<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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>
<S> <C> <C>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share................... $100,000,000 $30,303
============================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
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 APRIL 11, 1997
SHARES
[LOGO] HANOVER COMPRESSOR COMPANY
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
---------------------
Of the shares of Common Stock offered hereby, shares are being
sold by the Company and 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, except
for the repayment of approximately $ of indebtedness previously
extended to one Selling Stockholder.
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 $ and $ . For factors to be considered
in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol " ".
---------------------
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 $ 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 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
[INSERT GRAPHICS AS DETERMINED]
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 reflects a 150 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 December 31, 1996, the Company had a fleet of 1,560 compression rental units
with an aggregate capacity of 569,557 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 1,508 rental units having an aggregate capacity of approximately 500,000
horsepower at December 31, 1996. 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 December 31, 1996. 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 3,850 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
80%.
INDUSTRY CONDITIONS
Hanover currently competes primarily in the transportable natural gas
compression market for units of up to 3,000 horsepower. This market, which
includes rental and owner operated units, accounts for approximately 11 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 20% 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 December 31, 1996, Hanover owned and operated a
diversified fleet of 1,560 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 14.1% 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 $114 million,
adding 223,811 total horsepower and 627 compressor units to the Company's
fleet through December 31, 1996. 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 December 31, 1996. 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 3,850 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 8 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
3
<PAGE> 7
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
December 31, 1996, the Company has consummated 31 acquisition and
leaseback transactions, pursuant to which it has leased compression units
totalling 54,673 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
December 31, 1996 is summarized in the following table.
<TABLE>
<CAPTION>
RANGE OF
HORSEPOWER NUMBER OF AGGREGATE
PER UNIT UNITS HORSEPOWER
---------- --------- ----------
<S> <C> <C>
0-99 548 33,662
100-199 330 46,173
200-499 296 89,213
500-799 116 71,356
800-1199 144 142,029
1200-2699 126 187,124
----- -------
TOTAL 1,560 569,557
</TABLE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... shares
Common Stock offered by the Selling Stockholders............ shares
Total............................................. shares
Common Stock to be outstanding after the Offering........... shares(1)(2)
Use of Proceeds............................................. To repay certain indebtedness.
Proposed New York Stock Exchange Symbol..................... " ".
Dividend Policy............................................. The Company does not intend to
pay dividends on the Common
Stock.
</TABLE>
- ---------------
(1) Excludes (i) 2,278,650 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $5.38 per
share, all of which will be exercisable upon consummation of the Offering,
(ii) 540,142 shares of Common Stock issuable upon exercise of outstanding
warrants at an exercise price of $.01 per share, 62.50% of which will be
exercisable upon consummation of the Offering and (iii) shares of
Common Stock issuable upon exercise of stock options to be granted pursuant
to the Company's 1997 Stock Option and Purchase Plan in connection with and
conditioned upon consummation of the Offering. See "Capitalization" and
"Stock Option and Purchase Plans".
(2) Includes shares of restricted Common Stock to be issued to certain
officers and employees of the Company pursuant to the Company's 1997 Stock
Option and 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. The historical financial data have been derived from the audited
consolidated financial statements of the Company. 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 33,104 $ 43,346 $ 56,080 $ 95,964 $136,011
Operating expenses.......................................... 19,542 24,541 30,539 56,256 75,031
Selling, general and administrative......................... 6,227 7,413 8,427 12,542 16,439
Depreciation and amortization............................... 3,923 5,758 8,109 13,494 20,722(1)
Interest expense............................................ 1,659 1,366 2,027 4,560 6,594
-------- -------- -------- -------- --------
Income from continuing operations before income taxes....... 1,753 4,268 6,978 9,112 17,225
Provision for income taxes.................................. 650 1,597 2,590 3,498 6,844
-------- -------- -------- -------- --------
Income from continuing operations........................... 1,103 2,671 4,388 5,614 10,381
Discontinued operations..................................... (115) -- -- -- --
-------- -------- -------- -------- --------
Net income.................................................. $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381
======== ======== ======== ======== ========
Net income available to common stockholders(2)
Net income................................................ $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381
Dividends on Series A and Series B preferred stock........ (832) (1,773)
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
Weighted average common and common equivalent shares........ 8,116 11,120 13,613 15,202 21,046
-------- -------- -------- -------- --------
Earnings per common share................................... $ .12 $ .24 $ .32 $ .31 $ .16(2)
======== ======== ======== ======== ========
Supplemental earnings per common share(3)................... $
========
OTHER DATA:
EBITDA from continuing operations(4)........................ $ 7,335 $ 11,392 $ 17,114 $ 27,166 $ 44,541
Aggregate capital expenditures.............................. $ 9,954 $ 19,469 $ 34,301 $123,200 $ 90,312
Total number of rental units (at year end).................. 521 591 759 1,215 1,560
Aggregate horsepower (at year end).......................... 116,898 144,567 228,627 418,480 569,557
Average horsepower per unit (at year end)................... 224 245 301 344 365
Horsepower utilization(5)................................... 95.0% 94.1% 95.7% 94.2% 95.3%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(6)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 41,513
Total assets................................................ 341,387
Long-term debt.............................................. 122,756
Stockholders' equity........................................ 176,895
</TABLE>
- ---------------
(1) 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 expenses
of $2.6 million and an increase in net income of $1.5 million ($.07 per
common share).
(2) Earnings per share in 1996 was $.49 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.
(3) 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 interest expense ( ), less applicable income tax ( ),
related to the indebtedness to be repaid.
(4) 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.
(5) Reflects average horsepower utilization over each twelve month period
calculated on a monthly basis based upon horsepower available.
(6) Reflects the sale of shares of Common Stock being offered by the Company at
an assumed initial offering price of $
per share (net of approximately $ million of estimated offering expenses
and underwriting discounts and commissions) and the application of the estimated
net proceeds therefrom to repay certain indebtedness. See "Use of Proceeds"
and "Capitalization".
5
<PAGE> 9
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 $90 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
Approximately 14.1% of the Company's compression rental and maintenance
revenue was derived from international operations. In September 1995, the
Company acquired 100% of the
6
<PAGE> 10
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 3,850 to 7,850 horsepower. The Company
intends to enter into a joint venture in April 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. Furthermore, the financial strength of foreign
customers may not be the same as present domestic customers. 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 December 31, 1996, approximately 48% of the Company's outstanding
Common Stock was owned by GKH Investments, L.P., a Delaware limited partnership
(the "Fund") and GKH
7
<PAGE> 11
Private Limited (collectively with the Fund, "GKH"). The Fund is the Company's
largest stockholder. The 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 % of the Common
Stock of the Company ( %, 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 Common 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
8
<PAGE> 12
Company to remove the wastes or remediate sites where they have been released.
See also "Government Regulation".
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. Application will be made to list the Common Stock 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.
9
<PAGE> 13
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 shares
of Common Stock outstanding ( shares if the Underwriters' overallotment
option is exercised in full). Of these shares, the shares of Common
Stock offered hereby ( 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
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 2,818,792 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".
10
<PAGE> 14
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 260
units with an aggregate of 64,000 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 107 units
with an aggregate of 14,000 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 10,637 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 14 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 22 compressor units
aggregating 22,850 horsepower. Through internal growth and the strategic
acquisitions described above, the Company has increased its fleet to a total of
1,560 compressor units with an aggregate of 569,557 horsepower at December 31,
1996.
The executive offices of the Company are located at 12001 North Houston
Rosslyn, Houston, Texas 77086 and its telephone number is (281) 447-8787.
11
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the Offering (at an assumed offering
price of $ per share) are expected to be approximately $ million
(approximately $ 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, except for the repayment of
approximately $ of indebtedness previously extended to one Selling
Stockholder for the purchase of Common Stock.
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 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.
12
<PAGE> 16
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
December 31, 1996 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 OF
DECEMBER 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(2)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Bank Credit Agreement..................................... $ 67,519
JEDI Loan Agreement....................................... 30,000
7% Subordinated Notes..................................... 21,792
Other..................................................... 3,445
--------
Total long-term debt........................................ 122,756
--------
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; 21,777,150 issued and outstanding, issued
and outstanding after the Offering(1)(2)............... 22
Additional paid-in capital.................................. 171,343
Retained earnings........................................... 12,518
Less:
Notes receivable from officers and employees for purchase
of Common Stock........................................ (6,770)
Treasury stock -- 29,700 common shares, at cost........... (218)
--------
Stockholders' equity........................................ 176,895
--------
Total capitalization........................................ $299,651
========
</TABLE>
- ---------------
(1) Includes 29,700 treasury shares, but excludes (i) 2,278,650 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 540,142 shares of Common Stock granted to the former holders of the
Series A Preferred Stock (which preferred stock is no longer outstanding)
and (iii) shares of Common Stock reserved for issuance upon
exercise of options to be granted in connection with and conditioned upon
consummation of the Offering. See "Stock Option and Purchase Plans".
(2) The issued and outstanding shares of Common Stock after the Offering
excludes shares of restricted stock to be issued, pursuant to the
Company's 1997 Stock Option and Purchase Plan, to certain officers,
employees and directors of the Company in exchange for promissory notes in
connection with and conditioned upon the Offering. See "Stock Option and
Purchase Plans".
13
<PAGE> 17
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$171,579,000, or $7.88 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 December 31, 1996. 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 December 31, 1996 would have been approximately
$ , or $ per share of Common Stock. This represents an
immediate increase in net tangible book value per share of $ to
existing stockholders and an immediate dilution in net tangible book value per
share of $ to new investors, as illustrated in the following table:
<TABLE>
<CAPTION>
<S> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at December 31, 1996...... $
Increase in net tangible book value per share attributable
to new investors.......................................... $
Pro Forma net tangible book value per share after the
Offering.................................................. $
---------
Dilution per share to new investors......................... $
=========
</TABLE>
As of December 31, 1996, the Company has reserved an aggregate of 2,818,792
shares of Common Stock for issuance upon exercise of warrants and options. On
that date, there were outstanding options to purchase an aggregate of 2,278,650
shares of Common Stock at a weighted average price of $5.38 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 540,142 shares of Common Stock at a price of $0.01 per share,
of which are currently exercisable and the remaining warrants vest
in equal monthly installments through , 1998. As of the date hereof,
the Company has reserved shares of Common Stock for issuance as
restricted stock or upon exercise of options granted pursuant to the Company's
1997 Stock Option and Purchase Plan. See "Stock Option and Purchase Plans" and
"Certain Transactions -- Certain Relationships and Related Transactions".
The following table sets forth as of December 31, 1996 the relative
investments of the existing Company stockholders and of the new investors,
giving pro forma effect to the sale by the Company of shares and the
sale by the Selling Stockholders of shares of the Common Stock being
offered hereby (and excluding any sale upon consummation of the Offering of
shares of Common Stock to officers and employees under the Company's 1997
Stock Option and Purchase Plan), at an assumed offering price of $ per
share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. % $ % $
New investors..................... % %
----- --- ------ --- -----
Total................... 100% $ 100% $
===== === ====== === =====
</TABLE>
The foregoing table assumes 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 any of such other options or
warrants are exercised, there may be further dilution to new investors.
14
<PAGE> 18
SELECTED HISTORICAL FINANCIAL INFORMATION
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following selected historical financial data has been derived from
audited financial statements, 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 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Rentals and maintenance................................... $ 21,680 $ 25,723 $ 32,025 $ 48,354 $ 79,355
Compressor fabrication.................................... 10,838 14,034 16,202 29,593 28,764
Production equipment fabrication.......................... -- 3,178 7,272 16,960 26,903
Other..................................................... 586 411 581 1,057 989
-------- -------- -------- -------- --------
Total revenues...................................... 33,104 43,346 56,080 95,964 136,011
-------- -------- -------- -------- --------
Operating expenses:
Rentals and maintenance................................... 10,206 9,739 11,008 17,813 30,800
Compressor fabrication.................................... 9,336 12,131 13,733 25,265 24,657
Production equipment fabrication.......................... -- 2,671 5,798 13,178 19,574
Selling, general and administrative....................... 6,227 7,413 8,427 12,542 16,439
Depreciation and amortization............................. 3,923 5,758 8,109 13,494 20,722(1)
Interest expense............................................ 1,659 1,366 2,027 4,560 6,594
-------- -------- -------- -------- --------
Total costs and expenses............................ 31,351 39,078 49,102 86,852 118,786
-------- -------- -------- -------- --------
Income from continuing operations before income taxes....... 1,753 4,268 6,978 9,112 17,225
Provision for income taxes.................................. 650 1,597 2,590 3,498 6,844
-------- -------- -------- -------- --------
Income from continuing operations........................... 1,103 2,671 4,388 5,614 10,381
Discontinued operations..................................... (115) -- -- -- --
-------- -------- -------- -------- --------
Net income.................................................. $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381
======== ======== ======== ======== ========
Net income available to common stockholders(2)
Net income................................................ $ 988 $ 2,671 $ 4,388 $ 5,614 $ 10,381
Dividends on Series A and Series B preferred stock........ (832) (1,773)
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
Weighted average common and common equivalent shares........ 8,116 11,120 13,613 15,202 21,046
-------- -------- -------- -------- --------
Earnings per common share................................... $ .12 $ .24 $ .32 $ .31 $ .16(3)
======== ======== ======== ======== ========
Supplemental earnings per common share(4)................... $
========
OTHER DATA:
EBITDA from continuing operations(5)........................ $ 7,335 $ 11,392 $ 17,114 $ 27,166 $ 44,541
======== ======== ======== ======== ========
BALANCE SHEET DATA (end of period):
Working capital............................................. $ (445) $ 962 $ 995 $ 23,270 $ 41,513
Net property, plant and equipment........................... 42,863 61,722 88,391 198,074 266,406
Total assets................................................ 56,176 76,779 114,694 252,313 341,387
Long-term debt.............................................. 15,985 14,279 36,878 50,451 122,756
Preferred stockholders' equity.............................. -- -- -- 26,894 --
Common stockholders' equity................................. 26,470 46,945 51,333 139,302 176,895
</TABLE>
- ---------------
(1) 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).
(2) 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.
(3) Earnings per share in 1996 was $.49 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 interest expense ( ), less applicable income tax
( ), 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.
15
<PAGE> 19
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
1,560 units with an aggregate of 569,557 horsepower at December 31, 1996. 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>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
----- ----- ------
<S> <C> <C> <C>
Revenues:
Rentals and maintenance.................................. $32.0 $48.4 $ 79.4
Compressor fabrication................................... 16.2 29.6 28.8
Production equipment fabrication......................... 7.3 17.0 26.9
----- ----- ------
Total............................................... $55.5 $95.0 $135.1
===== ===== ======
Expenses:
Rentals and maintenance.................................. $11.0 $17.8 $ 30.8
Compressor fabrication................................... 13.7 25.3 24.7
Production equipment fabrication......................... 5.8 13.2 19.6
----- ----- ------
Total............................................... $30.5 $56.3 $ 75.1
===== ===== ======
Gross profit %:
Rentals and maintenance.................................. 65.6% 63.2% 61.2%
Compressor fabrication................................... 15.2 14.6 14.3
Production equipment fabrication......................... 20.3 22.3 27.2
</TABLE>
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
121,000 horsepower and 30,077 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
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<PAGE> 20
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 59%, 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 49%, 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.
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 54%, 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 44%, 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.
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EARNINGS PER COMMON SHARE
Details of earnings per common share for 1996 are as follows:
<TABLE>
<S> <C>
Net income before adjustment................................ $.49
Dividends on preferred stock................................ (.08)
Series A preferred stock exchange........................... (.18)
Series B preferred stock conversion......................... (.07)
----
Earnings per common share................................... $.16
====
</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 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 $11.5 million, or 84%, to $25.2 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 $2.5 million, or 125%, 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.
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<PAGE> 22
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 28%, 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 year ended December 31, 1996 as compared to $19.7 million for
the year ended December 31, 1995. 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, 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 from 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 $90 million and the
Company is negotiating an amendment to the Bank Credit Agreement to permit
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
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.
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<PAGE> 23
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 December 31, 1996, the Company had a fleet of 1,560
compression rental units with an aggregate capacity of 569,557 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 1,508 rental units having an aggregate capacity of approximately 500,000
horsepower at December 31, 1996. 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 December 31, 1996. 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 3,850 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
80%.
Hanover currently competes primarily in the transportable natural gas
compression market for units of up to 3,000 horsepower. This market, which
includes rental and owner operated units, accounts for approximately 11 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 20% 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
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<PAGE> 24
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 December 31, 1996, Hanover owned and operated a
diversified fleet of 1,560 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 14.1% 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 and a change 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 $114 million, adding 223,811 total horsepower and 627
compressor units to the Company's fleet through December 31, 1996.
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.
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<PAGE> 25
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 December 31, 1996. 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 3,850 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 8 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
December 31, 1996, the Company has consummated 31 acquisition and
leaseback transactions, pursuant to which it has leased compression units
totalling 54,673 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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<PAGE> 26
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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<PAGE> 27
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 natural gas consumption will grow at
approximately 15% and 10%, respectively, over the next 3 to 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 for the three years ended December 31, 1996, 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 December 31, 1996, the
Company's gas compressor fleet consisted of 1,560 units, ranging from 25 to
2,650 horsepower, of which 95% of available horsepower and 94% of the available
units were utilized during 1996. These utilization rates compare favorably to
estimated industry averages of 82% of available horsepower and 79% 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
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.
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<PAGE> 28
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
79% and 80% 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 320 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 responsibility to promptly respond to customer
service needs as they arise based on the mechanic's considerable judgment and
field expertise.
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<PAGE> 29
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 320 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 December 31, 1996, the Company had a compressor unit
fabrication backlog of $7.5 million as compared to $1.7 million as of December
31, 1995. 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 December 31, 1996, the Company had a production equipment
fabrication backlog of $7.1 million as compared to $5.3 million as of December
31, 1995. 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 350 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 14 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. On December 31, 1996, approximately 11.9% and 12.2 % of the Company's
compressor horsepower was being used in offshore and international applications,
respectively.
SALES AND MARKETING
The Company's 21 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 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
26
<PAGE> 30
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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<PAGE> 31
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, and (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. The
Company also leases and currently intends to exercise on or about April 30, 1997
its option to purchase 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
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<PAGE> 32
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).
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 December 31, 1996, the Company had approximately 760 employees. No
employees are represented by labor unions and the Company believes that its
relations with its employees are satisfactory.
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<PAGE> 33
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........... 38 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............. 43 Vice President, Operations -- Mid Continent*
Maxwell C. McDonald........... 48 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............ 37 Vice President, Operations -- Fabrication*
</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 company located in Midland, Texas, since
January 1988. From July 1982 through December 1987,
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<PAGE> 34
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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<PAGE> 35
ROBERT "BO" PIERCE has served as Vice President of the Company since April
1995 and previously served as Vice President of Maintech Enterprises since June
1991. 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.
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. Koupal, Simon and Collins.
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.
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<PAGE> 36
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..................... 295,775 597,599
Michael J. McGhan.................... 141,415 231,284
Curtis A. Bedrich.................... 75,765 178,700
</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 $ 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 $25,000.
Following consummation of the Offering, all directors, other than those who
are also full time employees, of the Company will be paid an annual fee of
$ .
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<PAGE> 37
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 2,278,650 shares of Common Stock at exercise prices
ranging from $.01 per share to $14.67 per share and a weighted average exercise
price of $5.38 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 and Purchase Plan
(the "1997 Plan"). The 1997 Plan, which is administered by the Compensation
Committee, permits 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 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 Plan and to receive grants of awards
thereunder. The selection of employees who will receive grants under the 1997
Plan (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
. To date, pursuant to the 1997 Plan, each of Messrs. O'Connor, McGhan
and Bedrich were granted options to purchase , and
shares of Common Stock, respectively, and purchased ,
and shares of Restricted Stock, respectively. Future awards
to be made to the Named Executive Officers pursuant to the 1997 Plan, if any,
cannot be determined at this time. The exercise price of any option granted
under the 1997 Plan is set in each case by the Compensation Committee.
Options granted under the 1997 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 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 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 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 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 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 Plan or
such consideration as the Participant would have received had the options been
fully vested. In addition, upon a Change of Control each Participant 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.
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<PAGE> 38
The Compensation Committee has granted certain executive officers and other
employees of the Company options to purchase an aggregate of shares of
Common Stock pursuant to the 1997 Plan at an exercise price equal to $ .
As a condition of such grants, the Participant must agree not to sell more than
40% 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 Common
Stock. 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 the right
to purchase shares of restricted stock pursuant to the 1997 Plan at a
price equal to $ . As a condition of such awards the Participant must
agree not to sell more than 40% 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. 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.
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 prospective
transferees of Westars' 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 "Registration 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
35
<PAGE> 39
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 10,753,500 shares
(approximately 49.5% 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 759,750 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.
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.
36
<PAGE> 40
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>
37
<PAGE> 41
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 March 31, 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 OWNED AFTER THE
PRIOR TO THE OFFERING OFFERING(1)
------------------------- SHARES BEING -------------------
NAME AND ADDRESS NUMBER PERCENT(2) OFFERED NUMBER PERCENT(2)
---------------- ----------- ----------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C>
GKH Partners, L.P.(3)................. 10,753,500 49.5%
200 West Madison Street
Chicago, Illinois 60606
Melvyn N. Klein(4).................... 10,753,500 49.5%
Mercantile Tower, Suite 1940
615 North Upper Broadway
Corpus Christi, Texas 78477
GKH Investments, L.P.(5).............. 10,362,150 47.7%
200 West Madison Street
Chicago, Illinois 60606
Westar Capital Inc.................... 4,978,800 22.9%
818 Kansas Street
Topeka, Kansas 66601
Joint Energy Development Investments
Limited Partnership................. 2,622,000 12.1%
1400 Smith Street
Houston, Texas 77002
Michael A. O'Connor(6)................ 1,201,623 5.3%
Michael J. McGhan(6).................. 469,899 2.1%
Ted Collins, Jr....................... 150,750 *
William S. Goldberg(7)................ -- --
Alvin V. Shoemaker(8)................. 243,300 *
Curtis Bedrich(6)..................... 338,464 1.5%
William E. Simon, Jr.(9).............. 274,800 *
Robert A. Furgason.................... 3,750 *
Carl M. Koupal, Jr.................... -- --
All directors and executive officers
as a group (10 persons including the
directors and executive officers
named above)........................ 13,436,086 61.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes that the Underwriters' over-allotment option is not exercised.
(2) There are presently 29,700 treasury shares issued which are not counted as
outstanding in calculating the beneficial ownership percentages.
(3) Includes 10,362,150 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.
38
<PAGE> 42
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 391,350 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 372,699, 893,373 and 254,464 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 77,400 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 December 31, 1996, 21,777,150 shares of Common Stock were issued and
held of record by approximately 136 stockholders (including 29,700 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
PREFERRED STOCK
As of December 31, 1996, no shares of Preferred Stock were outstanding.
39
<PAGE> 43
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 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
40
<PAGE> 44
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 shares of
Common Stock outstanding ( shares if the Underwriters' over-allotment
option is exercised in full). Of these outstanding shares of Common Stock, the
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 shares of Common Stock
outstanding after the Offering are "restricted securities" 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 directors and 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, not to offer,
sell, contract to sell or otherwise dispose of any equity securities of the
Company, other than shares sold in this Offering or pursuant to employee stock
option plans existing on or on the conversion or exchange of convertible or
exchangeable securities outstanding on the date of this Prospectus, which are
substantially similar to the shares of Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the shares of
Common Stock, without the prior written consent of the representatives of the
Underwriters. 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. The number of outstanding shares subject to such lock-up
agreements that will be available for sale in the public market, upon expiration
of the lock-up agreements, will be approximately . The approximately
remaining shares of Common Stock will become eligible for sale upon
expiration of their respective one-year holding period or upon exercise of the
registration rights described below.
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 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 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
41
<PAGE> 45
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
19,890,000 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 December 31, 1996, the Company has reserved an aggregate of 2,818,792
shares of Common Stock for issuance upon exercise of warrants and options. On
that date, there were outstanding options to purchase an aggregate of 2,278,650
shares of Common Stock at a weighted average price of $5.38 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 540,142 shares of Common Stock at a price of $0.01 per share,
337,589 of which are currently exercisable 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 Plan. Under the 1997 Plan upon consummation of the Offering options to
purchase shares of Common Stock at the initial public offering price
will be outstanding, none of which will be immediately exercisable and
shares of Restricted Stock will be issued. See "Stock Option and
Purchase Plans".
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. In addition, certain partners in Neal, Gerber & Eisenberg
beneficially own shares of the Common Stock.
42
<PAGE> 46
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.
43
<PAGE> 47
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................................................... F-3
Consolidated Statement of Income for the years ended
December 31, 1994, 1995 and 1996....................... F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1995 and 1996....................... F-5
Consolidated Statement of Common Stockholders' Equity for
the years ended December 31, 1994, 1995 and 1996....... F-6
Notes to Consolidated Financial Statements................ F-7
Astra Resources Compression, Inc.:
Report of Independent Public Accountants.................. F-20
Consolidated Balance Sheets as of November 30, 1995 and
December 31, 1994...................................... F-21
Consolidated Statements of Operations for the eleven
months ended November 30, 1995 and the year ended
December 31, 1994...................................... F-22
Consolidated Statements of Stockholder's equity for the
eleven months ended November 30, 1995 and the year
ended December 31, 1994................................ F-23
Consolidated Statements of Cash Flows for the eleven
months ended November 30, 1995 and the year ended
December 31, 1994...................................... F-24
Notes to Consolidated Financial Statements................ F-25
</TABLE>
F-1
<PAGE> 48
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 April 10, 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> 49
HANOVER COMPRESSOR COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,989 $ 7,322
Accounts receivable, net.................................. 19,490 28,012
Inventory................................................. 13,582 18,134
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 6,331 7,774
Prepaid taxes............................................. 2,180 4,372
Other current assets...................................... 425 1,025
-------- --------
Total current assets.............................. 44,997 66,639
-------- --------
Property, plant and equipment:
Compression equipment..................................... 214,149 296,060
Land and buildings........................................ 3,825 5,236
Transportation and shop equipment......................... 7,498 10,788
Other..................................................... 3,028 3,892
-------- --------
228,500 315,976
Accumulated depreciation.................................. 30,426 49,570
-------- --------
Net property, plant and equipment................. 198,074 266,406
-------- --------
Intangible and other assets, net of accumulated amortization
of $4,741 and $5,994...................................... 9,242 8,342
-------- --------
$252,313 $341,387
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................... $ 571 $ 492
Accounts payable, trade................................... 9,871 9,051
Accrued liabilities....................................... 4,493 8,214
Advance billings.......................................... 6,266 6,701
Billings on uncompleted contracts in excess of costs and
estimated earnings..................................... 526 668
-------- --------
Total current liabilities......................... 21,727 25,126
Long-term debt.............................................. 50,451 122,756
Other liabilities........................................... 753 1,161
Deferred income taxes....................................... 13,186 15,449
-------- --------
Total liabilities................................. 86,117 164,492
-------- --------
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; 19,268,850 and 21,777,150 shares issued.... 19 22
Additional paid-in capital................................ 135,066 171,343
Notes receivable -- employee stockholders................. (4,669) (6,770)
Retained earnings......................................... 9,104 12,518
Treasury stock -- 29,700 common shares, at cost........... (218) (218)
-------- --------
Total common stockholders' equity................. 139,302 176,895
-------- --------
$252,313 $341,387
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 50
HANOVER COMPRESSOR COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rentals and maintenance................................... $ 32,025 $ 48,354 $ 79,355
Compressor fabrication.................................... 16,202 29,593 28,764
Production equipment fabrication.......................... 7,272 16,960 26,903
Other..................................................... 581 1,057 989
-------- -------- --------
56,080 95,964 136,011
-------- -------- --------
Expenses:
Rentals and maintenance................................... 11,008 17,813 30,800
Compressor fabrication.................................... 13,733 25,265 24,657
Production equipment fabrication.......................... 5,798 13,178 19,574
Selling, general and administrative....................... 8,427 12,542 16,439
Depreciation and amortization............................. 8,109 13,494 20,722
Interest expense.......................................... 2,027 4,560 6,594
-------- -------- --------
49,102 86,852 118,786
-------- -------- --------
Income before income taxes.................................. 6,978 9,112 17,225
Provision for income taxes.................................. 2,590 3,498 6,844
-------- -------- --------
Net income.................................................. $ 4,388 $ 5,614 $ 10,381
======== ======== ========
Net income available to common stockholders:
Net income................................................ $ 4,388 $ 5,614 $ 10,381
Dividends on Series A and Series B preferred stock........ (832) (1,773)
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
Weighted average common and common equivalent shares
outstanding............................................... 13,613 15,202 21,046
-------- -------- --------
Earnings per common share................................... $ .32 $ .31 $ .16
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 51
HANOVER COMPRESSOR COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 4,388 $ 5,614 $ 10,381
Adjustments:
Depreciation and amortization........................... 8,109 13,494 20,722
Amortization of debt issuance costs and debt discount... 359 405 547
Gain on sale of assets.................................. (195) (412) (352)
Deferred income taxes................................... 878 638 2,263
Change in assets and liabilities, net of effects of
business combinations:
Accounts receivable................................... (4,153) (8,307) (8,522)
Inventory............................................. (5,417) (5,230) (4,552)
Costs and estimated earnings versus billings on
uncompleted contracts................................ 1,534 671 (1,301)
Accounts payable and other liabilities................ 4,594 424 3,309
Advance billings...................................... 511 1,376 435
Other................................................. (862) 415 (2,654)
-------- -------- --------
Net cash provided by operating activities................... 9,746 9,088 20,276
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (31,791) (42,447) (83,598)
Proceeds from sale of fixed assets........................ 417 1,322 2,404
Cash used for business acquisitions....................... (27,349) (6,489)
-------- -------- --------
Net cash used in investing activities....................... (31,374) (68,474) (87,683)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt.............................. 53,650 82,262 57,621
Issuance of common stock.................................. 21,585 23,317
Debt issuance costs....................................... (444) (796) (498)
Repayment of long-term debt............................... (31,704) (72,204) (7,300)
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)
-------- -------- --------
Net cash provided by financing activities................... 21,502 62,206 71,740
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (126) 2,820 4,333
Cash and cash equivalents at beginning of year.............. 295 169 2,989
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 169 $ 2,989 $ 7,322
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 1,433 $ 4,161 $ 5,831
======== ======== ========
Income taxes paid......................................... $ 666 $ 4,790 $ 2,541
======== ======== ========
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
======== ========
Acquisitions of businesses:
Property, plant and equipment acquired.................. $ 80,325 $ 6,714
======== ========
Other non-cash assets acquired.......................... $ 14,152
========
Liabilities assumed..................................... $(10,246)
========
Common stock issued..................................... $(56,882) $ (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
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 52
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.......... 12,406,950 $ 12 $ 49,094 $(2,095) $ (66)
Net income for 1994................. 4,388
---------- ---- -------- ------ ------- -------
Balance at December 31, 1994........ 12,406,950 12 49,094 (2,095) 4,322
Acquisition of Gale Force........... 172,500 1,725
Exercise of stock options........... 6,300 46
Purchase of 29,700 common shares as
treasury stock.................... $ (218)
Issuance of common stock............ 2,083,950 2 23,509 (2,574)
Issuance of warrants to purchase
common stock...................... 5,540
Acquisition of PGN.................. 15,750 157
Acquisition of Astra................ 4,583,400 5 54,995
Net income for 1995................. 5,614
Accrual of dividends on redeemable
preferred stock................... (832)
---------- ---- -------- ------ ------- -------
Balance at December 31, 1995........ 19,268,850 19 135,066 (218) (4,669) 9,104
Issuance of common stock to
employees......................... 237,000 2,885 (2,101)
Acquisition of New Prospect and
Oxley............................. 18,750 225
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.......... 759,750 1 10,636 (1,400)
Issuance of Common Stock............ 1,492,800 2 22,531
Net income for 1996................. 10,381
---------- ---- -------- ------ ------- -------
Balance at December 31, 1996........ 21,777,150 $ 22 $171,343 $ (218) $(6,770) $12,518
========== ==== ======== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 53
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 April 8, 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 150 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
and 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.
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.
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
F-7
<PAGE> 54
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and $494,000 at December 31, 1995 and 1996.
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 and
$19,887,000 in 1994, 1995 and 1996, 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.
INTANGIBLE ASSETS
Goodwill of $5,819,000 and $5,316,000 is included in intangible and other
assets and is net of accumulated amortization of $188,000 and $691,000 at
December 31, 1995 and 1996, 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. The cost of other
intangible assets, comprised primarily of organizational costs and noncompete
agreements
F-8
<PAGE> 55
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with former owners of acquired companies, is amortized on a straight-line basis
over five years. Total amortization expense was $691,000, $879,000 and $835,000
in 1994, 1995 and 1996, 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 Standard 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 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 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 presented for
all periods, using the treasury stock method and the assumed initial public
offering price.
Earnings per share in 1996 was $.49 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.
F-9
<PAGE> 56
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 172,500
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 15,750 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 4,583,400
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.
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................................... $ .34 $ .31
</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 18,750 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.
F-10
<PAGE> 57
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Parts and supplies.......................................... $ 10,171 $ 11,582
Work in progress............................................ 3,218 6,219
Finished goods.............................................. 193 333
-------- --------
$ 13,582 $ 18,134
======== ========
</TABLE>
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,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Costs incurred on uncompleted contracts..................... $ 10,560 $ 9,009
Estimated earnings.......................................... 1,888 2,598
-------- --------
12,448 11,607
Less -- billings to date.................................... 6,643 4,501
-------- --------
$ 5,805 $ 7,106
======== ========
</TABLE>
Presented in the accompanying financial statements as follows (in
thousands):
<TABLE>
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 6,331 $ 7,774
Billings on uncompleted contracts in excess of costs and
estimated earnings........................................ (526) (668)
-------- --------
$ 5,805 $ 7,106
======== ========
</TABLE>
F-11
<PAGE> 58
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
Long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Revolving credit facility................................... $ 16,737 $ 67,519
Term loan facility.......................................... 30,000 30,000
Subordinated notes, net of unamortized discount of
$1,711,000................................................ -- 21,792
Mortgage, interest at 6.73%, secured by the Company's
headquarters and manufacturing facility, payable through
1998...................................................... 1,475 1,362
Other, interest at various rates, secured by equipment and
other assets.............................................. 2,810 2,575
-------- --------
51,022 123,248
Less -- current maturities.................................. 571 492
-------- --------
$ 50,451 $122,756
======== ========
</TABLE>
The Company has two primary credit agreements. The Company's credit
agreement with The Chase Manhattan Bank provides for a $90,000,000 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 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.
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% and 7.625% at December 31, 1995 and 1996) 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, leases and dividends.
At December 31, 1996, 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.
Maturities of long-term debt at December 31, 1996 are: 1997 -- $492; 1998
- -- $2,937; 1999 -- $67,623; 2000 -- $23,528; 2001 -- $27 and $28,641 thereafter.
F-12
<PAGE> 59
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
F-13
<PAGE> 60
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 25 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 540,142 common shares for issuance upon exercise of the
warrant.
F-14
<PAGE> 61
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 759,750 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 37,500 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 1,666,650 shares of common stock for
$20,000,000.
On August 31, 1995, Hanover issued 259,050 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.
On September 8, 1995, pursuant to the PGN purchase agreement, Hanover
issued 70,050 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,
50,700 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 1,492,800 shares of common stock for cash of
$22,533,000 to existing shareholders and issued 237,000 shares of common stock
to various members of management for cash of $784,000 and notes of $2,101,000.
F-15
<PAGE> 62
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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...................... 2,025,150 $4.90
Options granted........................................... -- --
Options canceled.......................................... -- --
Options exercised......................................... -- --
---------
Options outstanding, December 31, 1994...................... 2,025,150 4.90
Options granted........................................... 159,750 9.03
Options canceled.......................................... -- --
Options exercised......................................... (6,300) .01
---------
Options outstanding, December 31, 1995...................... 2,178,600 5.19
Options granted........................................... 100,050 9.51
Options canceled.......................................... -- --
Options exercised......................................... -- --
---------
Options outstanding, December 31, 1996...................... 2,278,650 5.38
=========
</TABLE>
There were 0, 139,950 and 153,600 exercisable options under the 1992 plans
and 92,100, 174,000 and 274,650 exercisable options under the 1993 plans at
December 31, 1994, 1995 and 1996, respectively. There were 282,000 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 - $ 4.83................... 1,686,150 6.4 $ 4.70 546,300 $ 4.61
$ 4.84 - $ 7.33................... 400,050 6.6 5.61 141,000 5.59
$ 7.34 - $10.67................... 124,350 8.6 10.05 22,950 10.00
$10.68 - $14.67................... 68,100 9.5 12.49 -- --
</TABLE>
F-16
<PAGE> 63
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $4.24 and $5.84
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 $4.19 and $11.10 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 540,142 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.
NOTE 11 -- OTHER FINANCIAL INFORMATION
Accrued liabilities comprised the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Accrued salaries and wages.................................. $ 964 $ 1,196
Accrued bonuses............................................. 628 873
Accrued taxes............................................... 808 1,010
Accrued other............................................... 2,093 5,135
------- -------
$ 4,493 $ 8,214
======= =======
</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
F-17
<PAGE> 64
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 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
F-18
<PAGE> 65
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment designs, fabricates and sells equipment utilized in the production of
crude oil and natural gas.
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-19
<PAGE> 66
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-20
<PAGE> 67
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-21
<PAGE> 68
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-22
<PAGE> 69
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-23
<PAGE> 70
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-24
<PAGE> 71
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-25
<PAGE> 72
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-26
<PAGE> 73
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-27
<PAGE> 74
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-28
<PAGE> 75
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-29
<PAGE> 76
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-30
<PAGE> 77
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.............................................
=========
</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> 78
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
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 shares of Common
Stock offered.
The Company, the Company's employees and directors and certain of the
Company's stockholders have agreed during the period beginning from the date of
this Prospectus and continuing and including the date 180 days after the date of
this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any equity securities of the Company, other than pursuant to employee stock
option plans existing on or on the conversion or exchange of convertible or
exchangeable securities outstanding on the date of this Prospectus, which are
substantially similar to the shares of Common Stock or which are convertible or
exchangeable into securities which are substantially similar to the shares of
Common Stock, without the prior written consent of the representatives of the
Underwriters. 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 Company intends to apply for listing on the New York Stock Exchange
under the symbol " ". 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> 79
======================================================
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.......................... 6
The Company........................... 11
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Selected Historical Financial
Information......................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 20
Management............................ 30
Executive Compensation................ 33
Stock Option and Purchase Plans....... 33
Certain Transactions.................. 34
Principal and Selling Stockholders.... 38
Description of Capital Stock.......... 39
Shares Eligible for Future Sale....... 41
Validity of Common Stock.............. 42
Experts............................... 42
Available Information................. 43
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.
======================================================
======================================================
SHARES
HANOVER COMPRESSOR
COMPANY
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
---------------------------------
[LOGO]
---------------------------------
GOLDMAN, SACHS & CO.
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 80
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................................ *
Printing expenses........................................... *
Fees and expenses of counsel................................ *
Fees and expenses of accountants............................ *
Transfer agent and registrar fees........................... *
Blue sky fees and expenses.................................. *
Miscellaneous............................................... *
--------
Total............................................. $
========
</TABLE>
- ---------------
* To be provided by amendment.
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.
II-1
<PAGE> 81
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 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>
3/8/95............... 172,500 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............... 37,500 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............... 1,666,665 shares of JEDI $12 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.............. 259,050 shares of 55 employees $10 per share Rule 701
Common Stock
</TABLE>
II-2
<PAGE> 82
<TABLE>
<CAPTION>
TITLE AND AMOUNT EXEMPTION
DATE OF SALE OF SECURITIES PURCHASERS CONSIDERATION CLAIMED
------------ ---------------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
9/8/95............... 85,701 shares of Former stockholder $10 per share. Sec. 4(2)
Common Stock of PGN Issued in connection
with acquisition of
PGN (50,000 of which
were purchased by
delivery of 4 year
secured promissory
note and 15,750 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 50,765 shares of 1 individual $12 per share. Sec. 4(2)
Common Stock Issued in connection
with acquisition.
12/6/95.............. 4,583,400 shares of Astra $12 per share. In Sec. 4(2)
Common Stock addition, the
Company paid
approximately $6.5
million in cash.
1/24/96.............. 4,500 shares of 2 employees $7.33 per share. Sec. 4(2)
Common Stock (All of which was
paid by delivery of
two secured
promissory notes.)
2/22/96.............. 18,750 shares of New Prospect $13.33 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.............. 166,650 shares of 35 employees $12 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.............. 37,500 shares of 1 individual $14.66 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> 83
<TABLE>
<S> <C> <C> <C> <C>
6/17/96......... 28,350 shares of Common 1 employee $10.66 per share. (Of this Sec. 4(2)
Stock consideration, two- thirds
was paid by delivery of a
secured promissory note.)
12/23/96........ 759,750 shares of Common JEDI $14 per share. Issued in Sec. 4(2)
Stock exchange for 10,367 shares and/or
of Series B Preferred 3(a)(9)
Stock and cash payment to
JEDI of $1.4 million.
12/13/96........ 1,492,800 shares of Accredited investors $15.33 per share. Issued Rule 506
Common Stock pursuant to exercise of and/or Sec.
preemptive rights. 4(2)
12/13/96........ $23.5 million of Series A preferred $23.5 million. Issued upon Secs. 4(2)
Subordinated Promissory stockholders conversion of all and/or
Notes outstanding Series A 3(a)(9)
Preferred Stock.
2/19/97......... 4,891.35 shares of Accredited investor $15.33 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> 84
<TABLE>
<C> <S>
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
5.1* 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.
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.)
</TABLE>
II-5
<PAGE> 85
<TABLE>
<C> <S>
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 Wartisila Compression Services, GMBH
10.22* Distributorship Agreement dated January 16, 1997 between
Hanover and Wartsila Compression Services
10.23* 1997 Stock Option and Purchase Plan
11.1 Statement re computation of per share earnings
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.
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-6
<PAGE> 86
(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> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Houston, Texas on April 10, 1997.
HANOVER COMPRESSOR COMPANY,
a Delaware corporation
By: /s/ 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
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL J. MCGHAN President and Chief Executive April 10, 1997
- ----------------------------------------------------- Officer (Principal Executive
Michael J. McGhan Officer) and Director
/s/ CURTIS BEDRICH Chief Financial Officer and April 10, 1997
- ----------------------------------------------------- Treasurer (Principal Financial
Curtis Bedrich and Accounting Officer)
Director
- -----------------------------------------------------
Ted Collins, Jr.
/s/ ROBERT R. FURGASON Director April 10, 1997
- -----------------------------------------------------
Robert R. Furgason
/s/ WILLIAM S. GOLDBERG Director April 10, 1997
- -----------------------------------------------------
William S. Goldberg
Director
- -----------------------------------------------------
Carl M. Koupal, Jr.
/s/ MELVYN N. KLEIN Director April 10, 1997
- -----------------------------------------------------
Melvyn N. Klein
</TABLE>
II-8
<PAGE> 88
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL A. O'CONNOR Director April 10, 1997
- -----------------------------------------------------
Michael A. O'Connor
Director
- -----------------------------------------------------
Alvin V. Shoemaker
/s/ WILLIAM E. SIMON, JR. Director April 10, 1997
- -----------------------------------------------------
William E. Simon, Jr.
</TABLE>
II-9
<PAGE> 89
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
5.1* 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
</TABLE>
<PAGE> 90
<TABLE>
<C> <S>
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 and Purchase Plan
11.1 Statement re computation of per share earnings
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.
<PAGE> 1
EXHIBIT 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
ASTRA RESOURCES, INC.,
and
ASTRA RESOURCES COMPRESSION, INC.
on the one hand
and
HANOVER COMPRESSOR COMPANY
and
HANOVER ACQUISITION CORP., on the other hand
Dated as of October 13, 1995
================================================================================
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of October 13,
1995, by and among Hanover Compressor Company, a Delaware corporation
("Parent"), Hanover Acquisition Corp., a Texas corporation ("Sub"), Astra
Resources Compression, Inc., a Texas corporation (the "Company") and Astra
Resources, Inc., a Kansas corporation and the holder of all of the issued and
outstanding capital stock of the Company ("Astra").
WHEREAS, Parent, Sub and the Company have each determined that it is
advisable to provide for the merger of Sub with and into the Company (the
"Merger"), qualifying under Section 368(a)(2)(E) of the Code, upon the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby mutually acknowledged, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Defined Terms. As used in. this Agreement, the
following terms shall have the following meanings.
"Action" means any claim, action, suit, arbitration, inquiry, proceeding
or investigation by or before any Governmental Authority.
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
"Agreement" or "this Agreement" means this Agreement and Plan of Merger,
dated as of October 13, 1995, by and among Parent, Sub, the Company and Astra
(including the Exhibits hereto and the Disclosure Schedules) and all amendment
hereto made in accordance with the provisions of Section 10.09.
"Astra Indemnified Parties" has the meaning specified in Section 9.03.
"Astra Liabilities" has the meaning specified in Section 9.02.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City
of Houston.
<PAGE> 3
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended through the date hereof.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System, as updated through the date hereof.
"Certificate of Merger" has the meaning specified in Section 2.02.
"Certificates" has the meaning specified in Section 2.08(a).
"Claims" shall have the meaning specified in Section 9.02.
"COBRA" has the meaning specified in Section 6.01(c).
"COBRA Beneficiary" has the meaning specified in Section 6.01(C).
"Code" means the Internal Revenue Code of 1986, as amended through the
date hereof.
"Company Assets" has the meaning specified in Section 3.21.
"Company Business" means the business of acquiring, leasing,
refurbishing, maintaining and servicing gas compressors and all other business
which is being conducted by the Company and the Company Subsidiaries.
"Company Common Stock" means the common stock of the Company, par value
$1.00 per share.
"Company Disclosure Schedule" means the Company Disclosure Schedule
prepared by the Company attached hereto, dated as of the date hereof, and
forming a part of this Agreement. The disclosure of any information in any
Section of the Company Disclosure Schedule shall be deemed to constitute the
disclosure of such information required in other Sections thereof applicable to
such information whether or not set forth in such other Sections.
"Company Employee" has the meaning specified in Section 6.01(a).
"Company Entity" or "Company Entities" shall mean any one or all of the
Company and the Company Subsidiaries.
"Company Financial Statements" has the meaning specified in Section
3.08(a).
"Company Intellectual Property" has the meaning specified in Section
3.18.
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<PAGE> 4
"Company Interim Financial Statements" has the meaning specified in
Section 3.08(a).
"Company Leased Real Property" means the real property leased by the
Company or any Company Subsidiary, as tenant, together with, to the extent
leased by the Company or any Company Subsidiary, all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of the Company
or any Company Subsidiary attached or appurtenant thereto, and all easements,
licenses, rights and appurtenances relating to the foregoing.
"Company Material Contracts" has the meaning specified in Section
3.17(a).
"Company Owned Real Property" means the real property owned by the
Company or any Company Subsidiary, together with all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of the Company
or any Company Subsidiary attached or appurtenant thereto and all easements,
licenses, rights and appurtenances relating to the foregoing.
"Company Plans" has the meaning specified in Section 3.24(a).
"Company Preferred Stock" has the meaning specified in Section 3.03.
"Company Real Property" means the Company Leased Real Property and the
Company Owned Real Property.
"Company Receivables" means any and all accounts receivable, notes and
other amounts receivable by the Company or any Company Subsidiary from third
parties, including, without limitation, customers, arising from the conduct of
its business or otherwise before the Effective Time, whether or not in the
ordinary course, together with all unpaid financing charges accrued thereon.
"Company Subsidiaries" means those entities designated as such in
Section 3.04(a) of the Company Disclosure Schedule.
"Company Tangible Personal Property" means machinery, equipment, tools,
supplies, furniture, fixtures, personalty, vehicles, rolling stock and other
tangible personal property used in the Company Business or owned or leased by
the Company or any Company Subsidiary.
"Company" has the meaning specified in the preamble to this Agreement.
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<PAGE> 5
"Confidentiality Agreement" means the letter agreement dated as of May
23, 1995 between Astra and Parent.
"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.
"Controlled Group Plan" has the meaning specified in Section 3.24(b).
"Delaware Law" means the General Corporation Law of the State of
Delaware, as the same may be amended from time to time.
"Disclosure Schedules" means the Company Disclosure Schedule and the
Parent Disclosure Schedule.
"Effective Time" has the meaning specified in Section 2.02.
"Encumbrance" means any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any
kind, including, without limitation, any restriction on the use, voting,
transfer, receipt of income or other exercise of any attributes of ownership.
"Environment" means surface waters, groundwaters, soil, subsurface
strata and ambient air.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations, proceedings, consent orders or
consent agreements relating in any way to any Environmental Law or any
Environmental Permit, including, without limitation, (a) those by Governmental
Authorities for enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental Law and (b) those
by any Person seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the Environment.
"Environmental Condition" means a condition relating to or arising or
resulting from a failure to comply with any applicable
-4-
<PAGE> 6
Environmental Law or Environmental Permit or a Release of Hazardous Materials
into the Environment.
"Environmental Laws" means any Law in effect, now or through the
Effective Time and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order, consent
decree or judgment, relating to the environment, health, safety or Hazardous
Materials, including, without limitation, the CERCLA; the Resource Conservation
and Recovery Act, 42 U.S.C. Sections 6901 et seq.; the Hazardous Materials
Transportation Act. 49 U.S.C. Sections 6901 et seq.; the Clean Water Act, 33
U.S.C. Sections 1251 et seq.; the Toxic Substances Control Act. 15 U.S.C.
Sections 2601 et seq.; the Clean Air Act, 42 U.S.C. Sections 7401 et seq.;
the Safe Drinking Water Act, 42 U.S.C. Sections 300f et seq.; the Federal
Insecticide, Fungicide and Reodenticide Act, 7 U.S.C. Sections 136 et seq.;
and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. Sections 136 et seq.;
and the Federal Food, Drig and Cosmetic Act, 21 U.S.C. Sections 301 et seq.
"Environmental Permits" means all permits, approvals, identification
numbers, licenses and other authorizations required under any applicable
Environmental Law.
"ERISA" has the meaning specified in Section 3.24(a).
"Excluded Assets" has the meaning specified in Section 2.09.
"Exempt Plans" has the meaning specified in Section 6.01(d).
"Governmental Authority" means any United States federal, state or local
or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or arbitral
body.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Authority.
"Hanover Entity" or "Hanover Entities" means any one or all of Parent
and the Hanover Subsidiaries as appropriate.
"Hanover Indemnified Parties" has the meaning specified in Section 9.02
"Hanover Liabilities" has the meaning specified in Section 9.03.
"Hanover Subsidiaries" means those entities designated as such in
Section 4.04 (a) of the Parent Disclosure Schedule.
"Hazardous Materials" means (a) any chemicals, materials or substances
defined as or included in the definition of "hazardous
-5-
<PAGE> 7
substances, "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", restricted hazardous wastes", "toxic substances," "toxic pollutants",
"contaminants" or "pollutants", or words of similar import, under any
applicable Environmental Law, and (b) any other chemical, material or substance
to the extent exposure to which is regulated by any Governmental Authority,
including petroleum and petroleum products.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" means, with respect to any Person, (a) all indebtedness
of such Person, whether or not contingent, for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services, excluding trade payables and purchase orders in the ordinary course
of business, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (e) all obligations of
such Person as lessee under leases that have been or should be, in accordance
with U.S. GAAP, recorded as capital leases, (f) all obligations, contingent or
otherwise, of such Person under acceptance, letter of credit or similar
facilities, (g) all obligations of such Person to purchase, redeem, retire,
defease or otherwise acquire for value any capital stock of such Person or any
warrants, rights or options to acquire such capital stock, valued, in the case
of redeemable preferred stock, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends, (h) all Indebtedness
of others referred to in clauses (a) through (f) above guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (i) to pay or purchase such
Indebtedness or to advance or supply funds for the payment or purchase of such
Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property,
or to purchase or sell services, primarily for the purpose of enabling the
debtor to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, (iii) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or services
irrespective of whether such property is received or such services are
rendered) or (iv) otherwise to assure a creditor against loss, and (i) all
Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including, without
limitation, accounts and contract rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness.
-6-
<PAGE> 8
"Indemnification Claim" shall have the meaning specified in Section
9.05(a).
"Indemnifying Party" shall have the meaning specified in Section
9.05(a).
"Indemnified Party" shall have the meaning specified in Section 9.05(a).
"IRS" means the Internal Revenue Service of the United States.
"Law" shall mean any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, other requirement or rule of law.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising under
any Law (including, without limitation, any Environmental Law), Action or
Governmental Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Material Adverse Effect" shall mean (i) with respect to the Company,
any circumstance, change in, or effect on the business of any of the Company
Entities that, individually or in the aggregate with any other circumstances,
changes in, or effects on the business, of the Company Entities is, or could
reasonably be expected to be, materially adverse to the business, operations,
assets or liabilities, results of operations or the condition (financial or
otherwise) of the Company Entities taken as a whole or (ii) with respect to
Parent, any circumstance, change in, or effect on the business of any of the
Hanover Entities that, individually or in the aggregate, with any other
circumstances, changes in, or effects on, the business of the Hanover Entities
is or could reasonably be expected to be, materially adverse to the business,
operations, assets or liabilities, results of operations or the condition
(financial or otherwise) of the Hanover Entities taken as a whole.
"Merger" has the meaning specified in the recitals.
"Multiemployer Plan" has the meaning specified in Section 3.24(b).
"Multiple Employer Plan" has the meaning specified in Section 3.24(b).
"Notice Date" has the meaning specified in Section 9.05(b).
"Notice of Claim" has the meaning specified in Section 9.05(a).
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<PAGE> 9
"Parent Assets" has the meaning specified in Section 4.21.
"Parent Business" means the business of acquiring, leasing,
refurbishing, maintaining and servicing natural gas compression equipment and
the design and fabrication of oil and gas production equipment.
"Parent Common Stock" shall mean the common stock of Parent having a par
value of $.001 per share.
"Parent Disclosure Schedule" shall mean the Parent Disclosure Schedule
prepared by the Parent (on behalf of itself and Sub) attached hereto, dated as
of the date hereof, and forming a part of this Agreement. The disclosure of any
information in any Section of the Parent Disclosure Schedule shall be deemed to
constitute the disclosure of such information required in other Sections
thereof applicable to such information whether or not set forth in such
Sections.
"Parent Financial Statements" has the meaning specified in Section
4.08(a).
"Parent Intellectual Property" has the meaning specified in Section
4.18.
"Parent Interim Financial Statements" has the meaning specified in
Section 4.08(a).
"Parent Leased Real Property" means the real property leased by the
Parent or any Hanover Subsidiary, as tenant, together with, to the extent
leased by the Parent or any Hanover Subsidiary, all buildings and other
structures, facilities or improvements currently or hereafter located thereon,
all fixtures, systems, equipment and items of personal property of the Parent
or any Hanover Subsidiary attached or appurtenant thereto, and all easements,
licenses, rights and appurtenances relating to the foregoing.
"Parent Material Contracts" has the meaning specified in Section
4.17(a).
"Parent Owned Real Property" means the real property owned by the Parent
or any Hanover Subsidiary, together with all buildings and other structures,
facilities or improvements currently or hereafter located thereon, all
fixtures, systems, equipment and items of personal property o. the Parent or
any Hanover Subsidiary attached or appurtenant thereto and all easements,
licenses, rights and appurtenances relating to the foregoing.
"Parent Plans" has the meaning specified in Section 4.24(a).
-8-
<PAGE> 10
"Parent Real Property" means the Parent Leased Real Property and the
Parent Owned Real Property.
"Parent Receivables" means any and all accounts receivable, notes and
other amounts receivable by the Parent or any Hanover Subsidiary from third
parties, including, without limitation, customers, arising from the conduct of
its business or otherwise before the Effective Time, whether or not in the
ordinary course, together with all unpaid financing charges accrued thereon.
"Parent Tangible Personal Property" means machinery, equipment, tools,
supplies, furniture, fixtures, personalty, vehicles, rolling stock and other
tangible personal property used in the Parent Business or owned or leased by
the Parent or any Hanover Subsidiary.
"Parent" has the meaning specified in the preamble to this Agreement.
"Parent's Accountants" means Price Waterhouse, LLP, independent
accountants of Parent.
"Permits" has the meaning specified in Section 3.16(a).
"Permitted Encumbrances" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) liens for taxes, assessments and governmental charges or
levies not yet due and payable; (b) Encumbrances imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's liens and other
similar liens arising in the ordinary course of business securing obligations
that (i) are not overdue for a period of more than 30 days and (ii) are not in
excess of $100,000 in the case of a single property or $500,000 in the
aggregate at any time; (c) pledges or deposits to secure obligations under
workers' compensation laws or similar legislation or to secure public or
statutory obligations; and (d} minor survey exceptions, reciprocal easement
agreements and other customary encumbrances on title to real property that (i)
were not incurred in connection with any Indebtedness, and (ii) do not render
title to the property encumbered thereby unmarketable; and (e) Encumbrances
that do not, individually or in the aggregate, materially adversely affect the
value or use of such property for its current and anticipated purposes.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group that would be deemed to be a person under Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended.
"Registration Rights Agreement" means that certain Third Amended and
Restated Registration Rights Agreement of Hanover
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Compressor Company, a copy of which is attached hereto as Exhibit A.
"Regulations" means the Treasury Regulations (including Temporary
Regulations) promulgated by the United States Department of Treasury with
respect to the Code or other federal tax statutes.
"Release" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like
into or upon any land or water or air or otherwise entering into the
Environment.
"Series A Preferred Stock" has the meaning specified in Section 4.03(a).
"Series B Preferred Stock" has the meaning specified in Section 4.03(a).
"Stockholders' Agreement" means that certain Amended and Restated
Stockholders Agreement of Hanover Compressor Company, dated as of the date
hereof, a copy of which is attached hereto as Exhibit B.
"Surviving Corporation" has the meaning specified in Section 2.01.
"Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect
thereto) imposed by any government or taxing authority, including, without
limitation: taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added. or gains taxes: license,
registration and documentation fees; and customs duties, tariffs, and similar
charges.
"Texas Law" means the General Corporation Law of the State of Texas, as
the same may be amended from time to time.
"Third Party Claim" has the meaning specified in Section 9.05(b).
"To the best knowledge of Parent" shall mean the actual knowledge of
those Persons listed on Section 1.01 of the Parent Disclosure Schedule.
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"To the best knowledge of the Company" shall mean the actual knowledge
of those persons listed on Section 1.01 of the Company Disclosure Schedule.
"U.S. GAAP" means United States generally accepted accounting principles
and practices as in effect during the relevant period and applied consistently
throughout the periods involved.
"USTs" means underground storage tanks, as such term is defined in the
Resource Conservation and Recovery Act, as amended, and the regulations
promulgated thereunder.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the conditions
set forth in Article VII, and in accordance with Texas Law, at the Effective
Time Sub shall be merged with and into the Company. As a result of the Merger,
the separate corporate existence of Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation").
SECTION 2.2 Effective Time; Closing. As promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing this Agreement or a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Texas, in such form as is required
by, and executed in accordance with the relevant provisions of, Texas Law (the
date and time that such filings are made being the "Effective Time"). Prior to
such filing, a closing shall be held at the offices of Parent, or such other
place as the parties shall agree, for the purpose of confirming the
satisfaction or waiver, as the case may be, of the conditions set forth in
Article VII.
SECTION 2.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Texas Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of the Company
and Sub shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
SECTION 2.4 Certificate of Incorporation; By-laws. (a) At the
Effective Time, the Certificate of Incorporation of the Surviving Corporation
shall be as set forth in Exhibit 2.04(a), until
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thereafter amended as provided by law and such Certificate of Incorporation.
(b) The By-laws of Sub as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.
SECTION 2.5 Directors and Officers. The directors of Sub immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors
are duly elected or appointed and qualified.
SECTION 2.6 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Sub, the
Company or the holders of the Company Common Stock:
(i) The Company Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into 30,555.56
shares of newly and validly issued, fully paid and nonassessable shares of
Parent Common Stock. All such shares of Company Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each certificate previously evidencing any such shares shall
thereafter evidence the right to receive a certificate evidencing the shares of
Parent Common Stock into which such Company Common Stock was converted in the
Merger. Certificates previously evidencing shares of Company Common Stock shall
be exchanged for certificates evidencing shares of Parent Common Stock issued
in consideration therefor.
(a) Each share of Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for 100 newly and validly issued, fully paid and nonassessable shares of
Company Common Stock.
(b) No Further Rights. All shares of Parent Common Stock
issued upon conversion of the -,hares of Company Common Stock in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of Company Common Stock.
(c) Stock Transfer Books. At the close of business on the day
of the Effective Time, the stock transfer books of the Company shall be closed
and thereafter there shall be no further registration of transfers of shares of
Company Common Stock on the records of the Company. From and after the
Effective Time, the
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holders of shares of Company Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Company Common Stock except as otherwise provided herein or by applicable Law.
SECTION 2.7 Vehicles and Computer Equipment. (a) The Company has
leased the vehicles and computer equipment described on Schedule 2.07 under a
lease agreement identified on such schedule. Under that lease the Company has
the right to cause the lessor to sell such vehicles and computer equipment to
third parties at fair market value. At the Effective Time, Parent shall
purchase such vehicles from the lessor as provided in such lease at a price
equal to wholesale, fair market value determined by reference to the applicable
NADA price book and the computer equipment for a purchase price of $7,433.18.
(b) Parent agrees to be responsible for and pay all sales
taxes, transfer, permit and license fees and other similar costs that relate to
the purchase by Parent and the transfer to Parent of such vehicles and computer
equipment. The Company shall take such action as may reasonably be required to
permit such purchase of the vehicles and computer equipment by Parent.
SECTION 2.8 Repayment of Loans. Parent shall pay to Astra at the
Effective Time in immediately available funds an amount equal to borrowings
made by the Company from Western Resources, Inc. or Astra to fund expansion of
the Company's natural gas compressor fleet from July 1, 1995 to the Effective
Time, plus interest thereon at a rate equal to one percent over the 30-day
London Inter Bank Offering Rate as announced from time to time, such amount to
be reduced by any distributions or loan repayments by the Company to Astra or
its Affiliates subsequent to June 30, 1995, and tax sharing payments accruing
subsequent to June 30, 1995 owed and unpaid by Astra or its Affiliates to the
Company pursuant to the tax allocation agreement described in Section 3.27 of
the Company Disclosure Schedule, all as to be set forth in a schedule agreed to
by the parties at least three days prior to the Closing Date. Such payment
shall be in full satisfaction and repayment of all loans or advances by Western
Resources, Inc., Astra or their Affiliates to the Company or the Company
Subsidiaries. In the absence of an agreement with respect to such schedule, a
determination by a big six accounting firm selected by the parties (but
excluding Price Waterhouse LLP and Arthur Anderson & Co. LLP) of such amount
shall be utilized for purposes of effecting the Closing. Any loans by Western
or Astra outstanding prior to July 1, 1995, together with any accrued interest
thereon and any tax sharing payments accrued and unpaid by Astra or its
Affiliates prior to July 1, 1995, shall be converted to equity prior to the
Closing.
SECTION 2.9 Excluded Assets. The assets described in Section 2.09 of
the Company Disclosure Schedule shall be transferred by the
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Company to Astra prior to the Effective Time at no cost to the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND ASTRA
As an inducement to Parent and Sub to enter into this Agreement, the
Company and Astra hereby jointly and severally represent and warrant to Parent
and Sub as follows:
SECTION 3.1 Authority of the Company and Astra. Each of the Company
and Astra has all necessary corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by each of the Company and Astra, the performance by each of the Company and
Astra of its obligations hereunder and the consummation by each of the Company
and Astra of the transactions contemplated hereby have been duly authorized by
all requisite corporate action on the part of each of the Company and Astra
(other than, with respect to the Merger, the filing and recordation of
appropriate merger documents as required by Texas Law). This Agreement has been
duly executed and delivered by each of the Company and Astra, and (assuming due
authorization, execution and delivery by the other parties hereto of this
Agreement), this Agreement constitutes, a legal, valid and binding obligation
of each of the Company and Astra enforceable against each of the Company and
Astra in accordance with its terms, except as such enforcement may be subject
to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights generally and (b)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
SECTION 3.2 Organization of the Company and Astra; Qualification of
the Company. The Company is a corporation duly organized, validly existing and
in good standing under the Laws of the State of Texas and has all necessary
power and authority to own, operate or lease the properties and assets now
owned, operated or leased by it and to carry on the Company Business as
currently conducted. Astra is a corporation duly organized, validly existing
and in good standing under the laws of the state of Kansas. The Company is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the properties owned or leased by it or the operation of
its business makes such licensing or qualification necessary, except where the
failure to be so licensed, qualified or in good standing does not have a
Material Adverse Effect. All material corporate actions taken by the Company
have been duly authorized, and the Company has not taken any action
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that in any respect conflicts with, constitutes a default under or results in a
violation of any provision of its Certificate of Incorporation or By-laws. True
and correct copies of the Certificate of Incorporation and By-laws of the
Company, each as in effect on the date hereof, have been delivered or made
available by the Company to Sub.
SECTION 3.3 Capital Stock of the Company. (a) The authorized capital
stock of the Company consists of 100,000 shares of Company Common Stock, and
100,000 shares of preferred stock, $1.00 par value (the "Company Preferred
Stock"). As of the date hereof, 1,000 shares of Company Common Stock are issued
and outstanding, all of which are owned by Astra, are validly issued, fully
paid and nonassessable. As of the date hereof, no shares of Company Preferred
Stock are issued and outstanding. None of the issued and outstanding shares of
Company Common Stock was issued in violation of any preemptive rights. Except
as set forth in Section 3.03(a)(i) of the Company Disclosure Schedule, there
are no options, warrants, convertible securities or other rights, agreements,
arrangements or commitments of any character relating to the capital stock of
the Company or obligating the Company to issue or sell any shares of capital
stock of, or any other interest in, the Company. All shares of Company Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Except
as set forth in Section 3.03(a)(ii) of the Company Disclosure Schedule, there
are no outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire any shares of Company Common Stock or to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, any other Person.
(b) The stock register of the Company accurately records: (i)
the name and last known address of each Person who is a record owner of shares
of capital stock of the Company and (ii) the certificate number of each
certificate evidencing shares of capital stock issued by the Company, the
number of shares evidenced by each such certificate, the date of issuance
thereof and, in the case of cancellation, the date of cancellation.
SECTION 3.4 Company Subsidiaries. (a) Other than the Company
Subsidiaries, there are no other corporations, partnerships, joint ventures,
associations or other entities in which the Company owns, of record or
beneficially, any direct or indirect equity or other interest or any right
(contingent or otherwise) to acquire the same. Other than the Company
Subsidiaries, the Company is not a member of (nor is any part of the Company
Business conducted through) any partnership. Except as set forth in Section
3.04(a) of the Company Disclosure Schedule, the Company is not a participant in
any joint venture or similar arrangement.
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(b) Each Company Subsidiary (i) is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation, (ii) has all necessary corporate power and authority to own,
operate or lease the properties and assets owned, operated or leased by such
Company Subsidiary and to carry on its business as currently conducted by such
Company Subsidiary and (iii) is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such licensing or
qualification necessary, except for such failures which, when taken together
with all other such failures, would not have a Material Adverse Effect.
(c) All the outstanding shares of capital stock of each
Company Subsidiary which are owned, directly or indirectly, by the Company are
validly issued, fully paid, nonassessable and free of preemptive rights and are
owned by the Company, whether directly or indirectly, free and clear of all
Encumbrances, except as set forth in Section 3.04(c) of the Company Disclosure
Schedule.
(d) Except as set forth in Section 3.04(d) of the Company
Disclosure Schedule and other than those shares of Company Subsidiary capital
stock owned, directly or indirectly, by the Company, there are no shares of
capital stock of any Company Subsidiary issued or outstanding. Except as set
forth in Section 3.04(d) of the Company Disclosure Schedule, there are no
options, warrants, convertible securities, or other rights, agreements,
arrangements or commitments of any character relating to the capital stock of
any Company Subsidiary or obligating Astra, the Company or any Company
Subsidiary to issue or sell any shares of capital stock of, or any other
interest in, any Company Subsidiary.
(e) All material corporate actions taken by each Company
Subsidiary have been duly authorized and no Company Subsidiary has taken any
action that in any respect conflicts with, constitutes a default under or
results in a violation of any provision of its charter or by-laws (or similar
organizational documents). True and complete copies of the charter and by-laws
(or similar organizational documents), in each case as in effect on the date
hereof, of each Company Subsidiary have been delivered or made available by the
Company to Parent.
(f) Except as set forth in Section 3.04(f) of the Company
Disclosure Schedule, no Company Subsidiary is a member of (nor is any part of
its business conducted through) any partnership nor is any Company Subsidiary a
participant in any joint venture or similar arrangement.
(g) Except as set forth in Section 3.04(g) of the Company
Disclosure Schedule, there are no voting trusts, stockholder agreements,
proxies or other agreements or understandings in effect with respect to the
voting or transfer of
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any shares of capital stock of or any other interests in any Company
Subsidiary.
(h) The stock register of each Company Subsidiary accurately
records: (i) the name and address of each Person owning shares of capital stock
of such Company Subsidiary and (ii) the certificate number of each certificate
evidencing shares of capital stock issued by such Company Subsidiary, the
number of shares evidenced by each such certificate, the date of issuance
thereof and, in the case of cancellation, the date of cancellation.
SECTION 3.5 Corporate Books and Records. The minute books of the
Company and the Company Subsidiaries properly reflect all material actions of
the stockholders and the boards of directors of the Company and the Company
Subsidiaries. Complete and accurate copies of all minute books and of the stock
register of the Company and each Company Subsidiary have been provided or made
available by the Company to Parent. The foregoing notwithstanding, copies of
the minute books of the Company and the Company Subsidiaries made available by
the Company to Parent prior to the Effective Time do not contain records of
proceedings relating to the consideration of the transactions contemplated by
this Agreement or the alternatives thereto considered by the Boards of
Directors (or committees thereof) of the Company and the Company Subsidiaries
in the discharge of their fiduciary duties.
SECTION 3.6 No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in this Section 3.06 have been
obtained and all filings and notifications listed in Section 3.07 of the
Company Disclosure Schedule have been made, the execution, delivery and
performance of this Agreement by each of the Company and Astra do not and will
not (a) violate, conflict with or result in the breach of any provision of the
charter or by-laws (or similar organizational documents) of the Company, Astra
or any Company Subsidiary, (b) conflict with or violate any Law or Governmental
Order applicable to the Company, Astra, any Company Subsidiary or any of their
respective assets, properties or businesses, including, without limitation, the
Company Business, which conflict or violation would, individually or in the
aggregate, have a Material Adverse Effect or have a material adverse effect on
the transaction contemplated hereby or (c) except as set forth in Section
3.06(c) of the Company Disclosure Schedule, conflict with, result in any breach
of, constitute a default (or event which with the giving of notice or lapse of
time, or both, would become a default) under, require any consent under, or
give to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in the creation of any Encumbrance on
any of the assets or properties of the Company, Astra or any Company Subsidiary
pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease,
sublease, license, permit, franchise or other instrument or arrangement to
which the Company, Astra or any
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Company Subsidiary is a party or by which any of such assets or properties is
bound or affected which conflict or violation would, individually or in the
aggregate, have a Material Adverse Effect or have a material adverse effect on
the transaction contemplated hereby.
SECTION 3.7 Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by each of the Company and Astra do
not and will not require any consent, approval, authorization or other order
of, action by, filing with or notification to any Governmental Authority,
except (a) as described in Section 3.07 of the Company Disclosure Schedule and
(b) the notification requirements of the HSR Act.
SECTION 3.8 Financial Information, Books and Records, and Operating
Data. (a) True and complete copies of (i) the unaudited consolidated balance
sheet of the Company for each of the two fiscal years ended as of December 31,
1993 and December 31, 1994, and the related unaudited consolidated statements
of income, retained earnings, stockholders' equity and cash flows of the
Company, together with all related notes and schedules thereto, (collectively
referred to herein as the "Company Financial Statements") and (ii) the
unaudited consolidated balance sheet of the Company as of August 31, 1995 and
the related consolidated statements of income, retained earnings, stockholders'
equity and cash flows of the Company, together with all related notes and
schedules thereto (collectively referred to herein as the "Company Interim
Financial Statements") have been delivered by the Company to Parent. Except as
disclosed in Section 3.08 of the Company Disclosure Schedule, the Company
Financial Statements and the Interim Financial Statements (i) were prepared in
accordance with the books of account and other financial records of the
Company, (ii) present fairly the consolidated financial condition and results
of operations of the Company and the Company Subsidiaries as of the dates
thereof or for the periods covered thereby, and (iii) include all material
adjustments that are necessary for a fair presentation of the consolidated
financial condition of the Company and the Company Subsidiaries and the results
of the operations of the Company and the Company Subsidiaries as of the dates
thereof or for the periods covered thereby, subject, in the case of the Company
Interim Financial Statements, to normal year end adjustments.
(b) The books of account and other financial records of the
Company and the Company Subsidiaries: (i) reflect all material items of income
and expense and all material assets and Liabilities required to be reflected
therein on a basis consistent with the past practices of the Company and the
Company Subsidiaries, respectively, and (ii) are in all material respects
complete and correct, and do not contain or reflect any material inaccuracies
or discrepancies subject to non-material normal year end adjustments.
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SECTION 3.9 No Undisclosed Liabilities. There are no Liabilities of
the Company or any Company Subsidiary, other than Liabilities (i) reflected or
reserved against on the balance sheet included in the Company Interim Financial
Statements, (ii) disclosed in Section 3.09 of the Company Disclosure Schedule
and (iii) incurred since the date of the Company Interim Financial Statements
in the ordinary course of the Company Business, consistent with the past
practice of the Company and the Company Subsidiaries which do not individually
or in the aggregate, have a Material Adverse Effect. Reserves are reflected on
the balance sheet included in the Company Interim Financial Statements in
amounts that have been established on a basis consistent with the past
practices of the Company and the Company Subsidiaries.
SECTION 3.10 Receivables. Except to the extent, if any, reserved for on
the balance sheet included in the Interim Financial Statements and except as
set forth in Section 3.10 of the Company Disclosure Schedule, all Company
Receivables reflected on the balance sheet included in the Company Interim
Financial Statements arose from, and the Receivables existing as of the
Effective Time will have arisen from, the sale of inventory or services to
Persons not affiliated with the Company or any Company Subsidiary and in the
ordinary course of the Company Business consistent with past practice and,
except as reserved against on the balance sheet included in the Company Interim
Financial Statements, constitute or will constitute, as the case may be, and,
to the best knowledge of the Company, are only valid, undisputed claims of the
Company or a Company Subsidiary and, to the best knowledge of the Company, are
not subject to valid claims of set-off or other defenses or counterclaims other
than normal cash discounts accrued in the ordinary course of the Company
Business consistent with past practice.
SECTION 3.11 Bookings Reports. The bookings reports that appear in
Section 3.11 of the Company Disclosure Schedule are the most recent regularly
prepared bookings reports prepared by the Company and reflect customer orders
for compression services to be rendered by the Company and the Company
Subsidiaries.
SECTION 3.12 Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Since the date of the Company Interim
Financial Statements, except as disclosed in Section 3.12 of the Company
Disclosure Schedule, the Company Business has been conducted in the ordinary
course and consistent with past practice. As amplification and not limitation
of the foregoing, except as disclosed in Section 3.12 of the Company Disclosure
Schedule, since the date of the Company Interim Financial Statements, neither
the Company nor any Company Subsidiary has:
(i) permitted or allowed any of the assets or properties
(whether tangible or intangible) of the Company or
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any Company Subsidiary to be subjected to any Encumbrance, other than
Permitted Encumbrances and Encumbrances that will be released at or
prior to the Effective Time;
(ii) except in the ordinary course of the Company Business
consistent with past practice, discharged or otherwise obtained the
release of any Encumbrance or paid or otherwise discharged any
Liability, other than current liabilities reflected on the balance sheet
included in the Company Interim Financial Statements and current
liabilities incurred in the ordinary course of the Company Business
consistent with past practice since the date of the Company Interim
Financial Statements;
(iii) made any loan to, guaranteed any Indebtedness of or
otherwise incurred any Indebtedness on behalf of any Person:
(iv) failed to pay any creditor any amount in excess of $100,000
in the aggregate owed to such creditor, except to the extent any such
amount is the subject of a bona fide dispute;
(v) redeemed any of the capital stock or declared, made or paid
any dividends or distributions (whether in cash, securities or other
property) to the holders of capital stock of the Company or any Company
Subsidiary or otherwise, other than dividends, distributions and
redemptions declared, made or paid by any Company Subsidiary solely to
the Company;
(vi) made any material changes in the customary methods of
operations of the Company or any Company Subsidiary, including, without
limitation, practices and policies relating to manufacturing,
purchasing, inventories, marketing, selling and pricing;
(vii) merged with, entered into a consolidation with or acquired
an interest of 5% or more in any Person or acquired a substantial
portion of the assets or business of any Person or any division or line
of business thereof, or otherwise acquired any material assets other
than in the ordinary course of the Company Business consistent with past
practice;
(viii) made any capital expenditure or commitment for any capital
expenditure or budgeted any capital expenditure in excess of $1,000,000
individually and not specified in Section 3.12(viii) of the Company
Disclosure Schedule;
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(ix) except in the ordinary course of the Company Business
consistent with past practice, issued any sales orders or otherwise
agreed to make any purchases involving exchanges in value in excess of
$100,000 individually or $500,000 in the aggregate:
(x) sold, transferred, leased, subleased, licensed or otherwise
disposed of any properties or assets, real, personal or mixed
(including, without limitation, leasehold interests and intangible
assets) with a book value of $100,000 individually or $500,000 in the
aggregate, other than the sale or lease of inventories in the ordinary
course of the Company Business consistent with past practice;
(xi) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same,
of, or any other interest in, the Company or any Company Subsidiary;
(xii) entered into any agreement, arrangement or transaction with
any of its directors, officers, employees or shareholders (or with any
relative, beneficiary, spouse or Affiliate of such Person);
(xiii) (A) granted any increase, or announced any increase, in the
wages, salaries, compensation, bonuses, incentives, pension or other
benefits payable by the Company or any Company Subsidiary to any of its
employees, including, without limitation, any increase or change
pursuant to any Company Plan or (B) established or increased or promised
to increase any benefits under any Company Plan, in either case except
(i) as required by Law, or any agreement listed in Section 3.12(xiii) of
the Company Disclosure Schedule or (ii) for increases in wages or
salaries in the ordinary course of business and in a manner consistent
with the past practices of the Company or such Company Subsidiary;
(xiv) written down or written up the value of any Company
inventories or receivables or revalued any assets of the Company or any
Company Subsidiary other than in the ordinary course of the Company
Business consistent with past practice;
(xv) amended, terminated, cancelled or compromised any claims of
the Company or any Company Subsidiary in excess of $50,000 individually
or $100,000 in the aggregate or waived any other rights of substantial
value to the Company or any Company Subsidiary;
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(xvi) made any change in any method of accounting or accounting
practice or policy used by the Company or any Company Subsidiary, other
than such changes required by U.S. GAAP or disclosed in Section 3.12 of
the Company Disclosure Schedule:
(xvii) failed to maintain the Company Assets in accordance with
past business practice and in good operating condition and repair,
ordinary wear and tear excepted;
(xviii) allowed any Permit or Environmental Permit that was issued
or relates to the Company or any Company Subsidiary or otherwise relates
to any Asset to lapse or terminate or failed to renew any such Permit or
Environmental Permit or any insurance policy that is scheduled to
terminate or expire prior to the Effective Time which, individually or
in the aggregate, would have a Material Adverse Effect;
(xix) incurred any Indebtedness in excess of $100,000
individually or $500,000 in the aggregate;
(xx) amended, modified or consented to the termination of any
Company Material Contract or the Company's or any Company Subsidiary's
rights thereunder;
(xxi) amended or restated the Certificate of Incorporation or
the By-laws (or other organizational documents) of the Company or any
Company Subsidiary;
(xxii) terminated, discontinued, closed or disposed of any plant,
facility or other business operation, or laid off any employees (other
than layoffs of less than 50 employees in any six-month period in the
ordinary course of business consistent with past practice) or
implemented any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of
the Regulations or announced or planned any such action or program for
the future;
(xxiii) made charitable contributions in excess of an aggregate of
$15,000;
(xxiv) disclosed any secret or confidential Company Intellectual
Property (except by way of issuance of a patent) or permitted to lapse
or go abandoned any Company Intellectual Property (or any registration
or grant thereof or any application relating thereto) to which, or
under which, the Company or any Company Subsidiary has any right, title,
interest or license, which disclosure, lapse or abandonment has a
Material Adverse Effect;
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(xxv) made any express or deemed election or settled or
compromised any liability, with respect to Taxes of the Company or any
Company Subsidiary;
(xxvi) suffered any casualty loss or damage with respect to any
of the Company Assets which in the aggregate have a replacement cost of
more than $250,000, whether or not such loss or damage shall have been
covered by insurance; or
(xxvii) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 3.12 or granted any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions
specified in this Section 3.12, except as expressly contemplated by this
Agreement.
SECTION 3.13 Litigation. Except as set forth in Section 3.13 of the
Company Disclosure Schedule (which, with respect to each Action disclosed
therein, sets forth: the parties, nature of the proceeding, date and method
commenced, amount of damages or other relief sought and, if applicable, paid or
granted), there are no Actions by or against Astra, the Company or any Company
Subsidiary, or affecting any of the Company Assets, pending or, to the
knowledge of the Company, threatened and which, if adversely determined, would
have a Material Adverse Effect. None of the matters disclosed in Section 3.13
of the Company Disclosure Schedule has or has had a Material Adverse Effect or
could reasonably be expected to affect the legality, validity or enforceability
of this Agreement or the consummation of the transactions contemplated hereby
or thereby. Except as set forth in Section 3.13 of the Company Disclosure
Schedule, none of the Company, the Company Subsidiaries nor any of the Company
Assets is subject to any Governmental Order (nor, to the knowledge of the
Company, are there any such Governmental Orders threatened to be imposed by any
Governmental Authority) which has or has had a Material Adverse Effect
SECTION 3.14 Certain Interests. (a) To the best knowledge of the
Company, after due inquiry of the officers and directors of Astra, the Company
and the Company Subsidiaries, except as disclosed in Section 3.14(a) of the
Company Disclosure Schedule, no officer or director of Astra, the Company or
any Company Subsidiary and no relative or spouse (or relative of such spouse)
who resides with, or is a dependent of, any such officer or director:
(i) has any direct or indirect financial interest in any
competitor, supplier or customer of the Company or any Company
Subsidiary, provided, however, that the ownership of securities
representing not more than five percent of the outstanding voting power
of any competitor, supplier or customer, shall not be deemed to be a
"financial interest" so long as the Person owning such securities has no
other
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connection or relationship with such competitor, supplier or customer:
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest in any tangible or intangible property which the
Company or any Company Subsidiary uses or has used in the conduct of the
Company Business or otherwise; or
(iii) has outstanding any Indebtedness to the Company or any
Company Subsidiary.
(b) To the best knowledge of the Company, after due inquiry of
the officers and directors of the Company and the Company Subsidiaries, except
as disclosed in Section 3.14(b) of the Company Disclosure Schedule, neither the
Company nor any Company Subsidiary has any Liability or any other obligation of
any nature whatsoever to any officer, director or shareholder of the Company or
any Company Subsidiary or to any relative or spouse (or relative of such
spouse) who resides with, or is a dependent of, any such officer, director or
shareholder.
SECTION 3.15 Compliance with Laws. Except as set forth in Section 3.15
of the Company Disclosure Schedule, the Company and the Company Subsidiaries
have each conducted and continue to conduct the Company Business in accordance
with all Laws and Governmental Orders applicable to the Company or any Company
Subsidiary or any of the Company Assets or the Company Business, except to the
extent the failure to do so, either individually or in the aggregate, would not
have a Material Adverse Effect, and neither the Company nor any Company
Subsidiary is in material violation of any such Law or Governmental Order.
SECTION 3.16 Environmental and Other Permits and Licenses; Related
Matters. Each of the representations and warranties set forth in this Section
3.16 is true and correct with respect to the Company and the Company
Subsidiaries and to all Company Owned Real Property and Company Leased Real
Property owned or leased by the Company or any Company Subsidiary currently or
since January 1, 1992: (i) Except as disclosed in Section 3.16(a)(i) of the
Company Disclosure Schedule, the Company and the Company Subsidiaries currently
hold all material health and safety and other permits, licenses,
authorizations, certificates, exemptions and approvals of Governmental
Authorities (collectively, "Permits"), including, without limitation,
Environmental Permits, required for the current use, occupancy and operation of
each Company Asset and the conduct of the Company Business, and all such
Permits are in full force and effect. Except as disclosed in Section
3.16(a)(ii) of the Company Disclosure Schedule, to the best knowledge of the
Company, there is no existing practice, action or activity of the Company or
any Company Subsidiary and no existing condition of the Company Assets or the
Company Business which will between now and the Effective
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Time give rise to any civil or criminal Liability under, or violate or prevent
compliance with, any health or occupational safety or other applicable Law and
which, individually or in the aggregate, would have a Material Adverse Effect.
