.
Foreign operations were not deemed significant for the period from December
12, 1997 (inception) through March 31, 1998. Export sales for the period from
December 12, 1997 (inception) through March 31, 1998 were approximately
$1,711,000.
Revenues include sales to unaffiliated customers. Gross profit represents
total revenue less rental expenses and cost of sales. Operating income
represents revenues less total costs and expenses not including the effect of
interest expense and income taxes. Identifiable assets are those tangible and
intangible assets that are identified with the operations of a particular
industry segment.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Universal Compression, Inc.
We have audited the accompanying balance sheet of Tidewater Compression Service,
Inc. (the 'Company') as of February 20, 1998, and the related statements of
income, stockholder's equity and cash flows for the period from April 1, 1997
through February 20, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Tidewater Compression Service, Inc., as
of February 20, 1998, and the results of its operations and its cash flows
for the period from April 1, 1997 through February 20, 1998, in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Houston, Texas
June 1, 1998
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Tidewater Compression Service, Inc.
We have audited the accompanying balance sheet of Tidewater Compression Service,
Inc. as of March 31, 1997, and the related income statements, and statements of
stockholder's equity and cash flows for each of the years in the two-year period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tidewater Compression Service,
Inc. as of March 31, 1997, and the results of its operations and its cash flows
for each of the years in the two-year period ended March 31, 1997, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
New Orleans, Louisiana
November 21, 1997
F-15
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 20, MARCH 31,
1998 1997
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................. $ 1,824 $ --
Receivables, net of allowance for bad debts of $283 at February 20, 1998 and $318 at
March 31, 1997.................................................................... 10,399 11,099
Inventories.......................................................................... 8,455 7,845
Other................................................................................ 170 181
------------ ---------
Total current assets.............................................................. 20,848 19,125
------------ ---------
Property and equipment:
Rental equipment..................................................................... 333,507 322,512
Other................................................................................ 14,844 13,391
Accumulated depreciation............................................................. (138,315) (118,925)
------------ ---------
Total............................................................................. 210,036 216,978
------------ ---------
Goodwill, net of accumulated amortization of $5,349 at February 20, 1998 and $3,872 at
March 31, 1997....................................................................... 19,475 20,952
Other.................................................................................. 35 35
------------ ---------
Total............................................................................. $ 250,394 $ 257,090
------------ ---------
------------ ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................................................... $ 6,924 $ 4,208
Accrued expenses..................................................................... 488 964
------------ ---------
Total current liabilities......................................................... 7,412 5,172
Due to Tidewater Inc................................................................... 174,676 194,371
------------ ---------
Total liabilities................................................................. 182,088 199,543
------------ ---------
Commitments and contingencies
Stockholder's equity:
Common stock, $10 par value; 5,000 shares authorized and 4,910 shares issued and
outstanding....................................................................... 49 49
Additional paid-in capital........................................................... 25,627 25,627
Retained earnings.................................................................... 42,630 31,871
------------ ---------
Total stockholder's equity........................................................ 68,306 57,547
------------ ---------
Total............................................................................. $ 250,394 $ 257,090
------------ ---------
------------ ---------
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
STATEMENTS OF INCOME
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
APRIL 1, 1997 MARCH 31,
THROUGH --------------------
FEBRUARY 20, 1998 1997 1996
----------------- -------- --------
<S> <C> <C> <C>
Revenues:
Rentals.............................................................. $71,644 $ 72,695 $ 72,765
Sales................................................................ 19,924 36,592 32,319
Other................................................................ 3,024 3,477 6,236
Gain (loss) on asset sales........................................... 1,094 1,122 (856)
----------------- -------- --------
Total revenues.................................................... 95,686 113,886 110,464
----------------- -------- --------
Costs and expenses:
Rentals.............................................................. 31,924 33,814 33,191
Cost of sales........................................................ 14,753 30,339 26,345
Depreciation and amortization........................................ 23,310 26,163 26,997
General and administrative........................................... 8,669 11,004 10,508
Interest expense..................................................... -- -- 3,706
----------------- -------- --------
Total costs and expenses.......................................... 78,656 101,320 100,747
----------------- -------- --------
Income before income taxes............................................. 17,030 12,566 9,717
Income taxes........................................................... 6,271 4,724 3,745
----------------- -------- --------
Net income........................................................ $10,759 $ 7,842 $ 5,972
----------------- -------- --------
----------------- -------- --------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balance, March 31, 1995.............................................. $ 49 $ 25,627 $ 18,057 $43,733
Net income........................................................... -- -- 5,972 5,972
------ ---------- -------- -------
Balance, March 31, 1996.............................................. 49 25,627 24,029 49,705
Net income........................................................... -- -- 7,842 7,842
------ ---------- -------- -------
Balance, March 31, 1997 49 25,627 31,871 57,547
Net income........................................................... -- -- 10,759 10,759
------ ---------- -------- -------
Balance, February 20, 1998........................................... $ 49 $ 25,627 $ 42,630 $68,306
------ ---------- -------- -------
------ ---------- -------- -------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD FROM APRIL MARCH 31,
1, 1997 THROUGH ------------------------
FEBRUARY 20, 1998 1997 1996
----------------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 10,759 $ 7,842 $ 5,972
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 23,310 26,163 26,997
(Gain) loss on asset sales........................................ (1,094) (1,122) 856
Deferred income tax (benefit) expense............................. (1,825) 6,835 12,630
Decrease in receivables........................................... 700 308 5,733
(Increase) decrease in inventories................................ (610) 72 2,630
Decrease in other current assets.................................. 11 603 1,159
Increase (decrease) in accounts payable........................... 2,716 1,458 (4,898)
Decrease in accrued expenses...................................... (476) (236) (269)
----------------- ---------- ----------
Net cash provided by operating activities....................... 33,491 41,923 50,810
----------------- ---------- ----------
Cash flows from investing activities:
Proceeds from asset sales............................................ 3,803 7,684 5,124
Additions to properties and equipment................................ (17,600) (16,520) (6,394)
----------------- ---------- ----------
Net cash used in investing activities........................... (13,797) (8,836) (1,270)
----------------- ---------- ----------
Cash flows from financing activities:
Net change in amount due to Tidewater Inc............................ (17,870) (33,121) 62,494
Repayments of long-term debt......................................... -- -- (112,000)
----------------- ---------- ----------
Net cash used in financing activities........................... (17,870) (33,121) (49,506)
----------------- ---------- ----------
Net increase (decrease) in cash........................................ 1,824 (34) 34
Cash at beginning of period............................................ -- 34 --
----------------- ---------- ----------
Cash at end of period.................................................. $ 1,824 $ -- $ 34
----------------- ---------- ----------
----------------- ---------- ----------
Supplemental cash flow information--cash paid for interest............. $ 4,310
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Tidewater Compression Service, Inc. ('TCS' or the 'Company') is, and has
been for all periods presented, a wholly owned subsidiary of Tidewater Inc.
('Tidewater'). The accompanying financial statements are presented as if TCS had
been an entity separate from its parent during the periods presented and include
the assets, liabilities, revenues and expenses that are directly related to TCS'
operations. As a subsidiary of Tidewater, TCS was a participating employer in
certain employee benefit plans and also received certain administrative services
such as data processing, legal, insurance placement and claims handling from its
parent. The costs associated with providing TCS with such employee benefit
programs and administrative services, where significant, have been allocated to
TCS based on management's estimate of the time involved in providing such
services and are included in the accounts of TCS. Management believes the method
used to allocate the cost of these services is reasonable.
Nature of Operations
TCS operates one of the largest rental fleets of natural gas compressors in
the United States. The compressors are rented to oil and gas producers and
processors and are used primarily to boost the pressure of natural gas from the
wellhead into gas-gathering systems, into nearby gas- processing plants or into
high-pressure pipelines. TCS also designs and fabricates compression packages
for its own fleet as well as for sale to customers.
Use of Estimates
In preparing TCS' financial statements, management makes estimates and
assumptions that affect the amounts reported in the financial statements and
related disclosures. Actual results may differ from these estimates.
Revenue Recognition
Revenue from equipment rentals and parts sales is recognized when earned.
Compressor fabrication revenue is recognized using the completed-contract
method. This method is used because the typical contract is completed within two
months and financial position and results of operations do not vary
significantly from those which would result from use of the
percentage-of-completion method.
Concentration of Credit Risk
Trade accounts receivable are due from companies of varying size engaged
principally in oil and gas activities in the United States and in certain
international locations such as, Argentina, Venezuela, Southeast Asia, Europe
and Canada. The Company reviews the financial condition of customers prior to
extending credit and periodically updates customer credit information. Payment
terms are on a short-term basis and in accordance with industry standards. No
single customer accounts for 10% or more of TCS' revenues.
Inventories
Inventories are stated at the lower of cost (first in first out [FIFO]
method) or market (net realizable value). Some items of compression equipment
are acquired and placed in inventories for subsequent sale or rental to others.
Acquisitions of these assets are considered operating activities in the
statements of cash flows, although they later may be transferred to the
compression rental fleet.
F-20
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Properties and Equipment
Properties and equipment are carried at cost. Depreciation for financial
reporting purposes is computed on the straight-line basis beginning with the
first rental, with salvage values of 30% for compression equipment, using
estimated useful lives of:
<TABLE>
<S> <C>
Compression equipment:
New........................................................................... 12 years
Used.......................................................................... 8 years
Other properties and equipment................................................ 3-30 years
</TABLE>
Maintenance and repairs are charged to expense as incurred during the
asset's original estimated useful life. Repair costs incurred after that time
that also have the effect of extending the useful life of the asset are
capitalized and depreciated over three years.
On April 1, 1996, TCS adopted the provisions of Statement of Financial
Accounting Standards No. 121, 'Accounting for a Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.' The adoption of this accounting
standard had no impact on TCS' results of operations or financial position.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over 15 years. At the
balance sheet dates, the Company evaluated the recoverability of goodwill based
on expectations of undiscounted cash flows from operations and determined that
no impairment had occurred.
Income Taxes
TCS' operations are included in the consolidated U.S. federal income tax
returns of Tidewater Inc. The tax provisions presented in these financial
statements have been determined as if TCS' operations were a stand-alone
business filing a separate income tax return with the amount of current tax owed
(refundable) charged or credited to the amounts due to Tidewater Inc. Deferred
tax assets and liabilities which are also included in the amounts due to
Tidewater Inc. are determined based on the differences between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to be recovered or
settled.
