<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1997
REGISTRATION NO. 333-24953
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HANOVER COMPRESSOR COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7369 75-2344249
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
(281) 447-8787
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MICHAEL J. MCGHAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
HANOVER COMPRESSOR COMPANY
12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
(281) 447-8787
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
<TABLE>
<S> <C>
CHARLES E. GERBER, ESQ. JOHN S. WATSON, ESQ.
MINDY C. SIRCUS, ESQ. VINSON & ELKINS L.L.P.
NEAL, GERBER & EISENBERG 1001 FANNIN
TWO NORTH LASALLE STREET 2300 FIRST CITY TOWER
CHICAGO, ILLINOIS 60602 HOUSTON, TEXAS 77002
(312) 269-8000 (713) 758-2222
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================================
PROPOSED MAXIMUM AMOUNT OF
TITLE OF CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.001 per share.............. $144,504,840 $13,487
==========================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
(2) A registration fee of $30,303 was previously paid upon filing the
Registration Statement.
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 THIS 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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
SUBJECT TO COMPLETION, DATED JUNE 9, 1997
6,613,494 SHARES
HANOVER COMPRESSOR COMPANY
COMMON STOCK
[HANOVER LOGO] (PAR VALUE $.001 PER SHARE)
---------------------
Of the 6,613,494 shares of Common Stock offered hereby, 4,166,667 shares
are being sold by the Company and 2,446,827 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any proceeds from the sale of shares being sold by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $17.00 and $19.00. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "HC".
---------------------
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.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total(3)................ $ $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $1,000,000 payable by the Company.
The Company has agreed to pay the expenses of the Selling Stockholders,
other than underwriting discounts and commissions.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 992,024 shares of Common Stock at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting".
---------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1997, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
---------------------
The date of this Prospectus is , 1997
<PAGE> 3
The inside from cover contains a picture of a 2,225 horsepower compression
unit being fabricated for offshore application. The inside back cover contains a
map of its offices and facilities and a picture of a typical natural gas
gathering application utilizing 3,000 horsepower compression units.
2,225 HORSEPOWER COMPRESSION UNIT BEING FABRICATED FOR OFFSHORE APPLICATION
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, (i) references to the Company include
Hanover Compressor Company and its subsidiaries and (ii) all references to the
number of shares of common stock, par value $.001 per share, of the Company
("Common Stock") and per share amounts assume that the Underwriters'
over-allotment option is not exercised and reflect a 158 for 1 stock split of
the Common Stock to be effected immediately prior and subject to the closing of
the offering of Common Stock made hereby (the "Offering"). See "Description of
Capital Stock".
THE COMPANY
Hanover Compressor Company ("Hanover" or the "Company") is a leading
provider of a broad array of natural gas compression rental, operations and
maintenance services in the United States and select international markets. As
of March 31, 1997, the Company had a fleet of 1,653 compression rental units
with an aggregate capacity of 604,639 horsepower. Hanover's compression services
are complemented by its compressor and oil and gas production equipment
fabrication operations, which broaden its customer relationships both
domestically and internationally.
Through internal growth and a series of strategic acquisitions, the Company
believes it is the largest operator of rental compression horsepower capacity in
the United States, controlling an estimated 20% of the domestic rental market
with 1,601 rental units having an aggregate capacity of approximately 535,000
horsepower at March 31, 1997. Internationally, the Company estimates it is one
of the largest providers of compression services in the rapidly growing South
American market, primarily in Argentina and Venezuela, operating 52 units with
approximately 70,000 horsepower at March 31, 1997. In order to continue its
international expansion, Hanover recently entered into a series of agreements
with Wartsila Diesel International Ltd., OY ("Wartsila"), a leading global
manufacturer of large horsepower engines, providing for, among other things, the
fabrication and the right to exclusively market in select regions worldwide,
Wartsila powered gas compression packages ranging from 1,400 to 7,850
horsepower.
The Company's products and services are essential to the production,
transportation, processing and storage of natural gas and are provided primarily
to energy producers and processors. The Company's decentralized operating
structure, technically experienced personnel and high quality compressor fleet,
allow Hanover to successfully provide superior, reliable and timely customer
service. As a result, Hanover has experienced substantial growth over the past
five years and has developed and maintained a number of long-term customer
relationships. This success has enabled Hanover to maintain an average
horsepower utilization rate of approximately 95% over the last five years in
comparison to an industry average estimated by the Company to be approximately
83%.
INDUSTRY CONDITIONS
Hanover currently competes primarily in the transportable natural gas
compression market for units of up to 4,450 horsepower. This market, which
includes rental and owner operated units, accounts for approximately 12 million
horsepower in the United States and is believed to have grown between 6-10% per
annum over the last five years. The Company estimates that the growth in the
domestic gas compression market will continue due to the increased consumption
of natural gas, the continued aging of the natural gas reserve base and the
attendant decline of wellhead pressures and the discovery of new reserves.
The rental portion of the domestic gas compression market is currently
estimated to comprise only 25% of the aggregate U.S. horsepower, having grown at
an estimated rate of 13% per annum since 1992. Growth of rental compression
capacity in the U.S. market is primarily driven by the
1
<PAGE> 5
increasing trend toward outsourcing by energy producers and processors.
Outsourcing provides the customer greater financial and operating flexibility by
minimizing the customer's investment in equipment and enabling the customer to
more efficiently resize compression units to meet the changing needs of the
well, pipeline or processing plant. In addition, outsourcing typically provides
the customer with more timely and technically proficient service and necessary
maintenance which often reduces operating costs. Internationally, the Company
estimates similar growth opportunities for compressor rental and sales due to
(i) increased worldwide energy consumption, (ii) implementation of international
environmental and conservation laws preventing the flaring of natural gas, and
(iii) increased outsourcing by energy producers and processors.
GROWTH STRATEGY
Since 1992, Hanover has aggressively expanded its operations. Revenues have
increased from $33.1 million in 1992 to $136.0 million in 1996, while earnings
before interest, taxes, depreciation and amortization ("EBITDA") have increased
from $7.3 million in 1992 to $44.5 million in 1996. During the same period, net
income has grown from $1.0 million to $10.4 million.
Key elements of the Company's growth strategy include:
DELIVERING A COMPREHENSIVE RANGE OF SERVICES AND PRODUCTS
Hanover's core business provides a broad array of compression services
designed to meet specific customer operating, technical and financial
requirements. The Company offers its customers a full range of compressor
rental, maintenance and contract compression services, together with the
engineering, installation and field support necessary for cost-effective
operation. As of March 31, 1997, Hanover owned and operated a diversified
fleet of 1,653 gas compression rental units ranging in size from 25 to
2,650 horsepower. In this regard, management has pursued strategies that
have significantly increased the average horsepower of Hanover's fleet
over the past five years, and expects to continue to increase the average
horsepower of its fleet. Larger horsepower applications generally require
greater technical expertise and capital resources than smaller horsepower
applications, which, the Company believes, enhance its competitive
advantage.
Hanover's compressor and oil and gas production equipment fabrication
divisions design, engineer and assemble a fleet of larger natural gas
compression units, and oil and gas production equipment, respectively, for
timely delivery into the rental or sales markets. The Company's
participation in the fabrication of compression units and oil and gas
production equipment has broadened its customer relationships both
domestically and internationally, enhancing its opportunities to increase
its compression services business.
PROMOTING INTERNAL GROWTH THROUGH A DECENTRALIZED STRUCTURE
Hanover utilizes a decentralized management and operational structure to
provide superior customer service in a relationship driven, service
intensive industry. The Company's regionally based network, including
maintenance and refurbishment facilities, enables it to maintain superior
maintenance levels and response times, critical performance criteria which
contribute to one of the highest fleet utilization rates in the industry.
Local presence, experience and an in-depth knowledge of customers'
operating needs and growth plans provide the Company with significant
competitive advantages and internally-driven market share growth. In order
to maintain this regional strength and to create incentives to attract and
motivate an entrepreneurial, highly experienced management team and sales
force, Hanover has implemented an equity ownership program pursuant to
which approximately 100 members of the management and sales force have
purchased over time approximately 14.7% of the Company's Common Stock (on
a fully diluted basis before the Offering). See "Stock Option and Purchase
Plans".
2
<PAGE> 6
PARTICIPATING IN INDUSTRY CONSOLIDATION
The compression services industry has undergone significant change and
consolidation over the past five years as energy producers and processors
increasingly seek out suppliers possessing the requisite resources to meet
their needs. Since mid-1993, the Company estimates that over 33% of the
domestic compression rental fleet capacity has changed ownership. Hanover
has been an active participant in this trend, having completed 10 major
acquisitions for an aggregate consideration of approximately $109 million,
adding 215,555 total horsepower and 623 compressor units to the Company's
fleet through March 31, 1997. Hanover's strategy has been to utilize its
decentralized structure and equity incentives to retain local management
teams in order to capitalize on existing experience and customer
relationships. Efficient integration of these acquisitions has permitted
Hanover to accelerate the growth of the acquired businesses and expand the
range of services offered. The Company plans to continue to pursue the
acquisition of other companies, assets and product lines that either
complement or expand its existing business.
CAPITALIZING ON SELECT INTERNATIONAL OPPORTUNITIES
The expanding international demand for energy is creating a growing market
for natural gas compression services. While Hanover's primary market has
historically been the natural gas producing basins in the United States,
it has entered select international markets that management believes offer
attractive long-term growth opportunities. The Company, through
acquisitions and internal growth, believes it is one of the largest
providers of compression services in the rapidly growing South American
market, primarily in Argentina and Venezuela, operating in the aggregate
over 70,000 horsepower at March 31, 1997. The Company's internationally
generated rental and maintenance revenues have increased from $3.1 million
in 1995 to $11.2 million in 1996 and, based on existing and recently
awarded contracts, are expected to increase substantially in 1997 and
1998.
Hanover estimates that only a small portion of the total gas compression
market in South America is served by rental units but believes that large
gas producers in the region will increasingly outsource their compression
needs. In order to expand its presence in the South American market, the
Company successfully utilizes local partners as well as its relationships
with international energy companies such as Enron Capital and Trade
Resources Corp. ("ECT"), the beneficial owner of approximately 12% of the
Company's Common Stock. Furthermore, the Company also actively markets its
compression fabrication services and production equipment worldwide,
currently selling its compressors into China and Egypt and its production
equipment into Canada, China, Mexico, the Middle East, South America and
Russia.
In order to access additional international growth opportunities and to
broaden its product offerings, the Company has executed a series of
agreements with Wartsila, providing for, among other things, the
fabrication of Wartsila powered gas compression packages in Europe and the
rental and sale of such units worldwide. Management believes that its
alliance with Wartsila, pursuant to which Hanover will become the
exclusive distributor in the Americas (excluding Canada) of engines
ranging from 1,400 to 7,850 horsepower, will permit the Company to expand
its product offerings and services.
EXPANDING ITS CUSTOMER BASE THROUGH THE ACQUISITION AND LEASEBACK OF
COMPRESSORS
The Company estimates that United States energy producers, transporters
and processors directly own and operate approximately nine million
horsepower of transportable compression units of the type fabricated and
leased by Hanover. This amount represents approximately 75% of the total
U.S. transportable compression market. Recently, many major oil and gas
companies have been divesting domestic energy reserves to independent
energy producers who more frequently outsource their compressor needs in
order to reduce
3
<PAGE> 7
operating costs. The Company offers these and other energy industry
participants the opportunity to outsource their operations and reallocate
capital to core activities through its acquisition and leaseback program,
whereby the Company purchases in-place compression equipment at market
value and leases the equipment back to the former owner under long-term
operating and maintenance contracts. Through March 31, 1997, the Company
has consummated 30 acquisition and leaseback transactions, pursuant to
which it has leased compression units totalling 53,193 horsepower. Hanover
believes that this strategy, together with its success in subsequently
expanding upon these relationships, will promote opportunities to provide
such services to other energy industry participants.
COMPRESSOR RENTAL FEET
The size and horsepower of the Company's compressor rental fleet on March
31, 1997 is summarized in the following table.
<TABLE>
<CAPTION>
RANGE OF
HORSEPOWER NUMBER OF AGGREGATE
PER UNIT UNITS HORSEPOWER
---------- --------- ----------
<S> <C> <C>
0-99 581 35,429
100-199 339 47,272
200-499 321 96,377
500-799 124 76,283
800-1199 153 150,186
1200-2699 135 199,092
----- -------
TOTAL 1,653 604,639
</TABLE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... 4,166,667 shares
Common Stock offered by the Selling Stockholders............ 2,446,827 shares
Total............................................. 6,613,494 shares
Common Stock to be outstanding after the Offering........... 27,079,013 shares(1)(2)
Use of Proceeds............................................. To repay certain indebtedness.
Proposed New York Stock Exchange Symbol..................... "HC"
Dividend Policy............................................. The Company does not intend to
pay dividends on the Common
Stock.
</TABLE>
- ---------------
(1) Excludes (i) 2,400,174 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $5.11 per
share, all of which will be exercisable upon consummation of the Offering,
(ii) 568,950 shares of Common Stock issuable upon exercise of outstanding
warrants at an exercise price of $.01 per share, 70% of which will be
exercisable upon consummation of the Offering and (iii) 908,212 shares of
Common Stock issuable upon exercise of stock options which certain employees
have been offered the opportunity to be granted pursuant to the Company's
1997 Stock Option Plan in connection with and conditioned upon consummation
of the Offering. See "Capitalization" and "Stock Option and Purchase Plans".
(2) Excludes 264,780 shares of restricted Common Stock which certain employees
have been offered the opportunity to purchase pursuant to the Company's 1997
Stock Purchase Plan in connection with and conditioned upon consummation of
the Offering. See "Stock Option and Purchase Plans".
4
<PAGE> 8
SUMMARY HISTORICAL FINANCIAL AND OPERATING INFORMATION
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents certain historical financial data for the
Company for each of the five years in the period ended December 31, 1996 and for
the three months ended March 31, 1996 and 1997. The historical financial data
for each of the five years in the period ended December 31, 1996 have been
derived from the audited consolidated financial statements of the Company. The
historical financial data for the three months ended March 31, 1996 and 1997 are
unaudited. Interim results, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information for such periods; however, such results
are not necessarily indicative of the results which may be expected for any
other interim period or for a full year. The following information should be
read together with "Selected Historical Financial Information," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and those relating to Astra
Resources Compression, Inc. ("Astra"), which was acquired in December 1995,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................. $ 33,104 $ 43,346 $ 56,080 $ 95,964 $136,011 $ 25,469 $ 40,924
Operating expenses....................... 19,542 24,541 30,539 56,256 75,031 12,440 21,804
Selling, general and administrative...... 6,227 7,413 8,427 12,542 16,439 3,794 4,694
Depreciation and amortization............ 3,923 5,758 8,109 13,494 20,722(2) 4,515 6,245
Interest expense......................... 1,659 1,366 2,027 4,560 6,594 1,218 2,571
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
income taxes........................... 1,753 4,268 6,978 9,112 17,225 3,502 5,610
Provision for income taxes............... 650 1,597 2,590 3,498 6,844 1,310 2,216
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations........ 1,103 2,671 4,388 5,614 10,381 2,192 3,394
Discontinued operations.................. (115)
-------- -------- -------- -------- -------- -------- --------
Net income............................... $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
======== ======== ======== ======== ======== ======== ========
Net income available to common
stockholders(3)
Net income............................. $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Dividends on Series A and Series B
preferred stock...................... (832) (1,773) (513)
Series A preferred stock exchange...... (3,794)
Series B preferred stock conversion.... (1,400)
-------- -------- -------- -------- -------- -------- --------
Net income available to common
stockholders......................... 988 2,671 4,388 4,782 3,414 1,679 3,394
Weighted average common and common
equivalent shares...................... 8,331 11,495 14,121 15,794 22,279 17,278 22,530
-------- -------- -------- -------- -------- -------- --------
Earnings per common share................ $ .12 $ .23 $ .31 $ .30 $ .15(3) $ .10 $ .15
======== ======== ======== ======== ======== ======== ========
Supplemental earnings per common
share(4)............................... $ .23 $ .15
======== ========
OTHER DATA:
EBITDA from continuing operations(5)..... $ 7,335 $ 11,392 $ 17,114 $ 27,166 $ 44,541 $ 9,235 $ 14,426
Aggregate capital expenditures........... $ 9,954 $ 19,469 $ 34,301 $123,200 $ 90,312 $ 20,232 $ 34,335
Total number of rental units............. 521 591 759 1,215 1,560 1,294 1,653
Aggregate horsepower..................... 116,898 144,567 228,627 418,480 569,557 458,290 604,639
Average horsepower per unit.............. 224 245 301 344 365 354 366
Horsepower utilization(6)................ 95.0% 94.1% 95.7% 94.2% 95.3% 95.0% 95.1%
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
AS OF --------------------------
DECEMBER 31, 1996 ACTUAL AS ADJUSTED(7)
----------------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 41,513 $ 36,036 $ 36,036
Total assets........................................ 341,387 375,290 375,290
Long-term debt...................................... 122,756 139,482 70,732
Stockholders' equity................................ 176,895 180,377 249,127
</TABLE>
5
<PAGE> 9
- ---------------
(1) The summary historical financial data include the results of operations of
the Company and its wholly-owned subsidiaries. During 1995, the Company
acquired Astra, a significant subsidiary. See Note 2 of the Notes to the
Company's Consolidated Financial Statements for further information.
(2) In order to more accurately reflect the estimated useful lives of natural
gas compressor units in the rental fleet, effective January 1, 1996 the
Company changed the lives over which these units are depreciated from 12 to
15 years. The effect of this change was a decrease in depreciation expense
of $2.6 million and an increase in net income of $1.5 million ($.07 per
common share) for the year ended December 31, 1996.
(3) Earnings per share in 1996 was $.47 per share before the effects of charging
retained earnings for $1.8 million relating to dividends on redeemable
preferred stock and one time charges to retained earnings for (i) $3.8
million related to the exchange of all Series A preferred stock for
subordinated notes and (ii) $1.4 million related to the conversion of all
Series B preferred stock to Common Stock. See Note 7 of the Notes to
Consolidated Financial Statements.
(4) Supplemental earnings per common share is based on (i) the number of common
and dilutive common equivalent shares outstanding plus the number of common
shares assumed to be sold in the Offering necessary to raise sufficient net
proceeds to pay the Offering expenses and to repay certain indebtedness of
the Company as described in "Use of Proceeds" and (ii) net income increased
by the effect of a decrease in interest expense ($4.5 million and $1.2
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), less applicable income tax ($1.8 million and $0.5
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), related to the indebtedness to be repaid.
(5) EBITDA consists of the sum of consolidated net income, interest expense,
income tax, and depreciation and amortization. The Company believes that
EBITDA is a meaningful measure of its operating performance and is also used
to measure the Company's ability to meet debt service requirements. EBITDA
should not be considered as an alternative performance measure prescribed by
generally accepted accounting principles.
(6) Reflects average horsepower utilization over each twelve month period
calculated on a monthly basis based upon horsepower available.
(7) Reflects the sale of shares of Common Stock being offered by the Company at
an assumed initial offering price of $18.00 per share (net of approximately
$1.0 million of estimated offering expenses and $5.3 million of underwriting
discounts and commissions) and the application of the estimated net proceeds
therefrom to repay certain indebtedness. See "Use of Proceeds" and
"Capitalization".
6
<PAGE> 10
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
factors set forth below as well as the other information contained in this
Prospectus.
INDUSTRY CONDITIONS
The Company's operations are materially dependent upon the levels of
activity in natural gas development, production, processing and transportation.
Such activity levels are 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
corresponding decline in the demand for the Company's compression and oil and
gas production equipment. This decline in demand would be partially offset by
the greater reliance on older, developed reserves which require additional
compression to deliver the remaining natural gas to market. A significant
prolonged decline in natural gas prices could have a material adverse effect on
the Company's business, results of operations and financial condition.
SHORT LEASE TERMS; POSSIBLE INABILITY TO RE-LEASE COMPRESSORS
The initial term of the Company's leases generally vary based on operating
conditions and customer needs, but 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. 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".
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
investments in additions to the compressor rental fleet. Historically, the
Company has financed these investments through internally generated funds and
debt and equity financings. The Company, in addition to the approximately $12
million which it expects to spend on maintenance and repairs, plans to incur
capital expenditures of approximately $101 million during 1997 for continued
expansion of the compressor rental fleet, although the ultimate level of such
expansion-oriented capital expenditures will depend on then existing market
conditions. The Company believes that it will have sufficient cash provided by
operations and borrowings under its existing $150 million credit facility with
The Chase Manhattan Bank, as agent (the "Bank Credit Agreement") to fund these
capital needs. However, there can be no assurance that the Company will generate
sufficient cash flow or have sufficient access to external funding to continue
to satisfy its capital requirements. Failure to generate sufficient cash flow,
together with the absence of alternative sources of capital, could have a
material adverse effect on the Company's growth, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
During 1996 approximately 14.1% of the Company's compression rental and
maintenance revenue was derived from international operations. In September
1995, the Company acquired
7
<PAGE> 11
100% of the issued and outstanding stock of Proyecto Gas Natural P.G.N., C.A.
(now known as Hanover P.G.N., C.A.), a company which provides compression
services in Venezuela ("PGN"). In December 1995, the Company commenced Argentine
operations through its acquisition of Astra. In May 1996, the Company entered
into a joint venture with COSACOL, Ltd. for the purpose of providing compression
services to Ecopetrol, S.A. in Colombia. In February 1997, the Company entered
into a series of agreements with Wartsila providing for, among other things,
fabrication and the right to exclusively market, in select regions worldwide,
Wartsila powered gas compression packages ranging from 1,400 to 7,850
horsepower. The Company intends to enter into a joint venture in June 1997 with
an affiliate of ECT for the purpose of providing compression services to
Lagoven, S.A. in Venezuela. The Company intends to continue to expand its
business in South America and Europe 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 and the failure of a partner in an international joint
venture to meet its obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business".
AVAILABILITY AND INTEGRATION OF ACQUISITIONS
As part of its growth strategy, the Company has in the past aggressively
pursued, and plans to continue in the future to pursue, the acquisition of other
companies, assets and product lines that either complement or expand its
existing business. Each such acquisition involves 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.
By virtue of this strategy, the Company routinely conducts preliminary
discussions with numerous companies concerning possible acquisitions. 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.
COMPETITION
The natural gas compression industry and the oil and gas production
equipment business are highly competitive. The Company competes with several
large national and multinational companies, many of which have greater financial
and other resources than the Company. These companies, like Hanover, offer a
wide range of compressors for purchase or lease. There can be no assurance that
such competitors will not substantially increase the resources devoted to the
development and marketing of products and services competitive with those of the
Company or that new competitors will not enter the industry. See
"Business -- Competition".
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS AND CERTAIN ANTI-TAKEOVER
PROVISIONS
As of March 31, 1997, approximately 49.8% of the Company's outstanding
Common Stock was owned by GKH Investments, L.P., a Delaware limited partnership
(the "Fund") and GKH Private Limited (collectively with the Fund, "GKH"). The
Fund is the Company's largest stockholder. The
8
<PAGE> 12
general partners of GKH Partners, L.P. are three corporations controlled by each
of Melvyn N. Klein, Dan W. Lufkin and the Pritzker family of Chicago, Illinois,
respectively.
Subsequent to this Offering, GKH will continue to own 42.2% of the Common
Stock of the Company (41.0%, if the over-allotment option is exercised). As a
result, GKH will have sufficient voting power to significantly influence the
direction and policies of the Company and the outcome of any matter requiring
stockholder approval including mergers, consolidations and the sale of all or
substantially all of the assets of the Company and to prevent or cause a change
in control of the Company.
The Company's Certificate of Incorporation, as amended, and By-Laws contain
various provisions including, without limitation, certain notice provisions and
provisions authorizing the Company to issue preferred stock that may make it
more difficult for a third party to acquire, or may discourage acquisition bids
for, the Company and could limit the price that certain investors might be
willing to pay in the future for shares of Common Stock. After the Offering, the
ownership by GKH and the Company's officers, directors and their affiliates of a
substantial number of shares of Common Stock could also discourage such bids. In
addition, the rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of any holders of preferred stock which may
be issued in the future and that may be senior to the rights of the holders of
Common Stock. See "Description of Capital Stock". Furthermore, certain
provisions of Delaware law could delay or make difficult a merger, tender offer
or proxy contest involving the Company. See "Description of Capital Stock".
POTENTIAL LIABILITY AND INSURANCE
Natural gas 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 LIABILITY RISKS
The Company routinely deals with natural gas, oil and other petroleum
products. Therefore, the Company has implemented, or is in the process of
implementing, Spill Prevention Control and Countermeasure Plans ("SPCC Plans")
at certain of its fabrication, maintenance and storage facilities; however, no
assurances can be given that these SPCC Plans will prevent environmental damage
from spills of materials handled by the Company or that such damage has not
already occurred. As a result of its fabrication and refurbishing operations,
the Company also generates or manages 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 of 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 where they have been released. See also "Government
Regulation".
9
<PAGE> 13
Various Preliminary Phase I Environmental Site Assessments have been
conducted with respect to certain properties owned or operated by the Company.
Some of these assessments have revealed that soils at some of the Company's
facilities are contaminated with hydrocarbons and various other regulated
substances. Although some remediation efforts have been undertaken by previous
owners of these properties, no assurances can be given that such remediation
efforts have been or will be successful or that the Company will not incur
substantial costs in remediating such contamination. The Company has not
established reserves for such matters and can give no assurances that prior
remediation efforts will prove to be adequate.
As a result of the acquisition of Astra, the Company, through a wholly
owned subsidiary, indirectly owns a 17 acre parcel of land which includes a
lagoon at Astra's East Bernard, Texas facility. The area covered by the lagoon
was formerly the site of a solid waste landfill. The Company has been
indemnified by Astra's former parent Westar Capital, Inc. ("Westar"), for any
environmental liability associated with the landfill in excess of $250,000.
Under the indemnity agreement, the Company has the right to "put" the property
to Westar and Westar would be forced to purchase the property for $150,000 under
certain circumstances. No assurances can be given that Westar will have the
resources to indemnify the Company or repurchase the property. Should the
property be put to Westar, the Company's subsidiary and the Company may
nevertheless remain liable under applicable environmental laws. At the present
time, the Company does not believe that it is subject to any remedial
obligations with respect to the former solid waste landfill.
GOVERNMENTAL 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 consider adopting
new laws and regulations or amending existing laws and regulations regarding
environmental protection. While the Company may be able to pass on to its
customers the additional costs of complying with such laws, there can be no
assurances that attempts to do so will be successful. 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.
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock. The Common Stock has been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange. However, there can be no
assurance that an active trading market will develop subsequent to the Offering
or, if developed, that it will be sustained. The initial public offering price
of the Common Stock will be determined through negotiations between the Company
and the representatives of the Underwriters and may bear no relationship to the
price at which the Common Stock will trade after the Offering. For information
relating to the factors to be considered in determining the initial public
offering price, see "Underwriting". Prices for the Common Stock after the
Offering may be influenced by a number of factors, including the liquidity of
the market for the Common Stock, investor perceptions of the Company and the
energy services industry and general economic and other conditions.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Sales of substantial amounts of Common Stock in the public market
subsequent to the Offering could adversely affect the market price of the Common
Stock. Upon consummation of the Offering, the Company will have 27,079,013
shares of Common Stock outstanding (28,071,037 shares if the
10
<PAGE> 14
Underwriters' overallotment option is exercised in full). Of these shares, the
6,613,494 shares of Common Stock offered hereby (7,605,518 shares if the
Underwriters' overallotment option is exercised in full) will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Act"), except for shares held by persons deemed to be "affiliates"
of the Company or acting as "underwriters" as those terms are defined in the
Act. The remaining 20,465,519 shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 under the Act and will be
eligible for resale subject to the volume, manner of sale, holding period and
other limitations of Rule 144. In addition, options and warrants to purchase
2,798,438 shares of Common Stock will be exercisable upon consummation of the
Offering. The Company, the executive officers and directors of the Company,
certain other stockholders and the Selling Stockholders have agreed not to sell
any shares of Common Stock for a period of 180 days from the date of this
Prospectus without the consent of the representatives of the Underwriters. See
"Shares Eligible for Future Sale" and "Underwriting".
DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any such cash dividends in the foreseeable future. In
addition, the ability of the Company to pay dividends following the Offering
will be limited by the terms of the Bank Credit Agreement and the Company's 7%
Subordinated Notes due 2000 (the "Subordinated Notes"). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
DILUTION
Investors participating in the Offering will incur immediate substantial
dilution. To the extent outstanding options and warrants to purchase the
Company's Common Stock are exercised, there may be further dilution. See
"Dilution".
11
<PAGE> 15
THE COMPANY
The Company was incorporated in Delaware in October 1990 and commenced
operations primarily in West Texas with 47 compressor units with an aggregate of
12,668 horsepower contributed by a then affiliated company. In November and
December 1990, the Company acquired all of the capital stock of three
corporations and substantially all of the assets of a fourth corporation. As a
result of these acquisitions, the Company increased its compression fleet to 286
units with an aggregate of 76,000 horsepower and expanded its operations to East
Texas and the Arkoma Basin. In May 1991, GKH acquired a controlling interest in
the Company and in July 1991, the Company acquired a compressor fabrication
business and a 50% interest in a compressor leasing joint venture. The remaining
50% interest in the joint venture was acquired by the Company effective March
31, 1993.
In March 1993, the Company commenced production equipment fabrication
operations, utilizing selected assets purchased from, and employees formerly
employed by, a small production equipment fabrication business.
In February 1995, the Company purchased certain compression assets and
related equipment from Gale Force Compression Services, Inc., adding 106 units
with an aggregate of 14,190 horsepower to its fleet and concurrently entered
into a four year alliance agreement with Ward Petroleum, an affiliate of the
seller, for gas compression services to be provided by the Company. Also in
February 1995, the Company significantly expanded its production equipment
capacity by acquiring a substantial portion of the operating assets of the oil
and gas production equipment division of Smith Industries, Incorporated, which
had been in the fabrication of oil and gas production equipment industry since
1927.
In August 1995, Joint Energy Development Investments Limited Partnership
("JEDI"), an affiliate of ECT, purchased 10,000 shares of the Company's 6.5%
Cumulative Redeemable Convertible Series B Preferred Stock (the "Series B
Preferred Stock") (which were converted into 759,786 shares of Common Stock in
December 1996) and purchased Common Stock of the Company and, as a result,
currently owns approximately 12% of the Company's outstanding Common Stock. See
"Principal and Selling Stockholders".
In September 1995, the Company acquired PGN, thereby gaining a presence in
Venezuela as well as adding 11 compressor units with an aggregate of 13,408
horsepower. In December 1995, the Company acquired Astra from Westar, a
subsidiary of Western Resources, Inc. ("Western Resources") in exchange for $6.4
million and approximately 22.9% of the Company's outstanding Common Stock. This
acquisition added 145 compressor units and 103,699 horsepower to the Company's
rental fleet including an Argentine operation with 16 compressor units
aggregating 21,252 horsepower. Through internal growth and the strategic
acquisitions described above, the Company has increased its fleet to a total of
1,653 compressor units with an aggregate of 604,639 horsepower at March 31,
1997.
The executive offices of the Company are located at 12001 North Houston
Rosslyn, Houston, Texas 77086 and its telephone number is (281) 447-8787.
12
<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the Offering (at an assumed offering
price of $18.00 per share) are expected to be approximately $68.8 million
(approximately $85.4 million if the Underwriter's over-allotment option is
exercised in full). The Company will not receive any proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
The Company will use such net proceeds to repay all of its indebtedness
under its credit facility with JEDI, as agent (the "JEDI Loan Agreement") which
will then be terminated, and the balance of the proceeds will be applied to the
indebtedness outstanding under the Bank Credit Agreement. As of March 31, 1997,
the Company had an aggregate of $30 million and $84.1 million ($102.6 million as
of May 31, 1997) outstanding under the JEDI Loan Agreement and the Bank Credit
Agreement, respectively. Such obligations bear interest at weighted average
rates of 7.625% and 6.7%, respectively, and mature in 2002 and 1999,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources".
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation and does not anticipate paying such dividends in the foreseeable
future. The Board of Directors anticipates that all cash flow generated from
operations in the foreseeable future will be retained and used to develop and
expand the Company's business. In addition, the Bank Credit Agreement and the
Subordinated Notes prohibit the payment of cash dividends on the Company's
capital stock without the lenders' prior written consent. Any future
determinations to pay cash dividends on the Common Stock will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's results of operations and financial condition, credit and loan
agreements in effect at that time and other factors deemed relevant by the Board
of Directors. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Description
of Capital Stock".
For dividends paid on Preferred Stock, all of which have been redeemed, see
Note 7 of the Notes to Consolidated Financial Statements.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
March 31, 1997 and as adjusted to give pro forma effect to the Offering and the
anticipated application of the estimated net proceeds therefrom as described
under "Use of Proceeds". This table should be read in conjunction with the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Bank Credit Agreement..................................... $ 84,100 $ 45,350
JEDI Loan Agreement....................................... 30,000 --
7% Subordinated Notes..................................... 21,899 21,899
Other..................................................... 3,483 3,483
-------- --------
Total long-term debt........................................ 139,482 70,732
-------- --------
Stockholders' equity:
Preferred Stock, $.01 par value, 3,000,000 shares
authorized and issuable in series; no shares issued and
outstanding............................................
Common Stock, $.001 par value, 100,000,000 shares
authorized; 22,943,693 issued and outstanding,
27,110,360 issued and outstanding after the
Offering(1)............................................ 23 27
Additional paid-in capital.................................. 171,405 240,151
Retained earnings........................................... 15,912 15,912
Less:
Notes receivable from officers and employees for purchase
of Common Stock........................................ (6,745) (6,745)
Treasury stock -- 31,347 common shares, at cost........... (218) (218)
-------- --------
Stockholders' equity........................................ 180,377 249,127
-------- --------
Total capitalization........................................ $319,859 $319,859
======== ========
</TABLE>
- ---------------
(1) Includes 31,347 treasury shares, but excludes (i) 2,400,174 shares of Common
Stock subject to options previously granted to Company employees pursuant to
various stock option plans maintained by the Company, (ii) warrants to
purchase 568,950 shares of Common Stock granted to the former holders of the
Series A Preferred Stock (which preferred stock is no longer outstanding),
(iii) 908,212 shares of Common Stock issuable upon exercise of stock options
which certain employees have been offered the opportunity to be granted
pursuant to the Company's 1997 Stock Option Plan in connection with and
conditioned upon consummation of the Offering, and (iv) 264,780 shares of
restricted stock which certain employees have been offered the opportunity
to purchase pursuant to the Company's 1997 Stock Purchase Plan in connection
with and conditioned upon consummation of the Offering. See "Stock Option
and Purchase Plans".
14
<PAGE> 18
DILUTION
The net tangible book value of the Company as of March 31, 1997 was
$175,198,000, or $7.65 per share of Common Stock. "Net tangible book value" per
share is equal to the aggregate tangible assets of the Company less its
aggregate liabilities, divided by the total number of shares of Common Stock
outstanding on March 31, 1997. After giving effect to the estimated net proceeds
to the Company of the Offering, the pro forma net tangible book value of the
Company as of March 31, 1997 would have been approximately $243,948,000, or
$9.01 per share of Common Stock. This represents an immediate increase in net
tangible book value per share of $1.36 to existing stockholders and an immediate
dilution in net tangible book value per share of $8.99 to new investors, as
illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share..................... $18.00
Net tangible book value per share at March 31, 1997......... $ 7.65
Increase in net tangible book value per share attributable
to new investors.......................................... $ 1.36
Pro forma net tangible book value per share after the Offering...... $ 9.01
------
Dilution per share to new investors................................. $ 8.99
======
</TABLE>
As of March 31, 1997, the Company has reserved an aggregate of 2,969,124
shares of Common Stock for issuance upon exercise of warrants and options. On
that date, there were outstanding options to purchase an aggregate of 2,400,174
shares of Common Stock at a weighted average price of $5.11 per share, all of
which are, or will become, fully exercisable immediately upon consummation of
the Offering. Also on that date, there were outstanding warrants to purchase an
aggregate of 568,950 shares of Common Stock at a price of $0.01 per share,
327,146 of which are exercisable as of March 31, 1997 and the remaining warrants
vest in equal monthly installments through August, 1998. As of the date hereof,
the Company has reserved 1,365,062 shares of Common Stock for issuance as
restricted stock or upon exercise of options granted pursuant to the Company's
1997 Stock Option Plan and its 1997 Stock Purchase Plan. See "Stock Option and
Purchase Plans" and "Certain Transactions -- Certain Relationships and Related
Transactions".
The following table sets forth as of March 31, 1997 the relative
investments of the existing Company stockholders and of the new investors,
giving pro forma effect to the sale by the Company of 4,166,667 shares of the
Common Stock being offered hereby (and excluding any sale upon consummation of
the Offering of up to 264,780 shares of Common Stock to officers and employees
under the Company's 1997 Stock Purchase Plan), at an assumed offering price of
$18.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 22,912,346 85% $175,115 70% $7.64
New investors............... 4,166,667 15% 75,000 30% 18.00
---------- --- -------- --- -----
Total............. 27,079,013 100% $250,115 100% $9.24
========== === ======== === =====
</TABLE>
The foregoing tables assume no exercise of the Underwriters' over-allotment
option and no exercise of other options or warrants outstanding upon
consummation of the Offering. To the extent that all of such other options
(including the Underwriters' over-allotment option) or warrants are exercised as
of March 31, 1997, there would be further dilution in net tangible book value
per share of $.22 to new investors.
15
<PAGE> 19
SELECTED HISTORICAL FINANCIAL INFORMATION
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data, insofar as it relates to each of the
years 1992 to 1996, has been derived from the audited consolidated financial
statements of the Company, including the consolidated balance sheets at December
31, 1995 and 1996 and the related consolidated statements of income and of cash
flows for the three years ended December 31, 1996 and notes thereto appearing
elsewhere herein. The data for the three months ended March 31, 1996 and 1997
has been derived from unaudited financial statements also appearing herein
which, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial
information for such periods. The following information should be read together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and those
relating to Astra, which was acquired in December 1995, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Rentals and maintenance............... $ 21,680 $ 25,723 $ 32,025 $ 48,354 $ 79,355 $ 17,840 $ 24,320
Compressor fabrication................ 10,838 14,034 16,202 29,593 28,764 1,766 7,527
Production equipment fabrication...... -- 3,178 7,272 16,960 26,903 5,673 8,671
Other................................. 586 411 581 1,057 989 190 406
-------- -------- -------- -------- -------- -------- --------
Total revenues.................. 33,104 43,346 56,080 95,964 136,011 25,469 40,924
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Rentals and maintenance............... 10,206 9,739 11,008 17,813 30,800 6,755 9,455
Compressor fabrication................ 9,336 12,131 13,733 25,265 24,657 1,515 6,359
Production equipment fabrication...... -- 2,671 5,798 13,178 19,574 4,170 5,990
Selling, general and administrative... 6,227 7,413 8,427 12,542 16,439 3,794 4,694
Depreciation and amortization......... 3,923 5,758 8,109 13,494 20,722(2) 4,515 6,245
Interest expense...................... 1,659 1,366 2,027 4,560 6,594 1,218 2,571
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses........ 31,351 39,078 49,102 86,852 118,786 21,967 35,314
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations before
income taxes.......................... 1,753 4,268 6,978 9,112 17,225 3,502 5,610
Provision for income taxes.............. 650 1,597 2,590 3,498 6,844 1,310 2,216
-------- -------- -------- -------- -------- -------- --------
Income from continuing operations....... 1,103 2,671 4,388 5,614 10,381 2,192 3,394
Discontinued operations................. (115)
-------- -------- -------- -------- -------- -------- --------
Net income.............................. $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
======== ======== ======== ======== ======== ======== ========
Net income available to common
stockholders(3)
Net income............................ $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Dividends on Series A and Series B
preferred stock..................... (832) (1,773) (513)
Series A preferred stock exchange..... (3,794)
Series B preferred stock conversion... (1,400)
-------- -------- -------- -------- -------- -------- --------
Net income available to common
stockholders........................ 988 2,671 4,388 4,782 3,414 1,679 3,394
Weighted average common and common
equivalent shares..................... 8,331 11,495 14,121 15,794 22,279 17,278 22,530
-------- -------- -------- -------- -------- -------- --------
Earnings per common share............... $ .12 $ .23 $ .31 $ .30 $ .15(4) $ .10 $ .15
======== ======== ======== ======== ======== ======== ========
Supplemental earnings per common
share(5).............................. $ .23 $ .15
======== ========
OTHER DATA:
EBITDA from continuing operations(6).... $ 7,335 $ 11,392 $ 17,114 $ 27,166 $ 44,541 $ 9,235 $ 14,426
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (end of period):
Working capital......................... $ (445) $ 962 $ 995 $ 23,270 $ 41,513 $ 26,757 $ 36,036
Net property, plant and equipment....... 42,863 61,722 88,391 198,074 266,406 212,331 292,868
Total assets............................ 56,176 76,779 114,614 252,313 341,387 270,979 375,290
Long-term debt.......................... 15,985 14,279 36,878 50,451 122,756 64,453 139,482
Preferred stockholders' equity.......... 26,894 27,407
Common stockholders' equity............. 26,470 46,945 51,333 139,302 176,895 141,093 180,377
</TABLE>
16
<PAGE> 20
- ---------------
(1) The selected historical financial information includes the results of
operations of the Company and its wholly-owned subsidiaries. During 1995,
the Company acquired Astra, a significant subsidiary. See Note 2 of the
Notes to the Company's Consolidated Financial Statements for further
information.
(2) In order to more accurately reflect the estimated useful lives of natural
gas compressor units in the rental fleet, effective January 1, 1996 the
Company changed the lives over which these units are depreciated from 12 to
15 years. The effect of this change was a decrease in depreciation expense
of $2.6 million and an increase in net income of $1.5 million ($.07 per
common share) for the year ended December 31, 1996.
(3) Earnings per common share is calculated using the weighted average number of
common and dilutive common equivalent shares outstanding during each period.
In conformity with SEC requirements, common and common equivalent shares
issued during the twelve months prior to the filing of the registration
statement for the Company's proposed initial public offering have been
included in the calculation as if they were outstanding for all periods
presented, using the treasury stock method and the assumed initial public
offering price.
(4) Earnings per share in 1996 was $.47 per share before the effects of charging
retained earnings for $1.8 million relating to dividends on redeemable
preferred stock and one time charges to retained earnings for (i) $3.8
million related to the exchange of all Series A preferred stock for
subordinated notes and (ii) $1.4 million related to the conversion of all
Series B preferred stock to Common Stock. See Note 7 of the Notes to
Consolidated Financial Statements.
(5) Supplemental earnings per common share is based on (i) the number of common
and dilutive common equivalent shares outstanding plus the number of common
shares assumed to be sold in the Offering necessary to raise sufficient net
proceeds to pay the Offering expenses and to repay certain indebtedness of
the Company as described in "Use of Proceeds" and (ii) net income increased
by the effect of a decrease in interest expense ($4.5 million and $1.2
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), less applicable income tax ($1.8 million and $0.5
million for the year ended December 31, 1996 and the quarter ended March 31,
1997, respectively), related to the indebtedness to be repaid.
(6) EBITDA consists of the sum of consolidated net income, interest expense,
income tax, and depreciation and amortization. The Company believes that
EBITDA is a meaningful measure of its operating performance and is also used
to measure the Company's ability to meet debt service requirements. EBITDA
should not be considered as an alternative performance measure prescribed by
generally accepted accounting principles.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's operations consist of providing gas compression services
through renting, maintaining and operating natural gas compressors and
engineering, fabricating and selling gas compression and oil and gas production
equipment. See "Business".
The Company commenced operations during the latter part of 1990 with the
acquisition of three regional compression leasing companies and substantially
all of the assets of a fourth company. The compression rental fleet has been
expanded significantly through internal growth and acquisitions and consists of
1,653 units with an aggregate of 604,639 horsepower as of March 31, 1997. The
Company's growth has been funded by a combination of internally generated cash
flow, debt financing, the issuance of Common Stock in connection with certain
acquisitions and the sale of additional equity securities to existing
stockholders and other investors.
RESULTS OF OPERATIONS
The following table summarizes the revenues, expenses and gross profit
percentages of each of the Company's business segments:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------- -------------
1994 1995 1996 1996 1997
----- ----- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rentals and maintenance..................... $32.0 $48.4 $ 79.4 $17.8 $24.3
Compressor fabrication...................... 16.2 29.6 28.8 1.8 7.5
Production equipment fabrication............ 7.3 17.0 26.9 5.7 8.7
----- ----- ------ ----- -----
Total.................................. $55.5 $95.0 $135.1 $25.3 $40.5
===== ===== ====== ===== =====
Expenses:
Rentals and maintenance..................... $11.0 $17.8 $ 30.8 $ 6.8 $ 9.5
Compressor fabrication...................... 13.7 25.3 24.7 1.5 6.4
Production equipment fabrication............ 5.8 13.2 19.6 4.2 6.0
----- ----- ------ ----- -----
Total.................................. $30.5 $56.3 $ 75.1 $12.5 $21.9
===== ===== ====== ===== =====
Gross profit percentage:
Rentals and maintenance..................... 65.6% 63.2% 61.2% 62.1% 61.1%
Compressor fabrication...................... 15.2 14.6 14.3 14.2 15.5
Production equipment fabrication............ 20.3 22.3 27.2 26.5 30.9
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES
Revenues from rentals and maintenance increased by $6.5 million, or 37%, to
$24.3 million during the three month period ended March 31, 1997 from $17.8
million during the three month period ended March 31, 1996. Domestic revenues
from rentals and maintenance increased by $4.6 million or 30% to $20.0 million
during the three months ended March 31, 1997 from $15.4 million during the three
months ended March 31, 1996. International revenues from rentals and maintenance
increased by $1.9 million, or 81% to $4.3 million during the three months ended
March 31, 1997 from $2.4 million during the three months ended March 31, 1996.
The increase in both domestic and international rental and maintenance revenues
resulted primarily from continued expansion of the Company's rental fleet.
Domestic horsepower in the rental fleet increased by 29% from 414,162 horsepower
at March 31, 1996 to 535,218 horsepower at March 31, 1997. In addition,
18
<PAGE> 22
international horsepower increased by 57% from 44,128 horsepower at March 31,
1996 to 69,421 horsepower at March 31, 1997.
Revenues from the fabrication and sale of compressor equipment to third
parties increased by $5.7 million, or 317%, to $7.5 million during the three
months ended March 31, 1997 from $1.8 million during the three months ended
March 31, 1996. During the three months ended March 31, 1997, an aggregate of
37,727 horsepower of compression equipment was fabricated, 22,294 horsepower of
which was placed in the rental fleet and 15,433 horsepower of which was sold to
third party customers. During the three months ended March 31, 1996, 21,225
horsepower was fabricated for the rental fleet and 3,571 horsepower was sold to
third party customers. The increase in third party sales reflects the
strengthening demand in the overall natural gas compression market.
Revenues from the fabrication and sale of production equipment increased by
$3.0 million, or 53%, to $8.7 million during the three months ended March 31,
1997 from $5.7 million during the three months ended March 31, 1996. The
increase in revenues reflects the strengthening of the oil and gas production
equipment market, especially demand for such equipment in the Gulf of Mexico.
EXPENSES
Rentals and maintenance operating expenses increased by $2.7 million, or
40%, to $9.5 million during the three months ended March 31, 1997 from $6.8
million during the three months ended March 31, 1996. The increase results
primarily from the corresponding 37% increase in revenues from rentals and
maintenance during the three months ended March 31, 1997 over the corresponding
period in 1996. The gross profit percentage amounted to 61.1% during the three
months ended March 31, 1997 as compared to 62.1% during the three months ended
March 31, 1996. The decrease resulted primarily from the increased contribution
of international operations which generates slightly lower gross profit margins.
Operating expenses of compressor fabrication increased by $4.9 million, or
327%, to $6.4 million, during the three months ended March 31, 1997 from $1.5
million during the three months ended March 31, 1996 as a result of the
corresponding increase in compressor fabrication revenue. In addition, the
operating expenses attributable to production equipment fabrication increased by
$1.8 million, or 43%, to $6.0 million during the three months ended March 31,
1997 from $4.2 million during the three months ended March 31, 1996 as a result
of the corresponding 53% increase in production equipment sales.
Selling, general and administrative expenses increased by $.9 million, or
24%, to $4.7 million during the three months ended March 31, 1997 from $3.8
million for the three months ended March 31, 1996. The increase resulted from
the continued increase in the level of activity in each of the Company's three
business segments.
Depreciation and amortization increased by $1.7 million, or 38%, to $6.2
million during the three months ended March 31, 1997 from $4.5 million during
the three months ended March 31, 1996. The increase resulted from continued
expansion of the rental fleet and other capital expenditures which increased the
amount invested in property, plant and equipment from approximately $247 million
at March 31, 1996 to approximately $350 million at March 31, 1997.
INTEREST EXPENSE
Interest expense increased by $1.4 million, or 117%, to $2.6 million during
the three months ended March 31, 1997 from $1.2 million during the three months
ended March 31, 1996 as a result of borrowings under the Bank Credit Agreement
which were used to finance additions to the compression rental fleet and the
exchange, in December 1996, of the 6.5% Series A Cumulative Redeemable Preferred
Stock for approximately $23.5 million of Subordinated Notes.
19
<PAGE> 23
INCOME TAXES
The provision for income taxes increased by $.9 million, or 69%, to $2.2
million during the three months ended March 31, 1997 from $1.3 million during
the three months ended March 31, 1996. The increase resulted from the
corresponding increase in income before income taxes.
NET INCOME
Net income increased $1.2 million, or 55%, to $3.4 million during the three
months ended March 31, 1997 from $2.2 million during the three months ended
March 31, 1996 for the reasons discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Revenues from rentals and maintenance increased by $31.0 million, or 64%,
to $79.4 million in 1996 from $48.4 million in 1995. Domestically, revenues from
rentals and maintenance increased by $22.9 million, or 51%, to $68.2 million in
1996 from $45.3 million in 1995 and, internationally, by $8.1 million or 261%,
to $11.2 million in 1996 from $3.1 million in 1995. The increase in such
revenues resulted from two factors: (i) the acquisition of Astra in December
1995, which resulted in 82,447 domestic horsepower and 21,252 international
horsepower being added to the rental fleet (a 33% increase compared to the
Company's fleet before the acquisition), and (ii) a 36% increase in the size of
the total compressor rental fleet during 1996, represented by the addition of
124,984 horsepower and 26,093 horsepower, domestically and internationally,
respectively.
During 1996, Hanover fabricated an aggregate of 129,461 horsepower of
compression units, 44% of which was sold to third parties and 56% of which was
placed in the rental fleet. Revenues from the fabrication and sale of
compression equipment to third parties were $28.8 million in 1996 as compared to
$29.6 million in 1995. By comparison, compression units fabricated and placed in
the rental fleet increased by $23.5 million, or 175%, to $36.9 million in 1996
from $13.4 million in 1995, which amounts were eliminated from revenue in
consolidation and the cost of which was included in compression equipment. See
Note 14 of Notes to the Consolidated Financial Statements included elsewhere
herein.
Revenues from the fabrication and sale of production equipment increased by
$9.9 million, or 58%, to $26.9 million during 1996 from $17.0 million during
1995. The increase in revenue reflects the full year of operation and successful
integration of a production equipment business acquired in 1995 which
substantially expanded the Company's production capacity and customer base.
EXPENSES
Operating expenses attributable to rentals and maintenance increased by
$13.0 million, or 73%, to $30.8 million during 1996 from $17.8 million during
1995. The increase results primarily from the growth in the compression rental
fleet as reflected by the corresponding 64% growth in rental and maintenance
revenues during 1996. The rental and maintenance gross profit percentage
decreased to 61.2% during 1996 as compared to 63.2% in 1995. The decrease
results primarily from certain expenses associated with the December 1995
acquisition of rental units from Astra and international operations which
generate lower gross profit margins.
Operating expenses attributable to compressor fabrication decreased by $0.6
million, or 2%, to $24.7 million during 1996 from $25.3 million during 1995, as
a result of the corresponding decrease in revenue. Operating expenses from
production equipment fabrication increased by $6.4 million, or 48%, to $19.6
million during 1996 from $13.2 million during 1995 as a result of the increase
in production equipment fabrication activity. The gross profit percentage from
production equipment fabrication increased to 27.2% in 1996 from 22.3% in 1995,
largely resulting from improved margins in the production equipment market.
20
<PAGE> 24
Selling, general and administrative expenses increased by $3.9 million, or
31%, to $16.4 million in 1996 from $12.5 million in 1995. This increase resulted
from the expansion of the Company's overall level of activity.
Depreciation and amortization increased $7.2 million or 53%, to $20.7
million in 1996 from $13.5 million in 1995. This increase resulted from
expansion of the rental fleet and other capital expenditures. In addition, in
order to more accurately reflect the estimated useful lives of natural gas
compression units in the rental fleet, the Company changed the lives over which
these units are depreciated from 12 to 15 years effective January 1, 1996. The
effect of this change was a decrease in depreciation expense of $2.6 million.
INTEREST EXPENSE
Interest expense increased $2.0 million, or 43%, to $6.6 million in 1996
from $4.6 million in 1995 as a result of borrowings under the Bank Credit
Agreement which was used primarily to finance additions to the compression
rental fleet.
INCOME TAXES
The Company's effective income tax rate was approximately 40% during 1996
and 38% during 1995. Accordingly, the $3.3 million increase to $6.8 million in
1996 from $3.5 million in 1995 resulted from a comparable increase in income
before income taxes from 1995 to 1996.
NET INCOME
Net income increased $4.8 million, or 86%, to $10.4 million in 1996 from
$5.6 million in 1995 for the reasons discussed above. Earnings per share in 1996
were $.47 per share before the effect of charging retained earnings for $1.8
million relating to dividends on redeemable preferred stock and one time charges
to retained earnings for (i) $3.8 million related to the exchange of all Series
A preferred stock for subordinated notes and (ii) $1.4 million related to the
conversion of all Series B preferred stock to common stock.
EARNINGS PER COMMON SHARE
Details of earnings per common share for 1996 are as follows:
<TABLE>
<S> <C>
Net income before adjustment................................ $.47
Dividends on preferred stock................................ (.08)
Series A preferred stock exchange........................... (.17)
Series B preferred stock conversion......................... (.07)
----
Earnings per common share................................... $.15
====
</TABLE>
As explained in Note 7 of the Notes to Consolidated Financial Statements,
the Company exchanged all outstanding Series A preferred stock for subordinated
notes and converted all outstanding Series B preferred stock into Common Stock.
Accordingly, future earnings per common share will not be reduced by items
related to the preferred stock which had been outstanding prior to December 31,
1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES
Revenues increased by $39.9 million, or 71%, to $96.0 million in 1995 from
$56.1 million in 1994. Revenues from rentals and maintenance increased by $16.4
million, or 51%, to $48.4 million in 1995 from $32.0 million in 1994. This
increase resulted primarily from an 83% increase in the size of the
21
<PAGE> 25
compression rental fleet, representing the addition of an aggregate of 189,853
horsepower during 1995, including 103,699 horsepower added in connection with
the December 1995 Astra acquisition.
Revenues from the fabrication and sale of compression equipment increased
by $13.4 million, or 83%, from $16.2 million in 1994 to $29.6 million in 1995.
The increase in compression equipment fabrication revenue is attributable to the
growing demand for gas compression as gas well development and exploration
activity increased from 1994 to 1995.
Revenues from the fabrication and sale of production equipment increased by
$9.7 million, or 133%, to $17.0 million in 1995 from $7.3 million in 1994. The
increase in production equipment fabrication revenue reflects the acquisition of
a production equipment business in 1995 which substantially expanded the
Company's production capacity and customer base.
EXPENSES
Operating expenses increased by $25.8 million, or 85%, to $56.3 million
during 1995 from $30.5 million during 1994. Operating expenses attributable to
rentals and maintenance increased by $6.8 million, or 62%, to $17.8 million
during 1995 from $11.0 million during 1994. The increase resulted from growth in
the compression rental fleet as reflected by the corresponding 51% growth in
rental and maintenance revenues during 1995. Operating expenses from compression
fabrication increased by $11.6 million, or 85%, to $25.3 million during 1995
from $13.7 million during 1994. This increase reflects the increase in
fabrication of units sold during 1995. Operating expenses from production
equipment fabrication increased by $7.4 million, or 128%, to $13.2 million
during 1995 from $5.8 million during 1994 as a result of the increase in
production equipment fabrication activity.
Selling, general and administrative expenses increased by $4.1 million, or
49% to $12.5 million in 1995 from $8.4 million in 1994. This increase resulted
from the expanded level of activity in the Company's business discussed above.
Depreciation and amortization increased $5.4 million, or 67%, to $13.5
million in 1995 from $8.1 million in 1994. This increase resulted from expansion
of the rental fleet and other capital expenditures.
INTEREST EXPENSE
Interest expense increased $2.6 million, or 130%, to $4.6 million in 1995
from $2.0 million in 1994 as a result of borrowings under the Bank Credit
Agreement and the JEDI Loan Agreement which were used to finance additions to
the compressor rental fleet and to provide working capital to support the
Company's growth.
INCOME TAXES
The Company's effective income tax rate was approximately 38% during 1995
and 37% during 1994. Accordingly, the $0.9 million increase, or 35%, to $3.5
million in 1995 from $2.6 million in 1994 resulted largely from a comparable
increase in income before income taxes from 1994 to 1995.
NET INCOME
Net income increased $1.2 million or 27%, to $5.6 million in 1995 from $4.4
million in 1994 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized internally generated funds and equity
and debt financing in order to (i) finance the growth of its compressor rental
fleet, (ii) enter into acquisition-leaseback transactions with its customers and
(iii) maintain sufficient production equipment inventory. Cash flows from
operating activities, before changes in working capital items, were $33.6
million for the
22
<PAGE> 26
year ended December 31, 1996 as compared to $19.7 million for the year ended
December 31, 1995 and $11.7 million for the three months ended March 31, 1997 as
compared to $8.0 million for the three months ended March 31, 1996. Capital
expenditures for property, plant and equipment totaled $90.1 million for the
year ended December 31, 1996 as compared to $69.8 million for the year ended
December 31, 1995. The Company, in addition to the approximately $12 million
which it expects to spend on maintenance and repairs, plans to incur capital
expenditures of approximately $101 million during 1997 (of which $34.0 million
has been expended through March 31, 1997), although the ultimate level of such
expansion-oriented capital expenditures will depend on existing market
conditions.
The equity and debt financing necessary to support the Company's growth has
principally been provided by sales of Preferred Stock (all of which have been
converted into, or exchanged for, shares of Common Stock or Subordinated Notes)
and Common Stock and borrowings under various credit and loan agreements.
The Bank Credit Agreement permits borrowings up to $150 million. Funds
borrowed bear interest based on either the bank's base rate or the LIBOR rate
plus an applicable margin and mature in December 1999. As of March 31, 1997,
$84.1 million of principal was outstanding under the Bank Credit Agreement.
The Bank Credit Agreement is secured by all of the assets of the Company
and contains certain restrictive covenants that impose limitations on the
Company such as restrictions on cash dividends, indebtedness and fundamental
changes. The Bank Credit Agreement requires the Company to comply with certain
financial covenants relating to maintenance of a current ratio, fixed charge
coverage, and leverage ratio. Furthermore, failure of GKH to own directly or
indirectly 30% of the issued and outstanding Common Stock constitutes an event
of default under the Bank Credit Agreement.
The JEDI Loan Agreement, which permits borrowings of up to $100 million
will be paid off and terminated concurrently with the consummation of the
Offering. As of March 31, 1997, $30 million of principal was outstanding under
the JEDI Loan Agreement.
In addition to the foregoing, on December 23, 1996, the Company issued its
Subordinated Notes in the aggregate principal amount of $23 million, bearing
interest at 7%, payable semi-annually, with principal payable in one payment on
December 31, 2000 in exchange for all of its outstanding 6.5% Series A
Cumulative Redeemable Preferred Stock. The Subordinated Notes contain default
provisions similar to the Bank Credit Agreement and are subordinated to loans
under the Bank Credit Agreement and the JEDI Loan Agreement.
The proceeds of the Offering will be used to partially prepay indebtedness
under the Bank Credit Agreement and to fully prepay indebtedness under the JEDI
Loan Agreement. See "Use of Proceeds". The Company believes that after the
Offering and the application of the net proceeds therefrom, the Company's
available credit facilities, available cash and internally generated funds will
be sufficient to meet liquidity and capital requirements assuming no material
acquisitions.