Except as set forth in Section 3.16(a)(iii) of the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary has received any notice from any
Governmental Authority revoking, cancelling, rescinding, materially modifying
or refusing to renew any Permit, which action, individually or in the
aggregate, would have a Material Adverse Effect or providing written notice of
violations under any Law. Except as disclosed in Section 3.16(a)(iv) of the
Company Disclosure Schedule, the Company and each Company Subsidiary is in all
respects in compliance with the Permits and the requirements of the Permits the
failure to comply with which, individually or in the aggregate, would have a
Material Adverse Effect. Section 3.16(a)(v) of the Company Disclosure Schedule
identifies all material Permits which will require the consent of any
Governmental Authority in the event of the consummation of the transactions
contemplated by this Agreement.
(a) Except as disclosed in Section 3.16(b) of the Company
Disclosure Schedule, (i) Hazardous Materials have not been treated, stored in
excess of 90 days except in compliance with Environmental Laws (or except in
quantities used in the ordinary course of operations of the Company Business)
on, or Released by the Company or the Company Subsidiaries or, to the knowledge
of the Company or the Company Subsidiaries, by any third party on, any Company
Real Property which gives rise to liability which would, individually or in the
aggregate, have a Material Adverse Effect; (ii) all wastes, including those
wastes containing Hazardous Materials, generated by the Company and the Company
Subsidiaries have been disposed of in substantial compliance with all
applicable Environmental Laws and Environmental Permits; (iii) there are no
past (since January 1, 1992), pending or, to the best knowledge of the Company,
threatened Environmental Claims against the Company, any Company Subsidiary, or
any Company Real Property; (iv) no Company Real Property is listed or to the
best knowledge of the Company proposed for listing on the National Priorities
List under CERCLA or on the CERCLIS or any analogous state list of sites which
require investigation or cleanup; and (v) to the best knowledge of the Company,
neither the Company nor any Company Subsidiary has transported or arranged for
the transportation of any Hazardous Materials to any location that is listed
or, to the best knowledge of the Company, proposed for listing on the National
Priorities List under CERCLA or on the CERCLIS or any analogous state list
which will require investigation or cleanup or which is the subject of any
Environmental Claim.
(b) Except as disclosed in Section 3.16(c) of the Company
Disclosure Schedule, there are not now and, to the best knowledge of the
Company, never have been any USTs located on any Company Real Property.
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SECTION 3.17 Company Material Contracts. (a) The Company has, or has
caused to be made available to Parent for review and duplication, correct and
complete copies (or in the case of oral contracts, summaries thereof) of all of
the following contracts and agreements (including, without limitation, oral and
informal arrangements) of the Company and the Company Subsidiaries (such
contracts and agreements, together with all material contracts, agreements,
leases and subleases concerning the management or operation of any Company Real
Property (including, without limitation, brokerage contracts) to which the
Company or any Company Subsidiary is a party and all material agreements
relating to Company Intellectual Property, being "Company Material Contracts"):
(i) each contract and agreement for the purchase of inventory,
spare parts, other materials or personal property with any supplier or
for the furnishing of services to the Company, any Company Subsidiary or
otherwise related to the Company Business under the terms of which the
Company or any Company Subsidiary: (A) is likely to pay or otherwise
give consideration of more than $250,000 in the aggregate during the
calendar year ended December 31, 1995, (B) is likely to pay or otherwise
give consideration of more than $500,000 in the aggregate over the
remaining term of such contract or (C) cannot be cancelled by the
Company or such Company Subsidiary without penalty or further payment
and without more than 30 days' notice;
(ii) each contract and agreement for the sale or lease of
inventory or other personal property or for the furnishing of services
by the Company or any Company Subsidiary which: (A) is likely to involve
consideration of more than $250,000 in the aggregate during the calendar
year ended December 31, 1995, (B) is likely to involve consideration of
more than $500,000 in the aggregate over the remaining term of the
contract or (C) cannot be cancelled by the Company or such Company
Subsidiary without penalty or further payment and without more than 30
days' notice;
(iii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contracts and agreements to which
the Company or any Company Subsidiary is a party;
(iv) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) involving exclusive
rights or requiring payments in excess of $100,000 individually to which
the Company or any Company Subsidiary is a party and which are not
cancelable without penalty or further payment and without more than 30
days' notice;
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<PAGE> 28
(v) all contracts and agreements relating to Indebtedness of
the Company or any Company Subsidiary in excess of $100,000 individually
or $500,000 in the aggregate;
(vi) all contracts and agreements with any Governmental
Authority to which the Company or any Company Subsidiary is a party;
(vii) all contracts and agreements that limit or purport to
limit the ability of the Company or any Company Subsidiary to compete in
any line of business or with any Person or in and geographic area or
during any period of time:
(viii) all contracts and agreements between or among the Company
or any Company Subsidiary on the one hand and the Company or any
Affiliate of the Company on the other hand:
(ix) all contracts and agreements providing for benefits under
any Company Plan;
(x) all contracts for the lease of gas compressors; and
(xi) all other contracts and agreements whether or not made in
the ordinary course of business, which are in excess of $250,000 or not
cancelable without penalty upon not more than 30 days notice.
For purposes of this Section 3.17 and Sections 3.18, 3.19 and 3.20, the
term "lease" shall include any and all leases, subleases, sale/leaseback
agreements or similar arrangements.
(b) Except as disclosed in Section 3.17(b) of the Company
Disclosure Schedule, each Company Material Contract: (i) is valid and binding
on the respective parties thereto and is in full force and effect and (ii) upon
consummation of the transactions contemplated by this Agreement, except to the
extent that any consents set forth in Section 3.07 of the Company Disclosure
Schedule are not obtained, shall continue in full force and effect without
penalty or other adverse consequence. Except as set forth in Section 3.17(b) of
the Company Disclosure Schedule to the best knowledge of the Company, neither
the Company nor any Company Subsidiary is in breach of, or default under, any
Company Material Contract which breach or default would have a Material Adverse
Effect.
(c) Except as disclosed in Section 3.17(c) of the Company
Disclosure Schedule, to the Company's knowledge, no other party to any Company
Material Contract is in breach thereof or default thereunder.
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(d) Except as disclosed in Section 3.17(d) of the Company
Disclosure Schedule, there is no contract, agreement or other arrangement
granting any Person any preferential right to purchase, other than in the
ordinary course of the Company Business consistent with past practice, any of
the properties or assets of the Company or any Company Subsidiary.
SECTION 3.18 Patents and Trademarks. The Company and each Company
Subsidiary owns of record, has obtained a valid license to use, possesses, or
can acquire on reasonable terms, adequate patents, trademarks, service marks
and trade names (collectively, the "Company Intellectual Property") necessary
to conduct the business now operated by it, except for any patents, trademarks,
service marks and trade names which if not owned, licensed, possessed or
acquired would not be reasonably expected to have a Material Adverse Effect,
and neither the Company nor any Company Subsidiary has received any notice of
infringement of, or conflict with, asserted rights of others with respect to
any patent, trademark, service mark or trade name which, individually or in the
aggregate, if the subject of any unfavorable decision, ruling or finding, would
be reasonably expected to have a Material Adverse Effect.
SECTION 3.19 Real Property. (a) Except as described in Section
3.19(a) or 3.16 of the Company Disclosure Schedule, to the best knowledge of
the Company, there is no material violation of any Law (including, without
limitation, any building, planning or zoning law) relating to any of the
Company Real Property. Either the Company or a Company Subsidiary, as the case
may be, is in peaceful and undisturbed possession of each parcel of Company
Real Property and there are no contractual or legal restrictions that preclude
or restrict the ability to use the premises in the manner in which they are
currently being used. To the best knowledge of the Company, there are no
material latent defects or material adverse physical conditions affecting the
Company Real Property or any of the facilities, buildings, structures,
erections, improvements, fixtures, fixed assets and personalty of a permanent
nature annexed, affixed or attached to, located on or forming part of the
Company Real Property. Except as set forth in Section 3.19(a) of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary is leasing
or subleasing any parcel or any portion of any parcel of Company Real Property
to any other Person, nor has the Company or any Company Subsidiary assigned its
interest under any lease or sublease for any Company Leased Real Property to
any third party.
(b) The Company has, or has caused to be, made available to
Parent for review and duplication true and complete copies of all leases and
subleases for any Company Leased Real Property and all amendments thereto. With
respect to each of such leases and subleases:
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(i) such lease or sublease is legal, valid, binding and in
full force and effect and represents the entire agreement between the
respective landlord and tenant with respect to such property;
(ii) except as otherwise set forth in Section 3.19(b)(ii) of
the Company Disclosure Schedule, such lease or sublease will not cease
to be legal, valid, binding and in full force and effect on terms
identical to those currently in effect as a result of the consummation
of the transactions contemplated by this Agreement, nor will the
consummation of the transactions contemplated by this Agreement
constitute a material breach or a material default under such lease or
sublease or otherwise give the landlord a right to terminate such lease
or sublease;
(iii) except as otherwise disclosed in Section 3.19(b)(iii) of
the Company Disclosure Schedule, with respect to each such lease or
sublease: (A) neither the Company nor any Company Subsidiary has
received any notice of cancellation or termination under such lease or
sublease and no lessor has any right of termination or cancellation
under such lease or sublease except upon a breach or default by the
Company or any Company Subsidiary thereunder, (B) neither the Company
nor any Company Subsidiary has received any notice of a breach or
default under such lease or sublease, which breach or default has not
been cured, and (C) neither the Company nor any Company Subsidiary has
granted to any other Person any rights, adverse or otherwise, under such
lease or sublease; and
(iv) none of the Company, any Company Subsidiary nor (to the
best knowledge of the Company) any other party to such lease or
sublease, is in breach or default in any material respect, and, to the
best knowledge of the Company, no event has occurred that, with notice
or lapse of time would constitute such a breach or default or permit
termination, modification or acceleration under such lease or sublease
which would have a Material Adverse Effect.
(c) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the best knowledge of the Company,
threatened against the Company Real Property.
(d) All Company Real Property is occupied under a valid and
current certificate of occupancy or similar permit or, to the best knowledge of
the Company, there are no facts that would prevent the Company Real Property
from being occupied by the Company or any Company Subsidiary, as the case may
be, after the Effective Time in the same manner as occupied by the Company or
such Company Subsidiary immediately prior to the Effective Time.
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(e) The rental set forth in each lease or sublease of the
Company Leased Real Property is the actual rental being paid, and there are no
separate agreements or understandings with respect to the same.
(f) To the best knowledge of Company, either the Company or a
Company Subsidiary, as the case may be, has the full right to exercise any
renewal options contained in the leases and subleases pertaining to the Company
Leased Real Property on the terms and conditions contained therein.
SECTION 3.20 Company Tangible Personal Property. (a) The Company has,
or has caused to be, made available to Parent for review and duplication true
and complete copies of all leases and subleases for Company Tangible Personal
Property having a value in excess of $250,000 and all amendments thereto. With
respect to each of such leases and subleases:
(i) such lease or sublease is legal, valid, binding and in
full force and effect and represents the entire agreement between the
respective lessor and lessee with resPect to such Property;
(ii) except as set forth in Section 3.20(a)(ii) of the Company
Disclosure Schedule, such lease or sublease will not cease to be legal,
valid, binding and in full force and effect on terms identical to those
currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the
transactions contemplated by this Agreement constitute a material breach
or a material default under such lease or sublease or otherwise give the
lessor a right to terminate such lease or sublease;
(iii) except as otherwise disclosed in Section 3.20(a)(iii) of
the Company Disclosure Schedule, with respect to each such lease or
sublease: (A) neither the Company nor any Company Subsidiary has
received any notice of cancellation or termination under such lease or
sublease and no lessor has any right of termination or cancellation
under such lease or sublease except upon a breach or default by the
Company or any Company Subsidiary thereunder, (B) neither the Company
nor any Company Subsidiary has received any notice of a breach or
default under such lease or sublease, which breach or default has not
been cured, and (C) neither the Company nor any Company Subsidiary has
granted to any other Person any rights, adverse or otherwise, under such
lease or sublease: and
(iv) none of the Company, any Company Subsidiary nor to the
best knowledge of the Company any other party to such lease or sublease,
is in breach or default in any material respect, and, to the best
knowledge of the Company, no event has occurred that, with notice or
lapse of time would
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constitute such a breach or default or permit termination, modification
or acceleration under such lease or sublease which would have a Material
Adverse Effect.
(b) Neither the Company nor any Company Subsidiary, as the
case may be, has waived the full right to exercise any renewal options
contained in the leases and subleases pertaining to the Company Tangible
Personal Property on the terms and conditions contained therein.
SECTION 3.21 Company Assets. (a) Except as disclosed in Section 3.21
of the Company Disclosure Schedule, either the Company or a Company Subsidiary,
as the case may be, owns, leases or has the legal right to use all the
properties and assets, including, without limitation, the Company Intellectual
Property, the Company Real Property and the Company Tangible Personal Property,
used in the conduct of the Company Business or otherwise owned, leased or used
by the Company or any Company Subsidiary and which are material and, with
respect to contract rights, is a party to and enjoys the right to the benefits
of all material contracts, agreements and other arrangements used by the
Company or any Company Subsidiary or in or relating to the conduct of the
Company Business (all such properties, assets and contract rights being the
"Company Assets"). Either the Company or a Company Subsidiary, as the case may
be, has good title to, or, in the case of leased or subleased Company Assets,
valid and subsisting leasehold interests in, all the Company Assets, free and
clear of all Encumbrances, except (i) as disclosed in the Company Disclosure
Schedule and (ii) Permitted Encumbrances.
(b) Except for administrative services performed by Astra and
the equipment utilized in connection therewith, the Company Assets constitute
all the properties, assets and rights forming a part of, used, held and all
such properties, assets and rights as are necessary in the conduct of, the
Company Business. At all times since the date of the Company Interim Financial
Statements, the Company has caused the Company Assets to be maintained in
accordance with past practice, and all the Company Assets material to the
Company Business are in good operating condition and repair, ordinary wear and
tear excepted, and are suitable for use in the Company Business.
(c) Following the consummation of the transactions
contemplated by this Agreement, either the Company or a Company Subsidiary, as
the case may be, will continue to own, pursuant to good title, or lease, under
valid and subsisting leases, or otherwise retain its respective interest in the
Company Assets without incurring any penalty or other adverse consequence,
including, without limitation, any increase in rentals, royalties, or licenses
or other fees imposed as a result of, or arising from, the consummation of the
transactions contemplated by this Agreement.
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SECTION 3.22 Customers. Except as disclosed in Section 3.22 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary has
received any notice, nor, to the best knowledge of the Company, is the Company
or any Company Subsidiary aware, that any significant customer of the Company
has ceased, or will cease, to use the products, equipment, goods or services of
the Company or any Company Subsidiary, or has substantially reduced, or will
substantially reduce, the use of such products, equipment, goods or services at
any time.
SECTION 3.23 Suppliers. Except as disclosed in Section 3.23 of the
Company Disclosure Schedule, neither the Company nor any Company Subsidiary has
received any notice, nor, to the best knowledge of the Company, is the Company
or any Company Subsidiary aware, that any supplier will not sell raw materials,
supplies, merchandise and other goods to the Company or any Company Subsidiary
at any time after the Effective Time on terms and conditions substantially
similar to those used in its current sales to the Company and the Company
Subsidiaries, subject only to general and customary price increases.
SECTION 3.24 Employee Benefit Matters. (a) Company Plans and Material
Documents. Section 3.24(a) of the Company Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements to which the Company or any Company Subsidiary is
a party, with respect to which the Company or any Company Subsidiary has any
obligation or which are maintained, contributed to or sponsored by the Company
or any Company Subsidiary for the benefit of any current or former employee,
officer or director of the Company or any Company Subsidiary (collectively, the
"Company Plans"). Each material Company Plan is in writing and the Company has
made available to the Parent for review and duplication a complete and accurate
copy of each Company Plan (or described any Company Plan not in writing) and a
complete and accurate copy of each material document prepared in connection
with each such Company Plan including, without limitation, (i) a copy of each
trust or other funding arrangement, (ii) each summary plan description and
summary of material modifications, (iii) the most recently filed IRS Form 5500,
(iv) the most recently received IRS determination letter for each such Company
Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Company Plan. Neither the Company nor
any Company Subsidiary has any express or implied commitment (i) to create,
incur liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement to
provide compensation or benefits to any individual or (iii) to
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modify, change or terminate any Company Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(b) Absence of Certain Types of Company Plans. Except as
disclosed in Section 3.24(b) of the Company Disclosure Schedule, (i) no Company
Plan is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3)
of ERISA) (a "Multiemployer Plan") or a single employer pension plan (within
the meaning of Section 4001(a)(15) of ERISA) for which the Company or any
Company Subsidiary could incur liability under Section 4063 or 4064 of ERISA (a
"Multiple Employer Plan"); (ii) none of the Company Plans provides for the
payment of separation, severance, termination or similar-type benefits to any
Person or obligates the Company or any Company Subsidiary to make any payment
that could be subject to a tax under Section 4999 of the Code; and (iii) none
of the Company Plans provides for or promises retiree medical, disability or
life insurance benefits to any current or former employee, officer or director
of the Company or any Company Subsidiary. Each of the Company Plans is subject
only to the Laws of the United States or a political subdivision thereof.
(c) Compliance with Applicable Law. Each Company Plan is now
and always has been operated in all material respects in accordance with
applicable Law, including, without limitation, ERISA and the Code, and in
accordance with the terms of such Company Plan. No legal action, suit or claim
is pending or, to the Company's knowledge, threatened with respect to any
Company Plan, to the extent it relates to the Company or the Company
Subsidiaries (other than claims for benefits in the ordinary course) and no
fact or event exists that could give rise to any such action, suit or claim.
(d) Qualification of Certain Company Plans. Except as
disclosed in Section 3.24(d) of the Company Disclosure Schedule, each Company
Plan which is intended to be qualified under Section 401(a) of the Code or
Section 401(k) of the Code has received a favorable determination letter from
the IRS providing that it is so qualified and each trust established in
connection with any Company Plan which is intended to be exempt from federal
income taxation under Section 501(a) of the Code has received a determination
letter from the IRS providing that it is so exempt, and no fact or event has
occurred since the date of such determination letter from the IRS that could
adversely affect the qualified status of and such Company Plan or the exempt
status of any such trust. Each trust maintained or contributed to by the
Company or any Company Subsidiary which is intended to be qualified as a
voluntary employees' beneficiary association and which is intended to be exempt
from federal income taxation under Section 501(c)(9) of the Code has received a
favorable determination letter from the IRS providing that it is so qualified
and so exempt, and no fact or
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event has occurred since the date of such determination by the IRS to adversely
affect such qualified or exempt status.
(e) Absence of Certain Liabilities and Events. Neither the
Company nor any Company Subsidiary has participated in any prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code) with respect to any Company Plan. Except as set forth on Section 3.24(e)
of the Company Disclosure Schedule, neither the Company nor any Company
Subsidiary has incurred any liability for any penalty or tax arising under
Section 4971, 4972, 4975, 4976, 4979, 4980, 4980B or 6652 of the Code or any
liability under Section 502 of ERISA, and no fact or event exists which could
give rise to any such liability. Neither the Company nor any Company Subsidiary
has incurred any liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums to the Pension Benefit Guaranty
Corporation arising in the ordinary course), including, without limitation, any
liability in connection with (i) the termination or reorganization of any
employee benefit plan subject to Title IV of ERISA or (ii) the withdrawal from
any Multiemployer Plan or Multiple Employer Plan, and no fact or event exists
which could give rise to any such liability. No reportable event (within the
meaning of Section 4043 of ERISA) has occurred or is expected to occur, except
for a reportable event under Section 4043(c)(9) which occurs as a result of the
transactions contemplated by this Agreement, with respect to any Company Plan
or Controlled Group Plan subject to Title IV of ERISA. No Company Plan had an
accumulated funding deficiency (within the meaning of Section 302 of ERISA or
Section 412 of the Code), whether or not waived, as of the most recently ended
plan year of such Company Plan. None of the assets of the Company or any
Company Subsidiary is the subject of any lien arising under Section 302(f) of
ERISA or Section 412(n) of the Code; neither the Company nor any Company
Subsidiary has been required to post any security under Section 307 of ERISA or
Section 401(a)(29) of the Code; and no fact or event exists which could give
rise to any such lien or requirement to post any such security.
(f) Company Plan Contributions and Funding. All contributions,
premiums or payments required to be made with respect to any Company Plan have
been made on or before their due dates. Except as disclosed in Section 3.24(f)
of the Company Disclosure Schedule, as of the Effective Time, no Company Plan
which is subject to Title IV of ERISA will have an "unfunded benefit liability"
(within the meaning of Section 4001(a)(18) of ERISA).
SECTION 3.25 Labor Matters. Except as set forth in Section 3.25 of the
Company Disclosure Schedule, (a) neither the Company nor any Company Subsidiary
is a party to any collective bargaining agreement or other labor union contract
applicable to Persons employed by the Company or any Company Subsidiary and, to
the best
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knowledge of the Company, currently there are no organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining representative for Persons employed by the Company or any Company
Subsidiary or which could affect the Company or any Company Subsidiary; (b)
there are no controversies, strikes, slowdowns or work stoppages pending or, to
the best knowledge of the Company threatened between the Company or any Company
Subsidiary and any of their respective employees, and neither the Company nor
any Company Subsidiary has experienced any such controversy, strike, slowdown
or work stoppage within the past three years; (c) neither the Company nor any
Company Subsidiary has breached or otherwise failed to comply in all material
respects with the provisions of any collective bargaining agreement or union
contract and there are no grievances outstanding against the Company or any
Company Subsidiary under any such agreement or contract which could have a
Material Adverse Effect; (d) there are no unfair labor practice charges or
complaints pending against the Company or any Company Subsidiary before the
National Labor Relations Board or any other Governmental Authority or any
current union representation questions involving employees of the Company or
any Company Subsidiary which could have a Material Adverse Effect; (e) the
Company and each Company Subsidiary is currently in compliance in all material
respects with all applicable Laws relating to the employment of labor,
including, without limitation, those related to wages, hours, working
conditions, collective bargaining and the payment and withholding of taxes and
other sums as required by the appropriate Governmental Authority and has
withheld and paid to the appropriate Governmental Authority or in holding for
payment not yet due to such Governmental Authority all material amounts
required to be withheld from employees of the Company or any Company Subsidiary
and is not liable for any material arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing; (f) the Company and each
Company Subsidiary has paid in full to all their respective employees or
adequately accrued for in accordance with past practice all wages, salaries,
commissions, bonuses, benefits and other compensation due to or on behalf of
such employees; (g) there is no claim with respect to payment of wages, salary,
commissions, bonuses, overtime pay or other compensation that has been asserted
or is now pending or, to the knowledge of the Company, threatened before any
Governmental Authority with respect to any Persons currently or formerly
employed by the Company or any Company Subsidiary; (h) neither the Company nor
any Company Subsidiary is a party to, or otherwise bound by, any consent decree
or conciliation agreement with, or citation by, any Governmental Authority
relating to employees or employment practices; (i) there is no charge,
investigation or other proceeding with respect to a material violation of any
occupational safety or health standards that has been asserted or is now
pending or, to the knowledge of the Company, threatened with respect to the
Company or any Company Subsidiary; (j) there is no charge of discrimination in
employment or employment practices, for any reason, including, without
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limitation, age, gender, race, religion, disability or other legally protected
category, which has been asserted or is now pending or, to the knowledge of the
Company, threatened before the United States Equal Employment Opportunity
Commission, or any other Governmental Authority in any jurisdiction in which
the Company or any Company Subsidiary has employed or currently employs any
Person; and (k) the Company and each Company Subsidiary is in compliance in all
material respects with the requirements of the Workers Adjustment and
Retraining Notification Act ("WARN") and has no liabilities pursuant to WARN.
SECTION 3.26 Key Employees. Section 3.26 of the Company Disclosure
Schedule lists the name, place of employment, the current annual salary rates,
bonuses, deferred or contingent compensation, pension, accrued vacation,
"golden parachute" and other like benefits paid or payable (in cash or
otherwise) in 1993 and 1994, a description of position and job function of each
current salaried employee, officer, director, consultant or agent of the
Company or any Company Subsidiary whose annual compensation exceeded (or, in
1995, is expected to exceed) $100,000. Except as set forth in Section 3.26 of
the Company Disclosure Schedule, there are no employment contracts or
agreements between the Company or any Company Subsidiary and any Person.
SECTION 3.27 Taxes. (a) (i) Except as set forth in Section 3.27 of
the Company Disclosure Schedule, all returns and reports in respect of Taxes
required to be filed with respect to the Company and each Company Subsidiary
have been timely filed; (ii) except as set forth in Section 3.27 of the Company
Disclosure Schedule, all Taxes required to be shown on such returns and reports
or otherwise due have been timely paid; (iii) except as set forth in Section
3.27 of the Company Disclosure Schedule, all such returns and reports are true,
correct and complete in all material respects; (iv) no adjustment relating to
such returns with respect to the Company has been proposed formally by any Tax
authority; (v) there are no pending or, to the best knowledge of the Company
and the Company Subsidiaries, threatened actions or proceedings for the
assessment or collection of Taxes against the Company or any Company
Subsidiary; (vi) no consent under Section 341(f) of the Code has been filed
with respect to the Company or any Company Subsidiary; (vii) there are no Tax
liens on any assets of the Company or any Company Subsidiary; (viii) except as
disclosed in Section 3.27 of the Company Disclosure Schedule, no acceleration
of the vesting schedule for any property that is substantially invested within
the meaning of the regulations under Section 83 of the Code will occur in
connection with the transactions contemplated by this Agreement; (ix) except as
disclosed in Section 3.27 of the Company Disclosure Schedule, neither the
Company nor any Company Subsidiary has been a member of the affiliated group
(within the meaning of Section 1504(a)(1) of the Code) for any taxable period
for which the statute of limitations has not expired; (x) except as would not
have a Material Adverse Effect,
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neither the Company nor any Company Subsidiary has been at any time a member of
any partnership or joint venture or the holder of a beneficial interest in any
trust for any period for which the statute of limitations for any Tax has not
expired; (ix) the Company and the Company Subsidiaries have made all payments
of estimated Taxes required to be made under Section 6655 of the Code and any
comparable provision provided for under the laws of any nation, state or
locality; (x) all Taxes required to be withheld, collected or deposited by or
with respect to the Company or any Company Subsidiary have been timely
withheld, collected or deposited, as the case may be, and, to the extent
required, have been paid to the relevant taxing authority; (xi) except as set
forth in Section 3.27 of the Company Disclosure Schedule as of the date hereof,
neither the Company nor any Company Subsidiary has a tax attribute that is
subject to a "section 382 limitation" within the meaning of Section 382(b) of
the Code; (xii) to the best knowledge of the Company (without having made any
inquiry), the Company and its Company Subsidiaries do not, either individually
or in the aggregate, have a net unrealized built-in loss within the meaning of
Section 382(h) of the Code and section 1.1502-91(g) of the proposed
Regulations; and (xiii) neither the Company nor any Company Subsidiary is
subject to any accumulated earnings tax penalty or personal holding company
tax.
(b) Except as disclosed in Section 3.27 of the Company
Disclosure Schedule: (i) there are no outstanding waivers or agreements
extending the statute of limitations for any period with respect to any Tax to
which the Company or any Company Subsidiary may be subject; and (ii) except as
set forth in Section 3.27 of the Company Disclosure Schedule, no power of
attorney that is currently in force has been granted with respect to any matter
relating to Taxes that could affect the Company or a Company Subsidiary.
SECTION 3.28 Insurance. (a) Section 3.28(c) of the Company Disclosure
Schedule lists, insurance policies or binders of insurance (including, without
limitation, general liability insurance, property insurance and workers'
compensation insurance) issued in favor of the Company or a Company Subsidiary
since December 31, 1992.
(b) Information relating to the loss experience of the Company
and each Company Subsidiary with respect to self-insured risks has been made
available to Parent for review.
(c) Since January 1, 1994, no insurance carrier has cancelled,
failed to renew or materially reduced any insurance coverage for the Company or
any Company Subsidiary or given any notice or other indication of its intention
to cancel, not renew or reduce any such coverage.
SECTION 3.29 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of the Company
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Common Stock, voting together as one class, is the only vote of the holders of
any class or series of capital stock of the Company necessary to approve the
Merger, which affirmative vote has been obtained, subject to the satisfaction
in full of the terms and conditions hereof.
SECTION 3.30 Full Disclosure. No representation or warranty of the
Company or Astra in this Agreement, nor any written statement or certificate
furnished or to be furnished to Parent or Sub pursuant to this Agreement, or in
connection with the transactions contemplated by this Agreement, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not misleading.
SECTION 3.31 Brokers. Except for Dillon, Read & Co. Inc., the fees and
expenses of which shall be paid by Astra, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or the Company Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
As an inducement to the Company and Astra to enter into this Agreement,
Parent and Subsidiary hereby jointly and severally represent and warrant to the
Company as follows:
SECTION 4.1 Authority of Parent and Sub. Each of Parent and Sub has
all necessary corporate power and authority to enter into this Agreement, to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by each of
Parent and Sub, the performance by each of Parent and Sub of its obligations
hereunder and the consummation by Parent of the transactions contemplated
hereby have been duly authorized by all requisite corporate action on the part
of each of Parent and Sub (other than, with respect to the Merger, the filing
and recordation of appropriate merger documents as required by Texas Law). This
Agreement has been duly executed and delivered by each of Parent and Sub, and
(assuming due authorization, execution and delivery by the other parties hereto
of this Agreement, this Agreement constitutes, a legal, valid and binding
obligation of each of Parent and Sub enforceable against each of Parent and Sub
in accordance with its terms, except as such enforcement may be subject to (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (b) general
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principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
SECTION 4.2 Organization and Qualification of Parent and Sub. Each of
Parent and Sub is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has all necessary power
and authority to own, operate or lease the properties and assets now owned,
operated or leased by it and to carry on its business as currently conducted.
Each of Parent and Sub is duly licensed or qualified to do business and is in
good standing in each jurisdiction in which the properties owned or leased by
it or the operation of its business makes such licensing or qualification
necessary, except where the failure to be so licensed, qualified or in good
standing does not have a Material Adverse Effect. All material corporate
actions taken by Parent and Sub have been duly authorized, and neither Parent
nor Sub has taken any action that in any respect conflicts with, constitutes a
default under or results in a violation of any provision of its Certificate of
Incorporation or By-laws. True and correct copies of the Certificate of
Incorporation and By-laws of each of Parent and Sub, each as in effect on the
date hereof, have been delivered or made available by Parent to the Company.
SECTION 4.3 Capital Stock of Parent. (a) The authorized capital stock
of Parent consists of 500,000 shares of Parent Common Stock, and 200,000 shares
of preferred stock, of which 50,000 shares are designated as 6.5% Cumulative
Redeemable Series A Preferred Stock (the "Series A Preferred Stock") and 15,000
shares are designated as 6.5% Cumulative Redeemable Convertible Series B
Preferred Stock (the "Series B Preferred Stock"). As of the date hereof, (i)
97,365.64 shares of Parent Common Stock are issued and outstanding (exclusive
of 198.40 treasury shares), all of which are validly issued, fully paid and
nonassessable, (ii) 21,602 shares of Series A Preferred Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable,
(iii) 10,000 shares of Series B Preferred Stock are issued and outstanding, all
of which are validly issued, fully paid and nonassessable, and (iv) 22,886.57
shares of Parent Common Stock are reserved for issuance pursuant to options,
warrants and conversion of the Series B Preferred Stock. None of the issued and
outstanding shares of Parent Common Stock was issued in violation of any
preemptive rights. Except as set forth in Section 4.03(a)(i) of Parent
Disclosure Schedule, there are no options, warrants, convertible securities or
other rights, agreements, arrangements or commitments of any character relating
to the capital stock of Parent or obligating Parent to issue or sell any shares
of capital stock of, or any other interest in, Parent. All shares of Parent
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Except
as set forth in Section 4.03(a)(ii) of the Parent Disclosure Schedule, there
are no outstanding contractual
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obligations of Parent to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in any other Person.
(b) The stock register of Parent accurately records: (i) the
name and last known address of each Person who is a record owner of shares of
capital stock of Parent and (ii) the certificate number of each certificate
evidencing shares of capital stock issued by Parent, the number of shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation.
SECTION 4.4 Hanover Subsidiaries. (a) Other than the Hanover
Subsidiaries, there are no other corporations, partnerships, joint ventures,
associations or other entities in which Parent owns, of record or beneficially,
any direct or indirect equity or other interest or any right (contingent or
otherwise) to acquire the same. Other than the Hanover Subsidiaries, Parent is
not a member of (nor is any part of the Parent Business conducted through) any
Partnership. Except as set forth in Section 4.04(a) of the Parent Disclosure
Schedule, Parent is not a participant in any joint venture or similar
arrangement.
(b) Each Hanover Subsidiary (i) is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation, (ii) has all necessary corporate power and authority to own,
operate or lease the properties and assets owned, operated or leased by such
Hanover Subsidiary and to carry on its business as currently conducted by such
Hanover Subsidiary and (iii) is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which the properties owned or
leased by it or the operation of its business makes such licensing or
qualification necessary, except for such failures which, when taken together
with all other such failures, would not have a Material Adverse Effect.
(c) All the outstanding shares of capital stock of each
Hanover Subsidiary which are owned, directly or indirectly, by Parent are
validly issued, fully paid, nonassessable and free of preemptive rights and are
owned by Parent, whether directly or indirectly, free and clear of all
Encumbrances, except as set forth in Section 4.04(c) of Parent Disclosure
Schedule.
(d) Other than those shares of Hanover Subsidiary capital
stock owned, directly or indirectly, by Parent, there are no shares of capital
stock of any Hanover Subsidiary issued or outstanding. Except as set forth in
Section 4.04(d) of Parent Disclosure Schedule, there are no options, warrants,
convertible securities, or other rights, agreements, arrangements or
commitments of any character relating to the capital stock of any Hanover
Subsidiary or obligating Parent or any Hanover Subsidiary
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to issue or sell any shares of capital stock of, or any other interest in, any
Hanover Subsidiary.
(e) All material corporate actions taken by each wholly owned
Hanover Subsidiary have been duly authorized and no Hanover Subsidiary has
taken any action that in any respect conflicts with, constitutes a default
under or results in a violation of any provision of its charter or by-laws (or
similar organizational documents). True and complete copies of the charter and
by-laws (or similar organizational documents), in each case as in effect on the
date hereof, of each Hanover Subsidiary have been delivered or made available
by Parent to the Company.
(f) Except as set forth in Section 4.04(f) of the Parent
Disclosure Schedule, no Hanover Subsidiary is a member of (nor is any part of
its business conducted through) any partnership nor is any Hanover Subsidiary a
participant in any joint venture or similar arrangement.
(g) Except as set forth in Section 4.04(g) of the Parent
Disclosure Schedule, are no voting trusts, stockholder agreements, proxies or
other agreements or understandings in effect with respect to the voting or
transfer of any shares of capital stock of or any other interests in any
Hanover Subsidiary.
(h) The stock register of each Hanover Subsidiary accurately
records: (i) the name and address of each Person owning shares of capital stock
of such Hanover Subsidiary and (ii) the certificate number of each certificate
evidencing shares of capital stock issued by such Hanover Subsidiary, the
number of shares evidenced by each such certificate, the date of issuance
thereof and, in the case of cancellation, the date of cancellation.
SECTION 4.5 Corporate Books and Records. The minute books of Parent
and the Hanover Subsidiaries properly reflect all material actions of the
stockholders and the boards of directors of Parent and the Hanover
Subsidiaries. Complete and accurate copies of all minute books and of the stock
register of Parent and each Hanover Subsidiary have been provided or made
available by Parent to the Company. The foregoing notwithstanding, copies of
the minute books of Parent and the Hanover Subsidiaries made available by
Parent to the Company prior to the Effective Time do not contain records of
proceedings relating to the consideration of the transactions contemplated by
this Agreement or the alternatives thereto considered by the boards of
directors (or committees thereof) of Parent and the Hanover Subsidiaries in the
discharge of their fiduciary duties.
SECTION 4.6 No Conflict. Assuming that all consents, approvals,
authorizations and other actions described in this Section 4.06 have been
obtained and all filings and notifications listed in Section 4.07 of Parent
Disclosure Schedule have been
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made, the execution, delivery and performance of this Agreement by each of
Parent and Sub do not and will not (a) violate, conflict with or result in the
breach of any provision of the charter or by-laws (or similar organizational
documents) of Parent or any Hanover Subsidiary, (b) conflict with or violate
any Law or Governmental Order applicable to Parent, any Hanover Subsidiary or
any of their respective assets, properties or businesses, including, without
limitation, the business of the Hanover Entities, which conflict or violation
would, individually or in the aggregate, have a Material Adverse Effect or have
a material adverse effect on the transactions contemplated hereby or (c) except
as set forth in Section 4.06(c) of Parent Disclosure Schedule, conflict with,
result in any breach of, constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, require any
consent under, or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in the
creation of any Encumbrance on any of the assets or properties of Parent or any
Hanover Subsidiary pursuant to, any note, bond, mortgage or indenture,
contract, agreement, lease, sublease, license, permit, franchise or other
instrument or arrangement to which Parent or any Hanover Subsidiary is a party
or by which any of such assets or properties is bound or affected which
conflict or violation would, individually or in the aggregate, have a Material
Adverse Effect or have a material adverse effect on the transactions
contemplated hereby.
SECTION 4.7 Governmental Consents and Approvals. The execution,
delivery and performance of this Agreement by each of Parent and Sub do not and
will not require any consent, approval, authorization or other order of, action
by, filing with or notification to any Governmental Authority, except (a) as
described in Section 4.07 of Parent Disclosure Schedule and (b) the
notification requirements of the HSR Act.
SECTION 4.8 Financial Information, Books and Records, and Operating
Data. (a) True and complete copies of (i) the audited consolidated balance
sheet of Parent for each of the two fiscal years ended as of December 31, 1993
and December 31, 1994, and the related audited consolidated statements of
income, retained earnings, stockholders' equity and cash flows of Parent,
together with all related notes and schedules thereto, accompanied by the
reports thereon of Parent's Accountants (collectively referred to herein as the
"Parent Financial Statement") and (ii) the unaudited consolidated balance sheet
of Parent as of August 31, 1995, and the related consolidated statements of
income, retained earnings stockholders' equity and cash flows of Parent,
together with all related notes and schedules thereto (collectively referred to
herein as the "Parent Interim Financial Statements") have been delivered by
Parent to the company. Except as disclosed in Section 4.08 of the Parent
Disclosure Schedule, the Parent Financial Statements and the Parent Interim
Financial Statements (i) were
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prepared in accordance with the books of account and other financial records of
Parent, (ii) present fairly the consolidated financial condition and results of
operations of Parent and the Hanover Subsidiaries as of the dates thereof or
for the periods covered thereby, and (iii) have been prepared in accordance
with U.S. GAAP applied on a basis consistent with the past practices of Parent,
and (iv) include all material adjustments that are necessary for a fair
presentation of the consolidated financial condition of Parent and the Hanover
Subsidiaries and the results of the operations of Parent and the Hanover
Subsidiaries as of the dates thereof or for the periods covered thereby,
subject, in the case of the Parent Interim Financial Statements, to normal year
end adjustment B .
(b) The books of account and other financial records of Parent
and the Hanover Subsidiaries: (i) reflect all material items of income and
expense and all material assets and Liabilities required to be reflected
therein on a basis consistent with the past practices of Parent and the Hanover
Subsidiaries, respectively, and (ii) are in all material respects complete and
correct, and do not contain or reflect any material inaccuracies or
discrepancies subject to non-material normal year end adjustments.
SECTION 4.9 No Undisclosed Liabilities. There are no Liabilities of
Parent or any Hanover Subsidiary, other than Liabilities (i) reflected or
reserved against on the balance sheet included in the Parent Interim Financial
Statements, (ii) disclosed in Section 4.09 of Parent Disclosure Schedule and
(iii) incurred since the date of the Parent Interim Financial Statements in the
ordinary course of the Parent Business, consistent with the past practice of
Parent and the Hanover Subsidiaries, which do not individually or the aggregate
have a Material Adverse Effect. Reserves are reflected on the balance sheet
included in the Parent Interim Financial Statements in amounts that have been
established on a basis consistent with the past practices of Parent and the
Hanover Subsidiaries.
SECTION 4.10 Receivables. Except to the extent, if any, reserved for on
the balance sheet included in the Interim Financial Statements and except as
set forth in Section 4.10 of Parent Disclosure Schedule, all Parent Receivables
reflected on the balance sheet included in the Interim Financial Statements
arose from, and the Receivables existing as of the Effective Time will have
arisen from, the sale of inventory or services to Persons not affiliated with
Parent or any Hanover Subsidiary and in the ordinary course of the Parent
Business consistent with past practice and, except as reserved against on the
balance sheet included in the Interim Financial Statements, constitute or will
constitute, as the case may be, and, to the best knowledge of Parent, are only
valid, undisputed claims of Parent or a Hanover Subsidiary, and, to the best
knowledge of Parent, are not subject to valid claims of set-off or other
defenses or counterclaims other
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than normal cash discounts accrued in the ordinary course of the Parent
Business consistent with past practice.
SECTION 4.11 Bookings Reports. The bookings reports that appear in
Section 4.11 of the Parent Disclosure Schedule are the most recent regularly
prepared bookings reports prepared by Parent and reflect customer orders for
compression services to be rendered by Parent and the Hanover Subsidiaries.
SECTION 4.12 Conduct in the Ordinary Course; Absence of Certain
Changes, Events and Conditions. Since the date of the Parent Interim Financial
Statements, except as disclosed in Section 4.12 of the Parent Disclosure
Schedule, the Parent Business has been conducted in the ordinary course and
consistent with past practice. As amplification and not limitation of the
foregoing, except as disclosed in Section 4.12 of the Parent Disclosure
Schedule, since the date of Parent Interim Financial Statements, neither Parent
nor any Hanover Subsidiary has:
(i) permitted or allowed any of the assets or properties
(whether tangible or intangible) of Parent or any Hanover Subsidiary to
be subjected to any Encumbrance, other than Permitted Encumbrances and
Encumbrances that will be released at or prior to the Effective Time;
(ii) except in the ordinary course of the Parent Business
consistent with past practice, discharged or otherwise obtained the
release of any Encumbrance or paid or otherwise discharged any
Liability, other than current liabilities reflected on the balance sheet
included in Parent Interim Financial Statements and current liabilities
incurred in the ordinary course of the Parent Business consistent with
past practice since the date of Parent Interim Financial Statements;
(iii) made any loan to, guaranteed any Indebtedness of or
otherwise incurred any Indebtedness on behalf of any Person;
(iv) failed to pay any creditor any amount in excess of
$100,000 in the aggregate owed to such creditor except to the extent any
such amount is the subject of a bona fide dispute;
(v) redeemed any of the capital stock or declared, made or
paid any dividends or distributions (whether in cash, securities or
other property) to the holders of capital stock of Parent or any Hanover
Subsidiary or otherwise, other than dividends, distributions and
redemptions declared, made or paid by any Hanover Subsidiary solely to
Parent;
(vi) made any material changes in the customary methods of
operations of Parent or any Hanover Subsidiary, including,
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without limitation, practices and policies relating to manufacturing,
purchasing, inventories, marketing, selling and pricing;
(vii) merged with, entered into a consolidation with or acquired
an interest of 5% or more in any Person or acquired a substantial
portion of the assets or business of any Person or any division or line
of business thereof, or otherwise acquired any material assets other
than in the ordinary course of the Parent Business consistent with past
practice;
(viii) made any capital expenditure or commitment for any capital
expenditure or budgeted any capital expenditure in excess of $1,000,000
individually and not specified in Section 4.12(viii) of the Parent
Disclosure Schedule;
(ix) except in the ordinary course of the Parent Business
consistent with past practice, issued any sales orders or otherwise
agreed to make any purchases involving exchanges in value in excess of
$100,000 individually or $500,000 in the aggregate;
(x) sold, transferred, leased, subleased, licensed or
otherwise disposed of any properties or assets, real, personal or mixed
(including, without limitation, leasehold interests and intangible
assets) with a book value of $100,000 individually or $500,000 in the
aggregate, other than the sale or lease of inventories in the ordinary
course of the Parent Business consistent with past practice;
(xi) issued or sold any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same,
of, or any other interest in, Parent or any Hanover Subsidiary;
(xii) entered into any agreement, arrangement or transaction
with any of its directors, officers, employees or shareholders (or with
any relative, beneficiary, spouse or Affiliate of such Person);
(xiii) (A) granted any increase, or announced any increase, in
the wages, salaries, compensation, bonuses, incentives, pension or other
benefits payable by Parent or any Hanover Subsidiary to any of its
employees, including, without limitation, any increase or change
pursuant to any Plan or (B) established or increased or promised to
increase any benefits under any Plan, in either case except (i) as
required by Law, or any agreement listed in Section 4.12(xiii) of Parent
Disclosure Schedule or (ii) for increases in wages or salaries in the
ordinary course of business and in a manner consistent with the past
practices of Parent or such Hanover Subsidiary;
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(xiv) written down or written up (or failed to write down or
write up in accordance with U.S. GAAP consistent with past practice) the
value of any Parent inventories or receivables or revalued any assets of
Parent or any Hanover Subsidiary other than in the ordinary course of
the Parent Business consistent with past practice and in accordance with
U.S. GAAP;
(xv) amended, terminated, cancelled or compromised any claims
of Parent or any Hanover Subsidiary in excess of $50,000 individually or
$100,000 in the aggregate or waived any other rights of substantial
value to Parent or any Hanover Subsidiary;
(xvi) made any change in any method of accounting or accounting
practice or policy used by Parent or any Hanover Subsidiary, other than
such changes required by U.S. GAAP or disclosed in Section 4.12 of the
Parent Disclosure Schedule:
(xvii) failed to maintain the Parent Assets in accordance with
past business practice and in good operating condition and repair,
ordinary wear and tear excepted;
(xviii) allowed any Permit or Environmental Permit that was
issued or relates to Parent or any Hanover Subsidiary or otherwise
relates to any Asset to lapse or terminate or failed to renew any such
Permit or Environmental Permit or any insurance policy that is scheduled
to terminate or expire prior to the Effective Time which, individually
or in the aggregate, would have a Material Adverse Effect;
(xix) incurred any Indebtedness in excess of $100,000
individually or $500,000 in the aggregate;
(xx) amended, modified or consented to the termination of any
Parent Material Contract or Parent's or any Hanover Subsidiary's rights
thereunder;
(xxi) amended or restated the Certificate of Incorporation or
the By-laws (or other organizational documents) of Parent or any Hanover
Subsidiary;
(xxii) terminated, discontinued, closed or disposed of any plant,
facility or other business operation, or laid off any employees (other
than layoffs of less than 50 employees in any six-month period in the
ordinary course of business consistent with past practice) or
implemented any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of
the Regulations or announced or planned any such action or program for
the future;
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(xxiii) made charitable contributions in excess of an aggregate
of $15,000;
(xxiv) disclosed any secret or confidential Parent Intellectual
Property (except by way of issuance of a patent) or permitted to lapse
or go abandoned any Parent Intellectual Property (or any registration or
grant thereof or any application relating thereto) to which, or under
which, Parent or any Hanover Subsidiary has any right, title, interest
or license, which disclosure, lapse or abandonment has a Material
Adverse Effect;
(xxv) made any express or deemed election or settled or
compromised any liability, with respect to Taxes of Parent or any
Hanover Subsidiary:
(xxvi) suffered any casualty loss or damage with respect to any
of Parent Assets which in the aggregate have a replacement cost of more
than $250,000, whether or not such loss or damage shall have been
covered by insurance; or
(xxvii) agreed, whether in writing or otherwise, to take any of
the actions specified in this Section 4.12 or granted any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions
specified in this Section 4.12, except as expressly contemplated by this
Agreement.
SECTION 4.13 Litigation. Except as set forth in Section 4.13 of Parent
Disclosure Schedule (which, with respect to each Action disclosed therein, sets
forth: the parties, nature of the proceeding, date and method commenced, amount
of damages or other relief sought and, if applicable, paid or granted), there
are no Actions by or against Parent or any Hanover Subsidiary, or affecting any
of the Parent Assets, pending or, to the knowledge of Parent, threatened and
which, if adversely determined, would have a Material Adverse Effect. None of
the matters disclosed in Section 4.13 of the Parent Disclosure Schedule has or
has had a Material Adverse Effect or could reasonably be expected to affect the
legality, validity or enforceability of this Agreement or the consummation of
the transactions contemplated hereby or thereby. Except as set forth in Section
4.13 of the Parent Disclosure Schedule, none of Parent, the Hanover
Subsidiaries nor any of the Parent Assets is subject to any Governmental Order
(nor, to the knowledge of Parent, are there any such Governmental Orders
threatened to be imposed by any Governmental Authority) which has or has had a
Material Adverse Effect.
SECTION 4.14 Certain Interests. (a) To the best knowledge of Parent,
after due inquiry of the officers and directors of Parent and the Hanover
Subsidiaries, except as disclosed in Section 4.14(a) of Parent Disclosure
Schedule, no officer or director of
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Parent or any Hanover Subsidiary and no relative or spouse (or relative of such
spouse) who resides with, or is a dependent of, any such officer or director:
(i) has any direct or indirect financial interest in any
competitor, supplier or customer of Parent or any Hanover Subsidiary,
provided, however, that the ownership of securities representing not
more than five percent of the outstanding voting power of any
competitor, supplier or customer, shall not be deemed to be a n
financial interest" so long as the Person owning such securities has no
other connection or relationship with such competitor, supplier or
customer:
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest in any tangible or intangible property which Parent
or any Hanover Subsidiary uses or has used in the conduct of the Parent
Business or otherwise; or
(iii) has outstanding any Indebtedness to Parent or any Hanover
Subsidiary.
(b) To the best knowledge of Parent, after due inquiry of the
officers and directors of Parent and the Hanover Subsidiaries, except as
disclosed in Section 4.14(b) of the Parent Disclosure Schedule, neither Parent
nor any Hanover Subsidiary has any Liability or any other obligation of any
nature whatsoever to any officer, director or shareholder of Parent or any
Hanover Subsidiary or to any relative or spouse (or relative of such spouse)
who resides with, or is a dependent of, any such officer, director or
shareholder.
SECTION 4.15 Compliance with Laws. Except as set forth in Section 4.15
of the Parent Disclosure Schedule, Parent and the Hanover Subsidiaries have
each conducted and continue to conduct their respective businesses in
accordance with all Laws and Governmental Orders applicable to Parent and each
such Hanover Subsidiary or any of the Parent Assets or the Parent Business,
except to the extent the failure to do so, either individually or in the
aggregate, would not have a Material Adverse Effect, and neither Parent nor any
Hanover Subsidiary is in material violation of any such Law or Governmental
Order.
SECTION 4.16 Environmental and Other Permits and Licenses; Related
Matters. Each of the representations and warranties set forth in this Section
4.16 is true and correct with respect to the Parent and the Hanover
Subsidiaries and to all Parent Owned Real Property and Parent Leased Real
Property owned or leased by the Parent or any Hanover Subsidiary currently or
since 1990: (a) Except as disclosed in Section 4.16(a)(i) of the Parent
Disclosure Schedule, Parent and the Hanover Subsidiaries currently hold all
material Permits, including, without limitation, Environmental
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Permits, required for the current use, occupancy and operation of each Parent
Asset and the conduct of the Parent Business, and all such Permits are in full
force and effect. Except as disclosed in Section 4.16(a)(ii) of the Parent
Disclosure Schedule, to the best knowledge of Parent, there is no existing
practice, action or activity of Parent or any Hanover Subsidiary and no
existing condition of Parent Assets or the Parent Business which will between
now and the Effective Time give rise to any civil or criminal Liability under,
or violate or prevent compliance with, any health or occupational safety or
other applicable Law and which, individually or in the aggregate, would have a
Material Adverse Effect. Except as set forth in Section 4.16(a)(iii) of the
Parent Disclosure Schedule, neither Parent nor any Hanover Subsidiary has
received any notice from any Governmental Authority revoking, cancelling,
rescinding, materially modifying or refusing to renew any Permit, which action,
individually or in the aggregate, would have a Material Adverse Effect or
providing written notice of violations under any Law. Except as disclosed in
Section 4.16(a)(iv) of the Parent Disclosure Schedule, Parent and each Hanover
Subsidiary is in all respect in compliance with the Permits and the
requirements of the Permits the failure to comply with which, individually or
in the aggregate, would have a Material Adverse Effect. Section 4.16(a)(v) of
the Parent Disclosure Schedule identifies all material Permits which will
require the consent of any Governmental Authority in the event of the
consummation of the transactions contemplated by this Agreement.
(b) Except as disclosed in Section 4.16(b) of the Parent
Disclosure Schedule, (i) Hazardous Materials have not been treated, stored in
excess of 90 days except in compliance with Environmental Laws (or except in
quantities used in the ordinary course of the operations of the Parent
Business) on, or Released by Parent or the Hanover Subsidiaries or, to the
knowledge of Parent or the Hanover Subsidiaries, by any third party on, any
Parent Real Property in an amount or manner which gives rise to liability which
would, individually or in the aggregate, have a Material Adverse Effect; (ii)
all wastes, including those wastes containing Hazardous Materials generated by
Parent and the Hanover Subsidiaries have been disposed of in substantial
compliance with all applicable Environmental Laws and Environmental Permits;
(iii) there are no past, pending or, to the best knowledge of Parent,
threatened Environmental Claims against Parent, any Hanover Subsidiary, or any
Parent Real Property and, to the best knowledge of Parent, there is no basis
for any such Environmental Claim; (iv) no Parent Real Property is listed or to
the best knowledge of Parent proposed for listing on the National Priorities
List under CERCLA or on the CERCLIS or any analogous state list of sites which
require investigation or cleanup; and (v) to the best knowledge of Parent,
neither Parent nor any Hanover Subsidiary has transported or arranged for the
transportation of any Hazardous Materials to any location that is listed
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or, to the best knowledge of Parent, proposed for listing on the National
Priorities List under CERCLA or on the CERCLIS or any analogous state list
which will require investigation or cleanup or which is the subject of any
Environmental Claim.
(c) Except as disclosed in Section 4.16(c) of the Parent
Disclosure Schedule, there are not now and, to the best knowledge of Parent,
never have been any USTs located on any Parent Real Property.
SECTION 4.17 Parent Material Contracts. (a) Parent has, or has caused
to be made available to the Company for review and duplication, correct and
complete copies (or in the case of oral contracts, summaries thereof) of all of
the following contracts and agreements (including, without limitation, oral and
informal arrangements) of Parent and the Hanover Subsidiaries (such contracts
and agreements, together with all material contracts, agreements, leases and
subleases concerning the management or operation of any Parent Real Property
(including, without limitation, brokerage contracts) to which Parent or any
Hanover Subsidiary is a party and all material agreements relating to Parent
Intellectual Property, being "Parent Material Contracts":
(i) each contract and agreement for the purchase of inventory,
spare parts, other materials or personal property with any supplier or
for the furnishing of services to Parent, any Hanover Subsidiary or
otherwise related to the Parent Business under the terms of which Parent
or any Hanover Subsidiary: (A) is likely to pay or otherwise give
consideration of more than $250,000 in the aggregate during the
calendar year ended December 31, 1995, (B) is likely to pay or otherwise
give consideration of more than $500,000 in the aggregate over the
remaining term of such contract or (C) cannot be cancelled by Parent or
such Hanover Subsidiary without penalty or further payment and without
more than 30 days' notice;
(ii) each contract and agreement for the sale or lease of
inventory or other personal property or for the furnishing of services
by Parent or any Hanover Subsidiary which: (A) is likely to involve
consideration of more than $250,000 in the aggregate during the calendar
year ended December 31, 1995, (B) is likely to involve consideration of
more than $500,000 in the aggregate over the remaining term of the
contract or (C) cannot be cancelled by Parent or such Hanover Subsidiary
without penalty or further payment and without more than 30 days'
notice;
(iii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising contracts and agreements to which
Parent or any Hanover Subsidiary is a party;
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(iv) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) involving exclusive
rights or requiring payments in excess of $100,000 individually to which
Parent or any Hanover Subsidiary is a party and which are not cancelable
without penalty or further payment and without more than 30 days'
notice;
(v) all contracts and agreements relating to Indebtedness of
Parent or any Hanover Subsidiary in excess of $100,000 individually or
$500,000 in the aggregate;
(vi) all contracts and agreements with any Governmental
Authority to which Parent or any Hanover Subsidiary is a party;
(vii) all contracts and agreements that limit or purport to
limit the ability of Parent or any Hanover Subsidiary to compete in any
line of business or with any Person or in any geographic area or during
any period of time;
(viii) all contracts and agreements between or among Parent or
any Hanover Subsidiary on the one hand and Parent or any Affiliate of
Parent on the other hand;
(ix) all contracts and agreements providing for benefits under
any Parent Plan; and
(x) all other contracts and agreements whether or not made in
the ordinary course of business, which are in excess of $250,000 or not
cancelable without penalty upon not more than 30 days notice.
For purposes of this Section 4.17 and Sections 4.18, 4.19 and 4.20, the
term "lease" shall include any and all leases, subleases, sale/leaseback
agreements or similar arrangements.
(b) Except as disclosed in Section 4.17(b) of the Parent
Disclosure Schedule, each Parent Material Contract: (i) is valid and binding
on the respective parties thereto and is in full force and effect and (ii) upon
consummation of the transactions contemplated by this Agreement, except to the
extent that any consents set forth in Section 4.07 of the Parent Disclosure
Schedule are not obtained, shall continue in full force and effect without
penalty or other adverse consequence. Except as set forth in Section 4.17(b)
of the Parent Disclosure Schedule, neither Parent nor any Hanover Subsidiary is
in breach of, or default under, any Parent Material Contract which breach or
default would have a Material Adverse Effect.
(c) Except as disclosed in Section 4.17(c) of the Parent
Disclosure Schedule, to Parent' 8 knowledge, no other party to any
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Parent Material Contract is in breach thereof or default thereunder.
(d) Except as disclosed in Section 4.17(d) of the Parent
Disclosure Schedule, there is no contract, agreement or other arrangement
granting any Person any preferential right to purchase, other than in the
ordinary course of the Parent Business consistent with past practice, any of
the properties or assets of Parent or any Hanover Subsidiary.
SECTION 4.18 Patents and Trademarks. Parent and each Hanover
Subsidiary owns of record, has obtained a valid license to use, possesses, or
can acquire on reasonable terms, adequate patents, trademarks, service marks
and trade names (collectively, the "Parent Intellectual Property") necessary to
conduct the business now operated by it, except for any patents, trademarks,
service marks and trade names which if not owned, licensed, possessed or
acquired would not be reasonably expected to have a Material Adverse Effect,
and neither Parent nor any Hanover Subsidiary has received any notice of
infringement of, or conflict with, asserted rights of others with respect to
any patent, trademark, service mark or trade name which, individually or in the
aggregate, if the subject of any unfavorable decision, ruling or finding, would
be reasonably expected to have a Material Adverse Effect.
SECTION 4.19 Real Property. (a) Except as described in Section
4.19(a) or 4.16 of the Parent Disclosure Schedule, to the best knowledge of
Parent, there is no material violation of any Law (including, without
limitation, any building, planning or zoning law) relating to any of the Parent
Real Property. Either Parent or a Hanover Subsidiary, as the case may be, is
in peaceful and undisturbed possession of each parcel of Parent Real Property
and there are no contractual or legal restrictions that preclude or restrict
the ability to use the premises in the manner in which they are currently being
used. To the best knowledge of Parent there are no material latent defects or
material adverse physical conditions affecting the Parent Real Property or any
of the facilities, buildings, structures, erections, improvements, fixtures,
fixed assets and personalty of a permanent nature annexed, affixed or attached
to, located on or forming part of the Parent Real Property. Except as set
forth in Section 4.19(a) of Parent Disclosure Schedule, neither Parent nor any
Hanover Subsidiary is leasing or subleasing any parcel or any portion of any
parcel of Parent Real Property to any other Person, nor has Parent or any
Hanover Subsidiary assigned its interest under any lease or sublease for any
Parent Leased Real Property to any third party.
(b) Parent has, or has caused to be, made available to the
Company for review and duplication true and complete copies of all leases and
subleases for any Parent Leased Real Property and
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all amendments thereto. With respect to each of such leases and subleases:
(i) such lease or sublease is legal, valid, binding and in
full force and effect and represents the entire agreement between the
respective landlord and tenant with respect to such property;
(ii) except as otherwise set forth in Section 4.19(b)(ii) of
the Parent Disclosure Schedule, such lease or sublease will not cease to
be legal, valid, binding and in full force and effect on terms identical
to those currently in effect as a result of the consummation of the
transactions contemplated by this Agreement, nor will the consummation
of the transactions contemplated by this Agreement constitute a material
breach or a material default under such lease or sublease or otherwise
give the landlord a right to terminate such lease or sublease;
(iii) except as otherwise disclosed in Section 4.19(b)(iii) of
the Parent Disclosure Schedule, with respect to each such lease or
sublease: (A) neither Parent nor any Hanover Subsidiary has received any
notice of cancellation or termination under such lease-or sublease and
no lessor has any right of termination or cancellation under such lease
or sublease except upon a breach or default by Parent or any Hanover
Subsidiary thereunder, (B) neither Parent nor any Hanover Subsidiary has
received any notice of a breach or default under such lease or sublease,
which breach or default has not been cured, and (C) neither Parent nor
any Hanover Subsidiary has granted to any other Person any rights,
adverse or otherwise. under such lease or sublease; and
(iv) none of Parent, any Hanover Subsidiary nor (to the best
knowledge of Parent) any other party to such lease or sublease, is in
breach or default in any material respect, and, to the best knowledge of
Parent, no event has occurred that, with notice or lapse of time would
constitute such a breach or default or permit termination, modification
or acceleration under such lease or sublease which would have a Material
Adverse Effect.
(c) There are no condemnation proceedings or eminent domain
proceedings of any kind pending or, to the best knowledge of Parent, threatened
against the Parent Real Property.
(d) All Parent Real Property is occupied under a valid and
current certificate of occupancy or similar permit or, to the best knowledge of
Parent, there are no facts that would prevent Parent Real Property from being
occupied by Parent or any Hanover Subsidiary, as the case may be, after the
Effective Time in the same manner as occupied by Parent or such Hanover
Subsidiary immediately prior to the Effective Time.
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(e) The rental set forth in each lease or sublease of Parent
Leased Real Property is the actual rental being paid, and there are no separate
agreements or understandings with respect to the same.
(f) To the best knowledge of Parent, either Parent or a
Hanover Subsidiary, as the case may be, has the full right to exercise any
renewal options contained in the leases and subleases pertaining to the Parent
Leased Real Property on the terms and conditions contained therein.
SECTION 4.20 Parent Tangible Personal Property. (a) Parent has, or
has caused to be, made available to the Company for review and duplication true
and complete copies of all leases and subleases for Parent Tangible Personal
Property having a value in excess of $250,000 and all amendments thereto. With
respect to each of such leases and subleases:
(i) such lease or sublease is legal, valid, binding and in
full force and effect and represents the entire agreement between the
respective lessor and lessee with respect to such property;
(ii) except as set forth in Section 4.20(a)(ii) of the Parent
Disclosure Schedule, such lease or sublease will not cease to be legal,
valid, binding and in full force and effect on terms identical to those
currently in effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the
transactions contemplated by this Agreement constitute a material breach
or a material default under such lease or sublease or otherwise give the
lessor a right to terminate such lease or sublease;
(iii) except as otherwise disclosed in Section 4.20(a)(iii) of
the Parent Disclosure Schedule, with respect to each such lease or
sublease: (A) neither Parent nor any Hanover Subsidiary has received any
notice of cancellation or termination under such lease or sublease and
no lessor has any right of termination or cancellation under such lease
or sublease except upon a breach or default by Parent or any Hanover
Subsidiary thereunder, (B) neither Parent nor any Hanover Subsidiary has
received any notice of a breach or default under such lease or sublease,
which breach or default has not been cured, and (C) neither Parent nor
any Hanover Subsidiary has granted to any other Person any rights,
adverse or otherwise. under such lease or sublease; and
(iv) none of Parent, any Hanover Subsidiary nor to the best
knowledge of Parent any other party to such lease or sublease, is in
breach or default in any material respect, and, to the best knowledge of
Parent, no event has occurred that, with notice or lapse of time would
constitute such a
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breach or default or permit termination, modification or acceleration
under such lease or sublease which would have a Material Adverse Effect.
(b) Neither Parent nor any Hanover Subsidiary, as the case may
be, has waived the full right to exercise any renewal options contained in the
leases and subleases pertaining to the Parent Tangible Personal Property on the
terms and conditions contained therein.
SECTION 4.21 Parent Assets. (a) Except as disclosed in Section 4.21
of Parent Disclosure Schedule, either Parent or a Hanover Subsidiary, as the
case may be, owns, leases or has the legal right to use all the properties and
assets, including, without limitation, the Parent Intellectual Property, Parent
Real Property and the Parent Tangible Personal Property, used in the conduct of
the Parent Business or otherwise owned, leased or used by Parent or any Hanover
Subsidiary and which are material and, with respect to contract rights, is a
party to and enjoys the right to the benefits of all material contracts,
agreements and other arrangements used by Parent or any Hanover Subsidiary or
in or relating to the conduct of the Parent Business (all such properties,
assets and contract rights being the "Parent Assets"). Either Parent or a
Hanover Subsidiary, as the case may be, has good title to, or, in the case of
leased or subleased Parent Assets, valid and subsisting leasehold interests in,
all Parent Assets, free and clear of all Encumbrances, except (i) as disclosed
in the Parent Disclosure Schedule and (ii) Permitted Encumbrances.
(b) Parent Assets constitute all the properties, assets and
rights forming a part of, used, held and all such properties, assets and rights
as are necessary in the conduct of, the Parent Business. At all times since
the date of the Parent Interim Financial Statements, Parent has caused Parent
Assets to be maintained in accordance with past business practice, and all
Parent Assets material to the Parent Business are in good operating condition
and repair, ordinary wear and tear excepted, and are suitable for use in the
Parent Business.
(c) Following the consummation of the transactions
contemplated by this Agreement, either Parent or a Hanover Subsidiary, as the
case may be, will continue to own, pursuant to good title, or lease, under
valid and subsisting leases, or otherwise retain its respective interest in the
Parent Assets without incurring any penalty or other adverse consequence,
including, without limitation, any increase in rentals, royalties, or licenses
or other fees imposed as a result of, or arising from, the consummation of the
transactions contemplated by this Agreement.
SECTION 4.22 Customers. Except as disclosed in Section 4.22 of the
Parent Disclosure Schedule, neither Parent nor any Hanover
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Subsidiary has received any notice, nor, to the best knowledge of Parent, is
Parent or any Hanover Subsidiary aware, that any significant customer of Parent
has ceased, or will cease, to use the products, equipment, goods or services of
Parent or any Hanover Subsidiary, or has substantially reduced, or will
substantially reduce, the use of such products, equipment, goods or services at
any time.
SECTION 4.23 Suppliers. Except as disclosed in Section 4.23 of the
Parent Disclosure Schedule, neither Parent nor any Hanover Subsidiary has
received any notice, nor, to the best knowledge of Parent, is Parent or any
Hanover Subsidiary aware, that any supplier will not sell raw materials,
supplies, merchandise and other goods to Parent or any Hanover Subsidiary at
any time after the Effective Time on terms and conditions substantially similar
to those used in its current sales to Parent and the Hanover Subsidiaries,
subject only to general and customary price increases.
SECTION 4.24 Employee Benefit Matters. (a) Parent Plans and Material
Documents. Section 4.24(a) of the Parent Disclosure Schedule lists (i) all
employee benefit plans (as defined in Section 3(3) of ERISA) and all bonus,
stock option, stock purchase, restricted stock, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all employment,
termination, severance or other contracts or agreements to which Parent or any
Hanover Subsidiary is a party, with respect to which Parent or any Hanover
Subsidiary has any obligation or which are maintained, contributed to or
sponsored by Parent or any Hanover Subsidiary for the benefit of any current or
former employee, officer or director of Parent or any Hanover Subsidiary and
(ii) each employee benefit plan for which Parent or any Hanover Subsidiary
could incur liability under Section 4069 of ERISA, in the event such plan has
been or were to be terminated, or under Section 4212(c) of ERISA, or in respect
of which Parent or any Hanover Subsidiary remains secondarily liable under
Section 4204 of ERISA (collectively, the "Parent Plans"). Each Parent Plan is
in writing and Parent has made available to the Company for review and
duplication a complete and accurate copy of each Parent Plan and a complete and
accurate copy of each material document prepared in connection with each such
Parent Plan including, without limitation, (i) a copy of each trust or other
funding arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed IRS Form 5500, (iv) the most
recently received IRS determination letter for each such Parent Plan, and (v)
the most recently prepared actuarial report and financial statement in
connection with each such Parent Plan. Neither Parent nor any Hanover
Subsidiary has any express or implied commitment (i) to create, incur liability
with respect to or cause to exist any other employee benefit plan, program or
arrangement, (ii) to enter into any contract or agreement to
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provide compensation or benefits to any individual or (iii) to modify, change
or terminate any Parent Plan, other than with respect to a modification, change
or termination required by ERISA.
(b) Absence of Certain Types of Parent Plans. Except as
disclosed in Section 4.24(b) of the Parent Disclosure Schedule, (i) none of the
Parent Plans is a Multiemployer Plan or a Multiple Employer Plan (within the
meaning of Section 4001(a)(15) of ERISA) for which Parent or any Hanover
Subsidiary could incur liability under Section 4063 or 4064 of ERISA; (ii) none
of the Parent Plans provides for the payment of separation, severance,
termination or similar-type benefits to any Person or obligates Parent or any
Hanover Subsidiary to make any payment that could be subject to a tax under
Section 4999 of the Code; (iii) none of the Parent Plans provides for or
promises retiree medical, disability or life insurance benefits to any current
or former employee, officer or director of Parent or any Hanover Subsidiary;
and (iv) none of the Parent Plans is subject to the requirements of Section 412
of the Code, Title I, Part 3 of ERISA, or Title I of ERISA. Except as
disclosed in Section 4.24(b) of the Parent Disclosure Schedule, each of the
Parent Plans is subject only to the Laws of the United States or a political
subdivision thereof.
(c) Compliance with Applicable Law. Each Parent Plan is now
and always has been operated in all material respects in accordance with
applicable Law, including, without limitation, ERISA and the Code, and in
accordance with the terms of such Parent Plan. No legal action, suit or claim
is pending or, to Parent's knowledge, threatened with respect to any Parent
Plan (other than claims for benefits in the ordinary course) and no fact or
event exists that could give rise to any such action, suit or claim.
(d) Qualification of Certain Parent Plans. Except as
disclosed in Section 4.24(d) of the Parent Disclosure Schedule, each Parent
Plan which is intended to be qualified under Section 401(a) of the Code or
Section 401(k) of the Code has received a favorable determination letter from
the IRS providing that it is so qualified and each trust established in
connection with any Parent Plan which is intended to be exempt from federal
income taxation under Section 501(a) of the Code has received a determination
letter from the IRS providing that it is so exempt, and no fact or event has
occurred since the date of such determination letter from the IRS that could
adversely affect the qualified status of and such Parent Plan or the exempt
status of any such trust. Each trust maintained or contributed to by Parent or
any Hanover Subsidiary which is intended to be qualified as a voluntary
employees' beneficiary association and which is intended to be exempt from
federal income taxation under Section 501(c)(9) of the Code has received a
favorable determination letter from the IRS providing that it is so qualified
and so exempt, and no fact or event has occurred since the date of such
determination by the IRS to adversely affect such qualified or exempt status.
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(e) Absence of Certain Liabilities and Events. Neither Parent
nor any Hanover Subsidiary has participated in any prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any Parent Plan. Except as set forth on Section 4.24(e) of the
Parent Disclosure Schedule, neither Parent nor any Hanover Subsidiary has
incurred any liability for any penalty or tax arising under Section 4971, 4972,
4975, 4976, 4979, 4980, 4980B or 6652 of the Code or any liability under
Section 502 of ERISA, and no fact or event exists which could give rise to any
such liability. Neither Parent nor any Hanover Subsidiary has incurred any
liability under, arising out of or by operation of Title IV of ERISA (other
than liability for premiums to the Pension Benefit Guaranty Corporation arising
in the ordinary course), including, without limitation, any liability ln
connection with (i) the termination or reorganization of any employee benefit
plan subject to Title IV of ERISA or (ii) the withdrawal from any Multiemployer
or Multiple Employer Plan, and no fact or event exists which could give rise to
any such liability. No Parent Plan had an accumulated funding deficiency
(within the meaning of Section 302 of ERISA or Section 412 of the Code),
whether or not waived, as of the most recently ended plan year of such Parent
Plan. None of the assets of Parent or any Hanover Subsidiary is the subject of
any lien arising under Section 302(f) of ERISA or Section 412 (n) of the Code;
neither Parent nor any Hanover Subsidiary has been required to post any
security under Section 307 of ERISA or Section 401(a)(29) of the Code; and no
fact or event exists which could give rise to any such lien or requirement to
post any such security.
(f) Parent Plan Contributions and Funding. All contributions,
premiums or payments required to be made with respect to any Parent Plan have
been made on or before their due dates. Except as disclosed in Section 4.24(f)
of the Parent Disclosure Schedule, as of the Effective Time, no Parent Plan
which is subject to Title IV of ERISA will have an "unfunded benefit liability"
(within the meaning of Section 4001(a)(18) of ERISA).
SECTION 4.25. Labor Matters. Except as set forth in Section 4.25
of the Parent Disclosure Schedule, (a) neither Parent nor any Hanover
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to Persons employed by Parent or any Hanover
Subsidiary and, to the best knowledge of Parent, currently there are no
organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining representative for Persons employed by
the Parent or any Hanover Subsidiary which could affect Parent or any Hanover
Subsidiary; (b) there are no controversies, strikes, slowdowns or work
stoppages pending or, to the best knowledge of Parent threatened between Parent
or any Hanover Subsidiary and any of their respective employees, and neither
Parent nor any Hanover Subsidiary has experienced any such controversy, strike,
slowdown or work stoppage within the past
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three years; (c) neither Parent nor any Hanover Subsidiary has breached or
otherwise failed to comply in all material respects with the provisions of any
collective bargaining agreement or union contract and there are no grievances
outstanding against Parent or any Hanover Subsidiary under any such agreement
or contract which could have a Material Adverse Effect; (d) there are no unfair
labor practice charges or complaints pending against Parent or any Hanover
Subsidiary before the National Labor Relations Board or any other Governmental
Authority or any current union representation questions involving employees of
Parent or any Hanover Subsidiary which could have a Material Adverse Effect;
(e) Parent and each Hanover Subsidiary is currently in compliance in all
material respects with all applicable Laws relating to the employment of labor,
including, without limitation, those related to wages, hours, working
conditions, collective bargaining and the payment and withholding of taxes and
other sums as required by the appropriate Governmental Authority and has
withheld and paid to the appropriate Governmental Authority or is holding for
payment not yet due to such Governmental Authority all material amounts
required to be withheld from employees of Parent or any Hanover Subsidiary and
is not liable for any material arrears of wages, taxes, penalties or other sums
for failure to comply with any of the foregoing; (f) Parent and each Hanover
Subsidiary has paid in full to all their respective employees or adequately
accrued for in accordance with U.S. GAAP all wages, salaries, commissions,
bonuses, benefits and other compensation due to or on behalf of such employees;
(g) there is no claim with respect to payment of wages, salary, commissions,
bonuses, overtime pay or other compensation that has been asserted or is now
pending or, to the knowledge of Parent, threatened before any Governmental
Authority with respect to any Persons currently or formerly employed by Parent
or any Hanover Subsidiary; (h) neither Parent nor any Hanover Subsidiary is a
party to, or otherwise bound by, any consent decree or conciliation agreement
with, or citation by, any Governmental Authority relating to employees or
employment practices; (i) there is no charge, investigation or other proceeding
with respect to a material violation of any occupational safety or health
standards that has been asserted or is now pending or, to the knowledge of
Parent, threatened with respect to Parent or any Hanover Subsidiary; and (j)
there is no charge of discrimination in employment or employment practices, for
any reason, including, without limitation, age, gender, race, religion,
disability or other legally protected category, which has been asserted or is
now pending or, to the knowledge of Parent, threatened before the United States
Equal Employment Opportunity Commission, or any other Governmental Authority in
any jurisdiction in which Parent or any Hanover Subsidiary has employed or
currently employs any Person; and (k) Parent and each Hanover Subsidiary is in
compliance in all material respects with the requirements of WARN and has no
liabilities pursuant to WARN.
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SECTION 4.26. Key Employees. Section 4.26 of the Parent Disclosure
Schedule lists the name, place of employment, the current annual salary rates,
bonuses, deferred or contingent compensation, pension, accrued vacation,
"golden parachute" and other like benefits paid or payable (in cash or
otherwise) in 1993 and 1994, a description of position and job function of each
current salaried employee, officer, director, consultant or agent of Parent or
any Hanover Subsidiary whose annual compensation exceeded (or, in 1995, is
expected to exceed) $150,000. Except as set forth in Section 4.26 of the
Parent Disclosure Schedule, there are no employment contracts or agreements
between the Parent or any Hanover Subsidiary and any Person.
SECTION 4.27. Taxes. (a) (i) Except as set forth in Section 4.27 of the
Parent Disclosure Schedule, all returns and reports in respect of Taxes
required to be filed with respect to Parent and each Hanover Subsidiary have
been timely filed; (ii) except as set forth in Section 4.27 of the Parent
Disclosure Schedule, all Taxes required to be shown on such returns and reports
or otherwise due have been timely paid; (iii) except as set forth in Section
4.27 of the Parent Disclosure Schedule, all such returns and reports are true,
correct and complete in all material respects; (iv) no adjustment relating to
such returns has been proposed formally by any Tax authority; (v) there are no
pending or, to the best knowledge of Parent and the Hanover Subsidiaries,
threatened actions or proceedings for the assessment or collection of Taxes
against Parent or any Hanover Subsidiary or any corporation that was included
in the filing of a return with Parent on a consolidated or combined basis; (vi)
no consent under Section 341(f) of the Code has been filed with respect to
Parent or any Hanover Subsidiary; (vii) there are no Tax liens on any assets of
Parent or any Hanover Subsidiary; (viii) except as disclosed in Section 4.27 of
the Parent Disclosure Schedule, no acceleration of the vesting schedule for any
property that is substantially unvested within the meaning of the regulations
under Section 83 of the Code will occur in connection with the transactions
contemplated by this Agreement; (ix) except as disclosed on Section 4.27 of the
Parent Disclosure Schedule, neither Parent nor any Hanover Subsidiary has been
a member of the affiliated group (within the meaning of Section 1504(a)(1) of
the Code) for any taxable period for which the statute of limitations has not
expired; (x) except as would not have a Material Adverse Effect, neither Parent
nor any Hanover Subsidiary has been at any time a member of any partnership or
joint venture or the holder of a beneficial interest in any trust for any
period for which the statute of limitations for any Tax has not expired; (xi)
Parent and the Hanover Subsidiaries have made all payments of estimated Taxes
required to be made under Section 6655 of the Code and any comparable provision
provided for under the laws of any nation, state or locality; (xii) all Taxes
required to be withheld, collected or deposited by or with respect to Parent or
any Hanover Subsidiary have been timely withheld, collected or deposited, as
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the case may be, and, to the extent required, have been paid to the relevant
taxing authority; (xiii) except as set forth in Section 4.27 of the Parent
Disclosure Schedule as of the date hereof, neither Parent nor any Hanover
Subsidiary has a tax attribute that is subject to a "section 382 limitation"
within the meaning of Section 382(b) of the Code; (xiv) to the best knowledge
of Parent (without having made any inquiry), Parent and the Hanover
Subsidiaries do not, either individually or in the aggregate, have a net
unrealized built-in loss within the meaning of Section 382(h) of the Code and
section 1.1502-91(g) of the proposed Regulations; and (xv) neither Parent nor
any Hanover Subsidiary is subject to any accumulated earnings tax penalty or
personal holding company tax.
(b) Except as disclosed in Section 4.27 of the Parent
Disclosure Schedule: (i) there are no outstanding waivers or agreements
extending the statute of limitations for any period with respect to any Tax to
which Parent or any Hanover Subsidiary may be subject; and (ii) except as set
forth in Section 4.27 of the Parent Disclosure Schedule, no power of attorney
that is currently in force has been granted with respect to any matter relating
to Taxes that could affect Parent or a Hanover Subsidiary.
SECTION 4.28 Insurance. (a) Except as set forth in Section 4.28(c) of
the Parent Disclosure Schedule, all material assets, properties and risks of
Parent and each Hanover Subsidiary are, and since January 1, 1991, have been,
covered by valid and, except for policies that have expired under their terms
in the ordinary course, currently effective insurance policies or binders of
insurance (including, without limitation, general liability insurance, property
insurance and workers' compensation insurance) issued in favor of Parent or a
Hanover Subsidiary, as the case may be.
(b) With respect to each insurance policy held by Parent: (i)
to the best knowledge of Parent, the policy is legal, valid, binding and
enforceable in accordance with its terms and, except for policies that have
expired under their terms in the ordinary course, is in full force and effect;
(ii) neither Parent nor any Hanover Subsidiary is in breach or default
(including any breach or default with respect to the payment of premiums or the
giving of notice), and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default or permit termination or
modification, under the policy; (iii) no party to the policy has repudiated, or
given notice of an intent to repudiate, any provision thereof; and (iv) to
the knowledge of Parent after due inquiry, no insurer on the policy has been
declared insolvent or placed in receivership, conservatorship or liquidation.
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(c) Information relating to the loss experience of Parent and
each Hanover Subsidiary with respect to self-insured risks has been made
available to the Company for review.
(d) Since January 1, 1994, no insurance carrier has cancelled,
failed to renew or materially reduced any insurance coverage for Parent or any
Hanover Subsidiary or given any notice or other indication of its intention to
cancel, not renew or reduce any such coverage.
(e) At the Effective Time, all insurance policies currently in
effect will be outstanding and duly in force.
(f) No insurance policy held by Parent will cease to be legal,
valid, binding, enforceable in accordance with its terms and in full force and
effect on terms identical to those in effect as of the date hereof as a result
of the consummation of the transactions contemplated by this Agreement.
SECTION 4.29 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Sub's common stock, no par value, voting
together as one class, is the only vote of the holders of any class or series
of capital stock of Sub necessary to approve the Merger, which affirmative vote
has been obtained, subject to the satisfaction in full of the terms and
conditions hereof.
SECTION 4.30 Full Disclosure. No representation or warranty of Parent
or Subsidiary in this Agreement, nor any written statement or certificate
furnished or to be furnished to Parent or Sub pursuant to this Agreement, or in
connection with the transactions contemplated by this Agreement, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not misleading.
SECTION 4.31 Brokers. Except for Dillon, Read & Co. Inc., the fees and
expenses of which shall be paid by Astra, no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or the Hanover Subsidiaries.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Conduct of Business Prior to the Merger. (a) The Company
covenants and agrees that, except as described in Section 5.1(a) of the Company
Disclosure Schedule, between the date hereof and the Effective Time, neither
the Company nor any Company
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Subsidiary shall conduct its business other than in the ordinary course and
consistent with the Company's and such Company Subsidiary's prior practice.