Pension, Postretirement and Other Benefit Plans
TCS employees participate in Tidewater pension and other postretirement
plans. TCS has accounted for its participation in the Tidewater plans as a
participation in multiemployer plans. Accordingly, the statement of income
includes an allocation from Tidewater for the costs associated with the TCS
employees who participate in these plans that is comparable to TCS' required
contribution to the plans for the periods presented. Additionally, no assets and
liabilities have been reflected in the balance sheets related to the overall
Tidewater pension and other postretirement benefit plans since it is not
practicable to segregate the amounts applicable to TCS. TCS employees also
participate in the medical, dental, life and workers' compensation insurance
plans sponsored by Tidewater. The costs of these plans are allocated to TCS
based on the number of TCS employees participating in the plans.
F-21
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Foreign Currency Transactions
Activities outside the United States, except those located in highly
inflationary economies, are measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at the
rates of exchange at the balance sheet date. Income and expense items are
translated at average monthly rates of exchange. The resultant translation
adjustments for the period from April 1, 1997 through February 20, 1998 and the
years ended March 31, 1997 and March 31, 1996 were not significant.
Foreign Operations and Export Sales
Foreign operations were not deemed significant for the period from
April 1, 1997 through February 20, 1998 and the fiscal years ended March 31,
1997 and 1996. Export sales for the period from April 1, 1997 through February
20, 1998 and the fiscal years ended March 31, 1997 and 1996 were $15,528,000,
$21,271,000 and $18,640,000, respectively.
Fair Value of Financial Instruments
The Company's financial instruments consist of trade receivables and
payables which have carrying values that approximate fair value.
2. INVENTORIES
Inventories consisted of the following at February 20, 1998 and March 31,
1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Parts and supplies......................................................... $5,493 $5,684
Work-in progress........................................................... 2,962 2,161
------ ------
Total................................................................. $8,455 $7,845
------ ------
------ ------
</TABLE>
3. INCOME TAXES
For the period from April 1, 1997 through February 20, 1998 and for each of
the years in the two-year period ended March 31, 1997, substantially all of TCS'
income before income taxes was derived from its U.S. operations.
Income tax expense (benefit) consisted of the following (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
APRIL 1, 1997 MARCH 31,
THROUGH FEBRUARY -------------------
20, 1998 1997 1996
----------------- ------- --------
<S> <C> <C> <C>
Current:
U.S. Federal................................................. $ 7,220 $(2,162) $ (8,646)
State and foreign............................................ 876 51 (239)
Deferred....................................................... (1,825) 6,835 12,630
-------- ------- --------
Total..................................................... $ 6,271 $ 4,724 $ 3,745
-------- ------- --------
-------- ------- --------
</TABLE>
The actual income tax expense for each of the periods shown above differs
from the amount computed by applying the U.S. federal tax rate of 35% to income
before income taxes principally because of state income taxes.
F-22
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
3. INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities, which are included in the intercompany
accounts, at February 20, 1998 and March 31, 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets--financial provisions not deducted for income tax
purposes............................................................. $ 1,181 $ 1,096
Deferred tax liabilities--depreciation differences on property and
equipment............................................................ (34,207) (35,947)
-------- --------
Total............................................................. $(33,026) $(34,851)
-------- --------
-------- --------
</TABLE>
4. DUE TO TIDEWATER INC.
Amounts due to Tidewater Inc. include net charges from Tidewater for
various services and cost allocations. These amounts also include liabilities
relating to current and deferred federal, state and foreign income taxes.
Amounts due to Tidewater Inc. do not bear interest. The net changes in amounts
due to Tidewater Inc. are included in cash flows from financing activities. The
weighted average balance of amounts due to Tidewater Inc. for the period from
April 1,1997 through February 20, 1998 and the fiscal years ended March 31, 1997
and 1996 was $184,866,000, $206,329,000 and $191,058,000, respectively.
5. EMPLOYEE BENEFITS
Defined Benefit Pension Plans and Defined Contribution Retirement Plan
Until January 1, 1996, substantially all of the TCS personnel participated
in a defined benefit pension plan sponsored by Tidewater. Tidewater's pension
benefits are based principally on years of service and employee compensation.
Beginning April 1996, TCS field service personnel, along with all new employees
of TCS eligible for pension plan membership, were enrolled in a new, defined
contribution retirement plan. Tidewater allocated pension expense to TCS of
approximately $598,000 in fiscal year 1996. The cost of the defined contribution
plan allocated to TCS for the period from April 1, 1997 through February 20,
1998 and for fiscal year 1997 was approximately $282,000 and $298,000,
respectively.
Postretirement Benefits Other Than Pension
Tidewater sponsors a program which provides limited health care and life
insurance benefits to qualified retired employees. Costs of the program are
based on actuarially determined amounts and are accrued over the period from the
date of hire to the full eligibility date of employees who are expected to
qualify for these benefits. Tidewater has allocated postretirement health care
and life insurance expense to TCS of approximately $274,000, $384,000 and
$178,000 for the period from April 1, 1997 through February 20, 1998 and for the
years ended March 31, 1997 and 1996, respectively.
6. COMMITMENTS AND CONTINGENCIES
Rent expense for the period from April 1, 1997 through February 20, 1998
and for the years ended March 31, 1997 and 1996 was approximately $390,000,
$435,000 and $483,000, respectively. Commitments for future minimum lease
payments were not significant at February 20, 1998.
In the ordinary course of business, the Company is involved in various
pending or threatened legal actions. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
materially adverse effect on the Company's financial position or operating
results.
An environmental assesment (the "Assessment") of the operations, physical
premises and assets of the Company was completed in connection with the
Aquisition. The Assessment indicated that the ultimate cost of remediation could
range up to $18.8 million. In the event that remediation is undertaken by the
Company, then pursuant to the stock purchase agreement, costs of such
remediation shall be paid as follows: Tidewater, Inc. shall pay 75% of the first
$4 million, 83.33% of the next $6 million, and 100% of the costs in excess of
$10 million, although not to exceed the upper limit of the range in Assessment.
Tidewater, Inc. has disputed certain aspects of the Assessment, but has not
disputed its obligation to reimburse the Company for actual costs incurred in
remediating environmental conditions identified in the Assessment. The Company
has not recorded a provision at March 31, 1998 for its share of environmental
remediation costs. The Company's environmental consulting firm continues to
review the Assessment and to further evaluate the Company's remediation
requirements, if any, under existing laws, rules and regulations. The Company
does not currently believe that all such remediation is neccessary and cannot
estimate the amount of remediation, which will ultimately be neccessary. Pending
the outcome of this review and considering Tidewater's obligations pursuant to
the stock purchase agreement, the Company continues to believe that any
remediation obligations will not have a material impact in its financial
condition, results of operations and cash flows.
F-23
<PAGE>
TIDEWATER COMPRESSION SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 AND
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
6. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company has no other commitments or contingent liabilities which, in
the judgment of management, would result in losses that would materially affect
the Company's financial position or operating results.
7. SUBSEQUENT EVENTS
On February 20, 1998, pursuant to the Stock Purchase Agreement, dated
December 18, 1997, between Tidewater and TW Acquisition Corporation
('Acquisition Corp.'), the Acquisition Corp. acquired 100% of the voting
securities of TCS for a purchase price of approximately $350 million (the
'Acquisition'). Immediately following the Acquisition, Acquisition Corp. was
merged with and into TCS, which changed its name to Universal Compression, Inc.
F-24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS OFFERING MEMORANDUM, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF NOR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................ 1
Summary of the Exchange Offer..................... 5
The Original Notes................................ 7
Summary Historical and Pro Forma Financial and
Other Data...................................... 10
Risk Factors...................................... 11
Use of Proceeds................................... 17
The Exchange Offer................................ 17
Description of the Company Acquisition............ 24
Capitalization.................................... 26
Holdings Unaudited Pro Forma Consolidated
Financial Statements and Other Data............. 27
Selected Historical Financial Data................ 31
Management's Discussion and Analysis of Universal
Compression Financial Condition and Results of
Operations...................................... 32
Business.......................................... 36
Business Strategy................................. 37
Management........................................ 46
Principal Stockholders............................ 53
Description of the Exchange Notes................. 54
Description of the Company Notes.................. 78
Description of Capital Stock of Holdings.......... 79
Description of Other Indebtedness................. 79
Certain United States Federal Income Tax
Considerations.................................. 82
Book-Entry; Delivery and Form..................... 86
Plan of Distribution.............................. 87
Legal Matters..................................... 87
Experts........................................... 87
</TABLE>
------------------------------
UNTIL , 199 , ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-------------------
PROSPECTUS
-------------------
$43,500,000
[ LOGO]
------------------------------
UNIVERSAL COMPRESSION
HOLDINGS, INC.
OFFER TO EXCHANGE
UP TO $43,500,000 OF NEW 11 3/8% SENIOR
DISCOUNT NOTES DUE 2009 FOR
UP TO $43,500,000
OF ANY AND ALL OUTSTANDING
11 3/8% SENIOR DISCOUNT
NOTES DUE 2009
THE UNITED STATES
TRUST COMPANY
OF NEW YORK,
AS EXCHANGE AGENT
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation, as amended, provides for indemnification
of directors to the fullest extent permitted by the relevant provisions of the
General Corporation Law of the State of Delaware (the 'GCL'). The By-Laws of
Holdings provide similar indemnification for officers and employees. The GCL
permits a corporation to limit or eliminate a director's or officer's personal
liability to the corporation or the holders of its capital stock for breach of
duty. This limitation is generally unavailable for acts or omissions by a
director or officer which were (i) in bad faith, (ii) were the result of active
and deliberate dishonesty and were material to the cause of action so
adjudicated or (iii) involved a financial profit or other advantage to which
such director was not legally entitled. The effect of these provisions is to
eliminate the rights of Holdings and its stockholders (through stockholders'
derivative suits on behalf of Holdings) to recover monetary damages against a
director or officer for breach of fiduciary duty as a director (including
breaches resulting from grossly negligent behavior), except in the situations
described above. These provisions will not limit the liability of directors or
officers under the federal securities laws of the United States.
See Item 22 for a statement of Holdings' undertaking as to the Securities
and Exchange Commission's position respecting indemnification arising under the
Securities Act of 1933 (the 'Securities Act').
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1* -- Certificate of Incorporation of Universal Compression Holdings, Inc., as amended.
3.2* -- Bylaws of Universal Compression Holdings, Inc.
4.1 -- Purchase Agreement, dated as of February 13, 1998, between Universal Compression Holdings, Inc. and
BT Alex. Brown Incorporated.