23
<PAGE> 27
BUSINESS
GENERAL
Hanover is a leading provider of a broad array of natural gas compression
rental, operations and maintenance services in the United States and select
international markets. As of March 31, 1997, the Company had a fleet of 1,653
compression rental units with an aggregate capacity of 604,639 horsepower.
Hanover's compression services are complemented by its compressor and oil and
gas production equipment fabrication operations, which broaden its customer
relationships both domestically and internationally.
Through internal growth and a series of strategic acquisitions, the Company
believes it is the largest operator of rental compression horsepower capacity in
the United States controlling an estimated 20% of the domestic rental market
with 1,601 rental units having an aggregate capacity of approximately 535,000
horsepower at March 31, 1997. Internationally, the Company estimates it is one
of the largest providers of compression services in the rapidly growing South
American market, primarily in Argentina and Venezuela, operating 52 units with
approximately 70,000 horsepower at March 31, 1997. In order to continue its
international expansion, Hanover recently entered into a series of agreements
with Wartsila, a leading global manufacturer of large horsepower engines,
providing for, among other things, the fabrication and the right to exclusively
market in select regions worldwide, Wartsila powered gas compression packages
ranging from 1,400 to 7,850 horsepower.
The Company's products and services are essential to the production,
transportation, processing and storage of natural gas and are provided primarily
to energy producers and processors. The Company's decentralized operating
structure, technically experienced personnel and high quality compressor fleet,
allow Hanover to successfully provide superior, reliable and timely customer
service. As a result, Hanover has experienced substantial growth over the past
five years and has developed and maintained a number of long-term customer
relationships. This success has enabled Hanover to maintain an average
horsepower utilization rate of approximately 95% over the last five years in
comparison to an industry average estimated by the Company to be approximately
83%.
Hanover currently competes primarily in the transportable natural gas
compression market for units of up to 4,450 horsepower. This market, which
includes rental and owner operated units, accounts for approximately 12 million
horsepower in the United States and is believed to have grown between 6-10% per
annum over the last five years. The Company estimates that the growth in the
domestic gas compression market will continue due to the increased consumption
of natural gas, the continued aging of the natural gas reserve base and the
attendant decline of wellhead pressures, and the discovery of new reserves.
The rental portion of the domestic gas compression market is currently
estimated to comprise only 25% of the aggregate U.S. horsepower, having grown at
an estimated 13% per annum since 1992. Growth of rental compression capacity in
the U.S. market is primarily driven by the increasing trend toward outsourcing
by energy producers and processors. Outsourcing provides the customer greater
financial and operating flexibility by minimizing the customer's investment in
equipment and enabling the customer to more efficiently resize compression units
to meet the changing needs of the well, pipeline or processing plant. In
addition, outsourcing typically provides the customer with more timely and
technically proficient service and necessary maintenance which often reduces
operating costs. Internationally, the Company estimates similar growth
opportunities for compressor rental and sales due to (i) increased worldwide
energy consumption, (ii) implementation of international environmental and
conservation laws preventing the flaring of natural gas, and (iii) increased
outsourcing by energy producers and processors.
GROWTH STRATEGY
Since 1992, Hanover has aggressively expanded its operations. Revenues have
increased from $33.1 million in 1992 to $136.0 million in 1996, while EBITDA has
increased from $7.3 million in 1992
24
<PAGE> 28
to $44.5 million in 1996. During the same period, net income has grown from $1.0
million to $10.4 million.
Key elements of the Company's growth strategy include:
DELIVERING A COMPREHENSIVE RANGE OF SERVICES AND PRODUCTS
Hanover's core business provides a broad array of compression services
designed to meet specific customer operating, technical and financial
requirements. The Company offers its customers a full range of compressor
rental, maintenance and contract compression services, together with the
engineering, installation and field support necessary for cost-effective
operation. As of March 31, 1997, Hanover owned and operated a diversified
fleet of 1,653 gas compression rental units ranging in size from 25 to
2,650 horsepower. In this regard, management has pursued strategies that
have significantly increased the average horsepower of Hanover's fleet
over the past five years, and expects to continue to increase the average
horsepower of its fleet. Larger horsepower applications generally require
greater technical expertise and capital resources than smaller horsepower
applications, which, the Company believes, enhance its competitive
advantage.
Hanover's compressor and oil and gas production equipment fabrication
divisions design, engineer and assemble a fleet of larger natural gas
compression units, and oil and gas production equipment, respectively, for
timely delivery into the rental or sales markets. The Company's
participation in the fabrication of compression units and oil and gas
production equipment has broadened its customer relationships both
domestically and internationally, enhancing its opportunities to increase
its compression services business.
PROMOTING INTERNAL GROWTH THROUGH A DECENTRALIZED STRUCTURE
Hanover utilizes a decentralized management and operational structure to
provide superior customer service in a relationship driven, service
intensive industry. The Company's regionally based network, including
maintenance and refurbishment facilities, enables it to maintain superior
maintenance levels and response times, critical performance criteria which
contribute to one of the highest fleet utilization rates in the industry.
Local presence, experience and an in-depth knowledge of customers'
operating needs and growth plans provide the Company with significant
competitive advantages and internally-driven market share growth. In order
to maintain this regional strength and to create incentives to attract and
motivate an entrepreneurial, highly experienced management team and sales
force, Hanover has implemented an equity ownership program pursuant to
which approximately 100 members of the management and sales force have
purchased over time approximately 14.7% of the Company's Common Stock (on
a fully diluted basis before the Offering). See " Stock Option and
Purchase Plans".
PARTICIPATING IN INDUSTRY CONSOLIDATION
The compression services industry has undergone significant change and
consolidation over the past five years as energy producers and processors
increasingly seek out suppliers possessing the requisite resources to meet
their needs. Since mid-1993, the Company estimates that over 33% of the
domestic compression rental fleet capacity has changed ownership. Hanover
has been an active participant in this trend, having completed 10 major
acquisitions for an aggregate consideration of approximately $109 million,
adding 215,555 total horsepower and 623 compressor units to the Company's
fleet through March 31, 1997. Hanover's strategy has been to utilize its
decentralized structure and equity incentives to retain local management
teams in order to capitalize on existing experience and customer
relationships. Efficient integration of these acquisitions has permitted
Hanover to accelerate the growth of the acquired businesses and expand the
range of services offered. The Company plans to continue to pursue the
acquisition of other companies, assets and product lines that either
complement or expand its existing business.
25
<PAGE> 29
CAPITALIZING ON SELECT INTERNATIONAL OPPORTUNITIES
The expanding international demand for energy is creating a growing market
for natural gas compression services. While Hanover's primary market has
historically been the natural gas producing basins in the United States,
it has entered select international markets that management believes offer
attractive long-term growth opportunities. The Company, through
acquisitions and internal growth, believes it is one of the largest
providers of compression services in the rapidly growing South American
market, primarily in Argentina and Venezuela, operating in the aggregate
over 70,000 horsepower at March 31, 1997. The Company's internationally
generated rental and maintenance revenues have increased from $3.1 million
in 1995 to $11.2 million in 1996 and, based on existing and recently
awarded contracts, are expected to increase substantially in 1997 and
1998.
Hanover estimates that only a small portion of the total gas compression
market in South America is currently served by rental units but believes
that large gas producers in the region will increasingly outsource their
compression needs. In order to expand its presence in the South American
market, the Company successfully utilizes local partners as well as its
relationships with international energy companies such as ECT, the
beneficial owner of approximately 12% of the Company's Common Stock.
Furthermore, the Company also actively markets its compression fabrication
services and production equipment worldwide, currently selling its
compressors into China and Egypt and its production equipment into Canada,
China, Mexico, the Middle East, South America and Russia.
In order to access additional international growth opportunities and to
broaden its product offerings, the Company has executed a series of
agreements with Wartsila, providing for, among other things, the
fabrication of Wartsila powered gas compression packages in Europe and the
rental and sale of such units worldwide. Management believes that its
alliance with Wartsila, pursuant to which Hanover will become the
exclusive distributor in the Americas (excluding Canada) of engines
ranging from 1,400 to 7,850 horsepower, will permit the Company to expand
its product offerings and services.
EXPANDING ITS CUSTOMER BASE THROUGH THE ACQUISITION AND LEASEBACK OF
COMPRESSORS
The Company estimates that United States energy producers, transporters
and processors directly own and operate approximately nine million
horsepower of transportable compression units of the type fabricated and
leased by Hanover. This amount represents approximately 75% of the total
U.S. transportable compression market. Recently, many major oil and gas
companies have been divesting domestic energy reserves to independent
energy producers who more frequently outsource their compressor needs in
order to reduce operating costs. The Company offers these and other energy
industry participants the opportunity to outsource their operations and
reallocate capital to core activities through its acquisition and
leaseback program, whereby the Company purchases in-place compression
equipment at market values and leases the equipment back to the former
owner under long-term operating and maintenance contracts. Through March
31, 1997, the Company has consummated 30 acquisition and leaseback
transactions, pursuant to which it has leased compression units totalling
53,193 horsepower. Hanover believes that this strategy, together with its
success in subsequently expanding upon these relationships, will promote
opportunities to provide such services to other energy industry
participants.
INDUSTRY OVERVIEW
GAS COMPRESSION
Over the life of an oil or gas well, natural reservoir pressure typically
declines as reserves are produced. As the natural reservoir pressure of the well
declines below the line pressure of the gas gathering or pipeline system used to
transport the gas to market, gas no longer naturally flows into
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the pipeline. It is at this time that compression equipment is applied to
economically boost the well's production levels and allow gas to be brought to
market.
In addition to such gas field gathering activities, natural gas compressors
are utilized in a number of other applications, all of which are intended to
enhance the productivity of oil and gas wells, gas transportation lines and
processing plants. Compressors are used to increase the efficiency of a low
capacity gas field by providing a central compression point from which the gas
can be removed and injected into a pipeline for transmission to facilities for
further processing. As gas is transported through a pipeline, compression
equipment is applied to allow the gas to continue to flow in the pipeline to its
destination. Additionally, compressors are utilized to re-inject associated gas
to artificially lift liquid hydrocarbons which increases the rate of crude oil
production from oil and gas wells. Furthermore, compression enables gas to be
stored in underground storage reservoirs for subsequent extraction during
periods of peak demand. Finally, in combination with oil and gas production
equipment, compressors are often utilized to process and refine oil and gas into
higher value added and more marketable energy sources.
Changing well and pipeline pressures and conditions over the life of a well
often require producers to reconfigure their compressor units to optimize the
well production or pipeline efficiency. Due to the technical nature of the
equipment, a highly trained staff of field service personnel, parts inventory
and a diversified fleet of natural gas compressors are often necessary to
perform such functions in the most economic manner. These requirements, however,
have typically proven to be an extremely inefficient use of capital for
independent natural gas producers and have caused such firms as well as natural
gas processors and transporters to increasingly outsource their non-core
compression activities to specialists such as Hanover.
The advent of rental and contract compression roughly 40 years ago made it
possible for natural gas producers, transporters and processors to improve the
efficiency and financial performance of their operations. Compressors leased
from specialists generally have a higher rate of mechanical reliability and
typically generate greater productivity than those owned by oil and gas
operators. Furthermore, because compression needs of a well change over time,
outsourcing of compression equipment enables an oil and gas operator to better
match compression to the production needs throughout the life of the well. Also,
certain major domestic oil companies are seeking to streamline their operations
and reduce their capital expenditures and other costs. To this end, they have
sold certain domestic energy reserves to independent energy producers and are
outsourcing facets of their operations. Such initiatives, in the opinion of the
Company, are likely to contribute to increased rental of compressor equipment.
Natural gas compressor fabrication involves the design, fabrication and
sale of compressors to meet the unique specifications dictated by the well
pressure, production characteristics and the particular applications for which
compression is sought. Compressor fabrication is essentially an assembly
operation in which an engine, compressor, control panel, cooler and necessary
piping are attached to a frame called a "skid". A fabricator typically purchases
the various compressor components from third party manufacturers but employs its
own engineers and design and labor force.
In order to meet customers' needs, gas compressor fabricators typically
offer a variety of services to their customers including: (i) engineering,
fabrication and assembly of the compressor unit; (ii) installation and testing
of the units; (iii) ongoing performance review to assess the need for a change
in compression; and (iv) periodic maintenance and replacement parts supply.
PRODUCTION EQUIPMENT
Oil and gas reserves are generally not marketable as produced at the
wellhead. Typically, such reserves must be refined before they can be
transported to market. Oil and gas production equipment is utilized to separate
and treat such oil and gas immediately after it is produced in order to
facilitate further processing, transportation and sale of such fuels and
derivative energy sources.
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Oil and gas production equipment is typically installed at the wellhead
immediately prior to commencing the large scale production phase of a well and
remains at the site through the life of the well.
MARKET CONDITIONS
The Company believes that the most fundamental force driving the demand for
gas compression and production equipment is the growing consumption of natural
gas. As more gas is consumed, the demand for compression and production
equipment increases. In 1996, natural gas consumption in the United States was
approximately 22.7 quadrillion BTUs up from 19.3 quadrillion BTUs in 1990,
representing a compound annual growth rate of 2.7% per year.
Additionally, although natural gas has historically been a more significant
source of energy in the United States than in the rest of the world, foreign
natural gas consumption (excluding the former Soviet Union) has grown from 27.4
quadrillion BTUs in 1990 to 34.2 quadrillion BTUs in 1995, representing a
compound annual growth rate of 4.5% per year. Despite significant growth in
energy demand, until recently, most non-U.S. energy markets have typically
lacked the infrastructure to transport natural gas to local markets, and natural
gas historically has been flared at the wellhead. Given recent environmental
legislation and the construction of numerous natural gas-fueled power plants
built to meet international energy demand, international compression markets are
experiencing substantial growth. For example, the Institute of Gas Technology
estimates that Argentine and Venezuelan gas compressor equipment rental markets
will grow at approximately 15% and 10% per year, respectively, over the next 5
years. Similarly, industry analysts estimate that the energy reserve rich
countries comprising the former Soviet Union and certain Asian-Pacific markets
such as Indonesia and Thailand hold substantial long-term potential for the gas
compression market.
Demand for natural gas compression is expected to continue to rise as a
result of: (i) the increasing demand for energy, both domestically and abroad,
(ii) environmental considerations which provide strong incentives to use natural
gas in place of other carbon fuels, (iii) implementation of international
environmental and conservation laws preventing the flaring of natural gas, (iv)
the aging of producing natural gas reserves worldwide, and (v) the extensive
supply of natural gas.
While gas compression and production equipment typically must be highly
engineered to meet demanding and unique customer specifications, the fundamental
technology of such equipment has been stable and not subject to rapid
technological change.
OPERATIONS
The Company's revenues and income are derived from its three operating
divisions -- compression services and rental, compressor fabrication and
production equipment fabrication. For financial data relating to the Company's
divisions, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 14 to the Notes to the Consolidated Financial
Statements.
COMPRESSION SERVICES AND FABRICATION
The Company provides its customers with a full range of compressor rental,
maintenance and contract compression services. As of March 31, 1997, the
Company's gas compressor fleet consisted of 1,653 units, ranging from 25 to
2,650 horsepower. The Company experienced 94% aggregate compression fleet
utilization and 95% aggregate horsepower utilization during 1996. These
utilization rates compare favorably to estimated industry averages of 85% of
available horsepower and 82% of available units, respectively, during 1996. The
size, type and geographic diversity of this rental fleet enables the Company to
provide its customers with a range of
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compression units that can serve a wide variety of applications, and to select
the correct equipment for the job, rather than trying to "fit" the job to its
fleet of equipment.
The Company bases its gas compressor rental rates on several factors,
including the cost and size of the equipment, the type and complexity of service
desired by the customer, the length of the contract, and the inclusion of any
other services desired, such as installation, transportation and daily
operation. Over 95% of the Company's units are operated pursuant to "contract
compression" or "rental with full maintenance" contracts pursuant to which
Hanover performs all maintenance and repairs on such units while under contract.
In the United States onshore market, compression rental fleet units are
generally leased on minimum terms of 6 to 12 months, which convert to month-to-
month at the end of the stipulated minimum period. Historically, the vast
majority of Hanover's customers have extended the length of their contracts, on
a month-to-month basis, well beyond the initial term. In the aggregate, over the
last five years, the length of domestic onshore rental contracts, including
extensions, averaged 24 months in duration. Typically, the Company's compression
rental units utilized in offshore and international applications carry
substantially longer lease terms than those for onshore domestic applications.
Over the last five years, Hanover has experienced 92% aggregate compression
rental fleet utilization and a 95% aggregate horsepower utilization compared to
82% and 83% estimated industry utilizations, respectively.
An essential element to the Company's success is its ability to provide its
compression services to customers with contractually committed compressor
run-times of at least 97%. Historically, run time credits have been
insignificant, due largely to the Company's rigorous preventive maintenance
program and extensive field service network which permits the Company to
promptly address maintenance requirements. The Company's rental compressor
maintenance activities are conducted at eight Hanover facilities staffed by
approximately 325 experienced and factory trained maintenance personnel. Such
maintenance facilities are situated in close proximity to actual rental fleet
deployment to permit superior service response times.
All rental fleet units are serviced at manufacturers' recommended
maintenance intervals, modified as required by the peculiar characteristics of
each individual job, and the actual operating experience of each compressor
unit. Prior to the conclusion of any rental job, Hanover field management
evaluates the condition of the equipment and, where practical, corrects any
problems before the equipment is shipped out from the job site. Although natural
gas compressors generally do not suffer significant technological obsolescence,
they do require routine maintenance and periodic refurbishing to prolong their
useful life. Routine maintenance includes alignment, compression checks, and
other parametric checks which indicate a change in the condition of the
equipment. In addition, oil and wear-particle analysis is performed on all units
prior to their redeployment at specific compression rental jobs. Overhauls are
done on a condition-based interval instead of a time-based schedule. In the
Company's experience, these rigorous procedures maximize component life and unit
availability and minimize avoidable downtime. Typically, the Company overhauls
each rental compressor unit for general refurbishment every 36-48 months and
anticipates performing a comprehensive overhaul of each rental compressor unit
every 60 to 72 months. This maintenance program has provided the Company with a
highly reliable fleet of compressors in excellent condition.
Hanover's field service mechanics provide all operating and maintenance
services for each of the Company's compression units leased on a contract
compression or full maintenance basis and are on-call 24 hours a day. Such field
personnel receive regular mechanical and safety training both from the Company
and its vendors. Each Hanover field mechanic is responsible for specific
compressor unit installations and has at his disposal a dedicated, local parts
inventory. Additionally, each Hanover field mechanic operates from a
fully-equipped service vehicle. Each mechanic's field service vehicle is radio
or cellular equipped which allows that individual to be Hanover's primary
contact with the customer's field operations staff and to be contacted at either
his residence or mobile phone 24 hours per day. Accordingly, Hanover's field
service mechanics are given the
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responsibility to promptly respond to customer service needs as they arise based
on the mechanic's considerable judgment and field expertise.
The Company considers itself to be unique in its industry in that its sales
and field service organizations enjoy managerial parity within the Company,
enabling these two vital organizations to work together in a highly coordinated
fashion in order to deliver maximum customer service, responsiveness and
reliability. The foundation for Hanover's successful field operations effort is
the experience and responsiveness of its approximately 325 member compressor
rental field service and shop staff of factory-trained and field-tested
compressor mechanics. The Company's field service mechanics are coordinated and
supported by regional operations managers who have supervisory responsibility
for specific geographic areas.
The Company's compressor fabrication business, through its wholly-owned
subsidiary doing business as Hanover Maintech, designs, engineers and assembles
compression units for sale to third parties as well as for placement in its
compressor fleet. As of March 31, 1997, the Company had a compressor unit
fabrication backlog of $12.1 million as compared to $4.9 million as of March 31,
1996. All backlog is expected to be produced within a 90-120 day period. In
general, units to be sold to third parties are assembled according to each
customer's specifications and sold on a turnkey basis. Components for such
compressor units are acquired from third party suppliers.
OIL AND GAS PRODUCTION EQUIPMENT
The Company, through its wholly-owned subsidiary doing business as Hanover
Smith, designs, engineers, fabricates and either sells or occasionally rents a
broad range of oil and gas production equipment designed to heat, separate,
dehydrate and measure crude oil and natural gas. The product line includes line
heaters, oil and gas separators, glycol dehydration units and skid mounted
production packages designed for both onshore and offshore production
facilities. The Company maintains standard product inventories in excess of $3
million and is therefore able to meet most rush orders and minimize customer
downtime. As of March 31, 1997, the Company had a production equipment
fabrication backlog of $10.1 million as compared to $5.9 million as of March 31,
1996. All backlog is expected to be produced within a 90-120 day period. The
Company also purchases and reconditions used production equipment which is then
sold or rented.
MARKETS AND CUSTOMERS
Hanover'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. Additionally, Hanover has negotiated
more than 15 strategic alliances or preferred vendor relationships with key
customers pursuant to which Hanover receives preferential consideration in
customer compressor and oil and gas production equipment procurement decisions
in exchange for enhanced product availability, product support, automated
procurement practices and limited pricing concessions. No individual customer
accounted for more than 10% of the Company's consolidated revenues during 1995
or 1996.
The Company's compressor leasing activities are currently located in Texas,
Oklahoma, Arkansas, Louisiana, New Mexico, Mississippi, Alabama, Kansas,
Colorado, Montana and offshore Gulf of Mexico, Trinidad, Colombia, Venezuela and
Argentina. As of March 31, 1997, approximately 13.8% and 11.4% of the Company's
compressor horsepower was being used in offshore and international applications,
respectively.
SALES AND MARKETING
The Company's 30 salespeople are organized into eight sales regions
reporting to the Company's Vice President of Sales. Hanover's sales
representatives aggressively pursue the rental and sale market in their
respective territories for compressors and production equipment. Each
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Hanover salesperson is assigned a customer list on the basis of the experience
and personal relationships of the salesperson and the individual service
requirements of the customer. This customer and relationship-focused strategy is
communicated through frequent direct contact, technical presentations, print
literature, print advertising and direct mail. Hanover's advertising and
promotion strategy is a "concentrated" approach, tailoring specific messages
into a very focused presentation methodology.
Additionally, Hanover's salespeople coordinate with each other to
effectively pursue customers who operate in multiple regions. The salespeople
maintain intensive contact with the Company's operations personnel in order to
promptly respond to and satisfy customer needs. The Company's sales efforts
concentrate on demonstrating Hanover's commitment to enhancing the customer's
cash flow through superior product design, fabrication, installation, customer
service and after-market support.
Upon its receipt of a request for proposal or bid by a customer, Hanover
assigns a team of sales, operations and engineering personnel to analyze the
application and prepare a quotation, including selection of the equipment,
pricing and delivery date. The quotation is then delivered to the customer, and
if Hanover is selected as the vendor, final terms are agreed upon and a contract
or purchase order is executed. The Company's engineering and operations
personnel also often provide assistance on complex compressor applications,
field operations issues or equipment modifications.
COMPETITION
The natural gas compression services 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 the largest natural gas compression company
in the United States on the basis of aggregate rental horsepower.
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 such as Hanover 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.
The Company believes that it competes effectively on the basis of price,
customer service, including the availability of personnel in remote locations,
flexibility in meeting customer needs and quality and reliability of its
compressors and related services.
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. Although sufficient information is
not available to definitively estimate the Company's relative position in the
compressor fabrication market, management believes that the Company is among the
largest compressor fabrication companies in the U.S.
The production equipment business is a highly fragmented business with
approximately eight substantial U.S. competitors. Although sufficient
information is not available to definitively estimate the Company's relative
position in this market, the Company believes that it is among the top three oil
and gas production equipment fabricators in the United States.
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PROPERTIES
The Company owns its corporate offices in Houston, Texas, which are housed
in a combination corporate office and compressor fabrication complex, including
a 192,000 square foot plant located on approximately 28 acres. This facility is
anticipated to provide the Company with sufficient space and capacity for at
least the next three years after expansion of the corporate offices, which is
currently underway. The Company also owns (i) an 11,700 square foot combination
office and maintenance facility located on 6.5 acres in Oklahoma City, Oklahoma,
(ii) an 8,000 square foot combination office and maintenance facility situated
on six acres in Pocola, Oklahoma, (iii) 12,000 square feet of maintenance
facilities situated on 3.5 acres in Midland, Texas, (iv) a 5,000 square foot
sales and service facility situated on one acre located in Corpus Christi,
Texas, (v) a 13,000 square foot facility on 17 acres in East Bernard, Texas
which is being converted to an engine remanufacturing and training facility,
and, (vi) a 210,000 square foot production equipment manufacturing facility
located on 82 acres in Columbus, Texas. The Company also leases maintenance
facilities aggregating 23,000 square feet in Victoria, Texas and Lafayette,
Louisiana under five and ten-year leases, respectively.
GOVERNMENT REGULATION
The Company is subject to various federal and state laws and regulations
relating to environmental protection, including 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, in part
because of the Company's rapid growth through several recent acquisitions, the
Company may not be in compliance with certain environmental requirements. 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 has not yet determined whether it needs certain permits (such as
stormwater discharge permits, air emission permits, and National Pollutant
Discharge Elimination System ("NPDES") permits) or certain plans (such as SPCC
Plans) at several of its facilities. The Company is investigating these issues
and is planning to take action where appropriate.
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
who are considered to be responsible for the release of a "hazardous substance"
into the environment. These persons include the owner or operator of the
disposal site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances. Under CERCLA, such
persons may be subject to joint and several liability for the costs of cleaning
up the hazardous substances that have been released into the environment, for
damages to natural resources, and for the costs of certain health studies.
Furthermore, it is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage allegedly caused
by hazardous substances or other pollutants released into the environment.
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).
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Stricter standards in environmental legislation 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. While
the Company may be able to pass on the additional costs of complying with such
laws to its customers, there can be no assurance that attempts to do so will be
successful. Accordingly, new laws or regulations or amendments to existing laws
or regulations 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.
From time to time since President Clinton took office, his administration
has proposed various 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. See
also "Risk Factors -- Environmental Liability Risks".
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.
EMPLOYEES
As of March 31, 1997, the Company had approximately 850 employees. No
employees are represented by labor unions and the Company believes that its
relations with its employees are satisfactory.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are
identified below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael A. O'Connor........... 62 Chairman of the Board; Director
Michael J. McGhan............. 42 President and Chief Executive Officer; Director
Curtis Bedrich................ 54 Chief Financial Officer and Treasurer
William S. Goldberg........... 39 Executive Vice President; Director
Ted Collins, Jr............... 59 Director
Melvyn N. Klein............... 55 Director
Alvin V. Shoemaker............ 58 Director
William E. Simon, Jr.......... 45 Director
Robert R. Furgason............ 61 Director
Carl M. Koupal, Jr............ 43 Director
Charles D. Erwin.............. 36 Vice President, Sales*
Joe C. Bradford............... 39 Vice President, Operations -- International*
William C. Bryant............. 45 Vice President, Operations -- Mid Continent*
Maxwell C. McDonald........... 49 Vice President, Operations -- Southeast*
Jerry Bob McCollum............ 45 Vice President, Operations -- Western Division*
Donald M. DeVille............. 41 Vice President, Operations -- Support*
Teddy J. Head................. 44 Vice President, Operations -- South Texas*
Robert "Bo" Pierce............ 38 Vice President, Operations -- Fabrication*
Richard S. Meller............. 40 Corporate Secretary
</TABLE>
- ---------------
* Key employee.
The principal occupations and positions for the past five years, and in
certain cases prior years, of the executive officers, directors and key
employees named above are set forth below. References to service with the
Company includes service with its predecessors.
MICHAEL A. O'CONNOR has served as Chairman of the Board and a director of
the Company since January 1992. Prior thereto, Mr. O'Connor served as president
of Gas Compressors Inc. from 1965 through 1986 and was a private investor from
January 1987 through December 1991. Mr. O'Connor also serves as an officer and a
director of certain subsidiaries of the Company.
MICHAEL J. MCGHAN has served as President and Chief Executive Officer of
the Company since October 1991 and served as Chief Operating Officer of the
Company from December 1990 through October 1991. Mr. McGhan has served as a
director of the Company since March 1992. Prior to December 1990, Mr. McGhan was
sales manager of Energy Industries, Inc. ("EII"). Mr. McGhan has been involved
in the gas compression industry for 18 years. Mr. McGhan also serves as an
officer and as a director of certain subsidiaries of the Company.
CURTIS BEDRICH has served as Chief Financial Officer and Treasurer of the
Company since November 1991. Mr. Bedrich served as Vice President of Adobe
Resources Corporation from June 1980 until January 1991. Mr. Bedrich has been
involved in the oil and gas industry for 19 years. Mr. Bedrich also serves as an
officer of certain subsidiaries of the Company.
WILLIAM S. GOLDBERG has served as Executive Vice President and director of
the Company since May 1991. Mr. Goldberg has been employed by GKH since 1988 and
has served as Managing Director of GKH since June 1990. Mr. Goldberg also serves
as an officer and a director of certain affiliates of the Company. Mr. Goldberg
is also a director of DVI, Inc.
TED COLLINS, JR. has served as a director of the Company since April 1992.
Mr. Collins has served as President of Collins & Ware, Inc., an independent oil
and gas exploration and production
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company located in Midland, Texas, since January 1988. From July 1982 through
December 1987, Mr. Collins served as President of Enron Oil & Gas Company.
Additionally, Mr. Collins is the Chairman of the Board of Mid Louisiana Gas
Company, an interstate pipeline which serves municipal, industrial and
residential customers in Louisiana and Mississippi. Mr. Collins has 36 years of
experience in the oil and gas industry.
MELVYN N. KLEIN has served as a director of the Company since May 1991. Mr.
Klein is the sole stockholder of a corporation which is a general partner of GKH
Partners, L.P. Mr. Klein has been an attorney and counselor-at-law since 1968.
Mr. Klein is a director of Bayou Steel Corporation, Anixter International
Corporation, Santa Fe Energy Resources, Inc. and certain privately held
companies. Mr. Klein is also a founder and principal of Questor Partners Fund,
L.P.
ALVIN V. SHOEMAKER has served as a director of the Company since May 1991
and has been a private investor since his retirement as Chairman of the Board of
the First Boston Corporation and First Boston, Inc. in January 1989.
WILLIAM E. SIMON, JR. has served as a director of the Company since
December 1995. Mr. Simon is also the Executive Director of William E. Simon &
Sons, L.L.C., a private investment company and is a former Assistant United
States Attorney for the Southern District of New York.
ROBERT R. FURGASON has served as a director of the Company since May 1995.
Mr. Furgason is the President of Texas A&M University Corpus Christi, and has
held a series of faculty and administrative positions at various universities.
Mr. Furgason is the former President of the Accreditation Board for Engineering
and Technology Board of Directors, and also serves on a number of other
accreditation and policy boards.
CARL M. KOUPAL, JR. has served as a director of the Company since April
1997. Mr. Koupal is also an Executive Vice President and Chief Administrative
Officer of Western Resources. Mr. Koupal has worked for Western Resources in
various capacities since March 1992.
CHARLES D. ERWIN has served as a Vice President of the Company since
October 1990 and served as a sales representative of EII from 1985 until October
1990. Mr. Erwin has been involved in the gas compression industry for 11 years.
JOE C. BRADFORD has served as a Vice President of the Company since March
1993 and served as Operations Manager from January 1991 until March 1993. Mr.
Bradford has been involved in the oil and gas industry for 22 years.
WILLIAM C. BRYANT has served as a Vice President of the Company since
October 1990 and served as a sales representative of EII from 1988 until October
1990. Mr. Bryant has been involved in the gas compression industry for 20 years.
MAXWELL C. MCDONALD has served as a Vice President of the Company since
December 1990 and served as President of C&B Sales and Service, Inc. from 1985
until its acquisition by the Company in 1990. Mr. McDonald has been involved in
the gas compression industry for 22 years.
JERRY BOB MCCOLLUM has served as a Vice President of the Company since
November 1996 and served as Operations Manager from April 1995 to November 1996.
Mr. McCollum was President of McCollum Industrial Corporation from April 1985
until its acquisition by the Company in April 1995. Mr. McCollum has been
involved in the gas compression industry for 25 years.
DONALD M. DEVILLE has served as a Vice President of the Company since
February 1996 and served as Rental Fleet Manager since January 1992. Mr. DeVille
has been involved in the gas compression industry for 17 years.
TEDDY J. HEAD has served as a Vice President of the Company since February
1996 and served as Operations Manager of Astra since 1990. Mr. Head has been
involved in the gas compression industry for 23 years.
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ROBERT "BO" PIERCE has served as Vice President of the Company since April
1995 and previously served as Vice President of Maintech Enterprises since July
1990. Mr. Pierce has been involved in the gas compression industry for 7 years
and has a total of 13 years experience in compressor fabrication and
construction.
RICHARD S. MELLER has served as Secretary of the Company since 1991 and has
been a partner in the law firm of Neal, Gerber & Eisenberg, the Company's legal
counsel, since 1989.
All directors hold office until the annual meeting of the stockholders
following their election or until their successors are duly elected and
qualified. For agreements respecting the nomination of directors, see "Certain
Transactions -- Stockholders' Agreements". Executive officers are appointed by
and serve at the discretion of the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee, Audit
Committee, Compensation Committee and Finance Committee.
The Executive Committee, to the extent permitted by Delaware law, has all
powers and rights of the Board of Directors. The members of the Executive
Committee are Messrs. O'Connor (Chairman), Goldberg, Klein and McGhan.
The Audit Committee is primarily concerned with the effectiveness of the
Company's accounting policies and practices, financial reporting and internal
controls. The Audit Committee is authorized to (i) select, retain and dismiss
the Company's independent accountants; (ii) review the plans, scope and results
of the annual audit, the independent accountant's letter of comments and
management's response thereto, and the scope of any non-audit services which may
be performed by the independent accountants; (iii) manage the Company's policies
and procedures with respect to internal accounting and financial controls and
(iv) review any changes in accounting policy. The members of the Audit Committee
are Messrs. Collins (Chairman) and Simon.
The Compensation Committee is authorized and directed to review and approve
compensation and benefits of the executive officers, to review and approve the
annual salary plans, to review and advise the Board of Directors regarding the
benefits, including bonuses, and other terms and conditions of employment of
other employees. Members of the Compensation Committee are Messrs. Shoemaker
(Chairman) and Furgason.
The Finance Committee is authorized and directed to exercise authority
pertaining to the financial structure and capitalization of the Company and
recommend to the Board of Directors for sale and/or purchase debt and equity
securities and the sale of net assets comprising all or substantially all of the
assets of the Company. The members of the Finance Committee are Messrs. Goldberg
(Chairman), O'Connor, Shoemaker and Collins.
36
<PAGE> 40
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning the
compensation paid by the Company to its Chairman of the Board, Chief Executive
Officer and Chief Financial Officer in 1996 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(2)
NAME AND ----------------------
PRINCIPAL POSITION SALARY BONUS(3)
------------------ --------- ---------
<S> <C> <C>
Michael A. O'Connor......................................... $130,000 $160,000
Chairman of the Board
Michael J. McGhan........................................... 150,000 190,000
President and Chief
Executive Officer
Curtis A. Bedrich........................................... 120,000 115,000
Chief Financial Officer
and Treasurer
</TABLE>
- ---------------
(1) Mr. Goldberg, a Managing Director of GKH, is also the Executive Vice
President of the Company and spends substantial time on the Company's
business. He does not currently receive separate remuneration from the
Company, which reimburses GKH for certain expenses incurred by Mr. Goldberg
in connection with his efforts on the Company's behalf. See "Certain
Transactions -- Certain Relationships and Related Transactions".
(2) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported for each executive officer.
(3) Annual bonus amounts represent estimated amounts earned and accrued during
1996 which were paid subsequent to the end of such year.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING
UNEXERCISED OPTIONS AS OF VALUE OF OPTIONS
DECEMBER 31, 1996(1) AS OF DECEMBER 31, 1996(2)
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael O'Connor..................... 311,550 629,471 $4,129,718 $8,321,518
Michael J. McGhan.................... 148,957 243,619 1,979,793 3,182,251
Curtis A. Bedrich.................... 79,806 188,231 1,069,364 2,459,486
</TABLE>
- ---------------
(1) No options were granted to or exercised by any Named Executive Officer in
1996.
(2) Calculated using an assumed initial public offering price of $18.00 per
share as the assumed fair market value per share of Common Stock on December
31, 1996.
DIRECTORS' COMPENSATION
The only director to receive compensation for his service on the Board
during 1996 was Robert Furgason. The Company paid Mr. Furgason a director's fee
of $15,000, plus $2,500 for each Board meeting he attended in person, subject to
an annual cap of $20,000.
Following consummation of the Offering, all outside directors will be paid
an annual fee of $10,000.
37
<PAGE> 41
STOCK OPTION AND PURCHASE PLANS
The Company previously adopted the Stock Compensation Plan, the 1993
Management Stock Option Plan, the Senior Executive Stock Option Plan, the 1995
Management Stock Option Plan, the 1995 Employee Option Plan, the Incentive
Option Plan, and the 1996 Employee Stock Option Plan (collectively, the
"Plans"), all of which will be terminated upon consummation of the Offering.
Pursuant to the Plans, the Company has from time to time granted options to
purchase an aggregate of 2,400,174 shares of Common Stock at exercise prices
ranging from $.01 per share to $13.93 per share and a weighted average exercise
price of $5.11 per share. To the extent any such options have not previously
vested, the options will become fully vested and exercisable, upon consummation
of the Offering. Termination of these Plans will have no effect on options
previously granted thereunder.
On April 8, 1997, the Board adopted the 1997 Stock Option Plan (the "1997
Option Plan") and the 1997 Stock Purchase Plan (the "1997 Purchase Plan," and
together with the 1997 Option Plan, the "1997 Plans"). The 1997 Plans, which are
administered by the Compensation Committee, permit the Board to issue, subject
to consummation of the Offering, options and restricted stock ("Restricted
Stock") with respect to 5% of the fully diluted shares of Common Stock
outstanding immediately after the Offering. All options issuable under the 1997
Option Plan will be nonstatutory options and are not classified as "incentive
stock options" within the meaning of section 422 of the Code. Employees,
directors and officers of the Company and its subsidiaries are eligible to
participate in the 1997 Plans and to receive grants of awards thereunder. The
selection of persons who will receive grants under the 1997 Plans (the
"Participants") is in the sole discretion of the Compensation Committee. The
aggregate number of shares of Common Stock that may be issued under options or
as Restricted Stock to any Participant may not exceed 60,000. To date, pursuant
to the 1997 Plans, each of Messrs. McGhan and Bedrich have been offered the
opportunity to receive options to purchase 41,189 and 14,416 shares of Common
Stock, respectively, and the opportunity to purchase 28,938 and 10,128 shares of
Restricted Stock, respectively. Future awards to be made to the Named Executive
Officers pursuant to the 1997 Plans, if any, cannot be determined at this time.
The exercise price of any option granted under the 1997 Option Plan shall be the
fair market value of the Common Stock on the date of grant.
Options granted under the 1997 Option Plan expire upon the earliest to
occur of (i) a period not to exceed ten years from the date of grant; (ii) the
date on which it is forfeited under the terms of the 1997 Option Plan due to
termination of employment; (iii) with respect to vested options, three months
after the Participant's termination of employment by the Company for any reason
other than Cause (as defined in the 1997 Option Plan), death or disability; or
(v) twelve months after the Participant's death or disability.
Unless the Compensation Committee establishes a different vesting schedule,
options to be granted pursuant to the 1997 Option Plan shall become 10% vested
upon the first anniversary of the grant date, 30% vested upon the second
anniversary of the grant date, 60% vested upon the third anniversary of the
grant date and 100% vested upon the fourth anniversary of the grant date.
Notwithstanding the foregoing, if a Participant's employment is terminated for
Cause, then such Participant will forfeit all options, whether or not previously
vested. All unvested options are forfeited upon a Participant's termination of
employment.
Upon a Change of Control (as defined in the 1997 Option Plan), the Company
has the right to acquire from Participants their vested options for a cash
payment equal to the difference between the price per share established in the
Change of Control and the exercise price. Additionally, upon a Change of
Control, all unvested options granted under the 1997 Option Plan would be
converted into either options to purchase the securities of the acquirer in the
Change of Control on the same terms and conditions as apply to such options
under the 1997 Option Plan or such consideration as the Participant would have
received had the options been fully vested or be treated as otherwise determined
by the Compensation Committee. In addition, upon a Change of Control each
Participant
38
<PAGE> 42
may receive a one time cash payment, provided that the Participant has remained
in the employ of the Company and the Company has met certain performance
thresholds.
The Compensation Committee has granted certain executive officers and other
employees of the Company the right to receive options to purchase an aggregate
of 908,212 shares of Common Stock pursuant to the 1997 Option Plan at the
initial public offering price. As a condition of such grants, the Participant
must agree not to sell more than a certain percentage, as determined by the
Compensation Committee, of the shares of Common Stock held by such Participant
or issuable to such Participant upon the exercise of options at the time of the
Offering, for a period ending on the earlier of (a) the third anniversary of the
Offering, or (b) the date upon which GKH sells or otherwise distributes all of
its equity holdings in the Company. In exchange, the maturity of certain loans
made by the Company to the Participants in connection with the Participants'
prior purchases of Common Stock will be extended to the fourth anniversary of
the Offering.
The Compensation Committee has awarded certain executive officers and other
employees the right to purchase 264,780 shares of Restricted Stock pursuant to
the 1997 Purchase Plan at the initial public offering price. As a condition of
such awards the Participant must agree not to sell more than a certain
percentage, as determined by the Compensation Committee, of the shares of Common
Stock held by such Participant or issuable to such participant upon the exercise
of options at the time of the Offering, for a period ending on the earlier of
(a) the third anniversary of the Offering, or (b) the date upon which GKH and
its affiliates sells or otherwise distributes all of its equity holdings in the
Company. The Company has agreed to lend, on a full recourse basis, the
Participants the necessary amount to purchase such shares of Restricted Stock.
In the event the Participant has remained in the employ of the Company and the
Company has met certain performance thresholds, upon the fourth anniversary of
the date of grant, the Participant may receive a one time cash payment. In
addition, the Company has agreed to extend the maturity of certain loans made by
the Company to the Participants in connection with the Participants' prior
purchases of Common Stock to the fourth anniversary of the date of grant of such
Restricted Stock.
CERTAIN TRANSACTIONS
STOCKHOLDERS' AGREEMENTS
The Company and most of its existing stockholders are parties to various
stockholder agreements which provide for, among other things, (i) a right of
first refusal of the Company and a right of second refusal of GKH or its
designee with respect to any proposed transfer of Common Stock (except transfers
to affiliates of such transferring stockholders), (ii) the right of GKH to
compel the other parties thereto to sell their Common Stock upon the sale by GKH
of all of its Common Stock, (iii) the right of the parties thereto to
participate in the sale by GKH of more than fifty percent of the Common Stock
then owned by GKH, and (iv) the right (but not the obligation) of the Company to
require certain employee stockholders to sell such employees' Common Stock to
the Company upon the respective dates of termination of employment with the
Company or any of its affiliates at prices which vary based upon the reason for
such termination. Upon consummation of the Offering, the provisions of these
agreements will no longer be operative, except (a) the rights described in
clauses (ii), (iii) and (iv) will survive, (b) JEDI's right to receive notice of
and designate observers to attend board meetings and the Company's obligation to
provide Rule 144A information to certain prospective transferees of JEDI's stock
in the Company will survive and (c) Westar's rights of visitation and inspection
and the Company's obligation to provide Rule 144A information to certain
prospective transferees of Westar's Common Stock will also survive.
REGISTRATION RIGHTS AGREEMENTS
The Company, GKH, JEDI, Westar and other stockholders, together holding
approximately 90% of the Company's Common Stock prior to the Offering (GKH,
JEDI, Westar and such other stockholders, hereinafter "Holders") are parties to
a Registration Rights Agreement (the "Regis-
39
<PAGE> 43
tration Rights Agreement"). The Registration Rights Agreement generally provides
that in the event the Company proposes to register shares of its capital stock
or any other securities under the Act, then upon the request of those Holders
owning in the aggregate at least 2.5% of the Common Stock or derivatives thereof
(the "Registrable Securities") then held by all of the Holders, the Company will
use its reasonable best efforts to cause the Registrable Securities so requested
by the Holders to be included in the applicable registration statement, subject
to underwriter cutbacks. The Company agrees to pay all registration expenses in
connection with registrations of Registrable Securities effected pursuant to the
Registration Rights Agreement; however, all fees and expenses relating to the
distribution of such Registrable Securities are to be borne by the Company and
each Holder pro rata based on the number of Registrable Securities included in
the registration for the account of the Company and each Holder. In addition,
after December 5, 1998, any single Holder of Common Stock which owns 18% or more
of the Common Stock has the right to demand, on one occasion, the registration
of its Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GKH Partners, L.P. ("Partners"), the beneficial owner of 11,511,488 shares
(approximately 49.8% prior to the Offering) of the outstanding Common Stock, and
the Company have entered into an agreement whereby in exchange for investment
banking and financial advisory services rendered and to be rendered by Partners,
the Company has agreed to pay Partners a fee equal to .75% of the equity value
of the Company determined and payable at such time as (i) a disposition of
shares of the Company resulting in GKH owning less than 25% of the outstanding
Common Stock or (ii) any other transaction occurs resulting in the effective
sale of the Company or its business by the current owners.
As of December 31, 1996, the Company leased one compressor to an affiliate
of Cockrell Oil and Gas, L.P., which is owned 50% by the Fund. The lease is on a
month-to-month basis and, for the year ended 1996, $228,540 was billed under the
lease.
As of December 31, 1996, the Company leased seven compressors to affiliates
of ECT. For the year ended December 31, 1996, the Company billed $701,000 to
affiliates of ECT, on leases with terms ranging from 6-12 months. In addition,
another affiliate of ECT is currently the lender under the JEDI Loan Agreement.
As of December 31, 1996, the Company leased ten compressors to affiliates
of Westar. The leases vary in length from 36-60 months, and $2,237,746 was
billed to affiliates of Western Resources for the year ended December 31, 1996.
On December 23, 1996, the Company's outstanding 6 1/2% Cumulative
Redeemable Series A Preferred Stock, approximately 86% of which was owned by GKH
and affiliates of members of the Company's Board of Directors, was exchanged for
Subordinated Notes in the aggregate principal amount of approximately $23.5
million, bearing interest at 7.0% per annum and maturing December 31, 2000. The
principal amount of the Subordinated Notes represented the redemption amount of
the Series A Preferred Stock and accrued dividends thereon.
On December 23, 1996, JEDI, with the agreement of the Company, converted
the Company's Series B Preferred Stock into 800,308 shares of Common Stock and
received a payment of $1,400,000 in connection therewith.
Mr. Collins, a director and stockholder of the Company, controls a
corporation which owns a 50% interest in a joint venture to which the Company
leases compressors pursuant to a long-term lease which provides for monthly
payments of $56,450. For the year 1996, the Company leased three compressors to
affiliates of Mr. Collins. The leases vary from 12-36 months, and during 1996,
$535,800 was billed to affiliates of Mr. Collins under the leases.
40
<PAGE> 44
During February 1997, Hanover issued 5,152 shares of Common Stock to a
trust for the benefit of Mr. Meller, an executive officer of the Company, and a
member of its outside legal counsel, for $75,000.
Management believes that the terms of the foregoing transactions were no
less favorable to the Company than those that would otherwise be obtainable in
arms' length transactions with unaffiliated third parties.
Set forth below is certain information concerning the indebtedness of
executive officers and directors to the Company. All of such indebtedness was
incurred in connection with the acquisition of shares of Common Stock.
<TABLE>
<CAPTION>
AGGREGATE WEIGHTED
AMOUNT LARGEST AVERAGE
OUTSTANDING AGGREGATE RATE OF
AS OF AMOUNT INTEREST AS OF
DECEMBER 31, OUTSTANDING DECEMBER 31,
1996 DURING 1996 1996
------------ ----------- --------------
<S> <C> <C> <C>
Michael O'Connor.......................... $1,155,775 $1,155,775 8.25%
Michael J. McGhan......................... 476,553 476,553 8.25
Curtis Bedrich............................ 367,950 367,950 8.25
</TABLE>
At the request of the Company, certain of the Underwriters have reserved,
pursuant to a reserved share program, up to 5% of the shares of Common Stock
offered hereby for sale at the initial public offering price to certain persons
associated with, or designated by, the Company. In connection with the reserved
share program, the Company may lend up to $1 million in the aggregate to Company
employees for the purpose of participating in such program. The number of shares
available for sale to the general public will be reduced to the extent such
individuals purchase such reserved shares. Any reserved shares not so purchased
will be released for sale by the Underwriters to the general public no later
than the closing date of the Offering (which is expected to be four business
days after the date of this Prospectus) on the same terms as the other shares
offered hereby.
41
<PAGE> 45
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 6, 1997, and as
adjusted to reflect the sale of shares of Common Stock offered by the Company
and the Selling Stockholders hereby, for (i) each stockholder who is known by
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) each Named Executive Officer,
(iv) all directors and executive officers of the Company as a group and (v) each
Selling Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING SHARES OFFERING(1)
----------------------- BEING -----------------------
NAME AND ADDRESS NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
---------------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
GKH Partners, L.P.(3).......................... 11,511,488 49.8% -- 11,511,488 42.2%
200 West Madison Street
Chicago, Illinois 60606
Melvyn N. Klein(3)(4).......................... 11,511,488 49.8 -- 11,511,488 42.2
Mercantile Tower, Suite 1940
615 North Upper Broadway
Corpus Christi, Texas 78477
GKH Investments, L.P.(3)(5).................... 11,092,432 48.0 -- 11,092,432 40.7
200 West Madison Street
Chicago, Illinois 60606
Westar Capital Inc............................. 5,244,494 22.9 2,073,978 3,170,516 11.7
818 Kansas Street
Topeka, Kansas 66601
Joint Energy Development Investments Limited
Partnership.................................. 2,761,950 12.1 -- 2,761,950 10.2
1400 Smith Street
Houston, Texas 77002
New Prospect Drilling Company.................. 17,639 * 17,639 -- --
John Oxley..................................... 2,095 * 2,095 -- --
Etore Barbatelli............................... 29,021 * 29,021 -- --
Aimee Simon Bloom.............................. 28,269 * 11,060 17,209 *
Julie Simon Munro.............................. 28,269 * 11,060 17,209 *
Carol Leigh Porges............................. 28,269 * 11,060 17,209 *
Trust f/b/o Christopher Shoemaker.............. 44,795 * 8,959 35,836 *
Trust f/b/o John Shoemaker..................... 44,795 * 8,959 35,836 *
Trust f/b/o Julie Shoemaker.................... 44,795 * 8,959 35,836 *
Trust f/b/o Peter Shoemaker.................... 44,795 * 8,959 35,836 *
The Simon Family Trust......................... 31,600 * 6,320 25,280 *
J. Peter Simon................................. 286,438 * 118,500 167,938 *
Johanna Katrina Simon.......................... 28,269 * 11,060 17,209 *
Mary Beth Streep............................... 28,269 * 11,060 17,209 *
Michael A. O'Connor(6)......................... 1,186,721 5.0 -- 1,186,721 4.4
Michael J. McGhan(6)........................... 495,039 2.1 -- 495,039 1.8
Ted Collins, Jr................................ 171,959 * -- 171,959 *
William S. Goldberg(7)......................... -- -- -- -- --
Alvin V. Shoemaker(8).......................... 256,290 1.1 51,258 205,032 *
Curtis Bedrich(6).............................. 356,568 1.5 -- 356,568 1.3
William E. Simon, Jr.(9)....................... 289,496 1.3 56,880 232,616 *
Robert A. Furgason............................. 3,950 * -- 3,950 *
Carl M. Koupal, Jr............................. -- -- -- -- --
All directors and executive officers as a group
(11 persons including the directors and
executive officers named above).............. 14,276,663 57.8 108,138 14,168,525 49.1
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes that the Underwriters' over-allotment option is not exercised.
42
<PAGE> 46
(2) There are presently 31,347 treasury shares issued which are not counted as
outstanding in calculating the beneficial ownership percentages.
(3) Includes 184,370 shares of Common Stock issuable upon exercise of warrants
which are or first become exercisable within 60 days from the date hereof,
and 10,914,775 shares of Common Stock owned by GKH Investments, L.P. GKH
Partners, L.P. is the general partner of GKH Investments, L.P.
(4) Mr. Klein, who is a director of the Company, is the sole stockholder of a
corporation which is a general partner of GKH Partners, L.P. By virtue of
his relationship to GKH Partners, L.P., Mr. Klein may be deemed to share
beneficial ownership of the shares of Common Stock owned by GKH Partners,
L.P. and GKH Investments, L.P. Mr. Klein disclaims beneficial ownership of
all shares owned by GKH Partners, L.P. and GKH Investments, L.P.
(5) Does not include 412,343 shares of Common Stock owned by GKH Partners, L.P.,
a Delaware limited partnership, as nominee for GKH Private Limited, a
Singapore corporation. GKH Partners, L.P. is the general partner of GKH
Investments, L.P.
(6) Includes 392,576, 941,020 and 268,035 shares subject to options held by
Messrs. McGhan, O'Connor and Bedrich, respectively, which are, or will
become, exercisable within 60 days. Mr. O'Connor's address is c/o the
Company's principal executive offices.
(7) Does not include 81,654 shares of Common Stock (less than 1% of the
outstanding shares) owned by Mr. Goldberg's wife, Nancy K. Goldberg, not
individually, but solely as trustee of the Nancy K. Goldberg Declaration of
Trust. Mr. Goldberg disclaims beneficial ownership of such shares.
(8) Excludes shares beneficially owned directly or indirectly by members of Mr.
Shoemaker's family as to which Mr. Shoemaker disclaims beneficial ownership.
(9) Excludes shares beneficially owned directly or indirectly by members of Mr.
Simon's family as to which Mr. Simon disclaims beneficial ownership.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
100,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock, $.01
par value per share, ("Preferred Stock"). The following summary description
relating to the capital stock does not purport to be complete. For a detailed
description, reference is made to the Amended and Restated Certificate of
Incorporation of the Company (the "Certificate"), which is filed as an exhibit
to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
As of March 31, 1997, 22,943,693 shares of Common Stock were issued and
held of record by approximately 137 stockholders (including 31,347 treasury
shares held by the Company). The holders of shares of Common Stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
the stockholders. Subject to preferential rights with respect to the Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board out of legally available funds. In the event of a
liquidation, dissolution, sale or winding up of the Company, holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and satisfaction of preferential rights. Holders of Common Stock
will have no preemptive or subscription rights upon consummation of the
Offering. The outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to this Offering will be, fully paid and
nonassessable. Additionally, the Bank Credit Agreement prohibits the payment of
dividends on the Company's Common Stock without the lenders' prior written
consent and such dividends will also be subject to, and may be limited by the
terms of Preferred Stock hereafter issued.
43
<PAGE> 47
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services.
PREFERRED STOCK
As of March 31, 1997, no shares of Preferred Stock were outstanding.
The Board has the authority to cause the Company to issue, without any
further vote or action by the stockholders, shares of Preferred Stock in one or
more series, to designate the number of shares constituting any series, and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, rights and terms of
redemption, redemption price or prices and liquidation preferences of such
series.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND DELAWARE LAW
LIMITATION OF DIRECTOR LIABILITY
Section 102(b)(7) of the Delaware General Corporation Law ("Section
102(b)") authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. Although Section 102(b) does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The Company's Certificate
of Incorporation limits the liability of directors to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by Section 102(b). Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived an improper personal benefit.
INDEMNIFICATION
To the maximum extent permitted by law, the Company's Certificate of
Incorporation and Bylaws provide for mandatory indemnification of directors and
officers and permit indemnification of officers, employees and agents of the
Company against all expense, liability and loss to which they may become subject
or which they may incur as a result of being or having been a director, officer,
employee or agent of the Company. In addition, the Company must advance or
reimburse directors, and may advance or reimburse officers, employees and agents
for expenses incurred by them in connection with indemnifiable claims.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company will be governed by the provisions of Section 203 of the
Delaware General Corporation Law. In general, Section 203 prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of
transaction which the person became an interested stockholder, unless (a) before
that person became an interested stockholder, the Company's Board of Directors
approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (b) upon completion
of the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a
44
<PAGE> 48
tender or exchange offer); or (c) following the transaction in which that person
became an interested stockholder, the business combination is approved by the
Company's Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder. Under Section 203, these
restrictions also do not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the Company and a person who was
not an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the Company's
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors who were directors before any person became an
interested stockholder in the previous three years or who were recommended for
election or elected to succeed such directors by a majority of such directors
then in office. "Business combination" includes mergers, assets sales and other
transactions resulting in a financial benefit to the stockholder. "Interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 27,079,013 shares of
Common Stock outstanding (28,071,037 shares if the Underwriters' over-allotment
option is exercised in full). Of these outstanding shares of Common Stock, the
6,613,494 shares to be sold in this Offering will be freely tradeable without
restriction or further registration under the Act, unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 ("Rule 144")
under the Act described below. The remaining 20,465,519 shares of Common Stock
outstanding after the Offering will be "restricted securities" within the
meaning of Rule 144 under the Act and may not be sold in a public distribution
except in compliance with the registration requirements of the Act or an
applicable exemption under the Act, including an exemption pursuant to Rule 144
thereunder. Restricted securities are eligible for sale in the public market
pursuant to Rule 144 no sooner than one year from the date of acquisition.
LOCKUP AGREEMENTS
GKH, Western Resources and JEDI and all officers, directors and certain
other employees of the Company owning Common Stock, and each of the Selling
Stockholders have entered into contractual "lock-up" agreements pursuant to
which they have agreed that during the period beginning from the date of this
Prospectus and continuing and including the date 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities of the Company that are
substantially similar to the shares of Common Stock, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Common Stock or any substantially similar
securities, (other than pursuant to employee stock option or stock purchase
plans existing on or on the conversion or exchange of convertible or
exchangeable securities outstanding on the date of this Prospectus) without the
prior written consent of the representatives of the Underwriters, except for the
shares of Common Stock offered in connection with the Offering and issuances of
capital stock by the Company in connection with potential future acquisitions
provided that the shares issuable pursuant to any such acquisitions shall not be
transferable prior to the end of the 180 day period. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144 and 701, shares subject to lock-up agreements
will not be saleable until the agreements expire without the prior written
consent of the representatives of the Underwriters.
RULE 144
In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year (including
the holding period of any prior owner
45
<PAGE> 49
except an affiliate) is entitled to sell in "broker's transactions" or to market
makers, within any three-month period commencing 90 days after the date of this
Prospectus, a number of shares that does not exceed the greater of: (i) one
percent of the number of shares of Common Stock then outstanding (approximately
270,800 shares immediately after the Offering); or (ii) generally, the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. The
holding period for Company employees who have borrowed money to purchase their
Common Stock does not begin until such loans have been paid in full unless such
employees are entitled to rely on Rule 701. See "-- Other Exemptions". Sales
under Rule 144 are also subject to certain "manner of sale" provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144.
OTHER EXEMPTIONS
In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701
promulgated under the Securities Act. Rule 701 provides that 90 days after an
issuer becomes "publicly-held," affiliates may sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144.
REGISTRATION RIGHTS
The Company has granted to certain stockholders owning an aggregate of
20,950,800 shares of Common Stock (or approximately 90% of the shares of Common
Stock outstanding prior to consummation of the Offering), certain demand and
piggy-back registration rights. See "-- Certain Transactions -- Registration
Rights Agreement".
OPTIONS, WARRANTS AND RESTRICTED STOCK
As of March 31, 1997, the Company has reserved an aggregate of 2,969,124
shares of Common Stock for issuance upon exercise of warrants and options. On
that date, there were outstanding options to purchase an aggregate of 2,400,174
shares of Common Stock at a weighted average price of $5.11 per share, all of
which are, or will become, fully exercisable immediately upon consummation of
the Offering. Also on that date, there were outstanding warrants to purchase an
aggregate of 568,950 shares of Common Stock at a price of $0.01 per share,
327,146 of which are exercisable at March 31, 1997 and the remaining warrants
vest in equal monthly installments through August, 1998. In addition, in
connection with and conditioned upon the Offering the Company will reserve 5% of
the Common Stock outstanding immediately after the Offering (on a fully diluted
basis) for issuance as Restricted Stock or upon exercise of options granted
pursuant to the 1997 Plans. Under the 1997 Plans, upon consummation of the
Offering options to purchase up to 908,212 shares of Common Stock at the initial
public offering price will be outstanding, none of which will be immediately
exercisable and up to 264,780 shares of Restricted Stock will be issued. See
"Stock Option and Purchase Plans".