Parent covenants and agrees that, except as described in Section 5.1(a) of the
Parent Disclosure Schedule, between the date hereof and the Effective Time,
neither Parent nor any Hanover Subsidiary shall conduct its business other than
in the ordinary course and consistent with Parent's and such Hanover
Subsidiary's prior practice. Without limiting the generality of the foregoing,
except as described in Section 5.1(a) of the Company Disclosure Schedule and
the Parent Disclosure Schedule, as applicable, (i) the Company shall, and shall
cause each Company Subsidiary, to (A) use all reasonable efforts to keep
available to the Surviving Corporation the services of the employees of the
Company and each Company Subsidiary and (B) exercise, but only after notice to
Parent, any rights of renewal pursuant to the terms of any of the leases or
subleases described in Section 3.20(b) of the Company Disclosure Schedule which
by their terms would otherwise expire, and (ii) each of the Company and Parent
shall, and shall cause each of their respective Subsidiaries to, (A) continue
its advertising and promotional activities, and pricing and purchasing
policies, in accordance with past practice; (B) use all reasonable efforts not
to shorten or lengthen the customary payment cycles for any of its payables or
receivables to the extent such matters are within the control of Company,
Parent or any such Subsidiary; (C) use all reasonable efforts to (1) preserve
intact their business organizations and the business organization of the
Company Business and the Parent Business, as applicable, (2) continue in full
force and effect without material modification all existing policies or binders
of insurance currently maintained in respect of the Company and Parent, each of
their respective Subsidiaries and the Company Business and the Parent Business,
as applicable, and (3) preserve its current relationships with its customers,
suppliers and other persons with which it has significant business
relationships; and (D) not engage in any practice, take any action, fail to
take any action or enter into any transaction which could cause any
representation or warranty of it to be untrue or result in a breach of any
covenant made by it in this Agreement.
(b) Except as described in Section 5.1(b) of the Company
Disclosure Schedule, the Company covenants and agrees that, prior to the
Effective Time, without the prior written consent of Parent, which consent
shall not be unreasonably withheld or delayed, neither the Company nor any
Company Subsidiary will do any of the things enumerated in the second sentence
of Section 3.12 (including, without limitation, clauses (i) through (xxvii)
thereof).
(c) Except as described in Section 5.1(b) of the Parent
Disclosure Schedule, the Parent covenants and agrees that, prior to the
Effective Time, without the prior written consent of Astra, which consent shall
not be unreasonably withheld or delayed,
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neither Parent nor any Hanover Subsidiary will do any of the things enumerated
in the second sentence of Section 4.12 (including, without limitation, clauses
(i) through (xxvii) thereof).
SECTION 5.2 Access to Information. (a) From the date hereof until
the Effective Time, upon reasonable notice, each of the Company and Parent
shall, and shall cause its respective Subsidiaries and each of such
Subsidiaries' officers, directors, employees, agents, representatives,
accountants and counsel to: (i) afford the officers, employees and authorized
agents, accountants, counsel, financing sources and representatives of the
other reasonable access, during normal business hours and without unreasonable
interference with business operations, to its and its respective Subsidiaries'
offices, properties, plants, other facilities, books and records and to those
of its and its respective Subsidiaries' officers, directors, employees, agents,
accountants and counsel who have any knowledge relating to it, its respective
Subsidiaries or the Company Business or the Parent Business, as applicable, and
(ii) furnish to the officers, employees and authorized agents, accountants,
counsel, financing sources and representatives of the other such additional
financial and operating data and other information regarding its and its
respective Subsidiaries' assets and properties and the goodwill of the Company
Business and the Parent Business, as applicable, (or legible copies thereof) as
the other may from time to time reasonably request.
(b) No investigation pursuant to this Section 5.2 shall affect
any representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 5.3. Confidentiality. (a) All information obtained by Parent
and the Company pursuant to Section 5.2 shall be kept confidential in
accordance with the Confidentiality Agreement.
(b) Each party hereto hereby waives the provisions of the
Confidentiality Agreement as and to the extent necessary to permit the
consummation of the transactions contemplated hereby. At the Effective Time,
Parent's obligations under the Confidentiality Agreement shall be deemed to
have terminated without further action by the parties thereto.
SECTION 5.4. Regulatory and Other Authorizations: Notices and Consents.
(a) Each party hereto shall use all reasonable efforts to obtain (or cause its
respective Subsidiaries to obtain) all authorizations, consents, orders and
approvals of all Governmental Authorities and officials that may be or become
necessary for its execution and delivery of, and the performance of its
obligations pursuant to, this Agreement, and they will cooperate fully with
each other in promptly seeking to obtain all such authorizations, consents,
orders and approvals. Each party
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agrees to make an appropriate filing pursuant to the HSR Act with respect to
the transactions contemplated by this Agreement promptly after the execution
hereof, and agrees to supply as promptly as practicable to the appropriate
Governmental Authorities any additional information and documentary material
that may be requested pursuant to the HSR Act.
(b) Each party hereto shall or shall cause its respective
Subsidiaries to use all reasonable efforts to give such notices to third
parties and use all reasonable efforts to obtain such third party consents as
another party hereto may reasonably deem necessary or desirable in connection
with the transactions contemplated by this Agreement.
(c) Each party hereto shall cooperate and use all reasonable
efforts to assist each of the Company and Parent in giving such notices and
obtaining such consents; provided, however, that neither Parent nor Astra shall
have any obligation to give any guarantee or other consideration of any nature
in connection with any such notice or consent or to consent to any change in
the terms of any agreement or arrangement which Parent may reasonably deem
adverse to the interests of Parent, the Company, any Company Subsidiary or the
Company Business, or which Astra may reasonably deem adverse to its interests.
SECTION 5.5. No Solicitation or Negotiation. Astra and the Company
agree that between the date of this Agreement and the earlier of (i) the
Effective Time and (ii) the termination of this Agreement, neither Astra nor
the Company will, nor will either authorize or permit any Company Subsidiary or
any officer, director or employee of, or any financial advisor, accountant or
other representative retained by, Astra, the Company, any Company Subsidiary or
their Affiliates (collectively, the "Company Representatives"), to, directly or
indirectly, solicit or encourage any inquiries or proposals for (or which may
reasonably be expected to lead to), or engage in discussions with or provide
any information to any Person (other than a Company Representative) in
connection with, (i) the acquisition of any stock, assets or business of the
Company or any Company Subsidiary, (ii) any merger or consolidation involving
the Company or any Company Subsidiary or (iii) any recapitalization or
restructuring of the Company or any Company Subsidiary, in each case,
regardless of whether a third party is involved. Astra and the Company
immediately shall cease and cause to be terminated all existing discussions
conversations, negotiations and other communications with any Persons conducted
heretofore with respect to any of the foregoing. The Company shall notify
Parent promptly if any such proposal or offer, or any inquiry or other contact
with any Person with respect thereto, is made and shall, in any such notice to
Parent, indicate in reasonable detail the identity of the Person making such
proposal, offer, inquiry or contact and the terms and conditions of such
proposal, offer, inquiry or other contact. The Company agrees not
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to, and to cause each Company Subsidiary not to, without the prior written
consent of Parent, release any Person from, or waive any provision of, any
confidentiality or standstill agreement to which the Company or any Company
Subsidiary is a party. Parent agrees not enter into any of the foregoing
described negotiations or agreements with respect to a capital transaction
which would alter the equity structure of Parent until after the earlier of (i)
the Effective Time and (il) the termination of this Agreement.
SECTION 5.6. Resignations. At Closing, Astra shall cause the directors
of the Company to submit their resignations.
SECTION 5.7. Share of CCIA. At Closing, Astra shall cause its wholly-
owned subsidiary, Astra Financial Services, Inc. ("AFSI"), to transfer good and
valid title to the share of Contract Compression International Argentina, S.A.
owned by AFSI to Hanover Maintech, Inc. for no consideration, free and clear of
all Encumbrances and in full compliance with Argentine law.
SECTION 5.8. Indemnification Agreement. Astra shall cause Western
Resources, Inc., Astra's parent corporation, to enter into the Indemnification
Agreement substantially in the form attached hereto as Exhibit 5.8.
SECTION 5.9. Put Agreement. Astra shall enter into the Put Agreement,
substantially in the form attached hereto as Exhibit 5.9.
ARTICLE VI
EMPLOYEE MATTERS
SECTION 6.1 (a) At the Effective Time, each active employee of the
Company ("Company Employee") shall be eligible to participate in and receive
benefits under all Parent Plans, subject only to their continued employment
with Parent, the Company or their Subsidiaries. For purposes of the Parent
Plans, each Company Employee shall be credited with all service performed for
the Company, and all service credited under the Company Plan.
(b) Each Company Employee who otherwise satisfies the
eligibility requirements for coverage under the Parent's or any Hanover
Subsidiary's group health plan shall be covered under such group health plan
without regard to any pre-existing condition exclusion, unless coverage for
such pre-existing condition was excluded under the Company's or any Company
Subsidiary's group health plan prior to the Effective Date.
(c) Astra or an Affiliate of Astra, other than Parent, Sub,
Surviving Corporation or the Company shall be required to
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provide continuation coverage as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") for all Qualified Beneficiaries (as
defined in Section 4980B(g) of the Code and Section 607(3) of ERISA) who prior
to the Effective Time have elected COBRA or are eligible to elect COBRA under a
Company Plan pursuant to Section 4980B of the Code and Section 602 of ERISA (a
"COBRA Beneficiary"). Neither, Parent, Sub, the Surviving Corporation, Company
or any Hanover Subsidiary shall be required to provide COBRA to any COBRA
Beneficiary entitled to COBRA benefits prior to the Effective Time.
(d) At the Effective Time, the Company shall cease
participation in and employees of the Company shall cease benefit accruals
under all Company Plans which (i) are pension plans (as defined in Section 3(2)
of ERISA) and (ii) are not maintained or sponsored by the Company exclusively
for its employees and former employees (the "Exempt Plans"). Each employee of
the Company and any Company Subsidiary shall at the Effective Time become fully
vested in his or her accrued benefit under each Exempt Plan.
(e) At the Effective Time, Parent shall cause the Surviving
Company to adopt and implement the Separation Plan attached hereto as Exhibit
6.1(e).
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.1 Conditions to the Merger. The respective obligations of
each party to consummate the transactions contemplated by this Agreement shall
be subject to the expiration or termination of any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act at or prior to the Effective Time.
SECTION 7.2. Conditions to Obligations of Astra and the Company. The
obligations of Astra and the Company to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment, at or prior
to the Effective Time, of each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of Parent and Sub contained in this Agreement
shall have been true and correct when made and (i) that are not qualified as to
materiality or Material Adverse Effect shall be true and correct in all
material respects and (ii) that are qualified by materiality or Material
Adverse Effect shall be true and correct in all respects, (except for changes
required by this Agreement) as of the Effective Time, with the same force and
effect as if made as of the Effective Time, other than such
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representations and warranties as are made as of another date, the covenants
and agreements contained in this Agreement to be complied with by Parent and
Sub as of or before the Effective Time shall have been complied with in all
material respects, and the Company shall have received a certificate from each
of Parent and Sub to such effect signed by a duly authorized officer thereof;
(b) No Proceeding or Litigation. No Action shall have been
commenced or threatened by or before any Governmental Authority against any of
Astra, the Company, Parent or Sub, seeking to restrain or materially and
adversely alter the transactions contemplated hereby which in the reasonable
good faith determination of Astra is likely to render it impossible or unlawful
to consummate the transactions contemplated by this Agreement or which could
have a Material Adverse Effect or otherwise render inadvisable, in the
reasonable, good faith determination of Astra, the consummation of the
transactions contemplated by this Agreement; provided, however, that the
provisions of this Section 7.2(b) shall not apply if either Astra or the
Company has directly or indirectly solicited or encouraged any such Action;
(c) Resolutions. The Company shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of each of
Parent and Sub, of (i) the resolutions duly and validly adopted by the board of
directors of each of Parent and Sub and (ii) the resolution duly and validly
adopted by the stockholders of Sub, in each case evidencing their respective
authorization of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby;
(d) Incumbency Certificate. The Company shall have received a
certificate of the Secretary or an Assistant Secretary of each of Parent and
Sub certifying the names and signatures of the officers of each of Parent and
Sub authorized to sign this Agreement and the other documents to be delivered
hereunder;
(e) Legal Opinion. The Company shall have received from Neal,
Gerber & Eisenberg a legal opinion, addressed to the Company and dated the day
of the Effective Time, in a form reasonably acceptable to the Company;
(f) Registration Rights Agreement. The Registration Rights
Agreement shall have been duly authorized, executed and delivered by Parent
and, upon due authorization, execution and delivery by Parent, shall be in full
force and effect at the Effective Time;
(g) Consents and Approvals. Parent, Sub, Astra and the
Company shall have received, each in form and substance satisfactory to Astra
in its reasonable good faith determination, all authorizations, consents,
orders and approvals of all
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Governmental Authorities and officials and all third party consents which Astra
or Parent reasonably deems necessary or desirable for the consummation of the
transactions contemplated by this Agreement;
(h) Organizational Documents. Astra shall have received a
copy of (i) the Certificates of Incorporation, as amended (or similar
organizational documents), of Parent and of each Hanover Subsidiary, certified
by the secretary of state of the jurisdiction in which each such entity is
incorporated or organized, as of a date not earlier than 30 Business Days prior
to the date of the Effective Time and accompanied by a certificate of the
Secretary or Assistant Secretary of each such entity, dated as of the day of
the Effective Time, stating that no amendments have been made to such
Certificate of Incorporation (or similar organizational documents) since such
date, and (ii) the Parent By-laws (or similar organizational documents) of the
Parent and of each Hanover Subsidiary, certified by the Secretary or Assistant
Secretary of each such entity;
(i) Good Standing: Qualification to Do Company Business. The
Company shall have received good standing certificates for the Company and for
each Company Subsidiary from the secretary of state of the jurisdiction listed
on Section 7.2(i) of the Parent Disclosure Schedule in each case dated as of a
date not earlier than twenty Business Days prior to the day of the Effective
Time;
(j) Stockholders' Agreement. The Stockholders' Agreement
shall have been duly authorized, executed and delivered by each of Parent, GKH
Investments, L.P. and GKH Partners, L.P. and, upon due authorization, execution
and delivery by each such Person, shall be in full force and effect at the
Effective Time; and
(k) No Material Adverse Effect. Since the date of the Parent
Interim Financial Statements, no event or events shall have occurred, or be
reasonably likely to occur, which, individually or in the aggregate, have, or
could reasonably be expected to have, a Material Adverse Effect.
SECTION 7.3 Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment, at or prior to the
Effective Time, of each of the following conditions:
(a) Representations, Warranties and Covenants. The
representations and warranties of Astra and the Company contained in this
Agreement shall have been true and correct when made and (i) that are not
qualified as to materiality or Material Adverse Effect
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shall be true and correct in all material respects and (ii) that are not
qualified by materiality or Material Adverse Effect shall be true and correct
in all respects (except for changes required by this Agreement) as of the
Effective Time with the same force and effect as if made as of the Effective
Time, other than such representations and warranties as are made as of another
date, the covenants and agreements contained in this Agreement to be complied
with by Astra and the Company as of or before the Effective Time shall have
been complied with in all material respects, and Parent shall have received a
certificate from each of Astra and the Company to such effect signed by a duly
authorized officer thereof;
(b) No Proceeding or Litigation. No Action shall have been
commenced or threatened by or before any Governmental Authority against any of
Astra, the Company, Parent or Sub, seeking to restrain or materially and
adversely alter the transactions contemplated hereby which in the reasonable
good faith determination of Parent is likely to render it impossible or
unlawful to consummate the transactions contemplated by this Agreement or which
could have a Material Adverse Effect or otherwise render inadvisable, in the
reasonable, good faith determination of Parent, the consummation of the
transactions contemplated by this Agreement; provided, however, that the
provisions of this Section 7.3(b) shall not apply if either Parent or Sub has
directly or indirectly solicited or encouraged any such Action;
(c) Resolutions. Parent shall have received a true and
complete copy, certified by the Secretary or an Assistant Secretary of each of
Astra and the Company, of the resolutions duly and validly adopted by the Board
of Directors of each of Astra and the Company and the stockholders of the
Company evidencing their authorization of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby;
(d) Incumbency Certificate of the Company. Parent shall
have received a certificate of the Secretary or an Assistant Secretary of each
of Astra and the Company certifying the names and signatures of each of Astra
and the officers of the Company authorized to sign this Agreement and the other
documents to be delivered hereunder;
(e) Legal Opinion. Parent shall have received legal
opinions from each of the following Persons, addressed to Parent and dated the
day of the Effective Time, each in a form reasonably acceptable to Parent: (i)
Andrews and Kurth, (ii) Marval, O'Farrell & Mairal, and (iii) John K.
Rosenberg, Esq.;
(f) Consents and Approvals. Parent, Sub, Astra and the
Company shall have received, each in form and substance satisfactory to Parent
in its reasonable good faith determination, all authorizations, consents,
orders and approvals of all Governmental Authorities and officials and all
third party consents
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which Parent reasonably deems necessary or desirable for the consummation of
the transactions contemplated by this Agreement;
(g) Organizational Documents. Parent shall have received a
copy of (i) the Certificates of Incorporation, as amended (or similar
organizational documents), of the Company and of each Company Subsidiary,
certified by the secretary of state of the jurisdiction in which each such
entity is incorporated or organized, as of a date not earlier than 30 Business
Days prior to the date of the Effective Time and accompanied by a certificate
of the Secretary or Assistant Secretary of each such entity, dated as of the
day of the Effective Time, stating that no amendments have been made to such
Certificate of Incorporation (or similar organizational documents) since such
date, and (ii) the Company By-laws (or similar organizational documents) of the
Company and of each Company Subsidiary, certified by the Secretary or Assistant
Secretary of each such entity;
(h) Minute Books. Parent shall have received the minute books
and stock register of the Company and each Company Subsidiary, certified by
their respective Secretaries or Assistant Secretaries as of the day of the
Effective Time;
(i) Good Standing; Qualification to Do Company Business.
Parent shall have received good standing certificates for the Company and for
each Company Subsidiary from the secretary of state of the jurisdiction listed
on Section 7.03(j) of the Company Disclosure Schedule in each case dated as of
a date not earlier than twenty Business Days prior to the day of the Effective
Time;
(j) Bank Consent. Parent shall have received all consents to
the transactions contemplated by this Agreement as are required by that certain
Credit Agreement, dated June 29, 1993, as amended, among Parent, Chemical Bank,
as agent, and the other banks party thereto;
(k) Stockholders' Agreement. The Stockholders' Agreement
shall have been duly authorized, executed and delivered by Astra and, upon due
authorization, execution and delivery by Astra, shall be in full force and
effect at the Effective Time; and
(l) No Material Adverse Effect. Since the date of the Company
Interim Financial Statements, no event or events shall have occurred, or be
reasonably likely to occur, which, individually or in the aggregate, have, or
could reasonably be expected to have, a Material Adverse Effect.
ARTICLE VIII
TERMINATION AND WAIVER
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SECTION 8.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by Parent if, between the date hereof and the Effective
Time: (i) an event or condition occurs that has resulted in or that could
reasonably be expected to result in a Material Adverse Effect with respect to
the Company, any Company Subsidiary or the Company Business, (ii) any material
representation or warranty of Astra or the Company contained in this Agreement
shall not have been true and correct when made, (iii) Astra or the Company
shall not have substantially complied with any material covenant or agreement
to be complied with by it and contained in this Agreement, or (iv) Astra, the
Company or any Company Subsidiary makes a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against Astra, the
Company or any Company Subsidiary seeking to adjudicate any of them a bankrupt
or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts under
any Law relating to bankruptcy, insolvency or reorganization; or
(b) by the Company if (i) an event or condition occurs that
has resulted in or that could reasonably be expected to result in a Material
Adverse Effect with respect to Parent, any Hanover Subsidiary or the Parent
Business, (ii) any material representation or warranty of Parent or the Hanover
Subsidiaries contained in this Agreement shall not have been true and correct
when made, (iii) Parent or the Hanover Subsidiaries shall not have
substantially complied with any material covenant or agreement to be complied
with by it and contained in this Agreement, or (iv) Parent or any Hanover
Subsidiary makes a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against Parent or any Hanover Subsidiary
seeking to adjudicate any of them a bankrupt or insolvent, or seeking
liquidation, winding up or reorganization, arrangement, adjustment, protection,
relief or composition of its debts under any Law relating to bankruptcy,
insolvency or reorganization; or
(c) by either the Company or Parent if the Merger shall not
have occurred by December 31, 1995; provided, however, that the right to
terminate this Agreement under this Section 8.01(c) shall not be available to
any party whose willful failure to fulfill any obligation under this Agreement
shall have been the cause of, or shall have resulted in, the failure of the
Merger to occur on or prior to such date; or
(d) by either the Company or Parent in the event that any
Governmental Authority shall have issued an order, decree or ruling or taken
any other Action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and nonappealable; or
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(e) by the mutual written consent of the Company and Parent.
SECTION 8.2 Effect of Termination. In the event of termination
of this Agreement as provided in Section 8.1, this Agreement shall forthwith
become void and there shall be no liability on the part of either party hereto
except (a) as set forth in Section 5.3 and 10.1 and (b) that nothing herein
shall relieve either party from liability for any breach of this Agreement.
SECTION 8.3 Waiver. Either party to this Agreement may (a) extend the
time for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered by the other party
pursuant hereto or (c) waive compliance with any of the agreements or
conditions of the other party contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the
party to be bound thereby. Any waiver of any term or condition shall not be
construed as a waiver of any subsequent breach or a subsequent waiver of the
same term or condition, or a waiver of any other term or condition, of this
Agreement. The failure of any party to assert any of its rights hereunder
shall not constitute a waiver of any of such rights.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Survival. All representations and warranties contained
herein and made in writing by or on behalf of the parties hereto in connection
with the transactions contemplated hereby shall survive the execution and
delivery of this Agreement and the Merger for a period of eighteen months
following the Effective Date, regardless of any Investigation made at any time
with respect to any of the foregoing or any information the parties may have in
respect thereto; provided, however, that (a) the representations and warranties
contained in Section 3.16 and Section 4.16 shall survive for a period of five
years following the Effective Date; (b) all of the agreements contained herein
(including, without limitation, those contained in this Article IX) and the
representations and warranties contained in Sections 3.1, 3.2, 3.3, 4.1, 4.2,
and 4.3 shall survive without limitation as to time; and (c) the
representations and warranties contained in Sections 3.27 and 4.27 shall
survive until the expiration of the applicable statutes of limitation
(including extensions thereof).
SECTION 9.2 Parent's and Sub's Right to Indemnification. Subject to
the provisions of this Article IX and in addition to any other rights and
remedies available to Parent and Sub under
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applicable law, Astra hereby agrees to indemnify and hold harmless Parent and
Sub or any of their respective officers, directors, shareholders, employees,
agents, representatives, attorneys, successors, predecessors and assigns
(collectively, the "Hanover Indemnified Parties") from and against (a) any and
all losses, obligations, liabilities, damages, claims, deficiencies, costs and
expenses (including, but not limited to, the amount of any settlement entered
into pursuant hereto and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defence of the matter)
(collectively "Claims"), which may be asserted against or sustained or incurred
by any of the Hanover Indemnified Parties in connection with, arising out of,
or relating to (i) any breach of any representation or warranty that is made by
Astra or the Company herein or in any Exhibit, Schedule, certificate or other
document delivered to Parent or Sub by Astra or the Company with respect to
Astra or the Company in connection with this Agreement, (ii) any breach of any
agreements and covenants made by Astra or the Company herein or in any other
document delivered to Parent or Sub by Astra or the Company with respect to
Astra or the Company in connection with this Agreement, (iii) any liability of
the Company or the Company subsidiaries for sales taxes (together with
penalties and interest thereon) in the state of Louisiana for periods prior to
the Effective Time as disclosed in Section 3.27 of the Company Disclosure
Schedule and (iv) any Liabilities arising from the presence of waste regulated
under Environmental Laws on the former landfill and lagoon and associated areas
located on the southern half of the Company's East Bernard, Texas facility,
provided the indemnification under this Section 9.2(a)(iv) shall apply only if
the provisions of paragraph 2(b) of the Put Agreement shall have been complied
with by any Hanover Indemnified Party or any transferee to whom such property
may be conveyed; and (b) any and all costs and expenses incurred by Parent or
Sub and in connection with the enforcement of its rights under this Agreement
(all such Claims, costs and expenses collectively, the "Astra Liabilities").
Notwithstanding the foregoing, the aggregate liability of Astra to Parent under
this Article IX shall not exceed $60,000,000.
SECTION 9.3. Astra's and the Company's Right to Indemnification.
Subject to the provisions of this Article IX and in addition to any other
rights and remedies that may be available to Astra or the Company under
applicable law, Parent agrees to indemnify and hold harmless Astra or the
Company or any of its officers, directors, shareholders, employees, agents,
representatives, attorneys, successors, predecessors and assigns (collectively,
the "Astra Indemnified Parties") from and against (a) Claims which may be
asserted against or sustained or incurred by any of the Astra Indemnified
Parties in connection with, arising out of, or relating to (i) any breach of
any representation or warranty that is made by Parent or Sub herein or in any
Exhibit, Schedule, certificate or other document delivered to the Company by or
on behalf of Parent or Sub in connection with this Agreement,
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(ii) any breach of any agreements and covenants made by Parent or Sub herein or
in any other document delivered to the Company by or on behalf of Parent or Sub
in connection with this Agreement, and (b) any and all costs and expenses
incurred by Astra or the Company in connection with the enforcement of its
rights under this Agreement (all such Claims, costs and expenses collectively,
the "Hanover Liabilities"). Notwithstanding the foregoing, Parent or
Subsidiary's aggregate liability under this Article IX shall not exceed
$60,000,000.
SECTION 9.4 Procedure for Claims.
(a) Notice of Claim. Promptly, but in any event within 30
days after obtaining knowledge of any claim or demand which may give rise to,
or could reasonably give rise to, a claim for indemnification hereunder (any
such claim an Indemnification Claim), the party or parties entitled to
indemnification hereunder (the "Indemnified Party") shall give written notice
to the party or parties subject to indemnification obligations therefor (the
"Indemnifying Party") of such Indemnification Claim (a "Notice of Claim"). A
Notice of Claim shall be given with respect to all Indemnification Claims;
provided, however, that the failure to timely give a Notice of Claim to the
Indemnifying Party shall not relieve the Indemnifying Party from any liability
that it may have to the Indemnified Party hereunder to the extent that the
Indemnifying Party is not prejudiced by such failure. No Indemnified Party
shall be entitled to give a Notice of Claim with respect to any representation
and warranty after the expiration of the time period for survival thereof as
provided in Section 9.1. The Notice of Claim shall set forth, to the extent
known to the particular Indemnified Party, the amount (or a reasonable
estimate) of the loss, damage or expense suffered, or which may be suffered, by
the Indemnified Party as a result of such Indemnification Claim and a brief
description of the facts giving rise to such Indemnification Claim. The
Indemnified Party shall furnish to the Indemnifying Party such information (in
reasonable detail) as the Indemnified Party may have with respect to such
Indemnification Claim (including copies of any summons, complaint or other
pleading which may have been served on it and any written claim, demand,
invoice, billing or other document evidencing or asserting the same).
(b) Third Party Claims.
(i) If the claim or demand set forth in the Notice of Claim is
a claim or demand asserted by a third party (a "Third Party Claim"), the
Indemnifying Party shall have 15 days (or such shorter period if an
answer or other response or filing with respect to the pleadings served
by the third party is required prior to the 15th day) after the date of
receipt by the Indemnifying Party of the Notice of Claim (the "Notice
Date") to notify the Indemnified Party in writing of the
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election by the Indemnifying Party to defend the Third Party Claim on
behalf of the Indemnified Party.
(ii) If the Indemnifying Party elects to defend a Third Party
Claim on behalf of the Indemnified Party, the Indemnified Party shall
make available to the Indemnifying Party and its agents and
representatives all records and other materials in its possession which
are reasonably required in the defense of the Third Party Claim and the
Indemnifying Party shall pay any expenses payable in connection with the
defense of the Third Party Claim as they are incurred (whether incurred
by the Indemnified Party or Indemnifying Party).
(iii) In no event may the Indemnifying Party settle or
compromise any Third Party Claim without the Indemnified Party's
consent, which shall not be unreasonably withheld.
(iv) If the Indemnifying Party elects to defend a Third Party
Claim, the Indemnified Party shall have the right to participate in the
defense of the Third Party Claim, at the Indemnified Party's expense
(and without the right to indemnification for such expense under this
Agreement); provided, however, that the reasonable fees and expenses of
counsel retained by the Indemnified Party shall be at the expense of the
Indemnifying Party if (A) the use of the counsel chosen by the
Indemnifying Party to represent the Indemnified Party would present such
counsel with a conflict of interest; (B) the parties to such proceeding
include both the Indemnified Party and the Indemnifying Party and there
may be legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying
Party; (C) within 10 days after being advised by the Indemnifying Party
of the identity of counsel to be retained to represent the Indemnified
Party, the Indemnified Party shall have objected to the retention of
such counsel for valid reasons (which shall be stated in a written
notice to Indemnifying Party), and the Indemnifying Party shall not have
retained different counsel reasonably satisfactory to the Indemnified
Party; or (D) the Indemnifying Party shall authorize the Indemnified
Party to retain separate counsel at the expense of the Indemnifying
Party.
(v) If the Indemnifying Party does elect to defend a Third Party
Claim, or does not continue to defend a Third Party Claim, the
Indemnified Party shall have the right, in addition to any other right
or remedy it may have hereunder, at the sole and exclusive expense of
the Indemnifying Party, to defend such Third Party Claim; provided,
however, that such expenses shall be payable by the Indemnifying Party
only if and when such Third Party Claim becomes payable.
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(vi) To the extent that an Indemnified Party recovers on a
Third Party Claim, the amount of such recovery (after deduction of all
costs and expenses incurred in connection with such Third Party Claim)
shall reduce, dollar-for-dollar, the indemnification obligation
otherwise owing by the Indemnifying Party.
(c) Cooperation in Defense. The Indemnified Party shall
cooperate with the Indemnifying Party in the defense of a Third Party Claim.
Subject to the foregoing, (i) the Indemnified Party shall not have any
obligation to participate in the defense of or to defend any Third Party Claim,
and (ii) the Indemnified Party's defense of or its participation in the defense
of any Third Party Claim shall not in any way diminish or lessen its right to
indemnification as provided in this Agreement.
SECTION 9.5 Indemnification Threshold. Notwithstanding any other
provision of this Agreement, (a) Parent shall not be liable to any Astra
Indemnified Party unless and until the aggregate amount of the Hanover
Liabilities, if any, exceeds $200,000, in which case Parent shall be liable for
all Hanover Liabilities so incurred by such Astra Indemnified Parties, and (b)
Astra shall not be liable to any Hanover Indemnified party unless and until the
aggregate amount of the Astra Liabilities, if any, exceeds $200,000, in which
case Astra shall be liable for all Astra Liabilities so incurred by such
Hanover Indemnified Parties; provided, however, that the foregoing threshold
shall not apply to any liabilities arising solely from breaches of Section 3.9
or 4.9 or for indemnification pursuant to Section 9.2(a)(iii) and (iv).
SECTION 9.6 Indemnification Deductible. (a) Astra shall be liable to
any Hanover Indemnified Party for Astra Liabilities arising solely from
breaches of Section 3.9 only to the extent all such Astra Liabilities exceed
$750,000, (b) Astra shall be liable to any Hanover Indemnified Party for Astra
Liabilities arising solely under Section 9.2(a)(iv) only to the extent such
Astra Liabilities exceed $250,000, provided, however, Hanover shall continue to
be responsible for said $250,000 with respect to any successors and assigns and
(c) Parent shall be liable to any Astra Indemnified Party for Hanover
Liabilities arising solely from breaches of Section 4.9 only to the extent all
such Hanover Liabilities exceed $750,000.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Expenses. Except as otherwise specified in this
Agreement, all costs and expenses, including, without limitation, fees and
disbursements of counsel, financial advisors and accountants, incurred in
connection with this Agreement and the
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transactions contemplated hereby shall be paid by the party incurring such
costs and expenses, whether or not the Merger shall have occurred.
SECTION 10.2 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
10.2):
(a) if to Parent:
Hanover Compressor Company
12001 North Houston Rosslyn
Houston, Texas 77086
Telecopy: (713) 447-0821
Attention: Michael McGhan, President
with a copy to:
Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
Telecopy: (312) 269-1747
Attention: Richard S. Meller, Esq.
(b) if to Sub:
Hanover Acquisition Corp.
12001 North Houston Rosslyn
Houston, Texas 77086
Telecopy: (713) 447-0821
Attention: Michael McGhan, President
with a copy to:
Neal, Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
Telecopy: (312) 269-1747
Attention: Richard S Meller, Esq.
(c) if to Astra:
Astra Resources, Inc.
1021 Main Street
Suite 1270
Houston, Texas 77002-6505
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Telecopy: (713) 750-0050
Attention: C. Bob Cline, President
with a copy to:
John K. Rosenberg
818 Kansas Avenue
Topeka, Kansas
Telecopy: (913) 575-8136
(d) if to the Company:
Astra Resources Compression, Inc.
1021 Main Street
Suite 1270
Houston, Texas 77002-6505
Telecopy: (713) 750-0050
Attention: C. Bob Cline. President
with a copy to:
John K. Rosenberg
818 Kansas Avenue
Topeka, Kansas
Telecopy: (913) 575-8136
SECTION 10.3 Public Announcements. Except as required by law, prior to
the Effective Time, no party to this Agreement shall make, or cause to be made,
any press release or public announcement in respect of this Agreement or the
transactions contemplated hereby or otherwise communicate with any news media
without the prior written consent of the other parties. The parties shall
cooperate as to the timing and contents of any such press release or public
announcement.
SECTION 10.4 Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 10.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any Law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order
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that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 10.6 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersedes all prior agreements and undertakings, both written and
oral, between the Company and/or Astra, on the one hand, and Parent and/or Sub,
on the other hand, with respect to the subject matter hereof and thereof.
SECTION 10.7 Assignment. This Agreement may not be assigned by
operation of law or otherwise without the express written consent of the
Company and Parent (which consent may be granted or withheld in the sole
discretion of the Company or Parent).
SECTION 10.8 No Third Party Beneficiaries. This Agreement shall
be binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns and nothing herein, express or implied, is intended to or
shall confer upon any other Person any legal or equitable right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 10.9 Amendment. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the Company
and Parent or (b) by a waiver in accordance with Section 8.3.
SECTION 10.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, applicable to
contracts executed in and to be performed entirely within that state. All
action and proceedings arising out of or relating to this Agreement shall be
heard and determined in any Texas state or federal court sitting in the city of
Houston, Texas.
SECTION 10.11 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 10.12 DTPA Waiver. Each of the parties hereto hereby represents
and acknowledges that it is a "Business Consumer" for the purposes of the Texas
Deceptive Trade Practices - Consumer Protection Act (subchapter E of Chapter 17
of the Texas Business and Commerce Code), that it has assets of $5,000,000 or
more according to its most recent financial statements prepared in accordance
with generally accepted accounting principles, that it has knowledge and
experience in financial and business matters that enable it to evaluate the
merits and risks of the transactions contemplated by this agreement and by the
related agreements, that
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it has been represented by legal counsel of its choice in entering into this
agreement and the related agreements and the transactions contemplated hereby
and thereby, and that it is not in a significantly disparate bargaining
position with respect to the parties to and the transactions contemplated by
this agreement and the related agreements. Each of the parties hereto hereby
waives the provisions of the Texas Deceptive Trade Practices Consumer
Protection Act other than Section 17.555 thereof, as from time to time amended.
SECTION 10.13 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
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IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ASTRA RESOURCES, INC.
Attest: /s/ Dwain L. Williams By: /s/ C. Bob Cline
------------------------ -------------------------
Name: Dwain L. Williams Name:
Title: Secretary/Treasurer Title:
ASTRA RESOURCES COMPRESSION INC.
Attest: /s/ Dwain L. Williams By: /s/ C. Bob Cline
------------------------ ------------------------
Name: Dwain L. Williams Name:
Title: Secretary/Treasurer Title:
HANOVER COMPRESSOR COMPANY
Attest: /s/ Richard S. Meller By: /s/ William S. Goldberg
----------------------- -----------------------
Name: Richard S. Meller Name:
Title: Secretary Title:
HANOVER ACQUISITION CORP.
Attest: /s/ Richard S. Meller By: William S. Goldberg
---------------------- ------------------------
Name: Richard S. Meller Name:
Title: Secretary Title:
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<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HANOVER COMPRESSOR COMPANY
It is hereby certified that:
1. The name of the corporation (the "corporation") is Hanover
Compressor Company.
2. The corporation filed its original Certificate of
Incorporation with the Secretary of State of the State of Delaware on October
17, 1990.
3. Pursuant to this Certificate, the Certificate of Incorporation
of the corporation is to be amended and restated in its entirety to read as
follows:
FIRST: The name of the corporation (hereinafter the "corporation")
is:
HANOVER COMPRESSOR COMPANY.
SECOND: The Registered Office of the corporation is to be located at
1209 Orange Street, in the City of Wilmington, in the County of New Castle, in
the State of Delaware, 19801. The name of its Registered Agent at that address
is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue, itemized by class, series and par value, is:
<TABLE>
<CAPTION>
==============================================================================================
Number of
Par Value Shares
Class Series Per Share Authorized
----- ------ --------- ----------
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Undesignated $.001 500,000
- ----------------------------------------------------------------------------------------------
Preferred Undesignated $.01 200,000
==============================================================================================
</TABLE>
FIFTH: The Board of Directors is authorized to provide from time to
time for the issuance of shares of preferred stock of the corporation (the
"Preferred Stock") and to fix from time to time, before issuance, the
designation, preferences and privileges of the
<PAGE> 2
shares of Preferred Stock and the restrictions or qualifications thereof,
including, without limiting the generality of the foregoing, the following:
(a) The serial designation and authorized number of shares;
(b) The dividend rate, the date or dates on which such dividends
will be payable and the extent to which such dividends may be
cumulative;
(c) The amount or amounts to be received by the holders thereof in
the event of voluntary or involuntary dissolution or
liquidation of the corporation;
(d) Whether such shares may be redeemed, and if so, the price or
prices at which the shares may be redeemed and any terms,
conditions and limitations upon such redemption;
(e) Any sinking fund provisions for redemption or purchase of such
shares;
(f) The terms and conditions, if any, on which shares may be
converted, at the election of the holders thereof, into shares
of other capital stock or of other series of Preferred Stock
of the corporation; and
(g) The voting rights, if any.
The Board of Directors may also from time to time:
(h) Alter, without limitation or restriction, the rights,
preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock; and
(i) Within the limits or restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the
number of shares constituting any series, increase or decrease
(but not below the number of shares then outstanding) the
number of shares of any such series subsequent to the issuance
of shares of that series.
Each series of Preferred Stock may, in preference to the common stock
of the corporation, be entitled to dividends from funds or other assets legally
available therefor, at such rates, payable at such times and cumulative to such
extent as may be determined and fixed by the Board of Directors pursuant to the
authority herein conferred upon it.
Each series of Preferred Stock may be subject to redemption in whole
or in part at such price or prices and on such terms,
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<PAGE> 3
conditions and limitations as may be determined and fixed by the Board of
Directors prior to the issuance of such series. Unless otherwise determined by
the Board of Directors by authorizing resolution, if less than all of the
shares of any series of the Preferred Stock are to be redeemed, they will be
redeemed pro rata in accordance with the then holders interests in the
Preferred Stock being redeemed. Nothing herein contained is to limit any right
of the corporation to purchase or otherwise acquire any shares of any series of
Preferred Stock. Any shares of Preferred Stock redeemed or otherwise acquired
by the corporation will have the status of authorized and unissued shares,
undesignated as to series, and may thereafter, in the discretion of the Board
of Directors and to the extent permitted by law, be sold or reissued from time
to time as part of another series or (unless prohibited by the terms of such
series as fixed by the Board of Directors) of the same series, subject to the
terms and conditions herein set forth.
SIXTH: The Board of Directors and/or the stockholders of the
corporation are expressly empowered to make, alter, amend or repeal the By-Laws
of the corporation in the manner to be determined by the terms of the By-Laws
then in existence.
SEVENTH: The corporation shall have perpetual existence.
EIGHTH: The corporation shall indemnify all officers and directors
of the corporation, and advance expenses reasonably incurred by such officers
and directors in defending any civil, criminal, administrative or investigative
action, suit or proceeding, in accordance with and to the fullest extent
permitted by Section 145 of the General Corporation Law of Delaware, as amended
from time to time.
NINTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the corporation under the provisions of Section 279 of Title 8 of
the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
the corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the corporation as consequence of such compromise
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<PAGE> 4
or arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of the corporation, as the case may be,
and also on the corporation.
TENTH: To the fullest extent permitted by the General Corporation
Law of Delaware, as amended from time to time, a director of the corporation
shall not be liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
4. The aforesaid amendment and restatement of the Certificate of
Incorporation of the corporation was duly adopted in accordance with the
provisions of Section 245 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, the undersigned, being a duly authorized officer
of the corporation, for the purpose of amending and restating the Certificate
of Incorporation of the corporation in its entirety, does hereby make this
Certificate, declaring that the facts herein stated are true, and accordingly
has hereunto set his hand this 3rd day of August, 1995.
/s/ Curtis Bedrich
---------------------------
Curtis Bedrich
Treasurer
ATTEST:
/s/ Jeri Howell
- --------------------
Jeri Howell
Assistant Secretary
4
<PAGE> 5
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this __ day of ________________, 1995, personally appeared before
me, a Notary Public in and for the State and County aforesaid, Curtis Bedrich,
known to me to be the person described in and who executed the foregoing
Amended and Restated Certificate of Incorporation, and who acknowledged to me
that he executed the same freely and voluntarily and for the uses and purposes
therein mentioned.
WITNESS my hand and official seal, the day and year first above
written.
___________________________ Notary
Public
(Notarial Seal)
5
<PAGE> 1
EXHIBIT 3.2
Amended and Restated
on August 4, 1995
AMENDED
AND
RESTATED
BY-LAWS
OF
HANOVER COMPRESSOR COMPANY
ARTICLE I
OFFICES
Section 1. Registered Office. The Corporation shall have and
maintain a registered office in Delaware and a registered agent having a
business office identical with such registered office.
Section 2. Other Offices. The Corporation may also have such other
office or offices in Delaware or elsewhere as the Board of Directors may
determine or as the business of the Corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. Annual Meeting. The annual meeting of stockholders shall
be held on the first Monday in July or, if it is a legal holiday, then on the
next business day following, at 10:00 a.m. Such meeting may be held within or
without the State of Delaware. At such meeting the stockholders shall elect by
a plurality vote a Board of Directors, and transact such other business as may
properly be brought before the meeting. If the election of directors shall not
be held on the day designated herein for an annual meeting, or any adjournment
thereof, the Board of Directors shall cause the election to be held at a
meeting of the stockholders as soon thereafter as may be convenient.
Section 2. Special Meetings. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the President and shall be
called by the President or Secretary at the request in writing of a majority of
the Board of Directors or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the Corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business
<PAGE> 2
transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 3. Notice. Written notice of the annual or special meeting
shall be given to each stockholder entitled to vote thereat, in person or by
mailing to him at his or her last known address, not less than 10 nor more than
60 days before the date of meeting, unless such notice is waived in writing by
each stockholder entitled thereto. In the case of a special meeting, the
purpose or purposes for which the meeting is called must be stated in the
notice.
Section 4. Stockholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least 10 days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Upon the wilful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote in person or by proxy at
any meeting of the stockholders.
Section 5. Quorum. The holders of 50% of the capital stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be presented or represented,
at which time any business may be transacted which might have been transacted
at the meeting as originally notified. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide
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<PAGE> 3
any question brought before such meeting, unless the question is one upon which
by express provision of statute or the certificate of incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
Section 6. Voting. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted after
three years from its date, unless the proxy provides for a longer period.
Section 7. Written Consent. Whenever the vote of stockholders at a
meeting thereof is required or permitted to be taken, such meeting and vote of
stockholders may be dispensed with if a majority of the stockholders who would
have been entitled to vote upon the action if such meeting were held shall
consent in writing to such corporate action being taken.
ARTICLE III
DIRECTORS
Section 1. Number. The minimum number of directors which shall
constitute the whole Board of Directors shall not less than one nor more than
twenty. The number of directors to constitute the Board of Directors shall be
decided and the directors shall be elected at the annual or special meeting of
the stockholders (except as provided in Section 2 of this Article), and each
director elected shall hold office until his or her successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced.
Section 3. Duties of Directors. The business of the Corporation
shall be managed by or under the direction of its Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
by-laws directed or required to be exercised or done by the stockholders.
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<PAGE> 4
Section 4. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware.
Section 5. Regular Meetings. A regular meeting of the Board of
Directors shall be held immediately following the annual meeting of the
stockholders. In the event such meeting is not held immediately following the
annual meeting of the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Special Meetings. Special meetings of the board may be
called by the President with notice to each of the directors as provided in
Section 7 of this Article; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of one-third
of the directors.
Section 7. Notice. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time
be determined by the Board. Notice of meetings other than regular meetings
shall be given to each director, in person or by mail or by telegram, at his or
her last known address not less than 10 nor more than 60 days prior to the date
designated therein for such meetings including the date of mailing, unless said
notice is waived in writing by each director. Said notice shall be written,
specifying the time and place of such meeting.
Section 8. Quorum. At all meetings of the Board, a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, the certificate of incorporation or these
by-laws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Voting. At all meetings of the Board of Directors, each
director is to have one vote.
Section 10. Unanimous Consent. Unless otherwise restricted by the
certificate of incorporation or these by- laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or any
committee thereof, may be taken without a meeting if all members of the board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of the proceedings of the board or
committee.
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<PAGE> 5
Section 11. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation, which, to the extent provided in the resolution and not otherwise
restricted by statute, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, including the power and authority to declare dividends, and may
authorize the seal of the Corporation, if any, to be affixed to all papers
which may require it. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
Section 12. Compensation of Directors. Unless otherwise restricted
by statute or the certificate of incorporation, the Board of Directors shall
have the authority to fix the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the Corporation shall be elected
by the Board of Directors and shall be a Chairman of the Board, a
President/Chief Executive Officer, a Vice-President, a Secretary and a Chief
Financial Officer/Treasurer. The Board of Directors may also elect more than
one Vice President and one or more Assistant Secretaries and Assistant
Treasurers. Any number of offices may be held by the same person. The Board
of Directors may appoint such other officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
board.
Section 2. Election. The Board of Directors shall elect officers
annually at its first meeting after each annual meeting of stockholders.
Section 3. Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 4. Term. The officers of the Corporation shall hold office
until their successors are elected and qualify. Any officer
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<PAGE> 6
elected by the Board of Directors may be removed at any time by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in any
office of the Corporation shall be filled by the Board of Directors.
Section 5. Duties of Officers. The duties and powers of the officers
shall be as follows:
Chairman of the Board
The Chairman of the Board will preside at all meetings of the
Stockholders and the Board of Directors. Except where by law the signature of
the President is required, the Chairman will have the same power as the
President to sign all certificates, contracts and other instruments of the
Corporation. During the absence or disability of the President, the Chairman
will exercise the powers and perform the duties of the President.
President/Chief Executive Officer
The President shall be the Chief Executive Officer of the Corporation
and shall be responsible for formulating general policies and programs for the
Corporation for submission to the Board of Directors and for carrying out the
programs and policies approved by the Board of Directors. The President shall
be responsible for the administration and operation of the business and affairs
of the Corporation. The President shall cause to be called regular and special
meetings of the Stockholders and Board of Directors in accordance with these
by-Laws and he or she shall preside at all such meetings. The President shall
have the power to sign and deliver on behalf of the Corporation all documents
and agreements. The President shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
Vice-President
The Vice-President, if there shall be one, or if there shall be more
than one, the Vice-Presidents in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election),
shall, in the absence or disability of the President, perform the duties and
exercise all the powers of the President, and be subject to all the
restrictions upon the President. The Vice-Presidents shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Secretary
The Secretary shall attend all meetings of the Board of Directors and
all meetings of the stockholders and record all the
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<PAGE> 7
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties and have such other
powers as the Board of Directors or the President may from time to time
prescribe. The Secretary shall have custody of the corporate seal of the
Corporation, if any, and he, or an Assistant Secretary, shall have authority to
affix the same to any instrument requiring it and, when so affixed, it may be
attested by his or her signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature.
Assistant Secretary
The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board of Directors (or if there be
no such determination, then in the order of their election), shall, in the
absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Chief Financial Officer/Treasurer
The Chief Financial Officer/Treasurer ("Treasurer") shall have custody
of the Corporation's funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation
and shall deposit all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors at
its regular meetings, or when the Board of Directors so requires, an account of
all his or her transactions as Treasurer and the financial condition of the
Corporation.
If required by the Board of Directors, the Treasurer shall give the
Corporation and maintain a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his or her office and for the restoration to the Corporation, in
case of his or her death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in his
or her possession or under his or her control belonging to the Corporation.
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<PAGE> 8
Assistant Treasurer
The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors (or if
there shall be no such determination, then in the order of their election),
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE V
STOCK CERTIFICATES
Section 1. Description. Every holder of stock in the Corporation
shall be entitled to have a certificate, signed by, or in the name of the
Corporation by, the President or a Vice President, and countersigned by the
Treasurer or Assistant Treasurer, Secretary or Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation,
and sealed with the seal of the Corporation, if any. If the Corporation shall
be authorized to issue more than one class of stock, or more than one series of
any class, the designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the certificate
which the Corporation shall issue to represent such class of stock; provided,
however, that except as otherwise provided in Section 202 of the General
Corporation Law of Delaware, in lieu of the foregoing requirements, there may
be set forth on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, a statement that the
Corporation will furnish without charge to each stockholder who so requests,
the designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Facsimile of Signature. The signature of any officer on a
stock certificate may be by facsimile. In case any officer or officers who
have signed, or whose facsimile signature or signatures have been used on any
such certificate or certificates, shall cease to be such officer or officers of
the Corporation, whether because of death, resignation or otherwise, before
such certificate or certificates are issued, such certificate or certificates
may nevertheless be adopted by the Corporation and be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or
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<PAGE> 9
signatures have been used thereon had not ceased to be such officer or officers
of the Corporation.
Section 3. Transfer of Stock. The stock of the Corporation,
irrespective of class, shall be assignable and transferable on the books of the
Corporation only by the person in whose name it appears on said books, or his
or her legal representatives. In case of transfer by attorney, the power of
attorney, duly executed and acknowledged, shall be deposited with the
Secretary. In all cases of transfer, the former certificate must be
surrendered up and cancelled before a new certificate is issued; however, in
the event of loss, mutilation or destruction of a certificate, a duplicate
certificate may be issued upon such terms as the Board of Directors shall
prescribe. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books,
subject, however, to any restrictions or limitations on the transfer thereof
which may be set forth in the certificate of incorporation or referred to on
the certificate so surrendered or which may be imposed by law or by any
agreement to which the holder of such shares is subject.
Section 4. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote or take other action
as such owner, and to hold liable for calls and assessments a person registered
on its books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of capital stock of the Corporation, subject to the provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum as
the directors from time to time, in their absolute discretion, think proper as
a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or
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<PAGE> 10
maintaining any property of the Corporation, or for such other purpose as the
directors shall think conducive to the interests of the Corporation, and the
directors may modify or abolish any such reserve in the manner in which it was
created.
Section 2. Statements and Reports. The Board of Directors shall
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
Section 3. Checks and Notes. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other persons as the Board of Directors may from time to time designate.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 of each
year, unless otherwise determined by the Board of Directors.
ARTICLE VIII
AMENDMENTS
These by-laws may be altered, amended or repealed, or new by-laws may
be adopted, at any regular meeting of the stockholders or the Board of
Directors or at any special meeting of the stockholders or the Board of
Directors if notice of such alteration, amendment, repeal, or adoption of new
by-laws is contained in the notice of such special meeting.
ARTICLE IX
NOTICE
Section 1. Notice. Whenever, under the provisions of the statutes or
of the certificate of incorporation or these by-laws, notice is required to be
given to any director or stockholder, it shall not be construed to require
personal notice, but such notice may also be given in writing, by first class
United States mail, postage prepaid, or by prepaid telegram and mail, addressed
to such director or stockholder at his or her address as it appears on the
records of the Corporation, and such notice shall be deemed to be
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<PAGE> 11
given at the time when the same shall be deposited in the United States mail
or, in the case of telegrams, when transmitted.
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of the statutes or of the certificate of
incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
11
<PAGE> 1
EXHIBIT 3.3
FILED MARCH 8, 1996
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HANOVER COMPRESSOR COMPANY
It is hereby certified that:
1. The name of the Corporation is Hanover Compressor Company.
2. The amendment to the Certificate of Incorporation effected by
this Certificate is as follows:
The Ninth Article of the Certificate of Incorporation of the
Corporation is hereby deleted in its entirety with the following substituted
therefor:
"NINTH: The corporation shall indemnify all officers and
directors of the corporation, and advance expenses reasonably incurred
by such officers and directors in defending any civil, criminal,
administrative or investigative action, suit or proceeding, in
accordance with and to the fullest extent permitted by Section 145 of
the General Corporation Law of Delaware, as amended from time to
time."
By adding a new Fourteenth Article, reading in its entirety, as
follows:
"FOURTEENTH: Whenever a compromise or arrangement is proposed
between the corporation and its creditors or any class of them and/or
between the corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of the corporation or of any creditor
or stockholder thereof or on the application of any receiver or
receivers appointed for the corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for
the corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing
three-fourths (3/4) in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the
corporation, as the case may be,
<PAGE> 2
agree to any compromise or arrangement and to any reorganization of
the corporation as consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all
the stockholders or class of stockholders of the corporation, as the
case may be, and also on the corporation."
3. The aforesaid amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, this certificate has been executed on behalf of
Hanover Energy Holding Corporation by its duly authorized Executive Vice
President, William S. Goldberg, and its duly authorized Secretary, Richard S.
Meller, this 15th day of May, 1995.
HANOVER COMPRESSOR COMPANY,
a Delaware corporation
By:
---------------------------
William S. Goldberg,
Executive Vice President; and
By:
---------------------------
Richard S. Meller, Secretary
-2-
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EXHIBIT 4.1
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
Third Amended and Restated Registration Rights Agreement (the
"Agreement"), dated as of December 5, 1995, by and between Hanover Compressor
Company, a Delaware corporation (the "Company"), and the Persons named in
Schedule I hereto who execute counterparts of this Agreement.
R E C I T A L S:
A. The original parties to this Agreement, other than Astra
Resources, Inc. ("Astra"), are parties to that certain Second
Amended and Restated Registration Rights Agreement, dated as of
August 7, 1995 (the "Second Amended and Restated Agreement").
B. Pursuant to that certain Merger Agreement, dated as of the date
hereof (the "Merger Agreement") between the Company, Hanover Acquisition Corp.,
Astra and Astra Resources Compression, Inc., the Company is to issue to Astra
(i) 30,555.56 shares of the Company's common stock, par value $.001 per share
(the "Common Stock"). The execution of this Agreement is a condition to the
closing under the Merger Agreement.
C. In order to induce Astra to enter into and perform its obligations
under the Merger Agreement, the Company has agreed to provide Astra with
certain registration rights which may be deemed to be more favorable than the
registration rights granted to the parties to the Second Amended and Restated
Agreement.
D. The Second Amended and Restated Agreement requires the Company to
grant to the parties thereto any superior or more favorable registration rights
which the Company grants to any other Person.
E. All of the parties to the Second Amended and Restated Agreement and
Astra agree that it is in their mutual best interest to amend and restate the
Second Amended and Restated Agreement in its entirety to provide identical
registration rights to all of the stockholders of the Company entitled thereto.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized terms
shall have the following meanings:
"Common Stock" has the meaning set forth in the Recitals.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar or successor federal statute and the rules and
regulations of the SEC promulgated thereunder, all as the same shall be in
effect at the time.
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"Holder" means any Person named in Schedule I hereto who
executes a counterpart of this Agreement and any Person who becomes a Holder
after the date of this Agreement pursuant to Paragraph 10(a).
"Indemnified Party" has the meaning set forth in
Paragraph 7(c).
"Indemnifying Party" has the meaning set forth in
Paragraph 7(c).
"NASD" means the National Association of Securities
Dealers, Inc.
"Person" means an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, or a
government or agency or political subdivision thereof, or any other entity of
any kind.
"Registered Securities" means Registrable Securities which
have been registered under the Securities Act pursuant to a registration
statement filed with and declared effective by the SEC.
"Registrable Securities" means (i) the Shares; (ii) the
shares of Common Stock and other securities into which the Shares are
convertible from time to time; (iii) the shares of Common Stock issued or
issuable as dividends on, or other distributions with respect to, the Shares;
and (iv) any other security issued or issuable in exchange for, or in
replacement of, any of the Shares, in each case until any such security ceases
to be a Registrable Security in accordance with Paragraph 2(a) hereof.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Paragraphs 3 and 4 of this
Agreement, including without limitation all registration and filing fees,
including fees with respect to filings required to be made with any stock
exchange or the NASD, fees and expenses of compliance with state securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities),
messenger, telephone and delivery expenses, and the fees and expenses of
counsel for the underwriter and the reasonable fees and expenses of one counsel
for the Selling Holders, costs of printing prospectuses, and fees and
disbursements of counsel for the Company and of all independent certified
public accountants of the Company (including the expenses of any special audit
and "cold comfort" letters required by or incident to such performance).
"Registration Statement" means any registration statement of
the Company which includes any of the Registrable Securities pursuant to the
provisions of this Agreement, including the
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prospectus included or deemed included in the Registration Statement and all
amendments and supplements to the Registration Statement or the prospectus,
including post-effective amendments, and all exhibits to, and all materials
incorporated by reference in, the Registration Statement.
"SEC" means the United States Securities and Exchange
Commission or any similar agency then having the authority to enforce the
Exchange Act or the Securities Act.
"Securities Act" means 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 at the time.
"Selling Expenses" means all fees and expenses of
underwriters including discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals relating
to the distribution of the Registrable Securities.
"Selling Holders" has the meaning set forth in Paragraph
5(b).
"Shares" means the shares of Common Stock of the Company
owned by the Holders (including, without limitation, the shares of Common Stock
issued or issuable upon conversion of the Series B Preferred Stock) and any
shares hereafter acquired.
"Stockholder" means any holder of equity securities
issued by the Company.
"Stockholders Agreements" means (i) that certain Stockholders
Agreement, dated as of January 26, 1995 among the Company and the Stockholders
of the Company parties thereto, (ii) that certain Supplemental Stockholders
Agreement, dated as of March , 1995 among the Company and the Stockholders of
the Company parties thereto, (iii) that certain Stockholders Agreement dated as
of among the Company, Joint Energy Development Investments Limited Partnership
and other Stockholders of the Company parties thereto and (iv) that certain
stockholders Agreement dated as of the date hereof among the Company, Astra and
other Stockholders of the Company parties thereto.
2. Securities Subject to this Agreement.
(a) Registrable Securities. The securities entitled to the
benefits of this Agreement are the Registrable Securities, but such benefits
shall continue with respect to each such security only so long as such security
continues to be a Registrable Security. A security ceases to be a Registrable
Security when (i) a Registration Statement covering the sale of such
Registrable
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Security has been declared effective under the Securities Act and the
Registrable Security has been sold in accordance with the Registration
Statement; (ii) it is distributed to the public pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act; (iii) a new
certificate representing such security has been delivered (to the original
Holder or any subsequent transferee) by the Company free from any restrictive
legend and without issuance of stop transfer or other instructions to the
Company's transfer agent and the Holder of such security has been advised by
counsel acceptable to it that subsequent disposition of such security will not
require registration or qualification under the Securities Act or any state
"blue sky" or similar law then in effect; or (iv) the security has ceased to be
outstanding.
(b) Holders of Registrable Securities. This Agreement is for
the benefit of any person owning or having the right to acquire Registrable
Securities, irrespective of whether such person is a signatory to this
Agreement, provided the Registrable Securities were not acquired by such person
in a transaction which violated any of the restrictions on transfer contained
in the Stockholders Agreement to which such Registrable Securities may be
subject.
3. Registration under the Securities Act: Piggy-Back
Registration.
(a) Piggy-Back Registration. If (but without any obligation
to do so) the Company proposes to register (including for this purpose a
registration effected by the Company for stockholders other than. the Holders)
any of its capital stock or other securities under the Securities Act in
connection with the public offering of such securities (other than any
offerings registered under Form S-4 or Form S-8 or a comparable or successor
form), then:
(i) the Company in each case will
notify in writing each Holder of
its intention to effect such a
registration at least 30 days prior
to the proposed filing of a
Registration Statement in
connection therewith; and
(ii) the Company will offer each Holder
the opportunity to include in such
registration all or such lesser
amount of Registrable Securities as
each Holder may request. Upon the
request of one or more Holders which
in the aggregate own 2.5% or more of
the outstanding Registrable
Securities, given in writing within
20 days after receipt of the notice
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described under clause (i) above,
the Company will use its reasonable
best efforts as soon as practicable
thereafter to cause any of the
Registrable Securities specified by
such Holder to be included in the
Registration Statement; and
(iii) if the registration of which the
Company gives written notice under
clause (i) above involves an
underwriting, the Company shall use
its reasonable best efforts to cause
the managing underwriter(s) of the
proposed underwritten offering to
permit Holders to include their
Registrable Securities in the
underwriting on the same terms and
conditions as similar terms of the
Company included therein.
(b) Limitations on Company's Obligations to Effect Additional
Piggy-Back Registration. Notwithstanding the provisions of Paragraph 3(a)
above, if and to the extent that the managing underwriter(s) advise the Company
in writing that inclusion of the number of Registrable Securities held by
Holders requesting inclusion in the Registration Statement would materially
interfere with the underwriter's ability to effectuate the registration and
sale of securities proposed to be offered and sold pursuant to the Registration
Statement, the managing underwriter(s) shall select the permissible quantity of
Registrable Securities to be sold by the Holders (which may be none) by
reducing the total number of securities to be sold by the holders of securities
other than Registrable Securities and the Holders (but not the number of
securities to be sold by the Company) on a pro rata basis. For purposes of
apportionment pursuant to this Paragraph 3(b), for any selling Holder that is a
partnership or a corporation, the affiliates of such partnership or shareholder
shall collectively, with such Holder be deemed to be one "selling Holder," and
any pro rata reduction with respect to such "selling Holder" shall be based
upon the aggregate amount of shares carrying registration rights owned by
entities and individuals included in such "selling Holder."
(c) Underwritten Offer. If the registration of which the
Company gives written notice under Paragraph 3(a)(i) above involves an
underwriting, the Company shall so advise in such written notice. In such event
the right of any Holder to registration pursuant to Paragraph 3(a) shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in such underwriting. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall (together with the Company and the
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other holders distributing their Registrable Securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw from the underwriting by prompt written notice to the Company
and the underwriter.
4. Registration under Securities Act: Demand Registration.
(a) Demand for Registration. At any time on or after the
third anniversary of this Agreement, any single Holder, which, together with
its Affiliates owns at least 18% of the outstanding shares (an "Initiating
Holder") may request in writing that the Company effect the registration under
the Securities Act of such Holders' Registrable Securities, in which case the
Company will use its best efforts to effect such registration.
(b) Limitation on Company's Obligation. The Company is
obligated to effect only one registration for any single Holder pursuant to
this Paragraph 4, unless the Company fails to effect the registration of all
Registrable Securities for which registration is requested pursuant to this
Paragraph 4 and have such registration declared or ordered effective (in which
event, subject to the foregoing qualification, one further request may be
made); and thereafter the Company shall have no obligation to include any
Registrable Securities in any registration with respect to such Initiating
Holder pursuant to this Paragraph 4.
(c) Underwritten Offer. If an Initiating Holder desires to
distribute Registrable Securities covered by its request by means of an
underwriting, it shall so advise the Company as a part of its request made
pursuant to this Paragraph 4. The Company shall select an underwriter (which
shall be reasonably acceptable to the Initiating Holder) for such underwriting
and shall together with the Initiating Holder enter into an underwriting
agreement in customary form with the underwriter.
5. Registration Obligations of the Company. In connection
with the filing of a Registration Statement pursuant to Paragraph
3 or 4, the Company shall:
(a) Use its reasonable best efforts to cause such
Registration Statement to remain in effect until the earlier of (i) the
completion of the distribution of the Registrable Securities included in the
Registration Statement, or (ii) two years after the date on which the
Registration Statement is declared effective.
(b) Notify the Holders whose Registrable Securities are
included in such Registration Statement (the "Selling Holders") as
to the filing of the Registration Statement and of all amendments
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or supplements thereto filed prior to the effective date of such
Registration Statement;
(c) Notify the Selling Holders, promptly after the Company
shall receive notice thereof, of the time when such Registration Statement
became effective or when any amendment or supplement to any prospectus forming
a part of said Registration Statement has been filed;
(d) Notify the Selling Holders promptly of any request by the
SEC for the amending or supplementing of such Registration Statement or
prospectus or for additional information;
(e) During the period in which the Company is obligated to
use its reasonable best efforts to keep a Registration Statement effective
pursuant to this Paragraph 4, prepare and promptly file with the SEC and
promptly notify the Selling Holders of the filing of any amendments or
supplements to such Registration Statement or prospectus as may be necessary to
correct any statements or omissions if, at any time when a prospectus relating
to the Registrable Securities is required to be delivered under the Securities
Act, any event with respect to the Company shall have occurred as a result of
which any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading; and, in addition,
during such period, prepare and file with the SEC, promptly upon the Selling
Holders' written request, any amendments or supplements to such Registration
Statement or prospectus which may be reasonably necessary or advisable in
connection with the distribution of the Registrable Securities;
(f) Prepare, promptly upon request of the Selling Holders or
any underwriters for the Selling Holders made during the period in which the
Company is obligated to use its reasonable best efforts to keep a Registration
Statement effective, such amendment or amendments to such Registration
Statement and such prospectus or prospectuses as may be reasonably necessary to
permit compliance with the requirements of Section 10(a)(3) of the Securities
Act;
(g) Advise the Selling Holders promptly after the Company
shall receive notice or obtain knowledge of the issuance of any stop order by
the SEC suspending the effectiveness of any such Registration Statement or
amendment thereto or of the initiation or threatening of any proceeding for
that purpose, and promptly use its reasonable best efforts to prevent the issue
of any stop order or obtain its withdrawal promptly if such stop order should
be issued;
(h) Use its reasonable best efforts to qualify as soon as
reasonably practicable the Registrable Securities for sale under the securities
or blue sky laws of such states and jurisdictions
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within the United States as shall be reasonably requested by the Selling
Holders; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business, to become
subject to taxation or to file a consent to service of process generally in any
of the aforesaid states or jurisdictions;
(i) Furnish the Selling Holders, as soon as available, copies
of any Registration Statement and each preliminary or final prospectus, or
supplement or amendment required to be prepared pursuant hereto, all in such
quantities as the Selling Holders may from time to time reasonably request; and
(j) Furnish each Selling Holder such opinions of counsel and
accountants' "comfort" letters as it reasonably may request with respect to the
registration of its Registrable Securities, the Registration Statement covering
such Registrable Securities and the financial statements included therein.
(k) Apply for listing and use its reasonable best efforts to
list the Registrable Securities, if any, being registered on any national
securities exchange on which a class of the Company's equity securities is
listed or, if the Company does not have a class of equity securities listed on
a national securities exchange, apply for qualification and use its reasonable
best efforts to qualify the Registrable Securities, if any, being registered
for inclusion on the automated quotation system of the National Association of
Securities Dealers, Inc.
6. Expenses. The Company will pay all Registration Expenses in
connection with registrations of Registrable Securities effected pursuant to
Paragraphs 3 or 4. All Selling Expenses in connection with any registration
effected pursuant to this Agreement shall be borne by the Company and the
holders of the Registrable Securities so registered, pro rata on the basis of
the number of Shares included in the registration for the account of the
Company and the number of Registrable Securities so registered by each such
holder.
7. Indemnification.
(a) To the extent permitted by applicable law, the Company
will indemnify each Holder of the Registrable Securities requesting or joining
in a registration, each Person who controls such Holder within the meaning of
Section 15 of the Securities Act, and each underwriter of the securities so
registered and each Person who controls such underwriter, and their respective
officers, directors, partners, agents, employees and successors, against all
costs, expenses, demands, claims, losses, damages, liabilities, fines and
penalties (or actions in respect thereof), to which such holder or such other
Person may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such claims, losses, damages, liabilities, fines and
penalties arise out
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of or are based on any untrue statement (or alleged untrue statement) of a
material fact contained in any Registration Statement or prospectus, or arise
out of or are based upon any omission (or alleged omission) to state therein a
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law (other than with respect to violations or alleged violations
caused by the Person seeking indemnification under this Section 7(a)) and will
reimburse each such Holder, each Person who controls such Holder within the
meaning of Section 15 of the Securities Act and each such underwriter, and
their respective officers, directors, partners, agents, employees and
successors for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such demand, claim, loss,
damage, liability or action promptly after submission of supporting materials
with respect to such expenses; provided, however, that the Company shall not be
required to indemnify any holder or underwriter or Person which controls any
holder or underwriter for any cost, expense, demand, claim, loss, damage,
liability, fine or penalty which arises out of or is based upon any written
information provided by such holder or underwriter, respectively, expressly for
inclusion in the Registration Statement.
(b) To the extent permitted by applicable law, each Holder
requesting or joining in a registration will indemnify the Company, each of its
officers, directors, successors and controlling persons, and each underwriter,
if any, of the Company's securities covered by a registration statement, each
Person who controls the Company or such underwriter within the meaning of
Section 15 of the Exchange Act, and any other Holder selling securities in such
registration statement or any of its directors, officers, partners, agents or
employees or any other person who controls, within the meaning of Section 15 of
the Exchange Act, such Holder against all costs, expenses, demands, claims,
losses, damages, liabilities, fines and penalties (or actions in respect
thereof) to which such indemnified party may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon an untrue statement (or
alleged untrue statement) of a material fact contained in any Registration
Statement or prospectus, or arise out of or are based upon the omission (or
alleged omission) to state therein a 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 Registration
Statement or prospectus in reliance upon and in conformity with written
information furnished to the Company by such Holder requesting or joining in a
registration specifically for use in the preparation
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thereof; provided, that the liability of any Holder hereunder shall be limited
to the amount of proceeds received by such Holder in the offering giving rise
to the indemnification claim.
(c) Each party entitled to indemnification under this
Paragraph 6 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has received written notice of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided such
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld or delayed). The Indemnified Party may participate
in such defense at such party's expense; provided, however, that the
Indemnifying Party shall bear the expense of such defense of the Indemnified
Party if (i) the Indemnifying Party has agreed in writing to pay such expenses,
(ii) the Indemnifying Party shall have failed to assume the defense of such
claim or employ counsel reasonably satisfactory to the Indemnified Party, or
(iii) in the reasonable judgment of the Indemnified Party, based upon the
written advice of such Indemnified Party's counsel, representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interest. In the event that the Indemnifying Party properly does
not assume such defense, the Indemnifying Party shall not be subject to any
liability for any settlement made without its prior written consent, which
consent shall not be unreasonably withheld or delayed. The failure of any
Indemnified Party to give notice as provided herein shall relieve the
Indemnifying Party of its obligations under this Section 7 only to the extent
that such failure to give notice shall materially adversely prejudice the
Indemnifying Party in the defense of any such claim or any such litigation. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the prior written consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation in form and substance reasonably satisfactory to such Indemnified
Party.
8. Contribution.
(a) If the indemnification provided for in Paragraph 7 from
the Indemnifying Party is unavailable to or unenforceable by the Indemnified
Party in respect to any losses, claims, damages, liabilities or expenses
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the
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relative fault of the Indemnifying Party and Indemnified Parties in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such Indemnifying Party and Indemnified Parties shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Parties, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Paragraph 7, any
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
(b) The Company and the Holders agree that it would not be
just and equitable if contribution pursuant to this Paragraph 8 were determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent misrepresentation (within
the meaning of Section II(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(c) If indemnification is available under Paragraph 7, the
Indemnifying Parties shall indemnify each Indemnified Party to the full extent
provided in Paragraph 7 without regard to the relative fault of the
Indemnifying Party or Indemnified Party or any other equitable consideration
provided for in this Paragraph 8.
9. Hold-Back Agreements.
(a) Restrictions on Public Sale by Holder of Registrable
Securities. To the extent consistent with applicable law, each holder of
Registrable Securities whose Registrable Securities are included in a
Registration Statement filed pursuant to Paragraph 3 or 4 hereof agrees not to
effect any public sale or distribution of the issue being registered or any
similar security of the Company, including a sale pursuant to Rule 144 under
the Securities Act, during the 7-day period prior to, and during the 90-day
period beginning on, the effective date of such Registration Statement, to the
extent such sales may prevent the Company from being in compliance with the
Exchange Act; provided, however, that no such restriction shall apply to sales
of Registrable Securities made pursuant to that Registration Statement, which
may be made at any time following the effective date of that Registration
Statement.
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(b) Restrictions on Public Sale by the Company. The
Company shall not effect any public or nonpublic sale or distribution of any
securities similar to those being registered, or any securities convertible
into or exchangeable or exercisable for any such securities or similar
securities, during the 7-day period prior to, and during the 90-day period
beginning on, the effective date of any Registration Statement in which holders
of Registrable Securities are participating or the commencement of a public
distribution of Registrable Securities pursuant to any such Registration
Statement (except (i) as part of such registration or pursuant to registrations
on SEC Forms S-4 or S-8 or any similar or successor form, or on any form filed
in connection with an exchange offer or an offering of securities solely to the
existing stockholders or employees of the Company or (ii) for sales or other
issuances of securities pursuant to outstanding options, warrants, rights or
similar obligations).
10. Rule 144 and Stock Exchange Listings.
From and after the time that the Company becomes subject to
the filing and reporting requirements of the Securities Act and the Exchange
Act, and so long as there are Registrable Securities outstanding:
(a) The Company will file the reports required to be filed by
it under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder, and will take such further action as any holder
of Registrable Securities may reasonably request, all to the extent required
from time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any holder of Registrable Securities, the Company
will deliver to such holder a written statement as to whether it has complied
with such information and requirements.
(b) The Company will use its reasonable best efforts to avoid
taking any action which would cause the Common Stock to cease to be eligible
for inclusion on either of the National Association of Securities Dealers
Automated Quotation System or for listing on any securities exchange on which
it may become listed.
11. Obligations of Holder.
(a) Each Holder of Registrable Securities included in any
registration shall furnish to the Company such information regarding such
Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this
Agreement.
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(b) Each Holder of the Registrable Securities agrees by
acquisition of such Registered Securities that upon receipt of any notice from
the Company pursuant to Paragraph 5(g), such Holder will forthwith discontinue
such Holders' disposition of Registered Securities pursuant to the registration
statement relating to such Registered Securities until such Holders' receipt of
the copies of the supplemented or amended prospectus contemplated by Paragraph
5(g) and if so directed by the Company, will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holders' possession of the prospectus relating to such Registered Securities at
the time of receipt of such notice.
12. Miscellaneous.
(a) Transfer of Certain Rights. The rights granted to the
Holders under this Agreement may be transferred only to a transferee who
delivers to the Company, within a reasonable time after such transfer, a
written instrument by which such transferee agrees to be bound by the
applicable terms of this Agreement and the applicable Stockholders
Agreement(s). Notwithstanding the foregoing, and to the extent consistent with
the applicable Stockholders Agreement(s), nothing herein shall prohibit: (i)
any Holder from transferring any of its rights under this Agreement to any
wholly-owned subsidiary of such Holder or to any entity which merges or
consoLidates with or acquires all or substantially all of the equity securities
or assets of such Holder, (ii) any Holder which is a partnership from
transferring any of its rights under this Agreement to a partner of such
partnership where such partner receives Registrable Securities in a
distribution from such partnership, (iii) any Holder who is an individual from
transferring any of its rights under this Agreement to such Holder's spouse or
to other relatives, or to a trust for the benefit of the Holder, or his or her
spouse or other relatives; or (iv) any trustee of a trust which holds
Registerable Securities from distributing such Registrable Securities to the
beneficiaries of such trusts; provided that any such transferee under
subparagraphs (i), (ii), (iii) or (iv) above will hold the Registrable
Securities subject to the terms and conditions of this Agreement and the
applicable Stockholders Agreements. Upon any transfer of the rights of a Holder
permitted by and completed in compliance with the terms of this Agreement, the
transferee shall become a "Holder" for purposes of this Agreement and the
Company shall add the name and address of the transferee to Schedule I (and, to
the extent the transferor no longer holds Registrable Securities shall delete
the name and address of the transferor).
(b) Remedies. In the event of a breach by the Company
of its obligations under this Agreement, each holder of Registrable
Securities, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The
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<PAGE> 14
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(c) No Inconsistent Agreements. The Company shall not on or
after the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. To the extent the Company on or after the date of this
Agreement grants any superior or more favorable rights or terms to any Person
with respect to its securities, any such superior or more favorable rights or
terms shall also be deemed to have been granted simultaneously to the holders
of Registrable Securities. The Company has not previously entered into or
become a party to nor is it bound by any agreement with respect to its
securities granting any registration rights to any Person which is inconsistent
with the rights granted hereunder. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the securities of the
Company under any other agreements. In the event of a conflict between the
terms of this Agreement and the terms of the Stockholders Agreement, the terms
of the Stockholders Agreement shall govern for all purposes.
(d) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given without the written
consent of holders of at least a two-thirds majority of the Registrable
Securities affected by such amendment, modification, supplementation, waiver or
consent. Notwithstanding the foregoing, a waiver or consent to departure from
the provisions hereof with respect to (i) a maker which relates exclusively to
the rights of holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and which does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by
the holders of a two-thirds majority of the Registrable Securities being sold
by such holders, provided that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence and (ii) any amendments to Section 4 hereof
shall require the approval of Astra as long as Astra owns at least 15 % of the
outstanding shares of the Company.
(e) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing and shall be delivered by
hand, next-day courier service, registered or certified first-class mail,
return receipt requested, telex, telegram or telecopier; if to a Holder, at the
address set forth
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<PAGE> 15
opposite such Holder's name on Schedule I attached hereto or such other address
as may have been furnished to the Company in writing; if to the Company, at
12001 North Houston-Rosslyn, Houston, Texas 77086 and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Paragraph 11(e).
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; one business
day after sent if sent by courier service.
(f) 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.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(j) Entire Agreement. This Agreement (and all exhibits and/or
schedules attached hereto) is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the securities
now or hereafter owned by the Holders. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter, including, without limitation, the First Amended and Restated
Agreement.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof or
thereof is validly asserted as a defense, the successful party shall be
entitled to recover, and the court shall award, reasonable attorneys' fees in
addition to its costs and expenses and any other available remedy.
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<PAGE> 16
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:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGES]
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<PAGE> 17
THE HOLDERS:
ASTRA RESOURCES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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 of the
Nancy K. Goldberg Declaration
of Trust
-17-
<PAGE> 18
-----------------------------------
William E. Simon, Jr.
-----------------------------------
Peter Simon
-----------------------------------
Mary Beth Simon Streep
-----------------------------------
Carol Leigh Porges
-----------------------------------
Aimee Simon Bloom
-----------------------------------
Julie Simon Munro
-----------------------------------
Johanna Katrina Simon
-----------------------------------
Alvin V. Shoemaker
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<PAGE> 19
-----------------------------------
C. Leigh Faldi, 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
-----------------------------------
Alan D. Lavenue
-----------------------------------
Casidy A. Ward
-----------------------------------
Donald T. Jacobsen
-----------------------------------
Kevin L. Smith
-----------------------------------
L. O. Ward Revocable Trust
-----------------------------------
Richard R. Tozzi
-----------------------------------
William C. Ward
-----------------------------------
Lew O. Ward
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<PAGE> 20
JOINT ENERGY DEVELOPMENT
INVESTMENTS LIMITED PARTNERSHIP
By: Enron Capital Management
Limited Partnership, its
general partner
By: Enron Capital Corp., the
general partner of Enron
Capital Management Limited
Partnership
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
IPP95, L.P.
By: WESTINVEST, Inc., its
general partner
----------------------------------
Name:
Title:
HANNA INVESTMENT GROUP, II
By:
-------------------------------
Name:
Title:
----------------------------------
Ted Collins, Jr.
-20-
<PAGE> 21
OTTO CANDIES, INC.
By:
------------------------
Name: Paul Candies
Title: President
---------------------------
Phyllis S. Hojel
-21-
<PAGE> 1
EXHIBIT 4.3
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") dated as of January 27,
1995, among Hanover Compressor Company, a Delaware corporation (the "Company")
and the other parties signatory hereto.
W I T N E S S E T H:
WHEREAS, each of the signatories hereto (other than the Company) is a
holder of shares of common stock, $0.001 par value, of the Company (the
"Stock"); and
WHEREAS, the parties hereto wish to provide for certain agreements and
understandings regarding, among others, the disposition of the Stock owned or
controlled by each of them.
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 Stockholders Agreement, as originally
executed and as amended, modified, supplemented or restated from time to time,
as the context requires.
"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.
<PAGE> 2
"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, but not less than all, 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.
In addition to the requirements specified in the preceding sentence, if
at any time that a Bona Fide Purchaser makes an offer to purchase Seller's
Stock there exists a Seller's Liability, then, except as otherwise expressly
set forth herein, the Bona Fide Purchaser's offer must include the Bona Fide
Purchaser's written agreement to obtain the complete release of Seller and its
Affiliates from the Seller's Liability and to itself become personally liable
for the Seller's Liability if any relevant third-party lender so requires as a
condition for its complete release of Seller and its Affiliates. If any such
lender will not agree to so release Seller and its Affiliates from the Sellers'
Liability, then the Bona Fide Purchaser and its Affiliates shall, by written
agreement, indemnify and hold Seller and its Affiliates harmless from the
Seller's Liability from and after the date of the closing of the purchase and
sale of the Seller's Stock.
"Charter Documents" shall mean the collective reference to the
Certificate of Incorporation and Bylaws of a Person.
"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.
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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.
"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.
"Seller's Liability" means any personal liability of a Stockholder who
is selling its Stock pursuant to this Agreement for the repayment of any loans
made to the Company by a third party lender (whether pursuant to a guaranty,
loan, security or indemnification arrangement or otherwise).
"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 the
Seller to the Non-Selling Stockholders pursuant to Section 2.2. 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 Seller'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:
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<PAGE> 4
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Company preamble
Exempt Disposition 2.1(a)
Participating Stockholder 2.4(b)
Purchasing Stockholder 2.2(c)
Secondary Notice 2.2(b)
Securities Act 2.1 (a)
Seller 2.2
Stock preamble
</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) General Transfer Restriction. Each Stockholder covenants
and agrees that such Stockholder will not, and will not permit its Affiliates
to Dispose or cause the Disposition of such Stockholder's Stock or any interest
therein except (i) in accordance with the terms and conditions of this Article
II, (ii) pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Securities Act") or (iii) pursuant to any public
distribution of Stock pursuant to Rule 144 of the Securities Act. The
Dispositions described in the immediately preceding clauses (ii) and (iii) are
sometimes collectively referred to herein as "Exempt Dispositions"). Any
attempted Disposition not in accordance with the terms and conditions of this
Agreement shall be null and void and of no force or effect.
(b) Transfers to Affiliates. Notwithstanding the restrictions
on Disposition set forth in this Article II, any Stockholder (which term for
the purposes of this Section 2.1(b) shall not include any Affiliate of a
Stockholder which acquired Stock pursuant to this Section 2.1(b)), may Dispose
of all or a portion of its Stock to an Affiliate; provided, however, that such
Stock shall remain subject to all of the terms and conditions of this Agreement
in the hands of the transferee thereof and that such transferees shall first
deliver to the Company and the Stockholders a written agreement assuming and
agreeing to be bound by all the terms and conditions of this Agreement and to
be a Stockholder hereunder.
(c) Indirect Transfers. Except as otherwise provided in this
Article II, no Stockholder may indirectly Dispose of its Stock
-4-
<PAGE> 5
(by way of transfer of the equity or other ownership interests of such
Stockholder or otherwise) to a Person other than an Affiliate of such
Stockholder without obtaining the prior written consent of the other
Stockholders (which consent may be given or withheld, in the sole and absolute
discretion of such Stockholders).
(d) Transfers to Persons other than Affiliates. Except as
otherwise provided in this Article II, no Stockholder may Dispose of its Stock
without the prior written consent of each of the other Stockholders (which
consent may be given or withheld, in the sole and absolute discretion of such
other Stockholders). Any Stock Disposed of pursuant to this Section 2.1(d)
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.
(e) Transfer by GKH. The provisions of Section 2.1(d)
notwithstanding, GKH may, without complying with the provisions of this Article
11 Dispose of all or a portion of its Stock to its partners.
(f) Pledge. No Stockholder may Encumber its Stock for any
purpose other than to secure indebtedness to a third party commercial bank or
financial institution and the pledgee of such Stock agrees in writing to be
bound by the terms and conditions of this Agreement.
(g) Rules of Construction and General Application. The
following rules of construction shall be applicable to all transactions
consummated pursuant to Article II:
(i) Unless otherwise specifically set forth herein, a
reference to a Stockholder shall include any and all of such
Stockholder's Affiliates.