4.2 -- Specimen of Universal Compression Holdings, Inc.'s 11 3/8% Senior Discount Note due 2009.
4.3 -- Indenture, dated as of February 20, 1998, between Universal Compression Holdings, Inc. and The United
States Trust Company of New York, as Trustee.
4.4 -- Registration Rights Agreement, dated July 1, 1997, between Universal Compression Holdings, Inc. and
BT Alex. Brown Incorporated.
4.5 -- Credit Agreement, dated as of February 20, 1998, among Universal Compression, Inc., Universal
Compression Holdings, Inc., Bankers Trust Company, as agent and the lenders party thereto.
4.6 -- Form of Notes under Credit Agreement.
4.7 -- Security Agreement, dated as of February 20, 1998, among Universal Compression, Inc., Universal
Compression Holdings, Inc., Bankers Trust Company, and the Banks party thereto.
4.8 -- Pledge Agreement, dated as of February 20, 1998, among Universal Compression, Inc., Universal
Compression Holdings, Inc., Bankers Trust Company and the Banks party thereto.
4.9 -- Acknowledgement and Joinder Agreement, dated February 20, 1998, between Universal Compression, Inc.
and Bankers Trust Company.
5.1* -- Opinion of Schulte Roth & Zabel LLP regarding legality.
8.1* -- Opinion of Schulte Roth & Zabel LLP regarding tax matters (contained in Exhibit 5.1).
10.1 -- Stock Purchase Agreement, dated December 18, 1997, between TW Acquisition Corporation and Tidewater
Inc.
10.2 -- Purchase Price Adjustment Agreement, dated February 20, 1998, among TW Acquisition Corporation,
Universal Compression Holdings, Inc., and Tidewater Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.3 -- Transition Services Agreement, dated February 20, 1998, between TW Acquisition Corporation and
Tidewater Inc.
10.4 -- Employment Agreement, dated February 20, 1998, with Stephen Snider.
10.5 -- Employment Agreement, dated February 20, 1998, with Ernie Danner.
10.6 -- Employment Agreement, dated February 20, 1998, with Thomas Hartford.
10.7 -- Employment Agreement, dated February 20, 1998, with Newton Schnoor.
10.8 -- Employment Agreement, dated February 20, 1998, with Robert Ryan.
10.9 -- Management Agreement, dated February 20, 1998, among Universal Compression, Inc., Universal
Compression Holdings, Inc., and Castle Harlan, Inc.
10.10 -- Finders and Consulting Agreement, dated February 20, 1998.
10.11 -- Assignment and Assumption Agreement, dated February 20, 1998, among Universal Compression, Inc., BT
Alex. Brown and Salomon Smith Barney.
10.12 -- Co-Investor Subscription Agreement, dated February 20, 1998, between Universal Compression Holdings,
Inc. and certain co-investors.
10.13 -- Voting Agreement, dated February 20, 1998, among Castle Harlan Partners III, L.P., Universal
Compression Holdings, Inc. and certain other parties.
10.14 -- Registration Rights Agreement, dated February 20, 1998, among Universal Compression Holdings, Inc.
and certain of its stockholders.
10.15 -- Stockholders Agreement, dated February 20, 1998, between Universal Compression Holdings, Inc. and
certain of its stockholders.
10.16 -- Management Subscription Agreement, dated February 20, 1998, between Universal Compression Holdings,
Inc. and certain key members of Universal Compression, Inc.'s management.
10.17 -- Management Stock Buyback Agreement between Universal Compression Holdings, Inc. and certain key
members of Universal Compression, Inc.'s management.
10.18* -- Stock Option Agreements between Universal Compression Holdings, Inc. and each of Ernie Danner,
Stephen Snider, Thomas Hartford, Samuel Urcis, Newton Schnoor, Robert Ryan, and Valerie Banner.
12.1* -- Statement of Computation of the Ratios of Earnings to Fixed Charges.
21.1* -- Subsidiaries of Universal Compression Holdings, Inc.
23.1* -- Consent of KMPG Peat Marwick LLP.
23.2* -- Consent of Schulte Roth & Zabel LLP (contained in Exhibit 5.1).
23.3* -- Consent of Deloitte & Touche LLP
25.1 -- Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939 of The
United States Trust Company of New York.
27.1* -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Notice of Guaranteed Delivery.
</TABLE>
- ------------------
* Filed herewith. For 10.18, only the Stock Option Agreement for Valerie
Banner is being filed; all other agreements were filed previously.
(b) Financial Statement Schedules.
ITEM 22. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(5) That every prospectus: (i) that is filed pursuant to paragraph (4)
immediately proceeding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(7) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, Holdings has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Holdings of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Holdings will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK ON THE 30TH DAY OF JULY, 1998.
UNIVERSAL COMPRESSION HOLDINGS, INC.
By: /s/ ERNIE DANNER
----------------------------------
Ernie Danner
Chief Financial Officer
and Executive Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEPHEN SNIDER President, Chief Executive Officer and Director July 30, 1998
- ------------------------------------------
Stephen Snider
/s/ ERNIE DANNER Chief Financial Officer, Executive Vice President July 30, 1998
- ------------------------------------------ and Director (Principal Financial and Accounting
Ernie Danner Officer)
/s/ JOHN K. CASTLE Director July 30, 1998
- ------------------------------------------
John K. Castle
/s/ JEFFREY M. SIEGAL Director July 30, 1998
- ------------------------------------------
Jeffrey M. Siegal
/s/ WILLIAM J. LOVEJOY Director July 30, 1998
- ------------------------------------------
William J. Lovejoy
/s/ SAMUEL URCIS Director July 30, 1998
- ------------------------------------------
Samuel Urcis
/s/ C. KENT MAY Director July 30, 1998
- ------------------------------------------
C. Kent May
/s/ THOMAS C. CASE Director July 30, 1998
- ------------------------------------------
Thomas C. Case
</TABLE>
II-4
<PAGE>
SCHEDULE II
TIDEWATER COMPRESSION SERVICE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM APRIL 1, 1997 TO FEBRUARY 20, 1998
AND YEARS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
COLUMN B --------
---------- COLUMN C BALANCE
COLUMN A BALANCE AT --------- COLUMN D AT
- ----------------------------------------------- BEGINNING ADDITIONS ---------- END OF
DESCRIPTION OF PERIOD AT COST DEDUCTIONS PERIOD
- ----------------------------------------------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C>
FOR THE PERIOD FROM APRIL 1, 1997 TO FEBRUARY
20, 1998
Deducted in balance sheet from trade accounts
receivable:
Allowance for doubtful accounts.............. $ 318 (50) (157) 283
Deducted in balance sheet from other assets:
Amortization of goodwill, prepaid rent and
debt issuance costs....................... $4,654 1,477 -- 6,131
1997
Deducted in balance sheet from trade accounts
receivable:
Allowance for doubtful accounts.............. $ 510 120 (312) 318
Deducted in balance sheet from other assets:
Amortization of goodwill, prepaid rent and
debt issuance costs....................... $3,000 1,654 -- 4,654
1996
Deducted in balance sheet from trade accounts
receivables:
Allowance for doubtful accounts.............. $ 702 120 (312) 510
Deducted in balance sheet from other assets:
Amortization of goodwill and debt issuance
costs..................................... $ 675 2,325 -- 3,000
</TABLE>
- ------------------
(A) Accounts receivable amounts considered uncollectible are removed from
accounts receivable by reducing allowance for doubtful accounts.
<PAGE>
SCHEDULE II
UNIVERSAL COMPRESSION HOLDINGS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM FEBRUARY 20, 1998 TO MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN E
COLUMN B --------
---------- COLUMN C BALANCE
COLUMN A BALANCE AT --------- COLUMN D AT
-------- BEGINNING ADDITIONS ---------- END OF
DESCRIPTION OF PERIOD AT COST DEDUCTIONS PERIOD
----------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C>
Deducted in balance sheet from trade accounts
receivable:
Allowance for doubtful accounts.............. $ 283 10 (80) 213
Deducted in balance sheet from other assets:
Amortization of goodwill, prepaid rent and
debt issuance costs....................... -- $ 319 -- 319
</TABLE>
- ------------------
(A) Accounts receivable amounts considered uncollectible and removed from
accounts receivable by reducing allowance for doubtful accounts.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C> <C> <C>
3.1* -- Certificate of Incorporation of Universal Compression Holdings, Inc., as amended.
3.2* -- Bylaws of Universal Compression Holdings, Inc.
4.1 -- Purchase Agreement, dated as of February 13, 1998, between Universal Compression
Holdings, Inc. and BT Alex. Brown Incorporated.
4.2 -- Specimen of Universal Compression Holdings, Inc.'s 11 3/8% Senior Discount Note due 2009.
4.3 -- Indenture, dated as of February 20, 1998, between Universal Compression Holdings, Inc.
and The United States Trust Company of New York, as Trustee.
4.4 -- Registration Rights Agreement, dated July 1, 1997, between Universal Compression
Holdings, Inc. and BT Alex. Brown Incorporated.
4.5 -- Credit Agreement, dated as of February 20, 1998, among Universal Compression, Inc.,
Universal Compression Holdings, Inc., Bankers Trust Company, as agent and the lenders
party thereto.
4.6 -- Form of Notes under Credit Agreement.
4.7 -- Security Agreement, dated as of February 20, 1998, among Universal Compression, Inc.,
Universal Compression Holdings, Inc., Bankers Trust Company, and the Banks party thereto.
4.8 -- Pledge Agreement, dated as of February 20, 1998, among Universal Compression, Inc.,
Universal Compression Holdings, Inc., Bankers Trust Company and the Banks party thereto.
4.9 -- Acknowledgement and Joinder Agreement, dated February 20, 1998, between Universal
Compression, Inc. and Bankers Trust Company.
5.1* -- Opinion of Schulte Roth & Zabel LLP regarding legality.
8.1* -- Opinion of Schulte Roth & Zabel LLP regarding tax matters (contained in Exhibit 5.1).
10.1 -- Stock Purchase Agreement, dated December 18, 1997, between TW Acquisition Corporation and
Tidewater Inc.
10.2 -- Purchase Price Adjustment Agreement, dated February 20, 1998, among TW Acquisition
Corporation, Universal Compression Holdings, Inc., and Tidewater Inc.
10.3 -- Transition Services Agreement, dated February 20, 1998, between TW Acquisition
Corporation and Tidewater Inc.
10.4 -- Employment Agreement, dated February 20, 1998, with Stephen Snider.