46
<PAGE> 50
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company and the Selling Stockholders by Neal, Gerber & Eisenberg,
Chicago, Illinois, and for the Underwriters by Vinson & Elkins L.L.P, Houston,
Texas. Richard S. Meller, the Secretary of the Company, is a partner of Neal,
Gerber & Eisenberg, the Company's legal counsel. In addition, certain partners
of Neal, Gerber & Eisenberg beneficially own shares of the Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Astra Resources Compression, Inc. included in
this Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Securities and Exchange Commission (the "Commission"), a Registration
Statement on Form S-1 (including all amendments thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the Registration Statement.
For further information with respect to the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
regarding the contents of any agreement or other document filed as an exhibit to
the Registration Statement are not necessarily complete, and in each instance,
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and the Commission's regional offices located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such materials also may be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
47
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Hanover Compressor Company:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet as of December 31, 1995 and
1996 and March 31, 1997 (unaudited).................... F-3
Consolidated Statement of Income for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997 (unaudited)....... F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997 (unaudited)....... F-5
Consolidated Statement of Common Stockholders' Equity for
the years ended December 31, 1994, 1995 and 1996 and
for the three months ended March 31, 1997
(unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-7
Astra Resources Compression, Inc.:
Report of Independent Public Accountants.................. F-21
Consolidated Balance Sheets as of November 30, 1995 and
December 31, 1994...................................... F-22
Consolidated Statements of Operations for the eleven
months ended November 30, 1995 and the year ended
December 31, 1994...................................... F-23
Consolidated Statements of Stockholder's Equity for the
eleven months ended November 30, 1995 and the year
ended December 31, 1994................................ F-24
Consolidated Statements of Cash Flows for the eleven
months ended November 30, 1995 and the year ended
December 31, 1994...................................... F-25
Notes to Consolidated Financial Statements................ F-26
</TABLE>
F-1
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Hanover Compressor Company
The recapitalization described in the third paragraph of Note 1 to the
consolidated financial statements has not been consummated at June 6, 1997. When
it has been consummated, we will be in a position to furnish the following
report:
"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of income, of cash flows and of common
stockholders' equity present fairly, in all material respects, the
financial position of Hanover Compressor Company and its subsidiaries
at December 31, 1995 and 1996, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
Houston, Texas
April 8, 1997
F-2
<PAGE> 53
HANOVER COMPRESSOR COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,989 $ 7,322 $ 4,507
Accounts receivable, net.................................. 19,490 28,012 29,879
Inventory................................................. 13,582 18,134 25,879
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 6,331 7,774 4,396
Prepaid taxes............................................. 2,180 4,372 6,487
Other current assets...................................... 425 1,025 1,859
-------- -------- --------
Total current assets............................... 44,997 66,639 73,007
-------- -------- --------
Property, plant and equipment:
Compression equipment..................................... 214,149 296,060 327,128
Land and buildings........................................ 3,825 5,236 5,505
Transportation and shop equipment......................... 7,498 10,788 11,532
Other..................................................... 3,028 3,892 4,226
-------- -------- --------
228,500 315,976 348,391
Accumulated depreciation.................................. 30,426 49,570 55,523
-------- -------- --------
Net property, plant and equipment.................. 198,074 266,406 292,868
-------- -------- --------
Intangible and other assets, net of accumulated amortization
of $4,741, $5,994, and $6,274 (unaudited), respectively... 9,242 8,342 9,415
-------- -------- --------
$252,313 $341,387 $375,290
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 571 $ 492 $ 326
Accounts payable, trade................................... 9,871 9,051 18,824
Accrued liabilities....................................... 4,493 8,214 8,736
Advance billings.......................................... 6,266 6,701 5,820
Billings on uncompleted contracts in excess of costs and
estimated earnings...................................... 526 668 3,265
-------- -------- --------
Total current liabilities.......................... 21,727 25,126 36,971
Long-term debt.............................................. 50,451 122,756 139,482
Other liabilities........................................... 753 1,161 1,184
Deferred income taxes....................................... 13,186 15,449 17,276
-------- -------- --------
Total liabilities.................................. 86,117 164,492 194,913
-------- -------- --------
Commitments and contingencies (Note 13)
Redeemable preferred stock; 3 million shares authorized:
Series A preferred stock, $.01 par value; 21,602 and 0
shares issued and outstanding........................... 16,630
-------- -------- --------
Series B convertible preferred stock, $.01 par value;
10,000 and 0 shares issued and outstanding.............. 10,264
-------- -------- --------
Common stockholders' equity:
Common stock, $.001 par value; 100 million shares
authorized; 20,296,368, 22,938,541 and 22,943,693
(unaudited) shares issued, respectively................. 20 23 23
Additional paid-in capital................................ 135,065 171,342 171,405
Notes receivable -- employee stockholders................. (4,669) (6,770) (6,745)
Retained earnings......................................... 9,104 12,518 15,912
Treasury stock -- 31,347 common shares, at cost........... (218) (218) (218)
-------- -------- --------
Total common stockholders' equity.................. 139,302 176,895 180,377
-------- -------- --------
$252,313 $341,387 $375,290
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 54
HANOVER COMPRESSOR COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rentals and maintenance....... $ 32,025 $ 48,354 $ 79,355 $ 17,840 $ 24,320
Compressor fabrication........ 16,202 29,593 28,764 1,766 7,527
Production equipment
fabrication................ 7,272 16,960 26,903 5,673 8,671
Other......................... 581 1,057 989 190 406
-------- -------- -------- -------- --------
56,080 95,964 136,011 25,469 40,924
-------- -------- -------- -------- --------
Expenses:
Rentals and maintenance....... 11,008 17,813 30,800 6,755 9,455
Compressor fabrication........ 13,733 25,265 24,657 1,515 6,359
Production equipment
fabrication................ 5,798 13,178 19,574 4,170 5,990
Selling, general and
administrative............. 8,427 12,542 16,439 3,794 4,694
Depreciation and
amortization............... 8,109 13,494 20,722 4,515 6,245
Interest expense.............. 2,027 4,560 6,594 1,218 2,571
-------- -------- -------- -------- --------
49,102 86,852 118,786 21,967 35,314
-------- -------- -------- -------- --------
Income before income taxes...... 6,978 9,112 17,225 3,502 5,610
Provision for income taxes...... 2,590 3,498 6,844 1,310 2,216
-------- -------- -------- -------- --------
Net income...................... $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
======== ======== ======== ======== ========
Net income available to common
stockholders:
Net income.................... $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Dividends on Series A and
Series B preferred stock... (832) (1,773) (513)
Fair value of subordinated
notes in excess of carrying
amount of Series A
preferred stock............ (3,794)
Cash paid as an incentive to
convert Series B preferred
stock into common stock.... (1,400)
-------- -------- -------- -------- --------
Net income available to common
stockholders............... 4,388 4,782 3,414 1,679 3,394
Weighted average common and
common equivalent shares
outstanding................... 14,121 15,794 22,279 17,278 22,530
-------- -------- -------- -------- --------
Earnings per common share....... $ .31 $ .30 $ .15 $ .10 $ .15
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 55
HANOVER COMPRESSOR COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,388 $ 5,614 $ 10,381 $ 2,192 $ 3,394
Adjustments:
Depreciation and amortization........................... 8,109 13,494 20,722 4,515 6,244
Amortization of debt issuance costs and debt discount... 359 405 547 210 251
Gain on sale of assets.................................. (195) (412) (352) (94) (52)
Deferred income taxes................................... 878 638 2,263 1,201 1,827
Change in assets and liabilities, net of effects of
business combinations:
Accounts receivable................................... (4,153) (8,307) (8,522) 1,173 (1,867)
Inventory............................................. (5,417) (5,230) (4,552) (7,831) (7,745)
Costs and estimated earnings versus billings on
uncompleted contracts............................... 1,534 671 (1,301) 4,062 5,975
Accounts payable and other liabilities................ 4,594 424 3,309 509 10,295
Advance billings...................................... 511 1,376 435 (1,252) (881)
Other................................................. (862) 415 (2,654) (1,270) (3,208)
-------- -------- -------- -------- --------
Net cash provided by operating activities................... 9,746 9,088 20,276 3,415 14,233
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (31,791) (42,447) (83,598) (15,732) (33,985)
Proceeds from sale of fixed assets........................ 417 1,322 2,404 1,077 416
Cash used for business acquisitions....................... (27,349) (6,489) (4,500)
-------- -------- -------- -------- --------
Net cash used in investing activities....................... (31,374) (68,474) (87,683) (19,155) (33,569)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 53,650 82,262 57,621 13,500 17,506
Issuance of common stock.................................. 21,585 23,317 63
Debt issuance costs....................................... (444) (796) (498)
Repayment of long-term debt............................... (31,704) (72,204) (7,300) (90) (1,073)
Purchase of treasury stock................................ (218)
Issuance of preferred stock and warrants.................. 19,577
Issuance of notes payable to stockholders................. 12,000
Conversion of Series B preferred stock.................... (1,400)
Other..................................................... 25
-------- -------- -------- -------- --------
Net cash provided by financing activities................... 21,502 62,206 71,740 13,410 16,521
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (126) 2,820 4,333 (2,330) (2,815)
Cash and cash equivalents at beginning of period............ 295 169 2,989 2,989 7,322
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period.................. $ 169 $ 2,989 $ 7,322 $ 659 $ 4,507
======== ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 1,433 $ 4,161 $ 5,831 $ 195 $ 1,168
======== ======== ======== ======== ========
Income taxes paid......................................... $ 666 $ 4,790 $ 2,541 $ 61 $ 250
======== ======== ======== ======== ========
Supplemental disclosure of noncash transactions:
Debt issued for property, plant and equipment............. $ 2,510 $ 428
======== ========
Conversion of notes payable to Series A preferred stock... $ 12,000
========
Common stock issued in exchange for notes receivable...... $ 2,574 $ 2,101 $ 33
======== ======== ========
Acquisitions of businesses:
Property, plant and equipment acquired.................. $ 80,325 $ 6,714 $ 4,500
======== ======== ========
Other non-cash assets acquired.......................... $ 14,152
========
Liabilities assumed..................................... $(10,246)
========
Common stock issued..................................... $(56,882) $ (225) $ (225)
======== ======== ========
Exchange of Series A preferred stock for subordinated
notes:
Amount assigned to subordinated notes................... $ 21,792
========
Amount charged to retained earnings..................... $ (3,794)
========
Conversion of Series B preferred stock into common
stock................................................... $ 10,637
========
Preferred stock dividend.................................. $ 832 $ 1,741 $ (513)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 56
HANOVER COMPRESSOR COMPANY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE-
------------------- PAID-IN TREASURY EMPLOYEE RETAINED
SHARES AMOUNT CAPITAL STOCK STOCKHOLDERS EARNINGS
---------- ------ ---------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994........... 13,068,500 $13 $ 49,093 $(2,095) $ (66)
Net income for 1994.................. 4,388
---------- --- -------- ----- ------- -------
Balance at December 31, 1994......... 13,068,500 13 49,093 (2,095) 4,322
Acquisition of Gale Force............ 181,700 1,725
Exercise of stock options............ 6,636 46
Purchase of 29,700 common shares as
treasury stock..................... $(218)
Issuance of common stock............. 2,195,094 2 23,509 (2,574)
Issuance of warrants to purchase
common stock....................... 5,540
Acquisition of PGN................... 16,590 157
Acquisition of Astra................. 4,827,848 5 54,995
Net income for 1995.................. 5,614
Accrual of dividends on redeemable
preferred stock.................... (832)
---------- --- -------- ----- ------- -------
Balance at December 31, 1995......... 20,296,368 20 135,065 (218) (4,669) 9,104
Issuance of common stock to
employees.......................... 251,220 2,885 (2,101)
Acquisition of New Prospect and
Oxley.............................. 19,734 225
Accrual of dividends on redeemable
preferred stock.................... (1,773)
Fair value of subordinated notes in
excess of carrying amount of Series
A preferred stock.................. (3,794)
Stock issuance for conversion of
Series B preferred stock........... 800,308 1 10,636 (1,400)
Issuance of common stock............. 1,570,911 2 22,531
Net income for 1996.................. 10,381
---------- --- -------- ----- ------- -------
Balance at December 31, 1996......... 22,938,541 23 171,342 (218) (6,770) 12,518
Three months ended March 31, 1997
(unaudited):
Issuance of common stock............. 5,152 63
Repayment of stockholder notes....... 25
Net Income........................... 3,394
---------- --- -------- ----- ------- -------
Balance at March 31, 1997
(unaudited)........................ 22,943,693 $23 $171,405 $(218) $(6,745) $15,912
========== === ======== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 57
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Hanover Compressor Company is a leading provider of a broad array of
natural gas compression rental, operations and maintenance services in the
United States and select international markets. Hanover's compression services
are complemented by its compressor and oil and gas production equipment
fabrication operations.
The accompanying consolidated financial statements include the accounts of
Hanover Compressor Company and its subsidiaries ("Hanover" or the "Company").
Hanover is a Delaware corporation formed on October 17, 1990.
On June 6, 1997, the Board of Directors approved an increase of authorized
shares of preferred stock and common stock to 3,000,000 shares and 100,000,000
shares, respectively. In addition, the Board of Directors approved a 158 for 1
stock split of the Company's common stock. The stock split has been effected in
the form of a stock dividend. All share and per share information included
herein reflects the stock split. The Board also adopted the 1997 Stock Option
Plan and the 1997 Stock Purchase Plan. This plan permits the Board to issue
options and restricted stock, subject to consummation of the Company's proposed
initial public offering of its common stock, for up to 5% of the fully diluted
common shares to be outstanding after the offering.
INTERIM FINANCIAL INFORMATION
The unaudited consolidated balance sheet as of March 31, 1997 and related
statements of income and of cash flows for the three months ended March 31, 1996
and 1997, and of stockholders' equity for the three months ended March 31, 1997
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of these interim
financial statements. All information as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997 included in the consolidated financial
statements is unaudited.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include Hanover and its
wholly-owned subsidiaries. Operating results of businesses acquired (Note 2) are
included after the acquisition dates. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues and
expenses, as well as the disclosures of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date. Management believes that
the estimates are reasonable.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
The Company rents equipment primarily to gas well and gas pipeline
operators with lease terms generally ranging from one month to five years.
Revenue from equipment rentals and maintenance is recorded when earned.
F-7
<PAGE> 58
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Compressor and production equipment fabrication revenue is recognized using
the percentage-of-completion method. The Company estimates
percentage-of-completion for compressor fabrication on a direct labor
hour-to-direct labor hour basis. Production equipment fabrication
percentage-of-completion is estimated using the cost-to-cost basis.
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, Venezuela and
Argentina. 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. Trade accounts receivable are recorded net of estimated doubtful
accounts of $428,000, $494,000 and $510,000 at December 31, 1995, December 31,
1996 and March 31, 1997, respectively.
INVENTORY
Inventory consists of parts used for fabrication or maintenance of natural
gas compression units and production equipment and also includes compression
units and production equipment, under construction, which are held for sale.
Inventory is stated at the lower of cost or market using the average-cost
method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Compression equipment............................... 4 to 15 years
Buildings........................................... 30 years
Transportation, shop equipment and other............ 3 to 15 years
</TABLE>
Prior to 1996, natural gas compression units in the rental fleet were
depreciated using the straight-line method over an estimated useful life of 12
years. Effective January 1, 1996, the Company changed its estimate of the useful
life of compression units from 12 years to 15 years. The effect of this change
in estimate was a decrease in 1996 depreciation expense of $2,565,000 and an
increase in net income of $1,546,000 ($.07 per common share).
Major improvements are capitalized and depreciated. Repairs and maintenance
are expensed as incurred. Depreciation expense was $7,418,000, $12,615,000,
$19,887,000, $4,285,000 and $6,090,000 in 1994, 1995 and 1996 and for the three
months ended March 31, 1996 and 1997, respectively.
LONG-LIVED ASSETS
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. In accordance with FAS 121, the Company
reviews for the impairment of long-lived assets and identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Under FAS 121, an impairment loss is recognized
when estimated cash flows expected to result from the use of the asset and its
eventual disposition is less than its carrying amount. The adoption of FAS 121
did not have a material effect on the Company's consolidated financial position
or operating results.
F-8
<PAGE> 59
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Goodwill of $5,819,000, $5,316,000 and $5,179,000 is included in intangible
and other assets and is net of accumulated amortization of $188,000, $691,000
and $827,000 at December 31, 1995 and 1996 and March 31, 1997, respectively.
Prior to 1996, goodwill was amortized on a straight-line basis over an estimated
useful life of 12 years. Effective January 1, 1996, the Company changed its
estimate of the useful life of goodwill to 15 years. The effect of this change
was minimal in 1996. At each balance sheet date, the Company evaluates the
realizability of goodwill based upon expectations of undiscounted cash flows
from operations and operating income for subsidiaries having material goodwill
balances. The Company believes that no impairment of goodwill exists at December
31, 1995 and 1996 and March 31, 1997. The cost of other intangible assets,
comprised primarily of organizational costs and noncompete agreements with
former owners of acquired companies, is amortized on a straight-line basis over
five years. Total amortization expense was $691,000, $879,000, $835,000,
$230,000 and $155,000 in 1994, 1995, 1996, and for the three months ended March
31, 1996 and 1997, respectively.
ENVIRONMENTAL REMEDIATION COSTS
The Company accrues environmental remediation costs based on estimates of
known environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation.
Ongoing environmental compliance costs, including maintenance and monitoring
costs, are expensed as incurred.
STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123 (FAS 123), Accounting for Stock-Based Compensation. Upon adoption of FAS
123, the Company continued to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed in APB
Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and has
provided in Note 9, pro forma disclosures of the effect on net income and
earnings per share as if the fair value-based method prescribed by FAS 123 had
been applied in measuring compensation expense.
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
During 1995, the Company began operating in South America. For such foreign
operations, the U.S. dollar is the functional currency and transaction gains and
losses are included in determining net income. Transaction gains and losses for
the year ended December 31, 1995 and 1996 and the three-month period ended March
31, 1996 and 1997 were not significant.
EARNINGS PER COMMON SHARE
Earnings per common share is calculated using the weighted average number
of common and dilutive common equivalent shares outstanding during each period.
In conformity with Securities and
F-9
<PAGE> 60
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Exchange Commission requirements, common and common equivalent shares issued
during the twelve months prior to the filing of the registration statement for
the Company's proposed initial public offering have been included in the
calculation as if they were outstanding for all periods presented, using the
treasury stock method and the assumed initial public offering price of $18.00
per share.
Earnings per share in 1996 was $.47 per share before the effects of
charging retained earnings for (i) $1,773,000 relating to dividends on
redeemable preferred stock, (ii) $3,794,000 related to the exchange of all
Series A preferred stock for subordinated notes and (iii) $1,400,000 related to
the conversion of all Series B preferred stock to common stock.
RECENT PRONOUNCEMENT
In 1997, Statement of Financial Accounting Standards No. 128, (FAS 128),
Earnings Per Share, was issued. FAS 128 is effective for earnings per share
calculations for periods ending after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. The following table presents pro
forma earnings per common share amounts computed using FAS 128:
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ --------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pro forma earnings per common share:
Basic............................... $.32 $.32 $.16 $.10 $.16
Diluted............................. $.31 $.30 $.15 $.10 $.15
</TABLE>
NOTE 2 -- BUSINESS ACQUISITIONS
Effective January 12, 1995, Hanover acquired certain compressor rental
assets of CBC Compression for $2,775,000 in cash. The acquisition was accounted
for as a purchase, and therefore, Hanover recorded the acquired assets at their
estimated fair market value.
Effective February 1, 1995, Hanover acquired the compressor rental assets
of Gale Force Compression Services, Inc. for $9,655,000 in cash and 181,700
shares of Hanover common stock valued at $1,725,000. The acquisition was
accounted for as a purchase and, therefore, Hanover recorded the acquired assets
at their estimated fair market value.
Effective February 24, 1995, Hanover acquired the production equipment
fabrication assets of Smith Industries, Inc. for $2,683,000 in cash. The
acquisition was accounted for as a purchase and, therefore, Hanover recorded the
acquired assets at their estimated fair market value.
Effective September 8, 1995, Hanover purchased Proyecto Gas Natural, C.A.
("PGN") for $6,333,000 in cash and 16,590 shares of Hanover common stock valued
at $157,000. The acquisition was accounted for as a purchase and, therefore,
Hanover recorded the acquired assets at their estimated fair market value.
Effective December 5, 1995, Hanover purchased Astra Resources Compression,
Inc. and subsidiaries ("Astra") in exchange for cash of $6,432,000 and 4,827,848
shares of Hanover common stock valued at $55,000,000. The acquisition was
accounted for as a purchase and, therefore, Hanover recorded the acquired assets
at their estimated fair market value.
F-10
<PAGE> 61
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net cash paid for the 1995 acquisitions is as follows (in thousands):
<TABLE>
<S> <C>
Fair value of noncash assets acquired....................... $ 94,477
Liabilities assumed......................................... (10,246)
Common stock issued......................................... (56,882)
--------
Net cash paid for acquisitions.............................. $ 27,349
========
</TABLE>
The following unaudited pro forma information assumes that the 1995
acquisitions described above were consummated at the beginning of the periods
presented. The pro forma information is for illustrative information only and is
not necessarily indicative of results which would have been achieved or results
which may be achieved in the future:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C>
Revenue..................................................... $ 86,269 $112,894
Net income.................................................. 6,224 6,867
Earnings per common share................................... $ .32 $ .30
</TABLE>
Effective February 1, 1996, Hanover acquired certain compressor rental
assets of New Prospect Drilling Company and Oxley Petroleum for approximately
$4,500,000 in cash and 19,750 shares of Hanover common stock valued at $225,000.
The acquisition was accounted for as a purchase and therefore, Hanover recorded
the acquired assets at their estimated fair market value.
Effective May 1, 1996, Hanover acquired certain compressor rental assets of
Cactus Compression for $1,989,000 in cash. The acquisition was accounted for as
a purchase and, therefore, Hanover recorded the acquired assets at their
estimated fair market value.
Net cash paid for the 1996 business acquisitions is as follows (in
thousands):
<TABLE>
<S> <C>
Fair value of noncash assets acquired....................... $6,714
Common stock issued......................................... (225)
------
Net cash paid for acquisitions.............................. $6,489
======
</TABLE>
Hanover's results of operations for 1996 were not materially impacted by
the 1996 business acquisitions.
NOTE 3 -- INVENTORY
Inventory consisted of the following amounts (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Parts and supplies.............................. $ 10,171 $ 11,582 $ 13,806
Work in progress................................ 3,218 6,219 7,531
Finished goods.................................. 193 333 4,542
-------- -------- --------
$ 13,582 $ 18,134 $ 25,879
======== ======== ========
</TABLE>
F-11
<PAGE> 62
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- COMPRESSOR AND PRODUCTION EQUIPMENT FABRICATION CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Costs incurred on uncompleted contracts......... $ 10,560 $ 9,009 $ 6,491
Estimated earnings.............................. 1,888 2,598 1,580
-------- -------- --------
12,448 11,607 8,071
Less -- billings to date........................ 6,643 4,501 6,940
-------- -------- --------
$ 5,805 $ 7,106 $ 1,131
======== ======== ========
</TABLE>
Presented in the accompanying financial statements as follows (in
thousands):
<TABLE>
<S> <C> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............. $ 6,331 $ 7,774 $ 4,396
Billings on uncompleted contracts in excess of
costs and estimated earnings.................. (526) (668) (3,265)
-------- -------- --------
$ 5,805 $ 7,106 $ 1,131
======== ======== ========
</TABLE>
NOTE 5 -- LONG-TERM DEBT
Long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit facility........................ $ 16,737 $ 67,519 $ 84,100
Term loan facility............................... 30,000 30,000 30,000
Subordinated notes, net of unamortized discount
of $1,711,000.................................. -- 21,792 21,899
Mortgage, interest at 6.73%, secured by the
Company's headquarters and manufacturing
facility, payable through 1998................. 1,475 1,362 1,353
Other, interest at various rates, secured by
equipment and other assets..................... 2,810 2,575 2,456
-------- -------- --------
51,022 123,248 139,808
Less -- current maturities....................... 571 492 326
-------- -------- --------
$ 50,451 $122,756 $139,482
======== ======== ========
</TABLE>
The Company has two primary credit agreements. The Company's credit
agreement with The Chase Manhattan Bank provides for a $90,000,000 (increased to
$150,000,000 on April 14, 1997) revolving credit facility which matures on
December 18, 1999. Advances bear interest at the bank's prime or a negotiated
rate (6.7% at December 31, 1995 and 1996 and March 31, 1997) and a commitment
fee of 0.35% per annum on the average available commitment is payable quarterly.
Unamortized discount related to the credit agreement aggregated $163,000 and
$81,000 at December 31, 1995 and 1996 and $61,000 at March 31, 1997.
F-12
<PAGE> 63
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's credit agreement with Joint Energy Development Investments
Limited Partnership, a common stockholder, provides for a $100,000,000 term loan
facility which matures on December 19, 2007. Loans outstanding bear interest at
prime or a negotiated rate (7.7%, 7.625% and 7.67% at December 31, 1995 and 1996
and March 31, 1997, respectively) and a commitment fee, calculated in accordance
with the terms of the agreement which varies based upon the level of amounts
outstanding, is payable quarterly. The loan outstanding at December 31, 1996 is
due December 18, 2002.
The credit agreements are secured by the Company's assets and contain
certain financial covenants, working capital requirements and restrictions on,
among other things, indebtedness, liens, sales of assets and leases. The credit
agreements also prohibit the payment of cash dividends on the Company's common
stock without the lenders' prior written consent. At December 31, 1996 and March
31, 1997, all equipment, land, buildings and improvements were pledged as
collateral to secure the Company's long-term debt obligations.
The Company's subordinated notes issued in exchange for Series A preferred
stock provides for a $23,503,000 term loan facility which matures on December
31, 2000. Amounts outstanding bear interest at 7%, and are payable each June 30
and December 31. Unamortized discount related to the credit agreement aggregated
$1,711,000 at December 31, 1996 and $1,604,000 at March 31, 1997.
Maturities of long-term debt at December 31, 1996 are (in thousands): 1997
- -- $492; 1998 -- $2,937; 1999 -- $67,623; 2000 -- $23,528; 2001 -- $27 and
$28,641 thereafter.
NOTE 6 -- INCOME TAXES
The components of income before income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Domestic............................................ $ 6,978 $ 9,267 $15,780
Foreign............................................. (155) 1,445
------- ------- -------
$ 6,978 $ 9,112 $17,225
======= ======= =======
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal........................................... $ 1,632 $ 2,640 $ 3,625
State............................................. 80 220 720
Foreign........................................... 236
------- ------- -------
Total current............................. 1,712 2,860 4,581
------- ------- -------
Deferred tax expense:
Federal........................................... 741 369 1,822
State............................................. 137 269 441
------- ------- -------
Total deferred............................ 878 638 2,263
------- ------- -------
Total provision..................................... $ 2,590 $ 3,498 $ 6,844
======= ======= =======
</TABLE>
F-13
<PAGE> 64
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax expense for 1994, 1995 and 1996 resulted in effective tax
rates of 37.1%, 38.4% and 39.7%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Federal income tax at statutory rates............... $ 2,442 $ 3,189 $ 6,028
State income taxes, net of federal income tax
benefit........................................... 141 318 755
Foreign income taxes................................ (222)
Other, net.......................................... 7 (9) 283
------- ------- -------
$ 2,590 $ 3,498 $ 6,844
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) at December 31, 1996 and 1995 are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating losses...................................... $ 2,124 $ 1,308
Alternative minimum tax carryforward...................... 4,513 7,109
Other..................................................... 1,655 2,210
-------- --------
Gross deferred tax assets................................... 8,292 10,627
-------- --------
Deferred tax liabilities:
Property, plant and equipment............................. (21,341) (24,146)
Other..................................................... (137) (1,930)
-------- --------
Gross deferred tax liabilities.............................. (21,478) (26,076)
-------- --------
$(13,186) $(15,449)
======== ========
</TABLE>
The Company has a net operating loss carryforward at December 31, 1996 of
$3,535,000 expiring in 2005 to 2009. Utilization of the net operating loss
carryforward is limited to the taxable income generated by the parent company in
each year. In addition, the Company has an alternative minimum tax credit
carryforward of $7,109,000 which does not expire.
In the event of a greater than 50% change in ownership of the Company, the
net operating loss and alternative minimum tax credit carryforwards would be
subject to annual utilization limitations under the change in ownership rules of
the Internal Revenue Code. Based on the projected value of the Company, if such
a change does occur, the annual limitation would not significantly limit the
utilization of the net operating loss and alternative minimum tax carryforwards.
The Company has not recorded a deferred income tax liability for additional
U.S. federal income taxes that would result from the distribution of earnings of
its foreign subsidiaries, if they were actually repatriated. The Company intends
to indefinitely reinvest the undistributed earnings of its foreign subsidiaries.
Any federal income taxes on such earnings, if remitted, would generally be
offset by available foreign tax credits.
NOTE 7 -- REDEEMABLE PREFERRED STOCK
On August 7, 1995, Hanover issued, primarily to a major common stockholder,
21,602 shares of Series A preferred stock and warrants to purchase the Company's
common stock for $21,602,000
F-14
<PAGE> 65
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of which $12,000,000 was a conversion of notes payable to stockholders. On the
same date, Hanover issued 10,000 shares of Series B preferred stock for
$10,000.000. Based upon an independent valuation, proceeds allocated to Series A
preferred stock and warrants were $16,062,000 and $5,540,000, respectively.
The Series A and Series B preferred stock had cumulative 6.5% dividend
rates and certain liquidation and redemption preferences. Each share of Series A
preferred stock was issued with a detachable warrant to purchase 26 shares of
common stock at $.01 per common share. The Series B preferred stock was
convertible into common stock at specified rates. The shares were convertible at
the earlier of three years after the issuance of the shares, the sale or merger
of the Company where Hanover was not the surviving corporation or a person or
group (as defined) controlled at least 50% of the total voting power. The
Company has reserved 568,950 common shares for issuance upon exercise of the
warrant.
Accrued dividends on Series A and Series B preferred stock in 1995 of
$568,000 and $264,000 were paid in shares of Series A and Series B preferred
stock. Accrued dividends in 1996 were $1,368,000 on Series A and $373,000 on
Series B preferred stock.
In December 1996, the Company exchanged all of the issued and outstanding
shares of the Series A preferred stock for subordinated notes. At the exchange
date, the fair market value of the subordinated notes was $21,792,000 and a debt
issuance discount of $1,711,000 was recorded by the Company. The $3,794,000
excess of the fair value of the subordinated notes over the $17,998,000 recorded
for the Series A preferred stock has been charged to retained earnings.
In December 1996, the Company converted all of the issued and outstanding
shares of the Series B preferred stock into 800,308 shares of the Company's
common stock and paid a conversion premium of $1,400,000.
Redeemable preferred stock activity is as follows (in thousands):
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED PREFERRED
STOCK STOCK
--------- ---------
<S> <C> <C>
Issuance of preferred stock................................. 16,062 10,000
Accrued dividends........................................... 568 264
------- -------
Balance at December 31, 1995................................ 16,630 10,264
Accrued dividends........................................... 1,368 373
Exchange of Series A preferred stock for subordinated
notes..................................................... (17,998)
Conversion of Series B preferred stock to common stock...... (10,637)
------- -------
Balance at December 31, 1996................................ -- --
======= =======
</TABLE>
NOTE 8 -- COMMON STOCK
On July 7, 1995, Hanover issued 39,500 shares of common stock to various
members of management for cash of $85,000 and notes of $190,000. The majority of
the notes are due in four years and the remainder are due upon demand by the
Company.
On August 7, 1995, Hanover issued 1,755,538 shares of common stock for
$20,000,000.
On August 31, 1995, Hanover issued 272,866 shares of common stock to
various members of management for cash of $707,000 and notes of $1,884,000. The
majority of the notes are due in four years and the remainder are due upon
demand by the Company.
F-15
<PAGE> 66
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 8, 1995, pursuant to the PGN purchase agreement, Hanover
issued 73,786 shares of common stock to an owner of PGN for $200,000 cash and a
note of $500,000. The note is due in four years, bears interest at prime and has
been recorded as a reduction of common stockholders' equity.
On November 2, 1995, Combustion Control Corporation ("CCC"), an entity
under common control, was merged into Hanover. In connection with this merger,
53,404 shares of Hanover common stock were issued for cash held by CCC of
approximately $593,000. Results of operations of CCC for 1995 and 1994 were not
significant.
During 1996, Hanover issued 1,570,911 shares of common stock for cash of
$22,533,000 to existing shareholders and issued 251,220 shares of common stock
to various members of management for cash of $784,000 and notes of $2,101,000.
In February, 1997, Hanover issued 5,152 shares of common stock to a trust
for the benefit of a member of the Company's outside legal counsel for $75,000,
which is reported net of $12,000 of stock issuance costs paid during the three
months ended March 31, 1997.
The notes from various members of management for purchased stock bear
interest at prime and have been recorded as a reduction of common stockholders'
equity.
See Notes 2 and 7 for a description of other common stock transactions.
NOTE 9 -- STOCK OPTIONS AND WARRANTS
The Company has several employee stock option plans which provide for the
granting of 2,278,650 shares which vest over a five or seven-year period from
date of grant. Options are generally exercisable over a ten or fifteen-year
period from the date of grant. The Company recorded compensation expense of
$31,000 in 1994, $47,000 in 1995 and $109,000 in 1996 related to the options
granted under the plans.
The following is a summary of stock option activity for the years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
PRICE PER
SHARES SHARE
--------- ---------
<S> <C> <C>
Options outstanding, December 31, 1993...................... 2,133,154 $4.65
Options granted........................................... -- --
Options canceled.......................................... -- --
Options exercised......................................... -- --
---------
Options outstanding, December 31, 1994...................... 2,133,154 4.65
Options granted........................................... 168,270 8.57
Options canceled.......................................... -- --
Options exercised......................................... (6,636) .01
---------
Options outstanding, December 31, 1995...................... 2,294,788 4.93
Options granted........................................... 105,386 9.03
Options canceled.......................................... -- --
Options exercised......................................... -- --
---------
Options outstanding, December 31, 1996...................... 2,400,174 5.11
=========
</TABLE>
F-16
<PAGE> 67
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
There were 0, 147,414 and 161,792 exercisable options under the 1992 plans
and 97,012, 183,280 and 289,298 exercisable options under the 1993 plans at
December 31, 1994, 1995 and 1996, respectively. There were 297,040 exercisable
options under the 1995 plans at December 31, 1996. No exercisable options under
the 1996 plans were outstanding at December 31, 1996.
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE IN YEARS PRICE SHARES PRICE
--------------- --------- ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 4.59................... 1,776,074 6.4 $ 4.46 575,436 $ 4.38
$ 4.60 - $ 6.96................... 421,386 6.6 5.33 148,520 5.31
$ 6.97 - $10.13................... 130,982 8.6 9.54 24,174 9.49
$10.14 - $13.93................... 71,732 9.5 11.86 -- --
</TABLE>
The weighted average fair value at date of grant for options where exercise
price equals the market price of the stock on the grant date was $4.03 and $5.54
per option during 1995 and 1996, respectively. The weighted average fair values
at date of grant for options where the exercise price does not equal the market
price of the stock on the grant date were $3.98 and $10.54 per option during
1995 and 1996, respectively. As no option activity occurred during 1994, no fair
values of granted options are disclosed. The fair value of options at date of
grant was estimated using the Black-Scholes model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C> <C>
Expected life.......................................... 10 years 10 years
Interest rate.......................................... 5.7% 6.3%
Volatility............................................. 0% 0%
Dividend yield......................................... 0% 0%
</TABLE>
Stock based compensation costs would have reduced pretax income by $52,000
and $237,000 in 1995 and 1996, respectively. The after tax impact for 1995 and
1996, respectively, was $34,000 and $156,000 if the fair value of the options
granted in that year had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The pro forma impact
on net income would have reduced earnings per share by less than $.01 per share
during 1995 and 1996. The pro forma effect on net income for 1995 and 1996 is
not representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
As of December 31, 1996, warrants to purchase 568,950 shares of common
stock at $.01 per share were outstanding. The warrants were issued in connection
with the Series A preferred stock during August 1995 and provide for vesting 20%
at the time of issuance and, thereafter, increasing incrementally on a monthly
basis over the subsequent three years.
NOTE 10 -- BENEFIT PLANS
The Company's 401(k) retirement plan provides for optional employee
contributions up to the IRS limitation and discretionary employer matching
contributions. The Company did not make a matching contribution for 1994, 1995
or 1996.
F-17
<PAGE> 68
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- OTHER FINANCIAL INFORMATION
Accrued liabilities comprised the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued salaries and wages........................ $ 964 $ 1,196 $1,234
Accrued bonuses................................... 628 873 645
Accrued taxes..................................... 808 1,010 919
Accrued other..................................... 2,093 5,135 5,938
------- ------- ------
$ 4,493 $ 8,214 $8,736
======= ======= ======
</TABLE>
NOTE 12 -- RELATED PARTY TRANSACTIONS
Hanover and GKH Partners, L.P., a major stockholder of the Company, have
entered into an agreement whereby in exchange for investment banking and
financial advisory services rendered and to be rendered by the major
stockholder, the Company has agreed to pay a fee to GKH Partners, L.P., equal to
.75% of the equity value of the Company determined and payable at such time as
(1) a disposition of shares of the Company's common stock resulting in GKH
Partners, L.P. owning less than 25% of the outstanding common stock or (2) any
other transaction occurs resulting in the effective sale of the Company or its
business by the current owners.
In June 1995, several common stockholders of the Company loaned the Company
$12,000,000 at an interest rate of prime plus 5% per annum with a maturity of
March 31, 2002. These loans were repaid in August 1995 through the issuance of
Series A preferred stock. This Series A preferred stock was exchanged in
December 1996 for subordinated promissory notes.
In connection with stock offerings to management, the Company has received
notes from employees for shares purchased. The total amounts owed to the Company
at December 31, 1995 and 1996 are $4,669,000 and $6,770,000. Total interest
accrued on the loans is $198,000 and $399,000 as of December 31, 1995 and 1996.
The Company has a credit agreement with Joint Energy Development
Investments Limited Partnership, a common stockholder. Interest expense in 1995
and 1996 was $81,900 and $2,548,000. The Company also leases compressors to
affiliates of Enron Capital and Trade Resources Corp., an affiliate of Joint
Energy Development Investments Limited Partnership. Rentals of $375,000 and
$701,000 were paid by affiliates of Enron in 1995 and 1996.
The Company leases compressors to other companies owned or controlled by or
affiliated with related parties. Rental and maintenance revenues billed to these
related parties were minimal in 1994 and totaled $1,071,000 and $3,429,000
during 1995 and 1996, respectively.
See Note 7 for a description of redeemable preferred stock transactions
with related parties and Note 8 for a description of a common stock transaction
with a related party.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
Rent expense for 1994, 1995 and 1996 was approximately $201,000, $332,000
and $440,000. Commitments for future minimum lease payments are not significant
at December 31, 1996.
As a result of the acquisition of Astra, the Company, owns a 17 acre parcel
of land which includes a lagoon. The area covered by the lagoon was formerly the
site of a solid waste landfill. The Company has been indemnified by Astra's
former parent Westar Capital, Inc. for any environmental
F-18
<PAGE> 69
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liability associated with the landfill in excess of $250,000. At the present
time, the Company does not believe that it is subject to any remedial
obligations with respect to the former solid waste landfill.
In the ordinary course of business, the Company is involved in various
pending or threatened legal actions. While management is unable to predict the
ultimate outcome of these actions, it believes that any ultimate liability
arising from these actions will not have a material adverse effect on the
Company's consolidated financial position or operating results.
The Company has no commitments or contingent liabilities which, in the
judgment of management, would result in losses which would materially affect the
Company's consolidated financial position or operating results.
NOTE 14 -- INDUSTRY SEGMENTS
The Company has three principal industry segments: Rentals and Maintenance,
Compressor Fabrication and Production Equipment Fabrication. The Rentals and
Maintenance Segment provides natural gas compression rental and maintenance
services to meet specific customer requirements. The Compressor Fabrication
Segment involves the design, fabrication and sale of natural gas compression
units to meet unique customer specifications. The Production Equipment
Fabrication Segment designs, fabricates and sells equipment utilized in the
production of crude oil and natural gas.
F-19
<PAGE> 70
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION ON INDUSTRY SEGMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
RENTALS PRODUCTION
AND COMPRESSOR EQUIPMENT
MAINTENANCE FABRICATION FABRICATION CORPORATE ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Sales to unaffiliated
customers............ $ 32,025 $16,202 $ 7,272 $ 581 $ 56,080
Intersegment sales...... 6,730 $ (6,730)
-------- ------- ------- ------- -------- --------
Total
revenues...... 32,025 22,932 7,272 581 (6,730) 56,080
Operating income
(loss)............... 9,531 778 183 (1,487) 9,005
Identifiable assets..... 101,962 8,089 4,394 169 114,614
Capital expenditures.... 33,367 855 79 34,301
Depreciation and
amortization......... 7,850 225 34 8,109
1995:
Sales to unaffiliated
customers............ $ 48,354 $29,593 $16,960 $ 1,057 $ 95,964
Intersegment sales...... 3,500 13,384 269 $(17,153)
-------- ------- ------- ------- -------- --------
Total
revenues...... 51,854 42,977 17,229 1,057 (17,153) 95,964
Operating income
(loss)............... 12,318 2,449 773 (1,868) 13,672
Identifiable assets..... 224,934 8,927 15,463 2,989 252,313
Capital expenditures.... 120,176 499 2,525 123,200
Depreciation and
amortization......... 13,056 291 147 13,494
1996:
Sales to unaffiliated
customers............ $ 79,355 $28,764 $26,903 $ 989 $136,011
Intersegment sales...... 3,071 36,851 526 $(40,448)
-------- ------- ------- ------- -------- --------
Total
revenues...... 82,426 65,615 27,429 989 (40,448) 136,011
Operating income (loss)... 21,192 2,300 3,342 (3,015) 23,819
Identifiable assets....... 299,760 14,550 19,755 7,322 341,387
Capital expenditures...... 88,870 578 864 90,312
Depreciation and
amortization............ 19,654 490 578 20,722
</TABLE>
Revenues by segment include sales to unaffiliated customers and
intersegment sales. Intersegment sales are accounted for at cost and are
eliminated in consolidation. Segment operating income represents revenues less
operating expenses and does not include 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. Corporate
assets consist of cash and cash equivalents. Capital expenditures include fixed
asset purchases and assets acquired in business acquisitions.
Foreign operations of the Company which comprise 6.4% and 14.1% of rentals
and maintenance revenue in 1995 and 1996, respectively, consist primarily of
operations in Venezuela and Argentina.
No single customer accounts for 10% or more of the Company's revenues.
F-20
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO HANOVER COMPRESSOR COMPANY:
We have audited the accompanying consolidated balance sheets of Astra
Resources Compression, Inc. (a Texas corporation), and subsidiaries as of
November 30, 1995, and December 31, 1994, and the related consolidated
statements of operations, stockholder's equity and cash flows for the eleven
months ended November 30, 1995, and for the year ended December 31, 1994. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Astra
Resources Compression, Inc., and subsidiaries as of November 30, 1995, and
December 31, 1994, and the results of their operations and their cash flows for
the eleven months ended November 30, 1995, and for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 16, 1996
F-21
<PAGE> 72
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 331 $ 123
Accounts receivable, net.................................. 1,112 599
Prepaid assets............................................ 2,371 358
Short-term note receivable................................ 261 240
Spare parts inventory..................................... 1,322 1,372
-------- --------
Total current assets.............................. 5,397 2,692
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................. 49,430 43,837
Work-in-progress.......................................... 6,954 1,630
Land and buildings........................................ 565 539
Components................................................ 348 650
-------- --------
57,297 46,656
Less -- Accumulated depreciation and amortization......... (10,550) (7,342)
-------- --------
Property, plant and equipment, net................ 46,747 39,314
NOTE RECEIVABLE............................................. -- 240
DEFERRED TAX ASSET.......................................... 197 526
-------- --------
Total assets...................................... $ 52,341 $ 42,772
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 675 $ 813
Advances from Astra....................................... 190 86
Accrued liabilities....................................... 945 507
Accrued interest.......................................... 58 473
-------- --------
Total current liabilities......................... 1,868 1,879
NOTE PAYABLE TO ASTRA....................................... 5,578 21,195
OTHER LIABILITIES........................................... 492 423
STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding................................. 1 1
Additional paid-in capital................................ 46,336 20,150
Retained deficit.......................................... (1,934) (876)
-------- --------
Total stockholder's equity........................ 44,403 19,275
-------- --------
Total liabilities and stockholder's equity........ $ 52,341 $ 42,772
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 73
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
REVENUES:
Compression services...................................... $10,043 $ 9,899
Sales to affiliates....................................... 2,382 2,209
Compression equipment sales............................... -- 1,334
Other revenue............................................. 238 115
------- -------
Total revenues.................................... 12,663 13,557
EXPENSES:
Compression services expense.............................. 5,941 5,495
Cost of compression equipment sold........................ -- 1,263
Selling, general and administrative....................... 2,043 1,839
Severance expense......................................... 941 --
Depreciation and amortization............................. 3,472 3,377
------- -------
Total expenses.................................... 12,397 11,974
------- -------
INCOME FROM OPERATIONS...................................... 266 1,583
OTHER INCOME (EXPENSE):
Interest income........................................... 34 55
Interest expense.......................................... (1,258) (1,694)
Other expense, net........................................ (547) (527)
------- -------
Total other expense............................... (1,771) (2,166)
------- -------
LOSS BEFORE TAX............................................. (1,505) (583)
INCOME TAX BENEFIT.......................................... 447 197
------- -------
NET LOSS.................................................... $(1,058) $ (386)
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 74
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE ELEVEN MONTHS ENDED NOVEMBER 30, 1995, AND
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- -------- -------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993....................... $ 1 $20,150 $ (490) $19,661
NET LOSS......................................... -- -- (386) (386)
--- ------- ------- -------
BALANCE, December 31, 1994....................... 1 20,150 (876) 19,275
CONVERSION OF INTERCOMPANY BALANCES TO ADDITIONAL
PAID-IN CAPITAL:
Note payable to Astra.......................... -- 25,452 -- 25,452
Accrued interest on note payable to Astra...... -- 623 -- 623
Amounts due from Astra for tax operating losses
provided by Astra Resources Compression,
Inc. ....................................... -- (501) -- (501)
SEVERANCE EXPENSE PAID BY ASTRA, net of tax...... -- 612 -- 612
NET LOSS......................................... -- -- (1,058) (1,058)
--- ------- ------- -------
BALANCE, November 30, 1995....................... $ 1 $46,336 $(1,934) $44,403
=== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 75
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (1,058) $ (386)
Adjustments to arrive at net cash provided by operating
activities- Depreciation and amortization.............. 3,472 3,377
Deferred taxes......................................... (312) 58
Gain on sale of equipment.............................. -- (71)
Severance expense paid by Astra........................ 941 --
Accounts receivable.................................... (513) 122
Prepaid assets......................................... (2,013) (270)
Accounts payable....................................... (138) 606
Accrued interest....................................... 208 (422)
Accrued liabilities.................................... 438 241
Other.................................................. (36) 312
-------- -------
Net cash provided by operating activities......... 989 3,567
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment........................... -- 1,404
Additions to property, plant and equipment................ (10,857) (6,379)
-------- -------
Net cash used in investing activities............. (10,857) (4,975)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in note payable to Astra......................... 9,836 1,025
(Increase) decrease in note receivable.................... 240 240
-------- -------
Net cash provided by financing activities......... 10,076 1,265
-------- -------
NET INCREASE (DECREASE) IN CASH............................. 208 (143)
CASH AT BEGINNING OF PERIOD................................. 123 266
-------- -------
CASH AT END OF PERIOD....................................... $ 331 $ 123
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ 1,050 $ 2,088
Cash paid during the period for taxes..................... -- --
Conversion of note payable to Parent to equity............ 25,452 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 76
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Astra Resources Compression, Inc. (formerly Contract Compression, Inc.),
and subsidiaries (the Company) are wholly owned by Astra Resources, Inc.
(Astra), which is a wholly owned subsidiary of Western Resources, Inc.
(Western), of Topeka, Kansas. The Company conducts operations in Argentina
through its wholly owned domestic subsidiary, Astra Resources International,
Inc. (formerly Contract Compression International, Inc.), and its wholly owned
Argentine subsidiary, Contract Compression International Argentina, S.A.
Effective January 11, 1995, Contract Compression, Inc., changed its name to
Astra Resources Compression, Inc.
2. BASIS OF PRESENTATION:
The accompanying financial statements are presented in accordance with Rule
3-05 of the Securities and Exchange Commission's Regulation S-X and represent
the assets, liabilities, stockholder's equity and results of operations of the
Company, which was merged into Hanover Compressor Company (Hanover) on December
5, 1995.
3. DESCRIPTION OF THE MERGER TRANSACTION:
Effective December 5, 1995, pursuant to an October 13, 1995, Agreement and
Plan of Merger (the Agreement), Hanover issued to Astra 30,556 shares of stock
valued at $55 million. In exchange for receipt of Hanover's shares, Astra's
shares of the Company were canceled and retired. The Company immediately issued
100 new shares to Hanover.
The terms of the Agreement required that certain of the Company's federal
income tax attributes and a note payable to Astra be contributed to paid-in
capital as of June 30, 1995. Additionally, Hanover paid Astra approximately $6.5
million as a final settlement of the purchase price in December 1995. The final
settlement included amounts due Astra for borrowings by the Company from Astra
between July 1, 1995, and December 5, 1995, accrued interest on those borrowings
and amounts required to buy out the Company's leased equipment.
The Agreement grants Hanover the right to sell a certain facility included
in the transaction back to Astra for $150,000 in the event that Hanover is
unable to find a buyer for the facility within five years and certain other
conditions of the Agreement are met. Astra has granted Hanover certain
indemnities, including indemnity against environmental claims arising from
actions prior to Hanover's acquisition of the Company.
As an inducement for continuing employment through the closing of the
transaction, certain employees of the Company were given severance payments
totaling approximately $941,000. Astra paid payments on behalf of the Company.
Accordingly, the costs associated with the payments have been recorded in the
financial statements, net of tax. Over half of the total severance payments went
to three key employees of the Company who signed noncompete agreements with
terms of 180 days subsequent to any termination of employment.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The Company includes the assets, liabilities, income and expense of its
subsidiaries in its consolidated financial statements. All significant
intercompany accounts and transactions have been eliminated in consolidation.
F-26
<PAGE> 77
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues and
expenses, as well as the disclosures of contingent assets and liabilities, if
any. Because of the inherent uncertainties in this process, actual future
results could differ from those expected at the reporting date.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
SPARE PARTS INVENTORY AND COMPONENTS
Inventory held for construction or repair of equipment is valued at the
lower cost or market and accounted for using the average cost method.
DEPRECIATION
Property, plant and equipment are recorded at cost and depreciation is
provided on the straight-line method based on estimated useful lives. Normal
maintenance and repair costs are expensed as incurred. Major overhauls of
equipment are capitalized and depreciated over the estimated period for which
benefit is derived from the overhaul. Estimated useful lives for the Company's
major assets by category are as follows:
<TABLE>
<S> <C>
Compression units and components............................ 15 years
Gas treatment plants........................................ 5 years
Office equipment............................................ 3-7 years
Buildings................................................... 40 years
Leasehold improvements...................................... Term of lease
</TABLE>
WORK-IN-PROGRESS
The Company's overhaul activities on compression units typically cover a
period of several weeks or months. Costs related to these activities are
recorded as work-in-progress until such time as the overhaul is completed and
the related cost transferred to fixed assets. In addition, costs of new
compression units being prepared and packaged for service are recorded as
work-in-progress until such time as they are placed in service.
INCOME TAXES
Income tax expense includes provisions for income taxes currently payable
and deferred income taxes calculated in conformity with Statement of Financial
Accounting Standards (SFAS) No. 109. SFAS No. 109 requires the Company to
establish deferred tax assets and liabilities, as appropriate, for all temporary
differences, based on tax rates expected to be in effect during the periods the
temporary differences reverse.
REVENUES
The Company leases compressors primarily to gas well and gas pipeline
operators. Sales and service revenues are recognized at the time products are
delivered and services are performed.
F-27
<PAGE> 78
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. FEDERAL INCOME TAXES:
For federal income tax purposes, the Company was included as part of the
Western consolidated tax group. For financial statement purposes, tax benefits
or provisions and assets or liabilities are calculated by the Company as if it
were a separate taxpayer.
The provision for income taxes consists of current and deferred federal and
state taxes. The provision (benefit) for the eleven months ended November 30,
1995 and the year ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Current provision (benefit) --
Federal............................................... $(134,137) $(240,774)
State................................................. (841) (13,927)
--------- ---------
(134,978) (254,701)
--------- ---------
Deferred provision (benefit) --
Federal............................................... (313,944) 54,572
State................................................. 2,083 2,929
--------- ---------
(311,861) 57,501
--------- ---------
Total benefit................................. $(446,839) $(197,200)
========= =========
</TABLE>
The effective tax rates for the eleven months ended November 30, 1995 and
the year ended December 31, 1994 were different from the applicable statutory
tax rates. The components of these differences are presented below:
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
NOVEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Statutory tax rate...................................... 35.0% 35.0%
State taxes, net of federal benefit..................... -- 4.0
Foreign tax rate differential........................... 2.1 1.2
Expenses not deductible for tax......................... (4.5) (6.7)
Other items, net........................................ (2.9) 2.3
---- ----
Effective tax rate...................................... 29.7% 35.8%
==== ====
</TABLE>
F-28
<PAGE> 79
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences between the
financial statement and tax bases of the Company's assets and liabilities. The
source of these differences and their cumulative tax effects at November 30,
1995, and December 31, 1994, are presented below:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Property, plant and equipment.......................... $(1,168,802) $(1,210,849)
Net operating loss carryforwards....................... 367,452 743,771
Alternative minimum tax carryforwards.................. 895,408 895,408
Deferred compensation and benefits..................... 102,801 92,008
Other.................................................. (34) 5,440
----------- -----------
Net deferred income tax asset................ $ 196,825 $ 525,778
=========== ===========
</TABLE>
No valuation allowance was necessary for deferred tax assets at November 30,
1995, or December 31, 1994.
6. NOTE PAYABLE TO ASTRA:
At December 31, 1994, the Company had a note payable to Astra, with an
outstanding principal balance of $21,195,000. This note bears interest at prime
plus 1 percent, payable quarterly. On June 30, 1995, the note payable to Astra
plus accrued interest ($26,075,000 in total) was contributed to additional
paid-in capital. Funds borrowed from Astra from July 1, 1995, to the effective
date of the merger plus accrued interest are due and payable to Astra at closing
of the merger. These funds bear interest at LIBOR plus 1 percent.
7. LEASES:
At November 30, 1995, and December 31, 1994, the Company had leases
covering various items of property, plant and equipment, primarily vehicles.
Certain of these lease agreements meet the criteria, as set forth in SFAS No.
13, for classification as capital leases.
The original costs of property, plant and equipment leased under a capital
lease and related accumulated amortization are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Acquisition cost of leased property, plant and
equipment.............................................. $ 974,509 $1,016,306
Less -- Accumulated amortization....................... (906,831) (734,100)
--------- ----------
Net book value........................................... $ 67,678 $ 282,206
========= ==========
</TABLE>
Commitments for rental payments under capital and operating leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1996................................................... $49,426 $32,161
1997................................................... 15,686 5,093
1998................................................... 2,566 3,430
------- -------
Total........................................ $67,678 $40,684
======= =======
</TABLE>
For the eleven months ended November 30, 1995 and the year ended December
31, 1994 total rental payments for operating leases charged to expense were
approximately $113,532 and
F-29
<PAGE> 80
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$20,398, respectively. Amortization on vehicles under capital lease is included
in depreciation expense.
8. COMMITMENTS AND CONTINGENCIES:
The Company is party to certain claims arising out of its ongoing
operations. Management believes that the outcome of these claims will not have a
material impact on the business, financial position or results of operations of
the Company.
9. EMPLOYEE BENEFIT PLANS:
PENSION
The Company, through Western, maintains noncontributory defined benefit
pension plans covering substantially all employees. Pension benefits are based
on years of service and the employee's compensation during the five highest paid
consecutive years out of the 10 years before retirement. Western's policy is to
fund pension costs accrued, subject to limitations set by the Employee
Retirement Income Security Act of 1974 and the Internal Revenue Code, and
allocate a pro rata share of such costs, based on employee participation, to its
subsidiaries. During 1995 and 1994, the Company expensed $28,591 and $27,494,
respectively, and at November 30, 1995, and December 31, 1994, had accrued
$7,865 and $--, respectively, related to this plan.
POSTRETIREMENT
The Company, through Western, adopted the provisions of SFAS No. 106 in
1993. This statement requires the accrual of postretirement benefits other than
pensions, primarily medical benefit costs, during the years an employee provides
service. Costs of the plan are allocated to the Company from Western on a pro
rata basis, based on employee participation. During 1995 and 1994, the Company
expensed $137,998 and $152,852, respectively, and at November 30, 1995, and
December 31, 1994, had accrued $402,930 and $264,932, respectively, related to
this plan.
SAVINGS
The Company, through Western, maintains savings plans in which
substantially all employees participate. Employees' contributions, up to
specified maximum limits, are matched by Western. Costs of the plan, and
matching contributions, are allocated to the Company from Western on a pro rata
basis, based on employee participation. During 1995 and 1994, the Company
expensed $14,993 and $10,052, respectively, and at November 30, 1995, and
December 31, 1994, had accrued $14,120 and $1,575, respectively, related to this
plan.
10. RELATED-PARTY TRANSACTION:
The Company entered into several operating leases for compression equipment
with Hanover during the eleven months ended November 30, 1995, that terminated
effective December 31, 1995. The Company made lease payments of $87,857 to Astra
during the eleven months ended November 30, 1995.
Compression services are rendered to affiliates of Western. Sales during
the eleven months ended November 30, 1995 and the year ended December 31, 1994
totaled $2,382,178 and $2,208,899, respectively. Terms and pricing for these
transactions are similar to those offered to unrelated customers.
F-30
<PAGE> 81
ASTRA RESOURCES COMPRESSION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company was charged a service fee of $543,000 and $533,000 by Western
during 1995 and 1994, respectively.
11. MAJOR CUSTOMERS:
Approximately 38 percent of the Company's revenue from service contracts
during the eleven months ended November 30, 1995 and 34 percent for the year
ended December 31, 1994 were from two customers. Both customers individually
accounted for more than 10 percent of total revenues. The Company does not
believe that the loss of either or both of these two customers, or the loss of
any other individual customer, would have a material adverse impact on its
operations.
F-31
<PAGE> 82
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co., Credit Suisse First Boston Corporation and Salomon Brothers Inc are
acting as representatives, has severally agreed to purchase from the Company and
the Selling Stockholders, the respective number of shares of Common Stock set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co.........................................
Credit Suisse First Boston Corporation......................
Salomon Brothers Inc........................................
---------
Total............................................. 6,613,494
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created by the Underwriters in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company in
the Offering. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the securities sold in the Offering for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market; and these activities, if
U-1
<PAGE> 83
commenced, may be discontinued at any time. These transactions may be effected
on the New York Stock Exchange, in the over-the-counter market or otherwise.
The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 992,024
additional shares of Common Stock solely to cover over-allotments, if any. If
the Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 6,613,494 shares of Common
Stock offered.
The Company, the Company's officers, directors and certain other employees
and certain of the Company's other stockholders (including GKH, Westar and JEDI)
have agreed that, during the period beginning from the date of this Prospectus
and continuing and including the date 180 days after the date of this
Prospectus, they will not offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock or any securities of the Company that are
substantially similar to the shares of Common Stock, including but not limited
to any securities that are convertible into or exchangeable for, or that
represent the right to receive, Common Stock or any substantially similar
securities (other than pursuant to employee stock option or stock purchase plans
existing on or on the conversion or exchange of convertible or exchangeable
securities outstanding on the date of this Prospectus), without the prior
written consent of the representatives of the Underwriters, except for the
shares of Common Stock offered in connection with the Offering and issuances of
capital stock by the Company in connection with potential future acquisitions
provided that the shares issuable pursuant to any such acquisitions shall not be
transferrable prior to the end of the 180 day period. See "Shares Eligible for
Future Sale".
Prior to this Offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the Selling
Stockholders and the representatives of the Underwriters. Among the factors to
be considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of companies
in related businesses.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "HC". In order to meet
one of the requirements for listing the Common Stock on the New York Stock
Exchange, the Underwriters have undertaken to sell lots of 100 or more shares to
a minimum of 2,000 beneficial holders.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Act.