(ii) Other than Persons who are transferees of Stock
pursuant to Section 2.3 or 2.4 hereof, each transferee of Stock pursuant
to this Article II, as a condition to its admission as a Stockholder,
shall execute and acknowledge such instruments, in form and substance
satisfactory to the other Stockholders, as such other Stockholders shall
deem necessary or desirable to effectuate such transfer and to confirm
the agreement of the transferee of such Stock to be bound by all the
terms and provisions of this Agreement with respect to the Stock
acquired. All reasonable expenses, including attorneys' fees, incurred
by the Company in this connection shall be borne by such transferee.
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<PAGE> 6
(iii) During the term of any proceedings, transactions or
Dispositions pursuant to any provision of Article II, no Stockholder may
exercise any rights under any provision of Article 11 (other than rights
granted to such Stockholder pursuant to the provision under which such
proceedings are taking place or in progress).
2.2 Dispositions by Stockholders.
(a) Offer from Bona Fide Purchaser. If a Non-GKH Holder (for
purposes of this Section 2.2, "Seller") desires to effect the Disposition of
all of its Stock to a Bona Fide Purchaser for cash, such Seller shall deliver
to the Company and to GKH a-Transfer Notice at least 45 days prior to the
proposed Disposition of Seller's Stock. Under no circumstances may any Seller
offer to sell less than all of its Stock to any such Bona Fide Purchaser.
(b) Right of First Refusal. By delivery of the Transfer
Notice, Seller shall be deemed to have offered GKH, or its respective
designees, the right and option to purchase on the terms and conditions set
forth in the Bona Fide Purchaser's-written offer all, or any portion of the
Seller's Stock. In order to exercise such option, GKH shall deliver written
notice to such effect to Seller and the Company within 25 days of its receipt
of the Transfer Notice. In the event that GKH exercises its rights for less
than 100% of the Seller's Stock pursuant to the first sentence of this Section
2.2(b), then the Company shall within 30 days of the date that the Transfer
Notice is deemed given hereunder provide the Non-GKH Holders with a notice (the
"Secondary Notice") setting forth the number of shares of Seller's Stock that
remain unpurchased following the initial 25 day exercise period. The
recipients of the Secondary Notice shall have 7 days from the date that the
Secondary Notice is deemed given to provide notice to Seller and the Company of
the additional amount of Seller's unpurchased Stock that each Non-GKH Holder
will purchase, which amounts shall be in such proportions as such Non-GKH
Holders shall agree among themselves, or failing such agreement in proportion
to their interest in the Company. If GKH and/or the Non-GKH Holders, or their
designees, who wish to participate exercise their respective options to
purchase all of the Seller's Stock, the consummation of the purchase and sale
of Seller's Stock shall occur in accordance with Section 2.2(c) hereof. A
failure by either GKH or a Non-GKH Holder to timely deliver any notice of
intent to purchase required pursuant to this Section 2.2(b) shall constitute
such Persons's failure to exercise its rights under this Section 2.2(b).
(c) Consummation of Purchase.
(i) The purchase price payable by either GKH or a Non-
GKH Holder or their respective designees (collectively, the "Purchasing
Stockholder") to Seller shall be paid as set
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<PAGE> 7
forth in the Bona Fide Purchaser's offer (except that no payment need be
made until at least 30 days subsequent to the completion of the
procedure described in Section 2.2(b), if applicable) and Seller's Stock
shall be transferred as provided in such written offer.
(ii) At the closing of the purchase and sale of Seller's
Stock pursuant to Section 2.2(b), (A) each Purchasing Stockholder shall
deliver to Seller any and all consideration required pursuant to the
terms of the Bona Fide Purchaser's offer and (B) Seller shall deliver to
each such Purchasing Stockholder appropriate instruments of assignment
duly executed in a proper form to effect the transfer of such Stock from
Seller to each such Purchasing Stockholder on the books and records of
the Company.
(iii) If at the closing of the purchase and sale of
Seller's Stock, there exists a Seller's Liability with respect to
Seller, the Purchasing Stockholder(s) shall either severally (A) assume
the Seller's Liability, or (B) in the event that such assumption is not
permitted by a lender or other relevant Person, indemnify and hold
Seller harmless, by written agreement reasonably satisfactory in form
and substance to Seller, from and against such Seller's Liability from
and after the date of such closing.
(d) Other Disposition Provisions.
(i) If Purchasing Stockholders do not agree to purchase
all of Seller's Stock by the expiration of the periods set forth in
Section 2.2(b), Seller shall have 60 days thereafter in which to effect
the Disposition of its Stock to the Bona Fide Purchaser on terms not
more favorable than were set forth in the Bona-Fide Purchaser's written
offer.
(ii) During the term of the rights granted to the GKH
and GKH Non-Holders (other than Seller) pursuant to Section 2.2, Seller
shall not negotiate or offer to sell its Stock on terms and conditions
more favorable to a purchaser than those previously offered to the GKH
and the Non-GKH Holders.
(iii) If Seller shall fail to consummate a Disposition of
its Stock within the time period set forth in Section 2.2(d)(i), then no
Disposition of such Stock may be made by Seller without first re-
offering such Stock to the GKH and the Non-GKH Holders in accordance
with the provisions of this Section 2.2.
2.3 Rights to Compel Disposition.
-7-
<PAGE> 8
(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 2.3(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. Subject to Section 2.2(b), within 25 days (or 32
days, if a Secondary Notice is delivered) 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 2.3
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 2.3(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 2.5(b) hereof and representations and warranties qualified
to knowledge with respect to all other matters as are reasonably requested be
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 2.3, 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
-8-
<PAGE> 9
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 2.3(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 2.3 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.
2.4 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, 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 2.4(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 2.4(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 2.4 (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 2.4 is Disposed of for the same consideration per Unit 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 2.4(b) shall be deemed to be a waiver of the Participating
Stockholder's rights hereunder.
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<PAGE> 10
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 2.5(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 2.4, promptly (but in no event later than the day of receipt) after the
consummation of the sale of Stock under this Section 2.4, GKH 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 2.4
as a Participating Stockholder, if, within 60 days after GKH's delivery of the
copy of the Bona Fide Purchaser's offer pursuant to Section 2.4(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 2.4 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.
2.5 Agreement of Selling Stockholders. All sales of Stock to be made
pursuant to Sections 2.2., 2.3 and 2.4 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 (other than those set
forth in Section 2.1(d)), 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
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<PAGE> 11
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:
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 Designation of Board Members. Prior to the consummation of an
initial public offering (an "IPO") of securities by the Company, the Non-GKH
Holders will be entitled to designate a maximum of two of the members of the
Board which GKH would otherwise be entitled to designate so long as after
giving effect to such designations by the Non-GKH Holders, GKH has the right to
designate a majority of the member of the Board exclusive of the Non-GKH Holder
Board members. Following the consummation of an IPO or in the event GKH would
not be able to designate a majority of the Board as described in the
immediately preceding sentence, the Non-GKH Holders will be entitled to
designate one member of the Board which GKH would otherwise have the right to
designate. The person or persons designated by the Non-GKH Holders pursuant to
this Section 3.1 are hereinafter referred to as the "Non-GKH Designee" or "Non-
GKH Designees", as the case may be.
3.2 Major Decisions. Notwithstanding any other provision of this
Agreement or the Charter Documents, the Board of Directors shall not, without
the vote or the prior written consent of the Non-GKH Designees have the power
to approve any transaction, series of transactions, act, or series of acts,
which would:
(a) cause the Company or any of its Subsidiaries to engage in
any material respect in any business other than a business relating to energy
or energy servicing or any business reasonably related or ancillary thereto;
(b) cause the Company or any of its Subsidiaries to execute
and deliver any contracts or agreements with, or be a party to, or have an
interest, directly or indirectly, in any transaction, contract or commitment
that relates to or affects, the Company or any of its Subsidiaries (including,
but not limited to, any contract, agreement or other arrangement providing for
the advancement of funds, furnishing of services by, or rental of real or
personal property from, otherwise requiring payments to, any such Stockholder
or Affiliate thereof) or any transaction that would be required to be disclosed
pursuant to Item 404 of Regulation S-K, adopted by the Securities and Exchange
Commission if each of the Company or any of its Subsidiaries, as applicable,
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<PAGE> 12
were publicly traded companies, with or to any Stockholder or his or its
respective Affiliates;
(c) except as required to effectuate the provisions of this
Agreement (i) cause the Company, or any of its Subsidiaries to amend its
Charter Documents in a manner inconsistent with this Agreement or (ii) cause
the Company to declare, set aside or pay any dividend or other distribution or
make any payment in cash, stock or property in respect of any shares of its
Stock, unless such dividend distribution or payment is to be distributed among
the Stockholders pro rata in accordance with their respective percentage
ownership of the applicable class of stock then outstanding; and
(d) cause a disposition of the Company or any of its
Subsidiaries in which the proceeds distributable or payable in respect of such
disposition to the Stockholders are shared among the Stockholders other than on
a pro rata basis in accordance with their then ownership of Stock and any other
classes of the Company's capital stock then issued and outstanding.
3.3 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 3.3,
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. Subject to this Section 3.3, each such other
Stockholder may engage in or possess an interest in any other business or
venture of any kind, independently or with others, on its own behalf or on
behalf of other entities with which it is affiliated or associated; provided,
however, that in the event any Stockholder or its Affiliates engages in or
makes an investment in any business or entity competitive with the business
then being conducted by the Company or any Subsidiary thereof, it shall have
the obligation to notify the Board of Directors in writing of such conflict
prior to such Stockholder or Affiliate engaging or investing in any such
competitive business, together with a statement describing the measures taken
to ensure that information regarding the Company and its Subsidiaries
obtainable by such Person as a result of its relationship with the Company will
not be disclosed to such Person. In the event the measures to be taken are not
satisfactory in the reasonable judgment of a majority of the disinterested
members of the Board of Directors, such majority of the Board of Directors may
impose such alternative or additional measures as it may determine are
reasonably necessary to protect the proprietary information of the Company from
potentially harmful and/or unauthorized disclosure.
3.4 Registration Rights Agreement. Each of the parties hereto shall
concurrently with the execution and delivery of this
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<PAGE> 13
agreement execute and deliver a counterpart of the Registration Right Agreement
substantially in the form attached hereto as Exhibit A.
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 THAT CERTAIN
STOCKHOLDERS AGREEMENT DATED AS OF _________, 1994 AS AMENDED
FROM TIME TO TIME AMONG THE COMPANY AND EACH OF THE STOCKHOLDERS
SPECIFIED THEREIN, 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) September __, 2004.
4.3 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 4.2(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.
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<PAGE> 14
(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.
4.4 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.
4.5 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.
4.6 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 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.
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<PAGE> 15
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 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 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.
4.14 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
4.15 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
4.16 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
4.17 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities now or hereafter owned by
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<PAGE> 16
the Holders. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
4.18 Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof or thereof is
validly asserted as a defense, the successful party shall be entitled to
recover, and the court shall award, reasonable attorneys' fees in addition to
its costs and expenses and any other available remedy.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
as of the date first above written.
HANOVER COMPRESSOR COMPANY
By:
-------------------------------
Title:
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. Klem, President
----------------------------------
Ettore Barbatelli, Sr.
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<PAGE> 17
-------------------------
William S. Goldberg
-------------------------
William E. Simon, Jr.
-------------------------
J. Peter Simon
-------------------------
Mary Beth Simon Streep
-------------------------
Carol Leigh Porges
-------------------------
Aimee Simon Bloom
-------------------------
Julie Simon Munro
-------------------------
Johanna Katrina Simon
(i) as Trustee of the
Trust for the Benefit of
William E. Simon, Jr.
-------------------------
Alvin V. Shoemaker
-------------------------
John Kramer, jointly with
C. Leigh Faldi, solely in
his capacity:
(i) as Trustee of the
Trust for the Benefit of
Julie Shoemaker
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<PAGE> 18
(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
---------------------------------------
C. Leigh Faldi, jointly with 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
---------------------------------------
Alvin V. Shoemaker
---------------------------------------
C. Leigh Faldi, 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
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<PAGE> 19
(iii) as Trustee of the Trust for the
Benefit of Christopher Shoemaker
(iv) as Trustee of the Trust for the
Benefit of Peter Shoemaker
----------------------------------------
C. Leigh Faldi, 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
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<PAGE> 20
AGREEMENT TO BE BOUND BY STOCKHOLDERS' AGREEMENT
Reference is hereby made by that certain Stockholders' Agreement of
Hanover Compressor Company, a Delaware corporation (the "Company"), dated as of
January 27, 1995 (the "Stockholders' Agreement") among the Company and the
stockholders of the Company parties thereto. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the
Stockholders' Agreement.
In connection with the proposed subscription by the undersigned for
shares of the 6.5% Cumulative Redeemable Series A Preferred Stock, $.01 par
value (the "Series A Preferred Stock"), of the Company and warrants
("Warrants") for the purchase of shares of common stock, $.001 par value (the
"Common Stock") of the Company, and in order to obtain the benefit and burdens
of the Stockholders' Agreement, the undersigned, for itself, agrees to be bound
by the terms and conditions of the Stockholders' Agreement as a Stockholder
thereunder and agrees and acknowledges that the aforementioned securities
received by him or it will be treated as Stock thereunder, with all the
benefits and burdens thereof.
Dated: August ___, 1995.
IPP95, L.P.
BY: WESINVEST, INC., its General Partner
---------------------------------------
By:
-----------------------------------
Name:
---------------------------------
Its:
---------------------------------
AGREED AND CONFIRMED:
HANOVER COMPRESSOR COMPANY,
a Delaware corporation
By:
---------------------------
Name:
-------------------------
Its:
--------------------------
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<PAGE> 21
CONSENT
The undersigned, spouses of parties to the foregoing Stockholders
Agreement, hereby consent to the execution of the Stockholders Agreement and
the consummation of the transactions contemplated thereby by their respective
spouses and hereby waive any and all rights they may have in and to the
property and subject matter of the Stockholders Agreement by virtue of their
marital relationship to a party thereto.
-------------------------------
-------------------------------
-------------------------------
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<PAGE> 1
EXHIBIT 4.4
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
OF HANOVER COMPRESSOR COMPANY
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement") dated
as of August 7, 1995, among Hanover Compressor Company, a Delaware corporation
(the "Company"), and the other parties signatories hereto under the heading
"Stockholders."
W I T N E S S E T H:
WHEREAS, the Company is authorized to issue 500,000 shares of common
stock, $.001 par value ("Common Stock") and 200,000 shares of preferred stock,
$.01 par value ("Preferred Stock");
WHEREAS, as of the date hereof the Company is a party to the following
Stockholders' Agreements (i) that certain 1993 Stockholders' Agreement of
Hanover Compressor Company, among the Company, GKH and certain employee-
stockholders of the Company, dated as of June 30, 1993, (ii) that certain
Supplemental Stockholders' Agreement of Hanover Compressor Company, among the
Company, GKH and Hanna Investment Group, an Arkansas general partnership, dated
as of October 8, 1993, (iii) that certain Supplemental Stockholders' Agreement
of Hanover Compressor Company, among the Company, GKH and certain former
stockholders of Gale Force Compression Services, Inc., dated as of March 8,
1995, (iv) that certain Supplemental Stockholders' Agreement of Hanover
Compressor Company, among the Company, GKH and certain employee-stockholders of
the Company, dated as of July 7, 1995 and (v) that certain Supplemental
Stockholders' Agreement of Hanover Compressor Company, among the Company, GKH
and Brenda K. Phillips, dated as of November 19, 1993 (collectively, the "Prior
Stockholders' Agreements");
WHEREAS, the Company and the other parties to the Prior Stockholders'
Agreements agree that it is in their mutual best interests to amend and restate
the Prior Stockholders' Agreements in their entirety;
WHEREAS, pursuant to the terms of those certain Subscription
Agreements dated as of August 7, 1995, between the Company and each of the
subscribers to the Company's private placement of Common Stock it is a
condition precedent to the issuance and delivery of the shares of Common Stock
that the subscribers therefor execute and deliver a counterpart of this
Agreement;
WHEREAS, the Company has authorized the 6.5% Cumulative Redeemable
Series A Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), which Series A Preferred Stock will upon original issuance be issued
together with detachable warrants, par value $.001 per warrant (the
"Warrants"), to purchase shares of Common Stock;
<PAGE> 2
WHEREAS, pursuant to the terms of those certain Subscription
Agreements between the Company and certain of the original subscribers for
shares of the Series A Preferred Stock it is a condition precedent to the
issuance and delivery of the shares of Series A Preferred Stock and the
Warrants that the subscribers therefor execute and deliver counterparts of this
Agreement; and
WHEREAS, in order to assure the harmonious management of the affairs
of the Company, the Stockholders desire to enter into this Agreement upon the
terms and conditions hereinafter set forth.
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.
"Agreement" shall mean this 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.
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<PAGE> 3
"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, but not less than 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.
"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.
"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.
"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.
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<PAGE> 4
"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.
"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 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
-4-
<PAGE> 5
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.
"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.
"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.
"Permanent Disability" shall mean the inability of an Employee
Minority Stockholder to perform substantially all his duties and
responsibilities to the Company for either (i) a continuous period of six
months or (ii) 180 days during any consecutive twelve month period by reason of
a physical or mental disability or infirmity which is expected to be permanent
and continuous for life as determined by a physician selected by the Board.
The date of such Permanent Disability shall be (a) in the case of clause (i)
above, the last day of such six month period or, if later, the day on which
such Employee Minority Stockholder submits satisfactory medical evidence of
such Permanent Disability or (b) in the case of clause (ii) above, such date as
is determined in good faith by the Board.
"Person" shall mean any individual, partnership, corporation, limited
liability company, joint venture, trust, firm, association, unincorporated
organization or other entity.
"Retirement" shall mean, the retirement of an Employee Minority
Stockholder as an employee of the Company on or after reaching age 65 or such
age as may be otherwise determined by the Board.
"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.
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"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.
"Transfer Notice" shall mean the notice required to be delivered by
the Seller to the Company and GKH pursuant to Section 3.2. 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 Seller's Stock, and
(ii) state all material terms of such Bona Fide Purchaser's offer.
"Voluntary Termination" shall mean the voluntary termination by an
Employee Minority Stockholder of his employment by the Company by voluntary
resignation or any other means other than death, Retirement or Permanent
Disability and other than simultaneous with or following termination for Cause
or an event which if known to the Company at the time of such voluntary
termination by such Employee Minority Stockholder would constitute Cause. A
Voluntary Termination shall be with "Good Reason" if (i) it promptly follows a
material reduction of such Employee Minority Stockholder's duties and
responsibilities or a permanent change in such Employee Minority Stockholder's
duties and responsibilities which are materially inconsistent with the type of
duties and responsibilities of such Employee Minority Stockholder then in
effect, (ii) it promptly follows a material reduction in annual base salary
(without regard to bonus compensation, if any), (iii) it promptly follows a
material reduction in such Employee Minority Stockholder's employee benefits
(without regard to bonus compensation, if any) if such reduction results in
such Employee Minority Stockholder receiving benefits which are, in the
aggregate, materially less than the benefits received by other comparable
employees of the Company generally or (iv) the Board of Directors of the
Company otherwise determines that a Voluntary Termination by such Employee
Minority Stockholder is for "Good Reason" under the circumstances then
prevailing. The Board shall, upon the written request of an Employee Minority
Stockholder, determine whether such Employee Minority Stockholder's Voluntary
Termination under circumstances outlined by the Employee Minority Stockholder
would be considered "for Good Reason" pursuant to this definition.
1.2 Certain Other Defined Terms The following terms are defined
in the Section of this Agreement directly opposite such terms:
<TABLE>
<S> <C>
Term Section
- ---- -------
Common Stock preamble
Company preamble
Debt Instrument 3.5(e)
Effective Date 4.13
Exempt Distributions 3.1(a)
Participating Minority Stockholder 3.4(b)
Preferred Stock preamble
Prior Stockholders' Agreements preamble
Purchasers 3.2(c)
</TABLE>
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<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Secondary Notice 3.2(b)
Seller 3.2(a)
Series A Preferred Stock preamble
Subscription Agreements 4.9
Terminated Stockholder 3.5
Warrants preamble
</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 Certificate of Incorporation and By-Laws of the Company as
necessary to effectuate the purposes of this Agreement.
2.2 Directors.
(a) Nominees. The Stockholders shall vote their
Common Stock at any regular or special meeting of the stockholders of the
Company called for the purpose of filling positions on the Board, or in any
written consent executed in lieu of such a meeting of stockholders, shall take
all actions necessary and shall cause the Directors nominated by them pursuant
to this Agreement to take all actions necessary (including the nomination for
election as directors of the persons specified below) to ensure the election to
the Board of the following individuals:
(A) Michael O'Connor, so long as he is
a stockholder of the Company, is employed by the Company as
Chairman and desires to be a Director of the Company;
(B) Michael J. McGhan, so long as he is a
stockholder of the Company, is employed by the Company as its
Chief Executive Officer and desires to be a Director of the
Company; and
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(C) such other individuals (the "GKH
Nominees") as are necessary to fill the remaining positions on
the Board (which shall in all events be a majority of the
Board) as nominated by GKH.
(b) Removal. Upon the request of GKH, each
Stockholder shall promptly vote the shares of Common Stock held by him to
remove any individual nominated by GKH and appoint another director nominated
by GKH in his stead. Each Minority Stockholder hereby grants to GKH a limited
power of attorney authorizing GKH to take such actions as it deems necessary to
effectuate the purpose and intent of this Section 2.2(b) in the event that such
Minority Stockholder shall fail to fully comply with the provisions of this
Section.
(c) Stockholder Action. In order to effectuate the
provisions of this Section 2.2, each Stockholder hereby agrees, subject to
compliance with applicable law, that when any action or vote is required to be
taken by such Stockholder pursuant to applicable law or this Agreement, such
Stockholder shall use its reasonable best efforts to (i) call, to take all
other actions necessary to call and to cause the Directors nominated by them to
take all actions necessary to call or to cause the appropriate officers and
directors of the Company to call, a special or annual meeting of stockholders
of the Company, as the case may be, or execute or cause to be executed a
consent in writing in lieu of any such meetings pursuant to the General
Corporation Law of the State of Delaware, or any successor statute, to
effectuate such stockholder action and (ii) vote the Common Stock held by him
in a manner consistent with the terms and provisions of this Agreement.
2.3 Preemptive Rights. In the event that the Company shall offer
for sale to Stockholders additional shares of Common Stock, each Stockholder
shall have right to acquire its pro rata share of such offering on the same
terms and conditions offered to all other Stockholders; provided, however, this
right shall not apply to (a) shares issuable in connection with a merger,
acquisition or other similar transaction, (b) shares issuable upon the exercise
of any options, warrants or other convertible securities, (c) shares offered by
the Company to employees and directors of the Company or (d) shares issuable in
connection with preemptive rights granted to other stockholders of the Company
in connection with a merger, acquisition or similar transaction, or in
connection with the issuance by the Company of its 6.5% Cumulative Redeemable
Convertible Series B Preferred Stock.
ARTICLE III
Transfer Restrictions
3.1 Transfer Restrictions.
(a) General Transfer Restriction. Each Stockholder
covenants and agrees that such Stockholder will not, and will not permit its
Affiliates to, Dispose or cause the Disposition of such Stockholder's Stock or
any interest therein, except (i) in accordance with the
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<PAGE> 9
terms and conditions of this Article III, (ii) pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") or (iii) pursuant to any public distribution of stock
pursuant to Rule 144 of the Securities Act. The Dispositions described in the
immediately preceding clauses (i), (ii) and (iii) are collectively referred to
herein as "Exempt Distributions." Any attempted Disposition not in accordance
with the terms and conditions of this Agreement shall be null and void and of
no force or effect.
(b) Transfers to Affiliates. Notwithstanding the
restrictions on the transfer set forth in this Article III, but subject to the
provisions of Section 3.1(f) hereof, any Stockholder (other than an Affiliate
of a Stockholder which acquired Stock pursuant to this Section 3.1(b)) may
Dispose of all or a portion of its Stock to an Affiliate without first
complying with any other provision of this Article III.
(c) Transfers to Persons other than Affiliates.
Except pursuant to the procedures described in Sections 3.2, 3.3, 3.4 and 3.5
hereof, no Stockholder may Dispose of its Stock without the prior written
consent of each of the other Stockholders (which consent may be given or
withheld, with or without cause, in the sole and absolute discretion of such
other Stockholders). Any Stock Disposed of pursuant to this Section 3.1(c)
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.
(d) The provisions of Section 3.1(c) notwithstanding,
GKH may, without complying with the provisions of this Article III, Dispose of
Stock held by it to any Person so long as after the consummation of such
transaction, GKH and its Affiliates shall own at least 50% of the outstanding
Common Stock and (ii) GKH may, without complying with the provisions of this
Article III, Dispose of all or a portion of its Stock to its partners or other
beneficial owners.
(e) Pledge. No Stockholder may pledge or hypothecate
any of its Stock for any purpose; provided, however that a Minority Stockholder
may pledge his Common Stock to the Company as security for a loan or loans made
by the Company to such Minority Stockholder, the proceeds of which were used
solely to purchase Common Stock.
(f) Rules of Construction and General Application.
The following rules of construction shall be applicable to all transactions
consummated pursuant to Article III:
(i) A reference to a Stockholder shall include
any and all of such Stockholder's Affiliates.
(ii) Other than Persons who are transferees of
Stock pursuant to Sections 3.1(d), 3.3 and 3.4 hereof, each transferee
of Stock pursuant to this Article III (including transferees pursuant
to Section 3.1(b)), shall execute and acknowledge such
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<PAGE> 10
instruments, in form and substance satisfactory to the other
Stockholders, as such other Stockholders shall deem necessary or
desirable to effectuate such transfer and to confirm the agreement of
the transferee of such Stock to be bound by all the terms and
conditions of this Agreement with respect to the Stock acquired. All
reasonable expenses, including attorneys' fees, incurred by the
Company in this connection shall be borne by such transferee.
(iii) Except for rights of GKH pursuant to
Sections 3.1(d) and 3.3, during the term of any proceedings,
transactions or Dispositions pursuant to any provision of Article III,
no Stockholder may exercise any rights under any provision of Article
III (other than rights granted to such Stockholder pursuant to the
provision under which such proceedings are taking place or in
progress) except, in the event one or more Stockholders are exercising
their rights as Participating Minority Stockholders pursuant to
Section 3.4 hereof and concurrently therewith other Stockholders
desire to exercise their rights pursuant to Section 3.2(b) hereof,
then such Stockholders exercising their rights pursuant to Section
3.2(b) shall purchase, all, but not less than all, of the Stock that
is proposed to be sold pursuant to Section 3.4 (including Stock held
by GKH and the Participating Minority Stockholders) in accordance with
the terms of Section 3.2(b).
3.2 Dispositions by Minority Stockholders.
(a) Offer from Bona Fide Purchaser. If a Minority
Stockholder (for purposes of this Section 3.2, "Seller") desires to effect the
Disposition of all of its Stock to a Bona Fide Purchaser, such Seller shall
deliver to the Company and to GKH a Transfer Notice at least 45 days prior to
the proposed Disposition of Seller's Stock. Under no circumstances may any
Seller sell less than all of its Stock to any such Bona Fide Purchaser.
(b) Rights of First and Second Refusal. By delivery
of the Transfer Notice, Seller shall be deemed to have offered the Company, or
its respective designees, the right and option to purchase on the terms and
conditions set forth in the Bona Fide Purchaser's written offer all, or any
portion of the Seller's Stock. In order to exercise such option, the Company
shall deliver written notice to such effect to Seller within 25 days of its
receipt of the Transfer Notice. In the event that the Company exercises its
rights for less than 100% of the Seller's Stock pursuant to the first sentence
of this Section 3.2(b), then the Company shall within 30 days of the date that
the Transfer Notice is deemed given hereunder provide GKH with a notice (the
"Secondary Notice") setting forth the number of shares of Seller's Stock that
remain unpurchased following the initial 25 day exercise period. GKH shall
have 7 days from the date that the Secondary Notice is deemed given to provide
notice to Seller and the Company of the additional amount of Seller's
unpurchased Stock that GKH will purchase. If the Company and/or GKH, or their
designees, who wish to participate exercise their respective options to
purchase all of the Seller's Stock, the consummation of the purchase and sale
of Seller's Stock shall occur in accordance with Section 3.2(c) hereof.
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<PAGE> 11
A failure by either the Company or GKH to timely deliver any notice of intent
to purchase required pursuant to this Section 3.2(b) shall constitute such
Persons's failure to exercise its rights under this Section 3.2(b).
(c) Consummation of Purchase.
(i) The purchase price payable by
either the Company or GKH or their respective designees (collectively,
the "Purchasers") to Seller shall be paid as set forth in the Bona
Fide Purchaser's offer (except that no payment need be made until at
least 30 days subsequent to the completion of the procedure described
in Section 3.2(b), if applicable) and Seller's Stock shall be
transferred as provided in such written offer.
(ii) At the closing of the purchase
and sale of Seller's Stock pursuant to Section 3.2(b), (A) each
Purchaser shall deliver to Seller any and all consideration required
pursuant to the terms of the Bona Fide Purchaser's offer and (B)
Seller shall deliver to each such Purchaser appropriate instruments of
assignment duly executed in a proper form to effect the transfer of
such Stock from Seller to each such Purchaser on the books and records
of the Company.
(d) Other Disposition Provisions.
(i) If the Purchasers do not agree to
purchase all of Seller's Stock by the expiration of the periods set
forth in Section 3.2(b), Seller shall have 45 days thereafter in which
to effect the Disposition of its Stock to the Bona Fide Purchaser on
terms not more favorable than were set forth in the Bona-Fide
Purchaser's written offer.
(ii) During the term of the rights
granted to the Company and GKH pursuant to Section 3.2, Seller shall
not negotiate or offer to sell its Stock on terms and conditions more
favorable to a purchaser than those previously offered to the Company
and GKH.
(iii) If Seller shall fail to
consummate a Disposition of its Stock within the time period set forth
in Section 3.2(d)(i), then no Disposition of such Stock may be made by
Seller without first re-offering such Stock to the Company and GKH in
accordance with the provisions of this Section 3.2.
3.3 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, 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.
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<PAGE> 12
(b) Obligations of Minority Stockholders. In the
event that GKH desires to exercise its rights pursuant to Section 3.3(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), (A) assignment separate from certificate 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 Common Stock of such Minority Stockholder
is bound by the provisions of this Section 3.3 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 3.2(b).
In addition, in the event GKH exercises its rights under this Section
3.3(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 3.6(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 after the
consummation of the Disposition of Common Stock pursuant to this Section 3.3,
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 3.3(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 3.3 and (ii) the related limited
power-of-attorney. Upon the Minority
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<PAGE> 13
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.
3.4 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 3.3, 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
this Section 3.4(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 3.4 (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
3.4 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. 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 3.4(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 3.4, 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.
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(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 3.4(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 3.4 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.
3.5 Certain Sales Upon Termination of Employment. In the event
that an Employee Minority Stockholder (the "Terminated Stockholder") ceases to
be employed by the Company or any of its Affiliates, the parties shall have the
rights set forth in this Section 3.5, which rights and obligations shall
survive the termination of this Agreement.
(a) Termination for Cause. In the event the
employment of the Terminated Stockholder is terminated for Cause, 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 3.5(a) 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 3.5(f) hereof.
(b) Termination upon Death, Retirement or Permanent
Disability or Without Cause. In the event the employment of the Terminated
Stockholder is terminated by death, Retirement, Permanent Disability or without
Cause, the Company shall have the right, but not the obligation, to purchase
all, but not less than all, of the Common Stock of the Terminated Stockholder
by delivering written notice to such effect within 90 days thereafter. The
purchase price for the Common Stock purchased pursuant to this Section 3.5(b)
shall be the Fair Market Value thereof, payable, subject to Section 3.5(e)
hereof, in cash.
(c) Voluntary Termination with Good Reason. Upon
Voluntary Termination with Good Reason, the Company shall have the right, but
not the obligation, to purchase all, but not less than all, of the Common Stock
of the Terminated Stockholder by delivering notice to such effect within 90
days thereafter. The purchase price for the Common Stock purchased pursuant to
this Section 3.5(c) shall be the Fair Market Value thereof, payable, subject to
Section 3.5(e) hereof, in cash.
(d) Voluntary Termination without Good Reason. Upon
Voluntary Termination without Good Reason, the Company shall have the right,
but not the obligation, to purchase all, but not less than all, of the Common
Stock of the Terminated Stockholder by delivering written notice to such effect
within 90 days thereafter. The purchase price for the
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<PAGE> 15
Common Stock purchased pursuant to this Section 3.5(d) shall be equal to the
lesser of (i) Cost and (ii) the Fair Market Value thereof. If the termination
occurs on or prior to the third anniversary of this Agreement, the purchase
price shall be payable by delivery of a promissory note of the Company having a
term of seven years and otherwise complying with Section 3.5(f) hereof. If
such termination occurs after the third anniversary of this Agreement, the
purchase price shall be payable in cash (subject to Section 3.5(e) hereof).
(e) 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 3.5 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 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 3.5(f)
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).
(f) Payment Pursuant to Promissory Note. Any
promissory note of the Company required to be delivered pursuant to this
Section 3.5 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 3.5(e), (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), (d) or (e), as appropriate, of this Section 3.5 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 Chemical Bank in New York, New York.
(g) Tender of Common Stock. Any payment of the
purchase price pursuant to Section 3.5, whether by delivery of a note, in cash
or by a combination thereof, shall be made
-15-
<PAGE> 16
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.
3.6 Agreement of Selling Stockholder. All sales of Common Stock
to be made pursuant to Sections 3.2, 3.3, 3.4 and 3.5 of this Agreement shall
be subject to the following terms:
(a) Deliveries. Subject to the provisions of Section
3.1 hereof, 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 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 3.6(b).
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
-16-
<PAGE> 17
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."
4.2 Termination.
(a) Voting Provisions. Sections 2.1 and 2.2 of this
Agreement shall terminate upon GKH ceasing to own 50% of the then issued and
outstanding Common Stock (on an undiluted basis).
(b) Agreement. This Agreement (other than the
provisions of Section 3.5 hereof and provisions necessary to effectuate the
intent of Section 3.5) 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 date 25%
or more of the issued and outstanding Common Stock is listed on a
nationally recognized exchange or quoted on the National Association
of Securities Dealers Automated Quotation System;
(iv) GKH ceases to own 35% or more of the then
issued and outstanding Common Stock (on an undiluted basis); or
(v) 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 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 4.3(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
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<PAGE> 18
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.
4.4 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.
4.5 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.
4.6 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 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 (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.
4.8 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 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
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<PAGE> 19
understandings, oral or written, among the parties hereto with respect to the
subject matter hereof and thereof including, without limitation, the Prior
Stockholders' Agreements.
4.10 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.
4.11 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.
4.12 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
-19-
<PAGE> 20
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
continued on next pages]
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<PAGE> 21
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS'
AGREEMENT, DATED AS OF AUGUST 7, 1995,
FOR MINORITY STOCKHOLDERS
(INDIVIDUALS)
MINORITY STOCKHOLDER:
---------------------------------------
Print Name:
----------------------------
Number of Shares:
----------------------
Home Address:
--------------------------
SPOUSAL CONSENT
The undersigned, the spouse of the Minority Stockholder whose name
appears immediately above, which Minority Stockholder is one of the parties to
the foregoing Amended and Restated Stockholders' Agreement, hereby consents to
the execution of Amended and Restated Stockholders' Agreement and the
consummation of the transactions contemplated thereby by her spouse, and to the
extent the undersigned has acquired or hereafter acquires an interest in and to
the property and subject matter of the Amended and Restated Stockholders'
Agreement, hereby agrees to be bound by the terms of such Amended and Restated
Stockholders' Agreement.
Date:
--------------------------- -----------------------------------
Print Name:
------------------------
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<PAGE> 22
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
FOR MINORITY STOCKHOLDERS
(ENTITIES)
MINORITY STOCKHOLDER:
---------------------------------------
By:
-----------------------------------
Its:
----------------------------------
Number of Shares:
---------------------
Address:
------------------------------
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<PAGE> 1
EXHIBIT 4.5
March 21, 1996
Dear Investor:
Reference is made to (i) the Confidential Offering Memorandum of
Hanover Compressor Company (the "Company"), dated as of March 21, 1996 (the
"Memorandum"), (ii) that certain Amended and Restated Stockholders' Agreement
of the Company, dated as of August 7, 1995, between the Company and the
stockholders signatories thereto, attached to the Memorandum as Exhibit B (the
"Stockholders Agreement") and (iii) that certain 1996 Employee Stock Offering
Subscription Agreement, dated as of March 21, 1996, between the Company and
you, attached to the Memorandum as Exhibit A (the "Subscription Agreement").
All capitalized terms used herein but not otherwise defined shall have the
meaning assigned to them in the Stockholders' Agreement.
This is the letter agreement described in the Memorandum which is
required to be delivered to the Company in connection with your subscription
for shares of Common Stock pursuant to Section 3(b)(vi) of the Subscription
Agreement.
Under Section 3.5(d) of the Stockholders' Agreement, if your
employment with the Company is terminated by reason of your Voluntary
Termination without Good Reason, the Company has the right, but not the
obligation, to purchase all of the shares of Common Stock that you acquire
subject to the Stockholders' Agreement. Section 3.5(d) of the Stockholders'
Agreement also sets forth obligations of the Company in paying you for your
shares of Common Stock under such circumstances. By executing this agreement,
you agree that the payment provisions set forth in the third sentence of
Section 3.5(d) of the Stockholders' Agreement shall be determined by reference
to the date of your Subscription Agreement, March 21, 1996, rather than the
date of the Stockholders' Agreement.
Please acknowledge your agreement with the foregoing by signing this
letter and the extra copy of this letter in the space provided and returning
this letter agreement and both signature pages to the Company.
<PAGE> 2
March 21, 1996
Page 2
Very truly yours,
HANOVER COMPRESSOR COMPANY,
By:
-----------------------------------
Curtis Bedrich, Chief Financial
Officer and Treasurer
Accepted and Agreed to as
of the date first written above.
- --------------------------------
Name:
<PAGE> 1
EXHIBIT 4.6
STOCKHOLDERS AGREEMENT
(JOINT ENERGY DEVELOPMENT INVESTMENTS LIMITED PARTNERSHIP)
THIS STOCKHOLDERS AGREEMENT (this "Agreement") dated as of August 7,
1995, among Hanover Compressor Company, a Delaware corporation (the "Company")
and the other parties signatory hereto.
W I T N E S S E T H:
WHEREAS, the Company is authorized to issue (i) 500,000 shares of
common stock, $0.001 par value per share (the "Common Stock") and (ii) 200,000
shares of preferred stock, $0.01 par value per share (the "Preferred Stock";
and together with the Common Stock, the "Stock");
WHEREAS, each of the signatories hereto (other than the Company) is a
holder of shares of Stock; and
WHEREAS, the parties hereto wish to provide for certain agreements and
understandings regarding, among others, the disposition of the Stock owned or
controlled by each of them.
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
and with respect to JEDI, the term Affiliate shall expressly include the
partners in JEDI.
"Agreement" shall mean this Stockholders Agreement, 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, but not less than 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.
"Charter Documents" shall mean, in relation to a Person, the
collective reference to the Certificate of Incorporation and Bylaws of such
Person.
"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.
"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.
-2-
<PAGE> 3
"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.
"Registration Rights Agreement" shall mean the Second Amended and
Restated Registration Rights Agreement, dated as of the date hereof among the
Company, GKH, JEDI and the other stockholders of the Company parties thereto.
"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.
"Transfer Notice" shall mean the notice required to be delivered by
the Seller to the Non-Selling Stockholders pursuant to Section 2.2. 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 Seller's
Stock, and (ii) state all material terms of such Bona Fide Purchaser's offer.
-3-
<PAGE> 4
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>
Common Stock preamble
Company preamble
Exempt Disposition 2.1(a)
Notice of Election 3.2(b)
Participating Stockholder 2.4(b)
Preferred Stock preamble
Purchasing Stockholder 2.2(c)
Rights Offering 3.2(a)
Secondary Notice 2.2(b)
Securities Act 2.1(a)
Seller 2.2
Stock preamble
</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) General Transfer Restriction. Each Stockholder
covenants and agrees that such Stockholder will not, and will not permit its
Affiliates, directly or indirectly, to Dispose or cause the Disposition of such
Stockholder's Stock or any interest therein, except (i) in accordance with the
terms and conditions of this Article II, (ii) pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") or (iii) pursuant to any public distribution of Stock
pursuant to Rule 144 of the Securities Act. The Dispositions described in the
immediately preceding clauses (ii) and (iii) are sometimes collectively
referred to herein as "Exempt Dispositions". Any attempted Disposition not in
accordance with the terms and conditions of this Agreement shall be null and
void and of no force or effect.
(b) Transfers to Affiliates. Notwithstanding the
restrictions on Disposition set forth in this Article II, any Stockholder may
Dispose of all or a portion of its Stock to an Affiliate; provided, however,
that any such transferee must be an Affiliate of the original holder of such
Stock.
-4-
<PAGE> 5
(c) Transfers to Persons other than Affiliates. Except
as otherwise provided in this Article II, no Stockholder may Dispose of its
Stock without the prior written consent of each of the other Stockholders
(which consent may be given or withheld, in the sole and absolute discretion of
such other Stockholders). Any Stock Disposed of pursuant to this Section
2.1(c) 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.
(d) Pledge. No Stockholder may Encumber its Stock for
any purpose other than to secure indebtedness to a third party commercial bank
or financial institution and the pledgee of such Stock agrees in writing, and
causes any transferee of such pledged stock to agree in writing, to be bound by
the terms and conditions of this Agreement.
(e) Rules of Construction and General Application.
Other than Persons who are transferees of Stock pursuant to Section 2.3 or 2.4
hereof or pursuant to an Exempt Disposition, each transferee of Stock pursuant
to this Article II (including transferees pursuant to Section 2.1(b)) shall
execute and acknowledge such instruments (including, without limitation, a
counterpart of this Agreement), in form and substance reasonably satisfactory
to the Company and the other Stockholders, as the Company and such other
Stockholders shall deem reasonably necessary or desirable to effectuate such
transfer and to confirm the agreement of the transferee of such Stock to be
bound by all the terms and provisions of this Agreement with respect to the
Stock acquired. All reasonable expenses, including attorneys' fees, incurred
by the Company in this connection shall be borne by such transferee.
2.2 Dispositions by Stockholders.
(a) Offer from Bona Fide Purchaser. If a Non-GKH Holder
(for purposes of this Section 2.2, "Seller") desires to effect the Disposition
of its Stock to a Bona Fide Purchaser (other than pursuant to an Exempt
Disposition), such Seller shall deliver to the Company and to all of the other
Stockholders a Transfer Notice at least 30 days prior to the proposed
Disposition of Seller's Stock. Under no circumstances may any Seller sell less
than all of its Stock to any such Bona Fide Purchaser; provided, however, that
so long as a Seller, together with its Affiliates, owns at least 50% of each of
the shares of Common Stock and Preferred Stock which such Seller owns as of the
date hereof, such Seller may, in one or more transactions, sell a portion of
its Common Stock and/or its Preferred Stock to one or more Bona Fide
Purchasers, provided, further, that any such partial sale does not reduce such
Seller's (together with its Affiliates') aggregate ownership of Common Stock or
Preferred Stock, as the case may be, to less than 50% of the amount owned as of
the date hereof.
(b) Right of First Refusal. By delivery of the Transfer
Notice, Seller shall be deemed to have offered the Company, or its designee(s)
(such designee(s) to be subject to the approval of JEDI, which approval shall
not be unreasonably withheld), the right and option to purchase on the terms
and conditions set forth in the Bona Fide Purchaser's written offer all, or
-5-
<PAGE> 6
any portion of the Seller's Stock. In order to exercise such option, the
Company shall deliver written notice to such effect to Seller within 20 days of
its receipt of the Transfer Notice. In the event that the Company exercises
its rights for less than 100% of the Seller's Stock pursuant to the first
sentence of this Section 2.2(b), then the Company shall within 22 days of the
date that the Transfer Notice is deemed given hereunder provide the non-selling
Stockholders with a notice (the "Secondary Notice") setting forth the number of
shares of Seller's Stock that remain unpurchased following the initial 20 day
exercise period. The recipients of the Secondary Notice shall have 7 days from
the date that the Secondary Notice is deemed given to provide notice to Seller
and the Company of the amount of Seller's unpurchased Stock that each
non-Selling Stockholder will purchase, which amounts shall be in such
proportions as such non-selling Stockholders shall agree among themselves, or
failing such agreement in proportion to their interest in the Company
(vis-a-vis each other). If the Company and/or the non-selling Stockholders, or
their respective designees, who wish to participate exercise their respective
options to purchase all of the Seller's Stock, the consummation of the purchase
and sale of Seller's Stock shall occur in accordance with Section 2.2(c)
hereof. A failure by either the Company or any non-selling Stockholder to
timely deliver any notice of intent to purchase required pursuant to this
Section 2.2(b) shall constitute such Person's failure to exercise its rights
under this Section 2.2(b).
(c) Consummation of Purchase.
(i) The purchase price payable by either the
Company or its designees as permitted by Section 2.2(b) or a
non-selling Stockholder or their respective Affiliates (collectively,
the "Purchasing Stockholder") to Seller shall be paid as set forth in
the Bona Fide Purchaser's offer (except that no payment need be made
until at least 15 days subsequent to the completion of the procedure
described in Section 2.2(b), if applicable) and Seller's Stock shall
be transferred as provided in such written offer.
(ii) At the closing of the purchase and sale
of Seller's Stock pursuant to Section 2.2(b), (A) each Purchasing
Stockholder shall deliver to Seller any and all consideration required
pursuant to the terms of the Bona Fide Purchaser's offer and (B)
Seller shall deliver to each such Purchasing Stockholder a stock
certificate or stock certificates evidencing such Seller's Stock
together with appropriate instruments of assignment duly executed in a
proper form to effect the transfer of such Stock from Seller to each
such Purchasing Stockholder on the books and records of the Company.
(d) Other Disposition Provisions.
(i) If Purchasing Stockholders do not agree
to purchase all of Seller's Stock by the expiration of the periods set
forth in Section 2.2(b), then no Purchasing Stockholder shall have the
right to purchase any of Seller's Stock which was the subject of such
Transfer Notice and Seller shall have 45 days thereafter in which to
effect the Disposition of its Stock to the Bona Fide Purchaser on
terms not more favorable than were set forth in the Bona-Fide
Purchaser's written offer.
-6-
<PAGE> 7
(ii) During the term of the rights granted to
the Company and the non-selling Stockholders pursuant to Section 2.2,
Seller shall not negotiate or offer to sell its Stock on terms and
conditions more favorable to a purchaser than those offered to the
Bona Fide Purchaser which offer was the subject of the relevant
Transfer Notice.
(iii) If Seller shall fail to consummate a
Disposition of its Stock within the time period set forth in Section
2.2(d)(i), then no Disposition of such Stock may be made by Seller
without first re-offering such Stock to the Company and the
non-selling Stockholders in accordance with the provisions of this
Section 2.2.
2.3 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 2.3(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 2.3 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 2.3(b).
In addition, in the event GKH exercises its rights under Section
2.3(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 2.5(b) hereof.
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(c) Responsibility of GKH. Promptly after the
consummation of the Disposition of Stock pursuant to this Section 2.3, GKH
shall (i) deliver notice thereof to the Non-GKH Holders, (ii) subject to clause
(B) of Section 2.3(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 2.3(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 2.3. 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.
2.4 Rights of Inclusion.
(a) Rights of the Non-GKH Holders. If (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 either the
Preferred Stock or Common Stock then owned by GKH and (iii) GKH elects not to
exercise its rights pursuant to Section 2.3 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 2.4(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 2.4(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 2.4 (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 2.4 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,
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or to otherwise comply with the provisions of, this Section 2.4(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 2.5(b) hereof.
(c) Responsibility of GKH. In the event that any
Participating Stockholder timely exercises its rights of inclusion under this
Section 2.4, promptly after the consummation of the sale of Stock under this
Section 2.4, 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 2.4
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 2.4(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 2.4. 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.
2.5 Agreement of Selling Stockholders. All sales of Stock to be
made pursuant to Sections 2.2, 2.3 and 2.4 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 (other than those set forth in Section 2.1(c)), 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
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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 2.5(b).
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 7.5% of the Common Stock (on a fully diluted basis) 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 either (i)
the right to nominate one member of the Board, or (ii) 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
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<PAGE> 11
governmental agency or regulatory body having or claiming authority over any
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 Equity Rights Offerings.
(a) In the event that the Company elects to raise
additional equity pursuant to a rights offering made to 80% or more of the
Company's then existing stockholders (the "Rights Offering") the proceeds of
which will be used to satisfy certain conditions precedent to the Company's
draw down of funds under the terms of the Credit Facility (as defined below),
then the Company shall notify JEDI of the Company's intent to pursue a Rights
Offering and JEDI, solely in its capacity as a holder of the Company's capital
stock, shall have the right to do any or all of the following: (i) subscribe
for the initial 15% of such Rights Offering on an exclusive basis, (ii)
subscribe for its pro rata share (on an undiluted basis) (without taking into
account any rights acquired pursuant to the immediately preceding clause (i))
of the remaining rights offered in such Rights Offering and (iii) cause its
duly licensed Affiliate to underwrite all, but not less than all, of such
Rights Offering in the event that the Company and JEDI can mutually agree on
the terms of such underwriting, including, without limitation, an underwriting
agreement and other customary documentation between the Company, JEDI and such
Affiliate.
(b) Following delivery by the Company to JEDI of written
notice of the Company's intent to pursue a Rights Offering, JEDI shall have 30
days to notify the Company in writing (the "Notice of Election") of its
election to exercise any of the rights described in clauses (i), (ii) and (iii)
of Section 3.2(a). Failure by JEDI to deliver the Notice of Election within
such 30 day period shall constitute a waiver by JEDI of its rights under
Section 3.2(a), and thereafter such rights will be cancelled with respect to
the relevant Rights Offering only.
(c) JEDI's rights pursuant to this Section 3.2 shall
terminate and be of no further force and effect until the later of (i) the date
that the Stand-by Credit Facility (the "Credit Facility") described in Section
3.1 of the Letter of Intent dated June 26, 1995 between the Company and Enron
Capital & Trade Resources Corp. (if such credit facility is entered into) is
terminated and the Company has no obligations thereunder and (ii) the Company
consummates a publicly registered offering of any of its Common Stock.
3.3 Agreement to Vote for Directors.
(a) During the term of this Agreement, each of JEDI and
GKH agrees that at any regular or special meeting of the stockholders of the
Company at which director nominees are to be elected to the Board, or in any
written consent executed in lieu of such a meeting, it shall
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<PAGE> 12
(a) vote its Common Stock, (b) take all actions necessary and (c) cause the
directors nominated by it to the Board pursuant to this Agreement to take all
actions necessary, to ensure the election to the Board of the individuals
nominated by the other.
(b) Upon the request of JEDI or GKH, as the case may be,
the non-requesting party will vote its Common Stock to (i) remove any
individual nominated by the requesting party and (ii) appoint another
individual nominated by the requesting party.
3.4 Registration Rights Agreement. Each of the parties hereto
shall concurrently with the execution and delivery of this Agreement execute
and deliver a counterpart of the Second Amended and Restatement Registration
Rights Agreement dated as of August ___, 1995 among the Company, GKH, JEDI and
certain other stockholders of the Company parties thereto.
3.5 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, 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.
3.6 Additional Stockholders. The Company agrees to use its
reasonable best efforts to negotiate with any Person which (i) becomes a
stockholder of the Company following the date hereof and (ii) owns in excess of
3% of the outstanding Common Stock for the purpose of entering into a
stockholders agreement with JEDI, GKH and the Company providing for
restrictions and rights on transfers of Stock, preemptive rights and election
of directors.
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
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<PAGE> 13
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 Section
3.1, Section 3.3 (but only with respect to JEDI to the extent JEDI continues to
have Board rights under Section 3.1) and Section 3.5 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; or
(e) August 1, 2005.
4.3 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 4.3(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.
4.4 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
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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.
4.5 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.
4.6 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.
4.7 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.
4.8 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.
4.9 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.
4.10 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.
4.11 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.
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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: /s/ William S. Goldberg
-----------------------------------
Title: Executive Vice President
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THE STOCKHOLDERS:
----------------
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP, Delaware
limited partnership
By: Enron Capital Corp., its general partner
By: /s/ Deborah S. Wernet
------------------------------------
Deborah S. Wernet, Vice President
Address:
c/o Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Keith Power/Brenda McGee,
Specialists 28th Floor
GKH PARTNERS, L.P., a Delaware
limited partnership
By: JAKK HOLDING CORP., a general partner
By: /s/ Melvyn N. Klein
------------------------------------
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: /s/ Melvyn N. Klein
--------------------------------
Melvyn N. Klein, President
Address:
200 West Madison Street,
Suite 2700
Chicago, Illinois 60606
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<PAGE> 1
EXHIBIT 4.7
STOCKHOLDERS AGREEMENT
(ASTRA RESOURCES, INC.)
THIS STOCKHOLDERS AGREEMENT (this "Agreement") dated as of December 5,
1995, among Hanover Compressor Company, a Delaware corporation (the "Company")
and the other parties signatory hereto.
W I T N E S S E T H:
WHEREAS, the Company is authorized to issue (i) 500,000 shares of
common stock, $0.001 par value per share (the "Common Stock" or the "Stock")
and (ii) 200,000 shares of preferred stock, $0.01 par value per share;
WHEREAS, each of the signatories hereto (other than the Company) is a
holder of shares of Stock; and
WHEREAS, the parties hereto wish to provide for certain agreements and
understandings regarding, among others, the disposition of the Stock owned or
controlled by each of them.
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 Stockholders Agreement, as originally
executed and as amended, modified, supplemented or restated from time to time,
as the context requires.
<PAGE> 2
"Astra" shall mean Astra Resources, Inc., a Kansas corporation.
"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.
"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.
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"Exempt Issuance" shall mean issuances of the Company's Common Stock
of less than 1,000 shares in the aggregate of such Common Stock to the
employees, officers, directors or consultants of the Company under a bona fide
compensation program approved by the Board.
"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 the
date hereof.
"Registration Rights Agreement" shall mean the Third Amended and
Restated Registration Rights Agreement, dated as of the date hereof among the
Company, GKH, Astra and the other Stockholders parties thereto.
"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.
"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
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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.
"Transfer Notice" shall mean the notice required to be delivered by
the Seller to the Non-Selling Stockholders pursuant to Section 2.2. 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 Seller'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>
Common Stock preamble
Company preamble
Exempt Disposition 2.1(a)
Notice of Election 3.2(b)
Participating Stockholder 2.4(b)
Preferred Stock preamble
Purchasing Stockholder 2.2(c)
Secondary Notice 2.2(b)
Securities Act 2.1(a)
Seller 2.2
Stock preamble
Stock Offering 3.2(a)
</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) General Transfer Restriction. Each Stockholder
covenants and agrees that such Stockholder will not, and will not
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permit its Affiliates, directly or indirectly, to Dispose or cause the
Disposition of such Stockholder's Stock or any interest therein, except (i) in
accordance with the terms and conditions of this Article II, (ii) pursuant to
an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") or (iii) pursuant to any public distribution of
Stock pursuant to Rule 144 of the Securities Act. The Dispositions described
in the immediately preceding clauses (ii) and (iii) are sometimes collectively
referred to herein as "Exempt Dispositions". Any attempted Disposition not in
accordance with the terms and conditions of this Agreement shall be null and
void and of no force or effect.
(b) Transfers to Affiliates. Notwithstanding the
restrictions on Disposition set forth in this Article II, any Stockholder may
Dispose of all or a portion of its Stock to an Affiliate; provided, however,
that any such transferee shall be an Affiliate of the original holder of such
Stock and if Astra is the transferor, the transferee shall be required to
assume Astra's obligations under the Agreement and Plan of Merger among Astra,
the Company, Astra Resources Compression, Inc. and Hanover Acquisition Corp.
dated October 13, 1995.
(c) Transfers to Persons other than Affiliates. Except
for transfers permitted by this Article II, no Stockholder may Dispose of its
Stock without the prior written consent of each of the other Stockholders
(which consent may be given or withheld, in the sole and absolute discretion of
such other Stockholders) and if Astra is the transferor, the transferee shall
be required to assume Astra's obligations under the Agreement and Plan of
Merger among Astra, the Company, Astra Resources Compression, Inc. and Hanover
Acquisition Corp. dated October 13, 1995. Any Stock Disposed of pursuant to
this Section 2.1(c) 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.
(d) Pledge. No Stockholder may Encumber its Stock for
any purpose other than to secure indebtedness to a third party commercial bank
or financial institution and the pledgee of such Stock agrees in writing to be
bound by the terms and conditions of this Agreement.
(e) Rules of Construction and General Application.
Other than Persons who are transferees of Stock pursuant to Section 2.3 or 2.4
hereof or pursuant to an Exempt Disposition, each transferee of Stock pursuant
to this Article II (including transferees pursuant to Section 2.1(b)) shall
execute and acknowledge such instruments (including, without limitation, a
counterpart of this Agreement), in form and substance reasonably satisfactory
to the Company and the other Stockholders, as the
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Company and such other Stockholders shall deem reasonably necessary or
desirable to effectuate such transfer and to confirm the agreement of the
transferee of such Stock to be bound by all the terms and provisions of this
Agreement with respect to the Stock acquired. All reasonable expenses,
including attorneys' fees, incurred by the Company in this connection shall be
borne by such transferee.
2.2 Dispositions by Stockholders.
(a) Offer from Bona Fide Purchaser. If a Non-GKH Holder
(for purposes of this Section 2.2, "Seller") desires to effect the Disposition
of its Stock to a Bona Fide Purchaser (other than pursuant to an Exempt
Disposition) at any time on or prior to the third anniversary date hereof, such
Seller shall deliver to the Company and to all of the other Stockholders a
Transfer Notice at least 30 days prior to the proposed Disposition of Seller's
Stock. Under no circumstances may any Seller sell less than all of its Stock
to any such Bona Fide Purchaser; provided, however, that so long as a Seller,
together with its Affiliates, owns at least 66.67% of the shares of Common
Stock which such Seller owns as of the date hereof, such Seller may, subject to
Section 2.2(b) in one or more transactions, sell a portion of its Common Stock
to one or more Bona Fide Purchasers, provided, further, that any such partial
sale does not reduce such Seller's (together with its Affiliates') aggregate
ownership of Common Stock or Preferred Stock, as the case may be, to less than
66.67% of the amount owned as of the date hereof. After the third anniversary
date hereof, Astra shall be free to dispose of its Stock without complying with
this Section 2.2 and free of the restrictions set forth in Section 2.1(c)
hereof; provided, however, that the restriction set forth in the last sentence
of Section 2.1(c) shall continue to be applicable for a period of five (5)
years after the date of this Agreement.
(b) Right of First Refusal. By delivery of the Transfer
Notice, Seller shall be deemed to have offered the Company, or its designee(s)
(such designee(s) to be subject to the approval of Astra, which approval shall
not be unreasonably withheld), the right and option to purchase on the terms
and conditions set forth in the Bona Fide Purchaser's written offer all, or any
portion of the Seller's Stock subject to the Transfer Notice. In order to
exercise such option, the Company shall deliver written notice to such effect
to Seller within 25 days of its receipt of the Transfer Notice. In the event
that the Company exercises its rights for less than 100% of the Seller's Stock
subject to the Transfer Notice pursuant to the first sentence of this Section
2.2(b), then the Company shall within 30 days of the date that the Transfer
Notice is deemed given hereunder provide the non-selling Stockholders with a
notice (the "Secondary Notice") setting forth the number of shares of Seller's
Stock that remain unpurchased following the initial 25 day exercise period.
The recipients of the Secondary Notice shall have 7 days from the date that the
Secondary Notice is deemed given to provide notice to Seller and the Company of
the amount of Seller's unpurchased Stock
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that each non-Selling Stockholder will purchase, which amounts shall be in such
proportions as such non-selling Stockholders shall agree among themselves, or
failing such agreement in proportion to their interest in the Company
(vis-a-vis each other). If the Company and/or the non-selling Stockholders, or
their respective designees, who wish to participate exercise their respective
options to purchase all of the Seller's Stock subject to the Transfer Notice,
the consummation of the purchase and sale of Seller's Stock shall occur in
accordance with Section 2.2(c) hereof. A failure by either the Company or any
non-selling Stockholder to timely deliver any notice of intent to purchase
required pursuant to this Section 2.2(b) shall constitute such Person's failure
to exercise its rights under this Section 2.2(b).
(c) Consummation of Purchase.
(i) The purchase price payable by either the
Company or a non-selling Stockholder or their respective designees
(collectively, the "Purchasing Stockholder") to Seller shall be paid
as set forth in the Bona Fide Purchaser's offer (except that no
payment need be made until at least 15 days subsequent to the
completion of the procedure described in Section 2.2(b), if
applicable) and Seller's Stock shall be transferred as provided in
such written offer.
(ii) At the closing of the purchase and sale
of Seller's Stock pursuant to Section 2.2(b), (A) each Purchasing
Stockholder shall deliver to Seller any and all consideration required
pursuant to the terms of the Bona Fide Purchaser's offer and (B)
Seller shall deliver to each such Purchasing Stockholder a stock
certificate or stock certificates evidencing such Seller's Stock
together with appropriate instruments of assignment duly executed in a
proper form to effect the transfer of such Stock from Seller to each
such Purchasing Stockholder on the books and records of the Company.
(d) Other Disposition Provisions.
(i) If Purchasing Stockholders do not agree
to purchase all of Seller's Stock subject to the Transfer Notice by
the expiration of the periods set forth in Section 2.2(b), then no
Purchasing Stockholder shall have the right to purchase any of
Seller's Stock which was the subject of such Transfer Notice and
Seller shall have 45 days thereafter in which to effect the
Disposition of its Stock to the Bona Fide Purchaser on terms not more
favorable than were set forth in the Bona-Fide Purchaser's written
offer.
(ii) During the term of the rights granted to
the Company and the non-selling Stockholders pursuant to Section 2.2,
Seller shall not negotiate or offer to sell its Stock on terms and
conditions more favorable to a purchaser than those
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<PAGE> 8
offered to the Bona Fide Purchaser which offer was the subject of the
relevant Transfer Notice.
(iii) If Seller shall fail to consummate a
Disposition of its Stock within the time period set forth in Section
2.2(d)(i), then no Disposition of such Stock may be made by Seller
without first re-offering such Stock to the Company and the
non-selling Stockholders in accordance with the provisions of this
Section 2.2.
2.3 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.
(b) Obligations of the Non-GKH Holders. In the event
that GKH desires to exercise its right pursuant to Section 2.3(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 2.3 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 2.3(b).
In addition, in the event GKH exercises its rights under Section
2.3(a), the Non-GKH Holders shall be required to make to the relevant Bona Fide
Purchaser such unqualified representations
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and warranties with respect to their Stock as are set forth in Section 2.5(b)
hereof.
(c) Responsibility of GKH. Promptly after the
consummation of the Disposition of Stock pursuant to this Section 2.3, GKH
shall (i) deliver notice thereof to the Non-GKH Holders, (ii) subject to clause
(B) of Section 2.3(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 2.3(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 2.3. 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.
2.4 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 owns as of the date hereof to a Bona
Fide Purchaser (other than pursuant 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 2.4(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 2.4(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 2.4(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 2.4 (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
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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 2.4 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 2.4(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 2.5(b) hereof.
(c) Responsibility of GKH. In the event that any
Participating Stockholder timely exercises its rights of inclusion under this
Section 2.4, promptly after the consummation of the sale of Stock under this
Section 2.4, 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 2.4
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 2.4(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 2.4. 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.
2.5 Agreement of Selling Stockholders. All sales of Stock to be
made pursuant to Sections 2.2, 2.3 and 2.4 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 (other than those set forth in Section 2.1(c)), 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;
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(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 2.5(b).
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 Board Rights. So long as (a) Astra and its Affiliates
continue to own (beneficially and of record) no less than 15% of the
outstanding 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 to third parties as a material portion of its business (any
entity other than the Company and its subsidiaries which meets the foregoing
definition being hereinafter referred to as a "Competitor") in which Astra and
its Affiliates owns (beneficially and/or of record) an equity interest or an
interest which is convertible into or exchangeable for equity, Astra shall
have the right to nominate that number of directors which would constitute 20%
of the members of the Board. The foregoing notwithstanding, without causing
Astra to lose any of the rights granted under this Section 3.1, Astra and 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.
Astra agrees that Astra and its designee(s) 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 Astra, including
Astra'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 an
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applicable law or regulation, (3) made to any governmental agency or regulatory
body having or claiming authority over any aspect of Astra'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
Astra deems reasonably necessary or appropriate to any of its investors, any
bank or financial institution and/or counsel to or the 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 23, 1995 between the Company and Astra.
3.2 Equity Rights Offerings.
(a) In the event that the Company issues additional
shares, other than in an Exempt Issuance (a "Stock Offering"), then Astra shall
have the right to subscribe for that number of shares (but not less than such
number) that would, together with the shares then owned by Astra, result in
Astra owning 20% of the outstanding Common Stock.
(b) Following delivery by the Company to Astra of
written notice of the Company's intent to pursue a Stock Offering, Astra shall
have 30 days to notify the Company in writing (the "Notice of Election") of its
election to exercise its rights under Section 3.2(a). Failure by Astra to
deliver the Notice of Election within such 30 day period shall constitute a
waiver by Astra of its rights under Section 3.2(a), and thereafter such rights
will be cancelled.
3.3 Agreement to Vote for Directors.
(a) During the term of this Agreement, each of Astra and
GKH agrees that at any regular or special meeting of the stockholders of the
Company at which director nominees are to be elected to the Board, or in any
written consent executed in lieu of such a meeting, it shall (a) vote its
Common Stock, (b) take all actions necessary and (c) cause the directors
nominated by it to the Board pursuant to this Agreement to take all actions
necessary, to ensure the election to the Board of the individuals nominated by
the other.
(b) Upon the request of Astra or GKH, as the case may
be, the non-requesting party will vote its Common Stock to (i) remove any
individual nominated by the requesting party and (ii) appoint another
individual nominated by the requesting party.
3.4 Registration Rights Agreement. Each of the parties hereto
shall concurrently with the execution and delivery of this agreement execute
and deliver a counterpart of the Third Amended and Restatement Registration
Rights Agreement dated as of
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December 5, 1995 among the Company, GKH, Astra and certain other stockholders
of the Company parties thereto.
3.5 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 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.
3.6 Visitation Rights. Astra may, during normal business hours,
at Astra'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 Astra representative shall be
accompanied by a member of the senior management of the Company. Astra shall
comply with the obligations of Astra under the Confidentiality Agreement
between the Company and Astra, 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 Astra, (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 Astra, (c) may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (d) is disclosed to Astra in good faith by a
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third party who had independent rights to such information, (e) is obsolete or
(f) is reasonably believed by Astra to be appropriate in order to comply with
any law, order, regulation or ruling applicable to Astra.
3.7 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.
3.8 Committee Representation. The Company and GKH shall use
their reasonable best efforts to cause one of Astra's designees on the Board to
be elected to the Executive Committee and the Finance Committee of the Board.
3.9 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, 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:
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(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 Section
3.1, Section 3.3, 3.6, 3.8 and 3.9 (but only with respect to Astra to the
extent Astra continues to have Board rights under Section 3.1) and Section 3.5
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; or
(e) August 1, 2005.
4.3 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 4.3(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.
4.4 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.
4.5 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
-15-
<PAGE> 16
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.
4.6 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.
4.7 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.
4.8 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.
4.9 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.
4.10 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.
4.11 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.
-16-
<PAGE> 17
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: /s/ William S. Goldberg
-----------------------------------
Title: Executive Vice President
THE STOCKHOLDERS:
----------------
ASTRA RESOURCES, INC.
By: /s/ C. Bob Cline
-----------------------------------
Title: President
Address:
-----------------------------------
-----------------------------------
-----------------------------------
GKH PARTNERS, L.P., a Delaware
limited partnership
By: JAKK HOLDING CORP., a general
partner
By: /s/ Melvyn N. Klein
-------------------------------
Melvyn N. Klein, President
Address:
200 West Madison Street,
Suite 2700
Chicago, Illinois 60606
-17-
<PAGE> 18
GKH INVESTMENTS, L.P., a Delaware
limited partnership.
By: GKH Partners, L.P., its
general partner
By: JAKK Holding Corp., a general
partner
By: /s/ Melvyn N. Klein
-------------------------------
Melvyn N. Klein, President
Address:
200 West Madison Street,
Suite 2700
Chicago, Illinois 60606
-18-
<PAGE> 1
EXHIBIT 4.8
HANOVER ACQUISITION PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of December 19, 1995, made by
Hanover Acquisition Corp., a Texas corporation ("Hanover Acquisition"), in
favor of Chemical Bank, as collateral trustee (in such capacity, the
"Collateral Trustee") under the Collateral Trust Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Hanover Compressor Company, a Delaware corporation
("HCC"), the banks and other financial institutions parties thereto (the
"Banks") and Chemical Bank, as agent (in such capacity, the "Agent") for the
Banks are parties to the Amended and Restated Credit Agreement, dated as of
June 29, 1993 (as amended, supplemented or otherwise modified prior to the date
hereof, the "Existing Credit Agreement"); and
WHEREAS, HCC, the Banks and the Agent are concurrently with
the execution of this Pledge Agreement entering into the Second Amended and
Restated Credit Agreement, dated as of the date hereof (as further amended,
supplemented or otherwise modified from time to time, the "Credit Agreement");
and
WHEREAS, pursuant to the Credit Agreement, HCC, the Banks and
the Agent have agreed to amend and restate the Existing Credit Agreement in
accordance with the terms and conditions set forth in the Credit Agreement; and
WHEREAS, under the Credit Agreement, it is a condition
precedent to the obligation of the Banks and the Agent to abide by the terms
and conditions thereunder that Hanover Acquisition shall execute and deliver
this Pledge Agreement in the manner hereinafter set forth; and
WHEREAS, HCC, as borrower, Joint Energy Development Investors
Limited Partnership, a Delaware limited partnership ("JEDI"), as agent (in such
capacity, the "JEDI Agent") for the lenders thereunder, and the financial
institutions which are lenders thereunder (the "JEDI Lenders") are concurrently
with the execution of this Pledge Agreement entering into a Loan Agreement,
dated as of the date hereof (as amended, supplemented or otherwise modified
from time to time (the "JEDI Loan Agreement"); and
<PAGE> 2
2
WHEREAS, under the JEDI Loan Agreement, it is a condition
precedent to the obligation of the JEDI Lenders and the JEDI Agent to abide by
the terms and conditions thereunder that Hanover Acquisition shall execute and
deliver this Pledge Agreement in the manner hereinafter set forth; and
WHEREAS, HCC, the Loan Parties (as defined in the Collateral
Trust Agreement referred to below) and the Collateral Trustee are concurrently
with the execution of this Pledge Agreement entering into a Collateral Trust
Agreement, dated as of the date hereof (as amended, supplemented or otherwise
modified from time to time the "Collateral Trust Agreement"); and
WHEREAS, under the Collateral Trust Agreement, the Collateral
Trustee will act as collateral trustee for the benefit of the holders of Master
Debt (as defined in the Collateral Trust Agreement) from time to time
outstanding; and
WHEREAS, Hanover Acquisition is the legal and beneficial owner
of the shares of Pledged Stock (as hereinafter defined) issued by the
corporations listed on Schedule I hereto (individually, an "Issuer",
collectively, the "Issuers");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
Hanover Acquisition hereby agrees with the Collateral Trustee, for the benefit
of the holders of the Obligations, as follows:
1. Defined Terms. Unless otherwise defined herein,
terms which are defined in the Collateral Trust Agreement and used herein are
so used as so defined, and the following terms shall have the following
meanings:
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" means all Secured Obligations outstanding from
time to time and entitled to the benefits of the Collateral Trust
Agreement.
"Pledge Agreement" means this Pledge Agreement, as further
amended, supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of the
Issuers listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by any Issuer to Hanover Acquisition in respect of
such capital stock while this Pledge Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9-306(1) of the UCC on the date hereof and, in any
<PAGE> 3
3
event, shall include, without limitation, all dividends or other
income from the Pledged Stock, collections thereon or distributions
with respect thereto.
"UCC" means the Uniform Commercial Code from time to time in
effect in the State of New York.
2. Pledge; Grant of Security Interest. Hanover
Acquisition hereby delivers to the Collateral Trustee, for the ratable benefit
of the holders of the Obligations, all the Pledged Stock and hereby grants to
the Collateral Trustee, for the ratable benefit of the holders of the
Obligations, a first security interest in the Collateral, as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to the
Collateral Trustee of each certificate representing one or more shares of
Pledged Stock, Hanover Acquisition shall deliver an undated stock power
covering such certificate, duly executed in blank by Hanover Acquisition.
4. Representations and Warranties. Hanover Acquisition
represents and warrants that:
(a) the shares of Pledged Stock of each Issuer listed on Schedule I
constitute all the issued and outstanding shares of all classes of the capital
stock of such Issuer;
(b) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable;
(c) Hanover Acquisition is the record and beneficial owner of, and
has good and marketable title to, the Pledged Stock listed on Schedule I, free
of any and all Liens or options in favor of, or claims of, any other Person,
except the Lien created by this Pledge Agreement; and
(d) upon delivery to the Collateral Trustee of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Pledge
Agreement will constitute a valid, perfected first priority Lien on the
Collateral in favor of the Collateral Trustee (assuming that the Collateral
Trustee retains possession of the stock certificates evidencing the Pledged
Stock), enforceable as such against all creditors of Hanover Acquisition and
any Persons purporting to purchase any Collateral from Hanover Acquisition.
5. Covenants. Hanover Acquisition covenants and agrees
with the Collateral Trustee that, from and after the date of this Pledge
Agreement until the Obligations are paid in full and all commitments of all
holders of the Obligations to extend additional Master Debt are terminated:
<PAGE> 4
4
(a) If Hanover Acquisition shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate representing a
stock dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection with
any reorganization), option or rights, whether in addition to, in substitution
of, as a conversion of, or in exchange for any shares of the Pledged Stock, or
otherwise in respect thereof, Hanover Acquisition shall accept the same as the
agent of the Collateral Trustee and the holders of the Obligations, hold the
same in trust for the Collateral Trustee and the holders of the Obligations and
deliver the same forthwith to the Collateral Trustee in the exact form
received, duly indorsed by Hanover Acquisition to the Collateral Trustee, if
required, together with an undated stock power covering such certificate duly
executed in blank by Hanover Acquisition, to be held by the Collateral Trustee,
subject to the terms hereof, as additional collateral security for the
Obligations. Any sums paid upon or in respect of the Pledged Stock upon the
liquidation or dissolution of any Issuer shall be paid over to the Collateral
Trustee to be held by it hereunder as additional collateral security for the
Obligations, and if any distribution of capital or any property shall be
distributed upon or with respect to the Pledged Stock pursuant to the
recapitalization or reclassification of the capital of any Issuer or pursuant
to the reorganization thereof, the capital or property so distributed shall be
delivered to the Collateral Trustee to be held by it hereunder as additional
collateral security for the Obligations. If any sums of money or property so
paid or distributed in respect of the Pledged Stock shall be received by
Hanover Acquisition, Hanover Acquisition shall, until such money or property is
paid or delivered to the Collateral Trustee, hold such money or property in
trust for the Collateral Trustee and the holders of the Obligations, segregated
from other funds of Hanover Acquisition, as additional collateral security for
the Obligations.
(b) Without the prior written consent of the Collateral Trustee,
Hanover Acquisition will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of any nature
or to issue any other securities convertible into or granting the right to
purchase or exchange for any stock or other equity securities of any nature of
any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, the
Collateral, or (iii) create, incur or permit to exist any Lien or option in
favor of, or any claim of any Person with respect to, any of the Collateral, or
any interest therein, except for the Lien provided for by this Pledge Agreement
or as otherwise permitted by all Master Debt Agreements. Hanover Acquisition
<PAGE> 5
5
will defend the right, title and interest of the Collateral Trustee and the
holders of the Obligations in and to the Collateral against the claims and
demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Collateral Trustee, and at the sole expense of Hanover Acquisition, Hanover
Acquisition will promptly and duly execute and deliver such further instruments
and documents and take such further actions as the Collateral Trustee may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Pledge Agreement and of the rights and powers herein granted.
If any amount payable under or in connection with any of the Collateral shall
be or become evidenced by any promissory note, other instrument or chattel
paper (in each case as defined in the UCC), such note, instrument or chattel
paper shall be promptly delivered to the Collateral Trustee, duly endorsed in a
manner reasonably satisfactory to the Collateral Trustee, to be held as
Collateral pursuant to this Pledge Agreement.
(d) Hanover Acquisition agrees to pay, and to save the Collateral
Trustee and the holders of the Obligations harmless from, any and all
liabilities with respect to, or resulting from any delay by Hanover Acquisition
in paying, any and all stamps, excise, sales or other taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Pledge Agreement.
6. Cash Dividends; Voting Rights. Unless an Actionable
Event of Default shall have occurred and be continuing and the Collateral
Trustee shall have given notice to Hanover Acquisition of the Collateral
Trustee's intent to exercise its corresponding rights pursuant to paragraph 7,
Hanover Acquisition shall be permitted to receive all cash distributions, to
the extent permitted by all Master Debt Agreements, in respect of the Pledged
Stock and to exercise all voting and corporate rights with respect to the
Pledged Stock, provided, however, that no vote shall be cast or corporate right
exercised or other action taken which, in the Collateral Trustee's reasonable
judgment, would reasonably be expected to have a material adverse effect on the
Collateral or which would reasonably be expected to be inconsistent with or
result in any violation of any provision of any Master Debt Agreement, the
Collateral Trust Agreement or this Pledge Agreement.
7. Rights of the Collateral Trustee and the holders of
the Obligations. (a) If an Actionable Event of Default shall occur and be
continuing and the Collateral Trustee shall give Hanover Acquisition written
notice of its intent to exercise the rights described below, (i) the Collateral
Trustee shall have the right to receive any and all cash distributions paid in
respect of the Pledged Stock and make application thereof pursuant to the
<PAGE> 6
6
terms of the Collateral Trust Agreement, and (ii) all shares of the Pledged
Stock shall be registered in the name of the Collateral Trustee or its nominee,
and the Collateral Trustee or its nominee may thereafter exercise (A) all
voting, corporate and other rights pertaining to such shares of the Pledged
Stock at any meeting of shareholders of the Issuers or otherwise and (B) any
and all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to such shares of the Pledged Stock as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Stock upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of the Issuers, or upon the exercise by Hanover
Acquisition or the Collateral Trustee of any right, privilege or option
pertaining to such shares of the Pledged Stock, and in connection therewith,
the right to deposit and deliver any and all of the Pledged Stock with any
committee, depositary, transfer agent, registrar or other designated agency
upon such terms and conditions as it may determine), all without liability
except to account for property actually received by it or such liability as is
caused by the gross negligence or willful misconduct of the Collateral Trustee,
but the Collateral Trustee shall have no duty to Hanover Acquisition to
exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
(b) The rights of the Collateral Trustee hereunder shall not
be conditioned or contingent upon the pursuit by the Collateral Trustee of any
right or remedy against the Issuer or against any other Person which may be or
become liable in respect of all or any part of the Obligations or against any
collateral security therefor, guarantee therefor or right of offset with
respect thereto. Neither the Collateral Trustee nor any holder of the
Obligations shall be liable for any failure to demand, collect or realize upon
all or any part of the Collateral or for any delay in doing so, nor shall the
Collateral Trustee be under any obligation to sell or otherwise dispose of any
Collateral upon the request of Hanover Acquisition or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof.
8. Remedies. If an Actionable Event of Default shall
occur and be continuing, the Collateral Trustee, on behalf of the holders of
the Obligations, may exercise, in addition to all other rights and remedies
granted in this Pledge Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the UCC. Without limiting the generality of the
foregoing, the Collateral Trustee, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon Hanover Acquisition, the
Issuers or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate
<PAGE> 7
7
and realize upon the Collateral, or any part thereof, and/or may forthwith
sell, assign, give option or options to purchase or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, in the
over-the-counter market, at any exchange, broker's board or office of the
Collateral Trustee or any holder of the Obligations or elsewhere upon such
terms and conditions as it reasonably may deem advisable and at such prices as
it reasonably may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Collateral Trustee or any holder of
the Obligations shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in Hanover Acquisition, which right or equity is hereby
waived or released. The Collateral Trustee shall hold and apply any Proceeds
from time to time held by it and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale pursuant to the terms of
the Collateral Trust Agreement. To the extent permitted by applicable law,
Hanover Acquisition waives all claims, damages and demands it may acquire
against the Collateral Trustee or any holder of the Obligations arising out of
the exercise by them of any rights hereunder other than claims which arise out
of the gross negligence or willful misconduct of the Collateral Trustee or any
holder of the Obligations. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 30 days before such sale or other
disposition. Hanover Acquisition shall remain liable for any deficiency if
the proceeds of any sale or other disposition of Collateral are insufficient to
pay the Obligations and the reasonable fees and disbursements of any attorneys
employed by the Collateral Trustee or any holder of the Obligations to collect
such deficiency.
9. Registration Rights; Private Sales. (a) If the
Collateral Trustee shall determine to exercise its right to sell any or all of
the Pledged Stock pursuant to paragraph 8 hereof, and if in the reasonable
opinion of the Collateral Trustee it is necessary or advisable to have the
Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
Hanover Acquisition will cause the Issuers to (i) execute and deliver, and
cause the directors and officers of the Issuers to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts
as may be, in the reasonable opinion of the Collateral Trustee, necessary or
advisable to register the Pledged Stock, or that portion thereof to be sold,
under the provisions of the Securities Act, (ii) to use its best efforts to
cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of the Pledged Stock, or that portion thereof to be sold, and (iii) to
make all amendments
<PAGE> 8
8
thereto and/or to the related prospectus which, in the opinion of the
Collateral Trustee, are reasonably necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and regulations of
the Securities and Exchange Commission applicable thereto. Hanover Acquisition
agrees to cause the Issuers to comply with the provisions of the securities or
"Blue Sky" laws of any and all jurisdictions which the Collateral Trustee shall
designate and to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.
(b) Hanover Acquisition recognizes that the Collateral
Trustee may be unable to effect a public sale of any or all the Pledged Stock,
by reason of certain prohibitions contained in the Securities Act and
applicable state securities laws or otherwise, and may be compelled to resort
to one or more private sales thereof to a restricted group of purchasers which
will be obliged to agree, among other things, to acquire such securities for
their own account for investment and not with a view to the distribution or
resale thereof. Hanover Acquisition acknowledges and agrees that any such
private sale may result in prices and other terms less favorable than if such
sale were a public sale, and Hanover Acquisition further agrees that any such
less favorable term or terms will not in and of itself or themselves constitute
a sale made in a non-commercially reasonable manner. The Collateral Trustee
shall be under no obligation to delay a sale of any of the Pledged Stock for
the period of time necessary to permit the Issuers to register such securities
for public sale under the Securities Act, or under applicable state securities
laws, even if the Issuers would agree to do so.
(c) Hanover Acquisition further agrees to use its reasonable
best efforts to do or cause to be done all such other acts as may be reasonably
necessary to make such sale or sales of all or any portion of the Pledged Stock
pursuant to this paragraph 9 valid and binding and in compliance with any and
all other applicable Requirements of Law. Hanover Acquisition further agrees
that a breach of any of the covenants contained in this paragraph 9 will cause
irreparable injury to the Collateral Trustee and the holders of the
Obligations, that the Collateral Trustee and the holders of the Obligations
have no adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this paragraph 9 shall be
specifically enforceable against Hanover Acquisition, and Hanover Acquisition
hereby waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no Actionable
Event of Default has occurred under any Master Debt Agreement.
10. Limitation on Duties Regarding Collateral. The
Collateral Trustee's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its
<PAGE> 9
9
possession, under Section 9-207 of the Uniform Commercial Code in effect in any
jurisdiction with respect to the Liens created hereby, shall be to deal with it
in the same manner as the Collateral Trustee deals with similar securities and
property for its own account. Neither the Collateral Trustee, any holder of
the Obligations nor any of their respective directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon any of
the Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of Hanover
Acquisition or otherwise.
11. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral are irrevocable
and powers coupled with an interest.
12. Severability. Any provision of this Pledge Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in
this Pledge Agreement are for convenience of reference only and are not to
affect the construction hereof or be taken into consideration in the
interpretation hereof.