10.5 -- Employment Agreement, dated February 20, 1998, with Ernie Danner.
10.6 -- Employment Agreement, dated February 20, 1998, with Thomas Hartford.
10.7 -- Employment Agreement, dated February 20, 1998, with Newton Schnoor.
10.8 -- Employment Agreement, dated February 20, 1998, with Robert Ryan.
10.9 -- Management Agreement, dated February 20, 1998, among Universal Compression, Inc.,
Universal Compression Holdings, Inc., and Castle Harlan, Inc.
10.10 -- Finders and Consulting Agreement, dated February 20, 1998.
10.11 -- Assignment and Assumption Agreement, dated February 20, 1998, among Universal
Compression, Inc., BT Alex. Brown and Salomon Smith Barney.
10.12 -- Co-Investor Subscription Agreement, dated February 20, 1998, between Universal
Compression Holdings, Inc. and certain co-investors.
10.13 -- Voting Agreement, dated February 20, 1998, among Castle Harlan Partners III, L.P.,
Universal Compression Holdings, Inc. and certain other parties.
10.14 -- Registration Rights Agreement, dated February 20, 1998, among Universal Compression
Holdings, Inc. and certain of its stockholders.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C> <C> <C>
10.15 -- Stockholders Agreement, dated February 20, 1998, between Universal Compression Holdings,
Inc. and certain of its stockholders.
10.16 -- Management Subscription Agreement, dated February 20, 1998, between Universal Compression
Holdings, Inc. and certain key members of Universal Compression, Inc.'s management.
10.17 -- Management Stock Buyback Agreement between Universal Compression Holdings, Inc. and
certain key members of Universal Compression, Inc.'s management.
10.18* -- Stock Option Agreements between Universal Compression Holdings, Inc. and each of Ernie
Danner, Stephen Snider, Thomas Hartford, Samuel Urcis, Newton Schnoor, Robert Ryan, and
Valerie Banner.
12.1* -- Statement of Computation of the Ratios of Earnings to Fixed Charges.
21.1* -- Subsidiaries of Universal Compression Holdings, Inc.
23.1* -- Consent of KMPG Peat Marwick LLP.
23.2* -- Consent of Schulte Roth & Zabel LLP (contained in Exhibit 5.1).
23.3* -- Consent of Deloitte & Touche LLP.
25.1 -- Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of
1939 of The United States Trust Company of New York.
27.1* -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Notice of Guaranteed Delivery.
</TABLE>
- ------------------
* Filed herewith. For 10.18, only the Stock Option Agreement for Valerie
Banner is being filed; all other agreements were filed previously.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
UNIVERSAL COMPRESSION HOLDINGS, INC.
UNIVERSAL COMPRESSION HOLDINGS, INC. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, does hereby certify that:
1. The Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on December 1, 1997 under the name
of TW Holdings Corporation.
2. This Restated Certificate of Incorporation was duly adopted
in accordance with Section 242 of the General Corporation Law of the State of
Delaware.
3. The text of the Certificate of Incorporation is amended
hereby, and is hereby restated, to read in its entirety as herein set forth:
RESTATED CERTIFICATE OF INCORPORATION
OF
UNIVERSAL COMPRESSION HOLDINGS, INC.
1. The name of the corporation is Universal
Compression Holdings, Inc. (the "Corporation").
2. The address of the Corporation's registered office
in the State of Delaware is: 9 East Loockerman Street, Dover, Delaware
19901, County of Kent, Delaware. National Corporate Research, Ltd. is
the Corporation's registered agent at that address.
3. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of the State of Delaware (the "General
Corporation Law").
4a. Capitalization Generally. The Corporation shall
have authority to issue 1,000,000 shares of common stock, par value of
one cent ($.01) per share ("Common Stock"), and 5,000,000 shares of
preferred stock, par value one cent
<PAGE>
($.01) per share ("Preferred Stock"). Shares of Preferred Stock may
be issued by the Corporation from time to time in one or more classes
or series, with such designations, powers, privileges, preferences
and relative, participating, optional or other rights, if any, and
such qualifications, limitations or restrictions thereon, as are
permitted by law and as the Board of Directors shall from time to
time provide for by resolution or resolutions duly adopted,
including, without limitation, voting powers, if any (including
multiple or fractional votes per share), dividend rights, if any
(including dividend preferences or limited or unlimited dividend
participation), conversion rights, mandatory or optional redemption
rights or restrictions and preferences, on limited or unlimited
participation or in the amount to be paid on liquidation, and the
Board of Directors is hereby authorized to fix and determine the
powers, privileges, preferences and rights of any series of Preferred
Stock (including, but not limited to, applicable conversion or
redemption rates or prices or dividend rates), and to fix the number
of shares constituting any such series and to increase or decrease
the number of shares of any such series (but not below the number of
shares thereof then outstanding). In case the number of shares of any
series shall be so decreased, the shares constituting such decrease
shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
4b. Designation for Series A Preferred Stock.
Section 1. Designation, Number and Ranking.
(a) The shares of such series shall be
designated as "Series A Preferred Stock" (the "Series A
Preferred Stock"). The number of shares constituting the
Series A Preferred Stock shall be 2,000,000.
(b) The Series A Preferred Stock shall rank
senior to the Common Stock.
Section 2. Dividends.
No dividends shall accrue on the Series A
Preferred Stock. Dividends on the Series A Preferred Stock
shall be payable only when, as and if declared by the Board of
Directors out of funds of the Corporation legally available
therefor.
Section 3. Voting Rights.
<PAGE>
In addition to any voting rights required by
law, the holders of shares of Series A Preferred Stock shall
have the following voting rights:
(a) Except as otherwise required by
applicable law or by the provisions of paragraph (b) of this
Section 3, each share of Series A Preferred Stock shall
entitle the holder thereof to one vote, in person or by proxy,
at any annual or special meeting of stockholders, on all
matters presented to holders of Common Stock generally, voting
together as a single class with the holders of the Common
Stock. In the event of any change in the number of shares of
Common Stock by reason of any stock dividend, cash dividend,
recapitalization, reorganization, merger, consolidation,
split-up, combination or exchange of shares, or of any similar
change affecting the number of outstanding shares of Common
Stock, the voting rights accorded to the holder of each share
of Series A Preferred Stock shall be adjusted so that each
share of Series A Preferred Stock shall have the same number
of votes as each share of Common Stock received upon such
event.
(b) Unless the consent or approval of a
greater number of shares shall then be required by law, the
affirmative vote of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock, voting
separately as a single class, in person or by proxy, at an
annual or special meeting of stockholders called for that
purpose (or by written consent), shall be necessary to (i)
amend, alter or repeal any provision of the Certificate of
Incorporation or Bylaws of the Corporation so as to affect
adversely any of the preferences, rights, powers or privileges
of the Series A Preferred Stock or the holders thereof, and
(ii) effect the consolidation or merger of the Corporation
with or into any other person or the sale or other
distribution to another person of all or substantially all of
the assets of the Corporation, in either case so as to affect
adversely any of the preferences, rights, powers or privileges
of the Series A Preferred Stock or the holders thereof.
Section 4. Certain Restrictions.
So long as any share of Series A Preferred
Stock shall be issued and outstanding, the Corporation shall
not declare, pay or set aside for payment, any dividends on,
or make any other distributions with respect to, any shares of
Common Stock or other shares of capital stock of the
<PAGE>
Corporation ranking junior to the Series A Preferred Stock
with respect to the payment of dividends or upon liquidation,
dissolution or winding up.
Section 5. Redemption.
The Corporation shall have the right to
redeem any or all of the shares of Series A Preferred Stock at
any time from time to time for cash at a redemption price of
$50 per share. Any such redemption of less than all of the
outstanding shares of Series A Preferred Stock shall be
effectuated on a pro rata basis. Upon a consolidation, merger
of the Corporation with or into any other person, or the sale
or other distribution to another person of all or
substantially all of the assets of the Corporation, in each
case, as a result of which a "Change of Control" has occurred
as defined in the Indenture, dated as of February 20, 1998,
between the Corporation and United States Trust Company of New
York relating to the 11.375% Senior Discount Notes due 2009 of
the Corporation, the Corporation shall be obligated to redeem
all of the shares of Series A Preferred Stock at a redemption
price of $50 per share.
Section 6. Liquidation, Dissolution or
Winding Up.
(a) In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A Preferred Stock
then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its
stockholders, after and subject to the payment in full of all
amounts required to be distributed to the holders of any other
class of stock of the Corporation ranking senior to the Series
A Preferred Stock upon liquidation, dissolution or winding-up
(such stock being referred to herein as "Senior Stock") in
respect of such stock, but before any payment shall be made to
the holders of Common Stock or other capital stock of the
Corporation ranking junior to the Series A Preferred Stock
upon liquidation, dissolution or winding up (such stock being
referred to herein as "Junior Stock"), an amount equal to $50
per share, plus all accrued and unpaid dividends thereon, if
any. If upon any such liquidation, dissolution or winding up
of the Corporation the remaining assets of the Corporation
available for the distribution to its stockholders after
payment in full of amounts required to be paid or distributed
to holders of Senior Stock shall be insufficient to pay the
holders of shares of Series A Preferred Stock and the holders
of shares of capital stock of the Corporation ranking on a
parity with the Series A Preferred Stock upon liquidation,
dissolution or winding up (such
<PAGE>
stock being referred to herein as "Parity Stock") the full
amount to which they shall be entitled, the holders of
shares of Series A Preferred Stock and shares of Parity
Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion
to the respective amounts which would otherwise be payable
in respect of the shares held by them upon such distribution
if all amounts payable on or with respect to said shares
were paid in full.
(b) Neither the consolidation or merger of
the Corporation with or into any other person nor the sale or
other distribution to another person of all or substantially
all the assets of the Corporation, in each case when permitted
by Section 3(b), shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of
this Section 6.
5. The personal liability of the directors of the
Corporation is hereby eliminated to the fullest extent permitted by the
General Corporation Law (including, without limitation, paragraph (7)
of subsection (b) of Section 102 thereof), as the same may be amended
and supplemented from time to time.
6. The Board of Directors shall have the power to
adopt, amend or repeal By-laws of the Corporation, subject to the right
of the stockholders of the Corporation to adopt, amend or repeal any
By-law.
7. The Corporation shall, to the fullest extent
permitted by the General Corporation Law (including, without
limitation, Section 145 thereof), as the same may be amended and
supplemented from time to time, indemnify any and all persons whom it
shall have power to indemnify under the General Corporation Law. The
indemnification provided for herein shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled
whether as a matter of law, under any By-law of the Corporation, by
agreement, by vote of stockholders or disinterested directors of the
Corporation or otherwise.