U-2
<PAGE> 84
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
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 OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
The Company........................... 12
Use of Proceeds....................... 13
Dividend Policy....................... 13
Capitalization........................ 14
Dilution.............................. 15
Selected Historical Financial
Information......................... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 34
Executive Compensation................ 37
Stock Option and Purchase Plans....... 38
Certain Transactions.................. 39
Principal and Selling Stockholders.... 42
Description of Capital Stock.......... 43
Shares Eligible for Future Sale....... 45
Validity of Common Stock.............. 47
Experts............................... 47
Additional Information................ 47
Index to Financial Statements......... F-1
Underwriting.......................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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.
======================================================
======================================================
6,613,494 SHARES
HANOVER COMPRESSOR
COMPANY
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
---------------------------------
[HANOVER LOGO]
---------------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses (other than the SEC registration
fee, the NASD filing fee and the New York Stock Exchange application fee) of the
issuance and distribution of the securities being registered, all of which will
be paid by the Company.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee........................................ $ 30,303
NASD Fee.................................................... 10,500
New York Stock Exchange fees................................ 154,600
Printing expenses........................................... 250,000
Fees and expenses of counsel................................ 250,000
Fees and expenses of accountants............................ 225,000
Transfer agent and registrar fees........................... 10,000
Blue sky fees and expenses.................................. 10,000
Miscellaneous............................................... 59,597
----------
Total............................................. $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director of
officer of the corporation, or his service, at the corporation's request, as a
director, officer, employee or agent of another corporation or other enterprise,
against expenses (including attorneys' fees) that are actually and reasonably
incurred by him ("Expenses"), and judgments, fines and amounts paid in
settlement that are actually and reasonably incurred by him, in connection with
the defense or settlement of such action; provided that he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Although Delaware law permits a corporation to indemnify any person referred to
above against Expenses in connection with the defense or settlement of an action
by or in the right of the corporation, provided that he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the corporation's
best interests, if such person has been judged liable to the corporation,
indemnification is only permitted to the extent that the adjudicating court (or
the court in which the action was brought) determines that, despite the
adjudication of liability, such person is entitled to indemnity for such
Expenses as the court deems proper. The determination as to whether a person
seeking indemnification has met the required standard of conduct is to be made
(1) by a majority vote of a quorum of disinterested members of the board of
directors, or (2) by independent legal counsel in a written opinion, if such a
quorum does not exist or if the disinterested directors so direct, or (3) by the
stockholders. The General Corporation Law of Delaware also provides for
mandatory indemnification of any director, officer, employee or agent against
Expenses to the extent such person has been successful in any proceeding covered
by the statute. In addition, the General Corporation Law of Delaware provides
for the general authorization of advancement of a director's or officer's
litigation expenses in lieu of requiring the authorization of such advancement
by the board of directors in specific cases, and that indemnification and
advancement of expenses provided by the statute shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement or otherwise.
The Company's Restated Certificate of Incorporation provides that the
Company shall indemnify its directors and officers and advance expenses incurred
by its directors and officers in
II-1
<PAGE> 86
defending any civil, commercial, administrative or investigative action, suit or
proceeding, in accordance with and to the fullest extent permitted by Delaware
law.
The Company has also entered into agreements to indemnify its directors and
certain of its officers, in addition to the indemnification provided for in the
Company's Restated Certificate of Incorporation and By-laws. These agreements,
among other things, will indemnify the Company's directors and officers for all
direct and indirect expenses and costs (including, without limitation, all
reasonable attorneys' fees and related disbursements, other out-of-pocket costs
and reasonable compensation for time spent by such persons for which they are
not otherwise compensated by the Company or any third person) and liabilities of
any type whatsoever (including, but not limited to, judgements, fines and
settlement fees) actually and reasonably incurred by such person in connection
with either the investigation, defense, settlement or appeal of any threatened,
pending or completed action, suit or other proceeding, including any action by
or in the right of the corporation, arising out of such person's services as a
director, officer, employee or other agent of the Company, any subsidiary of the
Company or any other company or enterprise to which the person provides services
at the request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.
The Company maintains liability insurance for the benefit of its directors
and officers.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Underwriters against civil
liabilities under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is certain information with respect to all securities of
the Company sold by the Company within the past three years which were not
registered under the Act.
<TABLE>
<CAPTION>
TITLE AND AMOUNT EXEMPTION
DATE OF SALE OF SECURITIES PURCHASERS CONSIDERATION CLAIMED
------------ ---------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
2/1/95............... 181,700 shares of Gale Force Issued in connection Sec. 4(2)
Common Stock Compression with an acquisition.
Services, Inc. The Company also
paid $9.8 million in
cash at closing.
7/7/95............... 39,500 shares of 9 employees $7.33 per share. Rule 701
Common Stock (66% of which was
paid by four year
secured promissory
notes and the
balance in cash).
8/7/95............... 1,755,538 shares of JEDI $11.39 per share Sec. 4(2)
Common Stock
8/7/95............... 21,500 shares of 7 purchasers, $1,000 per share Sec. 4(2)
Series A Preferred including the Fund
Stock and GKH
8/7/95............... 10,000 shares of JEDI $1,000 per share Sec. 4(2)
Series B Preferred
Stock
8/31/95.............. 272,866 shares of 55 employees $9.49 per share Rule 701
Common Stock
</TABLE>
II-2
<PAGE> 87
<TABLE>
<CAPTION>
TITLE AND AMOUNT EXEMPTION
DATE OF SALE OF SECURITIES PURCHASERS CONSIDERATION CLAIMED
------------ ---------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
9/8/95............... 90,272 shares of Former stockholder $9.49 per share. Sec. 4(2)
Common Stock of PGN Issued in connection
with acquisition of
PGN (52,667 of which
were purchased by
delivery of 4 year
secured promissory
note and 16,590 of
which were issued in
exchange for PGN
stock.)
9/29/95.............. 102 shares of 1 individual $1,000 per share. Sec. 4(2)
Series A Preferred
Stock
11/20/95 53,472 shares of 1 individual $11.39 per share. Sec. 4(2)
Common Stock Issued in connection
with acquisition.
12/6/95.............. 4,827,848 shares of Astra $11.39 per share. In Sec. 4(2)
Common Stock addition, the
Company paid
approximately $6.5
million in cash.
1/24/96.............. 4,740 shares of 2 employees $6.96 per share. Sec. 4(2)
Common Stock (All of which was
paid by delivery of
two secured
promissory notes.)
2/22/96.............. 19,750 shares of New Prospect $12.66 per share. In Sec. 4(2)
Common Stock Drilling Company and addition, the
its principal Company paid $4.5
stockholder million in cash.
4/25/96.............. 175,538 shares of 35 employees $11.39 per share. Of Rule 701
Common Stock this consideration,
$435,600 was paid in
cash and the balance
was paid by delivery
of notes.
5/29/96.............. 39,500 shares of 1 individual $13.92 per share in Sec. 4(2)
Common Stock connection with an
acquisition. (Of
this consideration,
67% was paid by
delivery of a
secured promissory
note.)
</TABLE>
II-3
<PAGE> 88
<TABLE>
<CAPTION>
TITLE AND AMOUNT EXEMPTION
DATE OF SALE OF SECURITIES PURCHASERS CONSIDERATION CLAIMED
------------ ---------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
6/17/96.............. 29,862 shares of 1 employee $10.12 per share. Sec. 4(2)
Common Stock (Of this
consideration, two-
thirds was paid by
delivery of a
secured promissory
note.)
12/23/96............. 800,308 shares of JEDI $13.29 per share. Sec. 4(2)
Common Stock Issued in exchange and/or
for 10,367 shares of 3(a)(9)
Series B Preferred
Stock and cash
payment to JEDI of
$1.4 million.
12/13/96............. 1,572,416 shares of Accredited investors $14.55 per share. Rule 506
Common Stock Issued pursuant to and/or
exercise of Sec. 4(2)
preemptive rights.
12/13/96............. $23.5 million of Series A preferred $23.5 million. Secs. 4(2)
Subordinated stockholders Issued upon and/or
Promissory Notes conversion of all 3(a)(9)
outstanding Series A
Preferred Stock.
2/19/97.............. 5,152 shares of Accredited investor $14.55 per share. Sec. 4(2)
Common Stock and/or
Rule 506
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <S>
1.1 Form of Underwriting Agreement
2.1** Agreement and Plan of Merger, dated as of October 13, 1995
among Hanover, Hanover Acquisition Corporation, Astra
Resources Compression, Inc. and Astra Resources, Inc.
3.1** Amended and Restated Certificate of Incorporation of Hanover
3.2** Amended and Restated By-laws of Hanover
3.3** Certificate of Amendment of Certificate of Incorporation of
Hanover filed March 8, 1996
4.1** Third Amended and Restated Registration Rights Agreement,
dated as of December 5, 1995, among Hanover, GKH Partners,
L.P., GKH Investments, L.P., Astra Resources, Inc. and other
stockholders of Hanover party thereto
4.3** Stockholders Agreement, dated as of January 27, 1995, among
Hanover, GKH Partners, L.P. GKH Investments, L.P. and other
stockholders of Hanover party thereto; Amendment No. 1 dated
October 31, 1996
4.4** Amended and Restated Stockholders Agreement, dated as of
August 7, 1995, among Hanover, GKH Partners, L.P., GKH
Investments, L.P. and other stockholders of Hanover party
thereto; Amendment No. 1 dated October 31, 1996
4.5** Form of Letter Agreement relating to the Amended and
Restated Stockholders Agreement
</TABLE>
II-4
<PAGE> 89
<TABLE>
<S> <C>
4.6** Stockholders Agreement, dated as of August 7, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Joint
Energy Development Investments Limited Partnership;
Amendment No. 1 dated December 23, 1996
4.7** Stockholders Agreement, dated as of December 5, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Astra
Resources, Inc.
4.8** Pledge Agreement, dated as of December 19, 1995, made by
Hanover Acquisition Corporation in favor of The Chase
Manhattan Bank (formerly known as Chemical Bank) as
Collateral Trustee
4.9** Second Amended and Restated Pledge Agreement, dated as of
December 19, 1995, made by Hanover Compressor Company in
favor of The Chase Manhattan Bank (formerly known as
Chemical Bank) as Collateral Trustee
4.10** Form of Warrant Agreement
4.11 Specimen Stock Certificate
4.12 Form of Second Amended and Restated Stockholders Agreement
of Hanover Compressor Company dated as of June, 1997
4.13 Form of Amended and Restated Stockholders Agreement (JEDI)
dated as of May, 1997
4.14 Form of Amended and Restated Stockholders Agreement (Westar
Capital, Inc.) dated as of May, 1997
4.15 Form of Amended and Restated Stockholders Agreement (HEHC)
dated as of May, 1997
5.1 Form of Opinion of Neal, Gerber & Eisenberg, counsel to
Hanover
10.1** Second Amended and Restated Credit Agreement, dated as of
December 19, 1995, by and between Hanover, The Chase
Manhattan Bank (formerly known as Chemical Bank), a New York
banking corporation as Agent and several banks that are
parties thereto
10.2** Loan Agreement, dated as of December 19, 1995, by and
between Hanover, Joint Energy Development Investment
Partnership as Agent and several banks that are parties
thereto
10.3** Management Fee Letter, dated November 14, 1995 between GKH
Partners, L.P. and Hanover
10.4** Hanover Compressor Company Senior Executive Stock Option
Plan
10.5** 1993 Hanover Compressor Company Management Stock Option Plan
10.6** Hanover Compressor Company Incentive Option Plan
10.7** Amendment and Restatement of the Hanover Compressor Company
Incentive Option Plan
10.8** Hanover Compressor Company 1995 Employee Stock Option Plan
10.9** Hanover Compressor Company 1995 Management Stock Option Plan
10.10** Hanover Compressor Company 1996 Employee Stock Option Plan
10.11** OEM Sales and Purchase Agreement, between Hanover Compressor
Company and the Waukesha Engine Division of Dresser
Industries, Inc.
10.12** Distribution Agreement, dated February 23, 1995, between
Ariel Corporation and Maintech Enterprises, Inc.
10.13** Exclusive Distribution Agreement, dated as of February 23,
1995 by and between Hanover/Smith, Inc. and Uniglam
Resources, Ltd.
10.14** Lease Agreement with Option to Purchase dated as of February
24, 1995 between Smith Industries, Incorporated and
Hanover/Smith, Inc.
</TABLE>
II-5
<PAGE> 90
<TABLE>
<S> <C>
10.15** Lease Agreement, dated December 4, 1990, between Hanover
Compressor Company and Ricardo J. Guerra and Luis J. Guerra,
as amended
10.16** Lease Agreement, dated as of March 31, 1995 between Hanover
Compressor Company and Smith Industries, Incorporated
10.17** Lease Agreement with Option to Purchase, dated June 8, 1993,
between C&M Land Account and Hanover Compressor Company
10.18** Indemnification Agreement, dated as of December 5, 1995,
between Hanover Compressor Company and Western Resources
(formerly Astra Resources, Inc.)
10.19** Put Agreement, dated December 5th, 1995, by and between
Western Resources, Inc. (formerly Astra Resources, Inc.) and
Hanover Compressor Company and Hanover Acquisition
Corporation (formerly Astra Resources Compression, Inc.)
10.20** Exchange and Subordinated Loan Agreement dated as of
December 23, 1996, among Hanover and GKH Partners, L.P., GKH
Investments, L.P., IPP95, L.P., Hanna Investment Group, Otto
Candies, Inc., Phyllis S. Hojel, Ted Collins, Jr. and L.O.
Ward
10.21 Cooperation Agreement dated January 16, 1997 among Hanover,
Wartsila and Wartsila Compression Services, GMBH
10.22 Distributorship Agreement dated January 16, 1997 between
Hanover and Wartsila Compression Services
10.23 1997 Stock Option Plan
10.24* 1997 Stock Purchase Plan
10.25 Amendment, Waiver and Consent dated as of April 14, 1997 to
Second Amended and Restated Credit Agreement among Hanover
Compressor Company, the several banks and other financial
institutions from time to time parties thereto and The Chase
Manhattan Bank, as agent
10.26 Amendment, Waiver and Consent dated as of December 23, 1996
to the Second Amended and Restated Credit Agreement, dated
as of December 19, 1995
10.27 Exchange Agreement by and between Hanover Compressor Company
and JEDI, dated December 23, 1996
10.28 Amendment, Waiver and Consent dated as of April 14, 1997 by
and among Hanover Compressor Company, JEDI and the Lenders
named therein
10.29 Amendment, Waiver and Consent dated as of December 23, 1996
by and among Hanover Compressor Company, JEDI and the
Lenders named therein
11.1 Statement re computation of per share earnings
21.1 List of Subsidiaries
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Neal, Gerber & Eisenberg (included in Exhibit
5.1)
24.1** Powers of Attorney (included on the signature pages to the
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Previously Filed.
II-6
<PAGE> 91
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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 hereunder, the Registrant
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 Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Act, (i) the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(ii) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus 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.
II-7
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Houston, Texas on
June 9, 1997.
HANOVER COMPRESSOR COMPANY,
a Delaware corporation
By: *MICHAEL J. MCGHAN
----------------------------------
Michael J. McGhan,
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael A. O'Connor, Michael J. McGhan and
William S. Goldberg, and each of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to sign this Registration
Statement, and any all amendments (including post-effective amendments) to this
Registration Statement and any additional registration statement pursuant to
Rule 462(b), and to file the same with all exhibits thereto, and other documents
in connection therewith, and generally to do all such things in his name and
behalf in any and all capacities to enable Hanover Compressor Company to comply
with the applicable provisions of the Securities Act of 1933, as amended, and
all requirements of the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT AND POWER OF ATTORNEY HAS BEEN SIGNED ON JUNE 9,
1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*MICHAEL J. MCGHAN President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer) and Director
Michael J. McGhan
*CURTIS BEDRICH Chief Financial Officer and Treasurer
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
Curtis Bedrich
*TED COLLINS, JR. Director
- -----------------------------------------------------
Ted Collins, Jr.
*ROBERT R. FURGASON Director
- -----------------------------------------------------
Robert R. Furgason
/s/ WILLIAM S. GOLDBERG Director
- -----------------------------------------------------
William S. Goldberg
Director
- -----------------------------------------------------
Carl M. Koupal, Jr.
*MELVYN N. KLEIN Director
- -----------------------------------------------------
Melvyn N. Klein
*MICHAEL A. O'CONNOR Director
- -----------------------------------------------------
Michael A. O'Connor
</TABLE>
II-8
<PAGE> 93
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*ALVIN V. SHOEMAKER Director
- -----------------------------------------------------
Alvin V. Shoemaker
*WILLIAM E. SIMON, JR. Director
- -----------------------------------------------------
William E. Simon, Jr.
*By: WILLIAM S. GOLDBERG,
-----------------------------------------------
under power of attorney
</TABLE>
II-9
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
2.1** Agreement and Plan of Merger, dated as of October 13, 1995
among Hanover, Hanover Acquisition Corporation, Astra
Resources Compression, Inc. and Astra Resources, Inc.
3.1** Amended and Restated Certificate of Incorporation of Hanover
3.2** Amended and Restated By-laws of Hanover
3.3** Certificate of Amendment of Certificate of Incorporation of
Hanover filed March 8, 1996
4.1** Third Amended and Restated Registration Rights Agreement,
dated as of December 5, 1995, among Hanover, GKH Partners,
L.P., GKH Investments, L.P., Astra Resources, Inc. and other
stockholders of Hanover party thereto
4.3** Stockholders Agreement, dated as of January 27, 1995, among
Hanover, GKH Partners, L.P. GKH Investments, L.P. and other
stockholders of Hanover party thereto; Amendment No. 1 dated
October 31, 1996
4.4** Amended and Restated Stockholders Agreement, dated as of
August 7, 1995, among Hanover, GKH Partners, L.P., GKH
Investments, L.P. and other stockholders of Hanover party
thereto; Amendment No. 1 dated October 31, 1996
4.5** Form of Letter Agreement relating to the Amended and
Restated Stockholders Agreement
4.6** Stockholders Agreement, dated as of August 7, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Joint
Energy Development Investments Limited Partnership;
Amendment No. 1 dated December 23, 1996
4.7** Stockholders Agreement, dated as of December 5, 1995, among
Hanover, GKH Partners, L.P., GKH Investments, L.P. and Astra
Resources, Inc.
4.8** Pledge Agreement, dated as of December 19, 1995, made by
Hanover Acquisition Corporation in favor of The Chase
Manhattan Bank (formerly known as Chemical Bank) as
Collateral Trustee
4.9** Second Amended and Restated Pledge Agreement, dated as of
December 19, 1995, made by Hanover Compressor Company in
favor of The Chase Manhattan Bank (formerly known as
Chemical Bank) as Collateral Trustee
4.10** Form of Warrant Agreement
4.11 Specimen Stock Certificate
4.12 Form of Second Amended and Restated Stockholders Agreement
of Hanover Compressor Company dated as of June, 1997
4.13 Form of Amended and Restated Stockholders Agreement (JEDI)
dated as of May, 1997
4.14 Form of Amended and Restated Stockholders Agreement (Westar
Capital, Inc.) dated as of May, 1997
4.15 Form of Amended and Restated Stockholders Agreement (HEHC)
dated as of May, 1997
5.1 Form of Opinion of Neal, Gerber & Eisenberg, counsel to
Hanover
10.1** Second Amended and Restated Credit Agreement, dated as of
December 19, 1995, by and between Hanover, The Chase
Manhattan Bank (formerly known as Chemical Bank), a New York
banking corporation as Agent and several banks that are
parties thereto
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.2** Loan Agreement, dated as of December 19, 1995, by and
between Hanover, Joint Energy Development Investment
Partnership as Agent and several banks that are parties
thereto
10.3** Management Fee Letter, dated November 14, 1995 between GKH
Partners, L.P. and Hanover
10.4** Hanover Compressor Company Senior Executive Stock Option
Plan
10.5** 1993 Hanover Compressor Company Management Stock Option Plan
10.6** Hanover Compressor Company Incentive Option Plan
10.7** Amendment and Restatement of the Hanover Compressor Company
Incentive Option Plan
10.8** Hanover Compressor Company 1995 Employee Stock Option Plan
10.9** Hanover Compressor Company 1995 Management Stock Option Plan
10.10** Hanover Compressor Company 1996 Employee Stock Option Plan
10.11** OEM Sales and Purchase Agreement, between Hanover Compressor
Company and the Waukesha Engine Division of Dresser
Industries, Inc.
10.12** Distribution Agreement, dated February 23, 1995, between
Ariel Corporation and Maintech Enterprises, Inc.
10.13** Exclusive Distribution Agreement, dated as of February 23,
1995 by and between Hanover/Smith, Inc. and Uniglam
Resources, Ltd.
10.14** Lease Agreement with Option to Purchase dated as of February
24, 1995 between Smith Industries, Incorporated and
Hanover/Smith, Inc.
10.15** Lease Agreement, dated December 4, 1990, between Hanover
Compressor Company and Ricardo J. Guerra and Luis J. Guerra,
as amended
10.16** Lease Agreement, dated as of March 31, 1995 between Hanover
Compressor Company and Smith Industries, Incorporated
10.17** Lease Agreement with Option to Purchase, dated June 8, 1993,
between C&M Land Account and Hanover Compressor Company
10.18** Indemnification Agreement, dated as of December 5, 1995,
between Hanover Compressor Company and Western Resources
(formerly Astra Resources, Inc.)
10.19** Put Agreement, dated December 5th, 1995, by and between
Western Resources, Inc. (formerly Astra Resources, Inc.) and
Hanover Compressor Company and Hanover Acquisition
Corporation (formerly Astra Resources Compression, Inc.)
10.20** Exchange and Subordinated Loan Agreement dated as of
December 23, 1996, among Hanover and GKH Partners, L.P., GKH
Investments, L.P., IPP95, L.P., Hanna Investment Group, Otto
Candies, Inc., Phyllis S. Hojel, Ted Collins, Jr. and L.O.
Ward
10.21 Cooperation Agreement dated January 16, 1997 among Hanover,
Wartsila and Wartsila Compression Services, GMBH.
10.22 Distributorship Agreement dated January 16, 1997 between
Hanover and Wartsila Compression Services.
10.23 1997 Stock Option Plan
10.24* 1997 Stock Purchase Plan
10.25 Amendment, Waiver and Consent dated as of April 14, 1997 to
Second Amended and Restated Credit Agreement among Hanover
Compressor Company, the several banks and other financial
institutions from time to time parties thereto and The Chase
Manhattan Bank, as agent
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.26 Amendment, Waiver and Consent dated as of December 23, 1996
to the Second Amended and Restated Credit Agreement, dated
as of December 19, 1995
10.27 Exchange Agreement by and between Hanover Compressor Company
and JEDI, dated December 23, 1996
10.28 Amendment, Waiver and Consent dated as of April 14, 1997 by
and among Hanover Compressor Company, JEDI and the Lenders
named therein
10.29 Amendment, Waiver and Consent dated as of December 23, 1996
by and among Hanover Compressor Company, JEDI and the
Lenders named therein
11.1 Statement re computation of per share earnings
21.1 List of Subsidiaries
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Neal, Gerber & Eisenberg (included in Exhibit
5.1)
24.1** Powers of Attorney (included on the signature pages to the
Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
HANOVER COMPRESSOR COMPANY
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
-------------------------------
UNDERWRITING AGREEMENT
, 1997
Goldman, Sachs & Co.,
Credit Suisse First Boston
Salomon Brothers Inc
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004.
Ladies and Gentlemen:
Hanover Compressor Company, a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of ___________ shares and, at the election of the Underwriters, up
to ___________ additional shares of common stock, par value $0.001 per share
("Stock") of the Company, and the stockholders of the Company named in Schedule
II hereto (the "Selling Stockholders") propose, subject to the terms and
conditions stated herein, to sell to the Underwriters an aggregate of
___________ shares of Stock. The aggregate of ___________ shares to be sold by
the Company and the Selling Stockholders is herein called the "Firm Shares" and
the aggregate of ___________ additional shares to be sold by the Company is
herein called the "Optional Shares". The Firm Shares and the Optional Shares
that the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees
with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No.
333-24953) (the "Initial Registration Statement") in respect of the
Shares has been filed with the Securities and Exchange Commission (the
"Commission"); the Initial Registration Statement and any
post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for each of
the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing
the size of the offering (a "Rule 462(b) Registration Statement"),
filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended (the "Act"), which became
<PAGE> 2
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission;
and no stop order suspending the effectiveness of the Initial
Registration Statement, any post effective amendment thereto or the
Rule 462(b) Registration Statement, if any, has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule
424(a) of the rules and regulations of the Commission under the Act,
is hereinafter called a "Preliminary Prospectus"); the various parts
of the Initial Registration Statement and the Rule 462(b) Registration
Statement, if any, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the registration statement at the time it was declared
effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus");
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by an Underwriter through Goldman, Sachs & Co.
expressly for use therein;
(iii) The Registration Statement conforms, and the
Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will conform, in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder and do not and will not, as of the
applicable effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(iv) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capital stock or
long-term debt (excluding current maturities) of the Company or any of
its subsidiaries or any material adverse change, or any development
involving a prospective material adverse change, in or
-2-
<PAGE> 3
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(v) The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is
material to the business of the Company and its subsidiaries, in each
case free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries;
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus, and has been
duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction; and each subsidiary of the Company
has been duly incorporated and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued and
are fully paid and non-assessable and conform to the description of
the Stock contained in the Prospectus; and all of the issued shares of
capital stock of each subsidiary of the Company have been duly and
validly authorized and issued, are fully paid and non-assessable and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims except as described in the Prospectus;
(viii) The unissued Shares to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and fully paid and
non-assessable and will conform to the description of the Stock
contained in the Prospectus;
(ix) The issue and sale of the Shares and the compliance
by the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries is bound or to which any of the
property or assets of the Company or any of its subsidiaries is
subject, except for any such conflict, breach, violation or default
which would not have a material adverse effect on the Company and its
subsidiaries taken as a whole, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or
By-laws of the
-3-
<PAGE> 4
Company or any statute or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which it is a party or by which it or any of its properties may be
bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete and
fair in all material respects;
(xii) Other than as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the
Company or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries
taken as a whole; and, to the best of the Company's knowledge, no such
proceedings are threatened by governmental authorities or threatened
by others;
(xiii) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company"
or an entity "controlled" by an "investment company", as such terms
are defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(xiv) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;
(xv) Price Waterhouse LLP, who have audited certain
financial statements of the Company and its subsidiaries, and Arthur
Anderson LLP, who have audited certain financial statements of Astra
Resources Corporation, Inc., are each independent accountants as
required by the Act and the rules and regulations of the Commission
thereunder;
(xvi) Other than as set forth in the Prospectus, the
Company and each of its subsidiaries have obtained all material
environmental permits, licenses and other authorizations required by
federal, state and local law in order to conduct their businesses as
described in the Prospectus; the Company and each of its subsidiaries
are conducting their businesses in substantial compliance with such
permits, licenses and authorizations
-4-
<PAGE> 5
and with applicable environmental laws, except where the failure to be
in compliance would not have a material adverse effect on the
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and,
except as described in the Prospectus, the Company is not in violation
of any Federal or state law or regulation relating to the storage,
handling, disposal, release or transportation of hazardous or toxic
materials;
(xvii) The Company and each of its subsidiaries have all
licenses, franchises, permits, authorizations, approvals and orders
and other concessions of and from all governmental or regulatory
authorities that are necessary to own or lease their properties and
conduct their businesses as described in the Prospectus, except for
such licenses, franchises, permits, authorizations, approvals and
orders the failure to obtain which will not, individually or in the
aggregate, have a material adverse effect on the financial position,
stockholders' equity, results of operations or financial prospects of
the Company or its subsidiaries taken as a whole; and
(xviii) The Company and each of its subsidiaries is
conducting business in compliance with all applicable statutes, rules,
regulations, standards, guides and orders administered or issued by
any governmental or regulatory authority in the jurisdictions in which
it is conducting business, except where the failure to be so in
compliance would not have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations or financial prospects of the Company or its subsidiaries
taken as a whole;
(b) Each of the Selling Stockholders severally and not
jointly represents and warrants to, and agrees with, each of the Underwriters
and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder
of this Agreement, the Power of Attorney and the Custody Agreement
hereinafter referred to, and for the sale and delivery of the Shares
to be sold by such Selling Stockholder hereunder, have been obtained;
and such Selling Stockholder has full right, power and authority to
enter into this Agreement, the Power of Attorney and the Custody
Agreement and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and the compliance by such Selling Stockholder
with all of the provisions of this Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any statute, indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is
bound, or to which any of the property or assets of such Selling
Stockholder is subject, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws of
such Selling Stockholder if such Selling Stockholder is a corporation,
the Partnership Agreement of such Selling Stockholder if such Selling
Stockholder is a partnership, Operating Agreement if such Selling
Stockholder is a limited liability company or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property of
such Selling Stockholder;
-5-
<PAGE> 6
(iii) Such Selling Stockholder has, and immediately prior
to each Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold
by such Selling Stockholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares
and payment therefor pursuant hereto and thereto, good and valid title
to such Shares, free and clear of all liens, encumbrances, equities or
claims, will pass to the several Underwriters;
(iv) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose
of, except as provided hereunder, any securities of the Company that
are substantially similar to the Shares, including but not limited to
any securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially
similar securities (other than pursuant to employee stock option and
restricted stock plans existing and warrants outstanding on, or upon
the conversion, exchange or exercise of convertible, exchangeable or
exercisable securities outstanding as of, the date of this Agreement),
without your prior written consent;
(v) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action which is designed to or which
has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made
in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto are made in reliance
upon and in conformity with written information furnished to the
Company by such Selling Stockholder expressly for use therein, such
Preliminary Prospectus and the Registration Statement did, and the
Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus, when they become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(vii) In order to document the Underwriters' compliance
with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 with respect to the transactions
herein contemplated, such Selling Stockholder will deliver to you
prior to or at the First Time of Delivery (as hereinafter defined) a
properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof);
(viii) Certificates in negotiable form representing all of
the Shares to be sold by such Selling Stockholder hereunder have been
placed in custody under a Custody Agreement, in the form heretofore
furnished to you (the "Custody Agreement"), duly executed and
delivered by such Selling Stockholder to __________________ _____, as
custodian (the "Custodian"), and such Selling Stockholder has duly
executed and delivered a Power of Attorney, in the form heretofore
furnished to you (the "Power of Attorney"), appointing the persons
indicated in Schedule II hereto, and each of them, as such Selling
Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such
Selling Stockholder, to determine the purchase price to be
-6-
<PAGE> 7
paid by the Underwriters to the Selling Stockholders as provided in
Section 2 hereof, to authorize the delivery of the Shares to be sold
by such Selling Stockholder hereunder and otherwise to act on behalf
of such Selling Stockholder in connection with the transactions
contemplated by this Agreement and the Custody Agreement; and
(ix) The Shares represented by the certificates held in
custody for such Selling Stockholder under the Custody Agreement are
subject to the interests of the Underwriters hereunder; the
arrangements made by such Selling Stockholder for such custody, and
the appointment by such Selling Stockholder of the Attorneys-in-Fact
by the Power of Attorney, are to that extent irrevocable; the
obligations of the Selling Stockholders hereunder shall not be
terminated by operation of law, whether by the death or incapacity of
any individual Selling Stockholder or, in the case of an estate or
trust, by the death or incapacity of any executor or trustee or the
termination of such estate or trust, or in the case of a partnership
or corporation, by the dissolution of such partnership, limited
liability company or corporation, or by the occurrence of any other
event; if any individual Selling Stockholder or any such executor or
trustee should die or become incapacitated, or if any such estate or
trust should be terminated, or if any such partnership, limited
liability company or corporation should be dissolved, or if any other
such event should occur, before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on
behalf of the Selling Stockholders in accordance with the terms and
conditions of this Agreement and of the Custody Agreements; and
actions taken by the Attorneys-in-Fact pursuant to the Powers of
Attorney shall be as valid as if such death, incapacity, termination,
dissolution or other event had not occurred, regardless of whether or
not the Custodian, the Attorneys-in-Fact, or any of them, shall have
received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, (a) the
Company and each of the Selling Stockholders agree, severally and not jointly,
to sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and each of the Selling
Stockholders, at a purchase price per share of $___________________, the number
of Firm Shares (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying the aggregate number of Firm Shares to be sold by the
Company and each of the Selling Stockholders as set forth opposite their
respective names in Schedule II hereto by a fraction, the numerator of which is
the aggregate number of Firm Shares to be purchased by such Underwriter as set
forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from the Company and all of the Selling Stockholders
hereunder and (b) in the event and to the extent that the Underwriters shall
exercise the election to purchase Optional Shares as provided below, the
Company agrees to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company ,
at the purchase price per share set forth in clause (a) of this Section 2, that
portion of the number of Optional Shares as to which such election shall have
been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to purchase
hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ___________________ _______ Optional Shares, at the
purchase price per share set forth in the paragraph
-7-
<PAGE> 8
above, for the sole purpose of covering overallotments in the sale of the Firm
Shares. Any such election to purchase Optional Shares may be exercised only by
written notice from you to the Company, given within a period of 30 calendar
days after the date of this Agreement and setting forth the aggregate number of
Optional Shares to be purchased and the date on which such Optional Shares are
to be delivered, as determined by you but in no event earlier than the First
Time of Delivery (as defined in Section 4 hereof) or, unless you and the
Company otherwise agree in writing, earlier than two or later than ten business
days after the date of such notice.
3. Upon the authorization by you of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder,
in definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request in writing upon at least forty-eight
hours' prior notice to the Company and the Selling Stockholders shall be
delivered by or on behalf of the Company and the Selling Stockholders to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by
or on behalf of such Underwriter of the purchase price therefor by wire
transfer of immediately available funds to the Company and the Custodian, as
the case may be. The Company will cause the certificates representing the
Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York
10004(22)] (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on ____________________, 1997 or such other time and date as Goldman,
Sachs & Co. and the Company may agree upon in writing, and, with respect to
the Optional Shares, 9:30 a.m., New York City time, on the date specified by
Goldman, Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such
time and date for delivery of the Firm Shares is herein called the "First Time
of Delivery", such time and date for delivery of the Optional Shares, if not
the First Time of Delivery, is herein called the "Second Time of Delivery", and
each such time and date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or
on behalf of the parties hereto pursuant to Section 7 hereof, including the
cross-receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the offices
of Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas 77002 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
each Time of Delivery. A meeting will be held at the Closing Location at 2:00
p.m., Houston time, on the New York Business Day next preceding each Time of
Delivery, at which meeting the final drafts of the documents to be delivered
pursuant to the preceding sentence will be available for review by the parties
hereto. For the purposes of this Section 4, "New York Business Day" shall mean
each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or obligated by
law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to
file such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such
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earlier time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or Prospectus
to which you object promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to
the Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and to
furnish you copies thereof; to advise you, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus,
of the suspension of the qualification of the Shares for offering or sale in
any jurisdiction, of the initiation or threatening of any proceeding for any
such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any
order preventing or suspending the use of any Preliminary Prospectus or
prospectus or suspending any such qualification, promptly to use its reasonable
best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Shares, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation, to submit to taxation, or to file
a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York
Business Day next succeeding the date of this Agreement and to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine months after the time of issue of
the Prospectus in connection with the offering or sale of the Shares and if at
such time any events shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with the Act, to notify you and upon your request
to prepare and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you reasonably request of an amended Prospectus or
a supplement to the Prospectus which will correct such statement or omission or
effect such compliance, and in case any Underwriter is required to deliver a
prospectus in connection with sales of any of the Shares at any time nine
months or more after the time of issue of the Prospectus, upon your request but
at the expense of such Underwriter, to prepare and deliver to such Underwriter
as many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date
of this Agreement, and the Company shall at the time of filing either pay to
the Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act:
(e) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as
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defined in Rule 158(c) under the Act), an earnings statement of the Company and
its subsidiaries (which need not be audited) complying with Section 11(a) of
the Act and the rules and regulations of the Commission thereunder (including,
at the option of the Company, Rule 158);
(f) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the Prospectus,
not to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Company that are substantially
similar to the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option and restricted stock plans existing and warrants
outstanding on, or upon the conversion, exchange or exercise of convertible,
exchangeable or exercisable securities outstanding as of, the date of this
Agreement), without your prior written consent;
(g) To furnish to its stockholders as soon as practicable after
the end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants) and,
as soon as practicable after the end of each of the first three quarters of
each fiscal year (beginning with the fiscal quarter ending after the effective
date of the Registration Statement), consolidated summary financial information
of the Company and its subsidiaries for such quarter in reasonable detail;
(h) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver
to you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(i) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(j) To use its best efforts to list, subject to notice of
issuance, the Shares on the New York Stock Exchange (the "Exchange"); and
(k) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act.
6. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all
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<PAGE> 11
expenses in connection with the qualification of the Shares for offering and
sale under state securities laws as provided in Section 5(b) hereof, including
the fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky Memorandum; (iv) all
fees and expenses in connection with listing the Shares on the New York Stock
Exchange; (v) the filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, securing any required review
by the National Association of Securities Dealers, Inc. of the terms of the
sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the
cost and charges of any transfer agent or registrar; and (viii) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood that
except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees
of their counsel, stock transfer taxes on resale of any of the Shares by them,
and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the
Shares to be delivered at each Time of Delivery, shall be subject, in their
discretion, to the condition that all representations and warranties and other
statements of the Company and of the Selling Stockholders herein are, at and as
of such Time of Delivery, true and correct, the condition that the Company and
the Selling Stockholders shall have performed all of its and their obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed for such
filing by the rules and regulations under the Act and in accordance with
Section 5(a) hereof; if the Company has elected to rely upon Rule 462(b), the
Rule 462(b) Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order suspending
the effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on
the part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Vinson & Elkins L.L.P., counsel for the Underwriters, shall
have furnished to you their written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (vii), (xi) and (xv) of
subsection (c) below as well as such other related matters as you may
reasonably request, and such counsel shall have received such papers and
information as they may reasonably request to enable them to pass upon such
matters;
(c) Neal, Gerber & Eisenberg, counsel for the Company, shall have
furnished to you their written opinion (a draft of each such opinion is
attached on Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware,
with corporate power and authority to own its properties and conduct
its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and
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<PAGE> 12
are fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates and that such
counsel furnishes such opinions and certificates to the
representatives);
(iv) Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the
issued shares of capital stock of each such subsidiary have been duly
and validly authorized and issued, are fully paid and non-assessable,
and (except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims, other than those described in the Prospectus (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you
and they are justified in relying upon such opinions and certificates
and that such counsel furnishes such opinions and certificates to the
representatives);
(v) To the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries taken as a whole; and,
to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at
such Time of Delivery to be sold by the Company and the compliance by
the Company with all of the provisions of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument known
to such counsel to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or
to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws of
the Company or any statute or any order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties;
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<PAGE> 13
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation by the Company of the transactions
contemplated by this Agreement, except the registration under the Act
of the Shares, and such consents, approvals, authorizations,
registrations or qualifications as may be required under state or
foreign securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(ix) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
known to such counsel to which it is a party or by which it or any of
its properties may be bound;
(x) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Underwriting", insofar as they purport to summarize the provisions of
the laws and documents referred to therein, are accurate summaries in
all material respects;
(xi) The Company is not an "investment company" or an
entity "controlled" by an "investment company", as such terms are
defined in the Investment Company Act;
(xii) To the best of such counsel's knowledge, except as
have been waived at such Time of Delivery, there are no persons with
registration or similar rights to have any securities of the Company
registered pursuant to the Registration Statement;
(xiii) To the best of such counsel's knowledge, the Company
and each of its subsidiaries have obtained all environmental permits,
licenses and other authorizations required by federal, state and local
law in order to conduct their businesses except as described in the
Prospectus; the Company and each of its subsidiaries are conducting
their businesses in compliance with such permits, licenses and
authorizations and with applicable environmental laws, except where
the failure to be in compliance would not have a material adverse
effect on the consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole, and, except as described in the Prospectus, the Company is not
in violation of any Federal or state law or regulation relating to the
storage, handling, disposal, release or transportation of hazardous or
toxic materials; and
(xiv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules and financial data therein, as to which such counsel
need express no opinion) comply as to form in all material respects
with the requirements of the Act and the rules and regulations
thereunder; although they do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (xi) of this Section 7(c), they have no
reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules and financial data therein, as to which such
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<PAGE> 14
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules
and financial data therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein, as
to which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required
to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are
not filed or described as required.
(d) The respective counsel for each of the Selling Stockholders,
as indicated in Schedule II hereto, each shall have furnished to you their
written opinion with respect to each of the Selling Stockholders for whom they
are acting as counsel, dated the First Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been
duly executed and delivered by such Selling Stockholder and constitute
valid and binding agreements of such Selling Stockholder in accordance
with their terms;
(ii) This Agreement has been duly executed and delivered
by or on behalf of such Selling Stockholder; and the sale of the
Shares to be sold by such Selling Stockholder hereunder and thereunder
and the compliance by such Selling Stockholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation
of any terms or provisions of, or constitute a default under, any
statute, indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which such Selling
Stockholder is a party or by which such Selling Stockholder is bound,
or to which any of the property or assets of such Selling Stockholder
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of such
Selling Stockholder if such Selling Stockholder is a corporation, the
Partnership Agreement of such Selling Stockholder if such Selling
Stockholder is a partnership, Operating Agreement if such Selling
Stockholder is a limited liability company or any order, rule or
regulation known to such counsel of any court or governmental agency
or body having jurisdiction over such Selling Stockholder or the
property of such Selling Stockholder;
(iii) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
of the transactions contemplated by this Agreement in connection with
the Shares to be sold by such Selling Stockholder hereunder or
thereunder, except which have been duly obtained and are in full force
and effect, such as have been obtained under the Act and such as may
be required under state securities
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<PAGE> 15
or Blue Sky laws in connection with the purchase and distribution of
such Shares by the Underwriters;
(iv) Immediately prior to the First Time of Delivery such
Selling Stockholder had good and valid title to the Shares to be sold
at the First Time of Delivery by such Selling Stockholder under this
Agreement, free and clear of all liens, encumbrances, equities or
claims, and full right, power and authority to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder
hereunder and thereunder; and
(v) Good and valid title to such Shares, free and clear
of all liens, encumbrances, equities or claims, has been transferred
to each of the several Underwriters who have purchased such Shares in
good faith and without notice of any such lien, encumbrance, equity or
claim or any other adverse claim within the meaning of the Uniform
Commercial Code.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside the
United States and in rendering the opinion in subparagraphs (iv) and
(v) such counsel may rely upon a certificate of such Selling
Stockholder in respect of matters of fact as to ownership of, and
liens, encumbrances, equities or claims on the Shares sold by such
Selling Stockholder, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such
certificate; and such counsel furnishes such certificate to the
representatives;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at each Time of Delivery, Price Waterhouse
LLP shall have furnished to you a letter or letters, dated the respective dates
of delivery thereof, in form and substance satisfactory to you, to the effect
set forth in Annex I hereto (the executed copy of the letter delivered prior to
the execution of this Agreement is attached as Annex I(a) hereto and a draft of
the form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt (except current maturities) of
the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations
of the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which is, in any such case
described in Clause (i) or (ii), is in the judgment of the Representatives so
material and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares being delivered at such Time
of Delivery on the terms and in the manner contemplated in the Prospectus;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or preferred
stock by any "nationally recognized statistical
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<PAGE> 16
rating organization", as that term is defined by the Commission for purposes of
Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly
announced that it has under surveillance or review, with possible negative
implications, its rating of any of the Company's debt securities or preferred
stock;
(h) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the Exchange; (ii) a suspension or material limitation
in trading in the Company's securities on the Exchange; (iii) a general
moratorium on commercial banking activities declared by either Federal or New
York or Texas state authorities; or (iv) the outbreak or escalation of
hostilities involving the United States or the declaration by the United States
of a national emergency or war, if the effect of any such event specified in
this Clause (iv) in the judgment of the Representatives makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(i) The Shares to be sold by the Company and the Selling
Stockholders at such Time of Delivery shall have been duly listed, subject to
notice of issuance, on the Exchange;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from_________ _______________________________
to the effect set forth in Subsection 1(b)(iv) hereof in form and substance
satisfactory to you;
(k) The Company and the Selling Stockholders shall, severally and
not jointly, have furnished or caused to be furnished to you at such Time of
Delivery certificates of officers of the Company and of the Selling
Stockholders, respectively, satisfactory to you as to the accuracy of the
representations and warranties of the Company and the Selling Stockholders,
respectively, herein at and as of such Time of Delivery, as to the performance
by the Company and the Selling Stockholders of all of their respective
obligations hereunder to be performed at or prior to such Time of Delivery, and
as to such other matters as you may reasonably request, and the Company shall
have furnished or caused to be furnished certificates as to the matters set
forth in subsections (a) and (e) of this Section, and as to such other matters
as you may reasonably request; and
(l) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement.
8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in
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<PAGE> 17
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each of the Selling Stockholders, severally and not jointly,
will indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading and
will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided however, that the
liability of a Selling Stockholder pursuant to this subsection 8(b) shall not
exceed the product of the number of Shares sold by such Selling Stockholder
including any Optional Shares and the initial public offering price of the
Shares as set forth in the Prospectus, provided further, that such Selling
Stockholder shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman, Sachs
& Co. expressly for use therein.
(c) Each Underwriter will indemnify and hold harmless the Company
and each Selling Stockholder against any losses, claims, damages or liabilities
to which the Company or such Selling Stockholder may become subject, under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of the commencement of any action,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (which shall not,
except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its
-17-
<PAGE> 18
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses
of other counsel or any other expenses, in each case subsequently incurred by
such indemnified party, in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from
all liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by
or on behalf of any indemnified party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Stockholders on
the one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and the Selling Stockholders on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Shares (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or the
Selling Stockholders on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, each of the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to
above in this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be
-18-
<PAGE> 19
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholders
under this Section 8 shall be in addition to any liability which the Company
and the respective Selling Stockholders may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including
any person who, with his or her consent, is named in the Registration Statement
as about to become a director of the Company) and to each person, if any, who
controls the Company or any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or other
parties to purchase such Shares on the terms contained herein. If within
thirty-six hours after such default by any Underwriter you do not arrange for
the purchase of such Shares, then the Company and the Selling Stockholders
shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company and the Selling Stockholders that you have so
arranged for the purchase of such Shares, or the Company and the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Company and the Selling Stockholders shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person
had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the
Company and the Selling Stockholders as provided in subsection (a) above, the
aggregate number of such Shares which remains unpurchased does not exceed
one-eleventh of the aggregate number of all of the Shares to be purchased at
such Time of Delivery, then the Company and the Selling Stockholders shall have
the right to require each non-defaulting Underwriter to purchase the number of
Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase
of the Shares of a defaulting Underwriter or Underwriters by you and the
Company and the Selling Stockholders as provided in subsection (a) above, the
aggregate number of such Shares which remains unpurchased exceeds one-eleventh
of the aggregate number of all of the Shares to be purchased at such Time of
Delivery, or if the Company and the Selling Stockholders shall not exercise the
right described in subsection (b) above to require non-defaulting Underwriters
to purchase Shares of a
-19-
<PAGE> 20
defaulting Underwriter or Underwriters, then this Agreement or, with respect to
the Second Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Stockholders, except for the expenses to be borne by the Company
and the Selling Stockholders and the Underwriters as provided in Section 6
hereof and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and
the several Underwriters, as set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or any controlling
person of any Underwriter, or the Company, or any of the Selling Stockholders,
or any officer or director or controlling person of the Company, or any
controlling person of any Selling Stockholder, and shall survive delivery of
and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither the Company nor the Selling Stockholders shall then be under
any liability to any Underwriter except as provided in Sections 6 and 8 hereof;
but, if for any other reason any Shares are not delivered by or on behalf of
the Company and the Selling Stockholders as provided herein, the Company and
each of the Selling Stockholders pro rata (based on the number of Shares to be
sold by the Company and such Selling Stockholder hereunder) will reimburse the
Underwriters through you for all out-of-pocket expenses approved in writing by
you, including reasonable fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of the Shares not so delivered, but the Company and the Selling
Stockholders shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with any Selling Stockholder hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of such Selling Stockholder made or
given by any or all of the Attorneys-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives in care of Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to any Selling Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for such Selling Stockholder at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of
the Company set forth in the Registration Statement, Attention: President;
provided, however, that any notice to an Underwriter pursuant to Section 8 (d)
hereof shall be delivered or sent by mail, telex or facsimile transmission to
such Underwriter at its address set forth in its Underwriters' Questionnaire or
telex constituting such Questionnaire, which address will be supplied to the
Company or the Selling Stockholders by you upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
-20-
<PAGE> 21
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company and the Selling Stockholders and, to
the extent provided in Sections 8 and 10 hereof, the officers and directors of
the Company and each person who controls the Company, any Selling Stockholder
or any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used
herein, the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us one for the Company and for each of the Representatives plus
one for each counsel and the Custodian, if any counterparts hereof, and upon
the acceptance hereof by you, on behalf of each of the Underwriters, this
letter and such acceptance hereof shall constitute a binding agreement among
each of the Underwriters, the Company and each of the Selling Stockholders. It
is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement
among Underwriters, the form of which shall be submitted to the Company and the
Selling Stockholders for examination upon request, but without warranty on your
part as to the authority of the signers thereof.
-21-
<PAGE> 22
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-Fact
to take such action.
Very truly yours,
HANOVER COMPRESSOR COMPANY
By: . . . . . . . . . . . . . . . .
Name:
Title:
[NAMES OF SELLING STOCKHOLDERS]
By: . . . . . . . . . . . . . . . .
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named
in Schedule II to this Agreement.
Accepted as of the date hereof
Goldman, Sachs & Co.
Credit Suisse First Boston
Salomon Brothers Inc.
By: . . . . . . . . . . . . . . . . . . . . . . . . . .
(Goldman, Sachs & Co.)
-22-
<PAGE> 23
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional Shares
to be Purchased if
Total Number of firm Maximum Option
Underwriter Shares to be Purchased Exercised
-----------
<S> <C> <C>
Goldman, Sachs & Co . . . . . . .
Credit Suisse First Boston . . .
Salomon Brothers Inc . . . . . .
TOTAL
</TABLE>
-23-
<PAGE> 24
SCHEDULE II
<TABLE>
<CAPTION>
Total Number of Firm
Shares to be Sold
<S> <C>
The Company . . . . . . . . . . . . . . . . . . . . . .
The Selling Stockholders(s) . . . . . . . . . . . . . .
[NAME OF SELLING STOCKHOLDER] (A) . . . . . .
[NAME OF SELLING STOCKHOLDER] (B) . . . . . .
[NAME OF SELLING STOCKHOLDER] (C) . . . . . .
[NAME OF SELLING STOCKHOLDER] (D) . . . . . .
[NAME OF SELLING STOCKHOLDER[ (E) . . . . . .
TOTAL
</TABLE>
(a) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)],
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [NAME AND ADDRESS OF
COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)],
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [NAME AND ADDRESS
OF COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)],
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [NAME AND ADDRESS
OF COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)],
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [NAME AND ADDRESS
OF COUNSEL] and has appointed [NAMES OF ATTORNEYS-IN-FACT (NOT LESS THAN TWO)],
and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
-24-
<PAGE> 25
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the
Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined
by them and included in the Prospectus or the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the
periods specified in such letter, as indicated in their reports
thereon, copies of which have been furnished separately to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited condensed consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus as indicated in their reports thereon
copies of which have been separately furnished to the Representatives;
and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i)
below comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements
do not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect
to the consolidated results of operations and financial position of
the Company for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements
where applicable) in the audited consolidated financial statements for
such five fiscal years;
(v) They have compared the information in the Prospectus
under selected captions with the disclosure requirements of Regulation
S-K and on the basis of limited procedures specified in such letter
nothing came to their attention as a result of the foregoing
procedures that caused them to believe that this information does not
conform in all material respects with the disclosure requirements of
Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
<PAGE> 26
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and
other information referred to below, a reading of the latest available
interim financial statements of the Company and its subsidiaries,
inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of
income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus do not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally
accepted accounting principles;
(B) any other unaudited income statement data and
balance sheet items included in the Prospectus do not agree
with the corresponding items in the unaudited consolidated
financial statements from which such data and items were
derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated
financial statements included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause
(A) and any unaudited income statement data and balance sheet
items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with
the basis for the audited consolidated financial statements
included in the Prospectus;
(D) any unaudited pro forma consolidated condensed
financial statements included in the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the Act and the published rules and
regulations thereunder or the pro forma adjustments have not
been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any changes
in the consolidated capital stock (other than issuances of
capital stock upon exercise of options and stock appreciation
rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the
consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current
assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by
the Representatives, in each case as compared with amounts
shown in the latest balance sheet included in the Prospectus,
except in each case for changes,
-2-
<PAGE> 27
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(F) for the period from the date of the latest
financial statements included in the Prospectus to the
specified date referred to in Clause (E) there were any
decreases in consolidated net revenues or operating profit or
the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases
in any items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (vi) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives, which are derived from the general accounting records
of the Company and its subsidiaries, which appear in the Prospectus,
or in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
of such amounts, percentages and financial information with the
accounting records of the Company and its subsidiaries and have found
them to be in agreement.
-3-
<PAGE> 1
EXHIBIT 4.11
NUMBER SHARES
C
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $.001
THIS CERTIFICATE IS TRANSFERABLE
IN DALLAS, TEXAS AND NEW YORK, CUSIP 410768 10 5
NEW YORK, SEE REVERSE FOR CERTAIN DEFINITIONS
HANOVER COMPRESSOR COMPANY
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Hanover Compressor Company, transferable on the books of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate is not valid until
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile corporate seal and the facsimile signatures of
its duly authorized officers.
/s/ MICHAEL J. McGHAN DATED
- ---------------------
Michael J. McGhan COUNTERSIGNED AND REGISTERED:
President ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT
/s/ RICHARD S. MELLER AND REGISTRAR
- ---------------------
Richard S. Meller By
Secretary AUTHORIZED SIGNATURE
HANOVER HANOVER
COMPRESSOR COMPANY COMPRESSOR COMPANY
[LOGO] [SEAL]
<PAGE> 2
HANOVER COMPRESSOR COMPANY
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF
THE COMPANY, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT--__________
TEN ENT -- as tenants by the entireties (Cust)
JT TEN -- as joint tenants with right Custodian __________
of survivorship and not as (Minor)
tenants in common under Uniform Gifts to Minors
Act _____________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
| |
______________________________________________________________________________
______________________________________________________________________________
Please print or typewrite name and address including
postal zip code of assignee
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________________
______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Company
with full power of substitution in the premises.
Dated, ______________________________
X ___________________________________
(SIGNATURE)
NOTICE:
THE SIGNATURE(S) TO THIS AS-
SIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFI- ---------
CATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR EN-
LARGEMENT OR ANY CHANGE
WHATEVER.
X ___________________________________
(SIGNATURE)
___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17-Ad-15.
___________________________________________
SIGNATURE(S) GUARANTEED BY:
___________________________________________
____________________________________ _________________________________________
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR - PAT STATES -
680 BLAIR MILL ROAD 215-830-2196
HORSHAM, PA 19044 PROOF OF APRIL 22, 1997
215-657-3480 HANOVER
H 50186bk
____________________________________ _________________________________________
SALES PERSON--M. GARRET-214-823-2700 Opr. eg/hj NEW
____________________________________ _________________________________________
/home/ed/inprogress/home 12/ /net/banknote/home 12/H
Hanover50186
____________________________________ _________________________________________
<PAGE> 1
EXHIBIT 4.12
SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
OF HANOVER COMPRESSOR COMPANY
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement")
dated as of June ___, 1997, among Hanover Compressor Company, a Delaware
corporation (the "Company") and the Amending Stockholders (all capitalized
terms used but not defined prior to Article I shall have the meaning ascribed
to them in Article I), which Agreement shall be effective upon the occurrence
of the Effective Date.
W I T N E S S E T H:
WHEREAS, as of the date hereof, the Company and the Amending
Stockholders are parties to that certain Amended and Restated Stockholders
Agreement dated as of August 7, 1995, amended as of October 31, 1996 (the
"Stockholders Agreement");
WHEREAS, no amendment of the Stockholders Agreement shall be valid
unless the same shall be in writing executed by (a) the Company, (b) GKH and
(c) Minority Stockholders holding a majority of the shares of Common Stock (on
a Fully Diluted Basis) then held by all Minority Stockholders;
WHEREAS, the Company, GKH and Minority Stockholders holding a majority
of the shares of Common Stock (on a Fully Diluted Basis) held by all Minority
Stockholders as of the date hereof (such Minority Stockholders, along with GKH,
are hereinafter called the "Amending Stockholders") agree that it is in their
mutual best interests to amend and restate the Stockholders Agreement in its
entirety.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants and agreements herein contained and of other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound, hereby agree
as follows:
ARTICLE I
DEFINITIONS; ETC.
1.1 Definitions. Except as otherwise herein expressly provided,
the following terms and phrases shall have the meanings set forth below:
"Affiliate" shall mean (i) in the case of an entity, any Person who or
which, directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, any specified Person and
(ii) in the case of an individual, such individual's spouse, children,
grandchildren or parents, or a trust primarily for the benefit of any of the
foregoing. With respect to GKH, the term Affiliate shall expressly include,
without limitation, the partners in GKH.
<PAGE> 2
"Agreement" shall mean this Second Amended and Restated Stockholders
Agreement, as originally executed and as amended, modified, supplemented or
restated from time to time, as the context requires.
"Applicable Date" shall mean the last business day of the month
immediately preceding the date on which a Terminated Stockholder's employment
is terminated.
"Bankruptcy" shall mean with respect to any Person (i) the making of a
general assignment or composition for the benefit of creditors or (ii) any
commencement of bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any liquidation
proceeding under any bankruptcy or insolvency law, or the commencement in
respect of such Person or a substantial portion of such Person's property or
assets of any liquidation proceeding and, if such case or proceeding is not
commenced by such Person, it is either (A) consented to or acquiesced in by
such Person or (B) remains undismissed after 60 days following the date of
commencement thereof.
"Board" shall mean the Board of Directors of the Company as
constituted from time to time.
"Bona Fide Purchaser" shall mean any Person (other than a selling
Stockholder's Affiliates) who or which has delivered a good faith written offer
to purchase all or a portion of such Stockholder's Stock for cash or Marketable
Securities; provided, however, that, such Person has the requisite financial
resources necessary, in the reasonable opinion of the Board, to purchase and
acquire such Stockholder's Stock.
"Cause" when used in connection with the termination of employment of
an Employee Minority Stockholder, shall mean a termination of such Employee
Minority Stockholder's employment by the Company due to (i) the commission by
such Employee Minority Stockholder of an act of fraud, embezzlement or willful
breach of a fiduciary duty to the Company (including the unauthorized
disclosure of confidential or proprietary material information of the Company),
(ii) a conviction of such Employee Minority Stockholder (or a plea of nolo
contendere in lieu thereof) for a felony or a crime involving fraud, dishonesty
or moral turpitude, (iii) willful misconduct as an employee of the Company,
(iv) the willful failure of such Employee Minority Stockholder to render
services to the Company in accordance with his employment, which failure
amounts to a material neglect of his duties to the Company or (v) substantial
dependence, as determined by the Board, on alcohol or any Controlled Substance.
"Common Stock" shall mean the Company's common stock, par value $.001
per share.
"Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership,
<PAGE> 3
directly or indirectly, of securities having the power to elect a majority of
the board of directors or similar body governing the affairs of such Person.
"Controlled Substance" shall mean a drug, immediate precursor or other
substance listed in Schedule I-V of the Federal Comprehensive Drug Abuse
Prevention and Control Act of 1970, as amended.
"Cost," with respect to a Terminated Stockholder, shall mean the
purchase price paid by the Terminated Stockholder for each share of his Stock
at the time of such Terminated Stockholder's acquisition thereof. In
accordance with the foregoing, each share of Stock owned by a Stockholder may
have a different Cost.
"Director" shall mean a person appointed or elected as a member of the
Board.
"Dispose" or "Disposition" (and any derivatives thereof) shall mean
(i) a voluntary or involuntary sale, assignment, transfer, conveyance or other
disposition of a Stockholder's Stock, and (ii) any agreement, contract or
commitment to do any of the foregoing.
"Effective Date" shall mean the date of consummation of an initial
public offering of Common Stock.
"Employee Minority Stockholder" shall mean each Minority Stockholder
who is an employee of the Company on the date hereof or on such other date that
such person shall become a party hereto.
"Encumbrance" or "Encumber" shall mean or refer to any lien, claim,
charge, pledge, mortgage, encumbrance, security interest, restriction on voting
or alienation of any kind, adverse interest or preferential arrangement of any
kind, or the interest of a third party under any conditional sale agreement,
capital lease or other title retention agreement.
"Exempt Disposition" shall mean a Disposition (i) pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") or (ii) pursuant to any public distribution of Stock
pursuant to Rule 144 of the Securities Act.