14. No Waiver; Cumulative Remedies. Neither the
Collateral Trustee nor any holder of the Obligations shall by any act (except
by a written instrument pursuant to paragraph 15 hereof) be deemed to have
waived any right or remedy hereunder or to have acquiesced in any default under
any Master Debt Agreement or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of
the Collateral Trustee or any holder of the Obligations, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Collateral Trustee or any holder of the Obligations
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which the Collateral Trustee or such holder of the
Obligations would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law, by the Master Debt Agreements or by the Collateral Trust Agreement.
15. Integration; Waivers and Amendments; Successors and
Assigns; Governing Law. This Pledge Agreement represents the agreement of
Hanover Acquisition and the Collateral Trustee with
<PAGE> 10
10
respect to the subject matter hereof and there are no promises or
representations by the Collateral Trustee or any holder of the Obligations
relative to the subject matter hereof not reflected herein, in the Master Debt
Agreements or in the Collateral Trust Agreement. None of the terms or
provisions of this Pledge Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument in accordance with the
provisions of the Collateral Trust Agreement. This Pledge Agreement shall be
binding upon the successors and assigns of Hanover Acquisition and shall inure
to the benefit of the Collateral Trustee and the holders of the Obligations and
their respective successors and assigns. THIS PLEDGE AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
16. Notices. All notices, requests and demands given
hereunder shall be given in accordance with the Collateral Trust Agreement.
17. Irrevocable Authorization and Instruction to Issuer.
Hanover Acquisition hereby authorizes and instructs any Issuer to comply with
any lawful instruction received by it from the Collateral Trustee in writing
that (a) states that an Actionable Event of Default has occurred, (b) is
otherwise in accordance with the terms of this Pledge Agreement and the
Collateral Trust Agreement and (c) is simultaneously delivered to Hanover
Acquisition, without any other or further instructions from Hanover
Acquisition, and Hanover Acquisition agrees that any Issuer shall be fully
protected in so complying.
18. Authority of Collateral Trustee. Hanover Acquisition
acknowledges that the rights and responsibilities of the Collateral Trustee
under this Pledge Agreement with respect to any action taken by the Collateral
Trustee or the exercise or non-exercise by the Collateral Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Pledge Agreement shall, as between
the Collateral Trustee and the holders of the Obligations, be governed by the
Collateral Trust Agreement and the Master Debt Agreements and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Collateral Trustee and Hanover Acquisition, the Collateral
Trustee shall be conclusively presumed to be acting as agent for the holders of
the Obligations with full and valid authority so to act or refrain from acting,
and neither Hanover Acquisition nor any Issuer shall be under any obligation to
make any inquiry respecting such authority.
<PAGE> 11
11
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
HANOVER ACQUISITION CORP.
By:_________________________
Title:
CHEMICAL BANK, as Collateral Trustee
By:_________________________
Title:
<PAGE> 12
ACKNOWLEDGEMENT AND CONSENT
Each of the Issuers referred to in the foregoing Pledge
Agreement hereby acknowledges receipt of a copy thereof, agrees to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. Each Issuer agrees to notify the Collateral Trustee promptly
in writing of the occurrence of any of the events described in paragraph 5(a)
of the Pledge Agreement. Each Issuer further agrees that the terms of
paragraph 9(c) of the Pledge Agreement shall apply to it, mutatis mutandis,
with respect to all actions that may be required of it under or pursuant to or
arising out of paragraph 9 of the Pledge Agreement.
ASTRA RESOURCES INTERNATIONAL, INC.
By_________________________
Title:
Address for Notices:
12001 North Houston Rosslyn
Houston, Texas 77086
Tel: (713) 447-8787
Fax: (713) 447-0821
With a copy to:
Neal Gerber & Eisenberg
Two North LaSalle, Suite 2200
Chicago, Illinois 60602
Attention: Richard S. Meller
Tel: (312) 269-8000
Fax: (312) 269-1747
<PAGE> 13
SCHEDULE I To Pledge
Agreement
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
Class Stock % of
of Certificate No. of Capital
Issuer Stock No. Shares Stock
------ ----- ----------- ------ -----
<S> <C> <C> <C> <C>
Astra Resources
International, Inc. Common 3 1,000 100%
</TABLE>
<PAGE> 1
EXHIBIT 4.9
SECOND AMENDED AND RESTATED HCC PLEDGE AGREEMENT
SECOND AMENDED AND RESTATED PLEDGE AGREEMENT, dated as of
December 19, 1995, made by Hanover Compressor Company, a Delaware corporation
("HCC"), in favor of Chemical Bank, as collateral trustee (in such capacity,
the "Collateral Trustee") under the Collateral Trust Agreement referred to
below.
W I T N E S S E T H :
WHEREAS, HCC and the Agent (as defined below) were parties to
the Pledge Agreement dated as of November 30, 1990 (as amended, supplemented or
otherwise modified from time to time prior to the A&R Closing Date (as defined
below), the "Original Pledge Agreement") made pursuant to the Credit Agreement,
dated as of November 30, 1990, among HCC, Hanover Pipeline Company, a Delaware
corporation, Hanover Energy Inc., a Texas corporation (predecessor in interest
to Hanover Energy Holding Corporation, a Delaware Corporation) the banks and
other financial institutions parties thereto (the "Banks") and Chemical Bank
(successor by merger to Manufacturers Hanover Trust Company), as agent (in such
capacity, the "Agent") for the Banks (as amended, supplemented or otherwise
modified from time to time prior to the A&R Closing Date, the "Original Credit
Agreement"); and
WHEREAS, HCC, the Banks and the Agent amended and restated the
Original Credit Agreement pursuant to the Amended and Restated Credit
Agreement, dated as of June 29, 1993 (as amended, supplemented or otherwise
modified prior to the date hereof, the "Existing Credit Agreement"); and
WHEREAS, pursuant to the terms and conditions of the Existing
Credit Agreement, HCC amended and restated the Original Pledge Agreement
pursuant to the Amended and Restated Pledge Agreement, dated as of June 29,
1993 (as amended, supplemented or otherwise modified prior to the date hereof,
the "Existing Pledge Agreement"); and
WHEREAS, HCC, the Banks and the Agent are concurrently with
the execution of this Second Amended and Restated Pledge Agreement entering
into the Second Amended and Restated Credit Agreement, dated as of the date
hereof (as further amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"); and
<PAGE> 2
WHEREAS, pursuant to the Credit Agreement, HCC, the Banks and
the Agent have agreed to amend and restate the Existing Credit Agreement in
accordance with the terms and conditions set forth in the Credit Agreement; and
WHEREAS, under the Credit Agreement, it is a condition
precedent to the obligation of the Banks and the Agent to abide by the terms
and conditions thereunder that HCC shall amend and restate the Existing Pledge
Agreement in the manner hereinafter set forth; and
WHEREAS, HCC, as borrower, Joint Energy Development Investors
Limited Partnership, a Delaware limited partnership ("JEDI"), as agent (in such
capacity, the "JEDI Agent") for the lenders thereunder, and the financial
institutions which are lenders thereunder (the "JEDI Lenders") are concurrently
with the execution of this Second Amended and Restated Pledge Agreement
entering into a Loan Agreement, dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time (the "JEDI Loan
Agreement"); and
WHEREAS, under the JEDI Loan Agreement, it is a condition
precedent to the obligation of the JEDI Lenders and the JEDI Agent to abide by
the terms and conditions thereunder that HCC shall amend and restate the
Existing Pledge Agreement in the manner hereinafter set forth; and
WHEREAS, HCC, the Loan Parties (as defined in the Collateral
Trust Agreement referred to below) and the Collateral Trustee are concurrently
with the execution of this Second Amended and Restated Pledge Agreement
entering into a Collateral Trust Agreement, dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time the "Collateral
Trust Agreement"); and
WHEREAS, under the Collateral Trust Agreement, the Collateral
Trustee will act as collateral trustee for the benefit of the holders of Master
Debt (as defined in the Collateral Trust Agreement) from time to time
outstanding; and
WHEREAS, HCC is the legal and beneficial owner of the shares
of Pledged Stock (as hereinafter defined) issued by the corporations listed on
Schedule I hereto (individually, an "Issuer", collectively, the "Issuers");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
HCC hereby agrees with the Collateral Trustee, for the benefit of the holders
of the Obligations, as follows:
1. Defined Terms. Unless otherwise defined herein,
terms which are defined in the Collateral Trust Agreement and used
<PAGE> 3
3
herein are so used as so defined, and the following terms shall have the
following meanings:
"A&R Closing Date" means June 29, 1993, the closing date of the
Existing Pledge Agreement.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations" means all Secured Obligations outstanding from time to
time and entitled to the benefits of the Collateral Trust Agreement.
"Pledge Agreement" means this Second Amended and Restated Pledge
Agreement, as further amended, supplemented or otherwise modified from
time to time.
"Pledged Stock" means the shares of capital stock of the Issuers
listed on Schedule I hereto, together with all stock certificates, options
or rights of any nature whatsoever that may be issued or granted by any
Issuer to HCC in respect of such capital stock while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in Section
9-306(1) of the UCC on the date hereof and, in any event, shall include,
without limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
"UCC" means the Uniform Commercial Code from time to time in effect in
the State of New York.
2. Pledge; Grant of Security Interest. HCC hereby
delivers to the Collateral Trustee, for the ratable benefit of the holders of
the Obligations, all the Pledged Stock and hereby grants to the Collateral
Trustee, for the ratable benefit of the holders of the Obligations, a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to the
Collateral Trustee of each certificate representing one or more shares of
Pledged Stock, HCC shall deliver an undated stock power covering such
certificate, duly executed in blank by HCC.
4. Representations and Warranties. HCC represents and
warrants that:
(a) the shares of Pledged Stock of each Issuer listed on Schedule I
constitute all the issued and outstanding shares of all classes of the
capital stock of such Issuer except that with respect to H.C.C Compressor
de Venezuela, C.A., the
<PAGE> 4
4
shares of Pledged Stock listed on Schedule I constitute 66% of the issued
and outstanding shares of its capital stock;
(b) all the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable;
(c) HCC is the record and beneficial owner of, and has good and
marketable title to, the Pledged Stock listed on Schedule I, free of any
and all Liens or options in favor of, or claims of, any other Person,
except the Lien created by this Pledge Agreement; and
(d) upon delivery to the Collateral Trustee of the stock certificates
evidencing the Pledged Stock, the Lien granted pursuant to this Pledge
Agreement will constitute a valid, perfected first priority Lien on the
Collateral in favor of the Collateral Trustee (assuming that the
Collateral Trustee retains possession of the stock certificates evidencing
the Pledged Stock), enforceable as such against all creditors of HCC and
any Persons purporting to purchase any Collateral from HCC.
5. Covenants. HCC covenants and agrees with the
Collateral Trustee that, from and after the date of this Pledge Agreement until
the Obligations are paid in full and all commitments of all holders of the
Obligations to extend additional Master Debt are terminated:
(a) If HCC shall, as a result of its ownership of the Pledged Stock,
become entitled to receive or shall receive any stock certificate
(including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification,
increase or reduction of capital or any certificate issued in connection
with any reorganization), option or rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for any shares of the
Pledged Stock, or otherwise in respect thereof, HCC shall accept the same
as the agent of the Collateral Trustee and the holders of the Obligations,
hold the same in trust for the Collateral Trustee and the holders of the
Obligations and deliver the same forthwith to the Collateral Trustee in
the exact form received, duly indorsed by HCC to the Collateral Trustee,
if required, together with an undated stock power covering such
certificate duly executed in blank by HCC, to be held by the Collateral
Trustee, subject to the terms hereof, as additional collateral security
for the Obligations. Any sums paid upon or in respect of the Pledged
Stock upon the liquidation or dissolution of any Issuer shall be paid over
to the Collateral Trustee to be held by it hereunder as additional
collateral security for the Obligations, and if any distribution of
capital or any property shall be distributed upon or with respect to the
Pledged Stock pursuant to the recapitalization or
<PAGE> 5
5
reclassification of the capital of any Issuer or pursuant to the
reorganization thereof, the capital or property so distributed shall be
delivered to the Collateral Trustee to be held by it hereunder as
additional collateral security for the Obligations. If any sums of money
or property so paid or distributed in respect of the Pledged Stock shall
be received by HCC, HCC shall, until such money or property is paid or
delivered to the Collateral Trustee, hold such money or property in trust
for the Collateral Trustee and the holders of the Obligations, segregated
from other funds of HCC, as additional collateral security for the
Obligations.
(b) Without the prior written consent of the Collateral Trustee, HCC
will not (i) vote to enable, or take any other action to permit, any
Issuer to issue any stock or other equity securities of any nature or to
issue any other securities convertible into or granting the right to
purchase or exchange for any stock or other equity securities of any
nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise
dispose of, the Collateral, or (iii) create, incur or permit to exist any
Lien or option in favor of, or any claim of any Person with respect to,
any of the Collateral, or any interest therein, except for the Lien
provided for by this Pledge Agreement or as otherwise permitted by all
Master Debt Agreements. HCC will defend the right, title and interest of
the Collateral Trustee and the holders of the Obligations in and to the
Collateral against the claims and demands of all Persons whomsoever.
(c) At any time and from time to time, upon the written request of
the Collateral Trustee, and at the sole expense of HCC, HCC will promptly
and duly execute and deliver such further instruments and documents and
take such further actions as the Collateral Trustee may reasonably request
for the purposes of obtaining or preserving the full benefits of this
Pledge Agreement and of the rights and powers herein granted. If any
amount payable under or in connection with any of the Collateral shall be
or become evidenced by any promissory note, other instrument or chattel
paper (in each case as defined in the UCC), such note, instrument or
chattel paper shall be promptly delivered to the Collateral Trustee, duly
endorsed in a manner reasonably satisfactory to the Collateral Trustee, to
be held as Collateral pursuant to this Pledge Agreement.
(d) HCC agrees to pay, and to save the Collateral Trustee and the
holders of the Obligations harmless from, any and all liabilities with
respect to, or resulting from any delay by HCC in paying, any and all
stamps, excise, sales or other taxes which may be payable or determined to
be payable with respect to any of the Collateral or in connection with any
of the transactions contemplated by this Pledge Agreement.
<PAGE> 6
6
6. Cash Dividends; Voting Rights. Unless an Actionable
Event of Default shall have occurred and be continuing and the Collateral
Trustee shall have given notice to HCC of the Collateral Trustee's intent to
exercise its corresponding rights pursuant to paragraph 7, HCC shall be
permitted to receive all cash distributions, to the extent permitted by all
Master Debt Agreements, in respect of the Pledged Stock and to exercise all
voting and corporate rights with respect to the Pledged Stock, provided,
however, that no vote shall be cast or corporate right exercised or other
action taken which, in the Collateral Trustee's reasonable judgment, would
reasonably be expected to have a material adverse effect on the Collateral or
which would reasonably be expected to be inconsistent with or result in any
violation of any provision of any Master Debt Agreement, the Collateral Trust
Agreement or this Pledge Agreement.
7. Rights of the Collateral Trustee and the holders of
the Obligations. (a) If an Actionable Event of Default shall occur and be
continuing and the Collateral Trustee shall give HCC written notice of its
intent to exercise the rights described below, (i) the Collateral Trustee shall
have the right to receive any and all cash distributions paid in respect of the
Pledged Stock and make application thereof pursuant to the terms of the
Collateral Trust Agreement, and (ii) all shares of the Pledged Stock shall be
registered in the name of the Collateral Trustee or its nominee, and the
Collateral Trustee or its nominee may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of the Pledged Stock at
any meeting of shareholders of the Issuers or otherwise and (B) any and all
rights of conversion, exchange, subscription and any other rights, privileges
or options pertaining to such shares of the Pledged Stock as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Pledged Stock upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of the Issuers, or upon the exercise by HCC or the Collateral Trustee
of any right, privilege or option pertaining to such shares of the Pledged
Stock, and in connection therewith, the right to deposit and deliver any and
all of the Pledged Stock with any committee, depositary, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine), all without liability except to account for property actually
received by it or such liability as is caused by the gross negligence or
willful misconduct of the Collateral Trustee, but the Collateral Trustee shall
have no duty to HCC to exercise any such right, privilege or option and shall
not be responsible for any failure to do so or delay in so doing.
(b) The rights of the Collateral Trustee hereunder shall not
be conditioned or contingent upon the pursuit by the Collateral Trustee of any
right or remedy against the Issuer or against any other Person which may be or
become liable in respect of all or any part of the Obligations or against any
collateral security
<PAGE> 7
7
therefor, guarantee therefor or right of offset with respect thereto. Neither
the Collateral Trustee nor any holder of the Obligations shall be liable for
any failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so, nor shall the Collateral Trustee be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of HCC or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof.
8. Remedies. If an Actionable Event of Default shall
occur and be continuing, the Collateral Trustee, on behalf of the holders of
the Obligations, may exercise, in addition to all other rights and remedies
granted in this Pledge Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the UCC. Without limiting the generality of the
foregoing, the Collateral Trustee, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon HCC, the Issuers or any
other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, assign, give option or options to purchase or
otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange,
broker's board or office of the Collateral Trustee or any holder of the
Obligations or elsewhere upon such terms and conditions as it reasonably may
deem advisable and at such prices as it reasonably may deem best, for cash or
on credit or for future delivery without assumption of any credit risk. The
Collateral Trustee or any holder of the Obligations shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in HCC, which right or
equity is hereby waived or released. The Collateral Trustee shall hold and
apply any Proceeds from time to time held by it and the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale pursuant
to the terms of the Collateral Trust Agreement. To the extent permitted by
applicable law, HCC waives all claims, damages and demands it may acquire
against the Collateral Trustee or any holder of the Obligations arising out of
the exercise by them of any rights hereunder other than claims which arise out
of the gross negligence or willful misconduct of the Collateral Trustee or any
holder of the Obligations. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 30 days before such sale or other
disposition. HCC shall remain liable for any deficiency if the proceeds of
any sale or other disposition of Collateral are insufficient to pay the
Obligations and the reasonable fees and disbursements of any attorneys employed
<PAGE> 8
8
by the Collateral Trustee or any holder of the Obligations to collect such
deficiency.
9. Registration Rights; Private Sales. (a) If the
Collateral Trustee shall determine to exercise its right to sell any or all of
the Pledged Stock pursuant to paragraph 8 hereof, and if in the reasonable
opinion of the Collateral Trustee it is necessary or advisable to have the
Pledged Stock, or that portion thereof to be sold, registered under the
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
HCC will cause the Issuers to (i) execute and deliver, and cause the directors
and officers of the Issuers to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
reasonable opinion of the Collateral Trustee, necessary or advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act, (ii) to use its best efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering
of the Pledged Stock, or that portion thereof to be sold, and (iii) to make all
amendments thereto and/or to the related prospectus which, in the opinion of
the Collateral Trustee, are reasonably necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. HCC
agrees to cause the Issuers to comply with the provisions of the securities or
"Blue Sky" laws of any and all jurisdictions which the Collateral Trustee shall
designate and to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.
(b) HCC recognizes that the Collateral Trustee may be unable
to effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. HCC
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable than if such sale were a public sale, and HCC
further agrees that any such less favorable term or terms will not in and of
itself or themselves constitute a sale made in a non-commercially reasonable
manner. The Collateral Trustee shall be under no obligation to delay a sale of
any of the Pledged Stock for the period of time necessary to permit the Issuers
to register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if the Issuers would agree to do so.
(c) HCC further agrees to use its reasonable best efforts to
do or cause to be done all such other acts as may be
<PAGE> 9
9
reasonably necessary to make such sale or sales of all or any portion of the
Pledged Stock pursuant to this paragraph 9 valid and binding and in compliance
with any and all other applicable Requirements of Law. HCC further agrees that
a breach of any of the covenants contained in this paragraph 9 will cause
irreparable injury to the Collateral Trustee and the holders of the
Obligations, that the Collateral Trustee and the holders of the Obligations
have no adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this paragraph 9 shall be
specifically enforceable against HCC, and HCC hereby waives and agrees not to
assert any defenses against an action for specific performance of such
covenants except for a defense that no Actionable Event of Default has occurred
under any Master Debt Agreement.
10. Limitation on Duties Regarding Collateral. The
Collateral Trustee's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Uniform Commercial Code in effect in any jurisdiction with respect to
the Liens created hereby, shall be to deal with it in the same manner as the
Collateral Trustee deals with similar securities and property for its own
account. Neither the Collateral Trustee, any holder of the Obligations nor any
of their respective directors, officers, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of HCC or otherwise.
11. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral are irrevocable
and powers coupled with an interest.
12. Severability. Any provision of this Pledge Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
13. Paragraph Headings. The paragraph headings used in
this Pledge Agreement are for convenience of reference only and are not to
affect the construction hereof or be taken into consideration in the
interpretation hereof.
14. No Waiver; Cumulative Remedies. Neither the
Collateral Trustee nor any holder of the Obligations shall by any act (except
by a written instrument pursuant to paragraph 15 hereof) be deemed to have
waived any right or remedy hereunder or to have acquiesced in any default under
any Master Debt Agreement or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of
<PAGE> 10
10
the Collateral Trustee or any holder of the Obligations, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Collateral Trustee or any holder of the Obligations
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which the Collateral Trustee or such holder of the
Obligations would otherwise have on any future occasion. The rights and
remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law, by the Master Debt Agreements or by the Collateral Trust Agreement.
15. Integration; Waivers and Amendments; Successors and
Assigns; Governing Law. This Pledge Agreement represents the agreement of HCC
and the Collateral Trustee with respect to the subject matter hereof and there
are no promises or representations by the Collateral Trustee or any holder of
the Obligations relative to the subject matter hereof not reflected herein, in
the Master Debt Agreements or in the Collateral Trust Agreement. None of the
terms or provisions of this Pledge Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument in accordance
with the provisions of the Collateral Trust Agreement. This Pledge Agreement
shall be binding upon the successors and assigns of HCC and shall inure to the
benefit of the Collateral Trustee and the holders of the Obligations and their
respective successors and assigns. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
16. Notices. All notices, requests and demands given
hereunder shall be given in accordance with the Collateral Trust Agreement.
17. Irrevocable Authorization and Instruction to Issuer.
HCC hereby authorizes and instructs any Issuer to comply with any lawful
instruction received by it from the Collateral Trustee in writing that (a)
states that an Actionable Event of Default has occurred, (b) is otherwise in
accordance with the terms of this Pledge Agreement and the Collateral Trust
Agreement and (c) is simultaneously delivered to HCC, without any other or
further instructions from HCC, and HCC agrees that any Issuer shall be fully
protected in so complying.
18. Authority of Collateral Trustee. HCC acknowledges
that the rights and responsibilities of the Collateral Trustee under this
Pledge Agreement with respect to any action taken by the Collateral Trustee or
the exercise or non-exercise by the Collateral Trustee of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Pledge Agreement shall, as between the
<PAGE> 11
11
Collateral Trustee and the holders of the Obligations, be governed by the
Collateral Trust Agreement and the Master Debt Agreements and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Collateral Trustee and HCC, the Collateral Trustee shall be
conclusively presumed to be acting as agent for the holders of the Obligations
with full and valid authority so to act or refrain from acting, and neither HCC
nor any Issuer shall be under any obligation to make any inquiry respecting
such authority.
<PAGE> 12
12
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
HANOVER COMPRESSOR COMPANY
By:_________________________
Title:
CHEMICAL BANK, as Collateral Trustee
By:_________________________
Title:
<PAGE> 13
ACKNOWLEDGEMENT AND CONSENT
Each of the Issuers referred to in the foregoing Pledge
Agreement hereby acknowledges receipt of a copy thereof, agrees to be bound
thereby and to comply with the terms thereof insofar as such terms are
applicable to it. Each Issuer agrees to notify the Collateral Trustee promptly
in writing of the occurrence of any of the events described in paragraph 5(a)
of the Pledge Agreement. Each Issuer further agrees that the terms of
paragraph 9(c) of the Pledge Agreement shall apply to it, mutatis mutandis,
with respect to all actions that may be required of it under or pursuant to or
arising out of paragraph 9 of the Pledge Agreement.
HANOVER/SMITH, INC. H.C.C. COMPRESSOR de VENEZUELA, C.A.
By_________________________ By:_________________________________
Title: Title:
Address for Notices: Address for Notices:
12001 North Houston Rosslyn 12001 North Houston Rosslyn
Houston, Texas 77086 Houston, Texas 77086
Tel: (713) 447-8787 Tel: (713) 447-8787
Fax: (713) 447-0821 Fax: (713) 447-0821
With a copy to: With a copy to:
Neal Gerber & Eisenberg Neal Gerber & Eisenberg
Two North LaSalle, Suite 2200 Two North LaSalle, Suite 2200
Chicago, Illinois 60602 Chicago, Illinois 60602
Attention: Richard S. Meller Attention: Richard S. Meller
Tel: (312) 269-8000 Tel: (312) 269-8000
Fax: (312) 269-1747 Fax: (312) 269-1747
MAINTECH ENTERPRISES, INC.
By_________________________
Title:
Address for Notices:
12001 North Houston Rosslyn
Houston, Texas 77086
Tel: (713) 447-8787
Fax: (713) 447-0821
<PAGE> 14
14
With a copy to:
Neal Gerber & Eisenberg
Two North LaSalle, Suite 2200
Chicago, Illinois 60602
Attention: Richard S. Meller
Tel: (312) 269-8000
Fax: (312) 269-1747
HANOVER ACQUISITION CORP. HANOVER LAND COMPANY
By_________________________ By:_________________________________
Title: Title:
Address for Notices: Address for Notices:
12001 North Houston Rosslyn 12001 North Houston Rosslyn
Houston, Texas 77086 Houston, Texas 77086
Tel: (713) 447-8787 Tel: (713) 447-8787
Fax: (713) 447-0821 Fax: (713) 447-0821
With a copy to: With a copy to:
Neal Gerber & Eisenberg Neal Gerber & Eisenberg
Two North LaSalle, Suite 2200 Two North LaSalle, Suite 2200
Chicago, Illinois 60602 Chicago, Illinois 60602
Attention: Richard S. Meller Attention: Richard S. Meller
Tel: (312) 269-8000 Tel: (312) 269-8000
Fax: (312) 269-1747 Fax: (312) 269-1747
<PAGE> 15
SCHEDULE I To Pledge
Agreement
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
Class Stock % of
of Certificate No. of Capital
Issuer Stock No. Shares Stock
------ ----- ----------- ------ -----
<S> <C> <C> <C> <C>
Maintech Enterprises, Inc. Common 17 16,497 100%
Hanover/Smith, Inc. Common C-1 1,000 100%
H.C.C. Compressor de Common 1 330 66%
Venezuela, C.A.
Hanover Acquisition Common 2 100 100%
Corp.
Hanover Land Company Common 1 1,000 100%
</TABLE>
<PAGE> 1
EXHIBIT 4.10
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of August 7,
1995 by and between Hanover Compressor Company, a Delaware corporation (the
"Company"), and [__________________], ("Warrant Holder").
W I T N E S S E T H:
WHEREAS, the Company's authorized capital stock consists of 500,000
shares of common stock, par value $0.001 per share (the "Common Stock"), and
200,000 of preferred stock, par value $0.01 per share;
WHEREAS, the Warrant Holder is a party to that certain Subscription
Agreement, dated as of the date hereof (the "Subscription Agreement"), which
Subscription Agreement provides for the issuance by the Company to the Warrant
Holder of certain detachable warrants in connection with its subscription for
shares of the Company's 6.5% Cumulative Redeemable Series A Preferred Stock;
and
WHEREAS, subject to the terms and provisions hereof, each Common Stock
purchase warrant, $0.001 par value Common Stock (individually, a "Warrant",
and, collectively, the "Warrants") issued under this Agreement entitles the
Warrant Holder thereof to purchase one-sixth (0.1667) of a share of Common
Stock at the price designated as the "Exercise Price" herein (subject to
adjustment hereunder).
NOW, THEREFORE, in consideration of the mutual agreements contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
FORM OF WARRANT
The Warrants shall be evidenced by a certificate (the "Warrant
Certificate"). The text of the Warrant Certificate (and the related forms of
exercise and assignment) shall be substantially in the form attached hereto as
Exhibit A and may have such identification, designation and information thereon
as the Company may deem appropriate and as is not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto.
<PAGE> 2
ARTICLE II
EXERCISE PRICE, VESTING, TERM, AND METHOD OF EXERCISE
Section 2.01. Exercise Price. Unless adjusted as otherwise provided
herein, the exercise price ("Exercise Price") for each share of Common Stock
purchased upon exercise of a Warrant issued hereunder shall be $1.00. The
Exercise Price shall be adjusted upon the occurrence of certain events as set
forth in Article III hereof.
Section 2.02. Vesting. Other than upon the occurrence of a Capital
Event (as defined in Section 3.05 hereof), the warrants evidenced by the
Warrant Certificate shall be exercisable only to the extent vested in
accordance with the following vesting schedule (the "Vesting Schedule"):
<TABLE>
<CAPTION>
% of Warrants
Date of Vesting Under Vest on Such Date
--------------- -----------------------
<S> <C>
The Closing Date 20%
Each month during the first
twelve (12) month period
following the Closing Date 1.667%
Each month during the twenty
four (24) month period
following the first anniversary
of the Closing Date 2.5%
</TABLE>
Section 2.03. Warrant Rights and Term. Each Warrant shall entitle the
Warrant Holder, upon exercise thereof and subject to the provisions thereof and
of this Agreement, including provisions relating to adjustments upon the
occurrence of certain events as set forth in Article III hereof, to purchase
from the Company one-sixth (0.1667) of a fully paid and nonassessable share of
Common Stock at the then Exercise Price, upon the earlier to occur of (a) a
Capital Event and (b) the date on which such Warrant becomes vested in
accordance with the Vesting Schedule. All of the Warrants issued hereunder and
evidenced by the Warrant Certificate shall expire and no longer be exercisable
at 5:00 p.m. (Houston time) on the earlier to occur of (a) August 31, 2005, or
if August 31, 2005 is not a business day in Houston, Texas, then on the next
succeeding business day and (b) the 30th day following delivery to the Warrant
Holder of the notice described in Section 30.7(d) hereof (the "Expiration
Date").
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<PAGE> 3
Section 2.04. Expiration. Each Warrant not exercised by 5:00 p.m.
(Houston time), time, on the Expiration Date shall become void, and all rights
thereunder and all rights in respect thereof under this Agreement shall
thereupon cease.
Section 2.05. Method of Exercise. To the extent vested in
accordance with the Vesting Schedule the Warrant Holder may exercise its rights
with respect to all or any whole number of Warrants evidenced by the Warrant
Certificate. Exercise shall be effected by surrender of the Warrant
Certificate, with the exercise form thereon duly executed, to the Company at
its offices as designated in Section 5.04 hereof, together with the Exercise
Price for each Warrant that is exercised. Payment of the Exercise Price shall
be made by (a) certified check payable in lawful money of the United States of
America to the order of the Company, or (b) by wire transfer of immediately
available funds to an account designated by the Company.
Upon receipt of the Warrant Certificate with the exercise form duly
executed and accompanied by full and proper payment of the Exercise Price for
the shares of Common Stock purchased thereby, the Company shall deliver to, or
in accordance with the instructions of, the Warrant Holder certificates for the
total number of shares of Common Stock for which the Warrants evidenced by such
Warrant Certificate are being exercised.
In the event that the Warrant Holder shall exercise rights with
respect to less than all of the Warrants evidenced by the Warrant Certificate
surrendered upon the exercise of Warrants, a new Warrant Certificate for the
balance of such Warrants shall be delivered to, or in accordance with the
instructions of, the Warrant Holder.
Section 2.06. Cancellation of Warrants. In the event the Company
shall purchase or otherwise acquire Warrants, the same shall thereupon be
delivered to the Company and be cancelled by it and retired. The Company shall
cancel any Warrant surrendered for exchange, substitution, transfer or exercise
in whole or in part.
ARTICLE III
ADJUSTMENTS TO WARRANTS UPON CERTAIN EVENTS
Section 3.01. Mechanical Adjustments. The number of shares of
Common Stock purchasable upon the exercise of each Warrant (such shares being
referred to in this Article III as the "Warrant Shares") and the Exercise Price
shall be subject to adjustment as follows if any of the events listed in (a) -
(c) below occur prior to exercise of each Warrant:
(a) In case the Company shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, (iii) combine or
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<PAGE> 4
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the number of Warrant Shares purchasable upon the
exercise of each Warrant immediately prior thereto shall be adjusted
so that the number of Warrant Shares purchasable upon exercise of each
Warrant shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon the exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately following such action and of
which the denominator shall be the number of shares of Common Stock
outstanding immediately prior thereto. If the Company declares a
dividend in money or its Common Stock and at substantially the same
time offers its stockholders a right to purchase new shares of Common
Stock from the proceeds of such dividend, or for an amount
substantially equal to such dividend, all shares of Common Stock so
issued shall for purposes hereof be deemed issued as a stock dividend.
(b) In case the Company shall (i) sell or issue shares of
its Common Stock, (ii) issue rights, options or warrants to subscribe
for or purchase shares of Common Stock or (iii) issue or sell other
rights or securities convertible into or for the purchase of shares of
Common Stock, in each case to holders of its Common Stock, at a price
per share which is lower at the record date mentioned below than the
then Current Market Price (as hereinafter defined) per share of Common
Stock, then in each case unless the Warrant Holder shall be permitted
to subscribe for or purchase shares of Common Stock on the same basis
as through such Warrant Holder's Warrants had been converted into
shares of Common Stock immediately prior to such record date, the
number of Warrant Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or
purchase, and of which the denominator shall be the number of shares
of Common Stock outstanding on such record date plus the number of
shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the then Current
Market Price per share of Common Stock. Such adjustment shall be made
whenever such shares, rights, options or warrants are issued, and
shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights, options
or warrants. In determining whether any rights or warrants entitle the
holders of the Common Stock to subscribe for or purchase shares of
Common Stock at less than the Current Market Price, and in determining
the aggregate offering price of the shares of Common Stock so offered,
there shall be taken into account any consideration received by the
Company for such rights or warrants, the value of such consideration,
if other than cash, to be determined by the Board (whose
determination, if made in good faith, shall be conclusive). To the
extent that rights, options or warrants expire unexercised, the number
of Warrant Shares purchasable upon the exercise of each Warrant shall
be readjusted to the number which would then be in effect had the
adjustments made upon the issuance of such rights, warrants or options
been made upon the basis of only the number of shares of Common Stock
delivered pursuant to rights, options or warrants actually exercised.
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<PAGE> 5
(c) In case the Company shall distribute to all holders
of its shares of Common Stock shares of stock (other than Common
Stock) or evidences of its indebtedness or cash or other assets
(excluding regular cash dividends or distributions payable out of
consolidated earnings or retained earnings and dividends or
distributions referred to in paragraph (a) above) or rights, options or
warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock (excluding
those referred to in paragraph (b) above), then in each case the
number of Warrant Shares thereafter purchasable upon the exercise of
each Warrant shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon the exercise of each Warrant, by a
fraction of which the numerator shall be the Current Market Price per
share of Common Stock on the record date mentioned below in this
paragraph (c), and of which the denominator shall be the Current
Market Price per share of Common Stock on such record date, less the
then fair value (as reasonably determined by the Board of Directors of
the Company, whose determination, if made in good faith, shall be
conclusive) of the portion of the shares of stock other than Common
Stock or cash, assets or evidences of indebtedness so distributed or
of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of
Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective retroactive to the
record date for the determination of shareholders entitled to receive
such distribution.
(d) Notwithstanding the foregoing, the provisions of this
Section 3.01 shall not apply to (i) any offering of Capital Stock of
the Company in an underwritten public offering pursuant to a firm
commitment (as opposed to best efforts) from the underwriter and (ii)
any issuance of shares of Capital Stock of the Company under any bona
fide compensation program for the benefit of the employees, officers,
directors or consultants of the Company or its subsidiaries. For the
purposes of this Agreement, "Capital Stock" means any and all shares,
interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) corporate
stock, including, without limitation, any preferred stock of a
corporation.
(e) For the purposes of this Agreement, "Current Market
Price of the Common Stock" at any date shall be (i) in the event that
the Common Stock is not then being publicly traded in the
over-the-counter market or on a nationally recognized exchange, the
fair market value (which shall not be less than book value) on the
date for which such determination is to be made as determined in good
faith by the Board of Directors of the Company after consultation with
the Company's investment bankers or (ii) in the event that the Common
Stock is then being publicly traded in the over-the-counter market or
on a nationally recognized exchange, the average of the last reported
sale prices per share for the ten consecutive Trading Days (as defined
below) preceding the date of such
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<PAGE> 6
computation. The last reported sale price for each day shall be (A)
the last sale price, or the closing bid price if no sale occurred, of
the Common Stock on the principal securities exchange on which the
Common Stock is listed, (B) if not listed as described in clause (A),
the last reported sale price of the Common Stock on the Automated
Quotation System of the National Association of Securities Dealers,
Inc. (the "NASDAQ System"), or any similar system of automated
dissemination of quotations of securities prices then in common use,
if so quoted, or (C) if not quoted as described in clauses (i) or
(ii), the mean of the high and low bid quotations for the Common Stock
as reported by the National Quotation Bureau Incorporated if at least
two securities dealers have inserted bid quotations for the Common
Stock on at least five of the ten preceding days. If the Common Stock
is quoted on a national securities or central market system, in lieu
of a market or quotation system described above, the last reported
sale price shall be determined in the manner set forth in clause (C)
of the preceding sentence if bid and asked quotations are reported but
actual transactions are not, and in the manner set forth in clause (A)
of the preceding sentence if actual transactions are reported. If none
of the conditions set forth above is met, the last reported sale price
of the Common Stock on any day or the average of such last reported
sale prices for any period shall be the fair market value of such
class of stock as determined by a member firm of the New York Stock
Exchange, Inc. selected by the Company. As used herein the term
"Trading Days" means (x) if the Common Stock is quoted on the NASDAQ
System or any similar system of automated dissemination of quotations
of securities prices, days on which trades may be made on such system,
or (y) if not quoted as described in clause (x), days on which
quotations are reported by the National Quotation Bureau Incorporated,
or (z) if the Common Stock is listed or admitted for trading on any
national securities exchange, days on which such national securities
exchange is open for business.
(f) In the event that the provisions of this Article III
fail as a result of an unintentional oversight to provide expressly
for the adjustment of the Exercise Price or the number of Warrant
Shares purchasable upon exercise of each Warrant under circumstances
that, based upon the purposes and intentions expressed herein, would
otherwise have been addressed, the Board of Directors of the Company
shall, in good faith, cause an equitable adjustment to be made to the
Exercise Price or the number of Warrant Shares purchasable upon
exercise of each Warrant to correct such an oversight.
Section 3.02. Adjustment for De Minimis Change. No adjustment in
the number of Warrant Shares purchasable hereunder shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
number of Warrant Shares purchasable upon the exercise of each Warrant;
provided, however, that any adjustments which by reason of this Section 3.02
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the nearest whole
share, as the case may be, and no fractional shares shall be issued.
-6-
<PAGE> 7
Section 3.03. Adjustment of Exercise Price. Whenever the number of
Warrant Shares purchasable upon the exercise of each Warrant is adjusted, as
herein provided, the Exercise Price payable upon exercise of each Warrant shall
be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of Warrant
Shares purchasable upon the exercise of each Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
so purchasable immediately thereafter.
Section 3.04. Notice of Adjustment. Whenever the number of Warrant
Shares purchasable upon the exercise of each Warrant or the Exercise Price of
such Warrant Shares is adjusted, as herein provided, the Company shall promptly
mail to the Warrant Holder, in accordance with Section 5.04, a notice of such
adjustment or adjustments which sets forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Exercise Price of such
Warrant Shares after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.
Section 3.05. Effect of Sale, Merger or Consolidation. In the event
of (a) any reclassification (other than a change in par value) of the Common
Stock, (b) any conversion of the Common Stock into securities of another
corporation, (c) the consolidation of the Company with, or the merger of the
Company with or into, any other corporation where the Common Stock is converted
into other securities or property (including cash) or (d) in the event of the
sale of all or substantially all of the properties and assets of the Company to
any person as a consequence of which, with respect to any of the matters
described in clauses (a) through (d) of this Section 3.05, those persons who
held all of the voting shares of the Company immediately prior to such
transaction hold less than a majority of the voting shares or less than a
majority of the beneficial interest in the resulting or surviving corporation
(each such event hereinafter being referred to as a "Capital Event"), each
Warrant vested as of the date of a Capital Event shall be exercisable within
forty-five days after such Capital Event, upon the terms and conditions
specified in this Agreement, only for the number of shares of stock or other
securities or property (including cash) of the Company or of the person into
which shares of Common Stock are converted or resulting from such consolidation
or surviving such merger or to which such sale shall be made, as the case may
be, to which the shares of Common Stock issuable (immediately prior to such
Capital Event) upon exercise of such Warrant would have been entitled upon such
Capital Event. In any such case, if necessary, the provisions set forth in this
Article III with respect to the rights and interests thereafter of the Warrant
Holder shall be appropriately adjusted so as to be reasonably applicable to any
shares of stock or other securities or property thereafter deliverable on the
exercise of the Warrants. Any Warrants vested as of the date of a Capital Event
and not exercised within forty-five days after the date of a Capital Event
shall expire and thereafter shall be of no further force and effect and all
unvested Warrants as of the date of a Capital Event shall, immediately
following the closing of the Capital Event transaction, expire and thereafter
shall be of no further force and effect.
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<PAGE> 8
The subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares of Common Stock shall not
be deemed to be a reclassification of the Common Stock of the Company for the
purpose of this Section. The Company shall not effect any consolidation, merger
or sale resulting in a Capital Event, unless prior to or simultaneously with
the consummation thereof, any successor person or person purchasing such assets
shall assume, by written instrument executed and delivered to the Company, the
obligation to deliver to the holder of each Warrant such shares of stock,
securities or property (including cash) as the Warrant Holder may be entitled
to receive upon exercise of the Warrants in accordance with the foregoing
provisions, and the other obligations of the Company under this Warrant
Agreement.
Section 3.06. Election to Increase Warrants Instead of Shares of
Common Stock Per Warrant. The Company may elect, on or after the date of any
adjustment of the Exercise Price, to adjust the number of Warrants in
substitution for any adjustment in the number of Warrant Shares pursuant to
Section 3.01. Each Warrant held of record immediately prior to such adjustment
of the number of Warrants shall become that number of Warrants (calculated to
the nearest whole warrant) obtained by (a) multiplying the number of Warrants
held of record prior to adjustment of the number of Warrants by the Exercise
Price in effect prior to adjustment of the Exercise Price and (b) dividing the
product so obtained by the Exercise Price in effect after adjustment of the
Exercise Price. The Company shall notify the Warrant Holder of the Company's
election to adjust the number of Warrants (in substitution for its obligation
to adjust the number of Warrant Shares issuable upon the exercise of a Warrant
pursuant to Section 3.01), indicating the record date for the adjustment, and,
if known at the time, the amount of the adjustment to be made. Such record date
may be the date on which the Exercise Price is adjusted or any date thereafter,
but shall be at least 10 days later than the date of the notification of the
Company's election. Upon each adjustment of the number of Warrants pursuant to
this Section, the Company shall, as promptly as practicable, distribute to the
Warrant Holder a Warrant Certificate evidencing the additional Warrants to
which the Warrant Holder shall be entitled as a result of such adjustment, or,
at the option of the Company, shall distribute to the Warrant Holder in
substitution and replacement for the Warrant Certificates held by the Warrant
Holder prior to the date of the adjustment, and upon surrender thereof, if
required by the Company, a new Warrant Certificate evidencing all the Warrants
to which the Warrant Holder shall be entitled after such adjustment.
Section 3.07. Notice of Certain Events. In the event that at any
time prior to the expiration of the Warrants and prior to their exercise in
full:
(a) the Company shall declare any distribution (other
than a cash dividend or a dividend payable in securities of the
Company with respect to the Common Stock);
(b) the Company shall offer for subscription to the
holders of the Common Stock any additional shares of stock of any
class or any other securities convertible into Common Stock or any
rights to subscribe thereto:
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<PAGE> 9
(c) the Company shall declare any stock split, stock
dividend, subdivision, combination or similar distribution with
respect to the Common Stock, regardless of the effect of any such
event on the outstanding number of shares of Common Stock;
(d) there shall be any Capital Event in the Company or
any merger of the Company with another corporation (other than a
merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or
change of the shares of Common Stock issuable upon exercise of the
Warrants); or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company (other than in connection
with a consolidation, merger or sale of all or substantially all of
its property, assets and business as an entity);
(each such event hereinafter referred to as a "Notification Event"), the
Company shall mail to the Warrant Holder, not less than 15 days prior to the
record date, if any, in connection with such Notification Event (provided,
however, that, if there is no record date, or, if 15 days' prior notice is
impracticable, as soon as practicable) written notice specifying the nature of
such event and the effective date of, or the date on which the books of the
Company shall close or a record shall be taken with respect to, such event.
Such notice shall also set forth facts indicating the effect of such action (to
the extent such effect may be known at the date of such notice) on the Exercise
Price and the kind and amount of the shares of stock or other securities or
property deliverable upon exercise of the Warrants.
Section 3.08. Effect of Adjustment on Warrant Certificates. Except
as provided in Section 3.06, the form of Warrant Certificate need not be
changed because of any change in the Exercise Price, the number of Warrant
Shares issuable upon the exercise of a Warrant or the number of Warrants
outstanding pursuant to this Article III, and Warrant Certificates issued
before or after such change may state the same Exercise Price, the same number
of Warrants and the same number of Warrant Shares issuable upon exercise of
Warrants as are stated in the Warrant Certificates theretofore issued pursuant
to this Agreement. The Company may, however, at any time, in its sole
discretion, make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof, and any Warrant
Certificates thereafter issued, whether in exchange or substitution for an
outstanding Warrant Certificate or otherwise, may be in the form as so changed.
ARTICLE IV
RIGHTS OF WARRANT HOLDER
Section 4.01. No Rights as Stockholders. The Warrant Holder, as
such, shall not be entitled to vote or to receive dividends or otherwise be
deemed to be the holder of shares of Common Stock for any
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<PAGE> 10
purpose, nor shall anything contained herein or in any Warrant Certificate be
construed to confer upon any Warrant Holder, as such, any of the rights of a
stockholder of the Company or any right to vote upon or give or withhold
consent to any action of the Company (whether upon any reorganization, issuance
of securities, reclassification or conversion of Common Stock, consolidation,
merger, sale, lease, conveyance or otherwise), receive notice of meetings or
other action affecting stockholders (except for notices expressly provided for
in this Agreement) or receive dividends or subscription rights, until such
Warrant Certificates shall have been surrendered for exercise accompanied by
full and proper payment of the Exercise Price as provided in this Agreement and
shares of Common Stock thereunder shall have become issuable and until such
person shall have been deemed to have become a holder of record of such shares.
If, at the date of surrender of such Warrant Certificate and payment of such
Exercise Price, the transfer books for the Common Stock shall be closed,
certificates for the shares of Common Stock shall be issuable on the date on
which such books shall next be open (whether before, on or after the Expiration
Date) and, until such date, the Company shall be under no duty to deliver any
certificate for such shares of Common Stock. The Warrant Holder shall, upon the
exercise of Warrants, not be entitled to any dividends if the record date with
respect to payment of such dividends shall be a date prior to the date such
shares of Common Stock became issuable upon the exercise of such Warrants.
Section 4.02. Replacement Warrants. If any Warrant Certificate is
lost, stolen, mutilated or destroyed, the Company may, upon receipt of evidence
satisfactory to the Company of such loss, theft, mutilation or destruction and
on such terms as to indemnity or otherwise as the Company may in its discretion
require (which shall, in the case of a mutilated Warrant Certificate, include
the surrender thereof), issue a new Warrant Certificate of like denomination
and tenor as the lost, stolen, mutilated or destroyed Certificate. Applicants
for such substitute Warrant Certificates shall also comply with such other
reasonable regulations and pay any such reasonable charges as the Company may
prescribe. In the event any Warrant Certificate is lost, stolen, mutilated or
destroyed, and the owner thereof desires to exercise the Warrants evidenced
thereby, the Company may, in lieu of issuing a substitute Warrant Certificate,
authorize the exercise thereof upon receipt of the above evidence and on such
terms of indemnity as it may require; provided, however, that the original
Warrant Holder shall not be required to provide such an indemnity.
Section 4.03. Maintenance of Sufficient and Proper Shares of Common
Stock.
(a) The Company shall at all times reserve and keep
available a number of authorized shares of Common Stock sufficient to
permit the exercise in full of all outstanding Warrants.
(b) If at any time the taking of any action would cause
an adjustment in the Exercise Price so that the exercise of a Warrant
while such Exercise Price is in effect would cause a share of Common
Stock to be issued at a price below its then par value, the Company
shall take such action as may, in the opinion of its counsel, be
necessary in order that it may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of the
Warrants at such Exercise Price.
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<PAGE> 11
Section 4.04. Fractional Warrants. Anything herein to the contrary
notwithstanding, the Company shall not be required to issue fractions of
Warrants on any distribution of Warrants to warrant Holders or to distribute
Warrant Certificates that evidence fractional Warrants.
Section 4.05. Nontransferability. Except for transfers expressly
permitted pursuant to the Amended and Restated Stockholders Agreement, dated as
of August 7, 1995 (the "Stockholders Agreement") among the Company, GKH
Partners, L.P., GKH Investments, L.P., the Warrant Holder and certain other
stockholders of the Company, the Warrants may not be sold, transferred or
otherwise disposed of without the prior consent of the Company. Any approval of
sale, transfer or other disposition shall be subject to such restrictions as
the Company may require.
Section 4.06 Legend. The certificates evidencing Warrants shall
bear the legend set forth in Exhibit A hereto and the shares of Common Stock
issuable upon the exercise of the Warrants shall bear 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."
Section 4.07 Stockholders Agreement. The Warrant Holder, by its
acceptance of the Warrants, agrees that, upon exercise of any of the Warrants,
the Warrant Holder shall become subject to the duties and obligations, and
entitled to the rights and benefits, of the Stockholders Agreement, dated as of
the date hereof, between the Company and its stockholders signatories thereto
and that the Warrant Shares issued upon exercise of the Warrants shall be
subject to the transfer restrictions contained in the aforesaid Stockholders
Agreement.
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<PAGE> 12
Section 4.08. No Dilution or Impairment. The Company will not, by
amendment of its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as any be necessary or appropriate in order to protect the
rights of the holder of this Warrant against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock receivable on the exercise of the
Warrants above the amount payable therefor on such exercise and (b) will not
effect a subdivision or split-up of shares or similar transaction with respect
to any class of the Common Stock without effecting an equivalent transaction
with respect to all other classes of Common Stock.
ARTICLE V
GENERAL
Section 5.01. Taxes on Issuance of Shares of Common Stock. All
shares of Common Stock issued upon the exercise of a Warrant shall be validly
issued, fully paid and nonassessable, and the Company shall pay all taxes and
other governmental charges that may be imposed in respect to the issue or
delivery thereof other than taxes imposed on net income of the Warrant Holder
as a result of the exercise of the Warrants and receipt of shares of Common
Stock. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Common Stock in any name other than that of the
registered holder of the Warrant surrendered in connection with the purchase of
such shares, and in such case the Company shall not be required to issue or
deliver any stock certificate until such tax or other charge has been paid or
it has been established to the Company's satisfaction that no tax or other
charge is due.
Section 5.02. Dates and Times. If any date set forth in this
Warrant Agreement shall fall on a day other than a full business day in
Houston, Texas said date shall be deemed to be the next full business day
succeeding that date. All times shall be the legal time then in effect in
Houston, Texas.
Section 5.03. Binding Agreement. All of the covenants and
provisions of this Agreement by or for the benefit of the Company shall bind
and inure to the benefit of its respective successors and assigns hereunder.
Nothing expressed in this Agreement and nothing that may be implied from any of
the provisions hereof is intended, or shall be construed, to confer upon or
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<PAGE> 13
give to any person or corporation, other than the Company and the Warrant
Holder, any legal or equitable right, remedy or claim under or by reason of
this Agreement or of any covenant, condition, stipulation, promise or agreement
herein, and all covenants, conditions, stipulations, promises and agreements
contained in this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Holder and their respective successors and assigns.
Section 5.04. Notices. Any communication, notice or deemed to be
given hereunder shall be duly given if in writing and delivered, or sent by
first class mail, certified or registered, postage prepaid and addressed as
follows:
(a) If to the Company:
Hanover Compressor Company
12001 North Houston Rosslyn
Houston, TX 77086
Attention: President
with a copy to:
Neal Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Attention: Richard S. Meller
(b) If to the Warrant Holder, at the address set forth on
the signature page hereto.
Any party may change the address to which any communication, notice
or demand shall be given by giving notice of such change in conformity with the
provisions of this Section.
Section 5.05. Governing Law. This Agreement and each Warrant issued
hereunder shall be governed by and construed in accordance with the laws of the
State of Delaware, without giving effect to conflict of laws provisions thereof.
Section 5.06. Headings. The Article and Section headings herein are
for convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
Section 5.07. Counterparts. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
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<PAGE> 14
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
COMPANY:
HANOVER COMPRESSOR COMPANY
By:
-------------------------------
Title:
WARRANT HOLDER:
-------------------------------
Address:
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<PAGE> 15
EXHIBIT A
(Form of Warrant Certificate)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (i) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER
THE SECURITIES NOR ANY INTEREST THEREON MAY 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 OR AS CONTEMPLATED BY SECTION 4.05 OF THE
WARRANT AGREEMENT DATED AS OF THE DATE HEREOF BETWEEN THE COMPANY AND
THE ORIGINAL WARRANT HOLDER AND (ii) ARE SUBJECT TO THE PROVISIONS A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND EACH OF THE STOCKHOLDERS
SPECIFIED THEREIN. COPIES OF THE WARRANT AGREEMENT AND THE
STOCKHOLDERS AGREEMENT ARE AVAILABLE AT THE PRINCIPAL OFFICES OF THE
COMPANY.
No. ________ [DATE]
[NUMBER OF WARRANTS]
VOID AFTER 5:00 P.M., HOUSTON, TEXAS
ON [DATE] (UNLESS EXTENDED),
HANOVER COMPRESSOR COMPANY
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that [WARRANT HOLDER], or
registered assigns, is the registered holder of [___________] Warrants, par
value $.001 per share (the "Warrants") to purchase shares of the Common Stock,
par value $.001 per share ("Common Stock"), of Hanover Compressor Company, a
Delaware corporation (the "Company"). Each Warrant entitles the holder thereof,
upon proper exercise and subject to the provisions of the Warrant Agreement,
dated as of August 7, 1995 (the "Warrant Agreement") between the Company
one-sixth (0.1667) of a fully paid and non-assessable share of Common Stock
upon the earlier to occur of (a) a Capital Event (as defined in the Warrant
Agreement) and (b) the date on which such Warrant becomes vested in accordance
with the Vesting Schedule (as defined in the Warrant Agreement). In order to
exercise a Warrant evidenced by this Warrant evidenced by this Warrant
Certificate
A-1
<PAGE> 16
(together with the Form of Election to Purchase duly executed) at the corporate
office of the Company, together with proper payment of the Exercise Price (as
defined below). The Warrants evidenced by this Warrant Certificate which have
vested in accordance with the Vesting Schedule may be exercised in whole or in
part to purchase shares of Common Stock. Subject to adjustment as provided in
the Warrant Agreement, the exercise price ("Exercise Price") for each Warrant
evidenced hereby shall be $1.00 per one-sixth (0.1667) of a share of Common
Stock. This Warrant will expire on the Expiration Date (as defined in the
Warrant Agreement). Payment of the Exercise Price shall be made in accordance
with the terms of the Warrant Agreement. As provided in the Warrant Agreement,
the Exercise Price and the number of shares of Common Stock purchasable upon
the exercise of the Warrants are, upon the happening of certain events, subject
to modification or adjustment.
This Warrant Certificate is subject to all of the terms, provisions
and conditions of the Warrant Agreement, including the provisions of such
Agreement relating to the amendment thereof, which Warrant Agreement is hereby
incorporated herein by reference and made a part hereof. Reference is hereby
made to the Warrant Agreement for a full description of the rights, limitations
of rights, obligations, duties and immunities of the Company and the holder of
this Warrant Certificate.
If this Warrant Certificate shall be exercised in part, the holder
hereof shall be entitled to receive upon surrender hereof another Warrant
Certificate evidencing the number of warrants not exercised.
No holder of this Warrant Certificate shall be deemed to be the holder
of Common Stock or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
in the Warrant Agreement or herein be construed to confer upon the holder of
this Warrant Certificate as such any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any reorganization, issuance of
stock, reclassification or conversion of stock, change of par value, or
exchange of stock to no par value, consolidation, merger, conveyance or
otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant Certificate shall have
been exercised and the Common Stock purchasable upon the exercise hereof shall
have become issuable as provided in the Warrant Agreement.
Every holder of this Warrant Certificate, by accepting the same,
consents and agrees with the Company that, upon exercise of any of the
Warrants, the Warrant Holder shall become subject to the duties and
obligations, and entitled to the rights and benefits, of the Stockholders
Agreement, dated as of August 7, 1995 between the Company and certain of its
stockholders signatories thereto and that the Warrant Shares issued upon
exercise of the Warrants shall be subject to the transfer restrictions
contained in the aforesaid Stockholders Agreement.
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<PAGE> 17
Except as specifically set forth in the Warrant Agreement, this
Warrant may not be transferred or otherwise disposed of without the prior
consent of the Company.
WITNESS the signatures of the proper officers of the Company.
Dated: [____________, 1995] HANOVER COMPRESSOR COMPANY
By:
----------------------------
Title:
A-3
<PAGE> 18
FORM OF
ELECTION TO PURCHASE
To: HANOVER COMPRESSOR COMPANY
The undersigned hereby irrevocably elects to exercise ____________
Warrants represented by this Warrant Certificate, and to purchase the Common
Stock issuable upon the exercise of such Warrants, and requests that
certificates for such shares shall be issued in the name of
- ------------------------------------
(Name)
- ------------------------------------
(Address)
- ------------------------------------
(Social Security or other Identifying Number)
and be delivered to
- ------------------------------------
(Name)
at
---------------------------------
(Address)
and, if said number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be delivered to the undersigned at the address stated above.
Dated:
------------------------------
Name of Warrant Holder:
------------------------------------
(Please Print)
Signature:
--------------------------
Address:
----------------------------
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<PAGE> 19
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns and
transfers unto ____________ ________ the right represented by the within
Warrant to purchase shares of Common Stock of Hanover Compressor Company to
which the within Warrant relates, and appoints _______________ attorney-in-fact
to transfer such right on the books of Hanover Compressor Company with full
power of substitution in the premises.
Dated:
------------------- ---------------------------------------
(Signature must conform in all respects
to name of holder as specified on
the face of the Warrant)
---------------------------------------
(Address)
Signed in the presence of:
- -----------------------------
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<PAGE> 1
EXHIBIT 10.1
================================================================================
$90,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
among
HANOVER COMPRESSOR COMPANY,
CHEMICAL BANK
as AGENT,
and
THE SEVERAL BANKS PARTIES HERETO
Dated as of December 19, 1995
================================================================================
<PAGE> 2
TABLE OF CONTENTS
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SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.1 Restructuring and Refinancing of Existing Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.2 Revolving Credit Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3 Revolving Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.4 Procedure for Revolving Credit Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3. INTEREST RATE PROVISIONS, FEES,
CONVERSIONS AND PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.1 Interest Rates and Payments Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2 Commitment Fee; Upfront Facility Fee; Other Fees and Compensation . . . . . . . . . . . . . . . . . . . 27
3.3 Termination or Reduction of the Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.4 Optional Prepayments and other Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.5 Conversion and Continuation Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.6 Minimum Amounts of Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.7 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.8 Inability to Determine Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.9 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.10 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.11 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.13 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 4. LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.1. L/C Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.2. Procedure for Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.3. Fees, Commissions and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.4. L/C Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.5. Reimbursement Obligation of HCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.6. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.7. Letter of Credit Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.8. Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.3 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.4 Corporate Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . . . 43
5.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.8 Ownership of Property; Liens; Leases of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
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5.10 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.12 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.14 Investment Company Act; Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.16 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.18 Regulation H . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.19 Accuracy and Completeness of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.20 Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.1 Conditions to Restructuring of the Existing Revolving Credit Loans
and the Initial Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
6.2 Conditions to Each Extension of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.4 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.5 Maintenance of Property; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . . . . . . . . 59
7.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
7.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.9 Pledge of After Acquired Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.10 Marketing Merger or Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.1 Financial Condition Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.5 Limitations on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.6 Limitation on Sale or Lease of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.7 Limitation on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.8 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.9 Limitation on Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.10 Limitation on Investments, Loans and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.11 Limitation on Optional Payments and Modifications of Debt Instruments . . . . . . . . . . . . . . . . 71
8.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.13 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.14 Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.15 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.16 Limitation on Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.17 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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SECTION 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.2 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
10.3 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.4 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
10.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.6 Non-Reliance on Agent and Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
10.8 Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
10.9 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.1 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.3 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
11.6 Successors and Assigns; Participations; Purchasing Banks . . . . . . . . . . . . . . . . . . . . . . . 82
11.7 Adjustments; Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
11.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.13 Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.15 Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
</TABLE>
Schedules
Schedule I Banks and Commitments
Schedule II Intentionally Left Blank
Schedule III Material Transactions
Schedule IV Material Changes
Schedule V Required Consents
Schedule VI Material Litigation
Schedule VII Forms of Compressor and Production
Equipment Leases
Schedule VIII Burdensome Restrictions
Schedule IX Environmental
Schedule X Existing Indebtedness
Schedule XI Existing Liens
Schedule XII Additional Existing Liens
Schedule XIII Affiliate Transactions
-iii-
<PAGE> 5
Exhibits
Exhibit A Form of Revolving Credit Note
Exhibit B Collateral Trust Agreement
Exhibit C HCC Pledge Agreement
Exhibit D HCC Security Agreement
Exhibit E MEI Guarantee
Exhibit F MEI Security Agreement
Exhibit G Hanover/Smith Guarantee
Exhibit H Hanover/Smith Security Agreement
Exhibit I Hanover Land Guarantee
Exhibit J Hanover Land Security Agreement
Exhibit K Hanover Acquisition Guarantee
Exhibit L Hanover Acquisition Security Agreement
Exhibit M Hanover Acquisition Pledge Agreement
Exhibit N-1 HCC Oklahoma Mortgage
Exhibit N-2 HCC Texas Mortgage
Exhibit N-3 Hanover/Smith Texas Leasehold Mortgage
Exhibit N-4 Hanover/Smith Texas Mortgage
Exhibit N-5 Hanover Land Texas Mortgage
Exhibit 0-1 Opinion of Neal, Gerber & Eisenberg
Exhibit 0-2 Opinion of Texas Counsel
Exhibit 0-3 Opinion of Louisiana Counsel
Exhibit 0-4 Opinion of Oklahoma Counsel
Exhibit P Form of Assignment and Acceptance
-iv-
<PAGE> 6
SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December
19, 1995 among Hanover Compressor Company, a Delaware corporation ("HCC"), the
several banks and other financial institutions from time to time parties to
this Agreement(the "Banks") and Chemical Bank, a New York banking corporation,
as agent for the Banks hereunder (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, HCC, Hanover Pipeline Company, a Delaware corporation
("HPC"), Hanover Energy Inc., a Texas corporation (predecessor in interest to
Hanover Energy Holding Corporation, a Delaware corporation ("HEHC")), the Banks
and Chemical Bank (successor by merger to Manufacturers Hanover Trust Company),
as agent, were parties to the Credit Agreement, dated as of November 30, 1990
(as amended, supplemented or otherwise modified from time to time prior to the
A&R Closing Date (as defined in subsection 1.1), the "Original Agreement"),
pursuant to which the Banks made (i) revolving credit loans (the "Original
Revolving Credit Loans") to HCC evidenced by a promissory note, dated as of
November 30, 1990 (the "Original Revolving Credit Note"), made by HCC to
Chemical Bank in the original principal amount of $7,600,000, (ii) a term loan
(the "Original HCC Term Loan") to HCC evidenced by a promissory note, dated as
of December 4, 1990 (the "Original HCC Term Note"), made by HCC to Chemical
Bank in the original principal amount of $19,400,000, as amended by the
Endorsement, dated April 10, 1992, thereto and (iii) a term loan (the "Original
HPC Term Loan", collectively, with the Original HCC Term Loans, the "Original
Term Loans") to HPC evidenced by a promissory note, dated as of November 30,
1990 (the "Original HPC Term Note", collectively, with the Original HCC Term
Notes and the Original Revolving Credit Note, the "Original Notes"), made by
HPC to Chemical Bank in the original principal amount of $8,000,000;
WHEREAS, the loans evidenced by the Original Notes were
guaranteed and secured pursuant to the following: (i) the Guarantee (the
"Original HCC Guarantee"), dated as of November 30, 1990, made by HCC in favor
of the Agent for the benefit of the Banks, as amended, supplemented or
otherwise modified from time to time prior to the A&R Closing Date; (ii) the
Pledge Agreement (the "Original HCC Pledge Agreement"), dated as of November
30, 1990, made by HCC in favor of the Agent for the benefit of the Banks, as
amended, supplemented or otherwise modified from time prior to the A&R Closing
Date; (iii) the Security Agreement (the "Original HCC Security Agreement"),
dated as of November 30, 1990, made by HCC in favor of the Agent for the
benefit of the Banks, as amended, supplemented or otherwise modified from time
prior to the A&R Closing Date; (iv) the Guarantee (the "Original HEHC
Guarantee"), dated as of November 30, 1990, made by HEHC in favor of the Agent
for the benefit of the Banks, as amended, supplemented or otherwise
<PAGE> 7
2
modified from time to time prior to the A&R Closing Date; (v) the Pledge
Agreement (the "Original HEHC Pledge Agreement"), dated as of November 30,
1990, made by HEHC in favor of the Agent for the benefit of the Banks, as
amended, supplemented or otherwise modified from time prior to the A&R Closing
Date; (vi) the Guarantee (the "Original HPC Guarantee"), dated as of November
30, 1990, made by HPC in favor of the Agent for the benefit of the Banks, as
amended, supplemented or otherwise modified from time to time prior to the A&R
Closing Date; (vii) the Pledge Agreement (the "Original HPC Pledge Agreement"),
dated as of November 30, 1990, made by HPC in favor of the Agent for the
benefit of the Banks, as amended, supplemented or otherwise modified from time
prior to the A&R Closing Date; (viii) the Security Agreement (the "Original HPC
Security Agreement"), dated as of April 10, 1992, made by HPC in favor of the
Agent for the benefit of the Banks, as amended, supplemented or otherwise
modified from time prior to the A&R Closing Date; (ix) the Guarantee (the
"Original MEI Guarantee"), dated as of April 10, 1992, made by MEI (as defined
in subsection 1.1), in favor of the Agent for the benefit of the Banks, as
amended, supplemented or otherwise modified from time to time prior to the A&R
Closing Date; (x) the Security Agreement (the "Original MEI Security
Agreement"), dated as of April 10, 1992, made by MEI in favor of the Agent for
the benefit of the Banks, as amended, supplemented or otherwise modified from
time prior to the A&R Closing Date; (xi) the Guarantee (the "Original Precision
Guarantee"), dated as of November 30, 1990, made by Precision (as defined in
the subsection 1.1), in favor of the Agent for the benefit of the Banks, as
amended, supplemented or otherwise modified from time to time prior to the A&R
Closing Date; (xii) the Guarantee (the "Original Marketing Guarantee"), dated
as of November 30, 1990, made by Marketing (as defined in subsection 1.1), in
favor of the Agent for the benefit of the Banks, as amended, supplemented or
otherwise modified from time to time prior to the A&R Closing Date and (xiii)
the Security Agreement (the "Original Precision Security Agreement",
collectively with the Original HCC Guarantee, Original HCC Pledge Agreement,
Original HCC Security Agreement, Original HEHC Guarantee, Original HEHC Pledge
Agreement, Original HPC Guarantee, Original HPC Pledge Agreement, Original HPC
Security Agreement, Original MEI Guarantee, Original MEI Security Agreement,
Original Precision Guarantee and the Original Marketing Guarantee, the
"Original Security Documents"), dated as of November 30, 1990, made by
Precision in favor of the Agent for the benefit of the Banks, as amended,
supplemented or otherwise modified from time prior to the A&R Closing Date;
WHEREAS, HCC, the Banks and the Agent amended and restated the
Original Agreement pursuant to the Amended and Restated Credit Agreement, dated
as of June 29, 1993, as amended prior to the date hereof (the "Existing
Agreement"), pursuant to which the parties restructured and increased the loan
facilities made available to HCC under the Original Agreement by, among
<PAGE> 8
3
other things, (i) the Banks making revolving credit loans (the "Existing
Revolving Credit Loans") to HCC evidenced by the Banks accepting delivery of a
promissory note, made payable by HCC to Chemical Bank and a promissory note
made payable by HCC to First Interstate Bank of Texas, N.A. ("First
Interstate"), each dated as of June 29, 1993, as amended by the Endorsements,
dated February 4, 1994 and December 9, 1994, thereto the ("Existing Revolving
Credit Notes") in extension of the Original Revolving Credit Note, (ii) HCC
prepaying the Original Term Loans in full and the Original Revolving Credit
Loans in part or in full, (iii) the Banks making term loans (the "Existing Term
Loans") to HCC evidenced by promissory notes, dated as of February 4, 1994 (the
"Existing Term Notes"), made by HCC to Chemical Bank in the original principal
amount of $8,571,428.57, and to First Interstate in the original principal
amount of $6,428,571.43, (iv) the Banks making B Tranche term loans (the "B
Tranche Loans") to HCC evidenced by promissory notes, dated as of March 13,
1995 (the "B Tranche Notes"), made by HCC to Chemical Bank in the original
principal amount of $5,714,300, and to First Interstate in the original
principal amount of $4,285,700 and (v) the Banks making C Tranche term loans
(the "C Tranche Loans", collectively, with the Existing Revolving Credit Loans,
the Existing Term Loans and the B Tranche Loans, the "Existing Loans") to HCC
evidenced by promissory notes, dated as of April 28, 1995 (the "C Tranche
Notes"), made by HCC to Chemical Bank in the original principal amount of
$2,285,720, and to First Interstate in the original principal amount of
$1,714,280 (the Existing Revolving Credit Note together with the Existing Term
Notes, the B Tranche Notes and the C Tranche Notes are collectively referred to
herein as the "Existing Notes");
WHEREAS, it was a condition precedent to the effectiveness of
the Existing Agreement that HCC shall have amended and restated certain of the
Original Security Documents as described in the next succeeding recital;
WHEREAS, the loans outstanding under the Existing Agreement
and the Existing Notes were guaranteed and secured pursuant to the following:
(i) the Amended and Restated Pledge Agreement (the "Existing HCC Pledge
Agreement"), dated as of June 29, 1993, made by HCC in favor of the Agent for
the benefit of the Banks, as amended, supplemented or otherwise modified from
time to time prior to the date hereof; (ii) the Amended and Restated Security
Agreement (the "Existing HCC Security Agreement") dated as of June 29, 1993,
made by HCC in favor of the Agent for the benefit of the Banks, as amended,
supplemented or otherwise modified from time to time prior to the date hereof;
(iii) the Amended and Restated Pledge Agreement (the "Existing HEHC Pledge
Agreement"), dated as of June 29, 1993, made by HEHC in favor of the Agent for
the benefit of the Banks, as amended, supplemented or otherwise modified from
time to time prior to the date hereof; (iv) the Amended and Restated Guarantee
(the "Existing MEI Guarantee"), dated as of June 29, 1993, made by MEI
<PAGE> 9
4
in favor of the Agent for the benefit of the Banks, as amended, supplemented or
otherwise modified from time to time prior to the date hereof; (v) the Amended
and Restated Security Agreement (the "Existing MEI Security Agreement"), dated
as of June 29, 1993, made by MEI in favor of the Agent for the benefit of the
Banks, as amended, supplemented or otherwise modified from time to time prior
to the date hereof; (vi) the Amended and Restated Guarantee (the "Existing
Precision Guarantee"), dated as of June 29, 1993, made by Precision in favor of
the Agent for the benefit of the Banks as amended, supplemented or otherwise
modified from time to time prior to the date hereof; and (vii) the Amended and
Restated Security Agreement (the "Existing Precision Security Agreement"),
dated as of June 29, 1993, made by Precision in favor of the Agent for the
benefit of the Banks, as amended, supplemented or otherwise modified from time
to time prior to the date hereof; (the Existing HCC Pledge Agreement, Existing
HCC Security Agreement, Existing HEHC Pledge Agreement, Existing MEI Guarantee,
Existing MEI Security Agreement, Existing Precision Guarantee and Existing
Precision Security Agreement are collectively referred to herein as the
"Existing Security Documents").
WHEREAS, HEHC has merged with and into HCC pursuant to the
HEHC Merger Agreement (as defined in subsection 1.1) with HCC as the sole
surviving entity and the security interest granted under the Existing HEHC
Pledge Agreement was released;
WHEREAS, pursuant to that certain Stock Purchase Agreement,
dated as of November 5, 1993, HCC sold all of the issued and outstanding
capital of Precision to Precision Compressor, Inc., and in connection therewith
the Existing Precision Guarantee and the security interest under the Existing
Precision Security Agreement were discharged and released;
WHEREAS, HCC has received (i) $20,000,000 from the issuance of
its common stock to Joint Energy Development Investments Limited Partnership, a
Delaware limited partnership ("JEDI"), (ii) $10,000,000 from the issuance of
its Series B preferred stock to JEDI and (iii) a minimum of $21,000,000 from
the issuance of its Series A preferred stock (collectively, the "Equity
Transactions");
WHEREAS, concurrently with the execution and delivery of this
Agreement, HCC, as borrower, JEDI, as agent for the lenders thereunder and the
financial institutions which are lenders thereunder (the "JEDI Lenders"), are
entering into a Loan Agreement (as amended, supplemented, or otherwise modified
from time to time in accordance with the terms of this Agreement, the "JEDI
Loan Agreement");
WHEREAS, concurrently with the execution and delivery of this
Agreement and the JEDI Loan Agreement, Chemical Bank, as collateral trustee
thereunder, and the Credit Parties, are
<PAGE> 10
5
entering into a Collateral Trust Agreement (as amended, supplemented or
otherwise modified from time to time, the "Collateral Trust Agreement")
substantially in the form of Exhibit B;
WHEREAS, as a result of, among other things, the Equity
Transactions, the JEDI Loan Agreement and the Collateral Trust Agreement, HCC,
the Banks and the Agent desire to restructure the loan facilities made
available to HCC under the Existing Agreement and to revise certain other
provisions of the Existing Agreement and for convenience to restate the
Existing Agreement, as so amended, in its entirety;
NOW THEREFORE, in consideration of the premises and the mutual
covenants as contained herein, the parties hereto agree that on the Closing
Date (as defined in subsection 1.1) the Existing Agreement shall be amended and
restated in its entirety to read as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"A&R Closing Date": June 29, 1993, the closing date of the
Existing Agreement.
"ABR": for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall
mean the rate of interest per annum publicly announced from time to
time by the Agent as its prime rate in effect at its principal office
in New York City (the Prime Rate not being intended to be the lowest
rate of interest charged by Chemical Bank in connection with
extensions of credit to debtors); "Base CD Rate" shall mean the sum of
(a) the product of (i) the Three-Month Secondary CD Rate and (ii) a
fraction, the numerator of which is one and the denominator of which
is one minus the C/D Reserve Percentage and (b) the C/D Assessment
Rate; "Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit
reported as being in effect on such day (or, if such day shall not be
a Business Day, the next preceding Business Day) by the Board of
Governors of the Federal Reserve System (the "Board") through the
public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be
published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or,
<PAGE> 11
6
if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations
for three-month certificates of deposit of major money center banks in
New York City received at approximately 10:00 A.M., New York City
time, on such day (or, if such day shall not be a Business Day, on the
next preceding Business Day) by the Agent from three New York City
negotiable certificate of deposit dealers of recognized standing
selected by it; and "Federal Funds Effective Rate" shall mean, for any
day, the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Agent from
three federal funds brokers of recognized standing selected by it. If
for any reason the Agent shall have determined (which determination
shall be conclusive absent manifest error) that it is unable to
ascertain the Base CD Rate or the Federal Funds Effective Rate, or
both, for any reason, including the inability or failure of the Agent
to obtain sufficient quotations in accordance with the terms thereof,
the ABR shall be determined without regard to clause (b) or (c), or
both, of the first sentence of this definition, as appropriate, until
the circumstances giving rise to such inability no longer exist. Any
change in the ABR due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which
is based upon the ABR.
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Aggregate Outstanding Extensions of Credit": as to any Bank
at any time, an amount equal to the sum of (a) the aggregate principal
amount of all Loans made by such Bank then outstanding and (b) such
Bank's Commitment Percentage of the L/C Obligations then outstanding.
<PAGE> 12
7
"Agreement": this Second Amended and Restated Credit
Agreement, as amended, supplemented or otherwise modified from time to
time.
"Applicable Margin": for each Loan, the rate per annum set
forth below:
(a) 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 less than or equal to 1.0 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, .500%; and
(b) 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 1.0 to 1 and less than or equal to 2.0 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, .750%;
(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 1 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, .375% and (ii) with respect to Eurodollar Loans, 1.250%;
and
(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 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, .625% and (ii) with
respect to Eurodollar Loans, 1.500%;
provided, that if HCC shall fail to deliver the Applicable Margin
Certificate by the end of the fiscal quarter in which it is required,
the Applicable Margin for the next fiscal quarter shall be as provided
in clause (d) above; provided, further, that the Applicable Margin for
the period from the Closing Date until and including December 31, 1995
shall be, with respect to ABR Loans, 0%, and with respect to
Eurodollar Loans, .750%.
<PAGE> 13
8
"Applicable Margin Certificate": as defined in subsection
7.2(g).
"Application": an application, in such form as the Issuing
Bank may specify from time to time, requesting the Issuing Bank to
open a Letter of Credit.
"Astra": Astra Resources International, Inc., a Texas
corporation.
"Available Commitment": as to any Bank, at any time, an
amount equal to the excess, if any, of (a) such Bank's Commitment over
(b) such Bank's Aggregate Outstanding Extensions of Credit.
"benefitted Bank": as defined in subsection 11.7(a).
"Borrowing Date": any Business Day specified in a notice
pursuant to subsection 2.4, as a date on which HCC requests the Banks
to make Loans hereunder.
"B Tranche Note": as defined in the recitals to this
Agreement.
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required by law to close.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed
or insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition and overnight bank
deposits of any Bank or of any commercial bank having capital and
surplus in excess of $500,000,000, (c) repurchase obligations of any
Bank or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days with
respect to securities issued or fully guaranteed or insured by the
United States Government, (d) commercial paper of a domestic issuer
rated at least A-2 by Standard and Poor's Rating Group ("S&P") or P-2
by Moody's Investors Services, Inc. ("Moody's"), (e) securities with
maturities of one year or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United
States, by any
<PAGE> 14
9
political subdivision or taxing authority of any political subdivision
or taxing authority of any such state, commonwealth or territory or
any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign
government (as the case may be) are rated at least A by S&P or A by
Moody's, (f) securities with maturities of one year or less from the
date of acquisition backed by standby letters of credit issued by any
Bank or any commercial bank satisfying the requirements of clause (b)
of this definition or (g) shares of money market mutual or similar
funds which invest exclusively in assets satisfying the requirements
of clauses (a) through (f) of this definition.
"CCI": Contract Compression International Argentina, S.A., an
Argentinean corporation.
"C/D Assessment Rate": for any day the net annual assessment
rate (rounded upwards, if necessary, to the next 1/100 of 1%)
determined by Chemical Bank to be payable on such day to the Federal
Deposit Insurance Corporation or any successor ("FDIC") for FDIC's
insuring time deposits made in Dollars at offices of Chemical Bank in
the United States.
"C/D Reserve Percentage": for any day as applied to any
calculation of the Base CD Rate, that percentage (expressed as a
decimal) which is in effect on such day, as prescribed by the Board
for determining the maximum reserve requirement for a Depositary
Institution (as defined in Regulation D of the Board) in respect of
new non-personal time deposits in Dollars having a maturity of 30 days
or more.
"Chemical": Chemical Bank, a New York banking corporation.
"Closing Date": the date on which all of the conditions
precedent specified in Section 6 shall have been first satisfied.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral Trust Agreement": as defined in the recitals to
this Agreement.
"Collateral Trustee": Chemical, as collateral trustee under
the Collateral Trust Agreement, or its successor in such capacity.
"Commercial Letter of Credit": as defined in subsection
4.1(b)(1)(B).
<PAGE> 15
10
"Commitment": as to any Bank, the obligation of such Bank to
make Loans to and/or issue or participate in Letters of Credit issued
on behalf of HCC hereunder in an aggregate principal and/or face
amount at any one time outstanding not to exceed the amount set forth
opposite such Bank's name on Schedule I, as such amount may be reduced
from time to time in accordance with the terms of this Agreement;
collectively, as to all of the Banks, the "Commitments."
"Commitment Percentage": as to any Bank at any time, the
percentage of the aggregate Commitments then constituted by such
Bank's Commitment.
"Commitment Period": the period from and including the date
hereof to but not including the Final Maturity Date or such earlier
date on which the Commitments shall terminate as provided herein.
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with HCC within the
meaning of Section 4001(a)(14) of ERISA or is part of a group which
includes HCC and which is treated as a single employer under Section
414 of the Code.
"Consolidated Capitalization": at a particular date, as to
any Person, the sum of (a) Consolidated Net Worth and (b) the amount
of Consolidated Indebtedness at such date.
"Consolidated Earnings Before Interest and Taxes": for any
period, with respect to any Person, the sum of (a) Consolidated Net
Income for such period, (b) all amounts attributable to payments or
provision for taxes measured by income (to the extent that such
amounts have been deducted in determining Consolidated Net Income for
such period) and (c) Consolidated Interest Expense for such period.
"Consolidated EBITDA": for any period, with respect to any
Person, the sum of (a) Consolidated Earnings Before Interest and Taxes
for such Person 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 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 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 for such period).
"Consolidated Fixed Charges": for any period as to any
Person, such Person's scheduled principal payments on Indebtedness
during such period (other than scheduled
<PAGE> 16
11
principal payments under revolving credit facilities of such Person
during such period resulting from the maturity of such revolving
credit facilities to the extent such scheduled principal payments have
been extended, renewed, rearranged, or refinanced under revolving
credit facilities maturing beyond such period) plus Consolidated
Interest Expense during such period, plus Consolidated Mandatory
Capital Expenditures during such period, plus scheduled preferred
stock dividend payments during such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Indebtedness": at a particular date, as to any
Person, all Indebtedness of such Person and its Subsidiaries other
than Indebtedness in respect of Financing Leases, determined on a
consolidated basis in accordance with GAAP at such date.
"Consolidated Indebtedness Ratio": for any fiscal quarter of
HCC and its Subsidiaries, the ratio of (a) Consolidated Indebtedness
for HCC and its Subsidiaries as of the last day of such fiscal quarter
to (b) Consolidated EBITDA for HCC and its Subsidiaries for the
12-month period ended on the last day of such fiscal quarter as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense": for any period, with respect
to any Person, the amount which, in conformity with GAAP, would be set
forth opposite the caption "interest expense" or any like caption
(including, without limitation, imputed interest included in Financing
Lease payments) on a consolidated income statement of such Person and
its Subsidiaries for such period.
"Consolidated Lease Expense": for any period as to any
Person, the aggregate rental obligations of such Person and its
Subsidiaries determined on a consolidated basis payable in respect of
such period under leases of real and/or personal property (net of
income from sub-leases thereof, but including taxes, insurance,
maintenance and similar expenses which the lessee is obligated to pay
under the terms of said leases), whether or not such obligations are
reflected as liabilities or commitments on a consolidated balance
sheet of such Person and its Subsidiaries or in the notes thereto, and
whether or not such leases constitute Financing Leases.
"Consolidated Mandatory Capital Expenditures": for any period
as to any Person, the capital expenditures of such Person made in the
ordinary course of business for the maintenance of equipment which
extends the useful life of such equipment (other than expenditures
made in connection with the initial refurbishing of used equipment
acquired by HCC or its Subsidiaries) and are or should be capitalized
on
<PAGE> 17
12
the balance sheet of such Person determined on a consistent basis in
accordance with GAAP.