8. The election of directors of the Corporation need
not be by written ballot, unless the By-laws of the Corporation
otherwise provide.
<PAGE>
4. This Restated Certificate of Incorporation was duly adopted
by the directors of the Corporation in accordance with Section 245 of the
General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed by Ernie Danner, its Chief Financial Officer, this 18th
day of February, 1998.
UNIVERSAL COMPRESSION HOLDINGS, INC.
By: /s/ Ernie Danner
----------------
Name: Ernie Danner
Title: Chief Financial Officer
<PAGE>
BY-LAWS
OF
TW HOLDINGS CORPORATION
ARTICLE I
Offices
Section 1. The registered office of TW Holdings Corporation
(the "Corporation") shall be in the City of Dover, County of Kent, State of
Delaware. The Corporation also may have offices at such other places, within
or without the State of Delaware, as the Board of Directors determines from
time to time or the business of the Corporation requires.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. Except as otherwise provided
in these By-laws, all meetings of the stockholders shall be held on such dates
and at such times and places, within or without the State of Delaware, as
shall be determined by the Board of Directors or the President and as shall be
stated in the notice of the meeting or in waivers of notice thereof. If the
place of any meeting is not so fixed, it shall be held at the registered
office of the Corporation in the State of Delaware.
Section 2. Annual Meeting. The annual meeting of
stockholders for the election of directors and the transaction of such other
proper business as may be brought before the
-1-
<PAGE>
meeting shall be held on such date after the close of the Corporation's fiscal
year, and at such time, as the Board of Directors may from time to time
determine.
Section 3. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, may be called by the Board of
Directors or the President and shall be called by the President or the
Secretary upon the written request of a majority of the directors. The request
shall state the date, time, place and purpose or purposes of the proposed
meeting.
Section 4. Notice of Meetings. Except as otherwise required
or permitted by law, whenever the stockholders are required or permitted to
take any action at a meeting, written notice thereof shall be given, stating
the place, date and hour of the meeting and, unless it is the annual meeting,
by or at whose direction it is being issued. The notice also shall designate
the place where the stockholders list is available for examination, unless the
list is kept at the place where the meeting is to be held. Notice of a special
meeting also shall state the purpose or purposes for which the meeting is
called. A copy of the notice of any meeting shall be delivered personally or
shall be mailed, not less than 10 and not more than 60 days before the date of
the meeting, to each stockholder entitled to vote at the meeting. If mailed,
the notice shall be deemed given when deposited in the United States mail,
postage prepaid, directed to each stockholder at such stockholder's address as
it appears on the records of the Corporation, unless such stockholder shall
have filed with the Secretary of the Corporation a written request that such
notices be mailed to some other address, in which case it shall be directed to
such other address. Notice of any meeting of stockholders need not be given to
any stockholder who shall attend the meeting, other than for the express
purpose of objecting at the beginning thereof to the transaction of any
business because the meeting is not lawfully called or convened, or who shall
submit, either before or after the time stated therein, a signed waiver of
notice. Unless the Board
-2-
<PAGE>
of Directors, after an adjournment is taken, shall fix a new record date for
an adjourned meeting or unless the adjournment is for more than 30 days,
notice of an adjourned meeting need not be given if the place, date and time
to which the meeting shall be adjourned are announced at the meeting at which
the adjournment is taken.
Section 5. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation of the Corporation, at all meetings of
stockholders, the holders of a majority of the shares of the Corporation
entitled to vote, present in person or represented by proxy, shall constitute
a quorum for the transaction of business.
Section 6. Voting. Except as otherwise provided by law or by
the Certificate of Incorporation of the Corporation, at any meeting of the
stockholders, every stockholder of record having the right to vote thereat
shall be entitled to one vote for every share of stock registered in his name
as of the record date and entitling him to so vote. A stockholder may vote in
person or by proxy. Except as otherwise provided by law or by the Certificate
of Incorporation, any corporate action to be taken by a vote of the
stockholders, other than the election of directors, shall be authorized by the
affirmative vote of a majority of the shares present or represented by proxy
at the meeting and entitled to vote on the subject matter. Directors shall be
elected as provided in Section 2 of Article III of these By-laws. Written
ballots shall not be required for voting on any matter unless ordered by the
chairman of the meeting, except that, unless otherwise provided in the
Certificate of Incorporation of the Corporation, all elections of directors
shall be by written ballot.
Section 7. Proxies. Every proxy shall be executed in writing
by the stockholder or by his authorized representative, or otherwise as
provided in the General Corporation Law of the State of Delaware (the "General
Corporation Law").
-3-
<PAGE>
Section 8. List of Stockholders. At least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing their
addresses and the number of shares registered in their names as of the record
date shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at
least 10 days prior to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 9. Conduct of Meetings. At each meeting of the
stockholders, the President or, in his absence, any Vice-President, in their
order of seniority, shall act as chairman of the meeting. The Secretary or, in
his absence, any person appointed by the chairman of the meeting shall act as
secretary of the meeting and shall keep the minutes thereof. The order of
business at all meetings of the stockholders shall be as determined by the
chairman of the meeting.
Section 10. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided in the Certificate of Incorporation of the
Corporation, any action required to be taken or which may be taken at any
annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed, in person or by proxy, by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted in person or
by proxy and shall be delivered to the Corporation as required by law. Prompt
notice
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<PAGE>
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE III
Board of Directors
Section 1. Number of Directors. Except as otherwise provided
in the Certificate of Incorporation of the Corporation, until such time as the
Board of Directors determines otherwise, the number of directors shall be
three. The number of directors may be reduced or increased from time to time
by action of a majority of the whole Board, but no decrease may shorten the
term of an incumbent director. When used in these By-laws, the term "whole
Board" means the total number of directors which the Corporation would have if
there were no vacancies.
Section 2. Election and Term. Except as otherwise provided
by law, by the Certificate of Incorporation of the Corporation or by these
By-laws, the directors shall be elected at the annual meeting of the
stockholders and the persons receiving a plurality of the votes cast shall be
so elected. Subject to his earlier death, resignation or removal as provided
in Section 3 of this Article III, each director shall hold office until his
successor shall have been elected and shall have qualified.
Section 3. Removal. A director may be removed at any time,
with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
Section 4. Resignations. Any director may resign at any time
by giving written notice of his resignation to the Corporation. A resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately
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<PAGE>
upon its receipt, and, unless otherwise specified therein, the acceptance of a
resignation shall not be necessary to make it effective.
Section 5. Vacancies. Except as otherwise provided in the
Certificate of Incorporation of the Corporation, any vacancy in the Board of
Directors arising from an increase in the number of directors or otherwise may
be filled by the vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director.
Section 6. Place of Meetings. Except as otherwise provided
in these By-laws, all meetings of the Board of Directors shall be held at such
places, within or without the State of Delaware, as the Board determines from
time to time.
Section 7. Annual Meeting. The annual meeting of the Board
of Directors shall be held either without notice immediately after the annual
meeting of stockholders and in the same place, or as soon as practicable after
the annual meeting of stockholders on such date and at such time and place as
the Board determines from time to time.
Section 8. Regular Meetings. Regular meetings of the Board
of Directors shall be held on such dates and at such times and places as the
Board determines from time to time. Notice of regular meetings need not be
given, except as otherwise required by law.
Section 9. Special Meetings. Special meetings of the Board
of Directors, for any purpose or purposes, may be called by the President and
shall be called by the President or the Secretary upon the written request of
a majority of the directors. The request shall state the date, time, place and
purpose or purposes of the proposed meeting.
Section 10. Notice of Meetings. Notice of each special
meeting of the Board (and of each annual meeting which is not held immediately
after, and in the same place as, the annual meeting of stockholders) shall be
given, not later than 24 hours before the meeting is scheduled
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<PAGE>
to commence, by the President or the Secretary and shall state the place, date
and time and the purpose or purposes, of the meeting. Notice of each meeting
may be delivered to a director by hand or given to a director orally (either
by telephone or in person) or mailed, telegraphed or sent by facsimile
transmission to a director at his residence or usual place of business,
provided, however, that if notice of less than 72 hours is given it may not be
mailed. If mailed, the notice shall be deemed given when deposited in the
United States mail, postage prepaid; if telegraphed, the notice shall be
deemed given when the contents of the telegram are transmitted to the
telegraph service with instructions that the telegram immediately be
dispatched; and if sent by facsimile transmission, the notice shall be deemed
given when transmitted with transmission confirmed. Notice of any meeting need
not be given to any director who shall submit, either before or after the time
stated therein, a signed waiver of notice or who shall attend the meeting,
other than for the express purpose of objecting at the beginning thereof to
the transaction of any business because the meeting is not lawfully called or
convened. Notice of an adjourned meeting, including the place, date and time
of the new meeting, shall be given to all directors not present at the time of
the adjournment, and also to the other directors unless the place, date and
time of the new meeting are announced at the meeting at the time at which the
adjournment is taken.
Section 11. Quorum. Except as otherwise provided by law or
in these By-laws, at all meetings of the Board of Directors, a majority of the
whole Board shall constitute a quorum for the transaction of business, and the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. A majority of the directors present,
whether or not a quorum is present, may adjourn any meeting to another place,
date and time.
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<PAGE>
Section 12. Conduct of Meetings. At each meeting of the
Board of Directors, the President or, in his absence, a director chosen by a
majority of the directors present shall act as chairman of the meeting. The
Secretary or, in his absence, any person appointed by the chairman of the
meeting shall act as secretary of the meeting and keep the minutes thereof.
The order of business at all meetings of the Board shall be as determined by
the chairman of the meeting.
Section 13. Committees of the Board. The Board of Directors,
may designate an executive committee and other committees, each consisting of
one or more directors. Each committee (including the members thereof) shall
serve at the pleasure of the Board of Directors and shall keep minutes of its
meetings and report the same to the Board. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member or members at any meeting of the
committee. In addition, in the absence or disqualification of a member of a
committee, if no alternate member has been designated by the Board of
Directors, the member or members present at any meeting and not disqualified
from voting, whether or not they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member. Except as limited by law, each committee,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Corporation, except that no such
Committee may (i) approve, adopt or recommend to the stockholders any action
or matter expressly required by law to be submitted to stockholders for
approval, or (ii) adopt, amend or repeal any of these By-laws.