"Fair Market Value" shall mean the per share value of a share of
Common Stock (determined on a Fully Diluted Basis) as determined within 6
months prior to the date of a Terminated Stockholder's termination of
employment with the Company; provided, however, that if no such determination
has been made within 6 months thereof, then as of the Applicable Date as
determined by the Board; provided, further, that if the Terminated Stockholder
notifies the Board in writing within 10 days of such Terminated Stockholder's
receipt of written notice of the determination of the Fair Market Value of his
Common Stock that he disagrees with such determination, the Board shall retain
an independent nationally-recognized investment banking firm (such firm to be
subject to such Terminated Stockholder's approval, which approval shall not be
unreasonably withheld or delayed) to determine the per share value of the
Common
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<PAGE> 4
Stock; provided, further, that the Board shall not be required to retain any
such firm more than once in any six month period for all Terminated
Stockholders. Any fees and expenses incurred with respect to such investment
banking firm shall be shared equally by the Terminated Stockholder and the
Company if the Board's determination of Fair Market Value is equal to, higher
than or no more than 15% less than that of such investment banking firm;
otherwise the Company shall pay all the fees and expenses of such investment
banking firm. The determination of Fair Market Value by such investment
banking firm shall be final and binding. The calculation of Fair Market Value
shall include a Minority Discount, shall be determined on the basis of the
Common Stock being fully distributed and shall give effect to restrictions on
transferability. For the purposes of this definition of "Fair Market Value"
the calculation of the value of the Common Stock on a Fully Diluted Basis shall
take into account an increase in the capitalization of the Company in the
amount of the consideration which would have been paid to the Company had the
options, warrants or convertible securities referred to in the definition of
"Fully Diluted Basis" below, actually been exercised.
"Fully Diluted Basis" shall mean with respect to the shares of Common
Stock, the aggregate of (i) the number of shares of Common Stock issued and
outstanding at the time of calculation (other than shares of Common Stock held
in the treasury of the Company or held by any Affiliate of the Company that is
controlled by the Company) and (ii) the number of shares of Common Stock
issuable, at the time of calculation, upon (A) the exercise of any then
exercisable outstanding options, warrants or similar instrument (other than
such instruments held by the Company or any Affiliate of the Company that is
controlled by the Company) and (B) the exercise of any then exercisable
conversion or exchange rights with respect to any outstanding securities or
instruments (other than such securities or instruments held by the Company or
any Affiliate of the Company that is controlled by the Company).
"GKH" shall mean the collective reference to (i) GKH Investments,
L.P., a Delaware limited partnership ("GKH Investments"), (ii) GKH Partners,
L.P., a Delaware limited partnership ("GKH Partners"), and (iii) their
respective Affiliates. Any and all decisions and determinations required to be
made by GKH hereunder shall be made by GKH Partners, for itself, GKH and their
respective Affiliates.
"Letter Agreement Date" shall mean the third anniversary of the date
referenced within an Employee Minority Stockholder's letter agreement
pertaining to either Section 3.3(b) of this Agreement or to section 3.5(d) of
the Stockholders Agreement being amended and restated hereby.
"Marketable Securities" shall mean securities of a Person which Person
files periodic reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, but only to the extent such securities being
offered by a Bona Fide Purchaser to a Stockholder are, at the time of the
offer, being publicly traded in the over-the- counter market or on a nationally
recognized exchange.
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<PAGE> 5
"Minority Discount" shall mean any impact that the lack of a
controlling interest possessed by a particular block of Common Stock may have
on the valuation of such Common Stock.
"Minority Stockholders" shall mean all of the Stockholders other than
GKH, together with such Stockholders' respective Affiliates. Any and all
decisions and determinations required to be made by a Minority Stockholder
hereunder shall be made by such Minority Stockholder, for itself or himself and
on behalf of its Affiliates.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, trust, firm, association, unincorporated
organization or other entity.
"Seller" shall mean a Minority Stockholder Disposing of its or his
Stock.
"Stock" shall mean (i) shares of Common Stock, (ii) shares of
preferred stock, and (iii) options and warrants exercisable with respect to, or
other securities convertible into or exchangeable for shares of, Common Stock.
"Stockholder" or "Stockholders" shall mean parties hereto (other than
the Company), their appropriate successors and assigns and any Person who is a
holder of Stock and is or is required to be a party hereto at the time of
reference thereto.
1.2 Certain Other Defined Terms The following terms are defined
in the Section of this Agreement directly opposite such terms:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Amending Stockholders preamble
Company preamble
Debt Instrument 3.3(b)
Participating Minority Stockholder 3.2(b)
Terminated Stockholder 3.3
</TABLE>
1.3 Article, Etc. References to an "Article" or a "Section" are,
unless otherwise specified, to one of the Articles or Sections of this
Agreement.
ARTICLE II
ORGANIZATIONAL DOCUMENTS; DIRECTORS
2.1 Articles of Incorporation; By-Laws. From and after the date
hereof, each Stockholder shall vote the Common Stock owned by him or it at any
meeting of the stockholders of the Company or in any written consent executed
in lieu of such a meeting of stockholders and shall take all actions necessary
to insure that the Certificate of Incorporation and By-Laws of the Company do
not, at any time, conflict with the provisions of this Agreement and take all
necessary and required action to cause the Company to amend, or amend and
restate, the
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<PAGE> 6
Certificate of Incorporation and By-Laws of the Company as necessary to
effectuate the purposes of this Agreement.
ARTICLE III
TRANSFER RESTRICTIONS
3.1 Rights to Compel Disposition.
(a) Rights of GKH. If GKH proposes to Dispose of all
(but not less than all) of the Common Stock owned by it to a Bona Fide
Purchaser, other than pursuant to an Exempt Disposition, then, notwithstanding
anything in this Agreement to the contrary, GKH may require the Minority
Stockholders to Dispose of their Common Stock to such Bona Fide Purchaser for
the same consideration per share and otherwise on the same terms and conditions
(other than with respect to representations and warranties) upon which GKH
effects the Disposition of its Common Stock.
(b) Obligations of Minority Stockholders. In the event
that GKH desires to exercise its rights pursuant to Section 3.1(a), GKH shall
deliver to the Company and the Minority Stockholders written notice setting
forth the consideration per share to be paid by such Bona Fide Purchaser and
the other terms and conditions of such Disposition. Within 15 days following
the date of such notice, each Minority Stockholder shall deliver to GKH (i) a
stock certificate or certificates evidencing such Minority Stockholder's Common
Stock, together with an appropriate assignment separate from certificate duly
executed in a proper form to effect the Disposition of such Common Stock from
such Minority Stockholder to the Bona Fide Purchaser on the books and records
of the Company and (ii) a limited power- of-attorney authorizing GKH to effect
the Disposition of such Common Stock pursuant to the terms of such Bona Fide
Purchaser's offer as such terms may be modified by GKH, provided, that all of
the Minority Stockholders' Common Stock is disposed of for the same
consideration per share and otherwise on the same terms and conditions upon
which GKH effects the Disposition of its Common Stock. In the event that any
Minority Stockholder shall fail to deliver such stock certificate(s),
assignment separate from certificate and limited power-of-attorney to GKH, the
Company shall (A) cause a notation to be made on its books and records to
reflect that the Common Stock of such Minority Stockholder is bound by the
provisions of this Section 3.1 and that the Disposition of such Common Stock
may be effected without such Minority Stockholder's consent or surrender of its
Common Stock and (B) hold back the proceeds of the Disposition of any such
Minority Stockholder's Common Stock in an interest bearing account pending
compliance by such Minority Stockholder with its obligations under this Section
3.1(b).
In addition, in the event GKH exercises its rights under Section
3.1(a), each Minority Stockholder shall be required to make to a Bona Fide
Purchaser such unqualified representations and warranties with respect to its
Common Stock as are set forth in Section 3.4(b) hereof and representations and
warranties qualified to knowledge with respect to all other matters as are
reasonably requested by the Bona Fide Purchaser.
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<PAGE> 7
(c) Responsibility of GKH. Promptly after the
consummation of the Disposition of Common Stock pursuant to this Section 3.1,
GKH shall (i) deliver notice thereof to the Minority Stockholders, (ii) remit
to the Minority Stockholders the total consideration received by GKH, if any,
with respect to the Minority Stockholders' Common Stock Disposed of pursuant
hereto, and (iii) furnish such other evidence of the completion and time of
completion of such Disposition and the terms thereof as may be reasonably
requested in writing by such Minority Stockholders.
(d) Failure to Effect Transfer. If, within 120 days
after GKH's delivery of the notice required pursuant to Section 3.1(b), GKH has
not completed the Disposition of its Common Stock and that of the Minority
Stockholders in accordance herewith, GKH shall return to each of the Minority
Stockholders (i) the stock certificates and assignments of certificates with
respect to such Minority Stockholder's Common Stock which such Minority
Stockholder delivered pursuant to this Section 3.1 and (ii) the related limited
power-of-attorney. Upon the Minority Stockholders' receipt of such materials,
all of the restrictions on Disposition contained in this Agreement with respect
to the Common Stock owned by the Stockholders shall again be in effect.
3.2 Rights of Inclusion.
(a) Rights of Minority Stockholders. If (i) GKH proposes
to Dispose of Common Stock owned by it to a Bona Fide Purchaser, (ii) such
Common Stock represents greater than 50% of the outstanding Common Stock (on an
undiluted basis) then owned by GKH and (iii) GKH elects not to exercise its
rights under Section 3.1, then each Minority Stockholder, at its sole right and
option, may require GKH to require the Bona Fide Purchaser to purchase that
percentage of its Common Stock which is equal to the percentage of all Common
Stock then owned by GKH that is being so Disposed of by GKH for the same
consideration per share and otherwise on the same terms and conditions upon
which GKH effects the Disposition of its Common Stock.
(b) Obligations of Participating Minority Stockholders.
If GKH desires to accept a Bona Fide Purchaser's offer to purchase all of the
Common Stock which GKH proposes to sell in accordance with Section 3.2(a), GKH
shall deliver a copy of the Bona Fide Purchaser's offer to the Company and each
of the Minority Stockholders, and, within 15 days of the receipt of such copy,
each Minority Stockholder desiring to exercise its rights pursuant to this
Section 3.2 (each a "Participating Minority Stockholder," collectively, the
"Participating Minority Stockholders") shall deliver to the Company and GKH
written notice to such effect and shall deliver to GKH (i) a stock certificate
or certificates evidencing its Common Stock, together with an appropriate
assignment separate from certificate duly executed in a proper form to effect
the Disposition of the Participating Common Stock to the Bona Fide Purchaser on
the books and records of the Company and (ii) a limited power-of-attorney
authorizing GKH to effect the Disposition of such Common Stock pursuant to the
terms of such Bona Fide Purchaser's offer as such terms may be modified by GKH,
provided, that all of the Participating Minority Stockholders' Common Stock
that is being transferred pursuant to this Section 3.2 is Disposed
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<PAGE> 8
of for the same consideration per share and otherwise on the same terms and
conditions upon which GKH effects the Disposition of its Common Stock. The
failure of a Minority Stockholder to deliver notice of its desire to exercise
its rights under or to otherwise comply with the provisions of this Section
3.2(b) shall be deemed to be a waiver of such Minority Stockholder's rights
hereunder and such Minority Stockholder shall not be deemed to be a
Participating Minority Stockholder.
(c) Responsibility of GKH. Promptly after the
consummation of the sale of Common Stock under this Section 3.2, GKH shall (i)
deliver notice thereof to the Participating Minority Stockholders of the sale,
(ii) remit to the Participating Minority Stockholders the total consideration
received by GKH, if any, with respect to the Minority Stockholders' Common
Stock sold pursuant hereto and (iii) furnish such other evidence of the
completion and time of completion of such Disposition and the terms thereof as
may be reasonably requested in writing by a Participating Minority Stockholder.
(d) Failure to Effect Transfer. If, within 120 days
after GKH's delivery of the copy of the Bona Fide Purchaser's offer pursuant to
Section 3.2(b), GKH has not completed the Disposition of its Common Stock and
that of the Participating Minority Stockholders in accordance herewith, GKH
shall return to each of the Participating Minority Stockholders (i) the stock
certificates and assignments of certificates with respect to such Participating
Minority Stockholder's Common Stock which such Participating Minority
Stockholder delivered for Disposition pursuant to this Section 3.2 and (ii) the
related limited power-of-attorney. Upon the Participating Minority
Stockholders' receipt of such materials, all the restrictions on Disposition
contained in this Agreement with respect to the Common Stock owned by the
Stockholders shall again be in effect.
3.3 Certain Sales Upon Termination of Employment.
(a) Termination for Cause. In the event the employment
of an Employee Minority Stockholder is terminated for Cause (the "Terminated
Stockholder"), the Company shall have the right, but not the obligation, for a
period of 90 days thereafter to purchase all, but not less than all, of the
Common Stock of the Terminated Stockholder by delivering written notice to such
effect. The purchase price for the Common Stock purchased pursuant to this
Section 3.3 shall be equal to the lesser of (i) Cost and (ii) 80% of the Fair
Market Value thereof, payable by delivery of a promissory note of the Company
having a term of seven years and otherwise complying with Section 3.3(c)
hereof.
(b) Exceptions for Payment in Cash. Notwithstanding
anything herein to the contrary, if the payment of all or a portion of the
purchase price in cash under any subsection of Section 3.3 would cause a
default under any agreement or instrument respecting the incurrence of
indebtedness, including, without limitation, any credit agreement, note,
mortgage, bond, indenture, or deed of trust to which the Company or any of its
subsidiaries is a party or by which any of its or their properties or assets
are bound (each, a "Debt Instrument") then such portion of the purchase price
shall be payable in cash to the extent such default would not be
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<PAGE> 9
caused and the remainder of such portion of the purchase price shall be payable
pursuant to the Company's delivery of a promissory note in accordance with
Section 3.3(c) and having the shortest term permissible without causing such a
default. To the extent that any or all of the portion of the purchase price is
payable to the Terminated Stockholder in cash, the amount of such payment shall
offset by the cancellation of any indebtedness owed by the Terminated
Stockholder to the Company or its Affiliates (including, without limitation,
any indebtedness owed by such Terminated Stockholder to the Company in
connection with such Terminated Stockholder's purchase of the Common Stock).
(c) Payment Pursuant to Promissory Note. Any promissory
note of the Company required to be delivered pursuant to this Section 3.3 shall
be in a form reasonably acceptable to the parties and shall have the following
terms: (i) the principal amount of the note shall be equal to the purchase
price for the Terminated Stockholder's Common Stock offset by the cancellation
of any indebtedness owed by the Terminated Stockholder to the Company or its
Affiliates (including, without limitation, any indebtedness owed by such
Terminated Stockholder to the Company in connection with such Terminated
Stockholder's purchase of the Common Stock) after giving effect to any such
offset made pursuant to Section 3.3(b), (ii) the Company's obligations under
such promissory note shall be subordinated and subject in right of payment to
the prior payment of all indebtedness of the Company and its subsidiaries the
terms of which require such subordination, (iii) the principal amount of such
promissory note shall be payable, to the extent permitted by all Debt
Instruments, in equal annual installments commencing on the first anniversary
of the issuance thereof and continuing as required by subsection (a) or (b), as
appropriate, of this Section 3.3 and (iv) the principal amount of such
promissory note shall be bear interest payable annually at the prime rate
announced from time to time by The Chase Manhattan Bank in New York, New York.
(d) Tender of Common Stock. Any payment of the purchase
price pursuant to Section 3.3, whether by delivery of a note, in cash or by a
combination thereof, shall be made against delivery of the certificates
representing the Common Stock so purchased, duly endorsed, or, at the
purchaser's option, accompanied by a stock power executed in blank.
3.4 Agreement of Selling Stockholder. All sales of Common Stock
to be made pursuant to Sections 3.1, 3.2, and 3.3 of this Agreement shall be
subject to the following terms:
(a) Deliveries. The Seller shall deliver to the
purchaser certificates evidencing the Common Stock being sold, free and clear
of any Encumbrance, together with duly executed transfers thereof in favor of
the purchaser or its nominees and such other documents, including evidence of
ownership and authority, as the purchaser may reasonably request;
(b) Representations and Warranties. The Seller shall not
be required to make any representations or warranties to any Person in
connection with such sale, except as to (i) good title to the Common Stock
being sold, (ii) the absence of Encumbrances with respect to the Common Stock
being sold, (iii) the due organization and valid existence of the Seller if the
Seller is not an individual, (iv) the authority for, and validity and binding
effect of (as against
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<PAGE> 10
such Seller), any agreement entered into by such Seller in connection with such
sale, (v) all required material consents to Seller's sale and governmental
approvals having been obtained (excluding any approvals required by applicable
state or federal securities laws) and (vi) the fact that no broker's commission
is payable by the Seller as a result of Seller's conduct in connection with the
sale; and
(c) Indemnification. The Seller shall not be required to
provide any indemnities in connection with such sale except for breach of the
representations and warranties contained in Section 3.4(b).
3.5 General Transfer Restriction. Unless otherwise agreed by GKH
and the Minority Stockholders holding a majority of shares of Common Stock (on
a Fully Diluted Basis) then held by all Minority Stockholders, any Stock
Disposed by a Minority Stockholder, other than pursuant to an Exempt
Disposition shall remain subject to all of the terms and conditions of this
Agreement in the hands of any Person to whom such Stock may be Disposed and any
such Person shall be required to first deliver to the Company and the
Stockholders a written agreement assuming and agreeing to be bound by all of
the terms and conditions of this Agreement and to be a Stockholder hereunder.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Endorsement on Common Stock Certificates. Each and every
certificate of stock evidencing Common Stock and Preferred Stock shall contain
upon its face, or on the reverse side thereof, the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
SUCH ACT, OR UNLESS SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
COMPLIANCE WITH SUCH ACT. THE TRANSFERABILITY OF THIS SECURITY IS
ALSO SUBJECT TO RESTRICTIONS CONTAINED IN A STOCKHOLDERS AGREEMENT
WHICH AGREEMENT THE COMPANY WILL FURNISH TO THE HOLDER OF THIS
SECURITY UPON REQUEST.
A STATEMENT SUMMARIZING THE VOTING POWERS, DESIGNATIONS,
PREFERENCES, LIMITATIONS, RESTRICTIONS AND RELATIVE RIGHTS OF THE
VARIOUS CLASSES OF STOCK OR SERIES THEREOF MAY BE OBTAINED BY THE
STOCKHOLDERS OF THE COMPANY, WITHOUT CHARGE, FROM THE PRINCIPAL
OFFICES OF THE COMPANY."
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<PAGE> 11
4.2 Termination.
(a) Agreement. This Agreement shall terminate upon the
earliest to occur of the following events:
(i) Bankruptcy of the Company;
(ii) the Common Stock being owned by a single
Stockholder;
(iii) the passage of six months (or such longer
time period required by the Company's underwriters) from the effective
date of a publicly registered offering of 25% or more of the Common
Stock;
(iv) GKH ceases to own 35% or more of the then
issued and outstanding Common Stock (on an undiluted basis);
(v) the Effective Date failing to occur by
September 15, 1997; or
(vi) the voluntary agreement, in writing, of (A)
the Company, (B) GKH and (C) Minority Stockholders holding a majority
of the Common Stock then held by all Minority Stockholders.
4.3 Effectiveness. Until occurrence of the Effective Date, the
Stockholders Agreement shall remain in full force and effect and in the event
of the termination of this Agreement pursuant to Section 4.2(v) hereof, the
Stockholders Agreement shall continue in full force and effect.
4.4 Common Stock subject to this Agreement.
(a) This Agreement shall apply to all Stock currently or
hereinafter owned or acquired by the Stockholders, including, without
limitation, (i) the Stock held by the Stockholders on the Effective Date, (ii)
any Stock issued to any Stockholder pursuant to Section 4.4(b) hereof, (iii)
any Stock issued to any Stockholder pursuant to such Stockholder's exercise of
an option or warrant and (iv) any Stock otherwise purchased by, acquired by or
issued to any Stockholder. All stock certificates evidencing Stock subject to
this Agreement shall, on the reverse thereof, contain the restrictive legend
set forth in Section 4.1.
(b) If at any time, and from time to time, the Company
shall declare and pay a dividend upon any of the Stock in the form of
additional shares of Stock, or shall validly issue shares in lieu of, or in
exchange for, or in addition to, any of the Stock without the receipt of
additional consideration therefor, then any such shares subsequently issued
with respect to the Stock then subject to this Agreement shall constitute
additional Stock subject to this Agreement.
-11-
<PAGE> 12
4.5 Notices. Any and all notices or other communications provided
for herein shall be in writing and shall be considered duly given upon the
earliest to occur of (a) personal delivery, (b) 2 days after being delivered to
a nationally recognized overnight mail delivery or courier service, (c) 5 days
after being mailed by certified or registered mail, return receipt requested,
postage prepaid or (d) delivery by prepaid telegram or facsimile transmission
(with written confirmation of receipt). All notices shall be addressed to the
Company at its principal office and to the Stockholders at their addresses last
appearing on the stock records of the Company. Any party hereto may change its
address by giving notice to the other parties hereto as provided herein.
4.6 Pronouns and Headings. As used herein, all pronouns shall
include the masculine, feminine, neuter, singular and plural wherever the
context and facts require such construction. The descriptive headings in the
Articles or Sections of this Agreement are inserted for convenience of
reference only and shall not control or affect the meaning or construction of
any of the provisions hereof.
4.7 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal or unenforceable, such
provision shall be severed and enforced to the extent possible or modified in
such a way as to make it enforceable, and the invalidity, illegality or
unenforceability thereof shall not affect the validity, legality or
enforceability of the remaining provisions of this Agreement.
4.8 Modification; Amendment. No modification or amendment of this
Agreement shall be valid unless the same shall be in writing executed by (a)
the Company, (b) GKH and (c) Minority Stockholders holding a majority of the
shares of Common Stock (on a Fully Diluted Basis) then held by all Minority
Stockholders.
4.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard
to the conflict of laws provisions thereof.
4.10 Binding Effect; Complete Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns. This
Agreement and the agreements and related documentation, if any, pursuant to
which the Stockholders acquired their respective shares of Stock from the
Company, constitute the entire agreement among the parties hereto and supersede
all prior agreements and understandings, oral or written, among the parties
hereto with respect to the subject matter hereof and thereof including, without
limitation, the Stockholders Agreement, except as provided in Section 4.3
hereof.
4.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
-12-
<PAGE> 13
4.12 Attorneys' Fees. If any legal action, including an action
for declaratory relief, is brought to enforce any provision of this Agreement,
the prevailing party or parties, as the case may be, shall be entitled to
recover his, its or their respective reasonable attorneys' fees from the
non-prevailing party or parties, as the case may be. These fees, which may be
set by the court in the same action or in a separate action brought for that
purpose, are in addition to any other relief to which any prevailing party may
be entitled.
4.13 Consent of Spouse; Insertion in Will. Each married Minority
Stockholder, or, if currently unmarried, each Minority Stockholder upon his
marriage, agrees to obtain the consent and approval of his spouse to all of the
terms and provisions of this Agreement by the execution hereof by such spouse.
Each Minority Stockholder, if an individual, agrees to insert in his last will
and testament, or other similar instrument, or to execute a codicil thereto,
directing and authorizing his personal representatives to fulfill and comply
with the provisions hereof and to sell and transfer his Common Stock in
accordance with the terms and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE COMPANY:
-----------
HANOVER COMPRESSOR COMPANY,
a Delaware corporation
By:
------------------------------------------
Curtis Bedrich
Chief Financial Officer and Treasurer
-13-
<PAGE> 14
THE STOCKHOLDERS:
GKH INVESTMENTS, L.P., a Delaware limited
partnership
By: GKH PARTNERS, L.P., a Delaware limited
partnership, its general partner
By: JAKK HOLDING CORP., a Nevada
corporation, a general partner
By:
--------------------------------------
Name: Melvyn N. Klein,
President
GKH PARTNERS, L.P., a Delaware limited
partnership
By: JAKK HOLDING CORP., a Nevada
corporation, a general partner
By:
--------------------------------------
Name: Melvyn N. Klein,
President
[signatures of Minority Stockholders
holding a majority of the shares of
Common Stock (on a Fully Diluted Basis)
held by all Minority Stockholders as of
the date hereof continued on next pages]
-14-
<PAGE> 15
MICHAEL O'CONNOR, representing % of the shares
-----
of the Minority Stockholders
-----------------------------------------
Michael O'Connor
MICHAEL MCGHAN, representing % of the shares
-----
of the Minority Stockholders
-----------------------------------------
Michael McGhan
MAXWELL C. MCDONALD, representing % of the
------
shares of the Minority Stockholders
-----------------------------------------
Maxwell C. McDonald
CURTIS BEDRICH, representing % of the shares
-----
of the Minority Stockholders
-----------------------------------------
Curtis Bedrich
-15-
<PAGE> 16
WILLIAM C. BRYANT, representing % of the shares
----
of the Minority Stockholders
-----------------------------------------
William C. Bryant
CHARLES D. ERWIN, representing % of the
-------
shares of the Minority Stockholders
-----------------------------------------
Charles D. Erwin
-16-
<PAGE> 17
OTHER MINORITY STOCKHOLDERS:
----------------------------
HANNA INVESTMENT GROUP II
------------------------------------
By: Jim L. Hanna
Its: Managing Partner
NEW PROSPECT DRILLING COMPANY
------------------------------------
By:
Its:
OTTO CANDIES, INC.
------------------------------------
By: Paul B. Candies
Its: President
------------------------------------
Wayne A. Adams
------------------------------------
Thomas F. Allcorn
------------------------------------
James Anders
-17-
<PAGE> 18
------------------------------------
Debra S. Barrowcliff
------------------------------------
Candace Bennatte
------------------------------------
John E. Biggs
------------------------------------
Joseph L. Boudreaux
------------------------------------
Joe C. Bradford
------------------------------------
Arthur W. Brown
------------------------------------
John A. Brown
------------------------------------
Ernest Eugene Burns
------------------------------------
James Craig Bussey
-18-
<PAGE> 19
------------------------------------
James C. Cathey
------------------------------------
Camille J. Chatelain
------------------------------------
Ted Collins, Jr.
------------------------------------
Jeff Culpepper
------------------------------------
Dale C. Curtis
------------------------------------
Keith M. Davis
------------------------------------
Tony Dennis
------------------------------------
Donald M. Deville
------------------------------------
Timothy R. Dones
-19-
<PAGE> 20
------------------------------------
Thomas J. Ellingson
------------------------------------
Neil E. Estes
------------------------------------
Matthew D. Gasior
------------------------------------
Ralph W. Gates, Jr.
------------------------------------
Mark Robert Gauger
------------------------------------
Steve R. Gill
------------------------------------
Jack Clayton Good
------------------------------------
Gary Dwight Harsell
------------------------------------
Teddy Head
-20-
<PAGE> 21
------------------------------------
Lori Herring
------------------------------------
Phyllis S. Hojel
------------------------------------
Thomas R. Horrigan
------------------------------------
Jeri Howell
------------------------------------
Russell Mike Hunter
------------------------------------
Gary Hyde
------------------------------------
Robert L. Jolley
------------------------------------
Sam K. Jones
------------------------------------
Scott C. Jones
-21-
<PAGE> 22
------------------------------------
Michael A. Josey
------------------------------------
Robert R. Kelley
------------------------------------
Richard A. Landry
------------------------------------
Alan D'Angers Lavenue
------------------------------------
Jeffrey H. Light
------------------------------------
Jason Kirk Loos
------------------------------------
Jose L. Lopez
------------------------------------
Paul K. Ludwick
------------------------------------
Robert Lyles
-22-
<PAGE> 23
------------------------------------
John M. Mallory
------------------------------------
W. David Malone
------------------------------------
James K. Mann
------------------------------------
Ronald J. Masek
------------------------------------
Jerry B. McCollom
------------------------------------
Melinda Joy McCracken
------------------------------------
Patty Jo McCullough
------------------------------------
Thomas McNeil
------------------------------------
Suzanne Moeckel
-23-
<PAGE> 24
------------------------------------
Vonda Lee Morris
------------------------------------
Francis L. O'Brien, Jr.
------------------------------------
John C. Oxley
------------------------------------
Michael J. Paris
------------------------------------
Dan S. Parmlee, Jr.
------------------------------------
Horace Pickett
------------------------------------
Robert Pierce
------------------------------------
Edward Pyzdrowski
------------------------------------
Carrol Don Ray
-24-
<PAGE> 25
------------------------------------
Rickey D. Reed
------------------------------------
Clayton D. Rhoads
------------------------------------
Errol Robinson
------------------------------------
Walter Rode
------------------------------------
Todd Rutherford
------------------------------------
J. Greg Sargent
------------------------------------
Ricky Schmoker
------------------------------------
Steven C. Scribner
------------------------------------
Francis M. Shaddox
-25-
<PAGE> 26
------------------------------------
John H. Stephens
------------------------------------
John Mark Story
------------------------------------
Donnie R. Templeton
------------------------------------
Philip D. Timpa
------------------------------------
George T. Tolmachoff
------------------------------------
Chris Trahan
------------------------------------
Diane Tristan
------------------------------------
Sebastian Valencia, Jr.
------------------------------------
Phillip Wakefield
-26-
<PAGE> 27
------------------------------------
William C. Walla
------------------------------------
Robert C. Wallace
------------------------------------
Paul Walters
------------------------------------
James Gregory Wappler
------------------------------------
L. O. Ward
------------------------------------
Steve Ward
------------------------------------
Sam Whitten, Jr.
------------------------------------
Michael E. Whittley
------------------------------------
Mac Wilson
-27-
<PAGE> 28
------------------------------------
Glen Wind
------------------------------------
Kurt Wind
------------------------------------
Matthew Wishert
------------------------------------
George M. Woodman
-28-
<PAGE> 1
EXHIBIT 4.13
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
(JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP)
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (JOINT ENERGY
DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP) dated as of May _______, 1997,
among Hanover Compressor Company, a Delaware corporation (the "Company") and
the Stockholders party hereto (all capitalized terms used but not defined prior
to Article I shall have the meaning ascribed to them in Article I), which
Agreement shall only be effective upon the consummation of an initial public
offering of Common Stock on or prior to September 15, 1997 (the date of
consummation being the "Effective Date").
W I T N E S S E T H:
WHEREAS, as of the date hereof, the Company and the Stockholders are
parties to that certain Stockholders Agreement (Joint Energy Development
Investments Limited Partnership) dated as of August 7, 1995, amended as of
December 23, 1996 (the "Stockholders Agreement");
WHEREAS, no amendment of the Stockholders Agreement shall be valid
unless the same shall be executed by all of the Stockholders;
WHEREAS, the Company and the Stockholders agree that it is in their
best interests to amend and restate the Stockholders Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants and agreements herein contained and of other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound, hereby agree
as follows:
ARTICLE I
DEFINITIONS; ETC.
1.1 Definitions. Except as otherwise herein expressly provided,
the following terms and phrases shall have the meanings set forth below:
"Affiliate" shall mean (i) in the case of an entity, any Person who or
which, directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, any specified Person or (ii)
in the case of an individual, such individual's spouse, children, grandchildren
or parents or a trust primarily for the benefit of any of the foregoing. With
respect to GKH, the term Affiliate shall expressly include the partners in GKH
and with respect to JEDI, the term Affiliate shall expressly include the
partners in JEDI.
"Agreement" shall mean this Amended and Restated Stockholders
Agreement (Joint Energy Development Investments Limited Partnership), as
originally executed and as amended, modified, supplemented or restated from
time to time, as the context requires.
<PAGE> 2
"Bankruptcy" shall mean with respect to any Person (i) the making of a
general assignment or composition for the benefit of creditors or (ii) any
commencement of bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any liquidation
proceeding under any bankruptcy or insolvency law, or the commencement in
respect of such Person or a substantial portion of such Person's property or
assets of any liquidation proceeding and, if such case or proceeding is not
commenced by such Person, it is either (A) consented to or acquiesced in by
such Person or (B) remains undismissed after 60 days following the date of
commencement thereof.
"Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
"Bona Fide Purchaser" shall mean any Person (other than a selling
Stockholder's Affiliate) who or which has delivered a good faith written offer
to purchase all of such Stockholder's Stock for cash or Marketable Securities
provided, however, that, such Person has the requisite financial resources
necessary, in the reasonable opinion of the Board, to purchase and acquire such
Stockholder's Stock.
"Common Stock" shall mean the Company's common stock, par value $.001
per share.
"Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs of
such Person.
"Dispose" or "Disposition" (and any derivatives thereof) shall mean
(i) a voluntary or involuntary sale, assignment, transfer, conveyance or other
disposition of a Stockholder's Stock, and (ii) any agreement, contract or
commitment to do any of the foregoing, but shall exclude a pledge of a
Stockholder's Stock.
"Encumbrance" or "Encumber" shall mean or refer to any lien, claim,
charge, pledge, mortgage, encumbrance, security interest, preferential
arrangement, restriction on voting or alienation of any kind, adverse interest,
or the interest of a third party under any conditional sale agreement, capital
lease or other title retention agreement.
"Exempt Disposition" shall mean a Disposition (i) pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or (ii) pursuant to any public distribution of Stock
pursuant to Rule 144 of the Securities Act.
"GKH" shall mean the collective reference to (i) GKH Investments,
L.P., a Delaware limited partnership ("Investments"), (ii) GKH Partners, L.P.,
a Delaware limited partnership ("Partners") and (iii) the respective Affiliates
of Investments and Partners. Any and all decisions
-2-
<PAGE> 3
and determinations to be made by GKH hereunder shall be made by Partners, for
itself, Investments and their respective Affiliates.
"JEDI" shall mean Joint Energy Development Investments Limited
Partnership, a Delaware limited partnership.
"Marketable Securities" shall mean securities of a Person which Person
files periodic reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, but only to the extent such securities being offered by a
Bona Fide Purchaser to a Stockholder are, at the time of the offer, being
publicly traded in the over-the-counter market or on a nationally recognized
exchange.
"Non-GKH Holders" shall mean any Stockholder other than GKH.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, trust, firm, association, unincorporated
organization or other entity.
"Production Equipment" shall mean, with respect to any Person other
than the Company or any of its Subsidiaries, oil and gas production equipment
which is similar to or is an enhancement of oil and gas production equipment
designed, manufactured, re-conditioned or sold by Hanover/Smith, Inc. as of the
date hereof.
"Stock" shall mean (i) shares of Common Stock, (ii) shares of
preferred stock of the Company, and (iii) options and warrants exercisable with
respect to, or other securities convertible into or exchangeable for shares of,
Common Stock.
"Stockholder" or "Stockholders" shall mean the parties hereto (other
than the Company), their appropriate successors and assigns and any Person who
is (i) a holder of Stock and (ii) is or is required to be a party to this
Agreement at the time of reference thereto.
"Subsidiary" shall mean with respect to any Person, (a) any
corporation (whether now existing or hereafter organized) of which at least a
majority of the voting stock having ordinary voting power for the election of
directors is, at the time as of which any determination is being made, directly
or indirectly owned or controlled by such Person or as to which such Person has
the power to direct the management or operations thereof, whether by contract
or otherwise and (b) any partnership, joint venture, association or other
business entity (whether now existing or hereafter organized) of which more
than 50% of the equity interest is, at the time as of which any determination
is being made, directly or indirectly owned or controlled by such Person or as
to which such Person has the power to direct the management or operations
thereof, whether by contract or otherwise.
1.2 Certain Other Defined Terms. The following terms are
defined in the Section of this Agreement set forth directly opposite such
terms:
-3-
<PAGE> 4
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Company preamble
Equity Interest 3.1
Participating Stockholder 2.2(b)
</TABLE>
1.3 Article, Etc. References to an "Article" or a "Section"
are, unless otherwise specified, to one of the Articles or Sections of this
Agreement.
ARTICLE II
TRANSFER RESTRICTIONS
2.1 Rights to Compel Disposition.
(a) Rights of GKH. If GKH proposes to Dispose of all,
but not less than all, of its Stock to a Bona Fide Purchaser (other than
pursuant to an Exempt Disposition), then, notwithstanding anything in this
Agreement to the contrary, GKH may require the Non-GKH Holders to Dispose of
all of their Stock to such Bona Fide Purchaser for the same consideration per
share and otherwise on the same terms and conditions (other than with respect
to representations and warranties) upon which GKH effects the Disposition of
its Stock.
(b) Obligations of the Non-GKH Holders. In the event
that GKH desires to exercise its right pursuant to Section 2.1(a), GKH shall
deliver to the Company and the Non-GKH Holders notice setting forth the
consideration per share of Stock to be paid by such Bona Fide Purchaser and the
other terms and conditions of such Disposition. Within 25 days following the
date of such notice, each of the Non-GKH Holders shall deliver to GKH (i) a
stock certificate or stock certificates evidencing such Non-GKH Holder's Stock
together with an appropriate instrument of assignment duly executed in a proper
form to effect the Disposition of such Stock from such Non-GKH Holder to the
Bona Fide Purchaser on the books and records of the Company and (ii) a limited
power-of-attorney authorizing GKH to effect the Disposition of such Stock
pursuant to the terms of such Bona Fide Purchaser's offer as such terms may be
modified by GKH, provided, that all of such Non-GKH Holder's Stock is disposed
of for the same consideration per share of Stock and otherwise on the same
terms and conditions upon which GKH effects the Disposition of its Stock. In
the event that any Non-GKH Holder shall fail to deliver such documentation to
GKH, the Company shall (A) cause a notation to be made on its books and records
to reflect that the Stock of such Non-GKH Holder is bound by the provisions of
this Section 2.1 and that the Disposition of such Stock may be effected without
the such Non-GKH Holder's consent or surrender of its Stock and (B) hold back
the proceeds of the Disposition of any such Non-GKH Holder's Stock in a non-
interest bearing account pending compliance by such Non-GKH Holder with its
obligations under this Section 2.1(b).
In addition, in the event GKH exercises its rights under Section
2.1(a), the Non-GKH Holders shall be required to make to the relevant Bona Fide
Purchaser such unqualified representations and warranties with respect to their
Stock as are set forth in Section 2.3(b) hereof.
-4-
<PAGE> 5
(c) Responsibility of GKH. Promptly after the
consummation of the Disposition of Stock pursuant to this Section 2.1, GKH
shall (i) deliver notice thereof to the Non-GKH Holders, (ii) subject to clause
(B) of Section 2.1(b) remit to each Non-GKH Holder the total consideration
received by GKH, if any, with respect to such Non-GKH Holder's Stock Disposed
of pursuant hereto, and (iii) furnish such other evidence of the completion and
time of completion of such Disposition and the terms thereof as may be
reasonably requested in writing by the Non-GKH Holders.
(d) Failure to Effect Transfer. If, within 90 days
after GKH's delivery of the notice required pursuant to Section 2.1(b), GKH
shall not have completed the Disposition of its Stock and that of the Non-GKH
Holders in accordance herewith, GKH shall return to the Non-GKH Holders the
documents and instruments which the Non-GKH Holders shall have delivered
pursuant to this Section 2.1. Upon the Non-GKH Holder's receipt of such
documents, all the restrictions on Disposition contained in this Agreement with
respect to the Stock owned by the Stockholders shall again be in effect.
2.2 Rights of Inclusion.
(a) Rights of the Non-GKH Holders. (i) GKH proposes to
Dispose of its Stock to a Bona Fide Purchaser (other than pursuant to an Exempt
Disposition), (ii) such Stock represents greater than 50% of the Common Stock
then owned by GKH and (iii) GKH elects not to exercise its rights pursuant to
Section 2.1 hereof, then any Non-GKH Holder may require GKH to require the Bona
Fide Purchaser to purchase that percentage of such Non-GKH Holder's Preferred
Stock or Common Stock, as the case may be, equal to the percentage of GKH's
Stock that is being disposed of by GKH to such Bona Fide Purchaser in
accordance with this Section 2.2(a) for the same consideration per share and
otherwise on the same terms and conditions (other than with respect to
representations and warranties) upon which GKH effects the Disposition of its
Stock.
(b) Obligations of Participating Stockholder. If GKH
desires to accept a Bona Fide Purchaser's offer to purchase all of GKH's Stock
in accordance with Section 2.2(a), GKH shall deliver a copy of the Bona Fide
Purchaser's offer to the Company and the Non-GKH Holders, and, within 25 days
of the receipt of such copy, in the event that any Non-GKH Holder desires to
exercise its rights pursuant to this Section 2.2 (each a "Participating
Stockholder"), such Participating Stockholder shall deliver to GKH and the
Company written notice to such effect and shall deliver to GKH (i) a stock
certificate or stock certificates evidencing such Participating Stockholder's
Stock, together with an appropriate instrument of assignment duly executed in a
proper form to effect the Disposition of such Stock to the Bona Fide Purchaser
on the books and records of the Company and (ii) a limited power-of-attorney
authorizing GKH to effect the Disposition of such Stock pursuant to the terms
of such Bona Fide Purchaser's offer as such terms may be modified by GKH,
provided, that all of the Participating Stockholder's Stock that is being
transferred pursuant to this Section 2.2 is Disposed of for the same
consideration per share and otherwise on the same terms and conditions upon
which GKH effects the Disposition of its Stock. The failure of a Participating
Stockholder to deliver notice of its desire to exercise its rights under, or to
otherwise comply with the provisions of, this Section 2.2(b) shall be deemed be
a waiver of the Participating Stockholder's rights hereunder.
-5-
<PAGE> 6
The Participating Stockholders shall be required to make to a Bona
Fide Purchaser such unqualified representations and warranties with respect to
their Stock as are set forth in Section 2.3(b) hereof.
(c) Responsibility of GKH. In the event that any
Participating Stockholder timely exercises its rights of inclusion under this
Section 2.2, promptly after the consummation of the sale of Stock under this
Section 2.2, GKH shall (i) deliver notice thereof to each Participating
Stockholder, (ii) remit to each Participating Stockholder the total
consideration received by GKH, if any, with respect to such Participating
Stockholder's Stock sold pursuant hereto and (iii) furnish such other evidence
of the completion and time of completion of such Disposition and the terms
thereof as may be reasonably requested in writing by each Participating
Stockholder.
(d) Failure to Effect Transfer. In the event that any
Stockholder elects to exercise its rights of inclusion under this Section 2.2
as a Participating Stockholder, and if, within 90 days after GKH's delivery of
the copy of the Bona Fide Purchaser's offer pursuant to Section 2.2(b), GKH has
not completed the Disposition of its Stock and that of the Participating
Stockholders in accordance herewith, GKH shall return to each Participating
Stockholder the documents and instruments which such Participating Stockholder
delivered for Disposition pursuant to this Section 2.2. Upon the Participating
Stockholders' receipt of such documents and instruments, all the restrictions
on Disposition contained in this Agreement with respect to the Stock owned by
the Stockholders shall again be in effect.
2.3 Agreement of Selling Stockholders. All sales of Stock to be
made pursuant to Sections 2.1 or 2.2 of this Agreement shall be subject to the
following terms:
(a) the Disposing Stockholder shall deliver to the
purchaser certificates evidencing the Stock being sold, free and clear of
Encumbrances, together with duly executed assignments or stock transfer powers
in favor of the purchaser or its nominees and such other documents, including
evidence of ownership and authority, as the purchaser may reasonably request;
(b) the Disposing Stockholder shall not be required to
make any unqualified representations or warranties to any Person in connection
with such sale, except as to (i) good title to the Stock being sold, (ii) the
absence of Encumbrances with respect to the Stock being sold, (iii) its valid
existence and good standing of the Disposing Stockholder (if applicable), (iv)
the authority for, and validity and binding effect of (as against such
Disposing Stockholder), any agreement entered into by such Disposing
Stockholder in connection with such sale, (v) all required material consents to
such Disposing Stockholder's sale and material governmental approvals having
been obtained (excluding any securities laws) and (vi) the fact that no
broker's commission is payable by the Disposing Stockholder as a result of such
Disposing Stockholder's conduct in connection with the sale; and
(c) the Disposing Stockholder shall not be required to
provide any indemnities in connection with such sale except for breach of the
representations and warranties contained in Section 2.3(b).
-6-
<PAGE> 7
2.4 General Transfer Restriction. Unless otherwise agreed by
all of the Stockholders, any Stock Disposed by a Stockholder, other than
pursuant to an Exempt Disposition, shall remain subject to all of the terms and
conditions of this Agreement in the hands of any Person to whom such Stock may
be Disposed and any such Person shall be required to first deliver to the
Company and the Stockholders a written agreement assuming and agreeing to be
bound by all of the terms and conditions of this Agreement and to be a
Stockholder hereunder.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 Board Observation Rights; Access to Information. So long as
(a) JEDI and its Affiliates continue to own (beneficially and of record) no
less than 5.0% of the Common Stock and (b) the Company continues to be the only
business entity which markets, leases, sells or finances (to third parties)
natural gas compression and Production Equipment (any entity other than the
Company and its Subsidiaries which meets the foregoing description being
hereinafter referred to as a "Competitor") in which JEDI and, to the actual
knowledge of the executive officers of the general partner of JEDI, Affiliates
of the general partner of JEDI own (beneficially and/or of record) an equity
interest or an interest which is convertible into or exchangeable for equity
(an "Equity Interest"), JEDI shall have the right to (A) receive prior notice
of any action proposed to be taken by the Board, (B) receive such notices as
are required to be given to directors of the Company of any meeting of the
Board, (C) designate two persons to attend any meeting of the Board as
observers, (D) receive, promptly upon completion, all written management
reports and written management accounts relating to the Company, to the extent
such reports and accounts are provided to the Board and (E) have reasonable
access to the statutory books and minute books of the Company upon reasonable
prior written notice to an executive officer of the Company, but only to the
extent such statutory books and minute books would be available to all members
of the Board. The foregoing notwithstanding, without causing JEDI to lose any
of the rights granted under this Section 3.1, (x) JEDI and each of its
Affiliates may acquire ownership of Equity Interests of 5% or less of any
Competitor, which Competitor's stock is publicly traded in the over-the-counter
market or on a nationally recognized exchange and (y) any Affiliate of the
general partner of JEDI (other than Enron Corp.) that is (i) publicly traded in
the over-the-counter market or on a nationally recognized exchange and (ii)
managed independently from JEDI may acquire any amount of Equity Interests in
any Competitor.
JEDI agrees that JEDI and its designee shall not disclose any
confidential information obtained in connection with this Section 3.1 to any
Person (other than Persons in a confidential relationship with JEDI, including
JEDI's employees, advisors, agents, partners, representatives and Affiliates)
unless such Person has agreed in writing to maintain such information
confidential; provided, however, that nothing herein shall be deemed to prevent
the disclosure of any confidential information if such disclosure is (1)
required to be made in a judicial, administrative or governmental proceeding,
(2) required by any applicable law or regulation, (3) made to any governmental
agency or regulatory body having or claiming authority over any
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<PAGE> 8
aspect of JEDI's or its Affiliates' businesses in connection with the exercise
of such authority or claimed authority, (4) subject to subpoena, or (5) made on
a confidential basis as JEDI deems reasonably necessary or appropriate to any
of its investors, any bank or financial institution and/or counsel to or other
representatives of such investors, bank or financial institution.
Notwithstanding the foregoing, the confidential information does not include
any information which would be excluded from the definition of "Evaluation
Materials" under the terms of the Confidentiality Agreement, dated May 24, 1995
between the Company and Enron Capital & Trade Resources Corp.
3.2 Rule 144A. Subject to the execution by any prospective
transferee of any Stockholder of a confidentiality agreement reasonably
satisfactory to the Company and its counsel, the Company will furnish any such
prospective transferee of any Stockholder (so long as such Stockholder owns any
Stock), upon the request of such Stockholder or such prospective transferee the
information required by Rule 144A of the Securities Act.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Endorsement on Stock Certificates. Each and every
certificate evidencing Stock shall contain upon its face, or on the reverse
side thereof, the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
SUCH ACT, OR UNLESS SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
COMPLIANCE WITH SUCH ACT. THE TRANSFERABILITY OF THIS SECURITY IS
ALSO SUBJECT TO RESTRICTIONS CONTAINED IN A STOCKHOLDERS AGREEMENT AND
A REGISTRATION RIGHTS AGREEMENT, WHICH AGREEMENTS THE COMPANY WILL
FURNISH TO THE HOLDER OF THIS SECURITY UPON REQUEST.
A STATEMENT SUMMARIZING THE VOTING POWERS, DESIGNATIONS, PREFERENCES,
LIMITATIONS, RESTRICTIONS AND RELATIVE RIGHTS OF THE VARIOUS CLASSES
OF STOCK OR SERIES THEREOF MAY BE OBTAINED BY THE STOCKHOLDERS OF THE
COMPANY, WITHOUT CHARGE, FROM THE PRINCIPAL OFFICES OF THE COMPANY."
4.2 Termination. This Agreement shall terminate upon the
earliest to occur of the following events:
(a) Bankruptcy of the Company;
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<PAGE> 9
(b) The consummation of a publicly registered offering
of 20% or more of the Common Stock other than the offering contemplated to
occur on the Effective Date; provided, that the provisions of Article III
hereof shall remain in full force and effect;
(c) 100% of the Stock being owned by a single
Stockholder;
(d) the voluntary agreement, in writing, of all of the
Stockholders; or
(e) August 1, 2005.
4.3 Shareholders Agreement. Upon the Effective Date, the
Stockholders Agreement shall terminate.
4.4 Stock Subject to this Agreement.
(a) This Agreement shall apply to all Stock currently or
hereinafter owned or acquired by the Stockholders including, without
limitation, (i) the Stock held by the Stockholders on the date hereof, (ii) any
Stock issued to any Stockholder pursuant to Section 4.4(b) hereof, (iii) any
Stock issued to any Stockholder pursuant to such Stockholder's exercise of an
option or warrant and (iv) any Stock otherwise purchased, acquired or issued to
any Stockholder.
(b) If, at any time, and from time to time, the Company
shall declare and make a distribution upon any of the Stock, or shall validly
issue Stock in lieu of, or in exchange for, or in addition to, any of the Stock
without the receipt of additional consideration therefor, then any such Stock
subsequently issued with respect to the Stock then subject to this Agreement
shall constitute additional Stock subject to this Agreement.
4.5 Notices. Any and all notices or other communications
provided for herein shall be in writing and shall be considered duly given upon
the earliest to occur of (a) personal delivery, (b) 2 days after being
delivered to a national recognized overnight delivery courier or service, (c) 3
days after being mailed by registered or certified mail, return receipt
requested, postage prepaid or (d) the delivering parties receipt of a written
confirmation of a facsimile transmission. Any notice to a Stockholder shall be
addressed to such Stockholder at its address listed on the signature pages of
this Agreement. Any party hereto may change its address by giving notice to
the other parties hereto as provided herein.
4.6 Severability. If any provision of this Agreement is held by
a court of competent jurisdiction to be invalid, illegal or unenforceable, such
provision shall be severed and the remaining provisions hereof shall be
enforced to the extent possible or modified in such a way as to make it
enforceable, and the invalidity, illegality or unenforceability thereof shall
not affect the validity, legality or enforceability of the remaining provisions
of this Agreement.
4.7 Modification; Amendment. No modification or amendment of
this Agreement shall be valid unless the same shall be in writing executed by
all of the Stockholders.
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<PAGE> 10
4.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflict of laws provisions thereof.
4.9 Binding Effect; Complete Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns. This
Agreement (and all agreements and other documents referred to herein)
constitutes the entire agreement among the parties hereto and supersedes all
prior agreements and understandings, oral or written, among the parties hereto
with respect to the subject matter hereof.
4.10 Specific Performance. The parties acknowledge that given
the nature of the obligations of the parties hereto that any non-breaching
party will be irreparably damaged by a breach of this Agreement. The parties
hereto therefore acknowledge and agree that any non-breaching party hereto may
seek specific performance of the provisions hereof and that no party hereto may
assert adequacy of a remedy at law as a defense to an action for specific
performance hereunder.
4.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
4.12 Attorneys' Fees. If any legal action, including an action
for declaratory relief, is brought to enforce any provision of this Agreement,
the prevailing party or parties, as the case may be, shall be entitled to
recover his, its or their respective reasonable attorneys' fees from the
non-prevailing party or parties, as the case may be. These fees, which may be
set by the court in the same action or in a separate action brought for that
purpose, are in addition to any other relief to which any prevailing party may
be entitled.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
THE COMPANY:
-----------
HANOVER COMPRESSOR COMPANY
a Delaware corporation
By:
------------------------------------
Title: Executive Vice President
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<PAGE> 11
THE STOCKHOLDERS:
----------------
JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED
PARTNERSHIP, Delaware limited partnership
By: Enron Capital Management Limited
Partnership, its general partner
By: Enron Capital Corp., its general partner
By:
-----------------------------------
Address:
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Brenda McGee,
Specialist 28th Floor
GKH PARTNERS, L.P., a Delaware limited partnership
By: JAKK HOLDING CORP., a general partner
By:
-----------------------------------
Melvyn N. Klein, President
Address:
200 West Madison Street, Suite 2700
Chicago, Illinois 60606
GKH INVESTMENTS, L.P., a Delaware limited
partnership.
By: GKH Partners, L.P., its general partner
By: JAKK Holding Corp., a general partner
By:
----------------------------------
Melvyn N. Klein, President
Address:
200 West Madison Street, Suite 2700
Chicago, Illinois 60606
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<PAGE> 1
EXHIBIT 4.14
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
(WESTAR CAPITAL, INC.)
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (WESTAR CAPITAL,
INC.) (this "Agreement") dated as of May _____, 1997, among Hanover Compressor
Company, a Delaware corporation (the "Company") and the Stockholders party
hereto (all capitalized terms used but not defined prior to Article I shall
have the meaning ascribed to them in Article I), which agreement shall be
effective upon the consummation of an initial public offering of Common Stock.
W I T N E S S E T H:
WHEREAS, as of the date hereof, the Company and the Stockholders are
parties to that certain Stockholders Agreement (Astra Resources, Inc.) dated as
of December 5, 1995, amended as of October 31, 1996 (the "Stockholders
Agreement");
WHEREAS, no amendment of the Stockholders Agreement shall be valid
unless the same shall be in writing executed by all of the Stockholders; and
WHEREAS, the Company and the Stockholders agree that it is in their
best interests to amend and restate the Stockholders Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants and agreements herein contained and of other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS; ETC.
1.1 Definitions. Except as otherwise herein expressly provided,
the following terms and phrases shall have the meanings set forth below:
"Affiliate" shall mean (i) in the case of an entity, any Person who or
which, directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, any specified Person or (ii)
in the case of an individual, such individual's spouse, children, grandchildren
or parents or a trust primarily for the benefit of any of the foregoing. With
respect to GKH, the term Affiliate shall expressly include the partners in GKH.
"Agreement" shall mean this Amended and Restated Stockholders
Agreement (Westar Capital, Inc.), as originally executed and as amended,
modified, supplemented or restated from time to time, as the context requires.
<PAGE> 2
"Bankruptcy" shall mean with respect to any Person (i) the making of a
general assignment or composition for the benefit of creditors or (ii) any
commencement of bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any liquidation
proceeding under any bankruptcy or insolvency law, or the commencement in
respect of such Person or a substantial portion of such Person's property or
assets of any liquidation proceeding and, if such case or proceeding is not
commenced by such Person, it is either (A) consented to or acquiesced in by
such Person or (B) remains undismissed after 60 days following the date of
commencement thereof.
"Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
"Bona Fide Purchaser" shall mean any Person (other than a selling
Stockholder's Affiliate) who or which has delivered a good faith written offer
to purchase such Stockholder's Stock for cash or Marketable Securities
provided, however, that, such Person has the requisite financial resources
necessary, in the reasonable opinion of the Board, to purchase and acquire such
Stockholder's Stock.
"Charter Documents" shall mean, in relation to a Person, the
collective reference to the Certificate of Incorporation and Bylaws of such
Person.
"Common Stock" shall mean the Company's common stock, par value $.001
per share.
"control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs of
such Person.
"Dispose" or "Disposition" (and any derivatives thereof) shall mean
(i) a voluntary or involuntary sale, assignment, transfer, conveyance or other
disposition of a Stockholder's Stock, and (ii) any agreement, contract or
commitment to do any of the foregoing.
"Encumbrance" or "Encumber" shall mean or refer to any lien, claim,
charge, pledge, mortgage, encumbrance, security interest, preferential
arrangement, restriction on voting or alienation of any kind, adverse interest,
or the interest of a third party under any conditional sale agreement, capital
lease or other title retention agreement.
"Exempt Disposition" shall mean a Disposition (i) pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") or (ii) pursuant to any public distribution of Stock
pursuant to Rule 144 of the Securities Act.
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<PAGE> 3
"GKH" shall mean the collective reference to (i) GKH Investments,
L.P., a Delaware limited partnership ("Investments"), (ii) GKH Partners, L.P.,
a Delaware limited partnership ("Partners") and (iii) the respective Affiliates
of Investments and Partners. Any and all decisions and determinations to be
made by GKH hereunder shall be made by Partners, for itself, Investments and
their respective Affiliates.
"Marketable Securities" shall mean securities of a Person which Person
files periodic reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, but only to the extent such securities are, at the
applicable time, being publicly traded in the over-the-counter market or on a
nationally recognized exchange.
"Non-GKH Holders" shall mean any Stockholder other than GKH.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, trust, firm, association, unincorporated
organization or other entity.
"Production Equipment" shall mean, with respect to any Person other
than the Company or any of its Subsidiaries, oil and gas production equipment
which is similar to or is an enhancement of oil and gas production equipment
designed, manufactured, re-conditioned or sold by Hanover/Smith, Inc. as of
December 5, 1995.
"SEC" shall mean the United States Securities and Exchange Commission
or any similar agency then having authority to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar or successor statute, and the rules and regulations of the SEC
promulgated thereunder, all as the same shall be in effect from time to time.
"Stock" shall mean (i) shares of Common Stock, (ii) shares of
preferred stock, and (iii) options and warrants exercisable with respect to, or
other securities convertible into or exchangeable for shares of, Common Stock.
"Stockholder" or "Stockholders" shall mean the parties hereto (other
than the Company), their appropriate successors and assigns and any Person who
is (i) a holder of Stock and (ii) is or is required to be a party to this
Agreement at the time of reference thereto.
"Subsidiary" shall mean with respect to any Person, (a) any
corporation (whether now existing or hereafter organized) of which at least a
majority of the voting stock having ordinary voting power for the election of
directors is, at the time as of which any determination is being made, directly
or indirectly owned or controlled by such Person or as to which such Person has
the power to direct the management or operations thereof, whether by contract
or otherwise and (b) any partnership, joint venture, association or other
business entity (whether now existing or hereafter organized) of which more
than 50% of the equity interest is, at the time as of which any determination
is being made, directly or indirectly owned or controlled by such Person or as
to which such Person has the power to direct the management or operations
thereof, whether by contract or otherwise.
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<PAGE> 4
"Westar" shall mean Westar Capital, Inc. (f/k/a Astra Resources,
Inc.), a Kansas corporation and its Affiliates.
1.2 Certain Other Defined Terms. The following terms are
defined in the Section of this Agreement set forth directly opposite such
terms:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Company preamble
Exchange Act 3.1
Participating Stockholder 2.3(b)
</TABLE>
1.3 Article, Etc. References to an "Article" or a "Section"
are, unless otherwise specified, to one of the Articles or Sections of this
Agreement.
ARTICLE II
TRANSFER RESTRICTIONS
2.1 Transfer Restrictions.
(a) Transfers by Stockholders. Unless otherwise agreed
by all of the Stockholders, any Stock Disposed by a Stockholder, other than
pursuant to an Exempt Disposition shall remain subject to all of the terms and
conditions of this Agreement in the hands of any Person to whom such Stock may
be Disposed and any such Person shall be required to first deliver to the
Company and the Stockholders a written agreement assuming and agreeing to be
bound by all of the terms and conditions of this Agreement and to be a
Stockholder hereunder.
(b) Transfers by Westar. In addition to Section 2.1(a),
the transferee of a Disposition by Westar, other than pursuant to an Exempt
Disposition, shall be required to assume Westar's obligations under the
Agreement and Plan of Merger among Westar, the Company, Astra Resources
Compression, Inc. and Hanover Acquisition Corp. dated October 13, 1995.
2.2 Rights to Compel Disposition.
(a) Rights of GKH. If GKH proposes to Dispose of all,
but not less than all, of its Common Stock to a Bona Fide Purchaser (other than
pursuant to an Exempt Disposition), then, notwithstanding anything in this
Agreement to the contrary, GKH may require the Non-GKH Holders to Dispose of
all of their Common Stock to such Bona Fide Purchaser for the same
consideration per share and otherwise on the same terms and conditions (other
than with respect to representations and warranties) upon which GKH effects the
Disposition of its Common Stock.