"Consolidated Net Income": for any period as to any Person,
the consolidated net income (or loss) of such Person and its
Subsidiaries, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Worth": at a particular date, as to any
Person, the amount which would be included under common and preferred
stockholders' equity on a consolidated balance sheet of such Person
and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Contractual Obligation": as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Credit Parties": the collective reference to (i) HCC, MEI,
Hanover/Smith, Hanover Acquisition and the Real Estate Subsidiary and
(ii) from time to time any other Subsidiary of HCC upon and for so
long as such Subsidiary guarantees the Loans and other obligations of
HCC hereunder and under the Notes, grants a security interest in its
assets to the Collateral Trustee for the ratable benefit of the
holders of the Secured Obligations and the Capital Stock of which has
been pledged to the Collateral Trustee for the ratable benefit of the
holders of the Secured Obligations in each case to secure the Loans
and the other obligations of HCC hereunder and under the Notes and
which guarantees, grant of security interest and pledge of Capital
Stock shall be under documents substantially similar to the
Guarantees, Pledge Agreements and Security Agreements executed on the
Closing Date.
"C Tranche Note": as defined in the recitals to this
Agreement.
"Current Ratio": at a particular date, for HCC and its
Subsidiaries the quotient of the consolidated current assets of HCC
and its Subsidiaries at such time less cash, to the consolidated
current liabilities of HCC and its Subsidiaries at such time less the
current portion of long-term debt (all determined in accordance with
GAAP at such time).
"Deed of Trust": the Deed of Trust and Security Agreement
executed by the Real Estate Subsidiary, dated June 22, 1993 securing
payment of the Real Estate Note.
"Default": any of the events specified in Section 9, whether
or not any requirement for the giving of notice, the
<PAGE> 18
13
lapse of time, or both, or any other condition, has been satisfied.
"Derivatives": any swap, hedge, cap, collar, or similar
arrangement providing for the exchange of risks related to price
changes in any commodity, including money.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Environmental Laws": any and all Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority
regulating, relating to or imposing liability or standards of conduct
concerning environmental protection matters, including without
limitation, Hazardous Materials, as now or may at any time hereafter
be in effect.
"Equity Transactions": as defined in the recitals to this
Agreement.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied
to a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained
by a member bank of such System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum
equal to the rate at which Chemical is offered Dollar deposits at or
about 10:00 A.M., New York City time, two Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market
where the eurodollar and foreign currency and exchange operations in
respect of its Eurodollar Loans are then being conducted for delivery
on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
<PAGE> 19
14
"Eurodollar Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum
determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 9,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Existing Agreement": as defined in the recitals to this
Agreement.
"Existing Loans": as defined in the recitals to this
Agreement.
"Existing Notes": as defined in the recitals to this
Agreement.
"Existing Revolving Credit Loans": as defined in the recitals
to this Agreement.
"Existing Revolving Credit Note": as defined in the recitals
to this Agreement.
"Existing Security Documents": as defined in the recitals to
this Agreement.
"Final Maturity Date": December 18, 1999.
"Financing Lease": any lease of property, real or personal,
the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the
lessee.
"First Interstate": as defined in the recitals to this
Agreement.
"GAAP": generally accepted accounting principles in the
United States of America consistent with those utilized in preparing
the audited financial statements referred to in subsection 6.1.
"GKH Entities": as defined in Section 9(k).
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial,
<PAGE> 20
15
regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counter indemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of
any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation
of the guaranteeing Person, whether or not contingent, (a) to purchase
any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that
the term Guarantee Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made and (b) the maximum amount for
which such guaranteeing person may be liable pursuant to the terms of
the instrument embodying such Guarantee Obligation, unless such
primary obligation and the maximum amount for which such guaranteeing
person may be liable are not stated or determinable, in which case the
amount of such Guarantee Obligation shall be such guaranteeing
person's maximum reasonably anticipated liability in respect thereof
as determined by HCC, as the case may be, in good faith.
"Guarantees": collectively, the MEI Guarantee, the
Hanover/Smith Guarantee, the Hanover Acquisition Guarantee, the
Hanover Land Guarantee and such other guarantees of the Loans and the
other obligations of HCC hereunder.
"Guaranty Agreement": as defined in subsection 8.4.
"Hanover Acquisition": Hanover Acquisition Corp., a Texas
corporation.
<PAGE> 21
16
"Hanover Acquisition Guarantee": the Guarantee made by
Hanover Acquisition in favor of the Agent for the benefit of the
Banks, substantially in the form of Exhibit K, as amended,
supplemented or otherwise modified from time to time.
"Hanover Acquisition Pledge Agreement" the Pledge Agreement
made by Hanover Acquisition in favor of the Collateral Trustee for the
benefit of the holders of the Secured Obligations substantially in the
form of Exhibit M, as amended, supplemented or otherwise modified from
time to time.
"Hanover Acquisition Security Agreement": the Security
Agreement made by Hanover Acquisition in favor of the Collateral
Trustee for the benefit of the holders of the Secured Obligations,
substantially in the form of Exhibit L, as amended, supplemented or
otherwise modified from time to time.
"Hanover Land Guarantee": the Guarantee made by the Real
Estate Subsidiary in favor of the Agent for the benefit of the Banks,
substantially in the form of Exhibit I, as amended, supplemented or
otherwise modified from time to time.
"Hanover Land Security Agreement": the Security Agreement
made by the Real Estate Subsidiary in favor of the Collateral Trustee
for the benefit of the holders of the Secured Obligations,
substantially in the form of Exhibit J, as amended, supplemented or
otherwise modified from time to time.
"Hanover Land Texas Mortgage": the Deed of Trust, Security
Agreement, and Fixture Filing made by the Real Estate Subsidiary in
favor of the Collateral Trustee for the benefit of the holders of the
Secured Obligations, substantially in the form of Exhibit N-5, as
amended, supplemented or otherwise modified from time to time.
"Hanover/Smith": Hanover/Smith, Inc., a Delaware corporation.
"Hanover/Smith Guarantee": the Guarantee made by
Hanover/Smith in favor of the Agent for the benefit of the Banks,
substantially in the form of Exhibit G, as amended, supplemented or
otherwise modified from time to time.
"Hanover/Smith Security Agreement": the Security Agreement
made by Hanover/Smith in favor of the Collateral Trustee for the
benefit of the holders of the Secured Obligations, substantially in
the form of Exhibit H, as
<PAGE> 22
17
amended, supplemented or otherwise modified from time to time.
"Hanover/Smith Texas Leasehold Mortgage": the Leasehold Deed
of Trust, Security Agreement, and Fixture Filing made by Hanover/Smith
in favor of the Collateral Trustee for the benefit of the holders of
the Secured Obligations, substantially in the form of Exhibit N-3, as
amended, supplemented or otherwise modified from time to time."
"Hanover/Smith Texas Mortgage": the Deed of Trust, Security
Agreement, and Fixture Filing made by Hanover/Smith in favor of the
Collateral Trustee for the benefit of the holders of the Secured
Obligations, substantially in the form of Exhibit N-4, as amended,
supplemented or otherwise modified from time to time.
"Hanover Venezuela": H.C.C. Compressor de Venezuela, C.A., a
Venezuelan corporation.
"Hazardous Materials": any hazardous materials, hazardous
waste, hazardous constituents, hazardous or toxic substances,
petroleum products (including crude oil or any fraction thereof),
defined or regulated as such in or under any Environmental Law,
including, without limitation, polychlorinated biphenyls.
"HCC Oklahoma Mortgage": the Mortgage, Security Agreement,
and Fixture Filing made by HCC in favor of the Collateral Trustee for
the benefit of the holders of the Secured Obligations, substantially
in the form of Exhibit N-1, as amended, supplemented or otherwise
modified from time to time.
"HCC Pledge Agreement": the Second Amended and Restated
Pledge Agreement made by HCC in favor of the Collateral Trustee for
the benefit of the holders of the Secured Obligations substantially in
the form of Exhibit C, as amended, supplemented or otherwise modified
from time to time.
"HCC Security Agreement": the Second Amended and Restated
Security Agreement made by HCC in favor of the Collateral Trustee for
the benefit of the holders of the Secured Obligations substantially in
the form of Exhibit D, as amended, supplemented or otherwise modified
from time to time.
"HCC Texas Mortgage": the Deed of Trust, Security Agreement,
and Fixture Filing made by HCC in favor of the Collateral Trustee for
the benefit of the holders of the Secured Obligations, substantially
in the form of Exhibit M-2,
<PAGE> 23
18
as amended, supplemented or otherwise modified from time to time.
"HEHC Merger": the merger of HEHC with and into HCC pursuant
to the HEHC Merger Agreement.
"HEHC Merger Agreement": the Agreement and Plan of Merger,
dated as of December 30, 1994, among HCC, HEHC and the stockholders of
HEHC as of such date.
"Houston Real Estate Transaction": the issuance by the Real
Estate Subsidiary of the Real Estate Note in connection with the
purchase of certain real estate properties located in Houston, Texas
as described in the Deed of Trust and the entering into of the Deed of
Trust and the Security Agreement, dated November 22, 1993, among First
Interstate, the Real Estate Subsidiary and HCC.
"Indebtedness": of any Person at any date, (a) all
indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (other than current liabilities
incurred in the ordinary course of business and payable in accordance
with customary trade practices) or which is evidenced by a note, bond,
debenture or similar instrument, (b) all obligations of such Person
under Financing Leases, (c) all obligations of such Person in respect
of acceptances issued or created for the account of such Person, and
(d) all liabilities secured by any Lien (other than any lien of a type
described in subsection 8.3(b) through (f)) on any property owned by
such Person even though such Person has not assumed or otherwise
become liable for the payment thereof.
"indemnified liabilities": as defined in subsection 11.5.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": as defined in subsection 5.9.
"Interest Payment Date": (a) as to any ABR Loan, the last day
of each March, June, September and December to occur while such Loan
is outstanding, (b) as to any Eurodollar Loan having an Interest
Period of three months or less the last day of such Interest Period,
and (c) as to any Eurodollar Loan having an Interest Period longer
than three months, each day which is three months or a whole multiple
thereof, after the first day of such Interest Period and the last day
of such Interest Period.
<PAGE> 24
19
"Interest Period": with respect to any Eurodollar Loan:
(a) initially, the period commencing on the
borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by HCC in its notice of
borrowing or notice of conversion, as the case may be, given
with respect thereto; and
(b) thereafter, each period commencing on the
last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by HCC by irrevocable notice to the
Agent not less than three Working Days prior to the last day
of the then current Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to the
Interest Periods are subject to the following:
(i) if an Interest Period pertaining
to a Eurodollar Loan would otherwise end on a day
that is not a Working Day, such Interest Period shall
be extended to the next succeeding Working Day unless
the result of such extension would be to carry such
Interest Period into another calendar month in which
event such Interest Period shall end on the
immediately preceding Working Day;
(ii) any Interest Period that would
otherwise extend beyond the Final Maturity Date shall
end on the Final Maturity Date;
(iii) any Interest Period pertaining to
a Eurodollar Loan that begins on the last Working Day
of a calendar month (or on a day for which there is
no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end
on the last Working Day of a calendar month; and
(iv) HCC shall select Interest Periods
so as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period for such
Loan.
"Investments": as defined in subsection 8.10.
"Issuing Bank": Chemical, in its capacity as issuer of any
Letter of Credit.
"JEDI": as defined in the recitals to this Agreement.
<PAGE> 25
20
"JEDI Lenders": as defined in the recitals to this Agreement.
"JEDI Loan Agreement": as defined in the recitals to this
Agreement.
"L/C Commitment": $10,000,000.
"L/C Fee Payment Date": the last day of each March, June,
September and December.
"L/C Obligations": at any time, an amount equal to the sum of
(a) the aggregate then undrawn and unexpired amount of the then
outstanding Letters of Credit and (b) the aggregate amount of drawings
under Letters of Credit which have not then been reimbursed pursuant
to subsection 4.5(a).
"L/C Participants": the collective reference to all the Banks
other than the Issuing Bank.
"Letters of Credit": as defined in paragraph 4.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement,
any Financing Lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction in
respect of any of the foregoing).
"Loan": any loan made by any Bank pursuant to this Agreement.
"Loan Documents": this Agreement, the Revolving Credit Notes,
the Applications, the Guarantees and the Security Documents.
"Majority Banks": at any time, Banks the Commitment
Percentages of which aggregate more than 50%.
"Marketing": Hanover Marketing Company, a Texas corporation.
"Material Adverse Effect": a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise)
or prospects of HCC and its Subsidiaries taken as a whole, (b) the
ability of HCC or any of the Subsidiaries of HCC to perform their
respective obligations under this Agreement, the Notes, or the
<PAGE> 26
21
Guarantees, or (c) the validity or enforceability of this Agreement or
any of the Notes or any Application or the rights or remedies of the
Agent, the Collateral Trustee or the Banks hereunder or thereunder.
"MEI": Maintech Enterprises, Inc., a Texas corporation.
"MEI Guarantee": the Second Amended and Restated Guarantee
made by MEI in favor of the Agent for the benefit of the Banks,
substantially in the form of Exhibit E, as amended, supplemented or
otherwise modified form time to time.
"MEI Security Agreement": the Second Amended and Restated
Security Agreement made by MEI in favor of the Collateral Trustee for
the benefit of the holders of the Secured Obligations, substantially
in the form of Exhibit F, as amended, supplemented or otherwise
modified from time to time.
"Mortgages": shall mean (a) the Hanover Land Texas Mortgage,
the Hanover/Smith Texas Leasehold Mortgage, the Hanover/Smith Texas
Mortgage, the HCC Oklahoma Mortgage and the HCC Texas Mortgage and (b)
any present or future deeds of trust, mortgages, or similar agreements
granting mortgage liens on real property in favor of the Collateral
Trustee for the ratable benefit of the holders of the Secured
Obligations substantially in the form of Exhibit N-1.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(A)(3) of ERISA.
"Note": any note made by HCC to any Bank pursuant to this
Agreement; collectively the "Notes".
"Participant": as defined in subsection 11.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint
venture, Governmental Authority or other entity of whatever nature.
"PGN": Proyetco Gas Natural P.G.N., C.A., a Venezuelan
corporation.
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which HCC, or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA
<PAGE> 27
22
be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreements": collectively, the HCC Pledge Agreement,
the Hanover Acquisition Pledge Agreement and such other pledge
agreements pursuant to which the holder of a Credit Party's Capital
Stock may pledge such Capital Stock to the Collateral Trustee for the
ratable benefit of the holders of the Secured Obligations.
"Pledged Stock": shall refer to the Capital Stock pledged
pursuant to the Pledge Agreements.
"Precision": Precision Welding & Machine, Inc., a Texas
corporation.
"Pro Forma Balance Sheets": as defined in subsection 5.1(b).
"Properties": as defined in subsection 5.17.
"Purchasing Banks": as defined in subsection 11.6(c).
"Qualified Subsidiary": each Subsidiary of HCC organized
under a jurisdiction of the United States and having assets located
primarily in the United States.
"Real Estate Note": a promissory note, dated June 22, 1993 in
the aggregate amount of $1,868,122.77 payable to Transfield
Corporation and endorsed payable to First Interstate which has been
modified by the Modification Agreement, dated November 22, 1993, among
the Real Estate Subsidiary, HCC and First Interstate, as amended prior
to the date hereof.
"Real Estate Subsidiary": Hanover Land Company, a Texas
corporation, a 100% direct Subsidiary of HCC which shall have no
operations other than (i) the holding, leasing, maintaining and
disposition of certain real estate properties and the improvements
located thereon acquired in connection with the Houston Real Estate
Transaction and (ii) the incurrence of Indebtedness to finance or
refinance the purchase of such real estate properties.
"Register": as defined in subsection 11.6(d).
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System.
"Reimbursement Obligation": the obligation of HCC to
reimburse the Issuing Bank pursuant to subsection 4.5(a) for amounts
drawn under Letters of Credit.
<PAGE> 28
23
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day
notice period is waived under subsections .13, .14, .16, .18, .19 or
.20 of PBGC Reg. Section 2615.
"Required Banks": at any time, Banks the Commitment
Percentages of which aggregate at least 60%.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer,
president, the executive vice president, treasurer or secretary of the
applicable Credit Party, or, with respect to financial matters, the
chief financial officer or treasurer of the applicable Credit Party.
"Revolving Credit Loans": as defined in subsection 2.2.
"Revolving Credit Notes": as defined in subsection 2.3.
"Secured Obligations": as defined in the Collateral Trust
Agreement.
"Security Agreements": collectively, the HCC Security
Agreement, the MEI Security Agreement, the Hanover/Smith Security
Agreement, the Hanover Acquisition Security Agreement, the Hanover
Land Security Agreement and such other security agreements pursuant to
which a Credit Party may grant a security interest in the assets of
such Credit Party, on substantially the terms set forth in the HCC
Security Agreement, to the Collateral Trustee for the ratable benefit
of the holders of the Secured Obligations.
"Security Documents": collectively, the Collateral Trust
Agreement, the Pledge Agreements, the Security Agreements, the
Mortgages and any other collateral security document from time to time
executed and delivered in connection herewith or therewith.
<PAGE> 29
24
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Specific Guaranty": as defined in subsection 8.4.
"Standby Letter of Credit": as defined in paragraph
4.1(b)(1)(A).
"Subordinated Debt": shall mean, with respect to HCC, any
unsecured Indebtedness the terms of which provide that such
Indebtedness is subordinate and junior in right of payment to the
payment of all obligations and liabilities of HCC to the Agent and the
Banks hereunder.
"Subsidiary": as to any Person, a corporation, partnership or
other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership of other entity are at the
time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of HCC.
"Tranche": the collective reference to Eurodollar Loans the
Interest Periods with respect to all of which begin on the same date
and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Transferee": as defined in subsection 11.6(f).
"Type": as to any Loan, its nature as an ABR Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"Unqualified Subsidiary": any Subsidiary of HCC other than
Qualified Subsidiaries.
"Working Day": any Business Day on which dealings in foreign
currencies and exchange between banks may be carried on in London,
England.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement
<PAGE> 30
25
shall have the defined meanings when used in the Notes or any certificate or
other document made or delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to HCC
and its Subsidiaries not defined in subsection 1.1 and accounting terms partly
defined in subsection 1.1, to the extent not defined, shall have the respective
meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Restructuring and Refinancing of Existing Debt. Subject
to the terms and conditions hereof, the Banks hereby agree to restructure the
terms of payment of the Existing Loans by amending and restating the Existing
Agreement through the execution and delivery of this Agreement and by accepting
delivery of the Revolving Credit Notes on the Closing Date in extension of and
in substitution and exchange for (but not in payment of) the Existing Notes.
Notwithstanding the foregoing, enforcement of the obligations so extended shall
be governed solely by the terms of the Loan Documents. The amount of the
Existing Loans of each Bank shall hereinafter be deemed to be a Revolving
Credit Loan of such Bank under this Agreement. If the conditions precedent
specified in Section 6 are not fully satisfied, the Existing Revolving Credit
Notes, the Existing Agreement and the Existing Security Documents shall remain
in full force and effect and shall not be replaced by the Revolving Credit
Notes, this Agreement and the Security Documents, respectively. Promptly after
the Closing Date, the Agent shall send to HCC the Existing Notes, marked
"extended and continued by the promissory notes, dated as of December 19, 1995,
delivered by Hanover Compressor Company to the Banks".
2.2 Revolving Credit Commitments. (a) Subject to the terms
and conditions hereof, each Bank severally agrees to make revolving credit
loans ("Revolving Credit Loans") to HCC from time to time during the Commitment
Period in an aggregate principal amount at any one time outstanding which, when
added to such Bank's Commitment Percentage of the then outstanding L/C
Obligations, does not exceed the amount of such Bank's Commitment. During the
Commitment Period, HCC may use the
<PAGE> 31
26
Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in
part, and reborrowing, all in accordance with the terms and conditions hereof.
On the Closing Date as specified above, all Existing Loans shall be continued
as Revolving Credit Loans hereunder.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined
by HCC and notified to the Agent in accordance with subsections 2.4 and 3.5,
provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after
the day that is three months prior to the Final Maturity Date.
2.3 Revolving Credit Notes. The Revolving Credit Loans made
by each Bank shall be evidenced by a promissory note of HCC, substantially in
the form of Exhibit A with appropriate insertions as to payee, date and
principal amount (each, a "Revolving Credit Note"), payable to the order of
such Bank and in a principal amount equal to the lesser of (a) the amount of
the initial Commitment of such Bank and (b) the aggregate unpaid principal
amount of all Revolving Credit Loans made by such Bank. Each Bank is hereby
authorized to record the date, Type and amount of each Revolving Credit Loan
made by such Bank, each continuation thereof, each conversion of all or a
portion thereof to another Type, the date and amount of each payment or
prepayment of principal thereof and, in the case of Eurodollar Loans, the
length of each Interest Period with respect thereto, on the schedule annexed to
and constituting a part of its Revolving Credit Note and any such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded, provided that the failure to make any such recordation (or any error
in such recordation) shall not affect the obligations of HCC hereunder and
under such Revolving Credit Note. Each Revolving Credit Note shall (i) be
dated the Closing Date, (ii) be stated to mature on the Final Maturity Date and
(iii) provide for the payment of interest in accordance with subsection 3.1.
2.4 Procedure for Revolving Credit Borrowing. HCC may borrow
under the Commitments during the Commitment Period on any Working Day, if all
or any part of the requested Revolving Credit Loans are to be initially
Eurodollar Loans, or on any Business Day, otherwise, provided that HCC shall
give the Agent irrevocable notice (which notice must be received by the Agent
prior to 10:00 A.M., New York City time, (a) three Working Days prior to the
requested Borrowing Date, if all or any part of the requested Revolving Credit
Loans are to be initially Eurodollar Loans, or (b) one Business Day prior to
the requested Borrowing Date, otherwise), specifying (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans, or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the amount of such
Type of Loan and the length of the
<PAGE> 32
27
initial Interest Period therefor. Each borrowing under the Commitments shall
be in an amount equal to (x) in the case of ABR Loans, $200,000 or a whole
multiple of $100,000 in excess thereof (or, if the then Available Commitments
are less than $200,000, such lesser amount) and (y) in the case of Eurodollar
Loans, $500,000 or a whole multiple of $100,000 in excess thereof. Upon
receipt of any such notice from HCC, the Agent shall promptly notify each Bank
thereof. Each Bank will make the amount of its pro rata share of each
borrowing available to the Agent for the account of HCC at the office of the
Agent specified in subsection 11.2 prior to 12:00 noon, New York City time, on
the Borrowing Date requested by HCC in funds immediately available to the
Agent. Such borrowing will then be made available to HCC by the Agent
crediting the account of HCC on the books of such office with the aggregate of
the amounts made available to the Agent by the Banks and in like funds as
received by the Agent.
SECTION 3. INTEREST RATE PROVISIONS, FEES, CONVERSIONS AND PAYMENTS
3.1 Interest Rates and Payments Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such
day plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum
equal to ABR plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of
any Loan or (ii) any interest payable thereon shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum which is (x) in the case of
overdue principal, 2% above the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this subsection or (y) in the case of
overdue interest, 2% above the rate described in paragraph (b) of this
subsection, in each case from the date of such non-payment until such amount
is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of this
subsection shall be payable on demand.
3.2 Commitment Fee; Upfront Facility Fee; Other Fees and
Compensation. (a) HCC agrees to pay to the Agent for the account of each Bank
a commitment fee for the period from and including the first day of the
Commitment Period to the Final Maturity Date, computed at the rate of 0.35% per
annum on the average daily amount of the Available Commitment of such Bank
during the period for which payment is made. Such commitment fee
<PAGE> 33
28
shall be payable quarterly in arrears on the last day of each March, June,
September and December and on the Final Maturity Date or such earlier date as
the Commitments shall terminate as provided herein, commencing on March 31,
1996.
(b) HCC agrees to pay to the Agent for the account of
each Bank an up-front facility fee, computed at the rate of .10% of the
Commitment of such Bank on the Closing Date. Such up-front facility fee shall
be payable on the Closing Date.
(c) HCC agrees to pay to the Agent the fees and other
compensation, in the amounts and on the dates specified in the fee letter
separately agreed to between HCC and the Agent.
3.3 Termination or Reduction of the Commitments. (a) HCC
shall have the right during the Commitment Period, upon not less than five
Business Days' notice to the Agent by HCC to terminate the Commitments or, from
time to time, to reduce the amount of the Commitments, provided that no such
termination or reduction shall be permitted if, after giving effect thereto and
to any prepayments of the Revolving Credit Loans made on the effective date
thereof, the aggregate principal amount of the Revolving Credit Loans then
outstanding, when added to the then outstanding L/C Obligations, would exceed
the Commitments then in effect. Any such reduction shall be in an amount equal
to $100,000 or a whole multiple thereof and shall reduce permanently the
Commitments then in effect.
(b) If HCC or any of its Subsidiaries shall sell any assets
and the proceeds from the sale are required to be paid to the Collateral
Trustee to be held as cash collateral for the benefit of the holders of the
Secured Obligations in accordance with subsection 8.6, HCC must either reinvest
such proceeds in natural gas compressors or oil and gas production equipment to
be owned by HCC or its Qualified Subsidiaries within nine months after the sale
of such assets or must prepay ratably, based upon outstanding principal
amounts, the outstanding Loans under this Agreement and the other outstanding
secured Indebtedness of the holders of the Secured Obligations which require
such prepayment in the amount of such proceeds.
3.4 Optional Prepayments and other Repayments. (a) HCC may
at any time and from time to time, prepay the Loans, in whole or in part,
without premium or penalty, upon at least three Working Days' irrevocable
notice, in the case of Eurodollar Loans, and one Business Day's irrevocable
notice, in the case of ABR Loans, by HCC to the Agent, specifying the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and if of a combination thereof, the amount
allocable to each. If any such prepayment with respect to a Eurodollar Loan is
made on a day other than the last day of an Interest Period, such prepayment
shall be accompanied by any amounts required to be paid pursuant to subsection
3.13.
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Upon receipt of any such notice the Agent shall promptly notify each Bank
thereof. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein. Partial prepayments
shall be in an aggregate principal amount of $200,000 or a whole multiple of
$100,000 in excess thereof.
(b) HCC shall repay at any time, and there shall be due and
payable at such time, such principal amount (together with accrued interest
thereon), if any, of outstanding Revolving Credit Loans as may be necessary so
that, after such repayment, the aggregate unpaid principal amount of Revolving
Credit Loans does not exceed the Commitments in effect at such time after
giving effect to any reduction in the Commitments pursuant to subsection 3.3.
(c) If the Collateral Trustee shall hold as collateral any
proceeds resulting from the sale of any natural gas compressors or oil and gas
production equipment and such proceeds are applied to the Secured Obligations
in accordance with the Collateral Trust Agreement, HCC shall prepay the
outstanding principal amount of the Loans under this Agreement in an amount
equal to the amount of such application allocated to the Agent and the Banks
under the Collateral Trust Agreement. Each prepayment of principal on Loans
pursuant to this subsection 3.4(c) shall be accompanied by payment of all
accrued but unpaid interest on the principal amount prepaid and any amounts
required to be paid pursuant to subsection 3.13 as a result of such prepayment.
All prepayments required pursuant to this subsection 3.4(c) shall be applied to
the Loans ratably in accordance with the outstanding principal amount of each
Loan, and shall be applied to the required payments of principal on each Loan
being prepaid in the inverse order of maturity.
(d) If the Collateral Trustee shall hold as collateral any
proceeds resulting from any business interruption, casualty, or condemnation,
including, without limitation, any business interruption insurance proceeds,
any property insurance proceeds, or any condemnation proceeds, and such
proceeds are applied to the Secured Obligations in accordance with the
Collateral Trust Agreement, HCC shall prepay the outstanding principal amount
of the Loans under this Agreement in an amount equal to the amount of such
application allocated to the Agent and the Banks under the Collateral Trust
Agreement. Each prepayment of principal on Loans pursuant to this subsection
3.4(d) shall be accompanied by payment of all accrued but unpaid interest on
the principal amount prepaid and any amounts required to be paid pursuant to
subsection 3.13 as a result of such prepayment. All prepayments required
pursuant to this subsection 3.4(d) shall be applied to the Loans ratably in
accordance with the outstanding principal amount of each Loan, and shall be
applied to the required payments of principal on each Loan being prepaid in the
inverse order of maturity.
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(e) If during the existence of a Default or Event of Default
the Collateral Trustee shall make any distribution to the Agent or the Banks
under the Collateral Trust Agreement, HCC shall prepay the outstanding
principal amount of the Loans under this Agreement in an amount equal to the
amount of such distribution to the Agent and the Banks under the Collateral
Trust Agreement. Each prepayment of principal on Loans pursuant to this
subsection 3.4(e) shall be accompanied by payment of all accrued but unpaid
interest on the principal amount prepaid and any amounts required to be paid
pursuant to subsection 3.13 as a result of such prepayment. All prepayments
required pursuant to this subsection 3.4(e) shall be applied to the Loans
ratably in accordance with the outstanding principal amount of each Loan, and
shall be applied to the required payments of principal on each Loan being
prepaid in the inverse order of maturity. Each Bank's Commitment shall be
automatically reduced permanently by an amount equal to the amount prepaid to
it by HCC pursuant to the terms of this subsection 3.4(e).
3.5 Conversion and Continuation Options. (a) HCC may elect
from time to time to convert Eurodollar Loans to ABR Loans by giving the Agent
at least two Business Days' prior irrevocable notice of such election, provided
that any such conversion of Eurodollar Loans may only be made on the last day
of an Interest Period with respect thereto. HCC may elect from time to time to
convert ABR Loans to Eurodollar Loans by giving the Agent at least three
Working Days' prior irrevocable notice of such election. Any such notice of
conversion to Eurodollar Loans shall specify the length of the initial Interest
Period or Interest Periods therefor. Upon receipt of any such notice the Agent
shall promptly notify each Bank thereof. All or any part of outstanding
Eurodollar Loans and ABR Rate Loans may be converted as provided herein,
provided that (i) no Loan may be converted into a Eurodollar Loan when any
Event of Default has occurred and is continuing and the Agent or the Required
Banks have determined that such a conversion is not appropriate, (ii) any such
conversion may only be made if, after giving effect thereof, subsection 3.6
shall not have been contravened and (iii) no Loan may be converted into a
Eurodollar Loan after the date that is one month prior to the Final Maturity
Date.
(b) Any Eurodollar Loans may be continued as such upon
the expiration of the then current Interest Period with respect thereto by HCC
giving notice to the Agent, in accordance with the applicable provisions of the
term "Interest Period" set forth in subsection 1.1, of the length of the next
Interest Period to be applicable to such Loans, provided that no Eurodollar
Loan may be continued as such (i) when any Event of Default has occurred and is
continuing and the Agent or the Required Banks have determined that such a
continuation is not appropriate, (ii) if, after giving effect thereto,
subsection 3.6 would be contravened or (iii) after the date that is one month
prior to the Final Maturity Date and provided, further, that if HCC shall fail
to
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give any required notice as described above in this paragraph or if such
continuation is not permitted pursuant to the preceding proviso such Loans
shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period.
3.6 Minimum Amounts of Reduction. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Eurodollar Tranche shall be equal to $500,000 or a
whole multiple of $100,000 in excess thereof.
3.7 Computation of Interest and Fees. (a) Commitment fees
and interest on ABR Loans shall be calculated on the basis of a 365- (or 366-,
as the case may be) day year for the actual days elapsed, and interest on
Eurodollar Loans shall be calculated on the basis of a 360 day year for the
actual days elapsed. The Agent shall as soon as practicable notify HCC and the
Banks of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the ABR, the Eurocurrency Reserve
Requirements, the C/D Assessment Rate or the C/D Reserve Percentage shall
become effective as of the opening of business on the day on which such change
becomes effective. The Agent shall as soon as practicable notify HCC and the
Banks of the effective date and the amount of each such change in interest
rate.
(b) Each determination of an interest rate by the Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
HCC and the Banks in the absence of manifest error. The Agent shall, at the
request of the HCC, deliver to HCC a statement showing the quotations used by
the Agent in determining any interest rate pursuant to subsection 3.1(a).
3.8 Inability to Determine Interest Rate. In the event that
prior to the first day of any Interest Period:
(a) the Agent shall have determined (which determination
shall be conclusive and binding upon HCC) that, by reason of
circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Agent shall have received notice from the
Majority Banks that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the
costs to such Banks (as conclusively certified by such Banks) of
making or maintaining their affected Loans during such Interest
Period,
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the Agent shall give telex, telecopy or telephonic notice thereof to HCC and
the Banks as soon as practicable thereafter. If such notice is given (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (y) any Loans that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be converted to
or continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be
converted, on the first day of such Interest Period, to ABR Loans. Until such
notice has been withdrawn by the Agent, no further Eurodollar Loans shall be
made or continued as such, nor shall HCC have the right to convert Loans to
Eurodollar Loans.
3.9 Pro Rata Treatment and Payments. (a) Each borrowing by
HCC from the Banks hereunder, each payment by HCC on account of any commitment
fee hereunder and any reduction of the Commitments of the Banks shall be made
pro rata according to the respective Commitment Percentages of the Banks. Each
payment (including each prepayment) by HCC on account of principal of and
interest on the Loans shall be made pro rata according to the respective
outstanding principal amounts of the Loans then held by the Banks. All
payments (including prepayments) to be made by HCC hereunder and under the
Notes, whether on account of principal, interest, fees or otherwise, shall be
made without set off or counterclaim and shall be made prior to 12:00 Noon, New
York City time, on the due date thereof to the Agent, for the account of the
Banks, at the Agent's office specified in subsection 11.2 in Dollars and in
immediately available funds. The Agent shall distribute such payments to the
Banks promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day, and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension. If
any payment on a Eurodollar Loan becomes due and payable on a day other than a
Working Day, the maturity thereof shall be extended to the next succeeding
Working Day unless the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Working Day.
(b) Unless the Agent shall have been notified in writing
by any Bank prior to a Borrowing Date that such Bank will not make the amount
that would constitute its Commitment Percentage of the borrowing on such date
available to the Agent, the Agent may assume that such Bank has made such
amount available to the Agent on such Borrowing Date, and the Agent may, in
reliance upon such assumption, make available to HCC a corresponding amount.
If such amount is made available to the Agent on a date after such Borrowing
Date, such Bank shall pay to the Agent on demand an amount equal to the product
of (i) the daily average Federal funds rate during such period as quoted by
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the Agent, times (ii) the amount of such Bank's Commitment Percentage of such
borrowing, times (iii) a fraction the numerator of which is the number of days
that elapse from and including such Borrowing Date to the date on which such
Bank's Commitment Percentage of such borrowing shall have become immediately
available to the Agent and the denominator of which is 360. A certificate of
the Agent submitted to any Bank with respect to any amounts owing under this
subsection shall be conclusive in the absence of manifest error. If such
Bank's Commitment Percentage of such borrowing is not in fact made available to
the Agent by such Bank within three Business Days of such Borrowing Date, the
Agent shall be entitled to recover such amount with interest thereon at the
rate per annum applicable to ABR Loans hereunder, on demand, from HCC and any
such payment by HCC shall not constitute a waiver of any right or remedy HCC
may have with respect to any such Bank.
3.10 Illegality. Notwithstanding any other provision herein,
if any change in any Requirement of Law or in the interpretation or application
thereof shall make it unlawful for any Bank to make or maintain Eurodollar
Loans as contemplated by this Agreement, (a) the commitment of such Bank
hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be canceled and (b) such
Bank's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, HCC shall pay to such Bank such amounts, if any, as may be required
pursuant to subsection 3.13.
3.11 Requirements of Law. (a) In the event that any change
in any Requirement of Law as in existence on the date hereof or in the
interpretation or application thereof or compliance by any Bank with any
request or directive (whether or not having the force of law) from any central
bank or other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Bank to any tax of any kind whatsoever
with respect to this Agreement, any Note, any Letter of Credit, any
Application or any Eurodollar Loan made by it, or change the basis of
taxation of payments to such Bank in respect thereof (except for taxes
covered by subsection 3.12 and changes in the rate of tax on the
overall net income of such Bank or tax imposed in lieu of net income
taxes);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or
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34
other extensions of credit by, or any other acquisition of funds by,
any office of such Bank which is not otherwise included in the
determination of the Eurodollar Rate hereunder; or
(iii) shall impose on such Bank any other condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, HCC shall promptly pay such Bank, upon its
demand, any additional amounts necessary to compensate such Bank for such
increased cost or reduced amount receivable. If any Bank becomes entitled to
claim any additional amounts pursuant to this subsection, it shall promptly
notify HCC, through the Agent, by delivery of a certificate setting forth the
amounts due and a description of the event by reason of which it has become so
entitled. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Bank, through the Agent, to HCC shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Notes and all other
amounts payable hereunder.
(b) In the event that any Bank shall have determined that any
change in any Requirement of Law as in existence on the date hereof regarding
capital adequacy or in the interpretation or application thereof or compliance
by such Bank or any corporation controlling such Bank with any request or
directive regarding capital adequacy (whether or not having the force of law)
from any Governmental Authority made subsequent to the date hereof does or
shall have the effect of reducing the rate of return on such Bank's or such
corporation's capital as a consequence of its obligations hereunder or under
any Letter of Credit to a level below that which such Bank or such corporation
could have achieved but for such change or compliance (taking into
consideration such Bank's or such corporation's policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, after submission by such Bank to HCC (with a copy to the Agent)
of a written request therefore, HCC shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such reduction.
3.12 Taxes. (a) All payments made by HCC under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or assessed
by any Governmental Authority, excluding, in the case of the Agent and each
Bank, net income taxes and franchise taxes (imposed in lieu
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35
of net income taxes) imposed on the Agent or such Bank, as the case may be, as
a result of a present or former connection between the jurisdiction of the
government or taxing authority imposing such tax and the Agent or such Bank
(excluding a connection arising solely from the Agent or such Bank having
executed, delivered, performed its obligations or received a payment under, or
enforced, this Agreement or the Notes) or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions and withholdings being hereinafter called
"Taxes"). If any Taxes are required to be withheld from any amounts payable to
the Agent or any Bank hereunder or under the Notes, the amounts so payable to
the Agent or such Bank shall be increased to the extent necessary to yield to
the Agent or such Bank (after payment of all Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement and the Notes. Whenever any Taxes are payable by HCC, as promptly as
possible thereafter HCC shall send to the Agent for its own account or for the
account of such Bank, as the case may be, a certified copy of an original
official receipt received by HCC showing payment thereof. If HCC fails to pay
any Taxes when due to the appropriate taxing authority or fails to remit to the
Agent the required receipts or other required documentary evidence, HCC shall
indemnify the Agent and the Banks for any incremental taxes, interest or
penalties that may become payable by the Agent or any Bank as a result of any
such failure. The agreements in this subsection shall survive the termination
of this Agreement and the payment of the Notes and all other amounts payable
hereunder. Notwithstanding the foregoing, before making any demand for payment
under this Section 3.12(a) each Bank agrees to use commercially reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different lender office if the making of such a
designation would avoid the need for, or reduce the amount of, such payments
required under this Section 3.12(a).
(b) Each Bank, including, without limitation, each Purchasing
Bank, that is not incorporated under the laws of the United States of America
or a state thereof agrees that prior to the first Interest Payment Date or, in
the case of a Purchasing Bank, the first Interest Payment Date to occur
subsequent to the date it becomes a party hereto it will deliver to HCC and the
Agent (i) two duly completed copies of United States Internal Revenue Service
Form 1001 or 4224 or successor applicable form, as the case may be, and (ii) an
Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each
such Bank also agrees to deliver to HCC and the Agent two further copies of the
said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or
other manner of certification, as the case may be, on or before the date that
any such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by it to HCC
and such extensions or renewals thereof as may reasonably be requested by HCC
or the
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Agent, unless in any such case an event (including, without limitation, any
change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank so advises HCC and
the Agent. Such Bank shall certify (i) in the case of a Form 1001 or 4224,
that it is entitled to receive payments under this Agreement without deduction
or withholding of any United States federal income taxes and (ii) in the case
of a Form W-8 or W-9, that it is entitled to an exemption from United States
backup withholding tax. Each Bank which fails to provide to HCC in a timely
manner such forms shall reimburse HCC upon demand for any penalties paid by HCC
as a result of any failure of HCC to withhold the required amounts, that are
caused by such Bank's failure to provide the required forms in a timely manner.
3.13 Indemnity. HCC agrees to indemnify each Bank and to
hold each Bank harmless from any loss or expenses which such Bank may sustain
or incur as a consequence of (a) default by HCC in payment when due of the
principal amount of or interest on any Eurodollar Loan, (b) default by HCC in
making a borrowing of, conversion into or continuation of Eurodollar Loans
after HCC has given a notice requesting the same in accordance with the
provisions of this Agreement, (c) default by HCC in making any prepayment after
HCC has given a notice thereof in accordance with the provisions of this
Agreement or (d) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto, including,
without limitation, in each case, any such loss or expense arising from the
reemployment of funds obtained by it or from fees payable to terminate the
deposits from which such funds were obtained. This covenant shall survive the
termination of this Agreement and the payment of the Notes and all other
amounts payable hereunder.
SECTION 4. LETTERS OF CREDIT
4.1. L/C Commitment.
(a) Subject to the terms and conditions hereof, the Issuing
Bank, in reliance on the agreements of the other Banks set forth in subsection
4.4(a), agrees to issue letters of credit ("Letters of Credit") for the account
of HCC on any Business Day during the Commitment Period in such form as may be
approved from time to time by the Issuing Bank; provided that the Issuing Bank
shall have no obligation to issue any Letter of Credit if, after giving effect
to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or
(ii) the Available Commitment would be less than zero.
(b) Each Letter of Credit shall:
<PAGE> 42
37
(i) be denominated in Dollars and shall be either (1) a
standby letter of credit issued to support obligations of HCC (a
"Standby Letter of Credit"), or (2) a commercial letter of credit
issued in respect of the purchase of goods or services by HCC and its
Subsidiaries in the ordinary course of business (a "Commercial Letter
of Credit") and
(ii) expire no later than the Termination Date.
(c) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
(d) The Issuing Bank shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Bank or any L/C Participant to exceed any limits imposed by,
any applicable Requirement of Law.
4.2. Procedure for Issuance of Letters of Credit.
HCC may from time to time request that the Issuing Bank issue
a Letter of Credit by delivering to the Issuing Bank at its address for notices
specified herein an Application therefor, completed to the satisfaction of the
Issuing Bank, and such other certificates, documents and other papers and
information as the Issuing Bank may request. Upon receipt of any Application,
the Issuing Bank will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Bank be required to
issue any Letter of Credit earlier than three Business Days after its receipt
of the Application therefor and all such other certificates, documents and
other papers and information relating thereto) by issuing the original of such
Letter of Credit to the beneficiary thereof or as otherwise may be agreed by
the Issuing Bank and HCC. The Issuing Bank shall furnish a copy of such Letter
of Credit to HCC promptly following the issuance thereof.
4.3. Fees, Commissions and Other Charges.
(a) HCC shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a fronting fee with respect to each
Commercial Letter of Credit in an amount equal to 1.0% of the face amount of
such Letter of Credit. .125% of such fee shall be payable to the Issuing Bank,
and the remaining .875% of such fee shall be payable to the L/C Participants to
be shared ratably among them in accordance with their respective Commitment
Percentages. Such fronting fee shall be payable in advance on the date of
issuance of each Letter of Credit and shall be nonrefundable.
<PAGE> 43
38
(b) HCC shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a letter of credit commission with
respect to each Standby Letter of Credit, computed for the period from the date
of such payment to the date upon which the next such payment is due hereunder
at the rate of 1.0% per annum, calculated on the basis of a 365 (or 366-, as
the case may be) year, of the aggregate amount available to be drawn under such
Standby Letter of Credit on the date on which such fee is calculated. .125% of
such fee shall be payable to the Issuing Bank, and the remaining .875% of such
fee shall be payable to the L/C Participants to be shared ratably among them in
accordance with their respective Commitment Percentages. Such commissions
shall be payable in advance on the date of issuance of each Letter of Credit
and on each L/C Fee Payment Date to occur thereafter and shall be
nonrefundable.
(c) In addition to the foregoing fees and commissions, HCC
shall pay or reimburse the Issuing Bank for such reasonable, normal and
customary costs and expenses as are actually incurred or charged by the Issuing
Bank in issuing, effecting payment under, amending or otherwise administering
any Letter of Credit.
(d) The Agent shall, promptly following its receipt thereof,
distribute to the Issuing Bank and the L/C Participants all fees and
commissions received by the Agent for their respective accounts pursuant to
this subsection.
4.4. L/C Participations.
(a) The Issuing Bank irrevocably agrees to grant and hereby
grants to each L/C Participant, and, to induce the Issuing Bank to issue
Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept
and purchase and hereby accepts and purchases from the Issuing Bank, on the
terms and conditions hereinafter stated, for such L/C Participant's own account
and risk an undivided interest equal to such L/C Participant's Commitment
Percentage in the Issuing Bank's obligations and rights under each Letter of
Credit issued hereunder and the amount of each draft paid by the Issuing Bank
thereunder. Each L/C Participant unconditionally and irrevocably agrees with
the Issuing Bank that, if a draft is paid under any Letter of Credit for which
the Issuing Bank is not reimbursed in full by HCC in accordance with the terms
of this Agreement, such L/C Participant shall pay to the Issuing Bank upon
demand at the Issuing Bank's address for notices specified herein an amount
equal to such L/C Participant's Commitment Percentage of the amount of such
draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Bank pursuant to paragraph 4.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Bank under any Letter of Credit is
paid to the Issuing Bank within three Business Days after the date such payment
is
<PAGE> 44
39
due, such L/C Participant shall pay to the Issuing Bank on demand an amount
equal to the product of (1) such amount, times (2) the daily average Federal
funds rate, as quoted by the Issuing Bank, during the period from and including
the date such payment is required to the date on which such payment is
immediately available to the Issuing Bank, times (3) a fraction the numerator
of which is the number of days that elapse during such period and the
denominator of which is 360. If any such amount required to be paid by any L/C
Participant pursuant to paragraph 4.4(a) is not in fact made available to the
Issuing Bank by such L/C Participant within three Business Days after the date
such payment is due, the Issuing Bank shall be entitled to recover from such
L/C Participant, on demand, such amount with interest thereon calculated from
such due date at the rate per annum applicable to ABR Loans hereunder. A
certificate of the Issuing Bank submitted to any L/C Participant with respect
to any amounts owing under this subsection shall be conclusive in the absence
of manifest error.
(c) Whenever, at any time after the Issuing Bank has made
payment under any Letter of Credit and has received from any L/C Participant
its pro rata share of such payment in accordance with subsection 4.4(a), the
Issuing Bank receives any payment related to such Letter of Credit (whether
directly from HCC or otherwise, including proceeds of collateral applied
thereto by the Issuing Bank), or any payment of interest on account thereof,
the Issuing Bank will distribute to such L/C Participant its pro rata share
thereof; provided, however, that in the event that any such payment received by
the Issuing Bank shall be required to be returned by the Issuing Bank, such L/C
Participant shall return to the Issuing Bank the portion thereof previously
distributed by the Issuing Bank to it.
4.5. Reimbursement Obligation of HCC.
(a) HCC agrees to reimburse the Issuing Bank on each date on
which the Issuing Bank notifies HCC of the date and amount of a draft presented
under any Letter of Credit and paid by the Issuing Bank for the amount of (i)
such draft so paid and (ii) any taxes, fees, charges or other costs or expenses
incurred by the Issuing Bank in connection with such payment. Each such payment
shall be made to the Issuing Bank at its address for notices specified herein
in lawful money of the United States of America and in immediately available
funds.
(b) Interest shall be payable on any and all amounts
remaining unpaid by HCC under this subsection from the date such amounts become
payable (whether at stated maturity, by acceleration or otherwise) until
payment in full at the rate which would be payable on any outstanding ABR Loans
which were then overdue.
<PAGE> 45
40
(c) Each drawing under any Letter of Credit shall constitute
a request by HCC to the Agent for a borrowing pursuant to subsection 2.4
(Procedure for Revolving Credit Borrowing) of ABR Loans in the amount of such
drawing. The Borrowing Date with respect to such borrowing shall be the date of
such drawing.
4.6. Obligations Absolute.
(a) HCC's obligations under this Section 4 shall be absolute
and unconditional under any and all circumstances and irrespective of any
set-off, counterclaim or defense to payment which HCC may have or have had
against the Issuing Bank or any beneficiary of a Letter of Credit.
(b) HCC also agrees with the Issuing Bank that the Issuing
Bank shall not be responsible for, and HCC's Reimbursement Obligations under
subsection 4.5(a) shall not be affected by, among other things, (i) the
validity or genuineness of documents or of any endorsements thereon, even
though such documents shall in fact prove to be invalid, fraudulent or forged,
or (ii) any dispute between or among HCC and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred or
(iii) any claims whatsoever of HCC against any beneficiary of such Letter of
Credit or any such transferee.
(c) The Issuing Bank shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions caused by the Issuing Bank's gross
negligence or willful misconduct.
(d) HCC agrees that any action taken or omitted by the
Issuing Bank under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence of willful
misconduct and in accordance with the standards of care specified in the
Uniform Commercial Code of the State of New York, shall be binding on HCC and
shall not result in any liability of the Issuing Bank to HCC.
4.7. Letter of Credit Payments.
If any draft shall be presented for payment under any Letter
of Credit, the Issuing Bank shall promptly notify HCC of the date and amount
thereof. The responsibility of the Issuing Bank to HCC in connection with any
draft presented for payment under any Letter of Credit shall, in addition to
any payment obligation expressly provided for in such Letter of Credit, be
limited to determining that the documents (including each draft) delivered
under such Letter of Credit in connection with such presentment are in
conformity with such Letter of Credit.
<PAGE> 46
41
4.8. Application.
To the extent that any provision of any Application related to
any Letter of Credit is inconsistent with the provisions of this Section 4, the
provisions of this Section 4 shall apply.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement and to make
the Loans and issue or participate in the Letters of Credit, HCC hereby
represents and warrants to the Agent and each Bank that:
5.1 Financial Condition. (a) The consolidated balance
sheets of HCC and its consolidated Subsidiaries as at December 31, 1994 and
December 31, 1993 and the related consolidated statements of income and of cash
flows for the fiscal year ended on such date, reported on by Price Waterhouse
copies of which have heretofore been furnished to each Bank, are complete and
correct and present fairly the consolidated financial condition of HCC and its
consolidated Subsidiaries as at such dates, and the consolidated results of
their operations and their consolidated cash flows for the fiscal year then
ended. The unaudited consolidated balance sheets of HCC and its consolidated
Subsidiaries as at March 31, 1995, June 30, 1995 and September 30, 1995, the
related unaudited consolidated statements of income and of cash flows for the
three, six and nine-month periods ended on such dates, certified by a
Responsible Officer of HCC, copies of which have heretofore been furnished to
each Bank, are complete and correct and present fairly the consolidated
financial condition of HCC, and its consolidated Subsidiaries as at such dates,
and the consolidated results of its operations and consolidated cash flows for
the three, six and nine-month periods then ended (subject to normal year-end
audit adjustments). The unaudited consolidated balance sheets of HCC and its
consolidated Subsidiaries as at January 31, 1995, February 28, 1995, March 31,
1995, April 30, 1995, May 31, 1995, June 30, 1995, July 31, 1995, August 31,
1995 and September 30, 1995 and the related unaudited consolidated statements
of income and of cash flows for the one month periods ended on such dates,
certified by a Responsible Officer of HCC, copies of which have heretofore been
furnished to each Bank, are complete and correct and present fairly the
consolidated financial condition of HCC, and its consolidated Subsidiaries as
at such dates, and the consolidated results of its operations and consolidated
cash flows for the one month periods then ended (subject to normal year-end
audit adjustments).
(b) The pro forma balance sheet of HCC and its consolidated
Subsidiaries (the "Pro Forma Balance Sheet"), certified by the chief financial
officer of HCC as being the unaudited balance sheet of HCC and its consolidated
Subsidiaries
<PAGE> 47
42
as at September 30, 1995 adjusted for the Equity Transactions and any
transactions related thereto, the transactions contemplated by this Agreement
and the transactions contemplated by the JEDI Loan Agreement and as being,
together with the notes thereto, a good faith estimate on a pro forma basis of
the financial position of HCC and its consolidated Subsidiaries as at September
30, 1995 as adjusted as described above assuming that the transactions
specified above had actually occurred at September 30, 1995.
(c) All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein). Other than the Guaranty Agreement and the Specific Guaranty, neither
HCC nor any of its consolidated Subsidiaries had, at the date of the most
recent balance sheet referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction, which is not reflected
in the foregoing statements or in the notes thereto. Except as disclosed on
Schedule III to this Agreement, during the period from September 30, 1995 to
and including the date hereof there has been no sale, transfer or other
disposition by HCC or any of its consolidated Subsidiaries of any material part
of its business or property and no purchase or other acquisition of any
business or property (including any capital stock of any other Person) material
in relation to the consolidated financial condition of HCC and its consolidated
Subsidiaries at September 30, 1995.
5.2 No Change. Since December 31, 1994 (a) there has been no
development or event nor any prospective development or event, which has had or
would reasonably be expected to have a Material Adverse Effect and (b) except
as disclosed on Schedule IV to this Agreement, no dividends or other
distributions have been declared, paid or made upon the Capital Stock of HCC
nor has any of the Capital Stock of HCC been redeemed, retired, purchased or
otherwise acquired for value by HCC or any of its respective Subsidiaries.
5.3 Corporate Existence; Compliance with Law. Each Credit
Party (a) is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (b) has the corporate power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the
<PAGE> 48
43
failure to be so qualified would not reasonably be expected to have a Material
Adverse Effect, and (d) is in compliance with all Requirements of Law except to
the extent that the failure to comply therewith would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
5.4 Corporate Power; Authorization; Enforceable Obligations.
Each Credit Party has the corporate power and authority, and the legal right,
to make, deliver and perform the Loan Documents to which it is a party, and
with respect to the Security Documents to which it is a party to grant the
Liens pursuant thereto. HCC has the corporate power and authority, and the
legal right, to borrow hereunder and has taken all necessary corporate action
to authorize the borrowings on the terms and conditions of this Agreement, the
Notes and the Applications. Each Credit Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party, and with respect to the Security
Documents to which it is a party to grant the Liens pursuant thereto. Except
as disclosed on Schedule V to this Agreement, no consent or authorization of,
filing with or other act by or in respect of, any Governmental Authority or any
other Person (other than consents under contracts the failure to obtain would
not, in the aggregate, reasonably be expected to have a Material Adverse
Effect) is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement,
the Notes, the Applications or any of the other Loan Documents or, with respect
to the Security Documents, the granting of the Liens thereunder. This
Agreement has been, and each Note, each Application and each other Loan
Document will be, duly executed and delivered on behalf of the Credit Parties
party thereto. This Agreement constitutes, and each Note, each Application and
each other Loan Document when executed and delivered will constitute, a legal,
valid and binding obligation of the Credit Parties party thereto enforceable
against such Credit Parties in accordance with their respective terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
5.5 No Legal Bar. Assuming receipt of the consents and
authorizations, and the occurrence of the filing and other acts, set forth on
Schedule V to this Agreement, the execution, delivery and performance of this
Agreement, the Applications, the Notes and the other Loan Documents, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or Contractual Obligation of any Credit Party thereto and
will not result in, or require, the creation or imposition of any Lien on any
of their respective properties or revenues pursuant
<PAGE> 49
44
to any such Requirement of Law or Contractual Obligation, except as
contemplated hereby or thereby.
5.6 No Material Litigation. Except as set forth in Schedule
VI, no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of HCC, threatened by or
against any Credit Party or against any of their respective properties or
revenues (a) with respect to this Agreement, the Notes or the other Loan
Documents or any of the transactions contemplated hereby, or (b) which would
reasonably be expected to have a Material Adverse Effect.
5.7 No Default. None of the Credit Parties nor any of their
respective Subsidiaries is in default under or with respect to any of their
respective Contractual Obligations in any respect which if not cured would
reasonably be expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
5.8 Ownership of Property; Liens; Leases of Equipment. Each
of the Credit Parties has good record and marketable title in fee simple
(except for exceptions to title as will not in the aggregate materially
interfere with the present or contemplated use of the property affected
thereby) to, or a valid leasehold interest in, all its real property, and good
title to all its other property, and none of such property is subject to any
Lien except as permitted by subsection 8.3. None of the Equipment or Inventory
(as defined in any Security Agreement) owned by any Credit Party has been
leased by such Credit Party as lessor, except pursuant to operating leases
(which do not constitute Financing Leases) which are in one of the forms (with
appropriate insertions as to date, amounts, parties and designation of
Equipment or Inventory (as so defined) covered thereby, and other minor
deviations which do not materially alter the terms thereof) annexed hereto as
Schedule VII, as the same may be modified from time to time as set forth in
subsection 8.6(c). None of the natural gas compressors and related equipment
owned by any Credit Party constitutes "fixtures" under the Uniform Commercial
Code or other applicable law of any jurisdiction in which such natural gas
compressors and related equipment are located. As used herein, Equipment or
Inventory leased by a Credit Party under a Financing Lease shall be deemed
"owned" by such Credit Party.
5.9 Intellectual Property. Each Credit Party owns, or is
licensed to use, all trademarks, tradenames, trade secrets, copyrights,
technology, know-how and processes necessary for the conduct of its business as
currently conducted except for those the failure to own or license which would
not reasonably be expected to have a Material Adverse Effect (the "Intellectual
Property"). To the knowledge of HCC, no claim has been asserted and is pending
by any Person challenging or questioning the use of any such Intellectual
Property or the validity or
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45
effectiveness of any such Intellectual Property, nor does HCC know of any valid
basis for any such claim, which would reasonably be expected to have a Material
Adverse Effect. The use of such Intellectual Property by the Credit Parties
does not infringe on the rights of any Person, except for such claims and
infringements that, in the aggregate, would not reasonably be expected to have
a Material Adverse Effect.
5.10 No Burdensome Restrictions. Except as disclosed on
Schedule VIII, no Requirement of Law or Contractual Obligation of any Credit
Party would reasonably be expected to have a Material Adverse Effect.
5.11 Taxes. Each of the Credit Parties has filed or caused
to be filed all tax returns which, to the knowledge of HCC, are required to be
filed and has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other taxes,
fees or other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of any of the
Credit Parties, as the case may be); no tax Lien has been filed against the
property of any Credit Party, and, to the knowledge of HCC, no claim is being
asserted, with respect to any such tax, fee or other charge.
5.12 Federal Regulations. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect or for any purpose which violates the provisions of the
Regulations of such Board of Governors. If requested by any Bank or the Agent,
HCC will furnish to the Agent and each Bank a statement to the foregoing effect
in conformity with the requirements of FR Form U-1 referred to in said
Regulation U.
5.13 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred
and no lien in favor of the PBGC or a Plan has arisen during the five-year
period prior to the date as of which this representation is deemed made. The
present value of all accrued benefits under each Single Employer Plan
maintained by HCC, or any Commonly Controlled Entity (based on those
assumptions used to fund the Plans) did not, as of the last annual valuation
date prior to the date on which this
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46
representation is made or deemed made, exceed the value of the assets of such
Plan allocable to such accrued benefits. Neither HCC nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan, and neither HCC nor any Commonly Controlled Entity would
become subject to any liability under ERISA if HCC or any such Commonly
Controlled Entity were to withdraw completely from all Multiemployer Plans as
of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent. The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of HCC and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits.
5.14 Investment Company Act; Other Regulations. None of the
Credit Parties is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. None of the Credit Parties is subject to regulation under any
Federal or State statute or regulation which limits its ability to incur
Indebtedness or change rates or change tariffs. None of the Credit Parties are
"holding companies" or "subsidiary companies" of a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
5.15 Subsidiaries. As of the Closing Date, MEI, the Real
Estate Subsidiary, Hanover/Smith, Marketing, Hanover Acquisition, Astra, CCI,
Hanover Venezuela and PGN constitute all the Subsidiaries of HCC at the date
hereof. The aggregate value of all assets owned by Marketing as of the date
hereof is less than $10,000. In reliance thereon, no guarantee by Marketing or
Lien on any assets thereof is being granted to the holders of the Secured
Obligations on the Closing Date pursuant to the Security Documents. Other than
cash or Cash Equivalents located in bank accounts at Chemical Bank, none of the
assets owned by Hanover Venezuela, PGN, Astra or CCI as of the date hereof are
located within the United States of America or any territory thereof. In
reliance thereon, no guarantee by Hanover Venezuela, PGN, Astra or CCI or Lien
on any assets of any thereof is being granted to the holders of the Secured
Obligations on the Closing Date pursuant to the Security Documents.
5.16 Purpose of Loans. The proceeds of the Loans shall be
used for the working capital and general corporate purposes of HCC and its
Subsidiaries.
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5.17 Environmental Matters. Each of the representations and
warranties set forth in paragraphs (a) through (e) of this subsection is true
and correct with respect to each parcel of real property owned or operated by
any of the Credit Parties (the "Properties"), except to the extent that the
facts and circumstances giving rise to any such failure to be so true and
correct would not reasonably be expected to have a Material Adverse Effect:
(a) Except as set forth on Schedule IX, the Properties do
not contain, and have not previously contained, in, on, or under,
including, without limitation, the soil and groundwater thereunder,
any Hazardous Materials in concentrations which violate Environmental
Laws.
(b) Except as set forth on Schedule IX, the Properties
and all operations and facilities at the Properties are in compliance
with all Environmental Laws, and there is no Hazardous Materials
contamination or violation of any Environmental Law which could
reasonably be expected to interfere with the continued operation of
any of the Properties or impair the fair saleable value of any
thereof.
(c) Except as set forth on Schedule IX, none of the
Credit Parties has received any complaint, notice of violation,
alleged violation, investigation or advisory action or of potential
liability or of potential responsibility regarding environmental
protection matters or environmental permit compliance with regard to
the Properties, nor is HCC aware that any Governmental Authority is
contemplating delivering to any Credit Party any such notice.
(d) Hazardous Materials have not been generated, treated,
stored, disposed of, at, on or under any of the Properties, nor have
any Hazardous Materials been transferred to any other location in
violation of any Environmental Laws from the Properties or as a result
of the sale or lease of any equipment or inventory of any Credit
Party.
(e) There are no governmental, administrative actions or
judicial proceedings pending or contemplated under any Environmental
Laws to which any Credit Party is or to its knowledge will be named as
a party with respect to the Properties, nor are there any consent
decrees or other decrees, consent orders, administrative orders or
other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to any of the
Properties.
5.18 Regulation H. None of the Mortgages encumber improved
real property which is located in an area that has been
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48
identified by the Secretary of Housing and Urban Development as an area having
special flood hazards and in which flood insurance has been made available
under the National Flood Insurance Act of 1968.
5.19 Accuracy and Completeness of Information. The factual
statements contained in the Loan Documents and each other agreement,
instrument, certificate and document related thereto and any other certificates
or documents furnished or to be furnished to the Agent or the Banks by any
Credit Party from time to time in connection with this Agreement (in any case
excluding any of the financial statements referred to in Section 5.1(a)
hereof), taken as a whole, and taking into consideration all corrections or
substituted documents, do not and will not, as of the date when made, contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading in
light of the circumstances in which the same were made, all except as otherwise
qualified herein. As at the date of this Agreement there is no fact known to
any Credit Party which materially and adversely affects, or which would
reasonably be expected to materially adversely affect, the business,
operations, assets, prospects or financial or other condition of HCC and its
Subsidiaries taken as a whole.
5.20 Security Documents. (a) The Pledge Agreements are
effective to create in favor of the Collateral Trustee, for the ratable benefit
of the holders of the Secured Obligations, (i) a legal, valid and enforceable
security interest in Pledged Stock (and the proceeds thereof) the stock
certificates of which have been delivered to the Collateral Trustee and that
the Pledge Agreements constitute fully perfected first Liens on, and security
interests in, all right, title and interest of HCC and Hanover Acquisition in
such Pledged Stock, and in proceeds thereof, superior in right to any other
Person and (ii) with respect to Pledged Stock the stock certificates of which
have not been delivered to the Collateral Trustee prior to the date hereof, a
legal, valid and enforceable security interest in such Pledged Stock (and the
proceeds thereof), and when stock certificates representing such Pledged Stock
are delivered to the Collateral Trustee, the Pledge Agreements shall constitute
fully perfected first Liens on, and security interests in, all right, title and
interest of HCC and Hanover Acquisition in such Pledged Stock and in proceeds
thereof superior in right to any other Person.
(b) The Security Documents are each effective to create in
favor of the Collateral Trustee, for the ratable benefit of the holders of the
Secured Obligations, a legal, valid and enforceable security interest in the
respective collateral described therein and proceeds thereof, and financing
statements in appropriate form have been filed in the offices specified in such
Security Documents, and the other actions required to be
<PAGE> 54
49
taken by all Security Documents have been taken, and the Security Documents
constitute fully perfected, first priority Liens on (except that the Hanover
Land Security Agreement and the Hanover Land Texas Mortgage each constitute a
fully perfected second priority Lien), and security interests in, all right,
title and interest of the Credit Parties in such collateral and the proceeds
thereof superior in right to any other Person (other than with respect to the
Hanover Land Security Agreement and the Hanover Land Texas Mortgage in which
case, inferior to the secured party that holds the first priority Lien) other
than Liens permitted hereby.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Restructuring of the Existing Revolving
Credit Loans and the Initial Extensions of Credit. The agreement of each Bank
to abide by its obligations under subsection 2.1 and to make the initial
extension of credit requested to be made by it is subject to the satisfaction,
immediately prior to or concurrently therewith on the Closing Date, of the
following conditions precedent:
(a) Agreement, Notes. The Agent shall have received (i)
this Agreement, executed and delivered by a duly authorized officer of
HCC and duly acknowledged and agreed to by each of MEI, Hanover/Smith,
Hanover Acquisition and the Real Estate Subsidiary with a counterpart
for each Bank and (ii) for the account of each Bank, a Note conforming
to the requirements hereof and executed by a duly authorized officer
of HCC.
(b) JEDI Loan Agreement. The Agent shall have received,
with a copy for each Bank, true and correct copies of the JEDI Loan
Agreement and all schedules, opinions, certificates and other
agreements or documents delivered thereunder as requested by the
Agent, each copy certified as to authenticity by a Responsible Officer
of HCC, and each in form and substance reasonably satisfactory to the
Agent and each Bank.
(c) Collateral Trust Agreement. The Agent shall have
received, with a copy for each Bank, the Collateral Trust Agreement,
executed and delivered by a duly authorized officer of each of the
Collateral Trustee and the Credit Parties, together with copies of all
schedules, opinions, certificates, and other agreements or documents
delivered thereunder, each in form and substance reasonably
satisfactory to the Agent and the Banks.
(d) Existing Indebtedness. The Existing Loans shall be
converted into and continued as Revolving Credit Loans hereunder
pursuant to subsection 2.1.
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50
(e) Guarantees. The Agent shall have received, with a
copy for each Bank, (i) the MEI Guarantee, executed and delivered by a
duly authorized officer of MEI, (ii) the Hanover/Smith Guarantee,
executed and delivered by a duly authorized officer of Hanover/Smith,
(iii) the Hanover Acquisition Guarantee, executed and delivered by a
duly authorized officer of Hanover Acquisition and (iv) the Hanover
Land Guarantee, executed and delivered by a duly authorized officer of
the Real Estate Subsidiary.
(f) Corporate Proceedings of the Credit Parties. The
Agent shall have received, with a counterpart for each Bank, a copy of
the resolutions, in form and substance satisfactory to the Agent, of
the Board of Directors of each of the Credit Parties authorizing (i)
the execution, delivery and performance of the Loan Documents, and the
granting continuation of the Liens provided for in the Security
Documents to which it is a party, and (ii) in the case of HCC, the
borrowings contemplated hereunder, certified by the Secretary or an
Assistant Secretary of each such Credit Party as of the Closing Date,
which certificate shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded and shall be in
form and substance satisfactory to the Agent.
(g) Incumbency Certificates. The Agent shall have
received, with a copy for each Bank, a certificate of the Secretary or
Assistant Secretary of each Credit Party, dated the Closing Date, as
to the incumbency and signature of each of the officers signing each
of the Loan Documents to which it is a party and any other
certificates or other documents delivered in connection therewith,
together with evidence of the incumbency of such Secretary or
Assistant Secretary.
(h) Corporate Documents. The Agent shall have received,
with a counterpart for each Bank, true and complete copies of the
certificate of incorporation and by-laws of each of the Credit
Parties, certified as of the Closing Date as complete and correct
copies thereof by the Secretary or an Assistant Secretary of each such
Credit Party.
(i) No Violation. The consummation of the transactions
contemplated hereby shall not contravene, violate or conflict with,
nor involve the Agent, the Collateral Trustee or any Bank in any
violation of, any Requirement of Law.
(j) Licenses, Permits, etc. All licenses, permits,
exemptions, certificates and other governmental and third party
approvals and consents (including landlords' and other consents)
necessary or advisable in connection with (i) the participation by HCC
and its Subsidiaries in the
<PAGE> 56
51
transactions contemplated by this Agreement or any of the Loan
Documents, (ii) the execution, delivery or performance by HCC and its
Subsidiaries or the validity and enforceability against HCC and its
Subsidiaries of the Loan Documents to which it or they is or are a
party, (iii) the grant by HCC of the Liens created pursuant to the
Security Documents and the validity and enforceability thereof and the
perfection of and the exercise by the Collateral Trustee and the
holders of the Secured Obligations of their rights and remedies
thereunder, and (iv) the continuing operations of HCC and its
Subsidiaries shall have been obtained and be in full force and effect
except to the extent that the failure to obtain or maintain in full
force and effect any such license, permit, exemption, certificate,
approval or consent would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on any of the
matters set forth in clauses (i) through (iv) of this subsection
6.1(j), and all applicable waiting periods shall have expired without
any action being taken or to HCC's knowledge threatened by any
competent authority which would restrain, prevent or otherwise
reasonably be expected to impose adverse conditions on the financing
thereof.
(k) Pledge Agreements; Pledged Stock. The Collateral
Trustee shall have received (i) with a copy for each Bank, each of the
HCC Pledge Agreement and the Hanover Acquisition Pledge Agreement,
executed and delivered by a duly authorized officer of HCC and Hanover
Acquisition, respectively, (ii) stock certificates representing 16,497
shares of common stock of MEI, 1,000 shares of common stock of
Hanover/Smith, 330 shares of common stock of Hanover Venezuela, 100
shares of common stock of Hanover Acquisition, 1000 shares of common
stock of Astra and 1,000 shares of common stock of the Real Estate
Subsidiary, in each case, pledged pursuant to the HCC Pledge Agreement
or the Hanover Acquisition Pledge Agreement, together with undated
stock powers endorsed in blank for each stock certificate representing
such Pledged Stock, and (iii) an acknowledgement and consent executed
by each of MEI, Hanover/Smith, Hanover Venezuela, Hanover Acquisition,
Astra and the Real Estate Subsidiary pursuant to the HCC Pledge
Agreement or the Hanover Acquisition Pledge Agreement. The Pledged
Stock under the Pledge Agreements shall constitute 100% of the issued
and outstanding Capital Stock of each of MEI, Hanover/Smith, Hanover
Acquisition, Astra and the Real Estate Subsidiary, and 66% of the
issued and outstanding Capital Stock of Hanover Venezuela.
(l) Security Agreements. The Agent shall have received,
with a copy for each Bank, each of the HCC Security Agreement, the MEI
Security Agreement, the Hanover/Smith Security Agreement, the Hanover
Acquisition Security Agreement and the Hanover Land Security Agreement
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52
executed and delivered by a duly authorized officer of HCC, MEI,
Hanover/Smith, Hanover Acquisition and the Real Estate Subsidiary,
respectively.
(m) Mortgages. The Agent shall have received, with a
copy for each Bank, each of the HCC Oklahoma Mortgage, the HCC Texas
Mortgage, the Hanover/Smith Texas Leasehold Mortgage, the
Hanover/Smith Texas Mortgage and the Hanover Land Texas Mortgage
executed and delivered by a duly authorized officer of the applicable
Credit Party.
(n) Filings and Other Actions. (i) Any documents
(including without limitation financing statements and amendments to
financing statements) required to be filed under any of the Security
Documents in order to create or continue in favor of the Collateral
Trustee, for the ratable benefit of the holders of the Secured
Obligations, a perfected security interest in the collateral
thereunder shall have been properly filed in each office in each
jurisdiction listed in the respective Security Document, and such
filings are the only ones required in order to create in favor of the
Collateral Trustee, for the ratable benefit of the holders of the
Secured Obligations, a perfected Lien in the respective collateral
described therein. Subject to the terms of Section 4(c) of each of
the Security Agreements, the original copies of all chattel paper in
which the Collateral Trustee shall be granted a Lien under the
Security Agreements, including without limitation all leases of
natural gas compressors and oil and gas production equipment by HCC or
any of its Subsidiaries as lessor, shall have been stamped or
otherwise marked with the legend required by Section 5(b) of each of
the Security Agreements.
(ii) All other actions reasonably requested by the Collateral
Trustee for the attachment, perfection and priority of the Liens
granted by the Security Documents shall have been taken, including,
without limitation, the obtaining of consents, acknowledgements and
estoppel certificates from, and filings by, owners or operators of
natural gas pipeline systems, natural gas wells, real property on
which the same are located, and financing parties of any thereof.
The Agent shall have received evidence reasonably satisfactory to it
of such filing, registration, recording or other action and
satisfactory evidence of the payment of any necessary fee, tax or
expenses relating thereto.
(o) Lien Searches. The Agent shall have received, with a
copy for each Bank, the results of a recent Uniform Commercial Code
filings search by a Person satisfactory to the Agent in each of the
jurisdictions and offices in the United States where assets of HCC and
its Subsidiaries are
<PAGE> 58
53
located or recorded, and such search shall reveal no Liens on any of
the assets of HCC or its Subsidiaries, except for Liens permitted
under subsection 8.3.
(p) Insurance. The Agent shall have received evidence
satisfactory to it that each Credit Party has obtained the insurance
policies required by subsection 7.5 and the Security Documents.
(q) Fees and Other Compensation. The Banks, the Agent and
the Collateral Trustee shall have received the fees and other
compensation to be received on the Closing Date referred to in
subsection 3.2(b) and all interest and fees under the Existing
Agreement shall have been paid in full.
(r) Legal Opinions. The Agent shall have received, with a
counterpart for each Bank, the following executed legal opinions:
(i) the executed legal opinion of Neal, Gerber &
Eisenberg, counsel to the Credit Parties, substantially in the
form of Exhibit O-1;
(ii) the executed legal opinion of Jackson &
Walker, special counsel to the Credit Parties in the State of
Texas, substantially in the form of Exhibit O-2;
(iii) the executed legal opinion of Jackson &
Walker, special counsel to the Credit Parties in the State of
Louisiana, substantially in the form of Exhibit O-3; and
(iv) the executed legal opinion of Mock, Schwabe,
Waldo, Elder, Reeves & Bryant, special counsel to the Credit
Parties in the State of Oklahoma, substantially in the form of
Exhibit O-4.
(s) Disclosure. (i) No information shall have been disclosed
to the Banks which is inconsistent with information as of September
30, 1995 disclosed to the Banks and which would reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), business, assets or operations of HCC and its Subsidiaries
taken as a whole, (ii) no event or events shall have occurred which
separately, or in the aggregate will or, in the reasonable judgment of
the Banks, would reasonably be expected to materially and adversely
affect such condition (financial or otherwise), business, assets,
operations or prospects or the ability of any Credit Party to perform
its respective obligations under the Loan Documents to which it
<PAGE> 59
54
is a party and (iii) there shall have been no material adverse change
in the financial condition, business, operations or prospects of HCC
and its Subsidiaries taken as a whole.
(t) Environmental Report. The Agent shall have received,
with a copy for each Bank, a copy of an environmental report in
respect of the real estate properties owned or leased by HCC and its
Subsidiaries which report has been prepared by environmental
consultants acceptable to the Agent and in form and substance
reasonably satisfactory to the Agent.
(u) Financial Statements. The Agent shall have received,
with a copy for each Bank, (i) audited consolidated financial
statements of HCC and its consolidated Subsidiaries for the two most
recent fiscal years ended prior to the Closing Date as to which such
financial statements are available and (ii) unaudited interim
consolidated financial statements of HCC and its consolidated
Subsidiaries for each fiscal month and quarterly period ended
subsequent to the date of the latest financial statements delivered
pursuant to clause (i) of this paragraph as to which such financial
statements are available, in each case, in form and substance
reasonably satisfactory to the Agent.
(v) Pro Forma Balance Sheet. The Agent shall have received,
with a copy for each Bank, a pro forma consolidated balance sheet of
HCC and its consolidated Subsidiaries as at September 30, 1995,
adjusted to give effect to the consummation of the Equity
Transactions, the transactions contemplated by this Agreement and the
transactions contemplated by the JEDI Loan Agreement, in form and
substance reasonably satisfactory to the Agent.
(w) Business Plan. The Agent shall have received, with a
copy for each Bank, a satisfactory business plan for fiscal year 1996
and a satisfactory written analysis of the business and prospects of
HCC and its consolidated Subsidiaries for the period from the Closing
Date through the Final Maturity Date, in form and substance reasonably
satisfactory to the Agent.
6.2 Conditions to Each Extension of Credit. The agreement of
each Bank to make any extension of credit requested to be made by it on any
date (including, without limitation, its initial extension of credit) is
subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Credit Parties in or
pursuant to the Loan Documents shall be true and correct
<PAGE> 60
55
in all material respects on and as of such date as if made on and as
of such date (unless any such representations and warranties
specifically refer to another date).
(b) No Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving effect to
the extensions of credit requested to be made on such date.
(c) Additional Documents. The Agent shall have received
each additional document, instrument or item of information reasonably
requested by it to further effect the purposes of this Agreement,
including, without limitation, a copy of any debt instrument, security
agreement or other material contract to which any Credit Party may be
a party.
(d) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Agreement, the
Security Documents and the JEDI Loan Agreement shall be reasonably
satisfactory in form and substance to the Agent, and the Agent shall
have received such other documents in respect of any aspect or
consequence of the transactions contemplated hereby or thereby as it
shall reasonably request to further effect the purposes of this
Agreement.
Each borrowing by and Letter of Credit issued on behalf of HCC hereunder shall
constitute a representation and warranty by HCC as of the date of such Loan
that the conditions contained in this subsection 6.2 have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
HCC hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Bank or the Agent hereunder, HCC shall and HCC
(except in the case of delivery of financial information, reports and notices)
shall cause each of its Subsidiaries to:
7.1 Financial Statements. Furnish to each Bank:
(a) as soon as available for distribution to shareholders
and creditors generally, but in any event within 120 days after the
end of each fiscal year of HCC, a copy of the consolidated balance
sheet of HCC and its consolidated Subsidiaries, as at the end of such
year and the related consolidated statements of income and retained
earnings and of cash flows for such year, setting forth in each case
in comparative form the figures for the previous year, reported on
without a "going concern" or like
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56
qualification or exception, or qualification arising out of the scope
of the audit, by Price Waterhouse or other independent certified
public accountants of nationally recognized standing not unacceptable
to the Required Banks;
(b) as soon as available for distribution to shareholders and
creditors generally, but in any event within 90 days after the end of
each fiscal year of HCC, a copy of the unaudited consolidated balance
sheet of HCC and its consolidated Subsidiaries, as at the end of such
year, and the related unaudited consolidated statements of income and
retained earnings and of cash flows for such year, in each case
setting forth in comparative form the figures for the corresponding
period of the previous year and the figures for such period as shown
on the budgets of HCC for such year;
(c) as soon as available, but in any event not later than
45 days after the end of each of the first three quarterly periods of
each fiscal year of HCC, the unaudited consolidated balance sheet of
HCC and its consolidated Subsidiaries, as at the end of such quarter,
and the related unaudited consolidated statements of income and
retained earnings and of cash flows of HCC and its consolidated
Subsidiaries, for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding period of the
previous year, certified by a Responsible Officer as being fairly
stated in all material respects when considered in relation to the
consolidated financial statements of HCC and its consolidated
Subsidiaries, (subject to normal year-end audit adjustments), and in
each case setting forth in comparative form the figures for such
periods as shown on the budgets of such Person for such year; and
(d) as soon as available, but in any event not later than 45
days after the end of each month, a copy of the unaudited consolidated
balance sheet of HCC and its consolidated Subsidiaries, as at the end
of such month, and the related unaudited consolidated statements of
income and retained earnings and of cash flows for such month, in each
case setting forth in comparative form the figures for the
corresponding period of the previous year and the figures for such
period as shown on the budgets of such Person for such year;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
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57
7.2 Certificates; Other Information. Furnish to each Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsection 7.1(a), a certificate of the
independent certified public accountants reporting on such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and 7.1(c), a certificate
of a Responsible Officer stating that, to the best of such Officer's
knowledge, HCC during such period has observed or performed all of its
covenants and other agreements, and satisfied every condition,
contained in this Agreement, in the Notes and the other Loan Documents
to which it is a party to be observed, performed or satisfied by it,
and that such Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate;
(c) not later than 45 days following the end of each
fiscal year of HCC, a copy of the projections by HCC of the operating
budget and cash flow budget of HCC and its Subsidiaries for the
succeeding fiscal year, such projections to be accompanied by a
certificate of a Responsible Officer to the effect that such
projections have been prepared on the basis of reasonable assumptions
and that such Officer has no reason to believe they are incorrect or
misleading in any material respect;
(d) (i) within five days after the same are sent, copies
of all financial statements and reports which HCC, if at such time any
class of such Person's securities are held by the public, sends to its
stockholders generally, or, if otherwise, such financial statements
and reports as are made generally available to the public, and (ii)
within five days after the same are filed, copies of all financial
statements and reports which HCC may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(e) concurrently with the delivery of the financial
statements referred to in subsections 7.1(b) and (c), a management
summary describing and analyzing the performance of HCC and its
Subsidiaries during the periods covered by such financial statements;
(f) as soon as available, but no later than 45 days after
the end of each calendar quarter, an inventory listing, certified by a
Responsible Officer of HCC, setting
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58
forth the unit numbers, replacement costs, current rental rates,
horsepower, types of engine and types of cylinders for all natural gas
compressors owned by HCC and its consolidated Subsidiaries as of the
end of such quarter, and such other similar information with respect
to such compressors as the Agent may reasonably request;
(g) within 45 days after the end of each quarter in each
fiscal year of HCC, a certificate of the principal financial officer
of HCC showing in detail the computations necessary to calculate the
Applicable Margin (an "Applicable Margin Certificate"); and
(h) promptly, such additional financial and other
information as any Bank may from time to time reasonably request.
7.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of HCC or any Subsidiary of HCC, as the case may be.
7.4 Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as now conducted by it
and preserve, renew and keep in full force and effect its corporate existence
and take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
as otherwise permitted pursuant to subsection 8.5; comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect.
7.5 Maintenance of Property; Insurance; Condemnation. (a)
Keep all property of HCC and its Subsidiaries useful and necessary in their
respective businesses in good working order and condition ordinary wear and
tear and immaterial impairments of value excepted.
(b) Maintain with financially sound and reputable insurance
companies insurance on all property of HCC and its Subsidiaries in at least
such amounts and against at least such risks (but including in any event public
liability, product liability, property damage, and business interruption) as
are usually insured against in the same general geographic area by companies
engaged in the same or a similar business provided that HCC and its
Subsidiaries may self-insure up to $1,000,000 in risks, exclusive of policy
deductibles, in accordance with any
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59
self insurance plan reasonably acceptable to the Agent, and furnish to the
Agent, upon written request, full information as to the insurance and
self-insurance carried.
(c) Cause all (i) business interruption insurance and
property insurance to have loss payable clauses endorsed in favor of and made
payable to the Collateral Trustee as its interests may appear, (ii) liability
insurance to name the Collateral Trustee, the Agent, and the Banks as
additional insured, (iii) insurance to have a breach of warranty clause in
favor of the Collateral Trustee, the Agent, and the Banks, (iv) insurance to
provide that no cancellation, material reduction in amount, or material change
in coverage shall be effective until at least 30 days after receipt by the
Collateral Trustee and the Agent of written notice thereof.
(d) Assign and pay to the Collateral Trustee all proceeds of
business interruption, casualty, or condemnation, including business
interruption insurance, property insurance, condemnation awards, proceeds from
actions, and any other proceeds, to be held and applied in accordance with the
Collateral Trust Agreement. With respect to the proceeds of any business
interruption, casualty, or condemnation received by the Collateral Trustee
during any fiscal year of HCC in aggregate amounts equal to or less than
$5,000,000, the Agent shall instruct the Collateral Trustee to disburse the
proceeds to HCC or the other applicable Credit Parties (unless an Event of
Default exists as provided below). With respect to the proceeds of any
business interruption, casualty, or condemnation received by the Collateral
Trustee during any fiscal year of HCC in aggregate amounts exceeding
$5,000,000, the Agent shall instruct the Collateral Trustee to apply the
proceeds in excess of $5,000,000 against the Secured Obligations in accordance
with the Collateral Trust Agreement. If at any time an Event of Default
exists, the Majority Banks may instruct the Agent to direct the Collateral
Trustee to apply any business interruption, casualty, or condemnation proceeds
held by the Collateral Trustee as collateral against the Secured Obligations in
accordance with the Collateral Trust Agreement.