Section 14. Operation of Committees. A majority of all the
members of a committee shall constitute a quorum for the transaction of
business, and the vote of a majority of all the members of a committee present
at a meeting at which a quorum is present shall be the act
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<PAGE>
of the committee. Each committee shall adopt whatever other rules of procedure
it determines for the conduct of its activities.
Section 15. Consent to Action. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
Section 16. Attendance Other Than in Person. Members of the
Board of Directors or any committee thereof may participate in a meeting of
the Board or committee, as the case may be, by means of conference telephone
or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at the meeting.
ARTICLE IV
Officers
Section 1. Executive and Other Officers. The executive
officers of the Corporation shall be a President and a Secretary. The Board of
Directors also may elect or appoint one or more Vice Presidents (any of whom
may be designated as Executive Vice Presidents or otherwise), a Treasurer, and
any other officers it deems necessary or desirable for the conduct of the
business of the Corporation, each of whom shall have such powers and duties as
the Board determines. Any officer may devote less than all of his working time
to his activities as such if the Board so approves.
Section 2. Duties.
(a) The President. The President shall be the
chief executive officer and chief operating officer of the Corporation, and
shall preside at all meetings of the
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<PAGE>
stockholders and of the Board of Directors , and he shall be ex officio a
member of all committees established by the Board. The President shall have
general management of the business and affairs of the Corporation, subject to
the control of the Board of Directors, and he shall have such other powers and
duties as the Board assigns to him.
(b) The Vice President. The Vice President, if
any, or if there shall be more than one, the Vice Presidents, in the order of
their seniority or in any other order determined by the Board of Directors,
shall perform, in the absence or disability of the President, the duties and
exercise the powers of the President, and shall have such other powers and
duties as the Board or the President assigns to him or them.
(c) The Secretary. Except as otherwise provided
in these By-laws or as directed by the Board of Directors, the Secretary shall
attend all meetings of the stockholders and the Board; he shall record the
minutes of all proceedings in books to be kept for that purpose; he shall give
notice of all meetings of the stockholders and special meetings of the Board;
and he shall keep in safe custody the seal of the Corporation and, when
authorized by the Board, he shall affix the same to any corporate instrument.
The Secretary shall have such other powers and duties as the Board or the
President assigns to him.
(d) The Treasurer. Subject to the control of
the Board, the Treasurer, if any, shall have the care and custody of the
corporate funds and the books relating thereto; and he shall perform all other
duties incident to the office of Treasurer. The Treasurer shall have such
other powers and duties as the Board or the President assigns to him.
Section 3. Term; Removal. Subject to his earlier death,
resignation or removal, each officer shall hold his office until his successor
shall have been elected or appointed and
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<PAGE>
shall have qualified, or until his earlier death, resignation or removal. Any
officer may be removed at any time, with or without cause, by the Board of
Directors.
Section 4. Resignations. Any officer may resign at any time
by giving written notice of his resignation to the Corporation. A resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt,
and, unless otherwise specified therein, the acceptance of a resignation shall
not be necessary to make it effective.
Section 5. Vacancies. If an office becomes vacant for any
reason, the Board of Directors or the stockholders may fill the vacancy, and
each officer so elected or appointed shall serve for the remainder of his
predecessor's term and until his successor shall have been elected or
appointed and shall have qualified.
ARTICLE V
Provisions Relating to Stock
Certificates and Stockholders
Section 1. Certificates. Certificates for the Corporation's
capital stock shall be in such form as required by law and as approved by the
Board of Directors. Each certificate shall be signed in the name of the
Corporation by the President or any Vice President and by the Secretary, any
Treasurer, any Assistant Secretary or any Assistant Treasurer. Any or all of
the signatures on a certificate may be a facsimile. In case any officer,
transfer agent or registrar who shall have signed or whose facsimile signature
shall have been placed on any certificate shall have ceased to be such
officer, transfer agent or registrar before the certificate shall be issued,
the certificate may be issued by the Corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
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<PAGE>
Section 2. Replacement Certificates. The Corporation may
issue a new certificate of stock in place of any certificate theretofore
issued by it, alleged to have been lost, stolen or destroyed, and the Board of
Directors may require the owner of the lost, stolen or destroyed certificate,
or such person's legal representative, to make an affidavit of that fact and
to give the Corporation a bond sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft or
destruction of the certificate or the issuance of such new certificate.
Section 3. Transfers of Shares. Transfers of shares shall be
registered on the books of the Corporation maintained for that purpose after
due presentation of the stock certificates therefor, appropriately endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer.
Section 4. Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or for the purpose of determining stockholders
entitled to receive payment of any dividend or other distribution or the
allotment of any rights, or for the purpose of any other action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board, and
which record date shall not be more than 60 or less than 10 days before the
date of any such meeting, shall not be more than 10 days after the date on
which the Board fixes a record date for any such consent in writing, and shall
not be more than 60 days prior to any other action.
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<PAGE>
ARTICLE VI
Indemnification
Section 1. Indemnification. Unless otherwise determined by
the Board of Directors, the Corporation shall, to the fullest extent permitted
by the General Corporation Law (including, without limitation, Section 145
thereof) or other provisions of the laws of Delaware relating to
indemnification of directors, officers and employees and agents, as the same
may be amended and supplemented from time to time, indemnify any and all such
persons whom it shall have power to indemnify under the General Corporation
Law or such other provisions of law.
Section 2. Statutory Indemnification.Without limiting the
generality of Section 1 of this Article VI, to the fullest extent permitted,
and subject to the conditions imposed by law and pursuant to Section 145 of
the General Corporation Law:
(i) the Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful; and
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<PAGE>
(ii) the Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, except as
otherwise provided by law.
Section 3. Indemnification by Resolution of Stockholders or
Directors or Agreement. Without limiting the generality of Section 1 or
Section 2 of this Article VI, to the fullest extent permitted by law,
indemnification may be granted, and expenses may be advanced, to the persons
described in Section 145 of the General Corporation Law or other provisions of
the laws of Delaware relating to indemnification and advancement of expenses,
as from time to time may be in effect, by (i) a resolution of stockholders,
(ii) a resolution of the Board of Directors, or (iii) an agreement providing
for such indemnification and advancement of expenses, provided that no
indemnification may be made to or on behalf of any person if a judgment or
other final adjudication adverse to the person establishes that such person's
acts were committed in bad faith or were the result of active and deliberate
dishonesty and were material to the cause of action so adjudicated, or that
such person personally gained in fact a financial profit or other advantage to
which such person was not legally entitled.
Section 4. General. It is the intent of this Article VI to
require the Corporation unless otherwise determined by the Board of Directors,
to indemnify the persons referred to
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<PAGE>
herein for judgments, fines, penalties, amounts paid in settlement and
expenses (including attorneys' fees), and to advance expenses to such persons,
in each and every circumstance in which such indemnification and such
advancement of expenses could lawfully be permitted by express provision of
by-laws, and the indemnification and expense advancement provided by this
Article VI shall not be limited by the absence of an express recital of such
circumstances. The indemnification and advancement of expenses provided by, or
granted pursuant to, these By-laws shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses
may be entitled, whether as a matter of law, under any provision of the
Certificate of Incorporation of the Corporation, these By-laws, by agreement,
by vote of stockholders or disinterested directors of the Corporation or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 5. Indemnification Benefits. Indemnification pursuant
to these By-laws shall inure to the benefit of the heirs, executors,
administrators and personal representatives of those entitled to
indemnification.
ARTICLE VII
General Provisions
Section 1. Dividends. To the extent permitted by law, the
Board of Directors shall have full power and discretion, subject to the
provisions of the Certificate of Incorporation of the Corporation, to
determine what, if any, dividends or distributions shall be declared and paid
or made.
Section 2. Seal. The Corporation's seal shall be in such form
as is required by law and as shall be approved by the Board of Directors.
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<PAGE>
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 4. Voting Shares in Other Corporations. Unless
otherwise directed by the Board of Directors, shares in other corporations
which are held by the Corporation shall be represented and voted only by the
President or by a proxy or proxies appointed by him.
ARTICLE VIII
Amendments
Section 1. By-Laws may be adopted, amended or repealed by
the Board of Directors, provided the conferral of such power on the Board
shall not divest the stockholders of the power, or limit their power, to
adopt, amend or repeal By-laws.
16
<PAGE>
EXHIBIT 5.1
SCHULTE ROTH & ZABEL LLP
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 756-2000
July 30, 1998
Universal Compression Holdings, Inc.
4430 Brittmoore Road
Houston, Texas 77041
Attention: Ernie Danner
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4, File No.
333-48283 (the 'Registration Statement'), filed with the Securities and Exchange
Commission in connection with the offer (the 'Exchange Offer') by Universal
Compression Holdings, Inc. (the 'Company') of 11 3/8% Senior Discount Notes due
2009 (the 'Exchange Notes') of the Company in exchange for all outstanding 11
3/8% Senior Discount Notes due 2009 (the 'Original Notes') of the Company. We
have acted as special counsel to the Company in connection with the Exchange
Offer.
In connection with the opinion set forth below, we have examined originals,
telecopies or copies, certified or otherwise identified to our satisfaction, of
such records of the Company and all such agreements, certificates of public
officials and certificates of officers of the Company and others, and such
documents, certificates and corporate and other records, as we have deemed
necessary or appropriate as a basis for the opinion set forth below.
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons signing or delivering any instrument, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies. We have also
assumed, in our examination of documents executed by the Company, that each of
the other parties thereto is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, has the power,
corporate or other, to execute and deliver such documents and to perform such
party's obligations thereunder, that each such document has been duly
authorized, executed and delivered by such party, and that each such document
constitutes the legal, valid and binding obligation of each such party,
enforceable against such party in accordance with its terms.
We are attorneys admitted to practice in the State of New York, and the
opinion set forth below is limited to the laws the State of New York.
Based on the foregoing, and having such regard for such legal
considerations as we deem relevant, we are of the opinion that, upon the
issuance of the Exchange Notes in the manner referred to in the Registration
Statement, and when the Exchange Notes are duly executed, authenticated and
delivered in exchange for the Original Notes in accordance with the Exchange
Offer, the Exchange Notes will be legally issued and will be valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and similar laws now or hereafter in effect
affecting creditors' rights generally and general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
We have prepared the discussion contained under the heading 'Certain United
States Federal Income Tax Considerations' in the Prospectus (the 'Prospectus')
forming a part of the Registration Statement. In our opinion, such discussion
sets forth the material U.S. federal income tax considerations applicable
generally to the holders of the Original Notes that exchange Original Notes for
Exchange Notes and to such holders' acquisition, ownership and disposition of
the Exchange Notes.