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<PAGE> 5
(b) Obligations of the Non-GKH Holders. In the event
that GKH desires to exercise its right pursuant to Section 2.2(a), GKH shall
deliver to the Company and the Non-GKH Holders notice setting forth the
consideration per share of Stock to be paid by such Bona Fide Purchaser and the
other terms and conditions of such Disposition. Within 25 days following the
date of such notice, each of the Non-GKH Holders shall deliver to GKH (i) a
stock certificate or stock certificates evidencing such Non-GKH Holder's Stock
together with an appropriate instrument of assignment duly executed in a proper
form to effect the Disposition of such Stock from such Non-GKH Holder to the
Bona Fide Purchaser on the books and records of the Company and (ii) a limited
power-of-attorney authorizing GKH to effect the Disposition of such Stock
pursuant to the terms of such Bona Fide Purchaser's offer as such terms may be
modified by GKH, provided, that all of such Non-GKH Holder's Stock is disposed
of for the same consideration per share of Stock and otherwise on the same
terms and conditions upon which GKH effects the Disposition of its Stock. In
the event that any Non-GKH Holder shall fail to deliver such documentation to
GKH, the Company shall (A) cause a notation to be made on its books and records
to reflect that the Stock of such Non-GKH Holder is bound by the provisions of
this Section 2.2 and that the Disposition of such Stock may be effected without
the such Non-GKH Holder's consent or surrender of its Stock and (B) hold back
the proceeds of the Disposition of any such Non-GKH Holder's Stock in a non-
interest bearing account pending compliance by such Non-GKH Holder with its
obligations under this Section 2.2(b).
In addition, in the event GKH exercises its rights under Section
2.2(a), the Non-GKH Holders shall be required to make to the relevant Bona Fide
Purchaser such unqualified representations and warranties with respect to their
Stock as are set forth in Section 2.4(b) hereof.
(c) Responsibility of GKH. Promptly after the
consummation of the Disposition of Stock pursuant to this Section 2.2, GKH
shall (i) deliver notice thereof to the Non-GKH Holders, (ii) subject to clause
(B) of Section 2.2(b) remit to each Non-GKH Holder the total consideration
received by GKH, if any, with respect to such Non-GKH Holder's Stock Disposed
of pursuant hereto, and (iii) furnish such other evidence of the completion and
time of completion of such Disposition and the terms thereof as may be
reasonably requested in writing by the Non-GKH Holders.
(d) Failure to Effect Transfer. If, within 90 days
after GKH's delivery of the notice required pursuant to Section 2.2(b), GKH
shall not have completed the Disposition of its Stock and that of the Non-GKH
Holders in accordance herewith, GKH shall return to the Non-GKH Holders the
documents and instruments which the Non-GKH Holders shall have delivered
pursuant to this Section 2.2. Upon the Non-GKH Holder's receipt of such
documents, all the restrictions on Disposition contained in this Agreement with
respect to the Stock owned by the Stockholders shall again be in effect.
2.3 Rights of Inclusion.
(a) Rights of the Non-GKH Holders. If GKH proposes to
Dispose Common Stock which will result in GKH owning less than 30% of the then
issued and outstanding Common Stock it owned as of December 5, 1995 to a Bona
Fide Purchaser (other than pursuant
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<PAGE> 6
to an Exempt Disposition), then any Non-GKH Holder may require GKH to require
the Bona Fide Purchaser to purchase all, but not less than all, of the Common
Stock then owned by such Non-GKH Holders to such Bona Fide Purchaser in
accordance with this Section 2.3(a) for the same consideration per share and
otherwise on the same terms and conditions (other than with respect to
representations and warranties) upon which GKH effects the Disposition of its
Common Stock. GKH shall be permitted to dispose of its Common Stock without
restriction if this Section 2.3(a) does not otherwise apply.
(b) Obligations of Participating Stockholder. If GKH
desires to accept a Bona Fide Purchaser's offer to purchase GKH's Common Stock
in accordance with Section 2.3(a), GKH shall deliver a copy of the Bona Fide
Purchaser's offer to the Company and the Non-GKH Holders, and, within 25 days
of the receipt of such copy, in the event that any Non-GKH Holder desires to
exercise its rights pursuant to this Section 2.3 (each a "Participating
Stockholder"), such Participating Stockholder shall deliver to GKH and the
Company written notice to such effect and shall deliver to GKH (i) a stock
certificate or stock certificates evidencing such Participating Stockholder's
Stock, together with an appropriate instrument of assignment duly executed in a
proper form to effect the Disposition of such Stock to the Bona Fide Purchaser
on the books and records of the Company and (ii) a limited power-of-attorney
authorizing GKH to effect the Disposition of such Stock pursuant to the terms
of such Bona Fide Purchaser's offer as such terms may be modified by GKH,
provided, that all of the Participating Stockholder's Stock that is being
transferred pursuant to this Section 2.3 is Disposed of for the same
consideration per share and otherwise on the same terms and conditions upon
which GKH effects the Disposition of its Stock. The failure of a Participating
Stockholder to deliver notice of its desire to exercise its rights under, or to
otherwise comply with the provisions of, this Section 2.3(b) shall be deemed be
a waiver of the Participating Stockholder's rights hereunder.
The Participating Stockholders shall be required to make to a Bona
Fide Purchaser such unqualified representations and warranties with respect to
their Stock as are set forth in Section 2.4(b) hereof.
(c) Responsibility of GKH. In the event that any
Participating Stockholder timely exercises its rights of inclusion under this
Section 2.3, promptly after the consummation of the sale of Stock under this
Section 2.3, GKH shall (i) deliver notice thereof to each Participating
Stockholder, (ii) remit to each Participating Stockholder the total
consideration received by GKH, if any, with respect to such Participating
Stockholder's Stock sold pursuant hereto and (iii) furnish such other evidence
of the completion and time of completion of such Disposition and the terms
thereof as may be reasonably requested in writing by each Participating
Stockholder.
(d) Failure to Effect Transfer. In the event that any
Stockholder elects to exercise its rights of inclusion under this Section 2.3
as a Participating Stockholder, and if, within 90 days after GKH's delivery of
the copy of the Bona Fide Purchaser's offer pursuant to Section 2.3(b), GKH has
not completed the Disposition of its Stock and that of the Participating
Stockholders in accordance herewith, GKH shall return to each Participating
Stockholder the documents and instruments which such Participating Stockholder
delivered for Disposition pursuant to this Section 2.3. Upon the Participating
Stockholders' receipt of such
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<PAGE> 7
documents and instruments, all the restrictions on Disposition contained in
this Agreement with respect to the Stock owned by the Stockholders shall again
be in effect.
2.4 Agreement of Selling Stockholders. All sales of Stock to be
made pursuant to Sections 2.1, 2.2 and 2.3 of this Agreement shall be subject
to the following terms:
(a) the Disposing Stockholder shall deliver to the
purchaser certificates evidencing the Stock being sold, free and clear of
Encumbrances, together with duly executed assignments or stock transfer powers
in favor of the purchaser or its nominees and such other documents, including
evidence of ownership and authority, as the purchaser may reasonably request;
(b) the Disposing Stockholder shall not be required to
make any unqualified representations or warranties to any Person in connection
with such sale, except as to (i) good title to the Stock being sold, (ii) the
absence of Encumbrances with respect to the Stock being sold, (iii) its valid
existence and good standing of the Disposing Stockholder (if applicable), (iv)
the authority for, and validity and binding effect of (as against such
Disposing Stockholder), any agreement entered into by such Disposing
Stockholder in connection with such sale, (v) all required material consents to
such Disposing Stockholder's sale and material governmental approvals having
been obtained (excluding any securities laws) and (vi) the fact that no
broker's commission is payable by the such Disposing Stockholder as a result of
Disposing Stockholder's conduct in connection with the sale; and
(c) the Disposing Stockholder shall not be required to
provide any indemnities in connection with such sale except for breach of the
representations and warranties contained in Section 2.4(b).
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 Furnishing Information. The Company shall cause its annual
report to stockholders and any quarterly or other financial reports furnished
by it to its stockholders to be mailed to any party hereto which owns 5% or
more of the outstanding common stock of the Company within five days after the
date such documents are filed with the SEC.
At any time that the Company does not have a class of securities
registered pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 ("Exchange Act"), the Company will prepare, for the first three quarters
of each fiscal year quarterly reports, and for each fiscal year an annual
report, containing information (including, but not limited to, combined or
consolidated financial statements which in the case of annual reports shall be
audited) substantially equivalent to that required to be included in reports on
Form 10-Q and on Form 10-K, respectively, under the Exchange Act. All
financial statements will be prepared in accordance with generally accepted
accounting principles consistently applied, except for changes with which the
Company's independent public accountants concur and except that quarterly
statement may be
-7-
<PAGE> 8
subject to year-end adjustments and shall be certified by the Chief Financial
Officer of the Company, and in the case of the annual financial statements,
certified by the Company's independent public accountants. The Company will
cause at the Company's expense a copy of the respective reports to be mailed to
the any party hereto which owns 5% or more of the outstanding common stock of
the Company within 50 days after the close of each of the first three quarters
of each fiscal year and within 95 days after the close of each fiscal year.
3.2 Visitation Rights. Westar may, during normal business
hours, at Westar's expense, and upon reasonable prior notice to a member of the
senior management of the Company, (i) visit and inspect the properties of the
Company and its subsidiaries, (ii) examine and copy their books of record and
account, and (iii) discuss their affairs, finances and accounts with its
officers, employees and independent public accountants, subject, in each case,
to any confidentiality agreements to which the Company is a party; provided
that no such visit, inspection, examination or discussion shall unreasonably
disrupt normal operations of the Company and the Westar representative shall be
accompanied by a member of the senior management of the Company. Westar shall
comply with the obligations of Westar under the Confidentiality Agreement
between the Company and Westar, dated May 23, 1995. The preceding sentence
does not apply to any information which (a) has become generally available to
the public through no fault of Westar, (b) is required or appropriate in any
report, statement or testimony submitted to any municipal, state or federal
regulatory body having or claiming to have jurisdiction over Westar, (c) may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, (d) is disclosed to Westar in good faith by a third party
who had independent rights to such information, (e) is obsolete or (f) is
reasonably believed by Westar to be appropriate in order to comply with any
law, order, regulation or ruling applicable to Westar.
3.3 Amendment to Articles and By-Laws. GKH shall not vote to
amend the Articles of Incorporation of the Company, nor shall the Company amend
its by-laws in any manner which conflicts with the provisions of this
Agreement.
3.4 Rule 144A. Subject to the execution by any prospective
transferee of any Stockholder of a confidentially agreement reasonably
satisfactory to the Company and its counsel, and provided that such prospective
transferee is not a Competitor, the Company will furnish any such prospective
transferee of any Stockholder (so long as such Stockholder owns any Stock),
upon the request of such Stockholder or such prospective transferee the
information required by Rule 144A of the Securities Act.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Endorsement on Stock Certificates. Each and every
certificate evidencing Stock shall contain upon its face, or on the reverse
side thereof, the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED,
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<PAGE> 9
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS SUCH OFFER, SALE, TRANSFER,
PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
COMPLIANCE WITH SUCH ACT. THE TRANSFERABILITY OF THIS SECURITY IS
ALSO SUBJECT TO RESTRICTIONS CONTAINED IN A STOCKHOLDERS AGREEMENT AND
A REGISTRATION RIGHTS AGREEMENT, WHICH AGREEMENTS THE COMPANY WILL
FURNISH TO THE HOLDER OF THIS SECURITY UPON REQUEST.
A STATEMENT SUMMARIZING THE VOTING POWERS, DESIGNATIONS, PREFERENCES,
LIMITATIONS, RESTRICTIONS AND RELATIVE RIGHTS OF THE VARIOUS CLASSES
OF STOCK OR SERIES THEREOF MAY BE OBTAINED BY THE STOCKHOLDERS OF THE
COMPANY, WITHOUT CHARGE, FROM THE PRINCIPAL OFFICES OF THE COMPANY."
4.2 Termination. This Agreement shall terminate upon the
earliest to occur of the following events:
(a) Bankruptcy of the Company;
(b) The consummation of a publicly registered offering
of 20% or more of the Common Stock; provided, that the provisions of Sections
3.1, 3.2 and 3.4 shall survive any termination of this Agreement pursuant to
this Section 4.2(b);
(c) 100% of the Stock being owned by a single
Stockholder;
(d) the voluntary agreement, in writing, of all of the
Stockholders;
(e) the effective date of the Company's initial public
offering (the "Effective Date") failing to occur by September 15, 1997; or
(f) August 1, 2005.
4.3 Effectiveness. Until occurrence of the Effective Date, the
Stockholders Agreement shall remain in full force and effect and in the event
of the termination of this Agreement pursuant to Section 4.2(e) hereof, the
Stockholders Agreement shall continue in full force and effect.
4.4 Stock Subject to this Agreement.
(a) This Agreement shall apply to all Stock currently or
hereinafter owned or acquired by the Stockholders (other than Stock Disposed of
pursuant to an Exempt Disposition) including, without limitation, (i) the Stock
held by the Stockholders on the date hereof, (ii) any Stock issued to any
Stockholder pursuant to Section 4.4(b) hereof, (iii) any Stock
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<PAGE> 10
issued to any Stockholder pursuant to such Stockholder's exercise of an option
or warrant and (iv) any Stock otherwise purchased, acquired or issued to any
Stockholder.
(b) If, at any time, and from time to time, the Company
shall declare and make a distribution upon any of the Stock, or shall validly
issue Stock in lieu of, or in exchange for, or in addition to, any of the Stock
without the receipt of additional consideration therefor, then any such Stock
subsequently issued with respect to the Stock then subject to this Agreement
shall constitute additional Stock subject to this Agreement.
4.5 Notices. Any and all notices or other communications
provided for herein shall be in writing and shall be considered duly given upon
the earliest to occur of (a) personal delivery, (b) 2 days after being
delivered to a national recognized overnight delivery courier or service, (c) 3
days after being mailed by registered or certified mail, return receipt
requested, postage prepaid or (d) the delivering parties receipt of a written
confirmation of a facsimile transmission. Any notice to a Stockholder shall be
addressed to such Stockholder at its address listed on the signature pages of
this Agreement. Any party hereto may change its address by giving notice to
the other parties hereto as provided herein.
4.6 Severability. If any provision of this Agreement is held by
a court of competent jurisdiction to be invalid, illegal or unenforceable, such
provision shall be severed and the remaining provisions hereof shall be
enforced to the extent possible or modified in such a way as to make it
enforceable, and the invalidity, illegality or unenforceability thereof shall
not affect the validity, legality or enforceability of the remaining provisions
of this Agreement.
4.7 Modification; Amendment. No modification or amendment of
this Agreement shall be valid unless the same shall be in writing executed by
all of the Stockholders.
4.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflict of laws provisions thereof.
4.9 Binding Effect; Complete Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns. This
Agreement (and all agreements and other documents referred to herein)
constitutes the entire agreement among the parties hereto and supersedes all
prior agreements and understandings, oral or written, among the parties hereto
with respect to the subject matter hereof.
4.10 Specific Performance. The parties acknowledge that given
the nature of the obligations of the parties hereto that any non-breaching
party will be irreparably damaged by a breach of this Agreement. The parties
hereto therefore acknowledge and agree that any non-breaching party hereto may
seek specific performance of the provisions hereof and that no party hereto may
assert adequacy of a remedy at law as a defense to an action for specific
performance hereunder.
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<PAGE> 11
4.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
4.12 Attorneys' Fees. If any legal action, including an action
for declaratory relief, is brought to enforce any provision of this Agreement,
the prevailing party or parties, as the case may be, shall be entitled to
recover his, its or their respective reasonable attorneys' fees from the non-
prevailing party or parties, as the case may be. These fees, which may be set
by the court in the same action or in a separate action brought for that
purpose, are in addition to any other relief to which any prevailing party may
be entitled.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
THE COMPANY:
HANOVER COMPRESSOR COMPANY
a Delaware corporation
By:
-----------------------------------------
Title:
THE STOCKHOLDERS:
WESTAR CAPITAL, INC., a Kansas corporation
(f/k/a Astra Resources, Inc.)
By:
--------------------------------
Title:
Address:
818 Kansas Avenue
Topeka, Kansas 66602
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<PAGE> 12
GKH PARTNERS, L.P., a Delaware limited
partnership
By: JAKK HOLDING CORP., a general
partner
By:
--------------------------------
Melvyn N. Klein, President
Address:
200 West Madison Street,
Suite 2700
Chicago, Illinois 60606
GKH INVESTMENTS, L.P., a Delaware limited
partnership.
By: GKH Partners, L.P., its general
partner
By: JAKK Holding Corp., a general
partner
By:
--------------------------------
Melvyn N. Klein, President
Address:
200 West Madison Street,
Suite 2700
Chicago, Illinois 60606
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<PAGE> 1
EXHIBIT 4.15
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
(HEHC)
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (HEHC) (this
"Agreement") dated as of May ______, 1997, among Hanover Compressor Company, a
Delaware corporation (the "Company") and the Stockholders party hereto (all
capitalized terms used but not defined prior to Article I shall have the
meaning ascribed to them in Article I), which Agreement shall be effective upon
the consummation of an initial public offering of Company Common Stock (the
"Effective Date").
W I T N E S S E T H:
WHEREAS, as of the date hereof, the Company and the Stockholders are
parties to that certain Stockholders Agreement dated as of January 27, 1995,
amended as of October 31, 1996 (the "Stockholders Agreement");
WHEREAS, no amendment of the Stockholders Agreement shall be valid
unless the same shall be executed by all of the Stockholders;
WHEREAS, the Company and the Stockholders agree that it is in their
best interests to amend and restate the Stockholders Agreement in its entirety.
NOW, THEREFORE, in consideration of the foregoing, of the mutual
covenants and agreements herein contained and of other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS; ETC.
1.1 Definitions. Except as otherwise herein expressly provided,
the following terms and phrases shall have the meanings set forth below:
"Affiliate" shall mean (i) in the case of an entity, any Person who or
which, directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, any specified Person or (ii)
in the case of an individual, such individual's spouse, children, grandchildren
or parents or a trust primarily for the benefit of any of the foregoing. With
respect to GKH, the term Affiliate shall expressly include the partners in GKH.
"Agreement" shall mean this Amended and Restated Stockholders
Agreement (HEHC), as originally executed and as amended, modified, supplemented
or restated from time to time, as the context requires.
<PAGE> 2
"Bankruptcy" shall mean (i) an adjudication of bankruptcy under the
Federal Bankruptcy Reform Act of 1978, as amended, or any successor statute,
(ii) an assignment for the benefit of creditors, (ii) the filing of a voluntary
petition in bankruptcy or reorganization, or (iv) the failure to vacate the
appointment of a receiver or trustee for any part of the assets or property of
the Company within 60 days from the date of such appointment.
"Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
"Bona Fide Purchaser" shall mean any Person (other than a selling
Stockholder's Affiliates) who or which has delivered a good faith written offer
to purchase all or a portion of such Stockholder's Stock; provided, however,
that, such Person has the requisite financial resources necessary, in the
reasonable opinion of the Board, to purchase and acquire such Stockholder's
Stock.
"Common Stock" shall mean the Company's common stock, par value $.001
per share.
"Control" (including the terms "controlled by" and "under common
control with"), with respect to the relationship between or among two or more
Persons, means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the affairs or
management of a Person, whether through the ownership of voting securities, as
trustee or executor, by contract or otherwise, including, without limitation,
the ownership, directly or indirectly, of securities having the power to elect
a majority of the board of directors or similar body governing the affairs of
such Person.
"Dispose" or "Disposition" (and any derivatives thereof) shall mean
(i) a voluntary or involuntary sale, assignment, transfer, conveyance or other
disposition of a Stockholder's Stock, and (ii) any agreement, contract or
commitment to do any of the foregoing, but shall exclude any pledge of a
Stockholder's Stock.
"Encumbrance" or "Encumber" shall mean or refer to any lien, claim,
charge, pledge, mortgage, encumbrance, security interest, preferential
arrangement, restriction on voting or alienation of any kind, adverse interest,
or the interest of a third party under any conditional sale agreement, capital
lease or other title retention agreement.
"Exempt Disposition" shall mean a Disposition (i) pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act") or (ii) pursuant to any public distribution of Stock
pursuant to Rule 144 of the Securities Act.
"GKH" shall mean the collective reference to (i) GKH Investments,
L.P., a Delaware limited partnership ("Investments"), (ii) GKH Partners, L.P.,
a Delaware limited partnership ("Partners") and (iii) the respective Affiliates
of Investments and Partners. Any and all decisions and determinations to be
made by GKH hereunder shall be made by Partners, for itself, Investments and
their respective Affiliates.
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<PAGE> 3
"Non-GKH Holders" shall mean any Stockholder other than GKH.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, trust, firm, association, unincorporated
organization or other entity.
"Stock" shall mean (i) shares of Common Stock, (ii) shares of
preferred stock, and (iii) options and warrants exercisable with respect to, or
other securities convertible into or exchangeable for shares of, Common Stock.
"Stockholder or "Stockholders" shall mean the parties hereto (other
than the Company), their appropriate successors and assigns and any person who
is (i) a holder of Stock and (ii) is or is required to be a party to this
Agreement at the time of reference thereto.
"Subsidiary" shall mean with respect to any Person, (a) any
corporation (whether now existing or hereafter organized) of which at least a
majority of the voting stock having ordinary voting power for the election of
directors is, at the time as of which any determination is being made, directly
or indirectly owned or controlled by such Person or as to which such Person has
the power to direct the management or operations hereof, whether by contract or
otherwise and (b) any partnership, joint venture, association or other business
entity (whether now existing or hereafter organized) of which more than 50% of
the equity interest is, at the time as of which any determination is being
made, directly or indirectly owned or controlled by such Person or as to which
such Person has the power to direct the management or operations hereof,
whether by contract or otherwise.
"Transfer Notice" shall mean the notice required to be delivered by
GKH to the non-GKH Stockholders pursuant to Section 2.1. To be effective, the
Transfer Notice must (i) state the identity and the address of the Bona Fide
Purchaser who has offered, in writing, to purchase the Disposing Stockholder's
Stock, and (ii) state all material terms of such Bona Fide Purchaser's offer.
1.2 Certain Other Defined Terms. The following terms are defined
in the Section of this Agreement set forth directly opposite such terms:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Company preamble
Participating Stockholder 2.2(b)
</TABLE>
1.3 Article, Etc. References to an "Article" or a "Section" are,
unless otherwise specified, to one of the Articles or Sections of this
Agreement.
-3-
<PAGE> 4
ARTICLE II
TRANSFER RESTRICTIONS
2.1 Rights to Compel Disposition.
(a) Rights of GKH. If GKH proposes to Dispose of all
(but not less than all) of its Stock to a Bona Fide Purchaser other than
pursuant to an Exempt Disposition, then, notwithstanding anything in this
Agreement to the contrary, GKH may require the Non-GKH Holders to Dispose of
their Stock to such Bona Fide Purchaser for the same consideration per share
and otherwise on the same terms and conditions (other than with respect to
representations and warranties) upon which GKH effects the Disposition of its
Stock.
(b) Obligations of the Non-GKH Holders. In the event
that GKH desires to exercise its right pursuant to Section 2.1(a), GKH shall
deliver to the Company and the Non-GKH Holders written notice setting forth the
consideration per share of Stock to be paid by such Bona Fide Purchaser and the
other terms and conditions of such Disposition. Such notice shall also
constitute a Transfer Notice. Within 25 days following the date of such
notice, the Non-GKH Holders shall deliver to GKH (i) an appropriate assignment
duly executed in a proper form to effect the Disposition of such Stock from the
Non-GKH Holders to the Bona Fide Purchaser on the books and records of the
Company and (ii) a limited power-of-attorney authorizing GKH to effect the
Disposition of such Stock pursuant to the terms of such Bona Fide Purchaser's
offer as such terms may be modified by GKH, provided, that all of the Non-GKH
Holder's Stock is disposed of for the same consideration per share of Stock and
otherwise on the same terms and conditions upon which GKH effects the
Disposition of its Stock. In the event that any Non-GKH Holder shall fail to
deliver such documentation, assignment and limited power-of-attorney to GKH,
the Company shall cause a notation to be made on its books and records to
reflect that the Stock of the such Non-GKH Holder is bound by the provisions of
this Section 2.1 and that the Disposition of such Stock may be effected without
the such Non-GKH Holder's consent or surrender of its Stock.
ln addition, in the event GKH exercises its rights under Section
2.1(a), the Non-GKH Holders shall be required to make to a Bona Fide Purchaser
such unqualified representations and warranties with respect to their Stock as
are set forth in Section 2.3(b) hereof and representations and warranties
qualified to knowledge with respect to all other matters as are reasonably
requested by the Bona Fide Purchaser.
(c) Responsibility of GKH. Promptly (but in no event
later than the day of receipt) after the consummation of the Disposition of
Stock pursuant to this Section 2.1, GKH shall (i) deliver notice thereof to the
Non- GKH Holders, (ii) remit to the Non-GKH Holders the total sales price of
their Stock Disposed of pursuant hereto, and (iii) furnish such other evidence
of the completion and time of completion of such Disposition and the terms
thereof as may be reasonably requested in writing by the Non-GKH Holders.
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<PAGE> 5
(d) Failure to Effect Transfer. If, within 90 days after
GKH's delivery of the notice required pursuant to Section 2.1(b), GKH has not
completed the Disposition of its Stock and that of the Non-GKH Holders in
accordance herewith, GKH shall return to the Non-GKH Holders (i) the
assignments with respect to the Non-GKH Holders' Stock which the Non-GKH
Holders delivered pursuant to this Section 2.1 and (ii) the related limited
power-of-attorney. Upon the Non-GKH Holder's receipt of such materials, all
the restrictions on Disposition contained in this Agreement with respect to the
Stock owned by the Stockholders shall again be in effect.
2.2 Rights of Inclusion.
(a) Rights of the Non-GKH Holders. If GKH proposes to
Dispose of any or all of its Stock to a Bona Fide Purchaser, other than
pursuant to an Exempt Disposition, then the Non-GKH Holders may require GKH to
require the Bona Fide Purchaser to purchase up to the same percentage of the
Stock then owned by such Non-GKH Holders as is proposed to be sold by GKH to
such Bona Fide Purchaser in accordance with this Section 2.2(a) for the same
consideration per share and otherwise on the same terms and conditions (other
than with respect to representations and warranties) upon which GKH effects the
Disposition of its Stock.
(b) Obligations of Participating Stockholder. If GKH
desires to accept a Bona Fide Purchaser's offer to purchase all of GKH's Stock
in accordance with Section 2.2(a), GKH shall deliver a copy of the Bona Fide
Purchaser's offer to the Company and the Non-GKH Holders, and, within 30 days
of the receipt of such copy, in the event that any Non-GKH Holders desires to
exercise its rights pursuant to this Section 2.2 (each a "Participating
Stockholder"), such Participating Stockholder shall deliver to GKH and the
Company written notice to such effect and shall deliver to GKH (i) an
appropriate assignment duly executed in a proper form to effect the Disposition
of such Stock to the Bona Fide Purchaser on the books and records of the
Company and (ii) a limited power-of-attorney authorizing GKH to effect the
Disposition of such Stock pursuant to the terms of such Bona Fide Purchaser's
offer as such terms may be modified by GKH, provided, that all of the
Participating Stockholder's Stock that is being transferred pursuant to this
Section 2.2 is Disposed of for the same consideration per share and otherwise
on the same terms and conditions upon which effects the Disposition of its
Stock. The failure of a Participating Stockholder to deliver notice of its
desire to exercise its rights under or to otherwise comply with the provisions
of this Section 2.2(b) shall be deemed to be a waiver of the Participating
Stockholder's rights hereunder.
The Participating Stockholders shall be required to make to a Bona
Fide Purchaser such unqualified representations and warranties with respect to
their Stock as are set forth in Section 2.3(b) hereof and representations and
warranties qualified to knowledge with respect to all other matters as are
reasonably requested by the Bona Fide Purchaser.
(c) Responsibility of GKH. In the event that any
Participating Stockholder timely exercises its rights of inclusion under this
Section 2.2, promptly (but in no event later than the day of receipt) after the
consummation of the sale of Stock under this Section 2.2, GKH
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<PAGE> 6
shall (i) deliver notice thereof to each Participating Stockholder, (ii) remit
to each Participating Stockholder the total sales price of such Participating
Stockholder's Stock sold pursuant hereto and (iii) furnish such other evidence
of the completion and time of completion of such Disposition and the terms
thereof as may be reasonably requested in writing by each Participating
Stockholder.
(d) Failure to Effect Transfer. In the event that any
Stockholder elects to exercise its rights of inclusion under this Section 2.2
as a Participating Stockholder, if, within 90 days after GKH's delivery of the
copy of the Bona Fide Purchaser's offer pursuant to Section 2.2(b), GKH has not
completed the Disposition of its Stock and that of the Participating
Stockholders in accordance herewith, GKH shall return to each Participating
Stockholder (i) the assignments with respect to each Participating
Stockholder's Stock which each Participating Stockholder delivered for
Disposition pursuant to this Section 2.2 and (ii) the related limited
power-of-attorney. Upon the Participating Stockholders' receipt of such
materials, all the restrictions on Disposition contained in this Agreement with
respect to the Stock owned by the Stockholders shall again be in effect.
2.3 Agreement of Selling Stockholders. All sales of Stock to be
made pursuant to Sections 2.1 and 2.2 of this Agreement shall be subject to the
following terms:
(a) the Disposing Stockholder shall deliver to the
purchaser the Stock being sold, free and clear of Encumbrances, together with
duly executed stock transfer powers in favor of the purchaser or its nominees
and such other documents, including evidence of ownership and authority, as the
purchaser may reasonably request; and
(b) the Disposing Stockholder shall not be required to
make any unqualified representations or warranties to any Person in connection
with such sale, except as to (i) good title to the Stock being sold, (ii) the
absence of Encumbrances with respect to the Stock being sold, (iii) its valid
existence and good standing (if applicable), (iv) the authority for, and
validity and binding effect of (as against such Disposing Stockholder), any
agreement entered into by such Disposing Stockholder in connection with such
sale, (v) all required material consents to Disposing Stockholder's sale and
material governmental approvals having been obtained (excluding any securities
laws) and (vi) the fact that no broker's commission is payable by the Disposing
Stockholder as a result of Disposing Stockholder's conduct in connection with
the sale.
2.4 General Transfer Restriction. Unless otherwise agreed by all
of the Stockholders, any Stock Disposed by a Stockholder, other than pursuant
to an Exempt Disposition, shall remain subject to all of the terms and
conditions of this Agreement in the hands of any Person to whom such Stock may
be Disposed and any such Person shall be required to first deliver to the
Company and the Stockholders a written agreement assuming and agreeing to be
bound by all of the terms and conditions of this Agreement and to be a
Stockholder hereunder.
-6-
<PAGE> 7
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 Business Opportunities and Conflicts. Each Stockholder
recognizes that each other Stockholder has or may have other business
interests, activities and investments and that, subject to this Section 3.1,
each such other Stockholder is entitled to carry on such other business
interests, activities and investments. No such other Stockholder shall be
obligated to devote all or any particular part of his or its time and effort to
the Company and its affairs.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Endorsement on Stock Certificates. Each and every certificate
evidencing Stock shall contain upon its face, or on the reverse side thereof,
the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (i) HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE PLEDGED, HYPOTHECATED, TRANSFERRED, OFFERED FOR
SALE OR SOLD EXCEPT PURSUANT TO A REGISTRATION UNDER SAID ACT
OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL
FOR THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
SAID ACT AND (ii) ARE SUBJECT TO THE PROVISIONS OF A
STOCKHOLDERS AGREEMENT COPIES OF WHICH ARE AVAILABLE AT THE
PRINCIPAL OFFICES OF THE COMPANY.
4.2 Termination. This Agreement shall terminate upon the earliest
to occur of the following events:
(a) Bankruptcy of the Company;
(b) the consummation of a publicly registered offering of
25% or more of the common stock of the Company;
(c) 100% of the Stock being owned by a single
Stockholder;
(d) the voluntary agreement, in writing, of all of the
Stockholders; or
(e) the Effective Date failing to occur by September 15,
1997; or
(f) September __, 2004.
-7-
<PAGE> 8
4.3 Effectiveness. Until occurrence of the Effective Date, the
Stockholders Agreement shall remain in full force and effect and in the event
of the termination of this Agreement pursuant to Section 4.2(e) hereof, the
Stockholders Agreement shall continue in full force and effect.
4.4 Stock Subject to this Agreement.
(a) This Agreement shall apply to all Stock currently or
hereinafter owned or acquired by the Stockholders, including, without
limitation, (i) the Stock held by the Stockholders on the date hereof, (ii) any
Stock issued to any Stockholder pursuant to Section 4.4(b) hereof, (iii) any
Stock issued to any Stockholder pursuant to such Stockholder's exercise of an
option or warrant and (iv) any Stock otherwise purchased, acquired or issued to
any Stockholder.
(b) If, at any time, and from time to time, the Company
shall declare and make a distribution upon any of the Stock, or shall validly
issue Stock in lieu of, or in exchange for, or in addition to, any of the Stock
without the receipt of additional consideration therefor, then any such Stock
subsequently issued with respect to the Stock then subject to this Agreement
shall constitute additional Stock subject to this Agreement.
4.5 Notices. Any and all notices or other communications provided
for herein shall be in writing and shall be considered duly given upon the
earliest to occur of (a) personal delivery, (b) 2 days after being delivered to
a national recognized overnight delivery courier or service, (c) 3 days after
being mailed by registered or certified mail, return receipt requested, postage
prepaid or (d) the delivering parties receipt of a written confirmation of a
facsimile transmission. All notices shall be addressed to the Stockholders at
their addresses listed on the signature pages of this Agreement. Any party
hereto may change his or its address by giving notice to the other parties
hereto as provided herein.
4.6 Pronouns and Headings. As used herein, all pronouns shall
include the masculine, feminine, neuter, singular and plural wherever the
context and facts require such construction. The descriptive headings in the
sections of this Agreement are inserted for convenience of reference only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
4.7 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal or unenforceable, such
provision shall be severed and the remaining provisions hereof shall be
enforced to the extent possible or modified in such a way as to make it
enforceable, and the invalidity, illegality or unenforceability thereof shall
not affect the validity, legality or enforceability of the remaining provisions
of this Agreement.
4.8 Modification; Amendment. No modification or amendment of this
Agreement shall be valid unless the same shall be in writing executed by all of
the Stockholders.
-8-
<PAGE> 9
4.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflict of laws provisions thereof
4.10 Binding Effect; Complete Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns. This
Agreement constitutes the entire agreement among the parties hereto and
supersede all prior agreements and understandings, oral or written, among the
parties hereto with respect to the subject matter hereof, except as provided in
Section 4.3 hereof.
4.11 Specific Performance. The parties acknowledge that given the
nature of the obligations of the parties hereto that any non-breaching party
will be irreparably damaged by a breach of this Agreement. The parties hereto
therefore acknowledge and agree that any non-breaching party hereto may seek
specific performance of the provisions hereof and that no party hereto may
assert adequacy of a remedy at law as a defense to an action for specific
performance hereunder.
4.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
4.13 Attorneys' Fees. If any legal action, including an action for
declaratory relief, is brought to enforce any provision of this Agreement, the
prevailing party or parties, as the case may be, shall be entitled to recover
his, its or their respective reasonable attorneys' fees from non-prevailing
party or parties, as the case may be. These fees, which may be set by the
court in the same action or in a separate action brought for that purpose, are
in addition to any other relief to which any prevailing party may be entitled.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first above written.
THE COMPANY:
------------
HANOVER COMPRESSOR COMPANY
By:
---------------------------------------
Title:
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<PAGE> 10
THE STOCKHOLDERS:
-----------------
GKH PARTNERS, L.P., a Delaware limited partnership
By: JAKK HOLDING CORP., a general partner
By:
--------------------------------
Melvyn N. Klein, President
GKH INVESTMENTS, L.P., a Delaware limited partnership
By: GKH Partners, L.P., its general partner
By: JAKK Holding Corp., a general partner
By:
--------------------------------
Melvyn N. Klein, President
----------------------------------------------
Ettore Barbatelli, Sr.
----------------------------------------------
Nancy K. Goldberg, solely in her capacity as Trustee
under the Nancy K. Goldberg Declaration of Trust
----------------------------------------------
William E. Simon, Jr.
----------------------------------------------
J. Peter Simon
-10-
<PAGE> 11
----------------------------------------------
Mary Beth Streep
----------------------------------------------
Carol Leigh Porges
----------------------------------------------
Aimee Simon Bloom
----------------------------------------------
Julie Simon Munro
----------------------------------------------
Johanna Katrina Simon
----------------------------------------------
Alvin V. Shoemaker
----------------------------------------------
John Kramer, solely in his capacity:
(i) as Trustee of the Trust for the Benefit of
Julie Shoemaker
(ii) as Trustee of the Trust for the Benefit of
John Shoemaker
(iii) as Trustee of the Trust for the Benefit of
Christopher Shoemaker
(iv) as Trustee of the Trust for the Benefit of
Peter Shoemaker
-11-
<PAGE> 12
IPP95, L.P.
BY: WESINVEST, INC., its General Partner
----------------------------------------------
By:
----------------------------
Name:
--------------------------
Its:
--------------------------
----------------------------------------------
The Simon Children's Trust
-12-
<PAGE> 1
EXHIBIT 5.1
NEAL, GERBER & EISENBERG
Two N. LaSalle Street, Suite 220
Chicago, Illinois 60602
-------------, 1997
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Hanover Compressor Company
Registration Statement on Form S-1 (No. 333-24953)
Gentlemen:
We are counsel to Hanover Compressor Company, a Delaware corporation
(the "Company"), and in such capacity we have assisted in the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of the Company's Registration Statement on Form S-1 (No.
333-24953), and amendments thereto (the "Registration Statement"), relating to
the proposed offering by the Company and certain stockholders of the Company
(the "Selling Stockholders") of shares of the common stock, $.001 par
value per share (the "Common Stock"), of the Company.
As such counsel, we have examined the Registration Statement, and such
other papers, documents and certificates of public officials and certificates
of officers of the Company as we have deemed necessary and appropriate as the
basis for the opinions hereinafter expressed. In such examinations, we have
assumed the genuineness of all signatures, the legal capacity of natural
persons, and the authenticity of all documents submitted to us as originals and
the conformity to original documents of all documents submitted to us as
conformed or photostatic copies. As to any facts material to this opinion, we
have relied upon statements and representations (a) of the Company and its
officers and other representatives, (b) of the Selling Stockholders and, if
applicable, their officers and other representatives, and (c) of public
officials.
Based upon the foregoing, and subject to the limitations,
qualifications, exceptions, and assumptions set forth herein, we are of the
opinion that the shares of Common Stock covered by the Registration Statement
to be issued by the Company and to be sold by the Company and the Selling
Stockholders, when issued and
<PAGE> 2
Securities and Exchange Commission
June , 1997
Page 2
delivered in accordance with the terms described in the Registration Statement,
will be duly and validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Validity of Common Stock" in the prospectus contained therein.
Please be advised that Richard S. Meller, a partner of our firm, is
Secretary of the Company. In addition, please note that certain partners of,
and attorneys associated with our firm beneficially own and/or may acquire
shares of Common Stock.
Very truly yours,
<PAGE> 1
EXHIBIT 10.21
COOPERATION AGREEMENT
THIS AGREEMENT, made the 16th day of January, 1997, between
WARTSILA DIESEL INTERNATIONAL LTD. OY, a company organized and existing under
the laws of Finland, having its principal office at Pitkansillanranta 3A - PO
Box 196, 00101 Helsinki, Finland,(hereinafter called "WD"),
as the first party, and
HANOVER COMPRESSOR COMPANY, a company organized under the laws of the state of
Delaware (hereinafter called "HCC")
as the second party, and
WARTSILA COMPRESSION SYSTEMS GMBH, a corporation organized and existing under
the laws of Germany (hereinafter called "WCS")
as the third party.
WHEREAS, WD has been and continues to be engaged in the business of,
and has considerable experience in, the design, manufacturing, marketing,
sales, and servicing of diesel and gas engines that are used as or for, among
other things, main and auxiliary ship engines, land-based power plants,
traction applications, and pump and compressor applications;
WHEREAS, Wartsila Compression Systems GmbH ("WCS"), a corporation
organized under the laws of Germany and wholly owned by WD, is in the business
of engineering, developing, marketing, and selling gas compression systems
driven by engines of varying sizes manufactured by WD or one or more of its
affiliates, as well as performing maintenance services;
WHEREAS, HCC has been and continues to be engaged in the business of
providing gas rental and fabrication service and oil and natural gas production
equipment essential to the production, processing and transportation of natural
gas including the leasing, maintaining and operating of gas compressors the
fabrication of such compressors and the fabrication of oil and gas production
equipment;
WHEREAS, on 11th of July, 1996, WD and HCC executed a Memorandum of
Understanding, setting forth their intentions with respect to their commercial
relationship regarding gas compression's systems driven by Wartsila Diesel
engines; and
WHEREAS, WD, WCS, and HCC each wish to memorialize such commercial
relationship by this Cooperation Agreement;
NOW THEREFORE, in consideration of the premises and covenants herein
contained the parties hereto hereby agree as follows:
<PAGE> 2
1. MISSION STATEMENT.
The objective of this Cooperation Agreement is to build a
strong commercial relationship among WD, WCS, and HCC that will be devoted to
engineering, development, marketing, and sale of gas compression systems driven
by engines of varying sizes manufactured by WD or one or more of its affiliates
as well as to the maintenance services for the above.
2. COOPERATION.
2.1 GENERAL.
The parties to this Cooperation Agreement agree to use their
reasonable best efforts to cooperate with one another to
achieve the objective generally set forth in Article 1
hereinabove and described more particularly in the articles
hereinbelow.
2.2 HCC PURCHASE OF WCS STOCK.
Upon execution of this Cooperation Agreement WD and HCC shall
enter into (a) a stock purchase agreement (Appendix 1)
pursuant to which WD shall sell 33% of its equity interest in
WCS to HCC, which shall set forth the terms of such sale, and
(b) into a Shareholders Agreement (Appendix 2) which shall
regulate the respective roles of WD and HCC in respect of the
ownership and management of WCS.
2.3 Expect as provided in this Agreement or any other Agreement
referred to herein each of the Parties shall have the right to
pursue their own business activities whether or not such
activities are competitive with any other Party.
Notwithstanding the foregoing, during the term of the
Distributorship Agreement and for a period of two years
thereafter, neither WD nor WCS, nor any of their affiliates
shall own an interest in an entity engaging in or engage
themselves in the leasing of gas compressor packages in the
"Territory" as a substantial business, as such term is defined
in the Distributorship Agreement. However, the above shall
not apply in the event HCC takes over WCS as a result of a
deadlock pursuant to article 4.8 of the Shareholders
Agreement.
2.4 TECHNICAL COOPERATION.
2.4.1 TECHNOLOGY AND DEVELOPMENT OF KNOW-HOW.
2.4.1.1 Development of standard gas compression drive packages.
2.4.1.1.1 Immediately upon execution of this Agreement, WD, WCS and HCC
shall jointly take such steps as reasonably necessary to
develop and engineer standard gas compression drive
<PAGE> 3
packages for use with the following WD engines: W25SG, W28SG,
W34SG, W180SG and W220SG.
2.4.1.1.2 The intent of this article is to enable WCS to minimize
engineering and development costs by pre- engineering and
pre-developing packaged gas compression drive systems for use
with the aforementioned standard-sized WD engines.
2.4.1.1.3 In the event the financial resources of WCS are or become
insufficient to effectuate the purposes of this Articles, WD
and HCC may agree to contribute additional capital, that may
be necessary to accomplish the purposes of this article. Such
additional contributions shall be in direct proportion to the
equity interests held by WD and HCC in WCS at the time of such
additional contributions.
2.4.2 INTELLECTUAL PROPERTY RIGHTS.
2.4.2.1 The know-how required for all pre-engineered and pre-developed
packages for gas compression drive systems shall be made
available by WD and HCC for use by WCS without charge. Any
know-how developed by WCS shall be the property of WCS, WD and
HCC.
2.4.2.2 WCS shall have the exclusive right to apply for and obtain
patents anywhere in the world for all inventions and
innovations resulting from work or experimentation by WCS
employees, provided that each of WD and HCC (and any of their
affiliates) shall be granted the non-exclusive, perpetual,
royalty-free licenses to use such patents.
2.4.2.3 All WD engines sold and/or distributed by or through WCS or
HCC shall prominently display the engine name and the name,
"Wartsila Diesel" and/or Wartsila or another name provided by
WD on the exterior of such engines where such name(s) are
readily visible.
2.4.3 TRAINING AND EDUCATION.
2.4.3.1 Within a reasonable time after execution of this Cooperation
Agreement, and from time to time, and at such places or via
such telecommunication systems as are mutually acceptable, the
parties hereto shall conduct whatever educational seminars and
training sessions that may be necessary to educate WCS and/or
HCC processing technology for using low grade natural gas in
gas compression systems.
2.4.3.2 Within a reasonable time after execution of this Cooperation
Agreement, and from time to time, and at such places or via
such telecommunication systems as are mutually acceptable, the
parties hereto shall conduct whatever educational seminars and
training sessions that may be necessary to educate WCS and/or
HCC personnel
<PAGE> 4
about diesel/gas engine technology for gas compression
systems.
2.4.3.3 Within a reasonable time after execution of this Cooperation
Agreement, and from time to time HCC shall prepare related
written and/or audio-visual materials for the purpose of
educating WCS and/or WD personnel about bidding tools,
developing technical solutions and gas compression marketing
materials.
2.4.4 TASK FORCE.
2.4.4.1 Within a reasonable time after execution of this Cooperation
Agreement and at such places or via such communication systems
as are mutually acceptable, WCS, WD and HCC shall form a task
force for the purpose of discussing technical and
developmental issues that may have arisen from the market in
the previous year in connection with WCS's involvement in the
gas compression drive business.
2.4.4.2 The first such task force shall meet within one year of the
date of the execution of this Cooperation Agreement.
Subsequent annual task forces shall be formed when necessary
upon the initiative of any of the parties hereto.
2.4.4.3 In addition to the annual task force meeting, the parties
hereto expressly agree to participate in such other meetings
as may become necessary, from time to time.
2.5 TOOLING AND INFORMATION.
2.5.1 After execution of this Cooperation Agreement, HCC shall
prepare and provide WCS with all bidding tooling, related
computer software, testing methods operation data, and other
technical and/or engineering methods which WCS may reasonably
need in the ordinary course of its business.
2.5.2 In accordance with the objectives of this Cooperation
Agreement, the parties hereto agree that HCC shall provide WCS
with such information, software programs, packaging know-how,
and other data as WCS may reasonably need from time to time in
the ordinary course of its business.
2.5.3 In accordance with the objectives of this Cooperation
Agreement, the parties agree that WD shall provide WCS with
such information, technical specifications and other data on
its products as WCS may reasonably need from time to time in
the ordinary course of its business.
<PAGE> 5
2.5.4 Parties shall also, upon WCS's request but at such times and
at such places or via such telecommunication systems as are
mutually convenient, conduct seminars and training sessions,
and prepare related written and/or audio-visual materials, for
the purpose of educating WCS personnel about such tooling,
computer software, computer hardware, testing methods, and
other technical, scientific, and/or engineering equipment.
2.6 MARKETING COOPERATION.
2.6.1 THE ROLE OF WCS.
2.6.1.1 The purpose of WCS shall be to engineer, develop, market and
sell gas compression systems driven by electric motors and/or
engines of varying sizes manufactured by WD or one or more of
its affiliates as well as perform maintenance services.
2.6.1.2 WCS shall market, distribute and sell such gas compression
systems under its own name or under a name of its choosing.
2.6.2 MARKETING INFORMATION.
2.6.2.1 Upon execution of this Cooperation Agreement, HCC and WD shall
freely exchange, without cost to either party, marketing
information relevant to the sale and distribution of WCS gas
compression systems.
2.7 PERSONNEL EXCHANGE.
2.7.1 Upon execution of this Cooperation Agreement, HCC, WCS and WD
shall establish and implement a personnel exchange program
pursuant to which, (a) one or more HCC employees shall be
tasked to visit, observe, and/or work at those certain
facilities and/or offices of WCS, and (b) one or more WD or
WCS employees shall be tasked to visit, observe, and/or work
at those certain facilities and/or offices of HCC.
2.7.2 The duration, purpose, and agenda of each such personnel
exchange shall be determined by mutual agreement of the
parties. However, the parties hereto agree that (a) at least
one WCS sales engineer shall be located at the offices of HCC
in Houston, at the cost of WCS, and (b) at least one HCC
technical expert shall be located at the offices of WCS in
Brandenburg, Germany, at the cost of WCS.
2.7.3 No party shall hire or solicit for hire employees of any other
party without such party's consent. This provision shall
survive for two years after either of the parties
<PAGE> 6
has been bought out of WCS pursuant to article four or five
the Shareholders Agreement.
2.8 DISTRIBUTION AGREEMENT.
2.8.1 Upon execution of the Cooperation Agreement, WCS and HCC shall
enter into a Distribution Agreement (Appendix 3) (a) pursuant
to which WCS shall grant to HCC the right to be the exclusive
distributor of W25SG, W28SG, W34SG lean burn gas engines, and
a non-exclusive distributor of W220SG and W180SG lean burn gas
engines, for compression drive applications in North-America
and South-America, with the exception of Canada, and (b) which
shall set forth the terms and conditions of such
distributorship arrangement.
WD agrees to be bound by articles 1.1 and 7.3 of the
Distributorship Agreement as if W D were Grantor.
2.9 PILOT INSTALLATIONS.
2.9.1 The parties agree that WCS shall purchase and HCC shall commit
to engineer, package, and put into operation (through HCC's
rental fleet or by third-party purchasers), five pilot gas
compression drive systems using Wartsila W25SG, W28SG, W34SG,
W220SG, and W180SG lean burn gas engines, which pilot
installations are intended to provide Initial operational and
servicing experience. WD intends to but does not represent or
warrant that it will put the aforementioned installations into
service in the order in which such installations are described
hereinabove. However, WD shall grant a warranty which is not
less favorable than the warranty generally granted to other
customers. The parties agree to cooperate and share technical
knowledge for the co-development, engineering, and packaging
of compression drive systems. The parties also agree to
cooperate and share technical knowledge for the co-development
of compression drive system production methodology or
methodologies. The parties shall enter into a separate
agreement regarding the pilot projects.
3. SALES.
3.1 SALES BETWEEN THE PARTIES.
The parties shall enter into agreements for the purchase and
sale of packaging components, engines and gas compression
packages from time to time.
3.2 TERMS AND CONDITIONS OF SALES BETWEEN THE PARTIES.
<PAGE> 7
The sales agreement between the parties will be governed by
the terms and conditions as per Appendix 4.
The sales of engines by WCS to HCC shall be governed also by
the Distributorship Agreement referred into article 2.8.
4. REPRESENTATIONS.
4.1 HCC REPRESENTATIONS.
HCC hereby represents and covenants that:
4.1.1 It has full authority and capacity to enter into this
Co-operation Agreement and to execute all related documents;
4.1.2 Its certificate of incorporation, by-laws, and any other
documents relating to its corporate governance or to financing
do not restrict it or in any way prevent it from entering into
this Co-operation Agreement;
4.1.3 Its Board of Directors has duly authorized the undersigned HCC
officer(s) to execute this Co-operation Agreement on behalf of
HCC so as to bind HCC to all terms and provisions of this
Co-operation Agreement.
4.1.4 The representations set forth in this Article shall survive
the expiration of this Co-operation Agreement.
4.2 WD REPRESENTATIONS.
WD hereby represents and covenants that:
4.2.1 It has the full authority and capacity to enter into this
Co-operation Agreement and to execute all related documents;
4.2.2 Its certificate of incorporation, by-laws, and any other
documents relating to its corporate governance or to financing
do not restrict it or in any way prevent it from entering into
this Co-operation Agreement;
4.2.3 Its Board of Directors has duly authorized the undersigned WD
officer(s) to execute this Co-operation Agreement on behalf of
WD so as to bind WD to all terms and provisions of this
Co-operation Agreement.
4.2.4 The representations set forth in this Article shall survive
the expiration of this Co-operation Agreement.
4.3 WCS REPRESENTATIONS.
WCS hereby represents and covenants that:
<PAGE> 8
4.3.1 It has the full authority and capacity to enter into this
Co-operation Agreement and to execute all related documents;
4.3.2 Its certificate of incorporation, by-laws, and any other
documents relating to its corporate governance or to financing
do not restrict or prevent it in any way from entering into
this Co-operation Agreement.
4.3.3 The representations set forth in this Article shall survive
the expiration of this Co-operation Agreement.
5. SUCCESSORS AND ASSIGNS.
5.1 All of the provisions of this Co-operation Agreement shall
apply in all respects to the successors and assigns of WD, WCS
and HCC, respectively.
6. NO THIRD-PARTY BENEFICIARIES.
6.1 There are no intended third-party beneficiaries of this
Co-operation Agreement.
6.2 The only intended beneficiaries of this Co-operation Agreement
are the parties hereto.
7. ENTIRE AGREEMENT.
7.1 The entire agreement between the parties with respect to the
subject matter hereof is set forth in (a) this Cooperation
Agreement, and (b) the related agreements listed (Appendices
1-4) hereto, which agreements supersede any and all prior
agreements, oral and written, negotiations, and proposed
agreements.
7.2 No term, condition, or provision of this Co-operation
Agreement may be modified, waived or changed in any way except
in writing executed, with the same formalities hereof, by the
party charged with such modification, waiver or change.
8. GOVERNING LAW.
8.1 This Co-operation Agreement and the agreements listed in
Appendices 1-4 hereto, and their interpretation and
performance, shall be governed by the laws of Germany.
9. NEGOTIATION OF DISPUTES AND DISAGREEMENTS.
9.1 If any dispute or disagreement arises out of, relating to, or
in connection with the implementation or performance of this
Co-operation Agreement, which the parties hereto have been
unable to settle or agree upon within a period of thirty (30)
days after the dispute or
<PAGE> 9
disagreement arises, each party shall nominate a senior
officer of its management to meet at a mutually agreed time
and place not later than forty five (45) days after the
dispute or disagreement has arisen to attempt in good faith to
resolve such dispute or disagreement.
9.2 Should a resolution of such dispute not be obtained within
fifteen (15) days after the meeting of such senior officers
for such purpose, any party to this Co-operation Agreement may
then by written notice to any other submit the dispute to
arbitration in accordance with the provisions of Article 10
hereto.
9.3 The negotiations contemplated by this Article 9 are an
absolute conditions precedent to the commencement of
arbitration proceedings.
9.4 No arbitration may be commenced in connection with this
Co-operation Agreement unless the negotiations contemplated by
this Article 9 have been undertaken in a good faith attempt to
settle the claim, dispute or controversy.
10. ARBITRATION.
10.1 All claims, dispute and/or controversies arising out of,
relating to, or in connection with this Co- operation
Agreement shall be finally settled under the Rules of
Conciliation and Arbitration of the International Chamber of
Commerce (the "ICC") then in effect
10.2 There shall be three arbitrators, with each parties selecting
one; the third arbitrator, who shall be the chairman of the
panel, shall be selected by the two party-appointed
arbitrators. The ICC shall be empowered to appoint any
arbitrator not named in accordance with the procedure herein.
10.3 The award rendered by the arbitrators shall be final.
10.4 The costs and expenses of the arbitration (including
reasonable attorney's fees) will be borne by the loosing
party, unless the arbitrators determine that it would be
manifestly unfair to honor this Agreement of the parties and
determine a different allocation of costs.
10.5 The arbitration shall be conducted in the English language.
10.6 The place of arbitration shall be London, United Kingdom.
11. NOTICES.
<PAGE> 10
11.1 Any notice pursuant to this Co-operation Agreement shall be in
writing and either (a) delivered personally; (b) sent by
certified mail, return receipt requested; (c) sent by a
recognized overnight mail or courier service with delivery
receipt required and by regular mail; or (d) sent by confirmed
facsimile transfer and by regular mail:
If to WD: Wartsila Diesel International Ltd Oy
Pitkansillanranta 3A - PO Box 196,
00101 Helsinki, Finland
If to WCS: Wartsila Compression Systems GmbH
Saatwinkler Damm 44-46
D-13627 Berlin
If to HCC: Hanover Compressor Company
12001 N. Houston Rosslyn
Houston Texas 77086
Copy to Rick Meller
Two North LaSalle Street
Chicago IL 60602
fax (312) 269-1747
11.2 Any party may change its address or the person to be notified
by a notice delivered in accordance with this Article.
11.3 Notices shall be effective when received by the party to whom
addressed.
12. EFFECTIVENESS.
This agreement and the appendices hereto shall become
effective upon HCC's receipt of its lenders' and Board of
Directors consents to the transactions contemplated hereby;
provided however, that if such consents are not received by
February 15, 1997, this agreement and the agreements attached
hereto as appendices shall be of no force and effect.
13. TERMINATION.
Articles 1 and 2 of this Agreement shall terminate at such
time as either party no longer owns an interest in WCS;
provided, however, that Article 2.3, the last sentence of
Article 2.4.2.1, the previous in article 2.4.2.2, the last
sentence of article 2.8.1 shall survive any such termination.
14. CAPTIONS.
<PAGE> 11
14.1 The Article headings used in this Co-operation Agreement are
for convenience only. They have no substantive value and
shall not affect the meaning or interpretation of this
Cooperation Agreement.
WARTSILA DIESEL WARTSILA COMPRESSION
INTERNATIONAL LTD OY, SYSTEMS GmbH,
By: By:
---------------------- ----------------------
HANOVER COMPRESSOR
COMPANY,
By:
----------------------
<PAGE> 1
EXHIBIT 10.22
DISTRIBUTORSHIP AGREEMENT
BETWEEN
WARTSILA COMPRESSION SYSTEMS GmbH
AND
HANOVER COMPRESSOR COMPANY
<PAGE> 2
DISTRIBUTORSHIP AGREEMENT
THIS DISTRIBUTORSHIP AGREEMENT (hereinafter referred to as the "Agreement") is
made on the 16th day of January, 1997 between
WARTSILA COMPRESSION SYSTEMS GmbH, a company incorporated under the laws of
Germany with principal offices at Brandenburg, Germany (hereinafter referred to
as the "Grantor") which expression shall include its successors and permitted
assignees of the first part;
And
HANOVER COMPRESSOR COMPANY, a company incorporated under the laws of Delaware,
with principal offices at Houston, Texas U.S.A (hereinafter referred to as the
"Distributor"), which expression shall include its successors and permitted
assignees of the second part;
Collectively referred to as the "Parties",
WHEREBY IT IS AGREED AS FOLLOWS:
ART. 1 SCOPE OF THE AGREEMENT
1.1. The Grantor hereby grants and the Distributor accepts (I) the
exclusive right to sell W25SG, W28SG and W34SG lean burn gas
engines to compressor drive application customers, (ii) the
non-exclusive right to sell W220SG and W180SG to compressor
drive application customers, (iii) the non-exclusive right to
sell the Spare Parts to compressor drive application customers
and (iv) the non-exclusive right to maintain an authorized
service and maintenance station for compressor drive
applications for the Products in the Territory. The rights
herein are granted in respect of the territory provided in
Article 2.4 (hereinafter referred to as the "Territory").
ART. 2 DEFINITIONS
2.1. The following terms shall have the meanings specified in this
Article 2 when capitalized and used in this Agreement,
including any Appendix attached hereto.
2.2. "Products" shall mean the following gas diesel engines: W25SG,
W28SG, W34SG, W220SG and W180SG and their updated versions.
<PAGE> 3
2.3. "Spare Parts" shall mean WD OEM original spare parts, original
auxiliary and exchange parts for the Products, including any
updated versions thereof.
2.4. "Territory" shall mean North and South America excluding
Canada.
2.5. "Buyer" shall mean the customers of the Distributor who are
the purchasers of the Products and Spare Parts.
2.6. "Contract" shall mean the specific delivery contract between
the Grantor and the Distributor.
2.7. "Equipment" shall mean any materials, apparatus, machinery,
structures, tools, supplies and other goods provided and to be
provided by the Grantor pursuant to this Agreement and the
Contract.
2.8. Wartsila Diesel Group shall mean Wartsila Diesel International
Ltd Oy and its subsidiaries.
ART. 3 AGREEMENT DOCUMENTS
3.1. The supply and sale of the Products shall be made by the
Grantor to the Distributor or by the Grantor to the Buyer in
accordance with this Agreement and with the Appendices, which
are an integral part of the Agreement and which are hereby
incorporated herein.
3.2. In case of any discrepancy or inconsistency between the terms
herein and those specified in any Appendix hereof, the
Appendix shall overrule the Agreement text.