7.6 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of
all dealings and transactions in relation to its business and activities; and
permit representatives of any Bank to visit and inspect any of its properties
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of HCC and
Subsidiaries of HCC with officers and employees of HCC and Subsidiaries of HCC
and with its independent certified public accountants; provided, however, that
no such visit, inspection or
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examination or discussion shall unreasonably disrupt normal operations of HCC
or any of its Subsidiaries and any such representatives of the Agent and the
Banks shall be accompanied by a Responsible Officer of HCC. No failure to
comply with any request for the exercise of rights hereunder shall be cause for
any Event of Default unless such request is submitted in writing to HCC with
reference to this Section 7.6.
7.7 Notices. Promptly give notice to the Agent and each Bank
of:
(a) the occurrence of any Default or Event of Default of
which HCC has actual knowledge;
(b) any (i) default or event of default by HCC or any of
its Subsidiaries under or with respect to any of their respective
Contractual Obligations in any respect which, if not cured, would
reasonably be expected to have a Material Adverse Effect, or to HCC's
knowledge any default or event of default by any third party under or
with respect to any Contractual Obligation of said third party with
HCC or any of its Subsidiaries in a respect which, if not cured, would
reasonably be expected to have a Material Adverse Effect (ii)
litigation, investigation or proceeding of which HCC has actual
knowledge which may exist at any time between HCC or any Subsidiary of
HCC and any Governmental Authority, which in either case, if not cured
or if adversely determined, as the case may be, would reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting HCC or any
Subsidiary of HCC of which HCC has actual knowledge in which the
amount involved is $1,000,000 or more and not covered by insurance or
in which injunctive or similar relief is sought and which if adversely
determined would reasonably be expected to have a Material Adverse
Effect;
(d) the following events, as soon as possible and in any
event within 30 days after HCC knows thereof: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any Plan,
or any withdrawal from, or the termination, Reorganization or
Insolvency of any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or HCC, any
Commonly Controlled Entity with respect to the termination of any
Single Employer Plan; and
(e) a development or event which has had or would
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
a Responsible Officer setting forth details of the
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61
occurrence referred to therein and stating what action HCC proposes to take
with respect thereto.
7.8 Environmental Laws.
(a) Comply in all material respects with, and insure
compliance by all tenants and subtenants, if any, with, all
Environmental Laws and obtain and comply in all material respects with
and maintain, and insure that all tenants and subtenants obtain and
comply with and maintain, any and all licenses, approvals,
registrations or permits required by Environmental Laws, and upon
discovery of any non-compliance or suspected non-compliance, undertake
all reasonable efforts to attain full compliance;
(b) Conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply with all lawful
orders and directives of all Governmental Authorities respecting
Environmental Laws, except to the extent that the failure to so
conduct, complete or take such actions, or to comply with such orders
and directives, would not in the aggregate reasonably be expected to
have a Material Adverse Effect; and
(c) Defend, indemnify and hold harmless the Agent, the
Banks and the Collateral Trustee, and their respective employees,
agents, officers and directors, from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or
otherwise, arising out of, or in any way relating to the violation of
or noncompliance with any Environmental Laws applicable to the real
property owned or operated by HCC or any Subsidiary of HCC, or any
orders, requirements or demands of Governmental Authorities related
thereto, including, without limitation, reasonable attorney's and
consultant's fees, investigation and laboratory fees, court costs and
litigation expenses, except to the extent that any of the foregoing
arise out of the gross negligence or willful misconduct of the party
seeking indemnification therefor.
(d) Promptly (and in any case within four months)
after the Closing Date, complete the development of a program to
identify and promote substantial compliance with and to minimize
prudently any liabilities or potential liabilities under any
Environmental Law that may affect HCC or any of its Qualified
Subsidiaries (the "Environmental Program"). The Environmental Program
shall be developed by or with the assistance of a reputable
independent environmental consulting firm reasonably acceptable to the
Agent (an "Environmental Consultant"). A reasonably detailed written
description of the Environmental Program
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shall be provided to the Agent prior to finalization thereof, after
which, upon the Agent's reasonable request, HCC and the Environmental
Consultant involved shall confer with the Agent or any authorized
representative thereof concerning questions the Agent or such
authorized representative may have about the Environmental Program.
After finalization of the Environmental Program, all reasonable
efforts shall be undertaken to implement it. Within three months of
each anniversary of the Closing Date until all other obligations under
this Agreement are discharged, HCC shall submit to the Agent a written
report, prepared at HCC's expense by HCC's Environmental Consultant,
summarizing such Environmental Consultant's findings regarding: (i)
HCC's implementation of the Environment Program; and (ii) the adequacy
of the Environmental Program, if implemented according to its terms
(the "Annual Environmental Report"). Such findings shall be based on
such investigation after the applicable anniversary of the Closing
Date as the Environmental Consultant, in its professional judgment,
deems necessary to form a reasonable basis for its findings.
(e) Prior to acquiring any ownership interest in real
property, any leasehold interest or other interest in any real
property (other than real property that shall be, and to the knowledge
of HCC and its Qualified Subsidiaries after inquiry, has been, used
only for agricultural, residential, or office purposes) that would be
reasonably expected to give rise to HCC or any of its Qualified
Subsidiaries being found to be an operator subject to liability under
any Environmental Law: (i) obtain a written report by an Environmental
Consultant of the Environmental Consultant's assessment of the
presence or potential presence of significant levels of any hazardous
substances on, under, in, or about the property, or of other
conditions that would be reasonably expected to give rise to
significant liability under or violations of Environmental Law at the
property and which would reasonably be expected to have a Material
Adverse Effect; and (ii) provide the Agent with a copy of such report.
7.9 Pledge of After Acquired Property. If at any time
following the Closing Date HCC or any of its Subsidiaries shall acquire at any
time property of any nature whatsoever which is intended by the terms of the
applicable Security Document to be but is not subject to the Lien created by
the Security Documents, as soon as possible and in no event later than 30 days
after the relevant acquisition date and, to the extent permitted by applicable
law, grant to the Collateral Trustee, for the ratable benefit of the holders of
the Secured Obligations, a first priority Lien on such property pursuant to
documentation in form and substance reasonably satisfactory to the Collateral
Trustee. HCC or such Subsidiary, as the case may be, at its own expense,
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shall execute, acknowledge and deliver, or cause the execution, acknowledgement
and delivery of, and thereafter register, file or record in an appropriate
governmental office, any document or instrument (including legal opinions,
title insurance, consents and corporate documents) and take all such actions
reasonably deemed by the Collateral Trustee to be necessary or desirable to
ensure the creation, priority and perfection of such Lien. HCC shall cause
each new Qualified Subsidiary of HCC or any Subsidiary thereof created or
acquired after the date hereof, immediately upon such creation or acquisition,
to execute a Security Agreement and a Guarantee, substantially in the forms of
the MEI Security Agreement and the MEI Guarantee, respectively, and HCC shall
execute and deliver a Supplement to the HCC Pledge Agreement with respect to
both new Qualified and Unqualified Subsidiaries (if such Subsidiary is a
corporation) or shall execute and deliver a Partnership Interest Pledge
Agreement in form and substance reasonably satisfactory to the Collateral
Trustee (if such Subsidiary is a partnership), or shall cause the Subsidiary of
HCC which holds the Capital Stock of such new Subsidiary to execute and deliver
a Pledge Agreement, in form and substance reasonably satisfactory to the
Collateral Trustee or a Partnership Interest Pledge Agreement, in form and
substance reasonably satisfactory to the Collateral Trustee, as appropriate,
with respect to such Capital Stock in each case providing for the pledge of
100% (or 66% in the case of Unqualified Subsidiaries) of the issued and
outstanding Capital Stock of such new Subsidiary owned by HCC or any of its
Subsidiaries to the Collateral Trustee for the benefit of the holders of the
Secured Obligations, and, if such new Subsidiary is a corporation, HCC or the
Subsidiary which holds the Capital Stock of such Subsidiary shall deliver to
the Collateral Trustee the stock certificates evidencing such Capital Stock
together with undated stock powers for each such certificate, duly executed in
blank.
7.10 Marketing Merger or Dissolution. As soon as practicable
following the Closing Date but in any event no later than 180 days following
the Closing Date, cause Marketing to be (i) merged with and into HCC, with HCC
being the surviving corporation, or (ii) dissolved.
SECTION 8. NEGATIVE COVENANTS
HCC hereby agrees that, so long as the Commitments remain in
effect, any Note or any Letter of Credit remains outstanding and unpaid or any
other amount is owing to any Bank or the Agent hereunder, HCC shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly:
8.1 Financial Condition Covenants. (a) Maintenance of
Consolidated Indebtedness to Consolidated Capitalization. Permit the ratio
(expressed as a percentage) of Consolidated
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Indebtedness to Consolidated Capitalization of HCC and its Subsidiaries as at
the end of any of HCC's fiscal quarters to be greater than 65%.
(b) Consolidated EBITDA to Consolidated Fixed Charges.
Permit the ratio of Consolidated EBITDA to Consolidated Fixed Charges of HCC
and its Subsidiaries for the four consecutive fiscal quarters of HCC most
recently ended to be less than 1.5 to 1.0.
(c) Current Ratio. Permit the Current Ratio of HCC and its
Subsidiaries at the end of any of HCC's fiscal quarters to be less than 1.0
to 1.0.
8.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness in respect of the Loans, the Notes and
other obligations of the Credit Parties under this Agreement and the
other Loan Documents;
(b) Indebtedness of HCC to any of its Subsidiaries (other
than the Real Estate Subsidiary) and of any such Subsidiary which is a
Credit Party to HCC or any other Subsidiary of HCC (other than the
Real Estate Subsidiary);
(c) Indebtedness outstanding on the Closing Date and
listed on Schedule X and all extensions, renewals, replacements,
refinancings and modifications thereof permitted hereunder;
(d) non-recourse Indebtedness of HCC or any of its
Subsidiaries (other than the Real Estate Subsidiary) in an aggregate
amount not to exceed $2,000,000;
(e) Indebtedness in respect of Financing Leases provided
that, after giving effect thereto, subsection 8.7 is not contravened;
(f) Indebtedness in respect of Subordinated Debt, the terms
and conditions of which have been approved in writing by the Required
Banks and all extensions, renewals, replacements, refinancings and
modifications thereof permitted hereunder;
(g) Indebtedness under the JEDI Loan Agreement and all
extensions, renewals, replacements, refinancings and modifications
thereof permitted hereunder, including refinancings of Indebtedness
under the JEDI Loan Agreement by other lenders under other agreements
if the net proceeds thereof are used to prepay Indebtedness under the
JEDI Loan Agreement;
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(h) Up to $35,000,000 of outstanding Indebtedness of
Unqualified Subsidiaries of HCC; provided that any such Indebtedness
is nonrecourse to HCC and the Qualified Subsidiaries; and
(i) Indebtedness not contemplated by clauses (a)-(h) above
not exceeding $1,500,000 in the aggregate.
8.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens created by the Security Documents in favor of
the Collateral Trustee for the benefit of the holders of the Secured
Obligations;
(b) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that
adequate reserves with respect thereto are maintained on the books of
HCC or any Subsidiary of HCC, as the case may be, in conformity with
GAAP;
(c) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings;
(d) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(e) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(f) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and which do
not in any case materially detract from the value of the property
subject thereto or materially interfere with the ordinary conduct of
the business of HCC or any of its Subsidiaries;
(g) Liens in existence on the Closing Date listed on
Schedule XI, securing Indebtedness permitted by subsection 8.2(c),
provided that no such Lien is spread to cover any additional property
after the Closing Date and that the amount of Indebtedness secured
thereby is not increased;
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(h) Liens on (1) natural gas compressors and related
equipment, and usual accessories and improvements and proceeds
thereof, and (2) oil and gas production equipment, in each case, the
acquisition of which were financed with the proceeds of the
Indebtedness permitted by subsection 8.2(e) or (g) and which secures
only such Indebtedness, provided that any such Lien is placed upon
such natural gas compressor or related equipment or such oil and gas
production equipment at the time of the acquisition of such natural
gas compressors or related equipment or such oil and gas production
equipment by HCC or any of its Subsidiaries and the Lien extends to no
other property, and provided, further, that no such Lien is spread to
cover any additional property after the date such Lien attaches and
that the amount of Indebtedness secured thereby is not increased;
(i) Liens on assets of HCC, MEI, Hanover/Smith, Hanover
Acquisition, and the Real Estate Subsidiary listed on Schedule XII,
provided that no such Lien is spread to cover any additional property
after the Closing Date and that the amount of Indebtedness secured
thereby is not increased;
(j) Liens on the assets of Unqualified Subsidiaries of HCC
securing Indebtedness of such Unqualified Subsidiaries permitted under
Section 8.2(h);
(k) Liens securing Derivatives entered into by HCC and
its Subsidiaries which are permitted hereunder; and
(l) Liens not otherwise permitted in clauses (a)-(k) above
securing Indebtedness not exceeding $1,500,000 in the aggregate.
8.4 Limitation on Guarantee Obligations. Create, incur,
assume or suffer to exist any Guarantee Obligation except:
(a) the Guarantees;
(b) the guarantees of the obligations of HCC under the
JEDI Loan Agreement;
(c) the Guaranty Agreement, dated November 22, 1993, between
HCC and First Interstate, as successor in interest to Transfield
Corporation, as amended (the "Guaranty Agreement");
(d) the Specific Guaranty, dated June 23, 1993, between HCC
and First Interstate, as successor in interest to Transfield
Corporation, as amended (the "Specific Guaranty"); and
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(e) Up to $5 million in the aggregate of Guarantee
Obligations of HCC or any of its Subsidiaries in connection with
indebtedness incurred by customers of HCC or any of its Subsidiaries;
provided, that the proceeds of any such indebtedness shall be used by
such customers to purchase natural gas compressors or oil and gas
production equipment from HCC or any of its Subsidiaries.
8.5 Limitations on Fundamental Changes. Enter into any
merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself
(or suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets, or make any material change in its present method of
conducting business, except:
(a) any Qualified Subsidiary (other than the Real Estate
Subsidiary) may be merged or consolidated with or into HCC or any
other Qualified Subsidiary (other than the Real Estate Subsidiary);
provided, that HCC or such Qualified Subsidiary shall be the
continuing or surviving corporation;
(b) HCC or any Qualified Subsidiary (other than the Real
Estate Subsidiary) may be merged or consolidated with any other Person
organized under a jurisdiction of the United States with assets held
primarily in the United States; provided, that HCC or such Qualified
Subsidiary shall be the continuing or surviving corporation; the Agent
is provided with written notice, and after giving effect thereto no
Default or Event of Default would exist or reasonably be expected to
be caused thereby;
(c) any Qualified Subsidiary (other than the Real Estate
Subsidiary) may sell, lease, assign, transfer or otherwise dispose of
any or all of its assets (upon voluntary liquidation or otherwise) to
HCC or any Qualified Subsidiary; and
(d) any Unqualified Subsidiary may be merged or consolidated
with or into any other Person and/or may sell, lease, assign, transfer
or otherwise dispose of any of its assets (upon voluntary liquidation
or otherwise) to any other Person.
8.6 Limitation on Sale or Lease of Assets. Convey, sell,
lease, assign, transfer or otherwise dispose of any of its property, business
or assets (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, except:
(a) obsolete or worn out property disposed of in the ordinary
course of business, provided that the aggregate
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value of obsolete or worn out natural gas compressors and oil and gas
production equipment disposed of in the ordinary course of business
does not exceed $2,000,000 during any fiscal year of HCC;
(b) the sale of inventory in the ordinary course of business,
provided that if such inventory is comprised of natural gas
compressors or oil and gas production equipment, such natural gas
compressors or oil and gas production equipment were fabricated by HCC
or any of its Subsidiaries for sale to third parties and were never
part of the natural gas compressors or oil and gas production
equipment leased or held for lease by HCC or any of its Subsidiaries;
(c) the lease by HCC or any of its Subsidiaries (other than
the Real Estate Subsidiary) as lessor of natural gas compressors and
oil and gas production equipment in the ordinary course of business
under operating leases (which do not constitute Financing Leases)
which are in one of the forms (with appropriate insertions as to date,
amounts, parties, and designation of leased equipment) attached hereto
as part of Schedule VII, provided that any such form may be modified
with the prior written consent of the Agent and the Required Banks
which consent shall not be unreasonably withheld;
(d) the sale or discount without recourse of defaulted
accounts receivable arising in the ordinary course of business in
connection with the compromise or collection thereof;
(e) as permitted by subsection 8.5;
(f) the sale of natural gas compressors and oil and gas
production equipment, other than disposals and sales covered by
clauses (a) and (b) above, the proceeds of which in excess of
$5,000,000 during any fiscal year of HCC are paid to the Collateral
Trustee to be held and applied as cash collateral for the benefit of
the holders of the Secured Obligations in accordance with the terms of
the Collateral Trust Agreement (with respect to any proceeds of the
sale of natural gas compressors and oil and gas production equipment
held as collateral by the Collateral Trustee, unless an Event of
Default exists, the Agent shall instruct the Collateral Trustee to
disburse the proceeds to HCC if the proceeds are reinvested in natural
gas compressors or oil and gas production equipment to be owned by HCC
or its Qualified Subsidiaries within nine months after the sale of the
assets which produced such proceeds; if such reinvestment is not made,
the Agent shall instruct the Collateral Trustee to apply the proceeds
against the Secured Obligations in accordance with the Collateral
Trust Agreement; and if at any time an Event of Default exists,
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the Majority Banks may instruct the Agent to direct the Collateral
Trustee to apply all proceeds from the sale of natural gas compressors
and oil and gas production equipment against the Secured Obligations
in accordance with the Collateral Trust Agreement); and
(g) the lease by the Real Estate Subsidiary as lessor of real
estate properties to HCC or any Qualified Subsidiary of HCC for use by
HCC or such Qualified Subsidiary as the site of its offices and
facilities.
8.7 Limitation on Leases. Permit Consolidated Lease Expense
for any fiscal year of HCC to exceed $1,100,000.
8.8 Limitation on Dividends. Declare or pay any dividend
(other than dividends payable solely in common stock of such Person) on, or
make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of such Person or any
warrants or options to purchase any such Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of HCC or any
Subsidiary of HCC, except that if no Default or Event of Default exists or
would reasonably be expected to be caused thereby (i) Subsidiaries of HCC may
declare and pay dividends to HCC and other shareholders of such Subsidiaries,
(ii) HCC may repurchase shares of HCC common stock from its employees and
former employees so long as the aggregate amount of all such repurchases since
the date of this Agreement does not exceed $2,500,000, and (iii) HCC may
declare or pay dividends on and make mandatory stock repurchases (pursuant to
the terms of the applicable certificate of designation) of its 6.5% Cumulative
Redeemable Series A Preferred Stock and its 6.5% Cumulative Redeemable
Convertible Series B Preferred Stock.
8.9 Limitation on Derivatives. Enter into or assume any
obligations with respect to any Derivatives except for Derivatives used by HCC
or any of its Subsidiaries in reducing the interest rate risk exposure of HCC
and its Subsidiaries which have been provided by a holder of Secured
Obligations under this Agreement or under the JEDI Loan Agreement; provided,
that the aggregate notional amounts of such Derivatives shall not exceed the
aggregate amount of loans outstanding hereunder and under the JEDI Loan
Agreement.
8.10 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in (all of the
foregoing being
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herein collectively referred to as "Investments"), any Person, except:
(a) extensions of trade credit in the ordinary course of
business;
(b) Investments in Cash Equivalents;
(c) loans and advances to employees of such Person or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount for HCC and its
Subsidiaries not to exceed $250,000 at any one time outstanding;
(d) Investments by HCC in its Subsidiaries which are or
become Credit Parties and investments by such Subsidiaries which are
or become Credit Parties in HCC and in other Subsidiaries of HCC which
are or become Credit Parties;
(e) Investments by HCC in the Real Estate Subsidiary in
an aggregate amount not to exceed $35,000 per month for the sole
purpose of making repayments on Indebtedness permitted by subsection
8.2(d) plus amounts necessary to maintain and operate the real
property and improvements thereon owned by the Real Estate Subsidiary;
(f) Investments in Subsidiaries of HCC which are
organized in a jurisdiction outside of the United States so long as
(i) on or before December 31, 1996, the aggregate Investments in such
foreign Subsidiaries does not exceed 20% of the Consolidated Net Worth
of HCC as of the end of the most recently ended month and the
aggregate Investment in any one country other than the United States
does not exceed 15% of the Consolidated Net Worth of HCC as of the end
of the most recently ended month and (ii) after December 31, 1996, the
aggregate Investments in such foreign Subsidiaries does not exceed 20%
of the Consolidated Net Worth of HCC as of the end of the most
recently ended month and the aggregate Investment in any one country
other than the United States does not exceed 10% of the Consolidated
Net Worth of HCC as of the end of the most recently ended month;
(g) Investments by HCC or its Subsidiaries in assets of a
Person (whether or not constituting a business unit of such Person)
which do not exceed an aggregate of $1,500,000 in any fiscal year; and
(h) Loans to employees, officers and directors of HCC and its
Subsidiaries to acquire shares of capital stock of HCC not to exceed
$5,000,000 with respect to such loans made on or prior to the date
hereof and not to exceed an
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additional $3,000,000 with respect to such loans made after the date
hereof.
8.11 Limitation on Optional Payments and Modifications of
Debt Instruments. (a) Make any optional payment or prepayment in excess of $5
million during any calendar year (other than prepayments covered by the proviso
below) on or redemption of any Indebtedness (other than Indebtedness pursuant
to this Agreement and as provided for in the proviso below) or (b) amend,
modify or change, or consent or agree to any amendment, modification or change
to any of the terms of any such Indebtedness (other than any such amendment,
modification or change which would extend the maturity or reduce the amount of
any payment of principal thereof or which would reduce the rate or extend the
date for payment of interest thereon, or any amendment or waiver which would
render the terms of such Indebtedness less restrictive or as provided for in
the proviso below), including, in the case of the JEDI Loan Agreement, any
increase to the rate of interest, the tenor of loans thereunder, the aggregate
amount of Commitments (as defined in the JEDI Loan Agreement) thereunder, or
any additional negative covenants thereto that would materially prejudice the
rights of the Agent or the Banks hereunder; provided, however, that HCC may
make required prepayments of Indebtedness under the JEDI Loan Agreement, any
prepayments of Indebtedness under the JEDI Loan Agreement during the period
while such Indebtedness may be prepaid and reborrowed thereunder, and any
prepayments of Indebtedness under the JEDI Loan Agreement in connection with
refinancings thereof.
8.12 Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is otherwise permitted under this Agreement, is in the
ordinary course of HCC's or such Subsidiary's business and is upon fair and
reasonable terms no less favorable to HCC or such Subsidiary, as the case may
be, than it would obtain in a comparable arm's length transaction with a Person
not an Affiliate, except for transactions of a type set forth on Schedule XIII.
8.13 Sale and Leaseback. Enter into any arrangement with any
Person providing for the leasing by HCC or any of the Subsidiaries of HCC of
real or personal property which has been or is to be sold or transferred by HCC
or such Subsidiary to such Person or to any other Person to whom funds have
been or are to be advanced by such Person on the security of such property or
rental obligations of HCC or such Subsidiary, except that HCC and its
Subsidiaries may enter into Financing Leases as lessee for natural gas
compressors if after giving effect thereto subsection 8.2 is not contravened.
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8.14 Corporate Documents. Amend its Certificate of
Incorporation in any way adverse to the interests of the Agent and the Banks.
8.15 Fiscal Year. Permit the fiscal year of HCC to end on a
day other than December 31.
8.16 Limitation on Negative Pledge Clauses. Enter into any
agreement, other than Financing Leases permitted by this Agreement (in which
cases, any prohibition or limitation shall only be effective against the assets
financed thereby), the JEDI Loan Agreement, the Guaranty Agreement and the
Specific Guaranty, with any Person other than the Banks pursuant hereto which
prohibits or limits the ability of HCC or any of the Subsidiaries of HCC (other
than the Real Estate Subsidiary) to create, incur, assume or suffer to exist
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired.
8.17 Nature of Business. Engage in any business other than
(a) the leasing and maintenance of natural gas compressor units, (b) the
design, engineering and fabrication of natural gas compressor units, (c) the
design, engineering and fabrication of oil and gas production equipment, (d)
the provision of contract compression and related services and (e) any
activities related thereto which are consistent with past practice and
conducted in the ordinary course of business.
8.18 Unqualified Subsidiaries. Permit any Unqualified
Subsidiary to directly or indirectly own any assets (other than cash or Cash
Equivalents located in bank accounts at Chemical Bank) which are located in the
United States of America or any territory thereof.
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) HCC shall fail to pay any principal of any Note or
any Reimbursement Obligation when due in accordance with the terms
thereof or hereof; or HCC shall fail to pay any interest on any Note,
or any other amount payable hereunder, within five days after any such
interest or other amount becomes due in accordance with the terms
thereof or hereof; or
(b) Any representation or warranty made or deemed made by
any Credit Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished at any time under or in connection with this Agreement or
any other Loan Document
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shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) HCC shall default in the observance or performance of
any agreement contained in Section 8 of this Agreement, or any Credit
Party shall default in the observance or performance of any agreement
contained in Section 5 of the Security Agreements or Section 5 of the
Pledge Agreements; or
(d) HCC shall default in the observance or performance of
any other agreement contained in this Agreement (other than as
provided in paragraphs (a) through (c) of this Section 9), or any
Credit Party shall default in the observance of performance of any
other agreement contained in the Security Agreements or the Pledge
Agreements (other than as provided in paragraphs (b) and (c) of this
Section 8) and such default shall continue unremedied for a period of
30 days; or
(e) Any Security Document shall, at any time, cease to be
in full force and effect (unless released by the Collateral Trustee)
or shall be declared null and void, or the validity or enforceability
thereof shall be contested by any Credit Party, or any of the Liens
intended to be created by any Security Document shall cease to be or
shall not be a valid and perfected Lien having the priority
contemplated thereby or any Guarantee or the subordination provisions
under the Subordinated Loan Agreement shall cease for any reason to be
in full force and effect or any Credit Party thereto shall so assert
in writing; or
(f) HCC or any of the Subsidiaries of HCC shall (i)
default in any payment of principal of or interest of any Indebtedness
(other than the Notes) or in the payment of any Guarantee Obligation,
in excess of $2,500,000 in the aggregate, beyond the period of grace
(not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee
Obligation or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Guarantee
Obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause, with the giving of notice
if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; or
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(g) (i) HCC or any of the Subsidiaries of HCC shall
commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar
official for it or for all or any substantial part of its assets, or
any of HCC or any of the Subsidiaries of HCC shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against any of HCC or any of the Subsidiaries of HCC any
case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or (iii) there shall
be commenced against any of HCC or any of the Subsidiaries of HCC any
case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order
for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof;
or (iv) any of HCC or any of the Subsidiaries of HCC shall take any
action in furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) any of HCC or any of the Subsidiaries of HCC shall
generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any non-exempt
"prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (ii) any "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or
not waived, shall exist with respect to any Plan or any lien shall
arise on the assets of HCC or any Commonly Controlled Entity in favor
of PBGC or a Plan, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of proceedings
or appointment of a trustee is, in the reasonable opinion of the
Required Banks, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) HCC or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Banks is likely to, incur any liability in
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connection with a withdrawal from, or the Insolvency or Reorganization
of, a Multiemployer Plan or (vi) any other event or condition shall
occur or exist, with respect to a Plan; and in each case in clauses
(i) through (vi) above, such event or condition, together with all
other such events or conditions, if any, could subject HCC or any of
its Subsidiaries to any tax, penalty or other liabilities in the
aggregate material in relation to the business, operations, property
or financial or other condition of HCC and its Subsidiaries taken as a
whole; or
(i) One or more judgments or decrees shall be entered
against HCC or any of the Subsidiaries of HCC involving in the
aggregate a liability (not paid or fully covered by insurance) of
$2,500,000 or more and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded pending appeal within 60
days from the entry thereof; or
(j) If at any time, HCC or any of the Subsidiaries of HCC
shall become liable for remediation and/or environmental compliance
expenses and/or fines, penalties or other charges which, in the
aggregate, are in excess of $2,500,000;
(k) If at any time GKH Investments, L.P. and GKH Private
Limited (collectively, "GKH Entities") in the aggregate shall own less
than 30% of the issued and outstanding common stock of HCC;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (g) above with respect to HCC automatically
the Commitments shall immediately terminate and the Loans hereunder (with
accrued interest thereon) and all other amounts owing under this Agreement
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have
presented the documents required thereunder) and the Notes shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Required Banks, the Agent may, or upon the request of the Required Banks,
the Agent shall, by notice to HCC declare the Commitments to be terminated
forthwith, whereupon the Commitments shall immediately terminate; and (ii) with
the consent of the Required Banks, the Agent may, or upon the request of the
Required Banks, the Agent shall, by notice of default to HCC declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under
this Agreement (including, without limitation, all amounts of L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit
shall have presented the documents required thereunder) and the Notes to be due
and payable forthwith, whereupon the same shall immediately become due and
payable. With respect to all Letters
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of Credit with respect to which presentment for honor shall not have occurred
at the time of an acceleration pursuant to the preceding paragraph, HCC shall
at such time deposit in a cash collateral account opened by the Agent an amount
equal to the aggregate then undrawn and unexpired amount of such Letters of
Credit. HCC hereby grants to the Agent, for the benefit of the Issuing Bank and
the L/C Participants, and, as set forth below, for the benefit of the holders
of the Secured Obligations under the Collateral Trust Agreement, a security
interest in such cash collateral to secure all obligations of HCC under this
Agreement and the other Loan Documents and to secure all Secured Obligations
under the Collateral Trust Agreement. Amounts held in such cash collateral
account shall be applied by the Agent first to the payment of drafts drawn
under such Letters of Credit, and the unused portion thereof after all such
Letters of Credit shall have expired or been fully drawn upon, if any, shall be
turned over to the Collateral Trustee for application in accordance with the
Collateral Trust Agreement. HCC shall execute and deliver to the Agent, for
the account of the Issuing Bank and the L/C Participants and for the account of
the holders of the Secured Obligations under the Collateral Trust Agreement,
such further documents and instruments as the Agent may request to evidence the
creation and perfection of the within security interest in such cash collateral
account. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 10. THE AGENT
10.1 Appointment. Each Bank hereby irrevocably designates
and appoints Chemical as the Agent of such Bank under this Agreement and the
other Loan Documents, and each such Bank irrevocably authorizes Chemical, as
the Agent for such Bank, to take such action on its behalf under the provisions
of this Agreement and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of
this Agreement and the other Loan Documents, together with such other powers as
are reasonably incidental thereto. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
10.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or
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77
misconduct of any agents or attorneys in-fact selected by it with reasonable
care.
10.3 Exculpatory Provisions. Neither the Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by any Credit Party or
any officer thereof contained in this Agreement or any other Loan Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Agent under or in connection with, this Agreement or
any other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the Notes or any other Loan
Document or for any failure of any Credit Party to perform its obligations
hereunder or thereunder. The Agent shall not be under any obligation to any
Bank to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Credit Party.
10.4 Reliance by Agent. The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to any Credit Party), independent
accountants and other experts selected by the Agent. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Agent. The Agent shall be fully justified in failing or
refusing to take any action under this Agreement or any other Loan Document
unless it shall first receive such advice or concurrence of the Required Banks
as it deems appropriate or it shall first be indemnified to its satisfaction by
the Banks against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The Agent shall in
all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the Notes and the other Loan Documents in accordance with a
request of the Required Banks, and such request and any action taken or failure
to act pursuant thereto shall be binding upon all the Banks and all future
holders of the Notes.
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10.5 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Bank or HCC referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives
such a notice, the Agent shall give notice thereof to the Banks. The Agent
shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Banks; provided that unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Banks.
10.6 Non-Reliance on Agent and Other Banks. Each Bank
expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agent hereinafter
taken, including any review of the affairs of any Credit Party shall be deemed
to constitute any representation or warranty by the Agent to any Bank. Each
Bank represents to the Agent that it has, independently and without reliance
upon the Agent or any other Bank, and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, operations, property, financial and other condition and
creditworthiness of HCC and each other Credit Party and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Bank also
represents that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, financial and other condition
and creditworthiness of HCC and each other Credit Party. Except for notices,
reports and other documents expressly required to be furnished to the Banks by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Credit Party which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates.
10.7 Indemnification. The Banks agree to indemnify the Agent
in its capacity as such (to the extent not reimbursed by HCC, or the other
Credit Parties and without limiting the obligation of HCC, and each other
Credit Party to do so), ratably according to the respective amounts of their
original Commitments, from and against any and all liabilities,
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79
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided that no Bank shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Agent's gross negligence or willful
misconduct. The agreements in this subsection shall survive the payment of the
Notes and all other amounts payable hereunder.
10.8 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from, hold equity securities of,
and generally engage in any kind of business with any Credit Party as though
the Agent were not the Agent hereunder and under the other Loan Documents.
With respect to its Loans made or renewed by it and any Note issued to it and
with respect to any Letter of Credit issued or participated in by it, the Agent
shall have the same rights and powers under this Agreement and the other Loan
Documents as any Bank and may exercise the same as though it were not the
Agent, and the terms "Bank" and "Banks" shall include the Agent in its
individual capacity.
10.9 Successor Agent. The Agent may resign as Agent upon 10
days' notice to the Banks. If the Agent shall resign as Agent under this
Agreement and the other Loan Documents, then the Required Banks shall appoint
from among the Banks a successor agent for the Banks, which successor agent
shall be approved by HCC whereupon such successor agent shall succeed to the
rights, powers and duties of the Agent, and the term "Agent" shall mean such
successor agent effective upon its appointment, and the former Agent's rights,
powers and duties as Agent shall be terminated, without any other or further
act or deed on the part of such former Agent or any of the parties to this
Agreement or any holders of the Notes. After any retiring Agent's resignation
as Agent, the provisions of this subsection shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement and the other Loan Documents.
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SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. Neither this Agreement, any
Note, any other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. With the written consent of the Required Banks, the Agent, HCC and
any other Credit Party thereto, may, from time to time, enter into written
amendments, supplements or modifications hereto and to the Notes and the other
Loan Documents for the purpose of adding any provisions to this Agreement or
the Notes or the other Loan Documents or changing in any manner the rights of
the Banks or of the Credit Parties party thereto hereunder or thereunder or
waiving, on such terms and conditions as the Agent may specify in such
instrument, any of the requirements of this Agreement or the Notes or the other
Loan Documents or any Default or Event of Default and its consequences;
provided, however, that no such waiver and no such amendment, supplement or
modification shall (a) reduce the amount or extend the maturity of any Note or
any installment thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any fee payable to any Bank hereunder, or change
the amount of any Bank's Commitments, in each case without the consent of the
Bank affected thereby, or (b) amend, modify or waive any provision of this
subsection or reduce the percentage specified in the definition of Required
Banks or Majority Banks, or consent to the assignment or transfer by any Credit
Party of any of its rights and obligations under this Agreement and the other
Loan Documents or release any of the Collateral, in each case without the
written consent of all the Banks (except as contemplated by this Agreement or
the Security Documents), or (c) amend, modify or waive any provision of Section
10 without the written consent of the then Agent. Any such waiver and any such
amendment, supplement or modification shall apply equally to each of the Banks
and shall be binding upon each of the Credit Parties, the Banks, the Agent and
all future holders of the Notes. In the case of any waiver, each of the Credit
Parties, the Banks and the Agent shall be restored to their former position and
rights hereunder and under the outstanding Notes and any other Loan Documents,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
11.2 Notices. All notices, requests and demands to or upon
the respective parties hereto to be effective shall be in writing (including by
telecopy, telegraph or telex), and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when delivered by hand, or
three days after being deposited in the mail, postage prepaid, or, in the case
of telecopy notice, when received, or, in the case of telegraphic notice, when
delivered to the telegraph company, or, in the case of telex notice, when sent,
answerback received, addressed as
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81
follows in the case of HCC and the Agent, and as set forth in Schedule I in the
case of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto and any future holders of the Notes:
HCC: Hanover Compressor Company
12001 North Houston-Rosslyn
Houston, Texas 77086
Attention: Chief Financial Officer
Telecopy: (713) 447-8781
The Agent: Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: James Ramage
Telecopy: (212) 270-2625
with a copy to: Chemical Securities Inc.
270 Park Avenue
New York, New York 10017
Attention: Douglas Petno
Telex: 232 337
Telecopy: (212) 270-4892
provided that any notice, request or demand to or upon the Agent or the Banks
pursuant to subsection 2.4, 3.3, 3.4, 3.5 or 3.9 shall not be effective until
received. A copy of any notice, request or demand to or upon any Credit Party
pursuant to this Agreement or any other Loan Document shall also be delivered
to Neal, Gerber & Eisenberg, Two North LaSalle Street, Suite 2200, Chicago,
Illinois 60602, attention: Rick Meller, Esq. (telecopy: (312) 269-1747).
11.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Agent or any Bank, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement and the Notes.
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11.5 Payment of Expenses and Taxes. HCC agrees (a) to pay or
reimburse the Agent/Collateral Trustee for all its reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the Notes, the Collateral Trust Agreement and the other Loan Documents and
any other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation, the reasonable fees and disbursements of counsel to the
Agent/Collateral Trustee, (b) to pay or reimburse each Bank and the Agent for
all its reasonable costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the Notes, the
other Loan Documents and any such other documents, including, without
limitation, reasonable fees and disbursements of counsel to the Agent and to
the several Banks, and (c) to pay, indemnify, and hold each Bank and the Agent
harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation of
any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the Notes, the other Loan Documents and any such other documents,
and (d) to pay, indemnify, and hold each Bank, the Agent and the Collateral
Trustee and their respective directors, officers, employees and agents harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the Notes, the other Loan
Documents and any such other documents or the use or the proposed use of
proceeds thereof (all the foregoing, collectively, the "indemnified
liabilities"), provided, that HCC shall not have any obligation hereunder to
the Agent or any Bank with respect to indemnified liabilities arising from (i)
the gross negligence or willful misconduct of the Agent, the Collateral Trustee
or any such Bank, (ii) legal proceedings commenced against the Agent, the
Collateral Trustee or any such Bank by any security holder or creditor thereof
arising out of and based upon rights afforded any such security holder or
creditor solely in its capacity as such, or (iii) legal proceedings commenced
against the Agent, the Collateral Trustee or any such Bank by any other Bank or
by any Transferee (as defined in subsection 11.6). The agreements in this
subsection shall survive repayment of the Notes and all other amounts payable
hereunder and under the other Loan Documents.
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11.6 Successors and Assigns; Participations; Purchasing
Banks.
(a) This Agreement shall be binding upon and inure to the
benefit of HCC, the Banks, the Agent, all future holders of the Notes
and their respective successors and assigns, except that HCC may not
assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Bank.
(b) Any Bank may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Bank, any Note held
by such Bank, any Commitment of such Bank or any other interest of
such Bank hereunder and under the other Loan Documents, provided that
each such sale shall be of Loans and Commitments in an aggregate
amount of at least $5,000,000, and provided, further, that no Bank may
so sell its Commitments so that less than $10,000,000 of such
Commitments are held by such Bank without participating interests
therein, unless such Bank (excluding Chemical) so sells 100% of its
Commitments. In the event of any such sale by a Bank of participating
interests to a Participant, such Bank's obligations under this
Agreement to the other parties to this Agreement shall remain
unchanged, such Bank shall remain solely responsible for the
performance thereof, such Bank shall remain the holder of any such
Note for all purposes under this Agreement and the other Loan
Documents, and the Credit Parties and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's
rights and obligations under this Agreement and the other Loan
Documents. HCC agrees that if amounts outstanding under this
Agreement and the Notes are due or unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event
of Default, each Participant shall be deemed to have the right of
setoff in respect of its participating interest in amounts owing under
this Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this
Agreement or any Note, provided that such Participant shall only be
entitled to such right of setoff if it shall have agreed in the
agreement pursuant to which it shall have acquired its participating
interest to share with the Banks the proceeds thereof as provided in
subsection 11.7. HCC also agrees that each Participant shall be
entitled to the benefits of subsections 3.9, 3.11, 3.12 and 11.5 with
respect to its participation in the Commitments and the Loans
outstanding from time to time; provided, that no Participant shall be
entitled to receive any greater amount pursuant to such subsections
than the transferor Bank would have been entitled to receive in
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respect of the amount of the participation transferred by such
transferor Bank to such Participant had no such transfer occurred.
(c) Any Bank, in the ordinary course of its commercial
banking business and in accordance with applicable law, at any time
may sell to any Bank or any Affiliate thereof and, with the consent of
HCC and the Agent (which in each case shall not be unreasonably
withheld), to one or more additional banks or financial institutions
("Purchasing Banks") all or any part of the assigning Bank's rights
and obligations under this Agreement, the Notes and the other Loan
Documents pursuant to an Assignment and Acceptance, substantially in
the form of Exhibit P, executed by such Purchasing Bank, such
assigning Bank (and, in the case of a Purchasing Bank that is not then
a Bank or an Affiliate thereof, by HCC and the Agent) and delivered to
the Agent for its acceptance and recording in the Register, provided
that each such sale shall be of Loans and Commitments of an aggregate
amount of at least $5,000,000 and provided, further, that no Bank
party to this Agreement on the date hereof may so sell any of its
initial Commitments hereunder such that such Bank holds directly less
than $10,000,000 of such Commitments unless such Bank (excluding
Chemical) so sells 100% of its Commitments. Such Assignment and
Acceptance shall specify an Effective Date which is not less than five
Business Days after the date of execution thereof. Upon such
execution, delivery, acceptance and recording, from and after the
Effective Date determined pursuant to such Assignment and Acceptance,
(x) the Purchasing Bank thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Bank hereunder with a Commitment as set forth
therein, and (y) the assigning Bank thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its
obligations under this Agreement (and, in the case of an Assignment
and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such assigning
Bank shall cease to be a party hereto). Such Assignment and
Acceptance shall be deemed to amend this Agreement to the extent, and
only to the extent, necessary to reflect the addition of such
Purchasing Bank and the resulting adjustment of Commitment Percentages
arising from the purchase by such Purchasing Bank of all or a portion
of the rights and obligations of such assigning Bank under this
Agreement and the Notes. On or prior to the Effective Date determined
pursuant to such Assignment and Acceptance, HCC, at its own expense,
shall execute and deliver to the Agent in exchange for the surrendered
Note or Notes a new Note or Notes to the order of such Purchasing Bank
in amounts equal to the Commitment assumed by it pursuant to such
Assignment and
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Acceptance and, if the assigning Bank has retained a Commitment
hereunder, a new Note or Notes to the order of the assigning Bank in
an amount equal to the Commitment retained by it hereunder. Such new
Note or Notes shall be dated the Closing Date and shall otherwise be
in the form of the Note or Notes replaced thereby. The Note or Notes
surrendered by the assigning Bank shall be returned by the Agent to
HCC marked "canceled".
(d) The Agent shall maintain at its address referred to
in subsection 12.2 a copy of each Assignment and Acceptance delivered
to it and a register (the "Register") for the recordation of the names
and addresses of the Banks and the Commitments of, and principal
amount of the Loans owing to, each Bank from time to time. The
entries in the Register shall be conclusive, in the absence of
manifest error, and HCC, the Agent and the Banks may treat each Person
whose name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The Register
shall be available for inspection by HCC or any Bank at any reasonable
time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by a transferor Bank and Purchasing Bank (and, in the case of
a Purchasing Bank that is not then a Bank or an affiliate thereof, by
HCC and the Agent) together with payment to the Agent of a
registration and processing fee of $2,500, the Agent shall (i)
promptly accept such Assignment and Acceptance (ii) on the Effective
Date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and
recordation to the Banks and HCC.
(f) HCC authorizes each Bank to disclose to any
Participant or Purchasing Bank (each, a "Transferee") and any
prospective Transferee any and all financial information in such
Bank's possession concerning any Credit Party and its affiliates which
has been delivered to such Bank by or on behalf of HCC pursuant to
this Agreement or which has been delivered to such Bank by or on
behalf of HCC in connection with such Bank's credit evaluation of the
Credit Parties and their affiliates prior to becoming a party to this
Agreement.
(g) If, pursuant to this subsection, any interest in this
Agreement or any Note is transferred to any Transferee which is
organized under the laws of any jurisdiction other than the United
States or any state thereof, the transferor Bank shall cause such
Transferee, concurrently with the effectiveness of such transfer, (i)
to represent to the transferor Bank (for the benefit of the transferor
Bank, the Agent and HCC) that under applicable law and treaties no
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taxes will be required to be withheld by the Agent, HCC or the
transferor Bank with respect to any payments to be made to such
Transferee in respect of the Loans, (ii) to furnish to the transferor
Bank (and, in the case of any Purchasing Bank registered in the
Register, the Agent and HCC) either U.S. Internal Revenue Service Form
4224 or U.S. Internal Revenue Service Form 1001 (wherein such
Transferee claims entitlement to complete exemption from U.S. federal
withholding tax on all interest payments hereunder) and (iii) to agree
(for the benefit of the transferor Bank, the Agent and HCC) to provide
the transferor Bank (and, in the case of any Purchasing Bank
registered in the Register, the Agent and HCC) a new Form 4224 or Form
1001 upon the expiration or obsolescence of any previously delivered
form and comparable statements in accordance with applicable U.S.
laws and regulations and amendments duly executed and completed by
such Transferee, and to comply from time to time with all applicable
U.S. laws and regulations with regard to such withholding tax
exemption.
(h) Nothing herein shall prohibit any Bank from pledging
or assigning any Note to any Federal Reserve Bank in accordance with
applicable law.
11.7 Adjustments; Set-off.
(a) If any Bank (a "benefitted Bank") shall at any time
receive any payment of all or part of its Loans or the Reimbursement
Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily,
by set-off, pursuant to events or proceedings of the nature referred
to in Section 9(g), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Bank, if any, in
respect of such other Bank's Loans, or interest thereon, such
benefitted Bank shall purchase for cash from the other Banks such
portion of each such other Bank's Loans or the Reimbursement
Obligations owing to it, or shall provide such other Banks with the
benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Bank to share the excess payment or
benefits of such collateral or proceeds ratably with each of the
Banks; provided, however, that if all or any portion of such excess
payment or benefits is thereafter recovered from such benefitted Bank,
such purchase shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest. HCC
agrees that each Bank so purchasing a portion of another Bank's Loans
may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such
Bank were the direct holder of such portion.
<PAGE> 92
87
(b) In addition to any rights and remedies of the Banks
provided by law, each Bank shall have the right, without prior notice
to HCC, any such notice being expressly waived by HCC to the extent
permitted by applicable law, upon any amount becoming due and payable
by HCC hereunder or under the Notes (whether at the stated maturity,
by acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct
or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Bank to or for the credit or the account of HCC.
Each Bank agrees promptly to notify HCC, the Agent and the Collateral
Trustee after any such set-off and application made by such Bank,
provided that the failure to give such notice shall not affect the
validity of such set-off and application.
11.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all
the parties shall be lodged with HCC and the Agent.
11.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.10 Integration. This Agreement represents the agreement
of HCC, the Agent and the Banks with respect to the subject matter hereof, and
there are no promises, undertakings, representations or warranties by the Agent
or any Bank relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents and the fee letter referred
to in subsection 3.2.
11.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
11.12 Submission To Jurisdiction; Waivers. HCC hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement and the
<PAGE> 93
88
other Loan Documents to which it is a party, or for recognition and
enforcement of any judgement in respect thereof, to the non-exclusive
general jurisdiction of the courts of the State of New York, the
courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such Person at its address set forth in subsection 11.2 or
at such other address of which the Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
11.13 Acknowledgements. HCC hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the Notes and the other
Loan Documents;
(b) neither the Agent nor any Bank has any fiduciary
relationship to any Credit Party, and the relationship between Agent
and Banks, on one hand, and HCC, on the other hand, is solely that of
debtor and creditor; and
(c) no joint venture exists among the Banks or among any
Credit Party and the Banks.
11.14 WAIVERS OF JURY TRIAL. EACH OF HCC, THE AGENT AND THE
BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR THE NOTES OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE> 94
89
11.15 Usury. It is expressly stipulated and agreed to be the
intent of HCC, the Agent and the Banks at all times to comply with the
applicable law governing the maximum rate or amount of interest payable on or
in connection with the Notes and the Loans. If the applicable law is ever
judicially interpreted so as to render usurious any amount or compensation
called for under this Agreement or any of the Notes or any of the other Loan
Documents, or contracted for, charged, taken, reserved or received with respect
to any of the Loans, or if acceleration of the maturity of any of the Notes,
any prepayment by HCC, or any other circumstance whatsoever, results in the
Banks, or any of them, having been paid any interest in excess of that
permitted by applicable law, then it is the express intent of HCC, the Agent
and the Banks that all excess amounts theretofore collected by the Banks be
credited on the principal balances of the Notes (or, if the Notes have been or
would thereby be paid in full, refunded to HCC), and the provisions of such
Note or Notes and the other applicable Loan Documents immediately be deemed
reformed and the amounts thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder and thereunder. The right to accelerate
the maturity of any or all of the Notes does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and the Banks do not intend to collect any unearned interest in
the event of acceleration. All sums or other compensation paid or agreed to be
paid to the Banks for the use, forbearance or detention of the indebtedness
evidenced hereby or by the Notes shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread with respect to all of the
Notes throughout the full term of such indebtedness until payment in full of
all such indebtedness so that the rate or amount of interest on account of such
indebtedness under all of the Notes does not exceed the Maximum Lawful Rate or
maximum amount of interest permitted under applicable law. The term "Maximum
Lawful Rate" as used herein as to any Bank means the maximum non-usurious rate
of interest which may be lawfully contracted for, charged, taken, reserved, or
received by such Bank from HCC in connection with the Loans evidenced hereby
under applicable law. The provisions of this Section 12.15 shall control all
agreements between HCC and the Banks.
<PAGE> 95
90
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
HANOVER COMPRESSOR COMPANY
By
---------------------------------
Name:
Title:
CHEMICAL BANK,
as Agent and as a Bank
By
---------------------------------
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.,
By
---------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By
---------------------------------
Name:
Title:
<PAGE> 96
91
CREDIT LYONNAIS NEW YORK BRANCH
By
---------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
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:
<PAGE> 97
92
HANOVER COMPRESSOR COMPANY
SECOND AMENDED AND RESTATED CREDIT AGREEMENT DISCLOSURE SCHEDULES
GENERAL COMMENTS WITH RESPECT TO HCC DISCLOSURE SCHEDULE:
While HCC has endeavored to identify under each Schedule and (by way
of enumeration or cross reference) the particular items relevant thereto, items
listed under one Schedule may be relevant to another Schedule. Accordingly,
items listed under each Schedule are hereby incorporated by reference in each
other Schedule, but only to the extent relevant to such other Schedule.
Capitalized terms used herein and not otherwise defined have the
meanings ascribed to them in the Agreement.
<PAGE> 98
Schedule I
BANKS AND COMMITMENTS
<TABLE>
<CAPTION>
Name and Address Commitment
of Bank Percentage Commitment
- ---------------- ---------- ----------
<S> <C> <C>
Chemical Bank 33.33% $30,000,000
270 Park Avenue
New York, New York 10017
Attention: James Ramage
Telecopy: (212) 270-2625
with a copy to:
Chemical Securities Inc.
270 Park Avenue
New York, New York 10017
Attention: Douglas Petno
Telex: 232 337
Telecopy: (212) 270-4892
First Interstate Bank 22.22% $20,000,000
of Texas, N.A.
Post Oak Office
P.O. Box 4401
1300 Post Oak Blvd., 2nd Floor
Houston, Texas 77210-4401
Attention: Theodore Nowak
Telecopy: (713) 599-8752
The Bank of Nova Scotia 22.22% $20,000,000
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: Mike Nepveux
Telecopy: (713) 752-2425
Credit Lyonnais 22.22% $20,000,000
1000 Louisiana, Suite 5360
Houston, Texas 77002
Attention: Dianne Scott
Telecopy: (713) 751-0307
Total: ----- -----------
100% $90,000,000
</TABLE>
<PAGE> 99
2
SCHEDULE II FINANCIAL STATEMENTS
INTENTIONALLY LEFT BLANK.
<PAGE> 100
3
SCHEDULE III MATERIAL TRANSACTIONS
1. Effective December 6, 1995, pursuant to that certain Agreement and
Plan of Merger, dated as of October 13, 1995 (the "Merger Agreement"),
between Astra Resources Compression, Inc., a Texas corporation ("Astra
Compression"), and its parent corporation, Astra Resources, Inc., a
Kansas corporation ("Astra"), on the one hand, and HCC and its wholly
owned subsidiary, Hanover Acquisition Corp., a Texas corporation
("HAC"), on the other hand, HAC merged with and into Astra Compression
and HCC thereby acquired all of the issued and outstanding capital
stock of Astra Compression (the "Astra Merger").
2. Effective as of October 31, 1995, Combustion Control Corporation
("CCC"), a corporation formerly under common control with HCC, merged
with and into HCC pursuant to that certain Agreement and Plan of
Merger, dated as of October 31, 1995, by and among HCC, CCC and the
former stockholders of CCC, pursuant to which HCC issued to the former
stockholders of CCC an aggregate of 338.43 shares of the common stock,
$.001 par value (the "Common Stock"), of HCC.
3. Pursuant to that certain Purchase Agreement, dated as of November 1,
1995 (the "Purchase Agreement"), among HCC, Dakota Services, Inc., and
Oklahoma corporation ("Dakota"), and Buttonwood Petroleum, Inc., an
Oklahoma corporation ("Buttonwood"), HCC purchased from Dakota assets
consisting of 27 natural gas compressors and two motor vehicles for an
aggregate purchase price of $1,375,000, plus interest on such amount
from November 1, 1995 to November 30, 1995 at the rate of 10% per
annum. HCC also agreed pursuant to the Purchase Agreement to enter
into that certain Gas Compressor Equipment Master Rental and Servicing
Agreement, dated as of November 1, 1995, between HCC and Buttonwood.
4. HCC has executed a Letter of Intent dated November 9, 1995 with
respect to the purchase by HCC of the combination office/fabrication
facility and surrounding four acres of land located in Victoria,
Texas, which facility and property are currently leased by HCC.
5. HCC is currently involved in negotiations regarding the possible
purchase by HCC of a 5.9 acre tract of land adjacent to the property
owned by the Real Estate Subsidiary located at 12001 North Houston
Rosslyn in Houston, Texas.
<PAGE> 101
4
SCHEDULE IV MATERIAL CHANGES
1. On March 16, 1995, HCC repurchased 156.40 shares of the Common Stock
from its former employee, John Rowland at a purchase price equal to
$1,100 per share, which shares are currently held by HCC as treasury
shares.
2. In connection with the Termination, Release and Independent Contractor
Agreement, dated as of June 30, 1995, between HCC and Cullen Spitzer,
Mr. Spitzer exercised options to purchase 42 shares of Common Stock,
which shares were immediately repurchased by HCC for $1,100 per share
and are currently held by HCC as treasury shares.
<PAGE> 102
5
SCHEDULE V REQUIRED CONSENTS
1. The consent of First Interstate is required in connection with the
Real Estate Note and the Deed of Trust, as well as under the Guaranty
Agreement, and under the Specific Guaranty.
2. Landlord's lien waivers are required pursuant to the terms of the
Agreement with respect to the following leased properties:
302 Commercial Parkway, Broussard, Louisiana 70518
8193 Lonetree Road, Victoria, Texas 77905
204 Michael Place, Longview, Texas 75603
1300 W. Murray, Farmington, New Mexico 87401
12001 N. Houston Rosslyn, Houston, Texas 77086
Rt. 2 Box 179, Alleyton, Texas 78935
3. A consent to leasehold mortgage is required with respect to the leased
property located at Rt. 2 Box 179, Alleyton, Texas 78935.
4. Any and all UCC-1s and UCC-3s to be filed pursuant to and in
connection with the Agreement and Security Documents.
5. Resolutions of the Board of Directors of each Credit Party authorizing
and approving the transactions contemplated by the Agreement and the
Security Documents.
<PAGE> 103
6
SCHEDULE VI MATERIAL LITIGATION
The following items are provided solely for information purposes. None of the
items in this Schedule VI, nor any aggregation thereof, are reasonably expected
to have a Material Adverse Effect, and none is or is intended to be an
exception to the representations and warranties in Section 5.6 of the
Agreement.
1. HCC is in the process of being audited by the State of Texas with
respect to sales tax matters. No audit report has been received to
date. In this regard, please see the attached letter dated May 4,
1995 from the Texas Comptroller of Public Accounts to HCC.
2. HCC is presently negotiating an indemnification claim and
responsibility for certain clean up costs under the Asset Purchase
Agreement pursuant to which HCC sold the Sutton Gas Plant. HCC expects
that its liability in connection with such claim will not exceed
$110,000.
3. HCC has received notice from Zapata Corporation ("Zapata") that Zapata
has reserved its rights under a Confidentiality Agreement among HCC,
Zapata and Zapata's subsidiary, Energy Industries ("EI"), dated as of
May 23, 1995, regarding the hiring by HCC of certain former employees
of EI allegedly through the use of non-public information.
4. Astra Compression (n/k/a HAC) was recently audited by the State of
Louisiana for 1992, 1993 and 1994 sales taxes, resulting in a final
assessment of $158,792.07, of which $39,642.95 constitutes interest on
amounts found to be due. Astra Compression has filed an appeal
regarding the audit and is awaiting a final audit report with respect
thereto. Astra has agreed to indemnify HCC with respect to any such
tax liability.
5. Astra Compression (n/k/a HAC) received notices of audit from each of
(i) Parish of Terrebonne, Louisiana, Sales Tax and Use Department,
pursuant to a letter dated November 3, 1995, a copy of which is
attached to this Schedule VI, and (ii) Jefferson Davis Parish,
Louisiana, School Board, Sales Tax and Use Department, pursuant to a
letter dated November 1, 1995, a copy of which is attached to this
Schedule VI. Astra has agreed to indemnify HCC with respect to any
such tax liability.
6. See the attached letter from Swantner & Gordon, insurance agent for
HCC.
<PAGE> 104
7
SCHEDULE VII FORMS OF COMPRESSOR AND PRODUCTION EQUIPMENT LEASES
See attached forms of compressor and production equipment leases.
<PAGE> 105
8
SCHEDULE VIII BURDENSOME RESTRICTIONS
1. See the Real Estate Note and the Deed of Trust.
2. Letter Agreement, dated November 22, 1993, between First Interstate,
the Real Estate Subsidiary and HCC.
3. Guaranty Agreement.
4. Specific Guaranty.
5. HCC and its Subsidiaries are subject to certain negative covenants
pursuant to Article 5 of the JEDI Loan Agreement.
<PAGE> 106
9
SCHEDULE IX ENVIRONMENTAL
The following items are provided solely for informational purposes. None of
the items in this Schedule IX, nor any aggregation thereof, are reasonably
expected to have a Material Adverse Effect, and none is or is intended to be an
exception to the representations and warranties in Section 5.17 of the
Agreement.
In addition, with respect to Section 5.17(c) and (e), no matter has been
disclosed in writing to the Agent and the Banks that, individually or in the
aggregate, are reasonably expected to have a Material Adverse Effect, or that
is or is intended to be an exception to those representations and warranties.
5.17(a):
1. Regarding HCC's Oklahoma City facility, the Tank Closure Report, dated
February 3, 1992, prepared by Transok, Inc. indicates several small
areas with hydrocarbon stains and possible area with elevated levels
of metals. In addition, a report regarding the facility prepared on
behalf of HCC by GeoMonitoring Services ("Geo") advised that these
soils should be removed. HCC is planning an expansion at this
facility and will remove these soils during this project.
2. Regarding certain facilities operated by Hanover Pipeline Company
("HPC"), a former subsidiary of HCC which has since been merged into
HCC, Geo prepared a Limited Site Assessment in April 1991, as well as
February 13, 1992 Report of Findings for Phase II Site Investigation
regarding the El Dorado pipeline operations. Such documents indicate
that each of the stations associated with the pipeline system had oil
stained areas associated with compressor lubrication oil and
associated equipment leaks near or adjoining the compressors and the
facility tankage. Geo recommended using bioremediation to reduce
hydrocarbon levels to less than 500 ppm in the soils. HPC retained
Environmental Consultants and Contractors, Inc. ("ECC") to conduct
this work. ECC completed approximately one-half of the stations;
however, continued soil remediation was necessary to achieve the 500
ppm of hydrocarbon levels in the soils. HCC subsequently took over
this work and the project is approximately 70% complete and is still
under way. HCC has approached the present operator to obtain a
release and for them to complete the remaining work. Additionally,
the Sutton station had a fill area where trash, paper, filters, engine
parts, and similar items were stored. The existing operator continued
this operation. After the landowner complained, HCC removed its
materials and disposed this material. The present operator has
reportedly removed its waste materials.
<PAGE> 107
10
3. Regarding the Houston facility owned by the Real Estate Subsidiary,
Environmental Management Services prepared that certain Transfield
Corporation Facility Closure Report, dated June 4, 1993. In addition,
Geo identified approximately 20 areas where residual sand blasting
materials, oil stained soils and/or areas with elevated levels of zinc
in the soils. The agreement relative to the transfer of the property
required Transfield (seller) to remediate these areas and prepare a
closure plan addressing the zinc levels in the soils, obtain Texas
Natural Resource Conservation Commission ("TNRCC") approval of the
zinc area and certify closure. Transfield's consultant (Environmental
Management Consultants) completed these items.
4. HCC is currently implementing a Site Remediation and Clean Up Proposal
(the "SRCUP"), dated March 15, 1995, regarding real property located
in Columbus, Texas with respect to which HCC acquired a lease and
purchase option pursuant to the February 1995 acquisition by HCC of
substantially all of the assets of Smith Industries, Incorporated,
presently being operated as Hanover/Smith, Inc.
5. Lagoon at East Bernard facility was formerly the sit of a solid waste
landfill. HCC does not have documentation on remediation efforts
conducted by owners and operators prior to Astra Compression.
5.17(b):
1. HCC has yet to determine whether the requirements for obtaining an
Environmental Protection Agency ("EPA") Identification Number and
filing a TNRCC Notice of Registration (NOR) are required at its
Houston, Texas and Columbus, Texas facilities. At present, HCC is
utilizing a temporary EPA Identification Number and non-site specific
TNRCC registration and waste code numbers with respect to such
facilities.
2. HCC has yet to determine if painting and/or sand blasting operations
at its Houston, Texas and Columbus, Texas facilities will require a
TNRCC NOR, as well as whether such activities would require air
permitting or if such activities properly call for standard exemption
requests.
3. HCC has yet to determine whether its Houston facility requires an EPA
stormwater permit application and runoff testing.
4. HCC has yet to determine the necessity of a Spill Contingency Plan for
its Lafayette, Louisiana facility regarding chemicals and wastes
managed on-site.
<PAGE> 108
11
5. HCC has yet to determine the necessity of a Spill Contingency Plan for
its Midland, Texas facility regarding chemicals and wastes managed
on-site.
6. In addition, an underground storage tank ("UST") exists at the
Oklahoma City facility, which UST has not been registered with any
state or federal agency.
7. Most HCC facilities (including but not limited to Houston, Columbus,
Lafayette, Fort Smith, Oklahoma City, Longview, Midland, and Victoria)
have sumps which are typically associated with cleaning, painting,
ballasting, testing and fabrication operations. Although HCC does not
believe any sumps operated at their facilities are USTs as defined
under the EPA definition under the Resource Conservation and Recovery
Act, these sumps could require state registration or the filing of
NORs with the appropriate state or federal agency.
8. HCC is preparing a Spill Prevention Control and Countermeasure Plan
("SPCC Plan") for the tankage at its Houston facility which will
include up-grading some secondary containment systems.
9. HCC may not be in compliance with all waste disposal and state
registration requirements at its Houston, Texas; Columbus, Texas; and
Lafayette, Louisiana facilities.
10. HCC is presently evaluating the adequacy of the spill plan presently
in place at its Columbus, Texas facility.
11. Geo has completed a site inspection of HCC's Victoria, Texas facility
and is preparing a SPCC plan for such facility. The TNRCC NOR with
respect to the facility require minor updates to be completed by HCC
personnel.
12. Regarding certain assets and facilities acquired pursuant to the Astra
Merger:
a. The following lube oil/antifreeze storage tanks are above
1,100 gallon capacity and therefore may require permitting:
Deweyville, Louisiana (8,000 gallon); Lafayette, Louisiana
(8,000 gallon); Wilburton, Oklahoma (2 at 8,800 gallon, 2 at
2,000 gallon); East Bernard, Texas (8,000 gallon); Refugio,
Texas (6,000 gallon, 4,000 gallon, and 2,000 gallon); Sterling
City, Texas.
b. Potable water at East Bernard facility may need to be tested
and certified.
<PAGE> 109
12
c. Underground Separator at East Bernard facility may need to be
registered as a UST with possible overflow discharge, as it
sometimes has overflow discharge.
d. East Bernard facility requires a spill control and contingency
planing document for the above ground 8,000 gallon tank.
e. HCC yet to determine whether stormwater permits are required
for the lagoons at the East Bernard facility.
5.17(c):
1. HCC is presently negotiating an indemnification claim and
responsibility for certain clean up costs under the Asset Purchase
Agreement pursuant to which HCC sold the Sutton Gas Plant.
<PAGE> 110
13
SCHEDULE X EXISTING INDEBTEDNESS
1. Indebtedness of the Real Estate Subsidiary pursuant to the Real Estate
Note and the Deed of Trust. As of October 31, 1995, $1,485,000 of the
principal amount of the Real Estate Note was outstanding.
2. Indebtedness of HCC and MEI pursuant to the Existing Agreement and the
Existing Security Documents.
3. Indebtedness of the Credit Parties pursuant to the Agreement, the JEDI
Loan Agreement and the Security Documents.
4. See the Indebtedness related to Liens described in Schedule XII
hereof.
5. HCC leases a box at Texas Stadium pursuant to a long term lease at an
annual cost of approximately $65,000. The outstanding balance of such
lease as of October 31, 1995 was $528,000.
6. HCC leases six natural gas compression units from GE Capital Corp.
The aggregate outstanding balance under such capitalized leases as of
October 31, 1995 was $2,236,000.
7. Indebtedness of HCC to Chemical in connection with the issuance by
Chemical of an Irrevocable Documentary Letter of Credit No. T 249029
in favor of National Bank of Egypt in the amount of $230,111.00.
<PAGE> 111
14
SCHEDULE XI EXISTING LIENS
1. See description of the Real Estate Note and related documents set
forth in Schedule X hereof. Payment of the Real Estate Note is
secured by the Deed of Trust and guaranteed by HCC pursuant to the
Guaranty Agreement and the Specific Guaranty.
2. Liens in favor of the Agent granted pursuant to the Existing Agreement
and the Existing Security Documents.
3. Liens in favor of the Collateral Trustee pursuant to the Agreement,
the JEDI Loan Agreement and the Security Documents.
<PAGE> 112
15
SCHEDULE XII ADDITIONAL EXISTING LIENS
1. Letter Agreement dated March 8, 1995 between Ward Petroleum ("Ward")
and HCC (the "Alliance Agreement").**
2. Letter Agreement dated January 12, 1995 between HCC, CBC Compression,
Anson Company and MB Oilfield Services.**
3. Exclusive Distribution Agreement dated February 23, 1995 between HCC
and Uniglam Resources, Ltd.**
4. The natural gas compression units listed on the Exhibit attached to
this Schedule XII are subject to purchase options in accordance with
the terms of the respective lease pursuant to which HCC leases each
such unit to third parties.
5. Lien evidenced by Financing Statement No. 95-105634 filed with the
Secretary of State of Texas listing Southwestern Bell
Telecommunications ("Southwestern Bell") as secured party and
Hanover/Smith, Inc. as debtor filed pursuant to the purchase by
Hanover/Smith, Inc. of a telephone system from Southwestern Bell.
6. Lien evidenced by Financing Statement No. 90-232325 filed with the
Secretary of State of Texas listing Commercial Equipment Leasing
Company as secured party and MEI as debtor with respect to certain
computer equipment.
7. Lien evidenced by Financing Statement No. 91-035417 filed with the
Secretary of State of Texas listing Commercial Equipment Leasing
Company as secured party and MEI as debtor with respect to certain
computer equipment.
8. Lien evidenced by Financing Statement No 92-091733 filed with the
Secretary of State of Texas listing Waukesha Engine Division, Dresser
Industries, Inc. ("Waukesha") as secured party and MEI as debtor with
respect to certain equipment purchased from Waukesha by MEI from time
to time.
** HCC does not believe that this agreement constitutes a Lien on its property
and such agreement is set forth above for informational purposes only.
<PAGE> 113
16
SCHEDULE XIII AFFILIATE TRANSACTIONS
1. A special committee of the Board of Directors of HCC has agreed to the
payment of a fee by HCC to GKH Partners, L.P. not to exceed 0.75% of
the net equity value of HCC as of the date of any "sale" of HCC (e.g.
a sale of all or substantially all of HCC's assets or capital stock, a
recapitalization, restructuring or liquidation of HCC, or any
transaction resulting in GKH Investments, L.P. owning less than 25% of
HCC).
2. Ted Collins, Jr., a director and minority stockholder of HCC, controls
a corporation which owns a 50% interest in a joint venture to which
HCC leases compressors pursuant to a long-term lease.
3. James Hanna, a director of HCC and a principal in certain entities
which own Capital Stock of HCC, is the President of Hanna Oil and Gas
Company, to which HCC leases compressors pursuant to month-to-month
leases.
4. HCC is party to the Alliance Agreement. L.O. Ward, the President of
Ward, owns shares of the 6.5% Cumulative Redeemable Convertible Series
B Preferred Stock of HCC, and shares of Common Stock are owned by
members of Mr. Ward's family as well as a revocable trust established
by Mr. Ward.
5. HCC has entered into an agreement with Kurt Wind and Glen Wind,
existing stockholders of HCC, for the purchase by each of them of 15
shares of Common Stock at $1,100 per share, along with options for
each to purchase 75 additional shares of Common Stock at $1.00 per
share. In connection with such purchases, HCC has agreed to make
loans to Messrs. Wind and Wind, the repayment of which will be secured
by the pledge by each of them of all of his shares of Common Stock.
6. In connection with the sale of HCC of shares of its Common Stock to
certain of its employees in 1993 and 1995, HCC made loans to certain
employees who purchased shares of Common Stock pursuant thereto, the
repayment of which is secured by the pledge by each such
employee-stockholder of all of his or her shares of Common Stock.
Similarly, in connection with the purchase by Walter Rode of shares of
Common Stock on September 8, 1995, HCC made a loan to Mr. Rode, the
repayment of which is secured by the pledge by Mr. Rode of all of his
shares of Common Stock. Such loans remain outstanding as of the date
hereof and will remain in force and be payable in accordance with
their respective terms.
7. HCC has agreed to pay Robert Furgason (a director of HCC) an annual
director's fee equal to $15,000, plus $2,500 per Board meeting
attended in person by Mr. Furgason, subject to an annual cap of
$20,000.
<PAGE> 114
17
8. Directors of HCC are entitled to reimbursement for expenses incurred
in connection with their attendance at Board meetings.
9. HCC has agreed to reimburse GKH for expenses incurred by GKH in
connection with services performed by GKH for or on behalf of HCC and
its Subsidiaries.
10. Fernando Gutierrez, an outside Director of CCI, an Argentine
subsidiary of HCC, is an employee of TIPSA, S.A., an Argentine
corporation ("TIPSA") and the parent corporation of San Enrique, S.A.,
an Argentine corporation ("San Enrique"). CCI and San Enrique are
party to that certain Agreement of Understanding, dated as of December
30, 1992, pursuant to which CCI and San Enrique agree to participate
jointly in the marketing of gas compression services in Argentina, and
the operation and maintenance of related equipment.
11. HCC currently leases a combination office/fabrication facility located
in Victoria, Texas from Luis Guerra, an officer of HCC. The letter of
intent regarding the purchase of the Victoria facility described in
Schedule III is with Mr. Guerra.
<PAGE> 1
EXHIBIT 10.2
LOAN AGREEMENT
dated as of
December 19, 1995
among
HANOVER COMPRESSOR COMPANY
as Borrower,
JOINT ENERGY DEVELOPMENT INVESTMENTS
LIMITED PARTNERSHIP
as Agent,
and
THE FINANCIAL INSTITUTIONS
NAMED IN THIS LOAN AGREEMENT
as Lenders
$100,000,000
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1
<TABLE>
<S> <C> <C>
GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 2
AMOUNT AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . 17
Section 2.1 Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.2 Advancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.3 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.4 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.5 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.7 Records, Payments, and Computations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.9 Make-Whole Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.10 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.11 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.12 Market Failure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 3
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 33
Section 3.1 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 3.2 No Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.3 Corporate Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 3.4 Corporate Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.6 No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.7 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.8 Ownership of Property Liens; Leases of Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.10 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 3.12 Federal Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.14 Investment Company Act; Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.15 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.16 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 3.17 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 3.18 Accuracy and Completeness of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 3.19 Support and Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 4
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.1 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.2 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 4.3 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.4 Conduct of Business and Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.5 Maintenance of Property; Insurance; Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.6 Inspection of Property; Books and Records; Discussions . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.8 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.9 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.10 Change in Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.11 Guaranties and Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE 5
NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.1 Financial Condition Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 5.2 Limitation on Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 5.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 5.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 5.5 Limitations on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.6 Limitation on Sale or Lease of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.7 Limitation on Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.8 Limitation on Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.9 Limitation on Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.10 Limitation on Investments, Loans, and Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 5.11 Limitation on Optional Payments and Modifications of Indebtedness Instruments . . . . . . . . . . . 58
Section 5.12 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 5.13 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.14 Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.15 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.16 Limitation on Negative Pledge Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 5.17 Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE 6
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE 7
CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.1 Initial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 7.2 All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.3 Loans For Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 8
THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.1 Authorization and Action; Collateral Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 8.2 Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 8.3 The Agent and Its Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 8.4 Lender Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.7 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
ARTICLE 9
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 9.2 Modifications, Waivers, and Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 9.3 Payment of Expenses, Indemnities, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 9.4 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 9.5 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 9.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 9.7 Renewal, Extension, or Rearrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.8 No Implied Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.9 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 9.10 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.11 CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.12 SUBMISSION TO JURISDICTION; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 9.13 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.14 Prevention of Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 9.15 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.16 Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 9.17 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 9.18 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.19 Titles of Articles, Sections, and Subsections . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.20 Satisfaction Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 9.21 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
</TABLE>
-iv-
<PAGE> 6
EXHIBITS
Exhibit A - Form of Loan Request
Exhibit B - Form of Note
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Guaranty
Exhibit E - Form of Pledge Agreement
Exhibit F - Form of Security Agreement
Exhibit G - Form of Mortgage
Schedule I - Administrative Information
Schedule II - Disclosures:
3.1(b)
3.2
3.8
3.10
3.15
3.17
5.2(c)
5.3(c)
5.6
5.11
5.12
-v-
<PAGE> 7
LOAN AGREEMENT
This Loan Agreement is made and entered into as of December 19, 1995,
among Hanover Compressor Company, a Delaware corporation, as borrower, Joint
Energy Development Investments Limited Partnership, a Delaware limited
partnership, in its capacity as agent for the lenders hereunder, and the
financial institutions which are or become lenders hereunder.
In consideration of the mutual covenants and agreements herein
contained and of the loans and commitment hereinafter referred to, the
Borrower, the Agent, and the Lenders agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.1 Certain Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Acquisition" shall mean any direct or indirect acquisition, whether
in one or more related transactions, of (a) all or substantially all of the
assets, liabilities, or securities of a Person, a division or business unit of
a Person, or any related group of the foregoing or (b) any related group of
assets, liabilities, or securities of any Person with market value in excess of
25% of the consolidated assets of the Borrower immediately prior to the
acquisition.
"Active" shall mean, with respect to the status of the Commitments of
the Lenders under this Agreement, that in accordance with Section 2.1(c) the
Borrower has elected and the Lenders have agreed that the Commitments of the
Lenders under this Agreement are accessible by the Borrower.
"Adjusted Prime Rate" shall mean, at any time of its determination,
the greater of (a) the Prime Rate in effect from time to time or (b) the
Federal Funds Rate in effect from time to time plus 0.50%.
"Advance" means an outstanding advance of principal from a Lender
which represents such Lender's ratable share of a Loan.
"Affiliate" of any Person means any Person directly or indirectly
controlled by, controlling, or under common control with such first Person.
For the purposes of this definition
<PAGE> 8
"control" of any Person includes, (i) with respect to any corporation or other
Person having voting shares or the equivalent, the ownership or power to vote,
directly or indirectly, shares or the equivalent representing 10% or more of
the power to vote in the election of directors, managers, or Persons performing
similar functions and (ii) the ability to direct the business and affairs of
any Person by acting as a general partner, manager, or otherwise.
"Agent" shall mean JEDI, in its capacity as agent for the Lenders, or
its successor in such capacity.
"Agent Fee Letter" shall mean the letter agreement made by the
Borrower in favor of the Agent regarding certain fees payable to the Agent in
connection with this Agreement.
"Agreement" shall mean this Loan Agreement.
"Applicable Lending Office" shall mean, with respect to any Lender and
for any particular type of transaction, the office of the Lender set forth in
Schedule I to this Agreement (or in the applicable Assignment and Acceptance by
which the Lender joined this Agreement) as its applicable lending office for
such type of transaction or such other office of such Lender as such Lender may
from time to time specify to the Borrower and the Agent for such particular
type of transaction.
"Applicable Margin" shall mean, for any LIBOR Rate Loan or Prime Rate
Loan, an amount equal to the percentage amount for LIBOR Rate Loans or Prime
Rate Loans set forth in the table below opposite the applicable number of years
to maturity for such Loan, rounded arithmetically for all partial number of
years, as of the date of the making of such Loan (e.g. a Loan with a maturity
date of one year and six months after the making of such Loan would be a two
year loan for the purposes of the determination of the Applicable Margin, but a
Loan with a maturity date of one year and five months after the making of such
Loan would be a one year loan for such purposes).
<TABLE>
<CAPTION>
Years Applicable Margin Applicable Margin
to Maturity LIBOR Rate Loans Prime Rate Loans
<S> <C> <C>
1 1.00 0.00
2 1.25 0.00
3 1.50 0.00
4 1.75 0.00
5 2.00 0.00
6 2.00 0.00
7 2.00 0.00
</TABLE>
-2-
<PAGE> 9
"Applicable Payment Office" shall mean, with respect to any Lender and
for any particular type of transaction, the office of such Lender set forth in
Schedule I to this Agreement (or in the applicable Assignment and Acceptance by
which the Lender joined this Agreement) as its applicable payment office for
such type of transaction or such other office of such Lender as such Lender may
from time to time specify to the Borrower and the Agent for such particular
type of transaction.
"Borrower" shall mean Hanover Compressor Company, a Delaware
corporation.
"Borrower Account" shall mean the account of Borrower specified by the
Borrower into which the proceeds of each Loan are to be deposited by the Agent.
"Business Day" shall mean a day of the year on which commercial banks
are not required or authorized to close in Houston, Texas, or New York, New
York, and, if the applicable Business Day relates to any LIBOR Rate Loan, it
means a day on which dealings in deposits in U.S. Dollars are carried on in the
London interbank market.
"Capital Stock" shall mean any and all shares, interests,
participations, or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalent" shall mean (a) securities issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition, (b) time deposits and certificates of deposit (including,
without limitation, certificates denominated in eurodollars) having maturities
of not more than one year from the date of acquisition of any domestic
commercial bank having capital and surplus in excess of $100,000,000, or such
other domestic financial institutions or brokerage houses which have been
disclosed to and approved by the Agent, (c) repurchase obligations with a term
of not more than seven days for underlying securities of the types described in
clauses (a) and (b) entered into with any bank meeting the qualifications
specified in clause (b) above, and (d) commercial paper rated at least A-1 or
the equivalent thereof by Standard & Poor's Corporation or P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in either case
maturing within 180 days after the date of acquisition.
"Change of Control" shall mean, with respect to the Borrower, the
direct or indirect acquisition by any Person or group of Persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), together with
any Affiliates thereof, other than GKH Partners, L.P., GKH Investments, L.P.,
JEDI, or their Affiliates, of beneficial ownership (as defined in Rule 13-d-3
under the
-3-
<PAGE> 10
Exchange Act) or control of 50% or more of the total voting power of all of the
classes of Capital Stock of the Borrower entitled to vote generally in the
election of directors of the Borrower.
"Chemical" shall mean Chemical Bank, a New York banking corporation.
"Chemical Credit Agreement" shall mean the Second Amended and Restated
Credit Agreement dated as of December 19, 1995, among the Borrower, as
borrower, Chemical, as agent for the banks, and the several banks parties
thereto, as banks.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
any successor statute.
"Collateral" shall mean any real or personal property which may now or
hereafter be subject to a Lien securing the Loan Obligations, including the
Liens held by the Collateral Trustee under the Collateral Trust Agreement for
the ratable benefit of the Lenders under this Agreement and the other secured
lenders under the Collateral Trust Agreement.
"Collateral Trust Agreement" shall mean the Collateral Trust Agreement
dated as of December 19, 1995, made by the Borrower, Hanover Maintech,
Hanover/Smith, Hanover Land, and Hanover Acquisition in favor of the Collateral
Trustee for the ratable benefit of the holders of the secured indebtedness
described thereunder.
"Collateral Trustee" shall mean Chemical, as collateral trustee under
the Collateral Trust Agreement, or its successor in such capacity.
"Commitment" shall mean, for any Lender, the amount set opposite such
Lender's name on the signature pages hereof as its Commitment, or if such
Lender has entered into any Assignment and Acceptance, as set forth for such
Lender as its Commitment in the Register maintained by the Agent pursuant to
Section 9.6, as such amount may be reduced pursuant to the terms hereof.
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 4001(a)(14) of ERISA or is part of a group which includes
the Borrower and which is treated as a single employer under Section 414 of the
Code.
"Consolidated Current Ratio" shall mean, for any Person and as of any
date of its determination, the ratio of (a) such Person's current assets to (b)
such Person's current liabilities (excluding the current portion of such
Person's long-term Indebtedness), determined on a consolidated basis in
accordance with GAAP, consistently applied.
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"Consolidated EBITDA" shall mean, for any Person and for any period of
its determination, such Person's net income before extraordinary items for such
period plus such Person's interest expense, income taxes, depreciation expense,
and amortization expense for such period, determined on a consolidated basis in
accordance with GAAP, consistently applied.
"Consolidated Fixed Charge 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 Fixed
Charges during such period.
"Consolidated Fixed Charges" shall mean, for any Person and for any
period of its determination, such Person's scheduled principal payments on
Indebtedness during such period (other than scheduled principal payments under
revolving credit facilities of such Person during such period resulting from
the maturity of such revolving credit facilities to the extent such scheduled
principal payments have been extended, renewed, rearranged, or refinanced under
revolving credit facilities maturing beyond such period), plus interest expense
during such period, plus Consolidated Mandatory Capital Expenditures during
such period, determined on a consolidated basis in accordance with GAAP,
consistently applied.
"Consolidated Indebtedness" shall mean, for any Person and as of any
date of its determination, all Indebtedness of such Person, determined on a
consolidated basis in accordance with GAAP, consistently applied.
"Consolidated Intangible Assets" shall mean, for any Person and as of
any date of its determination, the goodwill, patents, trade names, trade marks,
copyrights, franchises, experimental expense, organization expense, unamortized
debt discount and expense, deferred assets (other than prepaid insurance and
prepaid taxes), the excess of cost of shares acquired over book value of
related assets, and such other assets of such Person as are properly classified
as "intangible assets" in accordance with GAAP on a consolidated basis,
consistently applied.
"Consolidated Interest 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 interest expense
during such period determined on a consolidated basis in accordance with GAAP,
consistently applied.
"Consolidated Leverage Ratio" shall mean, for any Person and as of any
date of its determination, the ratio of (a) such Person's Consolidated
Indebtedness to (b) such Person's Consolidated Total Capital.
"Consolidated Mandatory Capital Expenditures" shall mean, for any
Person and for any period of its determination, the capital expenditures of
such Person made in the ordinary course of business for the maintenance of
equipment which extends the useful life of such equipment and
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<PAGE> 12
are or should be capitalized on the balance sheet of such Person determined on
a consolidated basis in accordance with GAAP, consistently applied; provided,
however, that such expenditures made in connection with the initial
refurbishing of used equipment acquired by the Borrower or its Subsidiaries
prior to the first resale or lease thereof shall be excluded from the
calculation of Consolidated Mandatory Capital Expenditures.