<PAGE>
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
'Legal Matters' in the Prospectus. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations promulgated thereunder. We have no obligation to modify, amend or
update the opinion set forth herein for any reason.
Very truly yours,
/s/ Schulte Roth & Zabel LLP
2
<PAGE>
EXHIBIT 12.1
UNIVERSAL COMPRESSION HOLDINGS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM DECEMBER 12, 1997 (INCEPTION)
THROUGH MARCH 31, 1998
----------------------------------
<S> <C>
Fixed Charges as Defined:
Interest expense, including amortization of deferred financing charges........ $3,203
Interest component of rental expense on operating leases...................... 14
-------
Total Fixed Charges...................................................... $3,217
-------
-------
Earnings as Defined:
Net Income.................................................................... $ 430
Income Tax.................................................................... 409
Total Fixed Charges........................................................... 3,217
-------
Total Earnings as Defined................................................ 4,056
-------
-------
Ratio of Earnings to Fixed Charges.............................................. 1.3
</TABLE>
<PAGE>
EXHIBIT 12.1
TIDEWATER COMPRESSION SERVICE, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED MARCH 31, FOR THE PERIOD
---------------------------------------- FROM APRIL 1, 1997
1994 1995 1996 1997 THROUGH FEBRUARY 20, 1998
------- ------- ------- ------- -------------------------
<S> <C> <C> <C> <C> <C>
Fixed Charges as Defined:
Interest expense, including amortization
of deferred financing charges......... $ -- $ 3,469 $ 3,706 $ -- $ --
Interest component of rental expense on
operating leases...................... 98 126 159 143 130
------- ------- ------- ------- ----------
Total Fixed Charges................. $ 98 $ 3,595 $ 3,865 $ 143 $ 130
------- ------- ------- ------- ----------
------- ------- ------- ------- ----------
Earnings as Defined:
Net income............................... $ 4,343 $ 6,319 $ 5,972 $ 7,842 $10,759
Income Tax............................... 2,551 4,648 3,745 4,724 6,271
Total Fixed Charges...................... 98 3,595 3,865 143 130
------- ------- ------- ------- ----------
Total Earnings as Defined........... $ 6,992 $14,562 $13,582 $12,709 $17,160
------- ------- ------- ------- ----------
------- ------- ------- ------- ----------
Ratio of Earnings to Fixed Charges......... 71.4 4.1 3.5 88.9 132.1
</TABLE>
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, made as of this first day of
June, 1998, by and between UNIVERSAL COMPRESSION HOLDINGS, INC., a Delaware
corporation ("Holdings") and Valerie L. Banner (the "Employee"), who is an
Employee of Universal Compression, Inc. ("Universal"), a wholly owned and
subsidiary of Holdings.
WHEREAS, Holdings has agreed to grant to the Employee an
option to purchase Holdings Common Stock, $.01 par value per share (the "Common
Stock"), pursuant to the terms and conditions of this Agreement in
consideration for services to Universal; and
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth and for other good and valuable consideration, the
parties agree as follows:
1. GRANT OF OPTION. Holdings hereby grants to the Employee an
option (the "Option") to purchase 2,206 shares of Common Stock at $50 per
share. This Option shall become effective on the date of this Agreement as set
forth above ("Date of Grant") and unless sooner terminated under the provisions
hereof, shall expire at 12:00 midnight on February 20, 2008 (the "Expiration
Date"). This Option is granted under Holdings' Incentive Stock Option Plan (the
"Plan"), a copy of which is attached hereto as Exhibit "A" and is incorporated
herein by reference, and shall constitute, to the extent permissible, an
Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986,
as amended, and otherwise shall be a Non-qualified Stock Option.
2. OPTION TERMS AND CONDITIONS.
(a) Exercise of Option. The Option shall become
exercisable in accordance with the following schedule:
Years from Grant Date Amount Exercisable
--------------------- ------------------
June 01, 1999 33 1/3%
June 01, 2000 33 1/3%
June 01, 2001 33 1/3%
Notwithstanding the foregoing, Options shall become
immediately exercisable upon: (i) a public offering of Common Stock of the
Corporation; (ii) the acquisition by any Person of fifty one percent (51%) or
more of the Common Stock of the Corporation; or (iii) a sale of all or
substantially all of the assets of the Corporation.
<PAGE>
(b) Termination of Employment.
(i) Termination due to Death, Disability or
Retirement. In the event the Employee's employment with Universal terminates on
account of death, Disability (as defined in the Plan) or retirement after age
65, the Option shall terminate as of the date of Employee's termination of
employment, except for the portion of the Option which is exercisable as of the
date of termination of employment, which shall terminate unless exercised by
Employee within three months following the date of Employee's death, disability
or retirement after age 65.
(ii) Termination of Employment Without
Cause. In the event the Employee's employment with Universal shall terminate
without cause, the Option shall terminate as of the date of Employee's
termination of employment except for the portion of the Option which is
exercisable as of the date of termination of employment, which shall terminate
unless exercised by Employee within 30 days following the date of such
termination of employment.
(iii) Termination of Employment for Cause.
In the event the Employee's employment with Universal shall terminate for
cause, the Option, whether or not exercisable as of the date of termination of
employment, shall terminate in its entirety on the date of termination.
3. NON-TRANSFERABILITY. No Option granted hereby and no right
arising thereunder shall be transferable other than by will or by the laws of
descent and distribution. During the lifetime of the Employee, the Option shall
be exercisable only by the Employee. If the Option is exercisable at the date
of the Employee's death and is transferred by will or by the laws of descent
and distribution, the Option shall be exercisable in accordance with the terms
of such Option by the executor or administrator, as the case may be, of the
Employee's estate for a period of three (3) months after the date of the
Employee's death and shall then terminate.
4. MODE OF EXERCISE. The Option shall be exercised by giving
to Holdings written notice stating (a) the number of shares with respect to
which the Option is being exercised, (b) the aggregate Exercise Price for such
shares, and (c) the method of payment. At the option of the Employee, such
aggregate Exercise Price may be paid: (i) in cash; (ii) with the consent of the
Board of Directors of Holdings (the "Board"), which consent may be given or
withheld in its sole discretion, by delivery of a promissory note to Holdings
payable over a three (3) year period and bearing interest at the prime rate;
(iii) by delivery of shares of Common Stock owned by the Employee having a Fair
Market Value (as determined by Section 5 hereof) equal in amount to the
aggregate Exercise Price of the Option being exercised; (iv) by any combination
of (i), (ii) and (iii); or (v) by cancellation of any portion of the Option, in
which case the number of shares of Common Stock to be received shall be
computed using the following formula:
X = Y x (A - $50)
-------------
A
2
<PAGE>
Where: X = the number of shares of Common Stock to be
issued pursuant to clause (v) above;
Y = the number of shares of Common Stock that
otherwise would have been issuable in
respect of that portion of the Option to be
exercised pursuant to clause (v) above if
such exercise had been pursuant to clause
(i), (ii), (iii) or (iv) above;
A = the Market Price of one share of Common
Stock on the date of exercise;
provided, however, that clauses (iii) and (v) shall be inapplicable if no Fair
Market Value is applicable under clause (iv) of Section 5.
5. FAIR MARKET VALUE OF COMMON STOCK. The "Fair Market Value"
of the Common Stock on any day shall be determined by the Holdings Board as
follows: (i) if the Common Stock is listed on a national securities exchange or
quoted through the NASDAQ National Market System, the Fair Market Value on any
day shall be the average of the high and low reported Consolidated Trading
sales prices, or if no such sale is made on such day, the average of the
closing bid and asked prices reported on the Consolidated Trading listing for
such day; (ii) if the Common Stock is quoted on the NASDAQ inter-dealer
quotation system, the Fair Market Value on any day shall be the average of the
representative bid and asked prices at the close of business for such day;
(iii) if the Common Stock is not listed on a national stock exchange or quoted
on NASDAQ, the Fair Market Value on any day shall be the average of the high
bid and low asked prices reported by the National Quotation Bureau, Inc. for
such day; or (iv) if none of clauses (i) - (iii) are applicable, the Fair
Market Value as may be determined by the Board or any committee of the Board,
there being no obligation to make such determination.
6. STOCK CERTIFICATES. All stock certificates representing
shares of Common Stock acquired pursuant to the exercise of an Option that are
issued by Holdings shall contain a legend substantially in the following form:
"SHARES OF UNIVERSAL COMPRESSION HOLDINGS, INC. ("HOLDINGS")
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS
AGREEMENT, DATED AS OF FEBRUARY 20, 1998, AS [MAY BE] AMENDED
WHICH CONTAINS PROVISIONS REGARDING THE RESTRICTIONS ON THE
TRANSFER OF SUCH SHARES AND OTHER MATTERS. A COPY OF SUCH
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE
OF HOLDINGS. THE SHARES REPRESENTED BY THIS CERTIFICATE WERE
NOT REGISTERED UNDER, AND ARE SUBJECT TO, THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE
3
<PAGE>
SECURITIES ACT OR IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT."
In the event that the shares of Common Stock issued pursuant
to the Option are (i) registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to an effective registration statement which
complies with the then applicable regulations, rules and procedures and
practices of the Securities and Exchange Commission, and are registered
qualified in accordance with any applicable state laws, regulations, rules and
administrative procedures practices, or (ii) transferred pursuant to an
exemption from registration under the Securities Act and, at the request of
Holdings, Holdings has received an executed legal opinion, satisfactory to its
counsel, as to the availability of and compliance with such exemption and that
such shares need not bear the restrictive legend stating that such shares have
not been registered under the Securities Act, Holdings may issue new
certificates representing such shares omitting that portion of such restrictive
legend.
The shares of Common Stock acquired pursuant to the Option
shall be subject to the provisions regarding transfers of shares in the
Stockholders Agreement dated as of February 20, 1998, among Holdings and the
partners named on the signature pages thereto, as amended from time to time
(the "Stockholders Agreement"). At the request of Holdings, the Employee shall
become a party to the Stockholders Agreement prior to the issuance of any
shares under this Agreement.
7. OPTION SUBJECT TO SECURITIES AND OTHER REGULATIONS. The
Option granted hereunder and the obligation of Holdings to sell and deliver
shares under such Option shall be subject to all applicable federal and state
laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required. Holdings, in its discretion, may postpone
the issuance or delivery of shares upon any exercise of the Option until
completion of any stock exchange listing, or other qualification of such shares
under any state or federal law, rule or regulation as Holdings may consider
appropriate, and may require the Employee, his beneficiary or his legal
representative to make such representations and furnish such information as it
may consider appropriate in connection with the issuance or delivery of the
shares in compliance with applicable laws, rules and regulations.