ART. 4 DUTIES OF THE DISTRIBUTOR
4.1. The Distributor buys and sells in his own name and for this
own account without having any power to bind the Grantor in
any manner without his explicit approval. The Distributor
shall solicit customers from the Territory and promote the
sale of the Products and Spare Parts in the Territory. When
performing its obligations under this Agreement the
Distributor shall further the interests of the Grantor.
Unless otherwise agreed, the Distributor shall not solicit
Buyers having the location of project site outside the
Territory without the approval of the Grantor. The
Distributor shall not export Products and Spare Parts outside
of the Territory other than to Buyers which it is permitted to
solicit hereunder. It is the responsibility of the
Distributor to transmit orders on projects located outside of
the
<PAGE> 4
Territory other than to Buyers which it is permitted to
solicit hereunder to the Grantor.
4.2. As soon as the Distributor enters into a sales project with a
Buyer or his representatives he will discuss with the Grantor
and decide on the technical feasibility of the project, the
technical specifications and other data such as performance
guarantees, the price, the delivery time, contractual terms
and conditions.
4.3. As the Grantor's authorized service and maintenance station,
the Distributor is entitled to carry out service and
maintenance work on the Products. The Distributor shall, in
accordance with the provisions set out below, provide service
and maintenance of the Products and, on orders from the
Grantor, carry out guarantee work on the Products.
4.4. The Grantor shall upon reasonable notice have the right to
inspect the Distributor's service and maintenance facilities
as well as its stock during normal business hours for the
purpose of confirming the quality of work performed on or in
connection with the products as well as the status and quality
of the facilities. Such an inspection shall be conducted in a
manner so as not interfere unreasonably with the Distributor's
business.
4.5. The Distributor shall, in consultation with the Grantor,
appoint, train and maintain an efficient and professionally
qualified Products and Spare Parts sales organization
(including product application engineering). Also, the
Distributor shall provide and organize an effective and
technically qualified organization and service facilities
network for service and maintenance of the Products. The
Distributor shall be responsible for the activities of its
local service outlets and other representatives and
subcontractors.
4.6. Distributor may not assign the Agreement nor engage any third
party to sell the Products or the Spare Parts or to carry out
the service or maintenance of the Products without the prior
written consent of the Grantor. During the validity of this
Agreement the Grantor shall reserve the right to conclude
direct sales contracts or other sales agreements without the
assistance of the Distributor, however, only in cases where
the Buyer wants to deal directly with the Grantor. Grantor
will not solicit any such orders.
<PAGE> 5
4.7. Purchase orders shall be placed with the Grantor in writing
for all Products required by the Distributor. No contract
shall be deemed to have been entered into until the Grantor
has confirmed the Distributor's purchase order in writing.
4.8. The Distributor shall be liable for the costs and damages
directly resulting from his own proceedings and/or from his
acting.
4.9. The Distributor shall cooperate in each country with the local
network company of Wartsila Diesel Group.
ART. 5 SPARE PARTS
5.1. The Distributor shall buy exclusively from the Wartsila Diesel
Group all the Spare Parts for the Products.
5.2. Sale of Spare Parts to the Distributor shall be made in
accordance with the general terms and conditions for the sale
of spare parts issued by the Wartsila Diesel Group.
5.3. Grantor shall make and keep available sufficient Spare Parts
for the Products sold hereunder.
ART. 6 PERFORMANCE OF SERVICE AND MAINTENANCE WORK BY THE DISTRIBUTOR
6.1. When carrying out service and maintenance work the Distributor
shall use only original Spare Parts supplied by the Grantor,
unless the Grantor or the Wartsila Diesel Group fail to supply
them in a timely manner.
6.2. For the purpose of carrying out service and maintenance on the
Products the Distributor shall purchase from the Grantor the
necessary service tools as shall be separately agreed.
6.3. In carrying out all work the Distributor shall follow the
general written instructions of the Grantor. In specific
cases, it may be agreed that the Distributor shall follow the
specific instructions of the Grantor. A report of every
service and maintenance work carried out by the Distributor
shall be provided to the Grantor without delay.
6.4. The Distributor shall be responsible to its customers for its
service and maintenance work performed on the Products. When
carrying out service and maintenance work or selling the spare
parts, the Distributor shall closely
<PAGE> 6
cooperate with and use the services of the local network
companies of Wartsila Diesel Group.
6.5. Work to be carried out on the Products which falls under
warranty may be performed by the Distributor for the account
of the Grantor only on the Grantor's approval given separably
and on prices to be agreed upon. In the event of emergency,
the Distributor shall have the right to proceed with the work,
and the Grantor shall give his approval as soon as possible
provided that the work is in accordance with warranty
obligations. Such work shall be carried out strictly in
accordance with the prevailing warranty obligations. All
Product parts replaced under the warranty shall be retained by
the Distributor until the Grantor gives further instructions,
unless Grantor fails to give timely instructions. Upon the
Grantor's request the Distributor shall send such parts to the
Grantor at the Grantor's expense and in accordance with the
Grantor's instructions.
6.6. THE DISTRIBUTOR SHALL NOT PROMISE TO REPLACE PARTS AND OFFER
SERVICE UNDER GUARANTEE AND AT GRANTOR'S COST WITHOUT
GRANTOR'S APPROVAL.
ART. 7 DUTIES OF THE GRANTOR
7.1. The Grantor shall assist the Distributor in preparing
quotations and technical specifications and shall give him all
necessary prospectus(es) and price-lists, which remain the
property of the Grantor, and may be transmitted to customers
only upon the written consent of the Grantor.
7.2. The Grantor shall deliver the Products to the Distributor in
accordance with this Agreement and the applicable sales
contract.
7.3. The Grantor shall not appoint any other distributor in the
Territory for the compressor drive applications of the
Products without the approval of the Distributor and shall not
sell gas compressor packages in the Territory except as
provided in article 4.6.
7.4. The Grantor shall provide support to the Distributor in
creating the competencies needed to carry out objective of
this Agreement.
ART. 8 PRICES AND PAYMENT
<PAGE> 7
8.1. The Grantor shall sell and the Distributor shall purchase
Products at prices and payment terms to be agreed upon per
project.
8.2. The Grantor shall sell and the Distributor shall purchase all
Spare Parts at the Grantor's Global List Prices valid on the
date of the Distributor's firm, irrevocable order. Packing,
handling, transport, taxes and duties shall be calculated
separately. Additional costs shall be charged for orders via
the 24-hours-call-out system. Alternatively, the Distributor
may purchase Spare Parts from Wartsila Diesel Inc., or from
another Wartsila Diesel Company in the Territory.
ART. 9 MINIMUM PURCHASE REQUIREMENT
The Parties shall have the following obligations:
1997
The Parties shall do everything reasonably necessary to put
into operation the pilot projects for W25SG, W28SG, and W34SG.
1998
The Distributor shall use its reasonable best efforts to
purchase at least 22MW of Products.
1999
The Distributor shall use its reasonable best efforts to
purchase at least 40MW of Products.
2000
Distributor will be required to purchase a minimum of 50MW of
Products.
In the event the Distributor does not reach the minimum
purchase requirements for the year 2000, the Parties shall
discuss in good faith and agree on reasonable minimum purchase
requirements for the following five years. If no such
agreement is reached by March 30, 2001, WCS has the right to
terminate the exclusivity of the Agreement; however, the
balance of the Agreement shall remain in full force and
effect.
In the event the Distributor reaches the minimum purchase
requirement for the year 2000, the Distributor shall have
<PAGE> 8
the exclusive rights as provided in this Agreement in the Territory
until the end of the year 2005, whereupon the Parties shall discuss in
good faith and agree on reasonable minimum purchase requirements
for the following five years. If no such agreement is reached by March
30, 2006, WCS has the right to terminate the exclusivity of the
Agreement; however, the balance of the Agreement shall remain in full
force and effect.
A Product is deemed to be purchased in a calendar year if it has
been delivered during the said calendar year.
The Parties acknowledge that a non-fulfillment of the minimum
purchase requirement does not entitle the Grantor to claim damages.
ART. 10 DELIVERY
10.1. Except when otherwise agreed in writing, all Products ordered by the
Distributor and accepted by the Grantor shall be delivered as agreed
in each case (Incoterms 1990, or any valid revision thereof). Unless
otherwise agreed upon between the Parties the contract and terms and
conditions, as provided in Appendix 4 of the Cooperation Agreement,
shall apply to all sales and deliveries by the Grantor under this
Agreement.
ART. 11 COMMISSIONS IN CERTAIN CASES
11.1. In the event the Distributor finds a project outside the Territory and
provided the project is not known to the Grantor or to its affiliates
before the Distributor informs in writing about it, tho Distributor is
entitled to a commission of 0.5%. However, it is a precondition for
the commission that a binding contract has been signed for the project
at the latest twelve (12) months after the Distributor has informed
the Grantor of the project in writing.
11.2. In the event a sales project needs substantial sales efforts from the
Grantor (or its affiliate) and the Distributor, the parties may agree
on a commission of 1.5%. The agreed commission is payable by the
Grantor to the Distributor in the event the project is outside the
Territory and by the Distributor to the Grantor in the event the
project is inside the Territory. This commission may be agreed upon
in deals where consultants are involved, or where the beneficial owner
conducting the sales negotiations is other than the formal owner,
giving due consideration to the actual location where,
<PAGE> 9
and the parties with whom, the relevant decisive business negotiation
is conducted and completed.
11.3. The commission shall be calculated on the sales contract value (Ex-
Works) of the sold Products. Under no circumstances shall commission
be paid on third party commissions and transport costs, if any.
11.4. The party which is entitled to commission shall acquire a right to a
pro rata commission on each payment made by the customer. The
commission payment shall be made no later than thirty (30) days after
payment has been made by the customer. If the customer fails to make
payment in full, the commission shall be limited to the pro rata
amount payable on the sums actually received.
ART. 12 WARRANTY
12.1. The applicable normal warranty provisions of the Grantor shall apply
to sale of Products and Spare Parts.
12.2. Where a Spare Part is used from the Distributor's stock in fulfillment
of the Grantor's warranty obligations the Distributor shall be
entitled to reimbursement for the actual cost of the transaction of
the Spare Part used.
ART. 13 ADVERTISING AND SALES PROMOTION
13.1. The Distributor shall cooperate in the Grantor's marketing plans and
carry out the publicity and sales promotion required to increase the
sales of the Products and the Spare Parts. The Distributor shall
prepare and distribute all its sales promotion materials in
cooperation and liaison with the Grantor's and Wartsila Diesel Group's
marketing and sales promotion unit.
13.2. Advertising material (brochures, leaflets, folders) shall be supplied
at no charge by the Grantor to the extent to which such material is
available and in quantities relative to the Distributor's sales of the
Products and the Spare Parts.
ART. 14 TECHNICAL ASSISTANCE AND TESTS
14.1. The Distributor shall arrange for the testing and/or registration by
the relevant institution in the Distributor's area of operation of
such Products as are agreed between the Parties. All such tests and
registrations shall be made in the name of the Grantor
<PAGE> 10
and the Distributor shall furnish the Grantor with all reports in
connection therewith.
ART. 15 BRAND NAMES, TRADE MARKS AND PATENTS
15.1. The Distributor shall market the Products and the Spare Parts under
the brand names, trade marks, patents and commercial designations as
indicated by the Grantor.
15.2. In no event shall the Distributor claim status as the registered user
of the said brand names, trademarks, patents or other rights, which
remain the property of the Grantor.
15.3. Should any infringement of the Grantor's patents, trademarks or other
rights come to the Distributor's notice, the Distributor shall
immediately inform the Grantor thereof and provide such reasonable
assistance to the Grantor as may be appropriate in any proceedings
that the Grantor shall see fit to take in protection of such rights,
in the Territory.
ART. 16 CONFIDENTIALITY AND TRADE SECRETS
16.1. The Distributor and Grantor each hereby undertakes to treat as
strictly confidential, even after the expire of this present Agreement
all terms and conditions agreed upon with the Grantor or Distributor
or information received from the Grantor or Distributor, which
information includes any technical or commercial information supplied
by the Grantor or Distributor which whether patented or not is clearly
not intended for wider distribution unless disclosure of such
information is expressly permitted by this Agreement or required by
applicable law.
16.2. Neither Distributor nor the Grantor shall not, even after the
expiration of this Agreement, use or communicate to third parties any
trade secrets which he may have in any way learned through his
activity for the Grantor, or the Distributor, as the case may be.
ART. 17 EXPIRATION AND TERMINATION OF THE AGREEMENT
17.1. This Agreement shall enter into force on the 16th day of January,
1997.
17.2. This Agreement shall be valid for ten (10) years. After the
expiration of the term, the Agreement continues to be force until
terminated at any time by either party,
<PAGE> 11
subject to an advance notice of six (6) calendar months in writing;
provided, however, that termination shall not be permitted until the
expiration of Distributor's exclusivity as otherwise provided herein.
The aforesaid notwithstanding, this Agreement may be terminated by the
other Party without prior notice with immediate effect as a result of
any of the following events:
o in the event of acquisition of control or at least 50% of
voting stock of one Party by a direct competitor of the other
Party,
o in the event of the seeking into liquidation, bankruptcy or
winding up, whether voluntary or involuntary, of the other
Party and,
o in the event of any material breach by one Party of any of the
terms and conditions of this Agreement,
The Grantor may terminate the exclusivity portion of this Agreement
within three (3) months after March 30th, 2001, upon prior written
notice in the event the Distributor fails to fulfill the minimum
purchase requirements as defined in article 9. However, the existing
binding delivery contracts shall not be effected.
17.3. The termination of this Agreement in accordance with article 17.2
shall in no circumstances give rise to any indemnity, damages or
compensation. This Article shall not, however affect any rights,
claims or liabilities which may, prior to the termination, have arisen
between the Parties. Notice of the termination must be given by
registered mail.
17.4. Expire or termination of the Agreement shall not entitle the
Distributor to any compensation or indemnity, in respect of any
possible sales organization set up by the Distributor, investment
made, the relations established and goodwill acquired.
17.5. On the expire of the Agreement the Distributor shall, within fourteen
(14) days of the expire date, return to the Grantor all samples,
material and documents which have been supplied to the Distributor by
the Grantor and are in the Distributor's possession. Such samples,
material and documents shall be returned, at the Distributor's risk
and expense to the Grantor's factory or such other place as the
Grantor may specify. The Grantor shall have the option to, repurchase
any Spare Parts remaining in the Distributors stock on the expire
<PAGE> 12
of the Agreement at the price indicated in the Grantor's then
prevailing EX WORKS price list less 30% and any Products at Grantor's
original sales price. The Distributor shall, however, be entitled to
reimbursement of any out of pocket expenses incurred as a result of
any customs duty, freight and handling costs of the said Products and
Spare Parts. The Grantor may exercise the option by giving notice
thereof to the Distributor not later than forty (40) days from the
expire date of this Agreement.
17.6. Such notice shall constitute an agreement of purchase and sale as
herein provided, binding upon the Parties. Should the Grantor fail to
exercise such option, the Distributor may dispose of such inventory as
it deems appropriate.
17.7. In the event Distributor purchases Wartsila Diesel International Ltd.,
Oy's ("WD") interest in Grantor, WD agrees, by its execution hereof,
to continue to supply Grantor, for a period of two years thereafter,
Products on the same terms as WD has historically provided Products to
Grantor (and modified with the possible changes applicable to WD's
customers generally) and will negotiate with Grantor in good faith an
agreement to continue such supply of Products. Such two year
Agreement and the Agreement to negotiate in good faith is a condition
to the operation of the buy-out provisions of Article 4.8 of the
Shareholders Agreement between Distributor and WD regarding Grantor.
ART. 18 APPLICABLE LAW AND ARBITRATION
18.1. This Agreement and its interpretation and performance, shall be
governed by the laws of Germany.
18.2. If any dispute or disagreement arises out of, relating to, or in
connection with the implementation or performance of this Agreement,
which the parties hereto have been unable to settle or agree upon
within a period of thirty (30) days after the dispute or disagreement
arises, each party shall nominate a senior officer of its management
to meet at a mutually agreed time and place not later than forty five
(45) days after the dispute or disagreement has arisen to attempt in
good faith to resolve such dispute or disagreement.
18.3. Should a resolution of such dispute not be obtained within fifteen
(15) days after the meeting of such senior officers for such purpose,
any party to this Agreement
<PAGE> 13
may then by written notice to any other submit the dispute to
arbitration
18.4. The negotiations contemplated by this Article 9 are an absolute
conditions precedent to the commencement of arbitration proceedings.
18.5. No arbitration may be commenced in connection with this Agreement
unless the negotiations contemplated by this Article 9 have been
undertaken in a good faith attempt to settle the claim, dispute or
controversy.
18.6. All claims, dispute and/or controversies arising out of, relating to,
or in connection with this Cooperation Agreement shall be finally
settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce (the "ICC") then in effect.
18.6.1 There shall be three arbitrators, with each parties selecting one; the
third arbitrator, who shall be the chairman of the panel, shall be
selected by the two party-appointed arbitrators. The ICC shall be
empowered to appoint any arbitrator not named in accordance with the
procedure herein.
18.6.2 The award rendered by the arbitrators shall be final.
18.6.3 The costs and expenses of the arbitration (including reasonable
attorney's fees) will be borne by the loosing party, unless the
arbitrators determine that it would be manifestly unfair to honor this
Agreement of the parties and determine a different allocation of
costs.
18.6.4 The arbitration shall be conducted in the English language.
18.6.5 The place of arbitration shall be London United Kingdom.
ART. 19 FINAL PROVISIONS
19.1. This Agreement represents the entire agreement between the Parties
hereto relating to the subject matter hereof and supersedes any prior
agreements and communication. This Agreement shall be binding upon
the respective successors and assignees of the Parties, provided
always that the Agreement shall not be assigned by the Distributor
without the prior written consent of the Grantor.
<PAGE> 14
19.2. During the validity of the Agreement the Distributor shall at his own
cost and expense, carry and maintain a comprehensive insurance
coverage against the loss or damage to the stock items as well as
against product liability, bodily injury and damage to property
arising out of service and maintenance activities.
19.3. All expenses incurred by the Distributor in fulfilling its obligations
under this Agreement shall be deemed to be covered by the resale
margins and/or sales commissions earned by the Distributor under the
Agreement. Any current or future duties, taxes, such as franchise,
property or turnover taxes, payable in the Distributor's country on
any activity under this Agreement or on the above mentioned commission
granted to the Distributor shall be borne by the Distributor.
19.4. The Agreement may be amended only by a written instrument signed by
duly authorized representatives of both parties and any amendment will
not result in the nullification of this Agreement in its entirety.
19.5. The temporary, limited or specific waiver of any term, provision or
condition hereof shall not be considered a waiver or any other term,
condition or provision hereof, nor of any subsequent breach of the
same term, condition or provision.
19.6. The section headings in the Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of the
Agreement.
19.7. Should any provision of this Agreement be declared void or
ineffective, such declaration shall not affect the validity of any
other provision of this Agreement.
19.8. No action or claim for commission, breach of the Agreement or
otherwise hereunder may be brought by either Party more than twelve
(12) months after the cause of such action or claim occurred, and
under no circumstances more than six (6) months after the date of
expire of this Agreement.
19.9. In the event of Force Majeure the effected or encumbered Party is
obliged to give to the other Party within seven (7) Days from the
beginning thereof a written notice stating the cause of the delay.
Upon the cessation of the Force Majeure the effected Party (or
Parties) shall immediately inform the other Party and shall make all
<PAGE> 15
efforts within his (their) power to mitigate the effects of such Force
Majeure.
ART. 20 NOTICES
20.1. All notices and other communication under this Agreement shall be in
the English language and must be given by either registered express
mail, courier, telegram, telefax or telex to the addresses provided
below.
A) Wartsila Compression Systems GmbH
Saatwinkler Damm 44-46
D-13627 Berlin
B) Hanover Compressor Company
12001 N. Houston Rosslyn
HOUSTON TEXAS 77086
Fax + 1 713 447 0821
Tel: + 1 713 447 8787
ART. 21 SIGNATURES TO THE AGREEMENT
IN WITNESS WHEREOF, the Parties hereto, Distributor and Grantor, have cause
their duly authorized representatives to execute this Agreement on the day and
year first written above.
On behalf of the Distributor On Behalf of the Grantor
Signature Signature
Wartsila Diesel International Ltd. Oy accepts and agrees to be bound by Article
17.7 of this Agreement.
Signature
<PAGE> 1
EXHIBIT 10.23
HANOVER COMPRESSOR COMPANY
1997 STOCK OPTION AND PURCHASE PLAN
1. Preamble.
Hanover Compressor Company, a Delaware corporation (the "Company"), hereby
establishes the Hanover Compressor Company 1997 Stock Option and Purchase Plan
(the "Plan") as a means whereby the Company may, through awards of non-
qualified stock options and restricted stock:
(a) provide Company officers, employees, directors and consultants
who have substantial responsibilities for the direction and management of
the Company and its Subsidiaries with additional incentive to promote the
success of the Company's and its subsidiaries' businesses;
(b) enable such employees to acquire proprietary interests in the
Company; and
(c) encourage such employees to remain in the employ of the Company
and its subsidiaries.
(d) provide Officers and Directors of, and consultants to, the
Company and its Subsidiaries and Affiliates (who are not otherwise
employees) with additional incentive to promote the success of the
businesses of the Company and its Subsidiaries.
Except as specifically provided herein, the provisions of this Plan do not
apply to or affect any option, stock appreciation right, or stock heretofore or
hereafter granted under any other stock plan of the Company or any subsidiary,
and all such options, stock appreciation right or stock continue to be governed
by and subject to the applicable provisions of the plan or agreement under
which they were granted.
2. Definitions.
2.01 "Board" or "Board of Directors" means the board of directors of
the Company.
2.02 "Cause" means (i) the commission by such Participant of an act
of fraud, embezzlement or willful breach of a fiduciary duty to the Company
(including the unauthorized disclosure of confidential or proprietary material
information of the Company), (ii) a conviction of such Participant (or a plea
of nolo contendere in lieu thereof) for a felony or a crime involving fraud,
dishonesty or moral turpitude, (iii) willful misconduct as an employee of the
Company, (iv) the willful failure of such Participant to render services to the
Company in accordance with his employment or consulting arrangement, which
failure amounts to a material neglect of his duties to the Company or (v)
substantial dependence, as determined by the Board, on alcohol or any drug,
immediate precursor or other substance listed in Schedule I-V of the Federal
Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended, as
determined in the sole discretion of the Committee.
2.03 "Change in Control" means the occurrence of any one of the
following events:
(a) any (A) consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or which
contemplates that all or substantially all of the business and/ or assets
of the Company shall be controlled by another corporation or (B) a
recapitalization (including an exchange of Company equity securities by
the holders thereof), in either case, in which any "Person" (as such term
is used in Sections 13(d) and (14(d)(2) of the Exchange Act), other than
the Controlling Shareholders, becomes the beneficial owner (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of securities of
the Company representing more than 50% of the combined voting power of the
Company's then outstanding securities ordinarily having the right to vote
in the election of directors;
(b) any sale, lease, exchange or transfer (in one transaction or
series of related transactions) of all or substantially all of the assets
of the Company and its Subsidiaries or Affiliates;
<PAGE> 2
(c) approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company, unless
such plan or proposal is abandoned within 60 days following such
approval; or
(d) any "Person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than the Controlling Shareholders,
shall become the beneficial owner of securities of the Company
representing more than 50% of the combined voting power of the Company's
then outstanding securities ordinarily having the right to vote in the
election of directors.
2.04 "Code" means the Internal Revenue Code of 1986, as it exists now
and as it may be amended from time to time.
2.05 "Committee" means the Compensation Committee of the Board or any
other committee comprised of two or more outside Directors appointed by the
Board to administer the Plan, as the case may be. Each member of the Committee
shall (a) be a member of the Board of Directors who has not at any time within
one year prior thereto, or at any time during such member's term of service on
the Committee, received any stock options, stock appreciation rights or
allocations of any equity securities under the Plan or any other plan
maintained by the Company or any of its affiliates, except as permitted
pursuant to the provisions of Rule 16b-3(c)(2)(i) of the Exchange Act or any
successor rule thereof; and (b) be an outside Director as determined under
Treasury Regulation 26 CFR Section 1.162-27(e)(3) or any successor regulation
thereto. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors.
2.06 "Common Stock" means the common stock of the Company, $.001 par
value.
2.07 "Company" means Hanover Compressor Company, a Delaware
corporation, and any successor thereto.
2.08 "Director" means a member of the Board.
2.09 "Disability" means being entitled to disability benefits under
the terms of the Company's long term disability plan.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as it
exists now or from time to time may hereafter be amended.
2.11 "Fair Market Value" means for the relevant day:
(a) If shares of Common Stock are listed or admitted to unlisted
trading privileges on any national or regional securities exchange, the
last reported sale price, regular way, on the composite tape of that
exchange on the day Fair Market Value is to be determined;
(b) If the Common Stock is not listed or admitted to unlisted
trading privileges as provided in paragraph (a), and if sales prices for
shares of Common Stock are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. National Market System
("NASDAQ System"), then the last sale price for Common Stock reported as
of the close of business on the day Fair Market Value is to be determined,
or if no such sale takes place on that day, the average of the high bid
and low asked prices so reported; if Common Stock is not traded on that
day, the next preceding day on which such stock was traded; or
(c) If trading of the Common Stock is not reported by the NASDAQ
System or on a stock exchange, Fair Market Value will be determined by the
Committee in its discretion based upon the best available data.
-2-
<PAGE> 3
2.12 "Officer" means a corporate officer of the Company or any
Subsidiary or Affiliate of the Company.
2.13 "Option" means the right of a Participant to purchase a
specified number of shares of Common Stock, subject to the terms and conditions
of the Plan.
2.14 "Option Date" means the date upon which an Option, or Restricted
Stock is awarded to a Participant under the Plan.
2.15 "Option Price" means the price per share at which an Option may
be exercised.
2.16 "Participant" means an individual to whom an Option or
Restricted Stock has been granted under the Plan.
2.17 "Plan" means the Hanover Compressor Company 1997 Stock Option
and Purchase Plan, as set forth herein and as from time to time amended.
2.18 "Restricted Stock" means Common Stock awarded to a Participant
pursuant to this Plan and subject to the restrictions contained in Section 9.
2.19 "Securities Act" means the Securities Act of 1933, as it exists
now or from time to time may hereinafter be amended.
2.20 "Subsidiary" means any corporation or other entity of which the
majority voting power or equity interest is owned directly or indirectly by the
Company.
2.21 "Termination of Employment" means,
(a) with respect to an employee when the employee's employment
relationship with the Company and all of its Subsidiaries is terminated,
regardless of any severance arrangements. A transfer from the Company to a
Subsidiary or affiliate, or vice versa is not a termination of
employment for purposes of this Plan;
(b) with respect to a consultant when the consultant's consulting
relationship with the Company is terminated either due to the termination
of any consulting agreement, or otherwise, regardless of the fact that no
employment relationship exists;
(c) with respect to an Officer or Director when such individual is no
longer serving as an Officer or Director of the Company, as a
consultant to or employee of the Company and any of its Subsidiaries.
2.22 Rules of Construction.
(a) Governing Law. The construction and operation of this Plan are
governed by the laws of the State of Delaware.
(b) Undefined Terms. Unless the context requires another meaning,
any term not specifically defined in this Plan has the meaning given to it
by the Code.
(c) Headings. All headings in this Plan are for reference only and
are not to be utilized in construing the Plan.
(d) Gender. Unless clearly appropriate, all nouns of whatever
gender refer indifferently to persons of any gender.
-3-
<PAGE> 4
(e) Singular and Plural. Unless clearly inappropriate, singular
terms refer also to the plural and vice versa.
(f) Severability. If any provision of this Plan is determined to be
illegal or invalid for any reason, the remaining provisions shall continue
in full force and effect and shall be construed and enforced as if the
illegal or invalid provision did not exist, unless the continuance of the
Plan in such circumstances is not consistent with its purposes.
3. Stock Subject to the Plan.
Except as otherwise provided in Section 13, the aggregate number of shares
of Common Stock that may be issued under Options or as Restricted Stock under
this Plan may not exceed 5% of the fully diluted shares of Common Stock
outstanding immediately after the Offering. Reserved shares may be either
authorized but unissued shares or treasury shares, in the Board's discretion.
If any awards hereunder shall terminate or expire, as to any number of shares,
new Options and Restricted Stock may thereafter be awarded with respect to such
shares. Except as otherwise provided in Section 13, the aggregate number of
shares of Common Stock that may be issued under Options, or as Restricted Stock
to any one individual Participant may not exceed ___________ shares.
4. Administration.
The Plan shall be administered by the Committee. In addition to any other
powers set forth in this Plan, the Committee has the exclusive authority:
(a) to construe and interpret the Plan, and to remedy any
ambiguities or inconsistencies therein;
(b) to establish, amend and rescind appropriate rules and
regulations relating to the Plan;
(c) subject to the express provisions of the Plan, to determine the
individuals who will receive awards of Options and/or Restricted Stock,
the times when they will receive them, the number of shares to be subject
to each award and the Option Price, payment terms, payment method, and
expiration date applicable to each award;
(d) to contest on behalf of the Company or Participants, at the
expense of the Company, any ruling or decision on any matter relating to
the Plan or to any awards of Options and/or Restricted Stock;
(e) generally, to administer the Plan, and to take all such steps
and make all such determinations in connection with the Plan and the
awards of Options and/or Restricted Stock as it may deem necessary or
advisable;
(f) to determine the form in which tax withholding under Section 16
of this Plan will be made; and
(g) to amend the Plan or any Option or Restricted Stock granted or
awarded hereunder as may be necessary in order for any business
combination involving the Company to qualify for pooling-of-interest
treatment under APB No. 16.
5. Eligible Participants
Subject to the provisions of the Plan, the Committee shall determine from
time to time those individuals who shall be designated as Participants and the
number, if any, of Options or Restricted Stock, or any combination thereof, to
be awarded to each such Participant;
-4-
<PAGE> 5
6. Terms and Conditions of Options.
All Options granted under this Plan shall be nonstatutory options, which
are not intended to be classified as "incentive stock options" under Section
422 of the Code. The Committee may, in its discretion, grant Options to any
Participant under the Plan. Each Option shall be evidenced by an agreement
between the Company and the Participant. Each Option agreement, in such form
as is approved by the Committee, shall be subject to the following express
terms and conditions and to such other terms and conditions, not inconsistent
with the Plan as the Committee may deem appropriate:
(a) Option Period. Each Option will expire as of the earliest of:
(i) ten years from the Grant Date;
(ii) the date on which it is forfeited under the
provisions of Section 12;
(iii) the date three months after the Participant's
Termination of Employment for any reason other than death or
Disability; or
(iv) the date twelve months after the Participant's death
or Disability.
(b) Option Price. At the time when the Option is granted, the
Committee will fix the Option Price. The Option Price may be greater than,
less than, or equal to Fair Market Value on the Option Date, as determined
in the sole discretion of the Committee.
(c) Other Option Provisions. The form of Option authorized by the
Plan may contain such other provisions as the Committee may from time to
time determine.
7. Terms and Conditions of Restricted Stock Awards.
The Committee, in its discretion, may grant Restricted Stock to any
Participant under the Plan. Each grant of Restricted Stock shall be evidenced
by an agreement between the Company and the Participant. All shares of Common
Stock awarded to Participants under the Plan as Restricted Stock shall be
subject to the following express terms and conditions and to such other terms
and conditions, not inconsistent with the Plan, as the Committee shall deem
appropriate:
(a) Restrictions on Transfer. Shares of Restricted Stock awarded to
Participants shall contain such restrictions on transfer as the Committee
may determine in its sole discretion. Shares of Restricted Stock awarded
to Participants may not be sold or transferred before such restrictions on
transfer lapse, and may only be pledged to the Company or any Subsidiary
to satisfy any obligations that the Participant may have to the Company or
the Subsidiary with respect to the acquisition of such shares of
Restricted Stock. Subject to the provisions of subparagraphs (b) and (c)
below and any other restrictions imposed by law, the certificates for any
shares of Restricted Stock the restrictions on which have lapsed will be
transferred to the Participant or, in the event of his death, to the
beneficiary or beneficiaries designated by writing filed by the
Participant with the Committee for such purpose or, if none, to his
estate. Delivery of shares in accordance with the preceding sentence
shall be made within the 30-day period after such restrictions shall
lapse.
(b) Certificates Deposited With Company. Each certificate issued in
respect of shares of Restricted Stock awarded under the Plan shall be
registered in the name of the Participant and deposited with the Company.
Each such certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) relating to Restricted Stock contained in the
-5-
<PAGE> 6
Hanover Compressor 1997 Stock Option and Purchase Plan and an agreement
entered into between the registered owner and Hanover Compressor Company.
Copies of such Plan and agreement are on file at the principal office of
Hanover Compressor Company."
(c) Stockholder Rights. Subject to the foregoing restrictions, each
Participant shall have all the rights of a stockholder with respect to his
shares of Restricted Stock including, but not limited to, the right to
vote such shares.
(d) Dividends. On each Common Stock dividend payment date, each
Participant shall receive an amount equal to the dividend paid on that
date on a share of Common Stock, multiplied by his number of shares of
Restricted Stock.
8. Manner of Exercise of Options.
To exercise an Option in whole or in part, a Participant (or, after his
death, his executor or administrator) must give written notice to the
Committee, stating the number of shares to which he intends to exercise the
Option. The Company will issue the shares with respect to which the Option is
exercised upon payment in full of the Option Price. The Option Price may be
paid (i) in cash, (ii) in shares of Common Stock having an aggregate Fair
Market Value, as determined on the date of delivery, equal to the Option Price,
(iii) if permitted by the Committee, by cash or certified or cashier's check
for the par value of the Plan Shares plus a promissory note for the balance of
the purchase price, which note shall provide for full personal liability of the
maker and shall contain such other terms and provisions as the Committee may
determine, including without limitation the right to repay the note partially
or wholly with Common Stock, or (iv) by delivery of irrevocable instructions to
a broker to promptly deliver to the Company the amount of sale or loan proceeds
necessary to pay for all Common Stock acquired through such exercise and any
tax withholding obligations resulting from such exercise. The Option Price may
be paid in shares of Common Stock which were received by the Participant upon
the exercise of one or more Options. The Option Price may be paid in shares of
Common Stock which were received by the Participant as an award of Restricted
Stock under the Plan.
9. Vesting.
A Participant may not exercise an Option until it has become vested. The
portion of an Option award that is vested depends upon the period that has
elapsed since the Option Date. Unless the Committee establishes a different
vesting schedule at the time when an Option is granted, all Options granted
under this Plan shall vest according to the following schedule:
<TABLE>
<CAPTION>
Period Elapsed Vested Percentage
-------------- -----------------
<S> <C>
First Anniversary of Option Date 10%
Second Anniversary of Option Date 30%
Third Anniversary of Option Date 60%
Fourth Anniversary of Option Date 100%
</TABLE>
Except as provided below, upon a Termination of Employment, a Participant
forfeits any Options that are not yet vested. Unless the Board in its sole
discretion specifically waives the application of this sentence, then
notwithstanding the vesting schedule contained herein or in the Participant's
agreement, if the Participant's Termination of Employment is terminated for
Cause all Options granted to the Participant will be immediately cancelled and
forfeited by the Participant upon delivery to him of notice of such termination
for Cause.
-6-
<PAGE> 7
10. Change of Control.
Notwithstanding the provisions of Section 9 or anything contained in a
Participant's agreement to the contrary, upon a Change in Control all Options
and/or Restricted Stock shall be subject to the following:
(a) The Company shall have the right to acquire from Participant's
their vested Options by payment of the difference between the price per
share of Common Stock established in the Change of Control and the Option
Price;
(b) All unvested Options shall convert into either (i) options to
purchase securities of the acquirer in the Change of Control on the same
terms and conditions as apply to the Options under the Plan, or (ii) such
consideration as the Participant would have received had the Options been
fully vested; and
(c) All restrictions on transfer shall lapse with respect to the
Restricted Stock.
11. Adjustments to Reflect Changes in Capital Structure.
If there is any change in the corporate structure or shares of the
Company, the Board of Directors may, in its discretion, make any adjustments
necessary to prevent accretion, or to protect against dilution, in the number
and kind of shares authorized by the Plan and, with respect to outstanding
Options, and/or Restricted Stock in the number and kind of shares covered
thereby and in the applicable Option Price. For the purpose of this Section 11,
a change in the corporate structure or shares of the Company includes, without
limitation, any change resulting from a recapitalization, stock split, stock
dividend, consolidation, rights offering, spin-off, reorganization, or
liquidation and any transaction in which shares of Common Stock are changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company or another corporation.
12. Non-Transferability of Options and Restricted Stock
The Options awarded under the Plan are not transferable, voluntarily or
involuntarily, other than by will or the laws of descent and distribution, or
to the extent permissible under Section 422 of the Code pursuant to a qualified
domestic relations order as defined in Section 414(p) of the Code. Restricted
Stock is not transferable, voluntarily or involuntarily until all restrictions
on transfer set forth in the Participant's Restricted Stock agreement have
lapsed. During a Participant's lifetime, his Options may be exercised only by
him.
13. Rights as Stockholder.
No Common Stock may be delivered upon the exercise of any Option until
full payment has been made and all income tax withholding requirements thereon
have been satisfied. A Participant has no rights whatsoever as a stockholder
with respect to any shares covered by an Option until the date of the issuance
of a stock certificate for the shares.
14. Withholding Tax.
The Company shall have the right to withhold in cash or shares of Common
Stock with respect to any payments made to Participants under the Plan any
taxes required by law to be withheld because of such payments. Notwithstanding
the foregoing, with respect to a Participant subject to Section 16(a) or 16(b)
of the Exchange Act, all amounts required to be withheld upon the vesting of
Restricted Stock shall automatically be withheld in Common Stock otherwise
deliverable to the Participant and having a Fair Market Value determined on the
date the income is includable in the Participant's income equal to the amount
of taxes required to be withheld.
-7-
<PAGE> 8
15. Non-Competition and Confidential Information.
Each Participant receiving Options shall be subject to the restriction
that, during the term of his Option Agreement and for a period of two years
thereafter, he or she (i) will not compete with any business of the Company or
its Subsidiaries and (ii) will not disclose to persons outside the Company
confidential information concerning the Company or its Subsidiaries without the
Company's express written consent.
16. No Right To Employment.
Participation in the Plan will not give any Participant a right to be
retained as an employee of the Company or any Subsidiary, or any right or claim
to any benefit under the Plan, unless the right or claim has specifically
accrued under the Plan.
17. Amendment of the Plan.
The Committee may from time to time amend or revise the terms of this Plan
in whole or in part and may without limitation, adopt any amendment deemed
necessary; provided, however, that no change in any award previously granted to
a Participant may be made that would impair the rights of the Participant
without the Participant's consent.
18. Stockholder Approval.
Continuance of the Plan shall be subject to approval by the shareholders
of the Company within 12 months before or after the date the Plan is adopted by
the Committee.
19. Conditions Upon Issuance of Shares.
An Option shall not be exercisable, a share of Common Stock shall not be
issued pursuant to the exercise of an Option, and Restricted Stock shall not be
awarded until such time as the Plan has been approved by the Stockholders of
the Company and unless the award of Restricted Stock, exercise of such Option
and the issuance and delivery of such share pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the shares of Common Stock
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Common Stock is
being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
20. Effective Date and Termination of Plan.
20.1 Effective Date. This Plan is effective as of the later of the
date of its adoption by the Committee, or the date it is approved by the
stockholders of the Company, pursuant to Section 18.
20.2 Termination of the Plan. The Board may terminate the Plan at
any time with respect to any shares that are not then subject to Options or
Restricted Stock. Termination of the Plan will not affect the rights and
obligations of any Participant with respect to Options or Restricted Stock
awarded before termination.
* * * * *
-8-
<PAGE> 9
I hereby certify that the foregoing Plan was adopted by the Board of
Directors of Hanover Compressor Company on April 8, 1997.
Executed as of April 8, 1997
-------------------------------------
William S. Goldberg
Executive Vice President - Director
I hereby certify that the foregoing Plan was approved by the
shareholders of Hanover Compressor Company on _____ ___________, 1997.
Executed _________________
-------------------------------------
Alvin V. Shoemaker - Director
-9-
<PAGE> 1
EXHIBIT 10.25
AMENDMENT, WAIVER AND CONSENT
AMENDMENT, WAIVER AND CONSENT dated as of April 14, 1997 (this
"Amendment"), to the Second Amended and Restated Credit Agreement, dated as of
December 19, 1995 (as heretofore amended and as the same may be further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among HANOVER COMPRESSOR COMPANY, a Delaware corporation ("HCC" or
the "Borrower"), the several banks and other financial institutions from time
to time parties thereto (the "Banks") and THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), a New York banking corporation, as the agent for the
Lenders (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Agent are parties to the
Credit Agreement; and
WHEREAS, the Borrower has requested that the Agent and the Banks (i)
increase the Commitments under the Credit Agreement from $90 million to $150
million, (ii) waive the Borrower's non-compliance with the terms and provisions
of the Loan Documents resulting from the Oklahoma Disposition (as defined
hereinbelow), (iii) consent to the transaction contemplated by the
Hanover/Smith Columbus Mortgage (as defined hereinbelow) and waive any
violation of the Loan Documents resulting therefrom, (iv) amend Schedule I of
the HCC Pledge Agreement and (v) waive certain provisions of Subsection 8 of
the Collateral Trust Agreement; and
WHEREAS, the Agent and the Banks are agreeable to the requested
amendments, waivers and consents but only on the terms and subject to the
conditions set forth herein;
NOW THEREFORE, in consideration of the premises herein contained and
for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein which are defined in the Credit Agreement or the Collateral
Trust Agreement, are used herein as therein defined and the following term
shall have the following meaning:
"Oklahoma Disposition": shall mean that certain disposition
of the property located in Oklahoma by HCC, as described in the letter
from HCC to the Agent dated April 7, 1997.
<PAGE> 2
2. Amendment to Schedule I to the Credit Agreement. Schedule I
to the Credit Agreement is hereby amended by deleting the existing Schedule I
in its entirety and substituting in lieu thereof the new Schedule I attached
hereto as Exhibit A.
3. Waiver Related to the Oklahoma Disposition. The Agent and the
Banks hereby waive the Borrower's non- compliance with the terms and provisions
of the Loan Documents (including without limitation the Credit Agreement, the
HCC Security Agreement and the Oklahoma Mortgage) and any Default or Event of
Default which may have occurred in connection therewith as a result of the
Oklahoma Disposition.
4. Consent Related to the Hanover/Smith Columbus Mortgage.
Notwithstanding the terms and provisions of the Loan Documents (including
without limitation the Credit Agreement and the Hanover/Smith Security
Agreement), the Agent and the Banks hereby consent to Hanover/Smith and the
Borrower entering into the mortgage financing arrangement pursuant to which
Hanover/Smith will (i) incur additional indebtedness in order to exercise its
option to purchase the production equipment fabrication facility in Columbus,
Texas and (ii) mortgage the acquired facility as security for the financing
(the "Hanover/Smith Columbus Mortgage") and waive any violation of the Loan
Documents (including without limitation the Credit Agreement and the
Hanover/Smith Security Agreement) which might result therefrom and waive any
requirement that such assets acquired be included as Collateral under the
Security Documents; provided, however, that (i) any Indebtedness incurred in
connection therewith shall be included for purposes of calculating the
financial covenants under Subsection 8.1 of the Credit Agreement, (ii) the
total amount of Indebtedness incurred in connection therewith not exceed $2.4
million, (iii) no Liens on any of the Borrower's and its Subsidiaries' assets
(with the exception of the Hanover/Smith Columbus Mortgage) be granted in
connection therewith.
5. Amendment to Schedule I of the HCC Pledge Agreement. Schedule
I of the HCC Pledge Agreement is hereby amended by deleting the number "2" from
the column representing the stock certificate number relating to the pledged
shares of Contract Compression International Argentina, S.A. and substituting
in lieu thereof the number "1".
6. Wavier of Subsection 8 of the Collateral Trust Agreement. The
Agent and the Banks hereby waive compliance with the thirty day written notice
requirement of Subsection 8 of the Collateral Trust Agreement solely with
respect to the increase of Commitments contemplated by this Amendment and
acknowledge that such increased Commitments will constitute Additional
Indebtedness and Master Debt.
7. Effectiveness. This Amendment shall become effective on April
14, 1997 (the "Amendment Effective Date") subject to the fulfillment of the
following conditions: (a) the Borrower shall have delivered to the Agent and
the Collateral Trustee duly executed copies of this Amendment, (b) the Agent
shall have received duly executed copies of this Amendment from each Bank, (c)
the Borrower shall have delivered to the Agent on behalf of each Bank a duly
executed replacement Revolving Credit Note in a principal amount equal to such
Bank's Amended Commitment in substitution for and replacement of each Bank's
existing Revolving Credit Note (each Bank hereby agreeing to return to the
Borrower as soon
<PAGE> 3
as practicable thereafter such Bank's cancelled, existing Revolving Credit
Note), (d) no Default or Event of Default shall have occurred and be continuing
on the date hereof after giving effect to this Amendment, (e) the Agent shall
have received from JEDI a consent to this Amendment and a waiver of the thirty
day notice requirement of Subsection 8 of the Collateral Trust Agreement and
(f) the Collateral Trustee and the Agent shall have received, with a copy for
each Bank, the following:
(i) a copy of the resolutions, in form and substance
satisfactory to the Agent, of the Board of Directors of the Borrower
authorizing (x) the execution, delivery and performance of this
Amendment and (y) the incurrence of the Additional Indebtedness
pursuant to the Credit Agreement as modified by this Amendment;
(ii) a certificate of a Responsible Officer of the Borrower
certifying that all provisions (including Subsections 8 and 9) of the
Collateral Trust Agreement that are required for (i) the Additional
Indebtedness created by the Credit Agreement as modified by this
Amendment to constitute Master Debt have been complied with and
demonstrating, in reasonable detail, compliance with any restrictions
on the incurrence of the Additional Indebtedness by the Borrower under
any Master Debt Agreement and (ii) this Amendment have been complied
with;
(iii) a legal opinion of Neal, Gerber & Eisenberg, acceptable
to the Agent, relating to this Amendment, the issuance of the
Additional Indebtedness pursuant to this Amendment as Master Debt
under the Collateral Trust Agreement and as to such other related
matters as the Agent may reasonably request;
(iv) a letter from the Collateral Trustee (a) agreeing to the
waiver of the thirty day notice requirement under Subsection 8 of the
Collateral Trust Agreement and (b) stating that it has received no
objection from the Required Percentage of any Class of Master Debt
that the designation of the Additional Indebtedness created pursuant
to this Amendment as Master Debt would violate the terms of any Master
Debt Agreement; and
(v) instructions from JEDI to the Collateral Trustee
substantially similar to those set forth in the last paragraph of this
Amendment.
8. Representations and Warranties. The Borrower hereby
represents and warrants that the representations and warranties contained in
the Credit Agreement (except those which expressly speak as of a certain date)
will be, after giving effect to this Amendment, true and correct in all
material respects, as if made on and as of the date hereof.
9. Continuing Effect of Credit Agreement. This
Amendment shall not constitute an amendment or waiver of any other provision of
the Credit Agreement or the Loan Documents not expressly referred to herein and
shall not be construed as a wavier or consent to any further or future action
on the part of the Borrower that would require a waiver or consent of the Agent
and/or the Banks. Except as expressly amended hereby, the
<PAGE> 4
provisions of the Credit Agreement and the Loan Documents are and shall remain
in full force and effect.
10. Counterparts. This Amendment may be executed in
counterparts and all of the said counterparts taken together shall be deemed to
constitute one and the same instrument. Delivery of an executed signature page
of this Amendment by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.
11. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
12. Expenses. The Borrower agrees to pay or reimburse
the Agent for all of their out-of-pocket costs and expenses incurred in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the fees and disbursements of counsel to the
Agent.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their duly authorized officers as of the date
first written above. In addition, the undersigned holders of Secured
Obligations hereby authorize and direct the Collateral Trustee to (A) consent
to any waiver of (i) Subsection 5(i) of the Hanover/Smith Security Agreement
with respect to the Hanover/Smith Columbus Mortgage, (ii) Subsections 5(j) and
8 of the HCC Security Agreement with respect to the Oklahoma Disposition and
(iii) Subsection 8 of the Collateral Trust Agreement pursuant to Section 6 of
this Amendment, (B) release the property covered in the Oklahoma Disposition
from any Lien created by the Security Documents and (C) release the Liens on
that portion of the Collateral that will be subject to the Hanover/Smith
Columbus Mortgage.
HANOVER COMPRESSOR COMPANY
BY: /s/ CURTIS BEDRICH
------------------------------------------
Name: Curtis Bedrich
Title: Treasurer
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank), as Agent and as a Bank
BY: /s/ MARTHA ANN FETNER
------------------------------------------
Name: Martha Ann Fetner
Title: Vice President
THE BANK OF NOVA SCOTIA
BY: /s/ A.S. NORSWORTHY
------------------------------------------
Name: A.S. NORSWORTHY
Title: SR. TEAM LEADER-LOAN OPERATIONS
CREDIT LYONNAIS, NEW YORK BRANCH
BY: /s/ PASCAL POUPELLE
-----------------------------------------
Name: PASCAL POUPELLE
Title: SENIOR VICE PRESIDENT
<PAGE> 6
WELLS FARGO BANK (TEXAS) NATIONAL
ASSOCIATION
BY: /s/ THEODORE M. NOWAK
-------------------------------------------
Name: Theodore M. Nowak
Title: Vice President
<PAGE> 7
Acknowledged and agreed to as
of the date hereof:
MAINTECH ENTERPRISES, INC.
By: /s/ CURTIS BEDRID
--------------------------------
Name: Curtis Bedrid
Title: Treasurer
HANOVER/SMITH, INC.
By: /s/ CURTIS BEDRID
--------------------------------
Name: Curtis Bedrid
Title: Treasurer
HANOVER ACQUISITION CORP.
By: /s/ CURTIS BEDRID
--------------------------------
Name: Curtis Bedrid
Title: Treasurer
HANOVER LAND COMPANY
By: /s/ CURTIS BEDRID
--------------------------------
Name: Curtis Bedrid
Title: Treasurer
THE CHASE MANHATTAN BANK
(formerly known as Chemical
Bank), as Collateral Trustee
By: /s/ WANDA EILAND
--------------------------------
Name: Wanda Eiland
Title: Trust Officer
<PAGE> 8
EXHIBIT A Schedule I
BANKS AND COMMITMENTS
<TABLE>
<CAPTION>
Name and Address Commitment
of Bank Percentage Commitment
- ---------------- ---------- ----------
<S> <C> <C>
The Chase Manhattan Bank 30.000000000% $45,000,000
1 Chase Manhattan Plaza, 3rd Floor
New York, New York 10081
Attention: Martha A. Fetner
Telecopy: (212) 552-1687
with a copy to:
Chase Securities Inc.
Oil and Gas Group
1 Chase Manhattan Plaza, 3rd Floor
New York, New York 10081
Attention: Douglas Petno
Telex: 232 337
Telecopy: (212) 552-1687
Wells Fargo (Texas) National 23.333333333% $35,000,00
Association
1000 Louisiana, 3rd Floor
Houston, Texas 77002
Attention: Theodore Nowak
Telecopy: (713) 250-7912
The Bank of Nova Scotia 23.333333333% $35,000,00
600 Peachtree Street Northeast
Suite 2700
Atlanta, Georgia 30308
Attention: Claude Ashby
Telecopy: (404) 888-8998
With a copy to:
The Bank of Nova Scotia
1100 Louisiana, Suite 3000
Houston, Texas 77002
Attention: Jamie Conn
Telecopy: (713) 752-2425
Credit Lyonnais 23.333333333% $35,000,00
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention: Brian Barth
Telecopy: (713) 751-0307
Total:
------------ -----------
100% $150,000,000
</TABLE>
8
<PAGE> 1
EXHIBIT 10.26
AMENDMENT, WAIVER AND CONSENT
AMENDMENT, WAIVER AND CONSENT, dated as of December 23, 1996
(this "Amendment"), to the Second Amended and Restated Credit Agreement, dated
as of December 19, 1995 (as heretofore amended and as the same may be further
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among HANOVER COMPRESSOR COMPANY, a Delaware corporation ("HCC"),
the several banks and other financial institutions from time to time parties
thereto (the "Banks") and THE CHASE MANHATTAN BANK (formerly known as Chemical
Bank), a New York banking corporation, as the agent for the Lenders (in such
capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks and the Agent are parties to
the Credit Agreement;
WHEREAS, the Borrower has requested that the Agent, with the
consent of the Required Banks, (i) amend Subsections 1.1, 8.1(b), 8.2(h),
8.10(f) and 8.11 of the Credit Agreement, (ii) waive compliance with
Subsections 6.1(m), 7.4, 7.7(a), 8.2 and 8.8 of the Credit Agreement, (iii)
waive compliance with Subsection 5(j) of the Hanover Acquisition Security
Agreement, (iv) waive compliance with Subsection 5(b)(ii) of the Hanover
Acquisition Pledge Agreement, (v) amend Schedule I to the Hanover Acquisition
Pledge Agreement, (vi) amend Schedule I and Subsection 4(a) of the HCC Pledge
Agreement, (vii) amend the HCC Security Agreement, (viii) amend the Hanover
Acquisition Security Agreement and (ix) consent to HCC entering into the
Shareholder Subordinated Loan Agreement (as defined below); and
WHEREAS, the Agent, with the consent of the Required Banks, is
agreeable to the requested amendments, waivers and consent, but only on the
terms and subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the premises herein
contained and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein which are defined in the Credit Agreement, are
used herein as therein defined.
2. Amendment to Subsection 1.1. Subsection 1.1 of the
Credit Agreement is hereby amended by (a) adding thereto the following new
defined terms in the appropriate alphabetical order:
<PAGE> 2
"'Consolidated U.S. EBITDA': for any period, with respect to the U.S.
EBITDA Companies, the sum of (a) Consolidated Earnings Before Interest
and Taxes for the U.S. EBITDA Companies for such period, plus, (b) all
amounts attributable to depreciation and amortization, determined in
accordance with GAAP (to the extent such amounts have been deducted in
determining Consolidated Net Income of the U.S. EBITDA Companies for
such period) plus, (c) all other non-cash expenses for such period (to
the extent such amounts have been deducted in determining Consolidated
Net Income of the U.S. EBITDA Companies for such period) minus, (d)
all other non-cash income for such period (to the extent such amounts
have been included in determining Consolidated Net Income of the U.S.
EBITDA Companies for such period)."
"'Shareholder Subordinated Debt': shall mean all Subordinated Debt of
HCC under the Shareholder Subordinated Loan Agreement."
"Shareholder Subordinated Loan Agreement": shall mean the Exchange and
Subordinated Loan Agreement, dated as of December 23, 1996, between
HCC and the lenders parties thereto, as amended, supplemented or
otherwise modified from time to time."
"'U.S. EBITDA Companies': shall mean HCC and each of its wholly-owned
Subsidiaries which (i) is organized under a jurisdiction of the United
States and (ii) has at least 90% of its assets located in the United
States or which derives at least 90% of its revenues from the United
States, in each case, at the time the applicable calculation is being
made for purposes of subsection 8.1(b).";
(b) (i) deleting the existing paragraphs (c) and (d) from the defined term
"Applicable Margin" in their entireties and substituting in lieu thereof the
following new paragraphs (c) and (d):
"(c) if the Applicable Margin Certificate required pursuant to
subsection 7.2(g) for any fiscal quarter of HCC shows that the
Consolidated Indebtedness Ratio on the last day of such fiscal quarter
was greater than 2.0 to I and less than or equal to 3.0 to 1, then the
Applicable Margin for the fiscal quarter of HCC immediately succeeding
the date such certificate is delivered shall be (i) with respect to
ABR Loans, 0% and (ii) with respect to Eurodollar Loans, 1.00%;
(d) if the Applicable Margin Certificate required pursuant to
subsection 7.2(g) for any fiscal quarter of HCC shows that the
Consolidated Indebtedness Ratio on the last day of such fiscal quarter
was greater than 3.0 to I and less than or equal to 4.0 to 1, then the
Applicable Margin for the
2
<PAGE> 3
fiscal quarter of HCC immediately succeeding the date such certificate
is delivered shall be (i) with respect to ABR Loans, 0% and (ii) with
respect to Eurodollar Loans, 1.250%; and"; and
(ii) adding the following new paragraph (e) to the defined term of
"Applicable Margin":
"(e) if the Applicable Margin Certificate required pursuant to
subsection 7.2(g) for any fiscal quarter of HCC shows that the
Consolidated Indebtedness Ratio on the last day of such fiscal quarter
was greater than 4.0 to 1, then the Applicable Margin for the fiscal
quarter of HCC immediately succeeding the date such certificate is
delivered shall be (i) with respect to ABR Loans, 0.250% and (ii) with
respect to Eurodollar Loans, 1.500%;"
and (c) deleting the word "any" from the beginning of the second line of the
defined term "Subordinated Debt" and inserting in lieu thereof the words "the
Shareholder Subordinated Debt and any other".
3. Amendment to Subsection 8.1(b). Subsection 8.1(b) of
the Credit Agreement is hereby amended by deleting the existing subsection
8.1(b) in its entirety and inserting in lieu thereof the following new
subsection 8.1(b):
"(b) Consolidated U.S. EBITDA to Consolidated Indebtedness.
Permit the ratio of Consolidated U.S. EBITDA to Consolidated
Indebtedness for the four consecutive fiscal quarters of HCC most
recently ended to be less than 1.0 to 4.5."
4. Amendment to Subsection 8.2(h). Subsection 8.2(h) of
the Credit Agreement is hereby amended by deleting the words "Up to $35,000,000
of outstanding" at the beginning of the first line thereof.
5. Amendment to Subsection 8.10(f). Subsection 8.10(f)
of the Credit Agreement is hereby amended by deleting the existing Subsection
8.10(fl in its entirety and inserting in lieu thereof the following new
Subsection 8.10(f):
"(f) Investments in Unqualified Subsidiaries of HCC;".
6. Amendment to Subsection 8.11. Subsection 8.11 of the
Credit Agreement is hereby amended by inserting at the beginning thereof the
words "(i) Make any optional payment or prepayment on or redemption of any
portion of the Shareholder Subordinated Debt or (ii) with respect to any
Indebtedness other than the Shareholder Subordinated Debt,".
3
<PAGE> 4
7. Waiver of Subsection 8.2. The Agent, with the
consent of the Required Banks, hereby waives (a) the Default with respect to,
and compliance with, the provisions of Subsection 8.2 of the Credit Agreement
solely in connection with the posting by HCC of that certain irrevocable
documentary letter of credit P-266843 dated November 20, 1996 issued by The
Chase Manhattan Bank for the benefit of Banco Comercial Antioqueno S.A., as
Fiduciary in the face amount of U.S. $816,000.00, and (b) the Default with
respect to Section 7.7(a) for failure to notify the Agent and each Bank of the
Default described in this Section 7.
8. Waiver of Subsection 8.8. The Agent, with the
consent of the Required Banks, hereby waives compliance with the provisions of
Subsection 8.8 of the Credit Agreement solely with respect to (a) the
transactions contemplated by the Exchange Agreement (the "Exchange Agreement"),
dated December 23, 1996, by and between HCC and JEDI, a copy of which is
attached hereto as Exhibit A and (b) the transactions contemplated by the
Shareholder Subordinated Loan Agreement, a copy of which is attached hereto as
Exhibit B.
9. Waiver of Subsection 5(i) of Hanover Acquisition
Security Agreement. The Agent, with the consent of the Required Banks hereby
waives compliance with the provisions of Subsection 50) of the Hanover
Acquisition Security Agreement solely to the extent required to allow Hanover
Acquisition to transfer all of its assets (including, without limitation,
Hanover Acquisition's shares of stock in Astra) to HCC, other than Hanover
Acquisition's interest in real property located in East Bernard, Texas.
10. Waiver of Subsection 5(b)(ii) of the Hanover
Acquisition Pledge Agreement. In order to permit the consummation of the
transaction contemplated by Section 9 hereof, the Agent with the consent of the
Required Banks hereby waives compliance with the provisions of Subsection
5(b)(ii) of the Hanover Acquisition Pledge Agreement solely to the extent
necessary to allow Hanover Acquisition to transfer its shares of stock in Astra
(the "ARI Shares") to HCC; provided, that the waiver described in this Section
10 is condition upon the delivery by HCC to the Collateral Trustee of the stock
certificates evidencing the ARI Shares together with undated stock powers for
each such stock certificate, duly executed in blank (which delivery is hereby
deemed to have been effected upon the full execution and delivery of this
Amendment) pursuant to the HCC Pledge Agreement.
11. Amendment to the Hanover Acquisition Pledge
Agreement. Schedule I of the Hanover Acquisition Pledge Agreement is hereby
amended by deleting therefrom the reference to the ARI Shares.
12. Waiver of Subsections 7.4 and 8.5. The Agent, with
the consent of the Required Banks hereby waives compliance with
4
<PAGE> 5
Subsections 7.4 and 8.5 of the Credit Agreement solely to the extent necessary
to allow HCC to cause the dissolution of Astra; provided, however, that the
effectiveness of this waiver is conditioned upon the completion by HCC and
Hanover Acquisition of the transaction contemplated by Section 9 hereof.
13. Waiver of Subsections 7.4 and 7.9. The Agent, with
the consent of the Required Banks, hereby waives (a) the Default with respect
to, and compliance with, the provisions of Subsection 7.9 of the Credit
Agreement solely in connection with the failure by HCC to cause Hanover
Compressor Colombia, Inc. ("HCC Colombia") to execute a Security Agreement and
a Guarantee; provided, that HCC covenants and agrees that immediately upon HCC
Colombia becoming the direct or indirect owner of any assets, HCC shall cause
HCC Colombia to execute a Security Agreement and a Guarantee in the forms
required by Subsection 7.9 of the Credit Agreement and (b) the Default with
respect to Section 7.7(a) of the Credit Agreement for failure to notify the
Agent and each Bank of the Default described in this Section 13.
14. Amendment to Schedule I of the HCC Pledge Agreement.
Schedule I of the HCC Pledge Agreement is hereby amended by deleting existing
Schedule I in its entirety and substituting in lieu thereof the modified
Schedule I attached hereto as Exhibit C and in connection therewith, HCC shall
deliver to the Collateral Trustee within 30 days following the date hereof the
certificates representing the shares of HCC Colombia, Hanover Cayman, Limited
and Contract Compression International Argentina, S.A. listed on Exhibit C
attached hereto, together with undated stock powers for each such certificate,
duly executed in blank.
15. Amendment to Subsection 4(a) of the HCC Pledge
Agreement. Subsection 4(a) of the HCC Pledge Agreement is hereby amended by
deleting the words "H.C.C. Compressor de Venezuela, C.A." from the fourth line
of such Subsection and inserting in lieu thereof the words "any Unqualified
Subsidiary (as defined in the Bank Agreement) listed on Schedule I."
16. Amendment to Hanover Acquisition Security Agreement.
Upon the consummation of the transaction contemplated by Section 9 hereof,
Schedule III to the Hanover Acquisition Security Agreement shall be amended by
deleting all of the counties and states listed under the heading COUNTY/STATE
thereon and in lieu thereof substituting the word "None."
17. Amendment to HCC Security Agreement. Upon the
consummation of the transaction contemplated by Section 9 hereof, Schedule III
to the HCC Security Agreement shall be amended by adding the following entries
thereto in the appropriate alphabetized locations:
5
<PAGE> 6
Beaurgard Parish, Louisiana
Cass, Texas
East Bernard, Texas
El Campo, Texas
Emery, Utah
Fayette, Texas
Irion, Texas
LaSalle Parish, Louisiana
Longview, Texas
Marion, Texas
Midland, Texas
Monroe, Texas
Montezuma, Colorado
Orange, Texas
Trinity, Texas
Tyler, Texas
18. Waiver Relating to Hanover/Smith Texas Leasehold
Mortgage. The Agent, with the consent of the Required Banks, hereby waives (a)
any Default in respect of and compliance with Subsection 6.1(m) of the Credit
Agreement solely to the extent necessary to postpone the requirement that
Hanover/Smith execute and deliver the Hanover/Smith Texas Leasehold Mortgage
until the earlier of (i) six months from the date hereof or (ii) the
acquisition by Hanover/Smith of the real property and improvements which are
the subject of the Hanover/Smith Texas Leasehold Mortgage and (b) the Default
with respect to Section 7.7(a) of the Credit Agreement for failure to notify
the Agent and each Bank of the Default described in this Section 18.
19. Consent to Shareholder Subordinated Debt. The Agent,
with the consent of the Required Banks, hereby consents to HCC entering into
the Shareholder Subordinated Loan Agreement in the form attached hereto as
Exhibit B and incurring Shareholder Subordinated Debt thereunder.
20. Waiver of Subsection 8.11(b) of the Credit Agreement.
The Agent, with the consent of the Required Banks, hereby waives compliance
with Subsection 8.11(b) of the Credit Agreement solely to the extent necessary
to allow for the amendments, modifications and waivers of the JEDI Loan
Agreement contemplated by the Amendment, Waiver and Consent to the JEDI Loan
Agreement in substantially the form attached hereto as Exhibit D.
21. Effectiveness. This Amendment shall become effective
on the condition that (a) the Borrower shall have delivered to the Agent duly
executed copies of this Amendment, (b) the Borrower shall have delivered to the
Agent true and correct copies of the Exchange Agreement and the Shareholder
Subordinated Loan Agreement, c) no Default or Event of Default shall have
occurred and be continuing on the date hereof after giving effect
6
<PAGE> 7
to this Amendment, and (d) the Agent with the written consent of the Required
Banks shall have executed this Amendment; provided that the amendment set forth
in Section 2(b) hereof shall not become effective until the Agent shall have
received the written consent of all of the Banks.
22. Representations and Warranties. The Borrower hereby
represents and warrants that except as set forth on Exhibit E attached hereto,
the representations and warranties contained in the Credit Agreement (except
those which expressly speak as of a certain date) will be, after giving effect
to this Amendment, true and correct in all material respects, as if made on and
as of the date hereof.
23. Continuing Effect of Credit Agreement. This
Amendment shall not constitute an amendment or waiver of any other provision of
the Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the part of
the Borrower that would require a waiver or consent of the Agent and/or the
Banks. Except as expressly amended hereby, the provisions of the Credit
Agreement are and shall remain in full force and effect.
24. Counterparts. This Amendment may be executed in
counterparts and all of the said counterparts taken together shall be deemed to
constitute one and the same instrument.
25. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
26. Expenses. The Borrower agrees to pay or reimburse
the Agent for all of their out-of-pocket costs and expenses incurred in
connection with the preparation, negotiation and execution of this Amendment,
including, without limitation, the fees and disbursements of counsel to the
Agent.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to he executed and delivered by their duly authorized officers as of
the date first written above.
HANOVER COMPRESSOR COMPANY
BY:________________________________
Name:
Title:
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as Agent
BY:________________________________
Name:
Title:
Acknowledged and agreed to as
of the date hereof:
MAINTECH ENTERPRISES, INC.
By___________________________
Name:
Title:
HANOVER/SMITH, INC.
By___________________________
Name:
Title:
HANOVER ACQUISITION CORP.
By___________________________
Name:
Title:
HANOVER LAND COMPANY
By___________________________
Name:
Title:
8
<PAGE> 9
THE CHASE MANHATTAN BANK
(formerly known as Chemical
Bank), as Collateral Trustee
By___________________________
Name:
Title:
9
<PAGE> 10
CONSENT
The Chase Manhattan Bank
(formerly known as Chemical Bank), as Agent
One Chase Manhattan Plaza
New York, New York 10081
Attention: Natural Resources Department
We refer to the Second Amended and Restated Credit Agreement,
dated as of December 19, 1996 (as heretofore amended, the "Credit Agreement"),
among Hanover Compressor Company (the "Borrower"), the several banks and other
financial institutions from time to time parties thereto (the "Banks") and The
Chase Manhattan Bank (successor by merger to Chemical Bank), as agent for the
Banks (the "Agent").
We hereby consent to the execution and delivery by the Agent
of the Amendment, Waiver and Consent to the Credit Agreement, substantially in
the form attached hereto as Exhibit A.
NAME OF LENDER: __________________________
By:_____________________________
Title:
Date:_____________________________
<PAGE> 1
EXHIBIT 10.27
EXCHANGE AGREEMENT
BY AND BETWEEN
HANOVER COMPRESSOR COMPANY
AND
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
Dated December 23, l996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Exchange of the Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. Representations and Warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Representations and Warranties of JEDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Removal of Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Indemnification/Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Indemnification of JEDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.3 Indemnification of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Procedure for Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.5 Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.6 Indemnification Threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.7 Sole Remedy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.1 Stockholders Agreement and Registration Rights Agreement . . . . . . . . . . . . . . . . . . . . . . 10
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
8.3 Headings: Schedules and Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.7 Amendments: Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.10 Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
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<PAGE> 3
SCHEDULES AND ANNEXES
Schedule 4(a) - Subsidiaries
Schedule 4(b) - Stockholders
Schedule 4(c) - Financial Statements
Schedule 4(d) - Changes
Annex A - Opinion Letter of Counsel to the Company
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<PAGE> 4
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT dated December 23, 1996 (the "Agreement") is
by and between HANOVER COMPRESSOR COMPANY, a Delaware corporation (the
"Company") and JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP, a
Delaware limited partnership ("JEDI").
WHEREAS, on August 7, 1995, the Company issued and sold to JEDI
11,111.11 shares of the Company's common stock, par value $0.001 per share, and
10,000 shares of the Company's 6.5% Series B Cumulative Redeemable Convertible
Preferred Stock, par value $0.01 per share (the "Initial Preferred Stock").
WHEREAS, in accordance with the Certificate of Designation of the 6.5%
Series B Cumulative Redeemable Convertible Preferred Stock, the Company has
issued to JEDI as a dividend 637 shares of such preferred stock to JEDI (such
shares and the Initial Preferred Stock being hereafter together referred to as
the "Preferred Stock").
WHEREAS, the parties propose, subject to the terms and conditions
stated herein, that the Preferred Stock be exchanged for 5,065.238 shares of
the Company's common stock, par value $0.01 per share (the "Common Stock").
In consideration of the mutual covenants herein contained, the
sufficiency of which is acknowledged by the parties, the parties hereby agree
as follows:
1. Definitions. For purposes of this Agreement, the following
defined terms have the meanings set forth below:
(a) "Closing" means the actions to be taken by the
Company and JEDI as described in Section 3;
(b) "Group" means the Company and its Subsidiaries;
(c) "Material Adverse Effect" means a material adverse
effect on the condition, financial or otherwise, or on the earnings or business
affairs of the Company or the Company and its Subsidiaries, taken as a whole;
(d) "Registration Rights Agreement" means the Third
Amended and Restated Registration Rights Agreement dated December 5, 1995 among
the Company and certain of its stockholders;
(e) "Stockholders Agreement" means the Stockholders
Agreement dated August 7, 1995 among the Company and certain of its
stockholders; and
(f) "Subsidiary" means any corporation, partnership or
other business entity of which more than 50% of the outstanding
<PAGE> 5
shares of capital stock (or other equivalent interests) is at the time directly
or indirectly owned or controlled by the Company.
2. Exchange of the Preferred Stock.
Subject to the terms and conditions of this Agreement, JEDI
shall exchange the Preferred Stock for the Common Stock to be issued by the
Company and the Company shall pay One Million Four Hundred Thousand Dollars
($1,400,000) by wire transfer of immediately available funds to an account
designated by JEDI in writing prior to the Closing.
3. Closing.
At the Closing:
(a) the Company shall deliver to JEDI the Common Stock
evidenced by a Common Stock Certificate in form approved by the Board of
Directors of the Company and registered in JEDI's name, dated the Closing Date;
(b) JEDI shall deliver to the Company the stock
certificates evidencing the Preferred Stock, together with stock powers duly
executed in blank;
(c) the Company shall deliver to JEDI the opinion, dated
the Closing Date and addressed to JEDI, from Neal Gerber & Eisenberg, counsel
for the Company, substantially in the form set forth in Annex A; and
(d) $1,400,000 shall be paid by the Company to JEDI.
4. Representations and Warranties of the Company. The Company
hereby represents and warrants to JEDI as follows:
(a) Due Incorporation. Each member of the Group has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the state of its incorporation with corporate power and
authority to own its properties and conduct its business, and has been duly
qualified as a foreign corporation for the transaction of business and is in
good standing under the laws of the states of each jurisdiction in which its
ownership or lease of properties or its conducting of business makes such
qualification necessary or desirable, except where failure to be so qualified
and in good standing would not be reasonably expected to have a Material
Adverse Effect. The Company has no Subsidiaries other than those listed in
Schedule 4(a). The Company has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement.
(b) Capitalization. All shares of capital stock of each
member of the Group outstanding as of the date hereof have been
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<PAGE> 6
duly and validly authorized and issued and are fully paid and nonassessable.
The Common Stock when issued, sold and delivered in accordance with the terms
hereof, will be duly and validly issued, fully paid and nonassessable. As of
the Closing Date, after giving effect to the transactions contemplated herein,
the authorized capital stock of the Company will consist of (i) 500,000 shares
of common stock, par value $.001, of which 144,982.243 shares will be issued
and outstanding, exclusive of 198.40 treasury shares, (ii) 50,000 shares of
6.5% Cumulative Redeemable Series A Preferred Stock, par value $ 0.01 per share
(the "Series A Preferred Stock"), of which no shares will be issued and
outstanding, (iii) 15,000 shares of 6.5% Cumulative Redeemable Convertible
Series B Preferred Stock, par value $ 0.01 per share, of which none will be
issued and outstanding, and (iv) 135,000 shares of undesignated preferred
stock, par value $0.01 per share. Except as set forth on Schedule 4(b), (a)
there are no outstanding subscriptions, warrants, options, calls or commitments
of any character relating to or entitling any person to purchase or otherwise
acquire from the Company any capital stock of the Company, (b) there are no
obligations or securities convertible into or exchangeable for any shares of
capital stock of the Company or any commitments of any character relating to or
entitling any person to purchase or otherwise acquire any such obligations or
securities, (c) there are no preemptive or similar rights to subscribe for or
to purchase any capital stock of the Company, and (d) the Company has not
entered into any agreement to register its equity or debt securities under the
Securities Act of 1933, as amended.
(c) Financial Statements. Attached as Schedule 4(c) are
copies of the Company's (i) unaudited consolidated balance sheet as at August
31,1996 and the related consolidated statement of income, cash flows and
shareholders' equity for the eight months then ended and (ii) audited
consolidated balance sheet as at December 31, 1995 and the related audited
consolidated statement of income, cash flows and shareholders' equity for the
fiscal year then ended (including in all cases the notes thereto)
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied except as noted therein and except, in the case of
unaudited interim financial statements, for normal year-end adjustments, and
fairly present the consolidated financial position of the Company and its
consolidated Subsidiaries as of the respective dates set forth therein and the
results of operations and cash flows for the Company and its consolidated
Subsidiaries for the respective fiscal periods set forth therein
(d) No Change. No member of the Group has sustained
since August 31, 1996 any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree;
and, except as set forth on Schedule 4(d), since such date, there has not been
any change in
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<PAGE> 7
the affairs, assets, liabilities, operations, prospects or conditions,
financial or otherwise, of any member of the Group, or any development, which
the senior management of the Company believes would have a Material Adverse
Effect.
(e) Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company. Assuming due authorization,
execution and delivery by JEDI of this Agreement, this Agreement is a legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally and (ii) general principles of equity
(whether applied in a proceeding at law or in equity).
(f) Compliance with Other Instruments. The issuance and
sale of the Common Stock hereunder, the execution and delivery of, and the
compliance by the Company with all of the provisions of this Agreement, and the
consummation of the transactions therein contemplated will not result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, or result in the creation of any lien in respect of any property
or assets of any member of the Group under, (i) the Certificate of
Incorporation or Bylaws of such member, (ii) any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which such member is
a party or by which such member is bound, which breach, violation, default or
creation of a lien would, singularly or in the aggregate, be reasonably
expected to have a Material Adverse Effect, or (iii) any statute or law to
which any member of the Group or any of its properties are subject or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over such member or any of its properties; and, assuming the
accuracy of the representations of JEDI set forth in Section 5, no consent,
approval, authorization, order, registration or qualification of or with any
such court or governmental agency or body is required by or on behalf of the
Company, for the valid execution and delivery of, or for the performance by the
Company of its obligations under, this Agreement.
5. Representations and Warranties of JEDI. JEDI hereby
represents and warrants to the Company as follows:
(a) Existence: Authorization. JEDI (i) is a limited
partnership duly formed and organized and validly existing under the laws of
the State of Delaware, (ii) it has all requisite power and authority to enter
into this Agreement, (iii) the execution, delivery and performance by JEDI of
this Agreement and the consummation by JEDI of the transactions contemplated
hereby have
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<PAGE> 8
been duly authorized by all necessary action on the part of JEDI, and (iv)
assuming due authorization, execution and delivery by the Company of this
Agreement, this Agreement is a legal, valid and binding obligation of JEDI,
enforceable against JEDI in accordance with its terms, except as such
enforcement may be subject (i) to bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally and
(ii) general principles of equity (whether applied in a proceeding at law or in
equity).
(b) Reliance by the Company. It acknowledges that its
representations and warranties contained in Section 5(c) through Section 5(i)
are being relied upon by the Company as a basis for the exemption of the
issuance of the Common Stock from the registration requirements of the
Securities Act of 1933, as amended ("Securities Act"), and any applicable state
securities laws.
(c) Common Stock Unregistered etc.. It understands that
(i) the Common Stock has not been registered under the Securities Act or any
state securities laws by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act and applicable state
securities laws and (ii) the Common Stock must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act and
applicable state securities laws or is exempt from such registration.
(d) Investment Intent. It is acquiring the Common Stock
for its own account and not with a view to, or for sale in connection with,
directly or indirectly, any distribution thereof that would require
registration under the Securities Act or applicable state securities laws or
would otherwise violate the Securities Act or such state securities laws.
(e) Independent Investigation. It has relied upon
independent investigations made by it or its representatives and the
representations and warranties made herein and realizes that the Common Stock
is a speculative investment involving a high degree of risk for which there is
no assurance of any return. It has such knowledge and experience in financial
and business affairs and is capable of determining the information necessary to
make an informed investment decision, of requesting such information from the
Company, and of utilizing the information that it has received from the Company
to evaluate the merits and risks of its investment in the Common Stock. It is
able to bear the economic risk of its investment in the Common Stock and
understands that it must do so for an indefinite period of time.
(f) Access to Information. It and its attorneys,
accountants, investment and financial advisors, if any, have had the
opportunity to review the books and records of the Company and
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<PAGE> 9
have been provided access to such information as it or its advisors, if any,
have requested.
(g) No Governmental Approval. It is aware that no
governmental entity has passed upon or made any finding or determination
concerning the fairness of the transactions contemplated hereby or the adequacy
of the disclosure of the Schedules to this Agreement, and it must forego the
security, if any, that such a review would provide.
(h) Rule 144. It has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, and
compliance with applicable requirements regarding the holding period and the
amount of securities to be sold and the manner of sale; and that such rule may
not be available for resale of the Common Stock.
(i) Accredited Investor Status. It is an "accredited
investor" pursuant to Rule 501 under the Securities Act by reason of the fact
that it is a partnership not formed for the specific purpose of acquiring the
Common Stock with total assets in excess of U.S. $5,000,000.
(j) Compliance with Other Instruments. The purchase of
the Common Stock, the execution and delivery of, and the compliance by JEDI
with all of the provisions of this Agreement, and the consummation of the
transactions herein contemplated will not result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or result in
the creation of any lien in respect of any property or assets of JEDI under,
(i) the Partnership Agreement of Joint Energy Development Investments Limited
Partnership dated June 29, 1993, or its Certificate of Limited Partnership, or
any indenture, mortgage, deed of trust or loan agreement pursuant to which JEDI
is a borrower, which breach, violation, default or creation of a lien would be
reasonably expected to have a material adverse effect on the condition,
financial or otherwise, or on the earnings or business affairs of JEDI, or (ii)
any statute or law to which JEDI or any of its properties are subject or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over JEDI or any of its properties; and, assuming the accuracy of
the representations of the Company set forth in Section 4, no consent,
approval, authorization, order, registration or qualification of or with any
such court or governmental agency or body is required by or on behalf of JEDI,
for the valid execution and delivery of, or for the performance by JEDI of its
obligations under, this Agreement.
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<PAGE> 10
6. Restrictions on Transfer.
6.1 Restrictive Legend. The certificates evidencing the
Common Stock shall (unless their disposition is otherwise permitted by the
provisions of this Section 6) be subject to stop transfer instructions and
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
SUCH ACT, OR UNLESS SUCH OFFER, SALE, TRANSFER, PLEDGE OR
HYPOTHECATION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN
COMPLIANCE WITH SUCH ACT. THE TRANSFERABILITY OF THIS SECURITY IS
ALSO SUBJECT TO RESTRICTIONS CONTAINED IN A STOCKHOLDERS AGREEMENT AND
A REGISTRATION RIGHTS AGREEMENT, WHICH AGREEMENTS THE COMPANY WILL
FURNISH TO THE HOLDER OF THIS SECURITY UPON REQUEST."
6.2 Removal of Legend. If in the written opinion of
counsel (which counsel and opinion (in form, scope and substance) shall be
reasonably satisfactory to the Company), JEDI is entitled, without limitation
as to manner of sale, to sell the Common Stock without registration under the
Securities Act of 1933, as amended, by reason of Rule 144 thereunder or any
successor provision, the Company will, upon JEDI's request and notwithstanding
Section 4.1 of the Stockholders Agreement, replace the foregoing legend by the
following:
"THE OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF THIS
SECURITY IS SUBJECT TO RESTRICTIONS CONTAINED IN A STOCKHOLDERS
AGREEMENT AND A REGISTRATION RIGHTS AGREEMENT, WHICH AGREEMENTS THE
COMPANY WILL FURNISH TO THE HOLDER OF THIS SECURITY UPON REQUEST."
7. Indemnification/Survival.
7.1 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement shall survive the
Closing and shall remain in full force and effect (a) in the case of the
representations and warranties contained in Sections 4(c) and 4(d), for one (1)
year after the Closing Date, and (b) in the case of all other representations
and warranties, for four (4) years after the Closing Date, in each case
regardless of any investigation made by JEDI or on its behalf, except as to any
matters with respect to which a bona fide written claim shall have been made or
an action at law or in equity shall have commenced before such date, in which
event survival shall continue (but only with respect to, and to the extent of,
such claim) until the final resolution of such claim or action, including all
applicable periods for appeal.
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<PAGE> 11
7.2 Indemnification of JEDI. The Company shall indemnify
and hold JEDI and each of its partners, officers, employees, representatives
and affiliates harmless from and against any and all damages (excluding
exemplary, punitive and special damages and penalties), losses, deficiencies,
costs, expenses, obligations, fines, expenditures, claims and liabilities,
including reasonable counsel fees and reasonable expenses of investigation,
defending and prosecuting litigation, suffered by JEDI or any such other
persons as a result of, caused by, arising out of, or in any way relating to
any misrepresentation, breach of warranty, or nonfulfillment of any agreement
or covenant on the part of the Company under this Agreement. The foregoing
notwithstanding, the Company's aggregate liability to JEDI and such other
persons shall not exceed $10,765,375.
7.3 Indemnification of the Company. JEDI shall indemnify
and hold the Company and each of its shareholders, officers, directors,
employees, representatives and affiliates harmless from and against any and all
damages (excluding exemplary, punitive and special damages and penalties),
losses, deficiencies, costs, expenses, obligations, fines, expenditures, claims
and liabilities, including reasonable counsel fees and reasonable expenses of
investigation, defending and prosecuting litigation, suffered by the Company or
any such other persons as a result of, caused by, arising out of, or in any way
relating to any misrepresentation, breach of warranty, or non-fulfillment of
any agreement or covenant on the part of JEDI under this Agreement. The
foregoing notwithstanding, JEDI's aggregate liability to the Company and such
other persons shall not exceed $10.765.375.
7.4 Procedure for Claims. Within thirty days after
obtaining written notice of any claim or demand which has given rise to, or
could reasonably give rise to, a claim for indemnification hereunder, the party
seeking indemnification shall give written notice of such claim ("Notice of
Claim") to the other party. Failure to give such notice by the party seeking
indemnification within such 30 days shall not relieve the indemnifying party
hereunder unless the party seeking indemnification knowingly failed to notify
the indemnifying party in sufficient time to permit the indemnifying party or
its counsel to defend against such matter and to timely make a response
thereto, and only insofar as such knowing failure to notify the indemnifying
party has actually resulted in prejudice or damage to the indemnifying party.
The Notice of Claim shall set forth a brief description of the facts giving
rise to such claim and the amount (or a reasonable estimate) of the loss,
damage or expense suffered, or which may be suffered, by the party seeking
indemnification.
Upon receiving the Notice of Claim, the indemnifying party
shall resist, settle or otherwise dispose of such claim in such manner as it
shall deem appropriate, including the employment
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<PAGE> 12
of counsel, and shall be responsible for the payment of all expenses, including
the reasonable fees and expenses of such counsel. The indemnified party shall
have the right to employ separate counsel in any such action and to participate
in or assume the defense thereof, but the fees and expenses of such counsel
shall be at the indemnified party's expense unless (a) the employment has been
specifically authorized by the indemnifying party in writing, (b) the
indemnifying party has failed to assume the defense and employ counsel in a
timely manner or (c) the named parties to any action (including any impleaded
parties) include both JEDI and the Company, and the indemnified party has been
advised by such counsel that representation of the Company and JEDI by the same
counsel would be inappropriate under applicable standards of professional
conduct due to actual or potential differing interests between them (in which
case, if the indemnified party notifies the indemnifying party in writing that
the indemnified party elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall have neither the right nor the
obligation to assume the defense of such action on behalf of the indemnified
party).
7.5 Third Party Beneficiaries. Nothing contained in this
Section 7 shall confer any rights upon, or inure to the benefit of, any third
party other than those parties specified in Sections 7.2 and 7.3 above, it
being understood that such parties, to the extent not actually parties hereto,
shall be third party beneficiaries.
7.6 Indemnification Threshold. Notwithstanding anything
herein to the contrary, no indemnified party shall be entitled to
indemnification from any indemnifying party until the aggregate losses suffered
by such indemnified party and for which indemnification is available hereunder
exceed $ 180,000, whereupon the indemnified party shall be entitled to claim
indemnification for all losses suffered by such indemnified party and for which
indemnification is available hereunder.
7.7 Sole Remedy. Following the Closing, except with
respect to claims premised on fraud or other intentional misconduct or
equitable claims the provisions of this Section 7 shall be the sole and
exclusive remedy for breach of this Agreement.
8. Miscellaneous.
8.1 Stockholders Agreement and Registration Rights
Agreement. The Company and JEDI acknowledge that the Common Stock shall
constitute part of the Stock owned by JEDI for the purposes of the Stockholders
Agreement and the Shares owned by JEDI for the purposes of the Registration
Rights Agreement.
8.2 Notices. Except as otherwise provided in this
Agreement, all notices and other communications required or
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<PAGE> 13
permitted under this Agreement shall be in writing and shall be deemed to have
been duly given when delivered by hand, if delivered personally or by courier,
or five business days after being deposited in the mail (registered or
certified mail, postage prepaid? return receipt requested) properly addressed
as set forth below. Any such notice or other communication shall be addressed
(a) if to JEDI, c/o Enron Corp., 1400 Smith Street, Houston, Texas 77002,
Attention Brenda McGee, Specialist, 28th Floor, or at such other address or to
the attention of such other copied person as JEDI shall have furnished to the
Company in writing, or (b) if to the Company, to Hanover Compressor Company,
12001 North Houston-Rosslyn, Houston, Texas 77086, Attention: President; with a
copy to Neal Gerber & Eisenberg, Two North LaSalle Street, Suite 2200, Chicago,
Illinois 60602, Attention: Richard S. Meller, or to such other address and/or
to the attention of such other copied person as the Company shall have
furnished to JEDI in writing.
8.3 Headings: Schedules and Annex. The headings herein
are for convenience of reference only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The Schedules and Annex attached hereto, and the certificates and
other documents delivered as specified herein, are expressly made a part of
this Agreement.
8.4 Effect of Agreement.
(a) This Agreement and the Schedules, Annex,
certificates, opinions and other documents referred to herein or delivered
pursuant hereto contain the entire agreement between JEDI and the Company with
respect to the subject mater contained herein and supersede all prior
agreements and understandings, oral and written, with respect thereto. No
representations and warranties other than those contained herein or in any such
annex, certificate or other document shall be deemed to have been made by JEDI
or the Company with respect to this Agreement. All of the covenants contained
herein or in any such annex or certificate or other document shall survive the
Closing.
(b) This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without
the prior written consent of the other parties, except that the rights of JEDI
hereunder may be assigned to any Affiliate of JEDI which becomes a transferee
of any of the Common Stock in accordance with the terms of the Stockholders
Agreement. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
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<PAGE> 14
(c) No right, power or remedy granted under this
Agreement is intended to be exclusive, but each shall be cumulative and in
addition to any other rights, powers or remedies referred to in this Agreement
or otherwise available at law or in equity; and the exercise or beginning of
exercise by any party of any one or more of such rights, powers or remedies
shall not preclude the simultaneous or later exercise by such party of any or
all such other rights, powers or remedies. No waiver by any party, and no
failure or delay on the part of such party in any one or more instances to
insist upon strict performance or observance of one or more covenants or
conditions hereof, shall in any way be, or be construed to be, a waiver thereof
or prevent such party's rights to require at a later time the performance or
observance of such covenants or conditions, or otherwise prejudice such party's
rights, powers or remedies.
8.5 Governing Law. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Delaware, without regard to the conflict of laws rules thereof.
8.6 Counterparts. This Agreement may be executed
simultaneously in more than one counterpart, each of which shall be deemed to
be an original, but all of which together shall constitute one and the same
instrument.
8.7 Amendments: Waiver. This Agreement may be amended
only with, and any provision of this Agreement may be waived only by, the
written consent of the parties.
8.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the remainder of this Agreement shall
be interpreted as if such provisions were so excluded and shall be enforceable
in accordance with its terms.
8.9 Expenses. Except as otherwise specified in this
Agreement and the letter from the Company to JEDI dated November 25, 1996, all
costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
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<PAGE> 15
8.10 Further Action. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action,
do or cause to be done all things reasonably necessary, proper or advisable
under applicable law, and execute and deliver such documents and other papers,
as may be required to carry out the provisions of this Agreement and consummate
and make effective the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first above written.
HANOVER COMPRESSOR COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management Limited
Partnership,
its general partner
By: Enron Capital Corp.,
its general partner
By:
------------------------------------
C. John Thompson
Agent and Attorney-in-Fact
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<PAGE> 1
EXHIBIT 10.28
AMENDMENT, WAIVER, AND CONSENT
This Amendment, Waiver, and Consent dated as of April 14, 1997 (this
"Agreement"), is among Hanover Compressor Company, a Delaware corporation (the
"Borrower"), Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"), as Agent for the financial institutions
parties to the Loan Agreement described below (the "Agent"), and the
undersigned financial institutions parties to such Loan Agreement (the
"Lenders").
INTRODUCTION
The Borrower, the Agent, and the Lenders are parties to the Loan
Agreement dated as of December 19, 1995 (as modified, the "Loan Agreement"),
the defined terms of which are used herein unless otherwise defined herein.
The Borrower, the Agent, and the Lenders have agreed to amend and waive certain
provisions set forth in the Loan Agreement and the Loan Documents and to grant
certain consents in connection therewith.
THEREFORE, in connection with the foregoing and for other good and
valuable consideration, the Borrower, the Agent, and the Lenders hereby agree
as follows:
1. WAIVER REGARDING INCREASE IN CHEMICAL CREDIT AGREEMENT; INSTRUCTIONS
TO COLLATERAL TRUSTEE. The Agent and the Lenders hereby waive compliance with
Sections 5.2 and 5.11(b) of the Loan Agreement solely to the extent necessary
to allow for the amendments, modifications, and waivers to the Chemical Credit
Agreement and related documents contemplated by the Amendment, Waiver and
Consent dated as of April 14, 1997, among the Borrower and the parties to the
Chemical Credit Agreement in the form provided to the Agent prior to the
execution of this Agreement, including the increase in the amount of the
aggregate commitments of the lenders under the Chemical Credit Agreement (the
"Chemical Commitment Amount") provided for thereunder, provided that (a)
neither the Chemical Commitment Amount nor the aggregate outstanding principal
amount under the Chemical Credit Agreement shall exceed $150,000,000 and (b)
contemporaneously with each drawdown under the Chemical Credit Agreement the
Agent is provided with a certificate from a Responsible Officer of the Borrower
stating that no Default or Event of Default under the Loan Documents exists or
could reasonably be expected to occur as a result of such drawdown. The
Borrower agrees to comply with the requirements of this paragraph. The Agent
and the Lenders hereby waive compliance with the thirty day written notice
requirement of Subsection 8 of the Collateral Trust Agreement solely with
respect to the increase in the Chemical Credit Agreement described above and
agree that such increased indebtedness under the Chemical Credit Agreement
shall constitute Additional Indebtedness and Master Debt under the class of
Bank Obligations under the Collateral Trust Agreement and instruct the
Collateral Trustee to act accordingly.
<PAGE> 2
2. WAIVER OF RELATED TO OKLAHOMA DISPOSITION; INSTRUCTIONS TO COLLATERAL
TRUSTEE. The Agent and the Lenders hereby waive compliance with the provisions
of the Loan Documents solely to the extent necessary to permit the Borrower's
prior sale of its Oklahoma facility located at 1715 South Lowery, Oklahoma
City, Oklahoma (and waive any existing Event of Default caused solely by such
sale). The Agent and the Lenders instruct the Collateral Trustee to release
and terminate the Mortgage on such facility, but not any other security
interests granted under any other Security Documents (including security
interests on natural gas compressors which shall remain in effect).
3. WAIVER OF RELATED TO COLUMBUS FACILITY; INSTRUCTIONS TO COLLATERAL
TRUSTEE. The Agent and the Lenders hereby waive compliance with the provisions
of Section 5.3 of the Loan Agreement solely to the extent necessary to permit
Hanover/Smith to grant purchase money Liens on the real property and fixtures
located at the production equipment fabrication facility of Hanover/Smith in
Columbus, Texas, in connection with the purchase thereof provided that (a) the
amount of Indebtedness secured thereby does not exceed $2,400,000 (and for the
purposes of the Loan Agreement such Indebtedness shall be deemed to be
permitted under Section 5.2(d) of the Loan Agreement, and therefore the
incurrence of such Indebtedness must meet the requirements under Section 5.2(d)
of the Loan Agreement), (b) such Liens cover only the real property and
fixtures comprising such facility (the determination of the fixtures which may
be subject to such Liens to be determined under the intercreditor agreement
discussed in clause (c) following), and (c) the purchase money lender provides
the Collateral Trustee with an intercreditor agreement in form and substance
satisfactory to the Agent waiving any rights to other collateral, including any
rights to natural gas compressors. Upon execution of such intercreditor
agreement, the Agent and the Lenders shall instruct the Collateral Trustee to
release any fixtures determined to be appropriate collateral for the purchase
money lender. The Agent and the Lenders hereby waive compliance with the
provisions of Section 5.4 of the Loan Agreement solely to the extent necessary
to permit the Borrower to guaranty such Indebtedness. The Agent and the
Lenders hereby waive compliance with the provisions of Section 5.16 of the Loan
Agreement solely to the extent necessary to permit a negative pledge on such
real property and fixtures in favor of the purchase money lender.
4. WAIVER OF RELATED TO FUTURE MORTGAGES. The Agent and the Lenders
hereby waive compliance with the provisions of the Loan Documents solely to the
extent necessary to permit the Borrower and its Subsidiaries to purchase and
own the real properties described in numbered paragraphs 2 and 3 above without
the requirement of Mortgages on such properties until further notice from the
Agent that the terms of the Loan Documents requiring the Borrower and its
Subsidiaries to provide such Mortgages are again in effect, at which time the
Borrower and its Subsidiaries must provide all such
2
<PAGE> 3
Mortgage requested by the Agent to the extent such Mortgages could have been
requested under the terms of the Loan Documents prior to such time. The
Borrower agrees to comply and cause compliance with the requirements of this
paragraph
5. AMENDMENT TO SCHEDULE I OF THE HCC PLEDGE AGREEMENT; INSTRUCTIONS TO
COLLATERAL TRUSTEE. Schedule I of the HCC Pledge Agreement is hereby amended
by deleting the number "2" from the column representing the stock certificate
number relating to the pledged shares of Contract Compression International
Argentina S.A., and substituting in lieu thereof the number "1" and the Agent
and the Lenders instruct the Collateral Trustee to act accordingly.
6. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
that (a) the execution, delivery, and performance of this Agreement are within
the corporate power and authority of the Borrower and have been dully
authorized by appropriate proceedings, (b) this Agreement constitutes the
legal, valid, and binding obligation of the Borrower enforceable in accordance
with their terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the rights of creditors
generally and general principles of equity, and (c) upon the effectiveness of
this Agreement, the amendments, waivers, and consents related to the Loan
Document as provided for herein, and the completion of the transactions
contemplated hereby, no Event of Default shall exist under the Loan Documents
and there shall have occurred no event which with notice or lapse of time would
become an Event of Default under the Loan Documents, as amended.
7. EFFECT ON LOAN DOCUMENTS. Except as expressly modified herein, the
Loan Agreement and all other Loan Documents are and shall remain in full force
and effect. The Borrower shall continue to comply with the terms of the Loan
Documents as modified This Agreement is a Loan Document for the purposes of the
provisions of the other Loan Documents. Without limiting the foregoing, any
breach of representations, warranties, and covenants under this Agreement may
be a default or event of default under the Loan Agreement and the other Loan
Documents. This Agreement shall not modify any provisions of the Loan
Agreement or the other Loan Documents that are not expressly referred to herein
and shall not be construed as an amendment, waiver or consent to any further or
future action of the Borrower or any other Loan Party that would require an
amendment, waiver, or consent of the Agent or the Lenders.
8. EFFECTIVENESS. The effectiveness of this Agreement and the
amendments, waivers, and consents set forth herein are subject to the
satisfaction of the following conditions precedent to the satisfaction of the
Agent:
(a) No Default. No Default or Event of Default shall
have occurred and be continuing;
3
<PAGE> 4
(b) Representations and Warranties. All representations,
warranties, and certifications made or deemed made herein, in the Loan
Agreement or in any other Loan Document by the Borrower or any
Guarantor and in all certificates furnished to the Lender pursuant to
the provisions hereof shall bc true and correct in all material
respects as though made as of the effective date of this Agreement and
after giving effect to the amendments, waivers, and consents set forth
herein;
(c) This Agreement. This Agreement shall have been
executed and delivered by the parties hereto; and
(d) Chemical Credit Agreement. The Agent shall have
received a copy of the executed and delivered Amendment, Waiver and
Consent related to the Chemical Credit Agreement described above and
executed in connection with this Agreement and an approval of this
Agreement from the Lenders under the Chemical Credit Agreement.
9. PAYMENT OF EXPENSES. The Borrower agrees to pay or reimburse the
Agent for all of its out-of-pocket costs and expenses incurred in connection
with the preparation, negotiation, and execution of this Agreement including,
without limitation, the fees and expenses of counsel to the Agent.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
11. MISCELLANEOUS. The miscellaneous provisions of the Loan Agreement
apply to this Agreement. This Agreement may be signed in any number of
counterparts, each of which shall be an original. This Agreement may be
executed and delivered by telecopier.
[the remainder of this page is intentionally blank]
4
<PAGE> 5
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARITIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
EXECUTED as of the date first above written.
BORROWER:
HANOVER COMPRESSOR COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT AND LENDER:
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP,
as Agent and as Lender
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp.,
its General Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
5
<PAGE> 6
Acknowledged and Agreed to as
of the date hereof.
MAINTECH ENTERPRISES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
HANOVER/SMITH, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
HANOVER ACQUISITION CORP.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
HANOVER LAND COMPANY
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
6
<PAGE> 1
EXHIBIT 10.29
AMENDMENT, WAIVER AND CONSENT
This Amendment, Waiver and Consent dated as of December 23, 1996 (this
"Agreement"), is among Hanover Compressor Company, a Delaware corporation (the
"Borrower"), Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"), as Agent for the financial institutions
parties to the Loan Agreement described below (the "Agent"), and the
undersigned financial institutions parties to such Loan Agreement (the
"Lenders").
INTRODUCTION
The Borrower, the Agent, and the Lenders are parties to the Loan
Agreement dated as of December 19, 1995 (the "Loan Agreement"), the defined
terms of which are used herein unless otherwise defined herein. The Borrower,
the Agent, and the Lenders have agreed to amend, waive, and consent to certain
matters regarding the Loan Agreement and the Loan Documents as set forth
herein.
THEREFORE, in connection with the foregoing and for other good and
valuable consideration, the Borrower, the Agent, and the Lenders hereby agree
as follows:
1. AMENDMENT TO SECTION 1.1. Section 1.1 of the Loan Agreement is amended
by inserting the following new definitions therein:
"Consolidated Indebtedness Coverage Ratio" shall mean, for any
Person and for any period of its determination, the ratio of (a) such
Person's Consolidated EBITDA for such period to (b) such Person's
Consolidated Indebtedness as of the end of such period.
"Shareholder Subordinated Loan Agreement" shall mean the
Exchange and Subordinated Loan Agreement dated as of December 23,
1996, between the Borrower and certain shareholders of the Borrower.
2. AMENDMENT TO SECTION 4.2. Section 4.2 of the Loan Agreement is amended
by inserting the following new covenant as Section 4.2(h) (and making
appropriate corrections to the punctuation to include Section 4.2(h) in the
listing of covenants of such Section 4.2):
(h) promptly, any and all notices received by the Borrower
under the Shareholder Subordinated Loan Agreement, including, without
limitation, any notices received from any Agent or Senior Lender (as
such terms are defined in the Shareholder Subordinated Loan
Agreement).
3. AMENDMENT TO SECTION 5.1. Section 5.1 of the Loan Agreement is amended
by inserting the following new financial covenant as Section 5.1(g) (and making
appropriate corrections to the
<PAGE> 2
punctuation to include Section 5.1 (g) in the listing of covenants of such
Section 5.1 ):
(g) As of the last day of the then most recently ended fiscal
quarter of the Borrower, permit the Consolidated Indebtedness Coverage
Ratio of the Borrower and its Qualified Subsidiaries for the preceding
four fiscal quarters ended as of such date to be less than 1.00 to
4.50.
4. AMENDMENT TO SECTION 5.10. Section 5.10 of the Loan Agreement is
amended by deleting paragraphs (a) and (b) thereof in their entirety and
inserting in lieu thereof the following new paragraphs (a) and (b):
(a) investments in the Borrower and Subsidiaries of the
Borrower;
(b) investments in minority interests in Persons engaged
in the natural gas compression and production equipment industries not
to exceed $1,500,000 during any fiscal year of the Borrower;
5. AMENDMENT TO SECTION 6.1(F). Section 6.1(f) of the Loan Agreement is
amended by inserting the following new clause (iv) (and making appropriate
corrections to the punctuation to include clause (iv)):
; or (iv) there shall occur any violation of the subordination
provisions and other provisions for the benefit of the Agent and the
Lenders under the Shareholder Subordinated Loan Agreement, including
those specified in Section 8 thereof; or
6. AMENDMENT TO SECTION 7.2(FL). Section 7.2(e of the Loan Agreement is
amended by inserting the following new financial covenant as Section
7.2(0(viii) (and making appropriate corrections to the punctuation to include
Section 7.2(0(viii) in the listing of covenants of such Section 7.2(0):
(viii) As of the last day of the then most recently ended
month, but including the effect of the Loan as if the Loan had been
outstanding as of such date, the Consolidated Indebtedness Coverage
Ratio of the Borrower and its Qualified Subsidiaries for the preceding
twelve month period ended as of such date shall be equal to or greater
than 1.00 to 4.50.
7. AMENDMENT TO SECTION 7.3(F). Section 7.3(f) of the Loan Agreement is
amended by inserting the following new financial covenant as Section 7.3(f)(v)
(and making appropriate corrections
2
<PAGE> 3
to the punctuation to include Section 7.3(0(v) in the listing of covenants of
such Section 7.3(f)):
(v) The Consolidated Indebtedness Coverage Ratio of the
Borrower and its Qualified Subsidiaries for the most recently ended
twelve month period ending as of the last day of the then most
recently ended month, adjusted to reflect the effect of the acquired
assets and the Loan as if such Acquisition and the Loan had been made
at the beginning of such period, shall be equal to or greater than
1.00 to 4.50.
8. WAIVER OF SECTION 5.2. The Agent and the Lenders hereby waive (a) the
Default with respect to, and compliance with, the provisions of Section 5.2 of
the Loan Agreement solely in connection with the posting by the Borrower of
that certain irrevocable documentary letter of credit P-266843 dated November
20, 1996 issued by Chase for the benefit of Banco Commercial Antioqueno S.A.,
as Fiduciary in the face amount of US $816,000.00, and (b) the Default with
respect to Section 4.7 (a) of the Loan Agreement for failure to notify the
Agent and each Lender of the Default described in this paragraph.
9. WAIVER OF SECTION 5.8. The Agent and the Lenders hereby waive
compliance with the provisions of Section 5.8 of the Loan Agreement solely with
respect to (a) the transactions contemplated by the Exchange Agreement (the
"Exchange Agreement"), dated as of December 23, 1996, by and between the
Borrower and JEDI, a copy of which is attached hereto as Exhibit A and (b) the
transactions contemplated by the Shareholder Subordinated Loan Agreement, a
copy of which is attached hereto as Exhibit B.
10. WAIVER OF SUBSECTION 5(J) OF HANOVER ACQUISITION SECURITY AGREEMENT.
The Agent and the Lenders hereby waive compliance with the provisions of
Subsection 5(j) of the Security Agreement made by Hanover Acquisition solely to
the extent required to allow Hanover Acquisition to transfer all of its assets
(including, without limitation, Hanover Acquisition's shares of stock in Astra
Resources International, Inc.) to the Borrower other than Hanover Acquisition's
interest in real property located in East Bernard, Texas.
11. AMENDMENT TO BORROWER SECURITY AGREEMENT. After giving effect to the
transaction described in paragraph 10 herein, Schedule III of the Security
Agreement made by the Borrower shall be amended to add thereto the asset
locations that are set forth on Exhibit C attached hereto.
12. AMENDMENT TO HANOVER ACQUISITION SECURITY AGREEMENT. After giving
effect to the transaction described in paragraph 10 herein, Schedule III of the
Security Agreement made by Hanover Acquisition shall be amended by deleting all
of the counties and states listed
3
<PAGE> 4
under the heading COUNTY/STATE thereon and in lieu thereof, substituting the
word "None".
13. WAIVER OF SUBSECTION 5(B)(II) OF THE HANOVER ACQUISITION PLEDGE
AGREEMENT. In order to permit the consummation of the transaction contemplated
by paragraph 10 hereof, the Agent and the Lenders hereby waive compliance with
the provisions of Subsection 5(b)(ii) of the Pledge Agreement made by Hanover
Acquisition solely to the extent necessary to allow Hanover Acquisition to
transfer its shares of stock in Astra Resources International, Inc. (the "ARI
Shares") to the Borrower.
14. AMENDMENT TO HANOVER ACQUISITION PLEDGE AGREEMENT. Schedule I of the
Pledge Agreement made by Hanover Acquisition is hereby amended by deleting
therefrom the reference to the ARI Shares.
15. WAIVER OF SECTIONS 4.4 AND 5.5. The Agent and the Lenders hereby waive
compliance with Sections 4.4 and 5.5 of the Loan Agreement solely to the extent
necessary to allow the Borrower to cause the dissolution of Astra Resources
International, Inc.; provided. however, that the effectiveness of this waiver
is conditioned upon the completion by the Borrower and Hanover Acquisition of
the transaction contemplated by paragraph 10 hereof.
16. AMENDMENT TO BORROWER PLEDGE AGREEMENT. (a) Schedule I of the Pledge
Agreement made by the Borrower is hereby amended by deleting existing Schedule
I in its entirety and substituting in lieu thereof the modified Schedule I
attached hereto as Exhibit D and in connection therewith, within thirty (30)
days from the date of this Agreement, the Borrower shall deliver to the
Collateral Trustee stock certificates evidencing the Hanover Compressor
Columbia, Inc., shares, the Hanover Caymen, Limited, shares, and the Contract
Compression International Argentina, S.A. shares that are set forth on such
modified Schedule I together with any and all other documents reasonably
requested by the Agent to create a valid, first priority perfected lien in such
shares in favor of the Collateral Agent and (b) Subsection 4(a) of the Pledge
Agreement made by the Borrower is hereby amended by deleting the words "H.C.C.
Compressor de Venezuela, C.A." from the fourth line of such Subsection and
inserting in lieu thereof the words "any Unqualified Subsidiary (as defined in
the Bank Agreement) listed on Schedule I.".
17. WAIVER RELATING TO HANOVER/SMITH TEXAS LEASEHOLD MORTGAGE. The Agent
and the Lenders hereby waive (a) any Default in respect of and compliance with
Section 4.11 of the Loan Agreement solely to the extent necessary to postpone
the requirement that Hanover/Smith execute and deliver a Mortgage with respect
to its interest in the property described on Exhibit E attached hereto (the
"Hanover/Smith Property") until the earlier of (i) six months from the date
hereof and (ii) the acquisition by Hanover/Smith of the Hanover/Smith Property
and (b) the Default with respect to Section 4.7(a) of the
4
<PAGE> 5
Loan Agreement for failure to notify the Agent and each Lender of the Default
described in this paragraph 17.
18. CONSENT TO SHAREHOLDER SUBORDINATED DEBT. The Agent and the Lenders
hereby consent to the Borrower entering into the Shareholder Subordinated Loan
Agreement in the form attached hereto as Exhibit B and making the borrowings
contemplated thereunder.
19. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
that (a) the execution, delivery, and performance of this Agreement are within
the corporate power and authority of the Borrower and have been duly authorized
by appropriate proceedings, (b) this Agreement constitutes the legal, valid,
and binding obligation of the Borrower enforceable in accordance with their
terms, except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting the rights of creditors generally and
general principles of equity, and (c) upon the effectiveness of this Agreement,
the amendment of the Loan Documents as provided for herein, and the completion
of the transactions contemplated hereby, no Event of Default shall exist under
the Loan Documents and there shall have occurred no event which with notice or
lapse of time would become an Event of Default under the Loan Documents, as
amended.
20. EFFECT ON LOAN DOCUMENTS. Except as expressly amended and waived
herein, the Loan Agreement and all other Loan Documents are and shall remain in
full force and effect. The Borrower shall continue to comply with the terms of
the Loan Documents, as amended and waived. This Agreement is a Loan Document
for the purposes of the provisions of the other Loan Documents. Without
limiting the foregoing, any breach of representations, warranties, and
covenants under this Agreement may be a default or event of default under the
Loan Agreement and the other Loan Documents. This Agreement shall not
constitute an amendment, consent or waiver of any other provisions of the Loan
Agreement or the other Loan Documents not expressly referred to herein and
shall not be construed as a waiver, amendment or consent to any further or
future action of the Borrower or any other Loan Party that would require a
waiver, amendment or consent of the Agent and/or the Lenders.
21. EFFECTIVENESS. The effectiveness of this Agreement and the amendments
and waivers set forth herein, is subject to the satisfaction of the following
conditions precedent to the satisfaction of the Agent:
(a) No Default. No Default or Event of Default shall have
occurred and be continuing;
(b) Representations and Warranties. All representations,
warranties, and certifications made or deemed made herein, in the Loan
Agreement or in any other Loan Document by the Borrower or any
Guarantor and in all certificates furnished to
5
<PAGE> 6
the Lender pursuant to the provisions hereof shall be true and correct
in all material respects as though made as of the effective date of
this Agreement and after giving effect to the amendments and waivers
set forth herein;
(c) Certificates and Transaction Agreements. The Agent
shall have received (i) a certificate signed by a Responsible Officer
of the Borrower certifying the matters set forth in clauses (a) and
(b) above and the Borrower's compliance with the provisions set forth
in Section 5.2(g) of the Loan Agreement with respect to the
transactions contemplated under the Shareholder Subordinated Loan
Agreement, including the calculations made by the Borrower to comply
with the provisions of Section 5.2(g), (ii) execution counterparts of
this Agreement from the Borrower, the Subsidiaries of the Borrower
listed on the signature pages hereto and the Collateral Trustee, and
(iii) execution copies of that certain Amendment, Waiver and Consent
dated December 23, 1996 executed in connection with the Chemical
Credit Agreement (the "Chemical Waiver"), the Exchange Agreement and
the Shareholder Subordinated Loan Agreement and all transactions
contemplated under the above documents shall have been consummated;
and
(d) Collateral Items. Except as set forth in paragraph 16
herein, all lien filings, stock pledges, and other items required in
connection with the foregoing amendments and waivers have been
completed, including the execution by Hanover Acquisition and the
Borrower of such UCC-1's and UCC-3 assignments and amendments in
connection with the transactions contemplated under paragraph 10
herein that have been delivered to the Borrower prior to the date
hereof to create a valid, perfected, first priority lien in favor of
the Collateral Trustee in the assets that are being transferred to the
Borrower.
22. POST EFFECTIVE DATE MATTERS. After the effective date of this
Agreement, the Borrower covenants and agrees to (a) provide to the Agent prior
to the consummation of the transactions described in Paragraphs 10, 13 and 15
herein, forms of the documents that will be entered into to effect the
transactions described in paragraphs 10, 13 and 15 herein and such forms shall
be reasonably satisfactory to the Agent and (b) execute and deliver to the
Agent such other documents, certificates, opinions and information with respect
to the transactions contemplated hereunder as the Agent may reasonably request.
23. PAYMENT OF EXPENSES. The Borrower agrees to pay or reimburse the Agent
for all of its out-of-pocket costs and expenses incurred in connection with the
preparation, negotiation and execution of this Agreement including, without
limitation, the fees and expenses of counsel to the Agent.
6
<PAGE> 7
24. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
25. MISCELLANEOUS. The miscellaneous provisions of the Loan Agreement
apply to this Agreement. This Agreement may be signed in any number of
counterparts, each of which shall be an original.
26. CONSENT TO CHEMICAL WAIVER. Pursuant to Section 9.2 of the Loan
Agreement, JEDI, as Agent and as Lender, hereby agrees to waive the terms of
Section 5.11 (b) of the Loan Agreement solely to the extent necessary to allow
for the amendments, modifications and waivers to the Chemical Credit Agreement
contemplated by the Chemical Waiver, a copy of which is attached hereto as
Exhibit F.
THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS, AS DEFINED IN THIS
AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
7
<PAGE> 8
EXECUTED as of the date first above written.
BORROWER:
HANOVER COMPRESSOR COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT:
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED
PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LENDER:
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED
PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
8
<PAGE> 9
EXECUTED as of the date first above written.
BORROWER:
HANOVER COMPRESSOR COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
AGENT:
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED
PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LENDER:
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED
PARTNERSHIP
By: Enron Capital Management Limited
Partnership, its General Partner
By: Enron Capital Corp., its General
Partner
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
9
<PAGE> 10
Acknowledged and Agreed to as
of the date hereof.
MAINTECH ENTERPRISES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HANOVER/SMITH, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HANOVER ACQUISITION CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HANOVER LAND COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank),
as Collateral Trustee
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
10
<PAGE> 11
Acknowledged and Agreed to as
of the date hereof
MAINTECH ENTERPRISES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HANOVER/SMITH, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HANOVER ACQUISITION CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HANOVER LAND COMPANY
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank)
as Collateral Trustee
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
11
<PAGE> 1
EXHIBIT 11.1
HANOVER COMPRESSOR COMPANY
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1992 1993 1994 1995 1996
-------------------------------------------
<S> <C> <C> <C> <C> <C>
Primary Earnings Per Common Share:
- ----------------------------------
Net income, as reported $ 988 $ 2,671 $ 4,388 $ 5,614 $10,381
Dividends on preferred stock (832) (1,773)
Series A Preferred stock exchange(1) (3,794)
Series B Preferred stock conversion(1) (1,400)
-------------------------------------------
Net income available for common shareholders $ 988 $ 2,671 $ 4,388 $ 4,782 $ 3,414
===========================================
Weighted average common shares outstanding 7,782 10,877 13,069 14,374 20,498
Common equivalent shares(2) 34 103 537 905 1,327
Cheap stock(3) 515 515 515 515 454
-------------------------------------------
Total common and common equivalent shares 8,331 11,495 14,121 15,794 22,279
===========================================
Earnings per common share $ 0.12 $ 0.23 $ 0.31 $ 0.30 $ 0.15
===========================================
Quarter ended
March 31,
----------------
1996 1997
----------------
<S> <C> <C>
Primary Earnings Per Common Share:
- ----------------------------------
Net income, as reported $ 2,192 $ 3,394
Dividends on preferred stock (513)
Series A Preferred stock exchange(1)
Series B Preferred stock conversion(1)
----------------
Net income available for common shareholders $ 1,679 $ 3,394
================
Weighted average common shares outstanding 15,567 21,146
Common equivalent shares(2) 1,196 1,383
Cheap stock(3) 515 1
----------------
Total common and common equivalent shares 17,278 22,530
================
Earnings per common share $ 0.10 $ 0.15
================
Year Quarter
ended ended
December March
31, 31,
1996 1997
------- -------
<S> <C> <C>
Supplemental Earnings Per Common Share:
- ---------------------------------------
Net income available for common
shareholders $ 3,414 $ 3,394
Add interest on debt to be repaid from
proceeds 4,519 1,191
Less income tax effect (1,794) (473)
------- -------
Net income used in supplemental EPS $ 6,139 $ 4,112
======= =======
Shares used in primary EPS computation 22,279 22,530
Plus shares assumed to be issued to retire
debt 4,096 4,157
------- -------
Shares used in supplemental EPS computation 26,375 26,687
======= =======
Supplemental earnings per common share $ 0.23 $ 0.15
======= =======
</TABLE>
- ----------
(1) See "Note 7 -- Redeemable Preferred Stock" in the Notes to Consolidated
Financial Statements.
(2) Net effect of dilutive stock options and warrants, calculated using the
treasury stock method using average market price. Fully diluted earnings per
share is not presented since it is the same as primary earnings per share.
The effect of convertible redeemable preferred stock is antidilutive for
1995 and 1996.
(3) See "Note 1 -- Description of Business and Significant Accounting Policies"
in the Notes to Consolidated Financial Statements.
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
1. Contract Compression International Argentina, S.A., an Argentine
corporation ("CCIA") (Hanover Compressor Company owns 99.992% of CCIA, and
Maintech Enterprises, Inc. owns the remaining 0.008%)
2. Hanover Acquisition Corporation, a Texas corporation, a wholly-owned
subsidiary of Hanover Compressor Company
3. Hanover Cayman Limited, a Cayman Island corporation, a wholly-owned
subsidiary of Hanover Compressor Company
4. Hanover Compressor Colombia, Inc., a wholly-owned subsidiary of Hanover
Compressor Company
5. Hanover Land Company, a Texas corporation, a wholly-owned subsidiary of
Hanover Compressor Company
6. H.C.C. Compressor de Venezuela, C.A., a Venezuelan corporation, a
wholly-owned subsidiary of Hanover Compressor Company
7. Hanover-PGN Compressor, C.A. a Venezuelan corporation, a wholly-owned
subsidiary of H.C.C. Compressor de Venezuela, C.A.
8. Hanover/Smith, Inc. a Delaware corporation, a wholly-owned subsidiary of
Hanover Compressor Corporation
9. Maintech Enterprises, Inc., a Texas corporation, a wholly-owned subsidiary
of Hanover Compressor Company, authorized to do business as "Hanover
Maintech"
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated April 8, 1997, relating
to the financial statements of Hanover Compressor Company, which appears in such
Prospectus. We also consent to the reference to us under the headings "Experts."
PRICE WATERHOUSE LLP
Houston, Texas
April 10, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
April 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S DECEMBER 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 7,322 4,507
<SECURITIES> 0 0
<RECEIVABLES> 28,506 30,389
<ALLOWANCES> 494 510
<INVENTORY> 18,134 25,879
<CURRENT-ASSETS> 66,639 73,007
<PP&E> 315,976 348,391
<DEPRECIATION> 49,570 55,523
<TOTAL-ASSETS> 341,387 375,290
<CURRENT-LIABILITIES> 25,126 36,971
<BONDS> 122,756 139,482
0 0
0 0
<COMMON> 171,365 171,428
<OTHER-SE> 5,530 8,949
<TOTAL-LIABILITY-AND-EQUITY> 341,387 375,290
<SALES> 55,667 16,198
<TOTAL-REVENUES> 136,011 40,924
<CGS> 44,231 12,349
<TOTAL-COSTS> 109,177 32,743
<OTHER-EXPENSES> 3,015 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,594 2,571
<INCOME-PRETAX> 17,225 5,610
<INCOME-TAX> 6,844 2,216
<INCOME-CONTINUING> 10,381 3,394
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,381 3,394
<EPS-PRIMARY> .15 .15
<EPS-DILUTED> .15 .15
</TABLE>