Upon demand by the Board, the Employee (or any person acting
under Section 3 of this Agreement) shall deliver to the Board at the time of
exercise of the Option a written representation that the shares to be acquired
upon the exercise of the Option are being acquired for his own account and not
with a view to, or for resale in connection with, any distribution in violation
of federal or state securities laws. Upon such demand, delivery of such
representation prior to the delivery of any shares issued upon exercise of the
Option shall be a condition precedent to the right of the Employee or such
other person to purchase any shares.
8. ANTI-DILUTION ADJUSTMENTS. In the event of any change in
the Common Stock by reason of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation, combination or
exchange of shares, or of any similar change affecting the Common Stock, the
number and kind of shares subject to the Option and the Option price thereof
shall be appropriately adjusted consistent with such change in such manner as
the Board may
4
<PAGE>
deem equitable to prevent substantial dilution or enlargement of the rights
granted to, or available for, the Employee.
9. BUYBACK RIGHT. Upon any termination of the employment of
the Employee prior to a public offering of Common Stock, Holdings or its
designee may at its option purchase all Common Stock acquired upon any exercise
of the Option then held by the Employee for a purchase price equal to the
determined value of such stock at the time of purchase. For purposes of this
Section 9, "determined value" shall mean the determined value of the shares of
Common Stock being purchased by Holdings pursuant to this Section 9, such value
to be determined annually as of March 31 of each year by a nationally
recognized investment banking firm selected by Holdings. This valuation will
serve as the determined value for the shares until the next valuation unless
the Board determines that a significant change in Holdings performance or
prospects requires a revaluation of the shares.
The purchase by Holdings pursuant to this Section 9 shall be
paid for in cash, to the extent permitted under the loan agreements and debt
instruments relating to Holdings or any of its subsidiaries, or, to the extent
cash payments are not permitted thereunder, by means of a subordinated
payment-in-kind promissory note issued by Holdings bearing interest, payable
annually, at the lowest interest rate required to avoid imputed interest, which
note shall be repaid as soon as permitted.
10. NO RIGHTS PRIOR TO EXERCISE OF OPTION. The Participant
shall not have any rights as a stockholder with respect to any shares subject
to the Option prior to the date on which the Employee is recorded as the holder
of such shares on the records of Holdings.
11. NO RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT.
Neither the grant of the Option nor any action taken with respect thereto shall
be construed as giving the Employee the right to be retained in the employ of
Universal or any subsidiary or affiliate, nor shall it interfere in any way
with the right of Universal or any such subsidiary or affiliate to terminate
any Employee's employment at any time for any reason, or for no reason at all.
12. TAXES. Holdings may make such provisions and take such
steps as it may deem necessary or appropriate for the withholding of all
Federal, state, local and other taxes required by law to be withheld with
respect to the Option including, but not limited to: (i) reducing the number of
shares of Common Stock otherwise deliverable, based upon their Fair Market
Value on the date of exercise, to permit deduction of the amount of any such
withholding taxes from the amount otherwise payable under this Agreement; (ii)
deducting the amount of any such withholding taxes from any other amount then
or thereafter payable to the Employee; or (iii) requiring the Employee, his
beneficiary or his legal representative to pay to Holdings the amount required
to be withheld or to execute such documents as Holdings deems necessary or
desirable to enable it to satisfy its withholding obligations as a condition of
releasing the Common Stock.
13. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware.
5
<PAGE>
14. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
15. NOTICES. Any notice or other communication required or
which may be given hereunder shall be in writing and shall be delivered
personally, telecopied with confirmed receipt, sent by certified, registered,
or express mail, postage prepaid, or sent by a national next-day delivery
service to the parties at the following addresses or at such other addresses as
shall be specified by the parties by like notice, and shall be deemed given
when so delivered personally or telecopied, or if mailed, 2 days after the date
of mailing, or, if by national next-day delivery service, on the day after
delivery to such service as follows:
(i) if to Holdings, to it at:
Universal Compression, Inc.
4430 1/2 Brittmoore Road
Houston, Texas 77041
Attention: Ernie Danner
Telecopier No.: (713) 466-6720
with a copy to:
Universal Compression, Inc.
4430 1/2 Brittmoore Road
Houston, Texas 77041
Attention: Valerie L. Banner
Telecopier No.: (713) 466-6720
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attention: Andre Weiss, Esq.
(ii) if to Employee, to him or her at:
Universal Compression, Inc.
4440 Brittmoore
Houston, TX 77041
16. HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein.
17. SEVERABILITY. If any term, provision, covenant
or restriction of this Agreement, or any part thereof, is held by a court of
competent jurisdiction or any foreign federal, state, county or local
government or any other governmental, regulatory or administrative
6
<PAGE>
agency or authority to be invalid, void, unenforceable or against public policy
for any reason, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
18. SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching party would be irreparably harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto shall and do
hereby waive the defense in any action for specific performance that a remedy
at law would be adequate and that the parties hereto, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of this Agreement in any action instituted in the
Supreme Court of the State of New York or the United States District Court for
the Southern District of New York, or, in the event such courts shall not have
jurisdiction of such action, in any court of the United States or any state
thereof having subject matter jurisdiction of such action.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have executed this Agreement as of the day and year first
above mentioned.
EMPLOYEE
By: /s/ Valerie L. Banner
--------------------------------------
Print Name:
UNIVERSAL COMPRESSION HOLDINGS, INC.
By: /s/ Stephen A. Snider
--------------------------------------
Stephen A. Snider
President and Chief Executive Officer
7
<PAGE>
SCHEDULE 21.1
SUBSIDIARIES OF THE REGISTRANT
Universal Compression, Inc., a Texas corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE AND CONSENT
The Board of Directors
Universal Compression Holdings, Inc.:
The audits referred to in our report dated November 21, 1997, included the
related financial statement schedule for each of the years in the two-year
period ended March 31, 1997, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading 'Experts' in the prospectus.
KPMG Peat Marwick LLP
New Orleans, Louisiana
July 27, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULES
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-48283 of Universal Compression Holdings, Inc. of our report dated June 1,
1998 on the consolidated financial statements of Universal Compression Holdings,
Inc. and our report dated June 1, 1998 on the financial statements of Tidewater
Compression Service, Inc. appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading 'Experts'
in such Prospectus.
Our audits of the financial statements referred to in our aforementioned reports
also included the financial statement schedules of Universal Compression
Holdings, Inc. for the period from December 12, 1997 (inception) through March
31, 1998 and Tidewater Compression Service, Inc. for the period from April 1,
1997 through February 20, 1998. These financial statement schedules are the
responsibility of management of Universal Compression Holdings, Inc. and
Tidewater Compression Service, Inc. (for the period from April 1, 1997 through
February 20, 1998), respectively. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
July 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1057234
<NAME> Universal Compression Holdings, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,382
<SECURITIES> 0
<RECEIVABLES> 11,675
<ALLOWANCES> (213)
<INVENTORY> 8,678
<CURRENT-ASSETS> 25,910
<PP&E> 252,406
<DEPRECIATION> (1,366)
<TOTAL-ASSETS> 380,226
<CURRENT-LIABILITIES> 12,028
<BONDS> 286,112
0
0
<COMMON> 3
<OTHER-SE> 81,677
<TOTAL-LIABILITY-AND-EQUITY> 380,226
<SALES> 3,814
<TOTAL-REVENUES> 13,119
<CGS> 3,233
<TOTAL-COSTS> 6,212
<OTHER-EXPENSES> 6,068
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 3,203
<INCOME-PRETAX> 839
<INCOME-TAX> 409
<INCOME-CONTINUING> 430
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 430
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The enclosed data has been derived from the Financial Statements of Tidewater
Compression Service, Inc. prior to the consummation of the acquisition of such
Company by Universal Compression, Inc.
</LEGEND>
<CIK> 1057233
<NAME> Tidewater Compression Service, Inc.
<S> <C>
<PERIOD-TYPE> Other
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> FEB-20-1998
<CASH> 1,824
<SECURITIES> 0
<RECEIVABLES> 10,682
<ALLOWANCES> (283)
<INVENTORY> 8,455
<CURRENT-ASSETS> 20,848
<PP&E> 348,351
<DEPRECIATION> (138,315)
<TOTAL-ASSETS> 250,394
<CURRENT-LIABILITIES> 7,412
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 68,257
<TOTAL-LIABILITY-AND-EQUITY> 250,394
<SALES> 19,924
<TOTAL-REVENUES> 95,686
<CGS> 14,753
<TOTAL-COSTS> 46,677
<OTHER-EXPENSES> 31,979
<LOSS-PROVISION> (50)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 17,030
<INCOME-TAX> 6,271
<INCOME-CONTINUING> 10,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,759
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The enclosed data has been derived from the Financial Statements of Tidewater
Compression Service, Inc. prior to the consummation of the acquisition of such
Company by Universal Compression, Inc.
</LEGEND>
<CIK> 1057233
<NAME> Tidewater Compression Service, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,417
<ALLOWANCES> (318)
<INVENTORY> 7,845
<CURRENT-ASSETS> 19,125
<PP&E> 335,903
<DEPRECIATION> (118,925)
<TOTAL-ASSETS> 257,090
<CURRENT-LIABILITIES> 5,172
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 57,498
<TOTAL-LIABILITY-AND-EQUITY> 257,090
<SALES> 36,592
<TOTAL-REVENUES> 113,886
<CGS> 30,339
<TOTAL-COSTS> 64,153
<OTHER-EXPENSES> 37,167
<LOSS-PROVISION> (120)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,566
<INCOME-TAX> 4,724
<INCOME-CONTINUING> 7,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,842
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The enclosed data has been derived from the Financial Statements of Tidewater
Compression Service, Inc. prior to the consummation of the acquisition of such
Company by Universal Compression, Inc.
</LEGEND>
<CIK> 1057233
<NAME> Tidewater Compression Service, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 32,319
<TOTAL-REVENUES> 110,464
<CGS> 26,345
<TOTAL-COSTS> 59,536
<OTHER-EXPENSES> 41,211
<LOSS-PROVISION> 120
<INTEREST-EXPENSE> 3,706
<INCOME-PRETAX> 9,717
<INCOME-TAX> 3,745
<INCOME-CONTINUING> 5,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,972
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