"Consolidated Net Worth" shall mean, for any Person and as of any date
of its determination, the excess of the assets of such Person over the
liabilities of such Person, determined on a consolidated basis in accordance
with GAAP, consistently applied.
"Consolidated Operating Lease Expense" shall mean, for any Person and
for any period of its determination, the aggregate rental obligations of such
Person determined on a consolidated basis in accordance with GAAP payable in
respect of such period under leases of real and/or personal property (net of
income from sub-leases thereof, but including taxes, insurance, maintenance,
and similar expenses which the lessee is obligated to pay under the terms of
said leases), whether or not such obligations are reflected as liabilities or
commitments on a consolidated balance sheet of such Person or in the notes
thereto, but excluding the same with respect to Financing Leases.
"Consolidated Tangible Net Worth" shall mean, for any Person and as of
any date of its determination, the Consolidated Net Worth of such Person less
the Consolidated Intangible Assets of such Person.
"Consolidated Total Capital" shall mean, for any Person and as of any
date of its determination, the Consolidated Indebtedness of such Person plus
the Consolidated Net Worth of such Person.
"Contractual Obligation" shall mean, for any Person, any provision of
any security issued by such Person or of any agreement, instrument, or other
undertaking to which such Person is a party or by which it or any of its
property is bound, including Material Contracts.
"Default" shall mean an Event of Default or an event which with notice
or lapse of time or both would become an Event of Default.
"Default Rate" shall mean, with respect to any amount due hereunder, a
per annum interest rate equal to (a) if such amount is either outstanding
principal accruing interest based upon a rate established elsewhere in this
Agreement or accrued but unpaid interest thereon, the sum of (i) the interest
rate established elsewhere in this Agreement from time to time for such
principal amount, including any applicable margin, plus (ii) 2.00% per annum or
(b) in all other cases, the Adjusted Prime Rate in effect from time to time
plus the Applicable Margin for Prime Rate Loans in effect from time to time
plus 2.00% per annum.
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"Derivatives" shall mean any swap, hedge, cap, collar, or similar
arrangement providing for the exchange of risks related to price changes in any
commodity, including money.
"Derivative Obligations" shall mean any payment obligations due under
any swap, hedge, cap, collar, or similar arrangement providing for the exchange
of risks related to price changes in any commodity, including money.
"Dormant" shall mean, with respect to the status of the Commitments of
the Lenders under this Agreement, that in accordance with Section 2.1(b) the
Borrower has elected that the Commitments of the Lenders under this Agreement
are not accessible by the Borrower.
"Drawdown Termination Date" shall mean December 19, 2000.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute.
"Eligible Assignee" shall mean any Person which is (a) a domestic
commercial bank or financial institution, foreign commercial bank or financial
institution with an agency or office in the United States, or domestic
investment fund, insurance company, or other institutional investor (other than
institutional investors specializing in high-risk investments in Persons
undergoing financial distress), in each case with capital and surplus or its
equivalent in excess of $250,000,000, (b) not, or is not an Affiliate of, a
direct industry competitor of the Borrower or any of its Subsidiaries, and (c)
approved by the Agent.
"Environmental Laws" shall mean any and all foreign, federal, state,
local, or municipal laws, rules, orders, regulations, statutes, ordinances,
permits, certificates, registrations, licenses, codes, decrees, or requirements
of any Governmental Authority regulating, relating to, or imposing liability or
standards of conduct concerning public or occupational health and safety, the
environment, or any Hazardous Material as now in effect and applied or as in
effect and applied at the time the event occurred which gave rise to the
alleged violation, as the case may be.
"Event of Default" shall have the meaning specified in Section 6.1.
"Federal Funds Rate" shall mean, for any day, a fluctuating interest
rate per annum equal for such day to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such day
is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for such day on such
transactions from three Federal funds brokers of recognized standing selected
by the Agent.
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"Final Maturity Date" shall mean December 19, 2007.
"Financing Lease" shall mean any lease of property, real or personal,
the obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Financial Statements" shall mean the audited consolidated financial
statements of the Borrower and its consolidated Subsidiaries described or
referred to in Section 3.1(a).
"GAAP" shall mean generally accepted accounting principles, applied on
a consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants or in statements of
the Financial Accounting Standards Board or their respective successors and
which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles observed in a current period are comparable in all material respects
to those accounting principles applied in preceding periods.
"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof, and any entity exercising the
executive, legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Guarantee Obligation" shall mean, for any Person (the "guaranteeing
person"), any obligation for which the guaranteeing person has issued a
guaranty, letter of credit, reimbursement, counter indemnity, or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends, or other obligations (the "primary
obligations") of any other third Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any obligation
of the guaranteeing person, whether or not contingent, (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds for the purchase or payment of any
such primary obligation or to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities, or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (i) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made or (ii) the maximum amount
for which such
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<PAGE> 15
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by the guaranteeing person in good faith.
"Guaranties" shall mean (a) the Guaranties dated as of December 19,
1995, made by Hanover Maintech, Hanover/Smith, Hanover Land, and Hanover
Acquisition in favor of the Agent for the ratable benefit of the Lenders under
this Agreement and (b) any other present or future guaranty in favor of the
Agent for the ratable benefit of the Lenders under this Agreement.
"Guarantors" shall mean (a) Hanover Maintech, Hanover/Smith, Hanover
Land, and Hanover Acquisition and (b) any other present or future Person that
executes a Guaranty.
"Hanover Acquisition" shall mean Hanover Acquisition Corp., a Texas
corporation.
"Hanover Land" shall mean Hanover Land Company, a Texas corporation.
"Hanover Land Financing" means the financing provided by First
Interstate Bank of Texas, N.A., for Hanover Land which is reflected in the
Financial Statements and remains outstanding on the date of this Agreement.
"Hanover Maintech" shall mean Maintech Enterprises, Inc., a Texas
corporation.
"Hanover Marketing" shall mean Hanover Marketing Company, a Texas
corporation.
"Hanover/Smith" shall mean Hanover/Smith, Inc., a Delaware
corporation.
"Hazardous Materials" shall mean (a) petroleum and petroleum products,
radioactive materials, asbestos in any form, polychlorinated biphenyls or
transformers or other equipment that contain or contained polychlorinated
biphenyls, and radon gas, (b) any other chemicals, materials, or substances
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "regulated
substances", "contaminants", or "pollutants", or words of similar import, under
any applicable Environmental Law, and (c) any other chemical, material, or
substance exposure to which is regulated by any Governmental Authority.
"Indebtedness" shall mean, for any Person and as of any date of its
determination, (a) all indebtedness of such Person for borrowed money, for the
deferred purchase price of property or services, or for the reimbursement of
draws under letters of credit (other than current liabilities incurred in the
ordinary course of business and payable in accordance with customary trade
practices) or which is evidenced by a note, bond, debenture, or similar
instrument, (b) all obligations of such Person under Financing Leases, (c) all
obligations of such Person in respect
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<PAGE> 16
of acceptances issued or created for the account of such Person, and (d) all
liabilities secured by any Lien (other than any Lien of a type described in
subsection 5.3(k) through (o)) on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof.
"Insolvency" shall mean with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.
"Insolvent" shall mean pertaining to a condition of Insolvency.
"Interest Period" shall mean, with respect to each LIBOR Rate Loan,
the period commencing on the date of such LIBOR Rate Loan or the last day of
the previous Interest Period for such LIBOR Rate Loan and ending on the last
day of the period selected by the Borrower pursuant to the provisions below.
The duration of each such Interest Period shall be one, three, or six months,
in each case as the Borrower may select; provided, however, that:
(a) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day; provided that if such extension would cause the last day
of such Interest Period to occur in the next following calendar month,
the last day of such Interest Period shall occur on the next preceding
Business Day;
(b) any Interest Period which begins on the last Business
Day of the calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar
month in which it would have ended if there were a numerically
corresponding day in such calendar month; and
(c) the Borrower may not select an Interest Period which
ends after the earlier of the applicable Loan Maturity Date or the
Final Maturity Date.
"Interim Financial Statements" shall mean the unaudited consolidated
financial statements of the Borrower and its consolidated Subsidiaries
described or referred to in Section 3.1(a).
"Investments" shall have the meaning specified in Section 5.10.
"JEDI" shall mean Joint Energy Development Investments Limited
Partnership.
"LIBOR" shall mean, for any Interest Period for any LIBOR Rate Loan,
an interest rate per annum equal to the rate per annum reported, on the day
three Business Days prior to the first day of such Interest Period, on Telerate
Access Service Page 3750 (British Bankers Association
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<PAGE> 17
Interest Settlement Rates) provided by Telerate Systems Incorporated (or, if
such Telerate Page shall cease to be publicly available, as reported by Reuters
or any publicly available source of similar market data selected by the Agent)
as the London Interbank Offered Rate for U.S. dollar deposits having a term
equal to the Interest Period and in an amount substantially equal to the
principal amount of the LIBOR Rate Loan.
"LIBOR Rate Advance" shall mean any Advance made by a Lender as part
of any LIBOR Rate Loan.
"LIBOR Rate Loan" shall mean any Loan which bears interest based upon
the LIBOR, as determined in accordance with Section 2.6.
"Lenders" shall mean the lenders listed on the signature pages of this
Agreement and each Eligible Assignee that shall become a party to this
Agreement pursuant to Section 9.6.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority, or other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any Financing Lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under any applicable version of the Uniform Commercial Code in effect
from time to time or any comparable law of any jurisdiction in respect of any
of the foregoing).
"Loan" shall mean each loan made to the Borrower pursuant to the term
loan facility created by Article 2.
"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents, interest rate Derivative agreements executed pursuant to Section
2.6(d), and all other documents, instruments, and agreements executed and
delivered pursuant to this Agreement or in connection herewith.
"Loan Maturity Date" shall mean, with respect to each Loan, the final
maturity date for such Loan as specified in the corresponding Notes.
"Loan Obligations" shall mean all principal, interest, fees,
reimbursements, indemnifications, and other amounts now or hereafter owed by
the Loan Parties to the Agent and/or the Lenders under this Agreement, the
Notes, and the other Loan Documents.
"Loan Parties" shall mean the Borrower and the Guarantors.
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<PAGE> 18
"Loan Request" shall mean a Loan Request in the form of Exhibit A
signed by a Responsible Officer of the Borrower and submitted to the Agent.
"Majority Lenders" shall mean, at any time, any group of Lenders whose
combined holdings of the Commitments plus holdings of the aggregate outstanding
principal amount of the Loans at such time are at least 50.1% of the
combination of the aggregate amount of the Commitments plus the aggregate
outstanding principal amount of the Loans at such time.
"Majority Lenders for Borrowing" shall mean, at any time, the joint
determination of each of the Majority Lenders in Number, the Majority Lenders
with Commitments, and the Majority Lenders.
"Majority Lenders in Number" shall mean, at any time, any group of
Lenders holding Commitments which are the majority in number of the Lenders
holding Commitments at such time.
"Majority Lenders with Commitments" shall mean, at any time, any group
of Lenders which holds at least 50.1% of the aggregate amount of the
Commitments at such time, provided that if the Commitments hereunder have
terminated, then the Majority Lenders with Commitments shall mean the Majority
Lenders with Outstandings.
"Majority Lenders with Outstandings" shall mean, at any time, any
group of Lenders which holds at least 50.1% of the then aggregate outstanding
principal amount of the Loans at such time, provided that if there is no
outstanding principal on the Loans, then the Majority Lenders with Outstandings
shall mean the Agent.
"Material Adverse Effect" shall mean any material and adverse effect
on (a) the assets, liabilities, financial condition, business, operations, or
affairs of the Borrower individually or of the Borrower and its Subsidiaries on
a consolidated basis from those reflected in the Financial Statements, (b) the
ability of the Borrower individually or the Borrower and its Subsidiaries on a
consolidated basis to meet its obligations under this Agreement or any other
Loan Document on a timely basis, or (c) the Agent's or the Lenders' interests
in the Collateral or the Agent's or the Lenders' ability to enforce their
rights and remedies under this Agreement or any other Loan Document (but only
to the extent that any such material adverse effect does not result from any
act or omission of the Agent or any Lender).
"Material Contract" shall mean all of the contracts and agreements of
the Borrower and its Subsidiaries which meet any of the following requirements:
(a) any contract and agreement for the purchase
of inventory or personal property from any supplier or for the
furnishing of services to the Borrower or any
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<PAGE> 19
Subsidiary of the Borrower under the terms of which the Borrower or
such Subsidiary: (i) is reasonably anticipated to pay or otherwise
give consideration of more than $250,000 annually and (ii) cannot be
cancelled by the Borrower or such Subsidiary without penalty and
without more than 90 days' notice;
(b) each contract and agreement for the sale or
lease of inventory or other personal property or for the furnishing of
services by the Borrower or any Subsidiary of the Borrower, including
natural gas compressor and oil and gas production leases, which: (i)
is reasonably anticipated to involve consideration of more than
$250,000 annually and (ii) cannot be cancelled by the Borrower or such
Subsidiary without penalty and without more than 90 days' notice;
(c) all material broker, distributor, dealer,
manufacturer's representative, franchise, agency, and advertising
contracts and agreements to which the Borrower or any Subsidiary of
the Borrower is a party;
(d) all management contracts and contracts with
independent contractors or consultants (or similar arrangements)
involving exclusive rights or requiring payments in excess of $100,000
annually to which the Borrower or any Subsidiary of the Borrower is a
party and which are not cancelable without penalty on 90 days' or less
notice;
(e) all contracts and agreements relating to
Indebtedness of the Borrower or any Subsidiary of the Borrower in
excess of $250,000 individually or $1,000,000 in the aggregate;
(f) all material contracts and agreements with
any Governmental Authority to which the Borrower or any Subsidiary of
the Borrower is a party;
(g) all contracts and agreements that limit or
purport to limit the ability of the Borrower or any Subsidiary of the
Borrower to compete in any line of business or with any person or in
any geographic area or during any period of time;
(h) all contracts and agreements between or among
the Borrower or any Subsidiary of the Borrower on the one hand and the
Borrower or any Affiliate of the Borrower on the other hand; and
(i) all other contracts and agreements not made
in the ordinary course of business, which are material to the Borrower
or any Subsidiary of the Borrower.
"Mortgages" shall mean (a) the Deeds of Trust, Security Agreements,
and Fixture Filings, the Mortgages, Security Agreements, and Fixture Filings,
and the Leasehold Deeds of Trust,
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Security Agreements, and Fixture Filings dated as of December 19, 1995, made by
the Borrower, Hanover/Smith, and Hanover Land in favor of the Collateral
Trustee for the ratable benefit of the Lenders under this Agreement and the
other secured lenders under the Collateral Trust Agreement and (b) any present
or future deeds of trust, mortgages, or similar agreements granting mortgage
liens on real property in favor of the Collateral Trustee for the ratable
benefit of the Lenders under this Agreement and the other secured lenders under
the Collateral Trust Agreement.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"Notes" shall mean all sets of the Promissory Notes in substantially
the form of Exhibit B made by the Borrower and payable to the order of the
Lenders holding an interest in the Loans reflected by such Notes, which sets of
Promissory Notes are issued pursuant to the making of Loans under Section 2.2
or in connection with transfers of interests therein under Section 9.6 and
evidence the indebtedness of the Borrower to each Lender resulting from Loans
and accrued but unpaid interest thereon.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Payment Date" shall mean the 15th and last day of each month.
"Permitted Lien" shall mean any Lien which is permitted under Section
5.3.
"Person" shall mean an individual, partnership, limited liability
company, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan" shall mean at a particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreements" shall mean (a) the Pledge Agreements dated as of
December 19, 1995, made by the Borrower and Hanover Acquisition in favor of the
Collateral Trustee for the ratable benefit of the Lenders under this Agreement
and the other secured lenders under the Collateral Trust Agreement and (b) any
present or future pledge agreements granting security interests in securities
in favor of the Collateral Trustee for the ratable benefit of the Lenders under
this Agreement and the other secured lenders under the Collateral Trust
Agreement.
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<PAGE> 21
"Prime Rate" shall mean, at any time of its determination, the rate of
interest from time to time announced by The Chase Manhattan Bank, N.A., at its
principal office as its prime commercial lending rate, changing as and when
such prime commercial lending rate changes.
"Prime Rate Advance" shall mean any Advance made by a Lender as part
of any Prime Rate Loan.
"Prime Rate Loan" shall mean any Loan which bears interest based upon
the Adjusted Prime Rate, as determined in accordance with Section 2.6.
"Qualified Subsidiary" shall mean (a) each Subsidiary of the Borrower
organized under a jurisdiction of the United States and having assets primarily
located in the United States and (b) each other Subsidiary of the Borrower
which has executed a Guaranty evidencing its obligation to repay the Loan
Obligations and has executed appropriate Security Documents to pledge its
assets to secure the repayment of the Loan Obligations, each in accordance with
Section 4.11.
"ratable share" or "pro rata share" means, with respect to any Lender
and as of any date of its determination, (a) if expressed herein for any
specified determination, the ratio expressed herein for the specified
determination, but (b) if not specified herein (i) with respect to matters
regarding Commitments, including the making of Loans under the Commitments, the
ratio of such Lender's Commitment to the aggregate Commitments and (ii) with
respect to matters regarding any outstanding Loan Obligation, including
payments on or based on such Loan Obligation, the ratio of the amount of such
Loan Obligation owed to such Lender to the aggregate amount of such Loan
Obligation owed to all Lenders.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System.
"Related Parties" shall mean, with respect to any Person, such
Person's stockholders, directors, officers, employees, agents, Affiliates,
successors, and assigns, and their respective stockholders, directors,
officers, employees, and agents, and, with respect to any Person that is an
individual, such Person's family relations and heirs.
"Reorganization" shall mean with respect to any Multiemployer Plan,
the condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .13, .14, .16, .18, .19, or .20 of PBGC Reg.
Section 2615.
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<PAGE> 22
"Requirement of Law" shall mean as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of
such Person, and any law, treaty, rule, or regulation or determination of an
arbitrator or a court or other Governmental Authority, domestic or foreign, in
each case applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.
"Responsible Officer" shall mean the chief executive officer,
president, executive vice president, general counsel, treasurer, or corporate
secretary of the Borrower or any of its Subsidiaries, as the case may be.
"Security Agreements" shall mean (a) the Security Agreements dated as
of December 19, 1995, made by the Borrower, Hanover Maintech, Hanover/Smith,
Hanover Land, and Hanover Acquisition in favor of the Collateral Trustee for
the ratable benefit of the Lenders under this Agreement and the other secured
lenders under the Collateral Trust Agreement and (b) any present or future
security agreements granting security interests in favor of the Collateral
Trustee for the ratable benefit of the Lenders under this Agreement and the
other secured lenders under the Collateral Trust Agreement.
"Security Documents" shall mean this Agreement, the Collateral Trust
Agreement, the Pledge Agreement, the Security Agreements, the Mortgages, the
Guaranties, and any and all other agreements or instruments now or hereafter
executed and delivered by the Borrower, the Guarantors, or any other Person
(other than participation or similar agreements between the Agent and any other
creditor with respect to any Loan Obligations) as security or support for the
payment or performance of the Loan Obligations.
"Single Employer Plan" shall mean any Plan which is a single employer
Plan so defined in Section 4001(a)(15) of ERISA.
"Subordinated Debt" shall mean, with respect to the Borrower and as of
any date of its determination, any unsecured indebtedness for borrowed money
for which the Borrower is directly and primarily obligated which arises after
the date of this Agreement, does not have representations, warranties, or
covenants that are as restrictive or more restrictive than this Agreement, and
is subordinated, upon terms approved by the Agent in writing prior to the
funding of the indebtedness (such approval not to be unreasonably withheld), to
the payment and collection of the Loan Obligations. No indebtedness shall be
considered to be Subordinated Debt hereunder unless all payments (other than
payments made in the form of additional Subordinated Debt) and collection
actions on the indebtedness are blocked for at least 180 days following any
Default or Event of Default and all payments (other than payments made in the
form of additional Subordinated Debt) and collection actions on the
indebtedness are blocked permanently for as long as any Default or Event of
Default related to failure to pay any Loan Obligations when due (whether by
maturity, acceleration, or otherwise) exists. No indebtedness shall be
considered to
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<PAGE> 23
be Subordinated Debt hereunder if any scheduled principal payments are due on
such indebtedness during the first five years during which this Agreement is
outstanding, however, Subordinated Debt may have a maturity date before the
Final Maturity Date.
"Subsidiary" shall mean as to any Person, a corporation, partnership,
or other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership, or other entity are at the time owned, or the management of which
is otherwise controlled, directly or indirectly, through one or more
intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.
"Unqualified Subsidiary" shall mean any Subsidiary of the Borrower
other than Qualified Subsidiaries.
Section 1.2 Accounting Principles. Where the character or amount
of any asset or liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required to
be made for the purposes of this Agreement, whether on a historical or proforma
basis, this shall be done in accordance with GAAP unless expressly provided for
in this Agreement. Whenever any financial determination is required to be made
hereunder on the Borrower and its Qualified Subsidiaries, such test shall be
made by consolidating the results of such Persons excluding the results from
Unqualified Subsidiaries.
ARTICLE 2
AMOUNT AND TERMS OF LOANS
Section 2.1 Commitment.
(a) Subject to the terms and conditions and
relying on the representations and warranties contained in this Agreement, each
Lender holding Commitments hereunder severally agrees to make Advances to the
Borrower as part of such Lender's ratable share of Loans requested by the
Borrower in accordance with this Agreement on any Business Day during the
period from the date hereof until the Drawdown Termination Date provided that
(i) the Commitments of the Lenders under this Agreement are Active, (ii) the
aggregate outstanding principal amount of the Advances made by such Lender,
whether or not retained by such Lender, may not exceed the outstanding
principal amount of the Commitment of such Lender, and (iii) the aggregate
outstanding principal amount of the Loans may not exceed the aggregate
outstanding principal amount of the Commitments. Within the limits expressed
in this Agreement, and
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provided that the Commitments of the Lenders under this Agreement are Active,
the Borrower may from time to time borrow, prepay, repay, and reborrow Loans.
(b) At any time when the aggregate outstanding
principal amount of Loans and all accrued but unpaid interest thereon is equal
to $0.00 and there are no outstanding requests for Loans, the Borrower may by
providing written notice to the Agent and the Lenders referencing this
paragraph (b) cause the Commitments of the Lenders under this Agreement to
become Dormant on the date specified by the Borrower in such written notice
(the "Commitment Dormancy Date"). Upon receipt of such written notice, from
the Commitment Dormancy Date until such time as the Commitments of the Lenders
are made Active by the Lenders holding Commitments in accordance with paragraph
(c) below, the Commitments of the Lenders under this Agreement shall become
Dormant. While the Commitments of the Lenders under this Agreement are
Dormant, the Borrower may not request extensions of credit under this Agreement
and all Events of Default occurring under this Agreement shall be suspended
(other than the Events of Default specified in Section 6.1(a) and any Events of
Default resulting from the failure of the Borrower to perform the covenants of
the Borrower in Sections 4.1, 4.2(a), 4.2(c), 4.2(e), 4.2(g), or 4.6, which
shall remain in full force and effect subject to applicable cure periods).
Events of Default under this Agreement occurring prior to the Commitment
Dormancy Date are not suspended and the suspension of Events of Default does
not imply any waiver thereof. The suspension of Events of Default while the
Commitments of the Lenders under this Agreement are Dormant shall not suspend
the obligation of the Borrower or any other Loan Party to comply with the terms
of this Agreement and the other Loan Documents, i.e. the Borrower and the other
Loan Parties remain obligated to pay the standby fee and other fees thereunder,
remain liable on their respective indemnity obligations thereunder, and remain
liable on their respective other obligations thereunder, but rather shall serve
solely as a limitation on the existence of an "Event of Default" for the
purposes of this Agreement and therefore a limitation on the specified remedies
set forth under this Agreement and the Loan Documents which relate thereto. If
any event should occur which would have been an Event of Default under Section
6.1(g) but for the suspension of Events of Default, the commitments of the
Agent and the Lenders hereunder, including the Commitments, shall terminate.
If any event should occur which would have been an Event of Default but for the
suspension of Events of Default, the Majority Lenders with Commitments may
declare all of the commitments of the Agent and the Lenders hereunder,
including the Commitments, terminated, whereupon the same shall immediately
terminate.
(c) If the Commitments of the Lenders under this
Agreement are Dormant, the Borrower may by providing written request to the
Agent and the Lenders referencing this paragraph (c) request that the Lenders
holding Commitments make the Commitments of the Lenders under this Agreement
Active. Such request shall be given not later than 30 days prior to the date
proposed by the Borrower on which the Commitments of the Lenders under this
Agreement would become Active (such date or any other date agreed to by the
Lenders holding Commitments and the Borrower when the Commitments of the
Lenders under this Agreement
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become Active being the "Commitment Activation Date"). Each such request shall
include therewith all information the Borrower wishes the Lenders with
Commitments to review to determine the financial condition and business
prospects of the Borrower and the capacity of the Borrower and the other Loan
Parties to comply with this Agreement and the other Loan Documents, together
with any waivers the Borrower requests regarding compliance with this Agreement
and the other Loan Documents. The Agent, on behalf of the Lenders with
Commitments, may request such additional information regarding the Borrower as
the Lenders with Commitments determine is reasonably necessary to make their
discretionary determination regarding the request. Within ten Business Days
after the receipt of all requested information, the Agent shall arrange a
meeting of the Lenders with Commitments and the Borrower to review the request.
Each Lender with Commitments and the Borrower shall make representatives
available at the request of the Agent for such purposes. After such meeting,
each Lender with Commitments shall within five Business Days give the Agent
written notice of such Lender's determination of whether or not the Commitments
of the Lenders under this Agreement should become Active in accordance with the
Borrower's request. Each Lender with Commitments shall make such determination
in its own discretion and based upon such factors as such Lender in its own
discretion determines to be relevant. If each Lender with Commitments
determines that the Commitments of the Lenders under this Agreement should
become Active, then the Agent shall so notify the Borrower and on the
Commitment Activation Date, the Commitments of the Lenders under this Agreement
shall become Active. In all other cases, the Commitments of the Lenders under
this Agreement shall remain Dormant. When the Commitments of the Lenders under
this Agreement become Active, the Borrower may request extensions of credit
under this Agreement in accordance with the terms of this Agreement and the
suspension of Events of Default under this Agreement shall cease and such
Events of Default shall resume in accordance with the terms of this Agreement.
With respect to events which occurred while the Commitments of the Lenders
under this Agreement were Dormant which would have been Events of Default under
this Agreement but for the suspension of such Events of Default in accordance
with paragraph (b) above, then effective as of the Commitment Activation Date
such events shall be Events of Default when the Commitments of the Lenders
under this Agreement become Active, unless waived by each Lender.
(d) The Borrower may by providing written request
to the Agent and the Lenders referencing this paragraph (d) request that the
Lenders with Commitments reduce ratably in part or terminate in whole the
Commitments. Such request shall be given not later than 10 days prior to the
date proposed by the Borrower on which the Commitments would be reduced or
terminated and shall specify the amount of the reduction or the termination and
shall be irrevocable and binding on the Borrower. Partial reductions shall be
in a minimum amount of $5,000,000 and be made in integral multiples of
$1,000,000. The Commitments cannot be reduced below the aggregate outstanding
principal amount of Loans. Any reduction or termination of the Commitments
pursuant to this paragraph (d) shall be permanent, with no obligation of the
Lenders to reinstate such Commitments.
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Section 2.2 Advancing.
(a) In connection with any circumstances where
the Borrower desires a Loan in an amount equal to or less than $20,000,000
(other than Loans where the proceeds of the Loan shall be used for the purpose
of financing or refinancing an Acquisition outside of the natural gas
compression and production equipment industries, as reasonably determined by
the Agent after consultation with the Borrower) and provided that no other
request under this Section 2.2(a) has been made in connection with the same
circumstances or within the last three months, the Borrower may request the
Lenders with Commitments to advance a Loan for such purposes by providing a
Loan Request for such proposed Loan to the Agent not later than ten Business
Days prior to the proposed date for the Loan. Each Loan Request shall be fully
completed, shall specify the information required therein, and shall have
attached thereto reasonably detailed information regarding the circumstances
related to the Loan Request and all information necessary for the Agent to
determine whether or not the conditions precedent for the advance of additional
credit specified in Sections 7.1, 7.2, and 7.3 (to the extent applicable) are
satisfied. During the first five Business Days after receipt of the Loan
Request, at the request of the Agent, the Borrower shall provide the Agent with
such additional information as the Agent may reasonably request to determine
the satisfaction of such conditions precedent. Upon receipt of all such
requested information the Borrower shall provide the Agent with such additional
time as the Agent may reasonably request to review such additional information,
but in no event less than five Business Days, it being understood that
additional time may be necessary for the Agent to make the determinations
required in connection with the making of the Loan. Each requested Loan must
be in an initial principal amount equal to or greater than $10,000,000. The
Agent shall promptly forward a copy of the Loan Request and any additional
information requested to the Lenders. After consulting with the Lenders and
the Borrower, the Agent shall determine whether or not such conditions
precedent are satisfied, and such determination shall bind all of the Lenders.
The Agent shall promptly inform the Lenders and the Borrower of the
determination of the Agent as to whether or not such conditions precedent are
satisfied. If the Agent determines that such conditions precedent are
satisfied, the Agent shall prepare Notes representing the terms of the Loan for
the Lenders with Commitments and shall provide such Notes to the Borrower for
execution.
(b) In all circumstances where the Borrower
desires a Loan other than those set forth in the first sentence of paragraph
(a) above, the Borrower may request the Lenders with Commitments to advance a
Loan for such purposes by providing a Loan Request for such proposed Loan to
the Agent not later than ten Business Days prior to the proposed date for the
Loan. Each Loan Request shall be fully completed, shall specify the
information required therein, and shall have attached thereto reasonably
detailed information regarding the circumstances related to the Loan Request
and all information reasonably necessary for the Agent and the Lenders to
determine whether or not the conditions precedent for the advance of additional
credit specified in Sections 7.1, 7.2, and 7.3 (to the extent applicable) are
satisfied. During the first five Business
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Days after receipt of the Loan Request (or any subsequent information provided
to the Agent at the Agent's request as provided for herein), at the request of
the Agent, the Borrower shall provide the Agent with such additional
information as the Agent may reasonably request to determine the satisfaction
of such conditions precedent. Upon receipt of all such requested information
the Borrower shall provide the Agent with such additional time as the Agent may
reasonably request to review such additional information, but in no event less
than ten Business Days, it being understood that additional time may be
necessary for the Agent and the Lenders to make the determinations required in
connection with the making of the Loan. Each requested Loan must be in an
initial principal amount equal to or greater than $10,000,000. The Agent shall
promptly furnish copies of such Loan Request and any additional information
requested to the Lenders, and arrange for a meeting of the Lenders and the
Borrower to review the Loan Request. Each Lender and the Borrower shall make
representatives available at the request of the Agent to review the Loan
Request. After meeting with the Lenders and the Borrower, the Majority Lenders
for Borrowing shall determine whether or not such conditions precedent are
satisfied, and such determination shall bind all of the Lenders. The Agent
shall promptly inform the Lenders and the Borrower of the determination of the
Majority Lenders for Borrowing of whether or not such conditions precedent are
satisfied. If the Majority Lenders for Borrowing determine that such
conditions precedent are satisfied, the Agent shall prepare Notes representing
the terms of the proposed Loan for the Lenders with Commitments and shall
provide such Notes to the Borrower for execution.
(c) If under paragraph (a) above the Agent has
determined, or under paragraph (b) above the Majority Lenders for Borrowing
have determined, that the required conditions are satisfied, each Lender
holding Commitments shall, before 2:00 p.m. (Houston, Texas, time) on the date
of the requested Loan make available from its Applicable Lending Office to the
Agent at the Agent's Applicable Lending Office, in immediately available funds,
such Lender's ratable share of such Loan. After receipt by the Agent of such
funds, the Agent shall before close of business on the date requested for such
Loan make such Loan available to the Borrower in immediately available funds at
the Borrower Account.
(d) Unless the Agent shall have received notice
from a Lender holding Commitments before the date of any Loan that such Lender
shall not make available to the Agent such Lender's ratable share of such Loan,
the Agent may assume that such Lender has made its ratable share of such Loan
available to the Agent on the date of such Loan in accordance with paragraph
(c) above and the Agent may, in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent that
such Lender shall not have so made its ratable share of such Loan available to
the Agent, such Lender agrees that it shall pay interest on such amount for
each day from the date such amount is made available to the Borrower by the
Agent until the date such amount is paid to the Agent by such Lender at the
Adjusted Prime Rate in effect from time to time provided that if such amount is
not paid by such Lender by the end of the second day after the Agent makes such
amount available to the Borrower,
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the interest rates specified above shall be increased by a per annum amount
equal to 2.00% on the third day and shall remain at such increased rate
thereafter. Interest on such amount shall be due and payable by such Lender
upon demand by the Agent. If such Lender shall pay to the Agent such amount
and interest as provided above, such amount so paid shall constitute such
Lender's Advance as part of such Loan for all purposes of this Agreement even
though not made on the same day as the other Advances comprising such Loan. In
the event that such Lender has not repaid such amount by the end of the fifth
day after such amount was made available to the Borrower, the Borrower agrees
to repay to the Agent on demand such amount, together with interest on such
amount for each day from the date such amount was made available to the
Borrower until the date such amount is repaid to the Agent at the interest rate
charged to the Borrower for such Loan under the terms of this Agreement.
(e) The failure of any Lender holding Commitments
to make available its ratable share of any Loan shall not relieve any other
Lender holding Commitments of its obligation, if any, to make available its
ratable share of such Loan. No Lender shall be responsible for the failure of
any other Lender to honor such other Lender's obligations hereunder, including
any failure to make available any funds as part of any Loan.
Section 2.3 Prepayment.
(a) Unless expressly stated otherwise in any
Note, the Borrower may prepay to the Agent, for the ratable benefit of the
holders of an interest in any Loan, the outstanding principal amount of such
Loan pursuant to written notice given by the Borrower to the Agent not later
than the fifth Business Day before the date of the proposed prepayment, such
prepayments to be without premium or penalty except as set forth in the Loan
Documents. All voluntary prepayments under this paragraph (a) must be made on
a Payment Date. Each such notice shall specify the Loan to be prepaid, the
amount of the prepayment, and the Payment Date for the prepayment and shall be
irrevocable and binding on the Borrower. Prepayments of Loans shall be made in
a minimum amount of $1,000,000 or if the prepayment would cause the outstanding
principal amount of the Loan being prepaid to be less than $5,000,000, the
prepayment must be in the entire outstanding principal amount of such Loan.
Upon receipt of any notice of prepayment, the Agent shall give prompt notice of
the intended prepayment to the Lenders holding an interest in such Loan. For
each such notice given by the Borrower, the Borrower shall prepay the specified
Loan in the specified amount on the specified date as set forth in such notice.
The Borrower shall have no right to prepay any principal amount of any Loan
except as provided in the corresponding Notes or in this subsection 2.3(a).
Each prepayment of principal on any Loan pursuant to this subsection 2.3(a)
shall be accompanied by payment of all accrued but unpaid interest on the
principal amount prepaid and any amounts required to be paid pursuant to
Section 2.9 as a result of such prepayment. All prepayments pursuant to this
subsection 2.3(a) shall be applied to the required payments of principal on the
Loan being prepaid in the inverse order of maturity.
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(b) The Borrower shall prepay to the Agent, for
the ratable benefit of the Lenders holding an interest in each Loan, the
outstanding principal amount of each Loan in accordance with the prepayment
requirements of the corresponding Notes, if any.
(c) [Reserved]
(d) If there shall occur any Change of Control,
the Borrower shall prepay to the Agent, for the ratable benefit of the Lenders
holding an interest in the Loans, upon written demand of the Majority Lenders
with Outstandings, the outstanding principal amount of the Loans (and upon
written notice from the Majority Lenders with Commitments, the Commitments of
the Lenders shall be terminated). Each prepayment of principal on the Loans
pursuant to this subsection 2.3(d) shall be accompanied by payment of all
accrued but unpaid interest on the principal amount prepaid and any amounts
required to be paid pursuant to Section 2.9 as a result of such prepayment.
(e) If the Collateral Trustee shall hold as
collateral any proceeds resulting from the sale of any natural gas compressors
or oil and gas production equipment and such proceeds are applied to the
secured obligations under the Collateral Trust Agreement in accordance with the
Collateral Trust Agreement, the Borrower shall prepay to the Agent, for the
ratable benefit of the Lenders holding an interest in the Loans, the
outstanding principal amount of the Loans under this Agreement in an amount
equal to the amount of such application allocated to the Agent and the Lenders
under the Collateral Trust Agreement. Each prepayment of principal on Loans
pursuant to this subsection 2.3(e) shall be accompanied by payment of all
accrued but unpaid interest on the principal amount prepaid and any amounts
required to be paid pursuant to Section 2.9 as a result of such prepayment.
All prepayments required pursuant to this subsection 2.3(e) shall be applied to
the Loans ratably in accordance with the outstanding principal amount of each
Loan, and shall be applied to the required payments of principal on each Loan
being prepaid in the inverse order of maturity.
(f) If the Collateral Trustee shall hold as
collateral any proceeds resulting from any business interruption, casualty, or
condemnation, including, without limitation, any business interruption
insurance proceeds, any property insurance proceeds, or any condemnation
proceeds, and such proceeds are applied to the secured obligations under the
Collateral Trust Agreement in accordance with the Collateral Trust Agreement,
the Borrower shall prepay to the Agent, for the ratable benefit of the Lenders
holding an interest in the Loans, the outstanding principal amount of the Loans
under this Agreement in an amount equal to the amount of such application
allocated to the Agent and the Lenders under the Collateral Trust Agreement.
Each prepayment of principal on Loans pursuant to this subsection 2.3(f) shall
be accompanied by payment of all accrued but unpaid interest on the principal
amount prepaid and any amounts required to be paid pursuant to Section 2.9 as a
result of such prepayment. All prepayments required pursuant to this
subsection 2.3(f) shall be applied to the Loans ratably in accordance with
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the outstanding principal amount of each Loan, and shall be applied to the
required payments of principal on each Loan being prepaid in the inverse order
of maturity.
(g) If during the existence of a Default or Event
of Default the Collateral Trustee shall make any distribution to the Agent or
the Lenders under the Collateral Trust Agreement, the Borrower shall prepay to
the Agent for the ratable benefit of the Lenders holding an interest in the
Loans, the outstanding principal amount of the Loans under this Agreement in an
amount equal to the amount of such distribution to the Agent and the Lenders
under the Collateral Trust Agreement. Each prepayment of principal on Loans
pursuant to this subsection 2.3(g) shall be accompanied by payment of all
accrued but unpaid interest on the principal amount prepaid and any amounts
required to be paid pursuant to Section 2.9 as a result of such prepayment.
All prepayments required pursuant to this subsection 2.3(g) shall be applied to
the Loans ratably in accordance with the outstanding principal amount of each
Loan, and shall be applied to the required payments of principal on each Loan
being prepaid in the inverse order of maturity.
Section 2.4 Repayment.
(a) For each Loan, the corresponding Notes shall
set forth the principal repayment schedule selected for such Loan by the
Borrower provided that (i) payments shall be due only on Payment Dates, (ii)
the Loan Maturity Date for such Loan shall not exceed seven years from the date
of the making of such Loan and shall not exceed the Final Maturity Date, and
(iii) after taking into account the scheduled principal payments on such Loan,
the consolidated scheduled principal payments on Indebtedness of the Borrower
and its Qualified Subsidiaries during each year while any Loans will remain
outstanding (other than scheduled principal payments under revolving credit
facilities of the Borrower and its Qualified Subsidiaries during such period
resulting from the maturity of such revolving credit facilities to the extent
such scheduled principal payments are reasonably expected to be extended,
renewed, rearranged, or refinanced under revolving credit facilities maturing
beyond such period) cannot exceed the greater of (x) 65% of the Consolidated
EBITDA of the Borrower and its Qualified Subsidiaries for the four fiscal
quarters most recently ended at the time of the selection of the repayment
schedule by the Borrower or (y) the projected consolidated depreciation expense
and amortization expense of the Borrower and its Qualified Subsidiaries during
each year while any Loans will remain outstanding, as determined by the Agent
after consultation with the Borrower.
(b) The Borrower shall repay to the Agent, for
the ratable benefit of the Lenders holding an interest in each Loan, the
outstanding principal amount of such Loan in accordance with the terms of the
corresponding Notes. The Borrower shall repay to the Agent, for the ratable
benefit of the Lenders holding an interest in the Loans, the aggregate
outstanding principal amount of all Loans on the Final Maturity Date.
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Section 2.5 Fees.
(a) The Borrower shall pay the fees specified in
the Agent Fee Letter in accordance with the confidential terms of the Agent Fee
Letter.
(b) (i) During any period while the Commitments
of the Lenders under this Agreement exceed $50,000,000, the Borrower shall pay
to the Agent, for the ratable benefit of the Lenders holding Commitments, a
standby fee equal to 0.50% per annum on the average daily amount by which
$50,000,000 exceeds the aggregate outstanding principal amount of the Loans and
an additional standby fee equal to 0.25% per annum on the average daily amount
by which the aggregate amount of the Commitments exceeds $50,000,000; provided,
however, that in the event that the aggregate outstanding principal amount of
the Loans ever exceeds $50,000,000, retroactively beginning as of January 1 of
the year during which the aggregate outstanding principal amount of the Loans
exceeds $50,000,000, the Borrower shall instead pay to the Agent, for the
ratable benefit of the Lenders holding Commitments, a standby fee equal to
0.50% per annum on the average daily amount by which the aggregate amount of
the Commitments exceeds the aggregate outstanding principal amount of the Loans
and (ii) during any period while the Commitments of the Lenders under this
Agreement are equal to or less than $50,000,000, the Borrower shall pay to the
Agent, for the ratable benefit of the Lenders holding Commitments, a standby
fee equal to 0.50% per annum on the average daily amount by which the aggregate
amount of the Commitments exceeds the aggregate outstanding principal amount of
the Loans. The standby fee set forth in this paragraph shall accrue from the
date of this Agreement through the Drawdown Termination Date and shall be due
and payable in arrears on the last day during each calendar quarter and on the
Drawdown Termination Date.
Section 2.6 Interest.
(a) Under the Loan Request provided to the Agent
in connection with the making of each Loan, the Borrower shall select such Loan
to accrue interest as a LIBOR Rate Loan or a Prime Rate Loan.
(b) For each Loan, the corresponding Notes shall
state that the Borrower may from time to time select such Loan to accrue
interest as either a LIBOR Rate Loan or a Prime Rate Loan by giving the Agent
four Business Days advance notice of the Borrower's intent to convert the
interest rate basis of such Loan.
(i) The corresponding Notes shall state
that while such Loan is bearing interest as a LIBOR Rate Loan (A) such
LIBOR Rate Loan shall bear interest during each Interest Period
selected by the Borrower in writing at a per annum interest rate equal
to the sum of the applicable LIBOR for such Interest
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Period plus the Applicable Margin for such LIBOR Rate Loan, (B) the
Borrower may select each successive Interest Period for such LIBOR
Rate Loan at any time four or more Business Days prior to the end of
the then current Interest Period for such LIBOR Rate Loan by giving
written notice thereof to the Agent, (C) the Borrower shall pay to the
Agent, for the ratable benefit of the Lenders holding an interest in
such LIBOR Rate Loan, all accrued but unpaid interest on such LIBOR
Rate Loan thereunder on the last day of each Interest Period for such
LIBOR Rate Loan (and with respect to any LIBOR Rate Loan with an
Interest Period of greater than three months, on the date which is
three months after the first date of the Interest Period for such
LIBOR Rate Loan), on any date when such LIBOR Rate Loan is converted
to a Prime Rate Loan, on any date when such LIBOR Rate Loan is prepaid
in full, and on the applicable Loan Maturity Date for such Loan, and
(D) if the Borrower has not selected or cannot select any Interest
Period for the LIBOR Rate Loan in accordance with the foregoing, the
Borrower shall be deemed to have elected to convert such LIBOR Rate
Loan to a Prime Rate Loan at the end of the then current Interest
Period.
(ii) The corresponding Notes shall state
that while such Loan is bearing interest as a Prime Rate Loan (A) such
Prime Rate Loan shall bear interest at a per annum interest rate equal
to the sum of the Adjusted Prime Rate in effect from time to time plus
the Applicable Margin for such Prime Rate Loan and (B) the Borrower
shall pay to the Agent, for the ratable benefit of the Lenders holding
an interest in such Prime Rate Loan, all accrued but unpaid interest
on such Prime Rate Loan on the last day of each calendar quarter while
such Prime Rate Loan is outstanding, on any date when such Prime Rate
Loan is converted to a LIBOR Rate Loan, on any date when such Prime
Rate Loan is prepaid in full, and on the applicable Loan Maturity Date
for such Loan.
(c) The Borrower shall pay to the Agent, for the
ratable benefit of the Lenders holding an interest in each Loan, all accrued
but unpaid interest on the outstanding principal amount of such Loan in
accordance with the terms of the corresponding Notes. The Borrower shall pay
to the Agent, for the ratable benefit of the Lenders holding an interest in the
Loans, all accrued but unpaid interest on the aggregate outstanding principal
amount of all Loans on the Final Maturity Date.
(d) At the request of the Borrower, JEDI or its
Affiliates shall enter into Derivative agreements with the Borrower hedging the
interest rate risk related to any Loan for the Borrower on terms mutually
satisfactory to JEDI or its Affiliates and the Borrower.
(e) If on any date the applicable interest rates
on the consolidated Indebtedness of the Borrower and its Qualified Subsidiaries
have increased such that, if such increased interest rates had been in effect
during the previous four fiscal quarters of the Borrower, then the Consolidated
Fixed Charge Coverage Ratio of the Borrower and its Qualified Subsidiaries for
such previous four fiscal quarters, recomputed as if such rates had been in
effect during such previous four fiscal quarters (and after taking into account
the hedging effect of the interest rate
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Derivatives held by the Borrower and its Qualified Subsidiaries which would
have occurred during the previous four fiscal quarters of the Borrower had such
rates been in effect), would have been reduced by 10%, upon written request of
the Agent the Borrower shall enter into such Derivative agreements permitted by
Section 5.9 as reasonably requested by the Agent to reduce or remove any
further interest rate risk of the Borrower and its Qualified Subsidiaries.
Section 2.7 Records, Payments, and Computations.
(a) To evidence each Advance made by a Lender as
part of a Loan made under this Agreement, the Borrower will issue, execute, and
deliver to such Lender a Note in the amount of such Advance. Each time an
Advance is made or a payment is received, each Lender holding a Note is hereby
irrevocably authorized by the Borrower to make an appropriate notation on a
ledger forming a part of such Note reflecting the amount loaned or paid and the
date thereof; provided however, the failure of any Lender to do so shall not
relieve the Borrower or any other liable party of its liability hereunder or
under such Note or subject the Borroweror any other liable party to additional
liability under such Note. Furthermore, each Lender holding a Note is hereby
irrevocably authorized by the Borrower to attach to and to make a part of such
Note a continuation of any such schedule of the Advance and payments, as and
when required, reflecting the amount paid and the date of such payment. The
aggregate unpaid amount of the Advance under any Note reflected by the
notations by the applicable Lender in its records or a ledger sheet or sheets
affixed to such Note shall be deemed conclusive evidence thereof, absent
manifest error, of the principal amount owing on such Note. The liability for
payment of principal and interest evidenced by each Note shall be limited to
the principal amounts actually loaned and outstanding under such Note and this
Agreement and interest on such amounts calculated in accordance with such Note
and this Agreement.
(b) All payments and prepayments made by or on
behalf of the Borrower under the Loan Documents, including payments made under
the Collateral Trust Agreement, shall be made by wire transfer in immediately
available funds before 12:00 noon (Houston, Texas, time) on the date such
payment is required to be made to the Applicable Payment Office for the Agent.
Any payment received and accepted by the Agent after such time shall be
considered for all purposes, including the calculation of interest, as having
been made on the Agent's next following Business Day. All payments by the
Borrower shall be made without any offset, abatement, withholding, or
reduction. All payments and prepayments allocable to the Agent or the Lenders
under the Collateral Trust Agreement shall be paid directly to the Applicable
Payment Office for the Agent. Any amounts received by any Lenders in violation
of the foregoing shall be held by such Lender in trust for the Agent and
promptly paid over to the Agent (with any necessary endorsement).
(c) Upon receipt of payment from the Borrower of
any principal, interest, or fees due to the Lenders, the Agent shall promptly
after receipt thereof distribute to the
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Lenders their ratable share of such payments for the account of their
respective Applicable Payment Offices. Upon receipt of other amounts due
solely to the Agent or a specific Lender, the Agent shall distribute such
amounts to the appropriate party to be applied in accordance with the terms of
this Agreement.
(d) Unless the Agent shall have received written
notice from the Borrower prior to any date on which any payment is due from the
Borrower under this Agreement and the Loan Documents that the Borrower shall
not make such payment in full, the Agent may assume that the Borrower has made
such payment in full to the Agent on such date and the Agent may, in reliance
upon such assumption, cause to be distributed to each Lender that is due
payment on such date an amount equal to the amount then due to such Lender. If
and to the extent the Borrower shall not have so made such payment in full to
the Agent, each Lender receiving payment shall repay to the Agent forthwith on
demand such amount distributed to such Lender, together with interest thereon
from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Agent, at an interest rate equal to the
Adjusted Prime Rate in effect from time to time provided that if such amount is
not repaid by such Lender by the end of the second day after the date of the
Agent's demand, the interest rates specified above shall be increased by a per
annum amount equal to 2.00% on the third day after the date of the Agent's
demand and shall remain at such increased rate thereafter.
(e) Each Lender agrees that if it should receive
any payment (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise)
in respect of any obligation of the Borrower to pay principal, interest, or
fees incurred under the Loan Documents in a proportion greater than the total
amount of such principal, interest, or fees then due by the Borrower to such
Lender bears to the total amount of principal, interest, or fees then due by
the Borrower to all of the Lenders which are owed such principal, interest, or
fees immediately prior to such receipt, then such Lender receiving such excess
payment of principal, interest, or fees, as the case may be, shall purchase for
cash without recourse from the other Lenders which are due such principal,
interest, or fees an interest in such principal, interest, or fees owed by the
Borrower to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders which are due such principal, interest, or
fees in the aggregate unpaid amount of principal, interest, or fees owed by the
Borrower to such Lenders; provided that if all or any portion of such excess
payment is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
(f) [Reserved].
(g) Unless expressly provided for in this
Agreement or in any Note, (i) all computations of interest based on the Prime
Rate shall be made on the basis of a 365/366 day
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year, as the case may be, (ii) all computations of interest based on the
Federal Funds Rate shall be made on the basis of a 360 day year, (iii) all
computations of interest based upon the LIBOR shall be made on the basis of a
360 day year, and (iv) all computations of fees shall be made on the basis of a
365/366 day year. All such computations shall be made for the actual number of
days (including the first day, but excluding the last day) occurring in the
period for which such computation is being performed. Interest provided for
under this Agreement and the Notes shall be calculated on the unpaid sums
actually loaned and outstanding pursuant to the terms of this Agreement and the
applicable Notes and only for the period from the date or dates advanced until
repaid. Each determination by the Agent of an interest rate or fee shall be
conclusive and binding for all purposes, absent manifest error.
(h) Whenever any payment under any Loan Document
shall be stated to be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day. In either case, such
extension of time shall be included in the computation of the payment of
interest, fees, or such other amount due on the outstanding amount. If the
time for payment for an amount payable is not specified in any Loan Document,
the payment shall be due and payable ten days after the date on which the Agent
demands payment therefor.
Section 2.8 Taxes.
(a) Any and all payments by the Loan Parties
shall be made free and clear of and without deduction for any and all present
or future taxes, levies, imposts, deductions, charges, or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and the
Agent, taxes imposed on its income and franchise taxes imposed on it by any
jurisdiction of which such Lender is a citizen or resident or any political
subdivision of such jurisdiction (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings, and liabilities being hereinafter referred
to as "Taxes") and, in the case of each Lender and the Agent, Taxes by the
jurisdiction of such Lender's Applicable Lending Office or any political
subdivision of such jurisdiction. If any Loan Party shall be required by law
to deduct any Taxes from or in respect of any sum payable to each Lender and
the Agent, (i) the sum payable shall be increased as may be necessary so that,
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.8), such Lender receives an amount
equal to the sum it would have received had no such deductions been made; (ii)
such Loan Party shall make such deductions; and (iii) such Loan Party shall pay
the full amount deducted to the relevant taxation authority or other authority
in accordance with applicable law.
(b) The Borrower agrees to pay and hold the Agent
and each Lender harmless from and against any and all present and future stamp
and other similar taxes with respect to this Agreement and Loan Documents and
save the Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or omission to pay such
taxes, and indemnify the Agent and each Lender for the full amount of taxes
paid by the
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Agent or such Lender in respect of payments made or to be made under this
Agreement or any other Loan Document and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto, whether or
not such taxes were correctly or legally asserted (excluding, in the case of
the Agent and each Lender, taxes imposed on its income and franchise taxes
imposed on it by any jurisdiction of which such Lender is a citizen or resident
or any political subdivision of such jurisdiction).
(c) Each Lender that is not incorporated under
the laws of the United States of America or a state thereof agrees that it
shall deliver to the Borrower and the Agent (i) two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224 or successor
applicable form, as the case may be, certifying in each case that such Lender
is entitled to receive payments under this Agreement and the Notes payable to
it, without deduction or withholding of any United States federal income taxes,
(ii) if applicable, an Internal Revenue Service Form W-8 or W-9 or successor
applicable form, as the case may be, to establish an exemption from United
States backup withholding tax, and (iii) any other governmental forms which are
necessary or required under an applicable tax treaty or otherwise by law to
reduce or eliminate any withholding tax, which have been reasonably requested
by the Borrower. Each Lender which delivers to the Borrower and the Agent a
Form 1001 or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence
further undertakes to deliver to the Borrower and the Agent two further copies
of the said letter and Form 1001 or 4224 and Form W-8 or W-9, or successor
applicable forms, or other manner of certification, as the case may be, on or
before the date that any such letter or form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent letter
and form previously delivered by it to the Borrower and the Agent, and such
extensions or renewals thereof as may reasonably be requested by the Borrower
and the Agent certifying in the case of a Form 1001 or 4224 that such Lender is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes. The Borrower shall
withhold tax at the rate and in the manner required by the laws of the United
States with respect to payments made to a Lender failing to provide the
requisite Internal Revenue Service forms in a timely manner. If an event
(including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any delivery required by the preceding
sentence would otherwise be required which renders all such forms inapplicable
or which would prevent any Lender from duly completing and delivering any such
letter or form with respect to it and such Lender advises the Borrower and the
Agent that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and in the case of a Form W-8
or W-9, establishing an exemption from United States backup withholding tax,
such Lender shall not be required to deliver such letter or forms. Each Lender
which fails to provide to the Borrower in a timely manner such forms shall
reimburse the Borrower upon demand for any penalties paid by the Borrower as a
result of any failure of the Borrower to withhold the required amounts that are
caused by such Lender's failure to provide the required forms in a timely
manner.
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(d) Notwithstanding the foregoing paragraphs (a)
through (c) above, before making any demand for payment under this Section 2.8,
each Lender agrees to use commercially reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Applicable Lending Office if the making of such a designation would avoid the
need for, or reduce the amount of, such payments required under this Section
2.8.
Section 2.9 Make-Whole Provisions.
(a) If (i) any payment of principal on or any
conversion of any LIBOR Rate Loan is made on any date other than the last day
of the Interest Period for such LIBOR Rate Loan, whether as a result of any
voluntary or mandatory prepayment, any acceleration of maturity, or any other
cause (other than any regularly scheduled principal repayment), (ii) any
payment of principal on any LIBOR Rate Loan is not made when due, or (iii) any
LIBOR Rate Loan is not borrowed, converted, or prepaid in accordance with the
respective request therefor provided by the Borrower to the Agent, whether as a
result of any failure to meet any applicable conditions precedent for
borrowing, conversion, or prepayment, the permitted cancellation of any request
for borrowing, conversion, or prepayment, the failure of the Borrower to
provide the respective notice of borrowing, conversion, or prepayment, or any
other cause; then in such event the Borrower shall, upon demand of any Lender,
pay to such Lender such amounts as are required to compensate such Lender for
any losses, costs, or expenses which it may reasonably incur as a result of any
such payment or nonpayment, including any lost profits resulting from
liquidation or reinvestment of deposits, equity contributions, or other funds
acquired by such Lender to maintain or fund the LIBOR Rate Loans for the
duration of the applicable Interest Period and all properly documented and
reasonable administrative expenses incurred in connection therewith. A
certificate as to the amount of such losses, costs, or expenses detailing the
calculation thereof prepared by such Lender and submitted to the Borrower shall
be conclusive and binding for all purposes, absent manifest error.
(b) Should the Borrower make any prepayment of
any principal portion of any Loan, whether as a result of any voluntary or
mandatory prepayment, the acceleration of the maturity of the Loan, or
otherwise, then the Borrower shall pay to JEDI or its Affiliates upon demand an
amount sufficient to compensate each such Person which has entered into
Derivatives hedging the interest rate risk allocable to such Loan for any loss,
cost, or expense, including any lost profits and termination penalties,
allocable to the termination of such Derivative. A certificate as to the
amount of such loss, cost, or expense detailing the calculation thereof
prepared by such Person and submitted to the Borrower shall be conclusive and
binding for all purposes, absent manifest error.
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Section 2.10 Increased Costs.
(a) Cost of Funds. If, due to either the
introduction of or any change in or in the interpretation, application, or
applicability of any law or regulation, or the compliance with any guideline or
request from any Governmental Authority (whether or not having the force of
law), there shall be any increase in the cost to any Lender of funding or
maintaining Loans, including any increase in any applicable reserve requirement
for LIBOR Rate Loans, or any reduction of such Lender's reasonably anticipated
return on its investment, then the Borrower shall from time to time upon demand
by such Lender pay to such Lender such additional amounts sufficient to
compensate such Lender for such increased cost or reduced return. A
certificate as to the amount of such increased cost or reduced return detailing
the calculation thereof prepared by such Lender and submitted to the Borrower
shall be conclusive and binding for all purposes, absent manifest error.
(b) Capital Adequacy. If due to any change in
any law or regulation or any interpretation, directive, or request of any court
or governmental or monetary authority, whether or not having the force of law,
there shall be any increase by an amount which such Lender reasonably deems to
be material in the capital requirements of any Lender or its parent or holding
company related to its commitments to make or the making, funding, or
maintaining of any Loans hereunder, as such capital requirements are reasonably
allocated by such Lender, then the Borrower shall from time to time upon demand
by such Lender pay to such Lender additional amounts sufficient to compensate
such Lender or its parent or holding company for such increase in costs
(including an amount equal to any reduction of the rate of return on assets or
equity of such Lender or its parent or holding company to a level below that
which such Lender or its parent or holding company could have achieved but for
such change in law, regulation, interpretation, directive, or request). A
certificate as to such amounts and detailing the calculation of such amounts
prepared by such Lender and submitted to the Borrower shall be conclusive and
binding for all purposes, absent manifest error.
Section 2.11 Illegality.
(a) LIBOR Funding. Notwithstanding any other
provision in this Agreement, if it becomes unlawful for any Lender to obtain
deposits or other funds for making or funding of LIBOR Rate Advances in the
London interbank market or other deposits or funds market customarily used by
such Lender, such Lender will so notify the Borrower and such Lender's
obligation to make LIBOR Rate Advances shall be suspended until such condition
has passed and, upon the expiration of the applicable Interest Period for each
LIBOR Rate Loan, or sooner if required by law, such Lender shall convert its
LIBOR Rate Advance which is part of such LIBOR Rate Loan to a Prime Rate
Advance. Such Lender's Advances for all LIBOR Rate Loans requested thereafter
shall be made as and maintained as Prime Rate Advances in accordance with this
Agreement and the applicable Notes.
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(b) Generally. Notwithstanding any other
provision in this Agreement, if it becomes unlawful for any Lender to maintain
Advances or to give effect to its obligations hereunder, such Lender will so
notify the Agent and the Borrower, and to the extent necessary to prevent the
violation of law the aggregate outstanding principal amount of Advances made by
such Lender, all accrued but unpaid interest thereon, and any other amounts
payable to such Lender under this Agreement and the other Loan Documents will
be prepaid as provided in such notice, and such Lender's Commitment hereunder
shall be terminated.
Section 2.12 Market Failure. Notwithstanding any other provision
in this Agreement, if the Agent determines that: (a) quotations of interest
rates for the relevant deposits referred to in the definition of "LIBOR" or (b)
the relevant rates of interest referred to in the definition of "LIBOR" which
are used as the basis to determine the rate of interest for LIBOR Rate Loans
are not likely to adequately cover the cost to the Lenders of maintaining such
LIBOR Rate Loans, then the Agent shall give the Borrower prompt notice thereof
and, upon the expiration of the applicable Interest Period for each LIBOR Rate
Loan, such LIBOR Rate Loan shall convert to a Prime Rate Loan. All LIBOR Rate
Loans shall thereafter be made as and maintained as Prime Rate Loans in
accordance with this Agreement and the applicable Notes.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make Loans hereunder, the Borrower represents and warrants to
the Agent and the Lenders on the date hereof, on the date of each Loan Request,
and on the date of each Loan made hereunder that:
Section 3.1 Financial Condition.
(a) The consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at December 31, 1994, and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date reported on by Price Waterhouse (the "Financial
Statements"), together with the consolidating schedules used to prepare the
Financial Statements, copies of all of which have heretofore been furnished to
the Agent, are complete and correct and present fairly the financial condition
of the Borrower and its consolidated Subsidiaries as at such dates, and the
results of their operations and cash flows for the fiscal year then ended. The
unaudited consolidated balance sheets of the Borrower and its consolidated
Subsidiaries as at September 30, 1995, and the related unaudited consolidated
statements of income and of cash flows for the fiscal quarter ended on such
date certified to the Agent by a Responsible Officer of the Borrower (the
"Interim Financial Statements"), copies of all of which have heretofore been
furnished to the Agent, are complete and correct and present fairly the
financial condition of the Borrower and its consolidated Subsidiaries as at
such date, and the results of their operations and
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consolidated cash flows for the fiscal quarter then ended (subject to normal
year-end audit adjustments).
(b) All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except for changes within
GAAP which are approved by such accountants or Responsible Officer of the
Borrower, as the case may be, and disclosed therein). Except as disclosed in
Schedule II, neither the Borrower nor any of its consolidated Subsidiaries had,
at the date of the Financial Statements or Interim Financial Statements, any
material Guarantee Obligation, contingent liability, or liability for taxes, or
any long-term lease or unusual forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction, which is not reflected in the Financial Statements, the Interim
Financial Statements, or in the notes thereto. Except as disclosed in Schedule
II, during the period from the date of the Financial Statements to and
including the date hereof there has been no sale, transfer, or other
disposition by the Borrower or any of its consolidated Subsidiaries of any
material part of their respective business or property and no purchase or other
Acquisition material in relation to the consolidated financial condition of the
Borrower and its consolidated Subsidiaries as at the date of the Interim
Financial Statements.
(c) The pro forma consolidated balance sheet of
the Borrower certified by the chief financial officer of the Borrower to the
Agent as being the unaudited consolidated balance sheet of the Borrower as of
September 30, 1995, adjusted for the equity transactions completed since such
date and any transactions related thereto, the transactions contemplated by
this Agreement, and the transactions contemplated by the Chemical Credit
Agreement, is, together with the notes thereto, a good faith estimate on a pro
forma basis of the consolidated financial position of the Borrower as of
September 30, 1995, as adjusted as described above assuming that the
transactions specified above had actually occurred on September 30, 1995.
Section 3.2 No Change. Since the date of the Financial
Statements, (a) there has been no development or event nor any prospective
development or event, which has had or would reasonably be expected to have a
Material Adverse Effect and (b) except as disclosed in Schedule II, no
dividends or other distributions have been declared, paid, or made upon the
Capital Stock of the Borrower nor has any of the Capital Stock of the Borrower
been redeemed, retired, purchased, or otherwise acquired for value by the
Borrower or any of its respective Subsidiaries.
Section 3.3 Corporate Existence; Compliance with Law. Each Loan
Party (a) is duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its organization, (b) has the corporate power and
authority, and the legal right, to own and operate its owned property, to lease
the property it operates as lessee, and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease, or
operation of property or the conduct
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of its business requires such qualification, except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse Effect,
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith would not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 3.4 Corporate Power; Authorization; Enforceable
Obligations. Each Loan Party has the corporate power and authority, and the
legal right, to make, deliver, and perform the Loan Documents to which it is a
party and, with respect to the Security Documents to which it is a party, to
grant the Liens pursuant thereto. The Borrower has the corporate power and
authority, and the legal right, to borrow hereunder and has taken all necessary
corporate action to authorize the borrowings on the terms and conditions of
this Agreement and the Loan Documents. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery, and performance of the
Loan Documents to which it is a party and, with respect to the Security
Documents to which it is a party, to grant the Liens pursuant thereto. Except
for consents and authorizations which have been obtained, filings which have
been made, and other actions which have been taken, no consent or authorization
of, filing with, or other act by or in respect of any Governmental Authority or
any other Person (other than consents under contracts which the failure to
obtain would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect) is required in connection with the borrowings hereunder or with
the execution, delivery, performance, validity, or enforceability of this
Agreement, the Notes, or any of the other Loan Documents or, with respect to
the Security Documents, the granting of the Liens thereunder. This Agreement
and the Loan Documents executed in connection herewith have been, and each Note
and each other Loan Document will be, duly executed and delivered on behalf of
the Loan Parties party thereto. This Agreement and the Loan Documents executed
in connection herewith constitute, and each Note and each other Loan Document
when executed and delivered will constitute, a legal, valid, and binding
obligation of the Loan Parties party thereto enforceable against such Loan
Parties in accordance with their respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
Section 3.5 No Legal Bar. The execution, delivery, and
performance of this Agreement, the Notes, and the other Loan Documents, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or Contractual Obligation of any Loan Party thereto and will
not result in, or require, the creation or imposition of any Lien on any of
their respective properties or revenues pursuant to any such Requirement of Law
or Contractual Obligation, except as contemplated hereby or thereby.
Section 3.6 No Material Litigation. No litigation,
investigation, or proceeding by or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Borrower, threatened by or
against any Loan Party or against any of their respective properties or
revenues
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(a) with respect to this Agreement, the Notes, or the other Loan Documents or
any of the transactions contemplated hereby, or (b) which would reasonably be
expected to have a Material Adverse Effect.
Section 3.7 No Default. None of the Loan Parties nor any of
their respective Subsidiaries is in default under or with respect to any of
their respective Contractual Obligations in any respect which if not cured
would reasonably be expected to have a Material Adverse Effect. To the best of
the Borrower's knowledge, no third party is in default under or with respect to
any Contractual Obligation with any Loan Party or its Subsidiaries in any
respect which if not cured would reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
Section 3.8 Ownership of Property Liens; Leases of Equipment.
Each of the Loan Parties has good and marketable title in fee simple (except
for exceptions to title as will not in the aggregate materially interfere with
the present or contemplated use of the property affected thereby) to, or a
valid leasehold interest in, all its real property, and good and marketable
title to all its other property, and none of such property is subject to any
Lien except Permitted Liens. None of the Equipment or Inventory (as defined in
any Security Agreement) owned by any Loan Party has been leased by such Loan
Party as lessor, except pursuant to operating leases (which do not constitute
Financing Leases) which are in one of the forms (with appropriate insertions as
to date, amounts, parties, and designation of Equipment or Inventory (as so
defined therein) covered thereby, and other minor deviations which do not
materially alter the terms thereof) attached hereto as part of Schedule II, as
the same may be modified from time to time as set forth in subsection 5.6(c).
Prior to the execution of this Agreement, Hanover Maintech has assigned all
leases of Equipment or Inventory owned by Hanover Maintech prior to the date of
this Agreement to the Borrower and, as of the date of this Agreement, Hanover
Maintech does not lease as lessor any Inventory or Equipment owned by Hanover
Maintech. None of the natural gas compressors and related equipment owned by
any Loan Party constitutes "fixtures" under the Uniform Commercial Code or
other applicable law of any jurisdiction in which such natural gas compressors
and related equipment are located. As used herein, Equipment or Inventory
leased by a Loan Party under a Financing Lease shall be deemed to be "owned" by
such Loan Party.
Section 3.9 Intellectual Property. Each Loan Party owns, or is
licensed to use, all trademarks, tradenames, trade secrets, copyrights,
technology, know-how, and processes necessary for the conduct of its business
as currently conducted (the "Intellectual Property") except for those the
failure to own or license which would not reasonably be expected to have a
Material Adverse Effect. To the knowledge of the Borrower, no claim has been
asserted and is pending by any Person challenging or questioning the use of any
such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does the Borrower know of any valid basis for any
such claim, which would reasonably be expected to have a Material Adverse
Effect. The use of such Intellectual Property by the Loan Parties does not
infringe on the rights of any Person,
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except for such claims and infringements that, in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
Section 3.10 No Burdensome Restrictions. Except as set forth in
Schedule II, no Requirement of Law or Contractual Obligation of any Loan Party
would reasonably be expected to have a Material Adverse Effect.
Section 3.11 Taxes. Each of the Loan Parties has filed or caused
to be filed all tax returns which, to the knowledge of the Borrower, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees, or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of any of the Loan Parties, as the case may be), no tax Lien has been
filed against the property of any Loan Party, and, to the knowledge of the
Borrower, no claim is being asserted with respect to any such tax, fee, or
other charge which would reasonably be expected to have a Material Adverse
Effect.
Section 3.12 Federal Regulations. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U as now and
from time to time hereafter in effect or for any purpose which violates the
provisions of the Regulations of such Board of Governors. If requested by the
Agent, the Borrower will furnish to the Agent a statement to the foregoing
effect in conformity with the requirements of FR Form U-1 referred to in said
Regulation U.
Section 3.13 ERISA. Neither a Reportable Event nor an
"accumulated funding deficiency" (within the meaning of Section 412 of the Code
or Section 302 of ERISA) has occurred during the five-year period prior to the
date on which this representation is made or deemed made with respect to any
Plan, and each Plan has complied in all material respects with the applicable
provisions of ERISA and the Code. No termination of a Single Employer Plan has
occurred and no Lien in favor of the PBGC or a Plan has arisen during the
five-year period prior to the date as of which this representation is deemed
made. The present value of all accrued benefits under each Single Employer
Plan maintained by the Borrower or any Commonly Controlled Entity (based on
those assumptions used to fund the Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Borrower nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization
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or Insolvent. The present value (determined using actuarial and other
assumptions which are reasonable in respect of the benefits provided and the
employees participating) of the liability of the Borrower and each Commonly
Controlled Entity for post retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits.
Section 3.14 Investment Company Act; Other Regulations. None of
the Loan Parties is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended. None of the Loan Parties is subject to regulation under any
Federal or State statute or regulation which limits its ability to incur
Indebtedness or change rates or change tariffs. None of the Loan Parties are
"holding companies" or "subsidiary companies" of a "holding company" or a
"subsidiary company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 3.15 Subsidiaries. As of the date of this Agreement, the
Borrower has no Subsidiaries except as disclosed in Schedule II. Except as
disclosed in Schedule II, all shares of capital stock of each Subsidiary of the
Borrower have been duly and validly authorized and issued and are fully paid
and nonassessable and are owned by the Borrower free and clear of all Liens or
other encumbrances other than those in favor of the Collateral Trustee. 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 any Subsidiary of the Borrower any capital stock of such
Subsidiary of the Borrower. There are no obligations or securities convertible
into or exchangeable for any shares of capital stock of any Subsidiary of the
Borrower or any commitments of any character relating to or entitling any
Person to purchase or otherwise acquire any such obligations or securities.
There are no preemptive or similar rights to subscribe for or to purchase any
capital stock of any Subsidiary of the Borrower. Except as required in the
Pledge Agreements, no Subsidiary of the Borrower has entered into any agreement
to register its equity or debt securities under the Securities Act of 1933, as
amended.
Section 3.16 Purpose of Loans. The proceeds of the Loans shall be
used only for the general corporate purposes of the Borrower and its
Subsidiaries in the ordinary course of business, for the acquisition by the
Borrower and its Subsidiaries of natural gas compressors, oil and gas
production equipment, and related equipment, for Acquisitions, for the
repayment of the Indebtedness of the Borrower and its Subsidiaries existing
prior to the date of this Agreement, and for the reasonable fees, expenses, and
financing costs incurred by the Borrower in connection with the foregoing. The
proceeds of the Loans shall not be used for any purpose which violates
applicable Requirements of Law, including laws regulating investments in
foreign jurisdictions.
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Section 3.17 Environmental Matters. Except as set forth in
Schedule II, each of the representations and warranties set forth in paragraphs
(a) through (h) of this Section is true and correct with respect to the
Borrower and its Subsidiaries and to each parcel of real property owned or
leased by the Borrower or any of its Subsidiaries currently or since 1990 (the
"Properties"), except as circumstances giving rise to any such failure to be so
true and correct would not reasonably be expected to have a Material Adverse
Effect:
(a) The Properties do not contain and have not
previously contained, therein, thereon, or thereunder, including,
without limitation, the soil and groundwater thereunder, any Hazardous
Materials in concentrations which violate Environmental Laws;
(b) The Properties, and all operations and
facilities at the Properties, possess all licenses, permits,
certificates, and registrations required by law and are in compliance
with all Environmental Laws;
(c) There is no Hazardous Materials contamination
or violation of any Environmental Law which could interfere with the
continued operation of any of the Properties or impair the fair
saleable value thereof;
(d) Neither the Borrower nor any of its
Subsidiaries has received any written complaint, or notice of
violation, alleged violation, investigation, advisory action,
potential liability, or potential responsibility, regarding
environmental protection matters or permit compliance with regard to
the Properties, nor is the Borrower aware that any Governmental
Authority or third party is contemplating delivering to the Borrower
or any of its Subsidiaries any such notice;
(e) Hazardous Materials have not been generated,
released, treated, stored, or disposed of at, on, or under any of the
Properties, nor have any Hazardous Materials been transferred from the
Properties to any other location;
(f) There are no governmental, administrative, or
judicial actions or proceedings pending under any Environmental Laws
to which the Borrower or any of its Subsidiaries is or will be named
as a party with respect to the Properties, nor are there any consent
decrees, other decrees, consent orders, administrative orders, or
other orders, or other administrative or judicial requirements,
outstanding under any Environmental Law with respect to any of the
Properties;
(g) Neither the Borrower nor its Subsidiaries is
an owner or operator of any facility or operation which is in
violation of any Environmental Law or at which there has been or
exists a release or threatened release of Hazardous Materials to the
environment; and
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(h) Neither the Borrower nor any of its
Subsidiaries, nor any of their officers, employees, or agents has
arranged or is arranging, by contract, agreement, or otherwise for the
disposal, storage, or treatment of, or with a transporter for the
transport, storage, disposal, or treatment of, any Hazardous
Materials.
Section 3.18 Accuracy and Completeness of Information. The
factual statements contained in the Loan Documents and each other agreement,
instrument, certificate, and document related thereto and any other
certificates or documents furnished to the Agent or the Lenders by any Loan
Party from time to time in connection with this Agreement (other than financial
statements provided to the Agent or the Lenders), taken as a whole, and taking
into consideration all corrections or substituted documents, do not and will
not, as of the date when made, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which the
same were made, all except as otherwise qualified herein. As at the date of
this Agreement there is no fact known to any Loan Party which materially and
adversely affects, or which would reasonably be expected to materially
adversely affect, the business, operations, assets, or financial or other
condition of the Borrower and its Subsidiaries taken as a whole.
Section 3.19 Support and Security Documents.
(a) The Guaranties are effective to create in
favor of the Agent, for the ratable benefit of the Lenders, a legal, valid, and
enforceable guaranty of the obligations guaranteed thereunder in accordance
with the terms of the Guaranties.
(b) The Security Documents other than the
Guaranties are effective to create in favor of the Collateral Trustee, for the
ratable benefit of the Lenders and the other secured lenders under the
Collateral Trust Agreement, a legal, valid, and enforceable mortgage lien,
security interest, or other interest in the collateral pledged thereunder and
the proceeds thereof in accordance with the terms of the Collateral Trust
Agreement and the Security Documents.
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ARTICLE 4
AFFIRMATIVE COVENANTS
From the date hereof and for so long as any part of the Loan
Obligations or any Commitment is outstanding the Borrower shall and shall cause
each of its Subsidiaries to (and where applicable shall cause other Persons
to):
Section 4.1 Financial Statements. Furnish to the Agent:
(a) as soon as available for distribution to
shareholders and creditors generally, but in any event within 120 days
after the end of each fiscal year of the Borrower, (i) a copy of the
consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such year and the related consolidated
statements of income and retained earnings and of cash flows for such
year, setting forth in each case in comparative form the figures for
the previous year, reported on without a "going concern" or like
qualification or exception, or qualification arising out of the scope
of the audit, by Price Waterhouse or other independent certified
public accountants of nationally recognized standing, and (ii) a copy
of the unaudited consolidating schedules used to prepare such
financial statements;
(b) as soon as available for distribution to
shareholders and creditors generally, but in any event within 60 days
after the end of each fiscal year of the Borrower, (i) a copy of the
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such year and the related
unaudited consolidated statements of income and retained earnings and
of cash flows for such year, in each case setting forth in comparative
form the figures for the corresponding period of the previous year and
the figures for such period as shown on the budgets of the Borrower
for such year, and (ii) a copy of the consolidating schedules used to
prepare such financial statements;
(c) as soon as available, but in any event not
later than 45 days after the end of each of the first three quarterly
periods of each fiscal year of the Borrower, (i) a copy of the
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such quarter and the
related unaudited consolidated statements of income and retained
earnings and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding period of the
previous year, certified by a Responsible Officer of the Borrower as
being fairly stated in all material respects when considered in
relation to the consolidated financial statements of the Borrower and
its consolidated Subsidiaries, (subject to normal
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year-end audit adjustments), and in each case setting forth in
comparative form the figures for such periods as shown on the budgets
of the Borrower for such year, and (ii) a copy of the consolidating
schedules used to prepare such financial statements; and
(d) as soon as available, but in any event not
later than 45 days after the end of each month, a copy of the
unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such month and the related
unaudited consolidated statements of income and retained earnings and
of cash flows for such month, in each case setting forth in
comparative form the figures for the corresponding period of the
previous year and the figures for such period as shown on the budgets
of the Borrower for such year;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except for changes within GAAP which are approved by such accountants
or Responsible Officer of the Borrower, as the case may be, and disclosed
therein).
Section 4.2 Certificates; Other Information. Furnish to the
Agent:
(a) concurrently with the delivery of the
financial statements referred to in subsection 4.1(a), a certificate
of the independent certified public accountants reporting on such
financial statements stating that in making the examination necessary
therefor no knowledge was obtained of any Default or Event of Default,
except as specified in such certificate;
(b) concurrently with the delivery of the
financial statements referred to in subsection 4.1(a), (b), and (c), a
certificate signed by the principal financial officer of the Borrower
stating or covering the following: (i) that a review of the
activities of the Borrower and its Subsidiaries has been made under
his supervision with a view to determining whether the Borrower and
its Subsidiaries have fulfilled all of their obligations under this
Agreement and the other Loan Documents and, to the best knowledge of
such person, the Borrower and its Subsidiaries have fulfilled their
obligations under this Agreement and the Loan Documents and that all
representations made herein continue to be true and correct in all
material respects (or specifying the nature of any change), or if
there shall be a Default, specifying such Default and the nature and
status thereof; (ii) specifically detailing compliance with the
financial covenants set forth in Section 5.1 of this Agreement and
affirming compliance with the other covenants of this Agreement; and
(iii) containing or accompanied by such financial or other details,
information, and material as the Agent may reasonably request to
evidence such compliance;
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(c) not later than 45 days following the end of
each fiscal year of the Borrower, a copy of the projections by the
Borrower of the operating budget and cash flow budget of the Borrower
and its Subsidiaries for the succeeding fiscal year, such projections
to be accompanied by a certificate of a Responsible Officer of the
Borrower to the effect that such projections have been prepared on the
basis of reasonable assumptions and that such Responsible Officer has
no reason to believe they are incorrect or misleading in any material
respect;
(d) (i) within five days after the same are sent,
copies of all financial statements and reports which the Borrower, if
at such time any class of the Borrower's securities are held by the
public, sends to its stockholders generally, or, if otherwise, such
financial statements and reports as are made generally available to
the public, and (ii) within five days after the same are filed, copies
of all financial statements and reports which the Borrower may make
to, or file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority;
(e) concurrently with the delivery of the
financial statements referred to in subsections 4.1(b) and (c), a
management summary describing and analyzing the performance of the
Borrower and its Subsidiaries during the periods covered by such
financial statements;
(f) as soon as available, but no later than 45
days after the end of each calendar quarter, an inventory listing,
certified by a Responsible Officer of the Borrower, setting forth the
unit numbers, replacement costs, current rental rates, horsepower,
types of engine, and types of cylinders for all natural gas
compressors owned and leased or held for lease by the Borrower and its
consolidated Subsidiaries as of the end of such quarter, and such
other similar information with respect to such compressors, and all
oil and gas production equipment, as the Agent may reasonably request;
and
(g) promptly, such additional financial and other
information as the Agent (or any Lender acting through the Agent) may
from time to time reasonably request.
Section 4.3 Payment of Obligations. Pay, discharge, or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or any Subsidiary of the Borrower, as the case may
be.
Section 4.4 Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as conducted by it on
the date of this Agreement and preserve, renew, and keep in full force and
effect its corporate existence and take all reasonable action to
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maintain all rights, privileges, and franchises necessary or desirable in the
normal conduct of its business except as otherwise permitted pursuant to
Section 5.5; comply with all Contractual Obligations and Requirements of Law
except to the extent that failure to comply therewith would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Section 4.5 Maintenance of Property; Insurance; Condemnation.
(a) Keep all property of the Borrower and its
Subsidiaries useful and necessary in their respective business in good working
order and condition ordinary wear and tear excepted.
(b) Maintain with financially sound and reputable
insurance companies insurance on all property of the Borrower and its
Subsidiaries in at least such amounts and against at least such risks (but
including in any event public liability, product liability, property damage,
and business interruption) as are usually insured against in the same general
geographic area by companies engaged in the same or a similar business provided
that the Borrower and its Subsidiaries may self-insure up to $1,000,000 in
risks, exclusive of policy deductibles, in accordance with any self insurance
plan reasonably acceptable to the Agent, and furnish to the Agent, upon written
request, full information as to the insurance and self-insurance carried.
(c) Cause all (i) business interruption insurance
and property insurance to have loss payable clauses endorsed in favor of and
made payable to the Collateral Trustee as its interests may appear, (ii)
liability insurance to name the Collateral Trustee, the Agent, and the Lenders
as additional insureds, (iii) insurance to have a breach of warranty clause in
favor of the Collateral Trustee, the Agent, and the Lenders, (iv) insurance to
provide that no cancellation, material reduction in amount, or material change
in coverage shall be effective until at least 30 days after receipt by the
Collateral Trustee and the Agent of written notice thereof.
(d) Assign and pay to the Collateral Trustee all
proceeds resulting from business interrution, casualty, or condemnation,
including, without limitation, any business interruption insurance proceeds,
property insurance proceeds, condemnation awards, proceeds from actions, and
other proceeds, to be held and applied in accordance with the Collateral Trust
Agreement. With respect to the proceeds resulting from any business
interruption, casualty, or condemnation received by the Collateral Trustee
during any fiscal year of the Borrower in aggregate amounts equal to or less
than $5,000,000, the Agent shall instruct the Collateral Trustee to disburse
the proceeds to the Borrower or the other applicable Loan Parties (unless an
Event of Default exists as provided below). With respect to the proceeds
resulting from any business interruption, casualty, or condemnation received by
the Collateral Trustee during any fiscal year of the Borrower in aggregate
amounts exceeding $5,000,000, the Agent shall instruct the Collateral Trustee
to apply the proceeds in excess of $5,000,000 against the Loan Obligations and
the other secured obligations under the Collateral Trust Agreement in
accordance with the
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Collateral Trust Agreement. If at any time an Event of Default exists, the
Majority Lenders with Outstandings may instruct the Agent to direct the
Collateral Trustee to apply any business interruption, casualty, or
condemnation proceeds held by the Collateral Trustee as collateral against the
Loan Obligations and the other secured obligations under the Collateral Trust
Agreement in accordance with the Collateral Trust Agreement.
Section 4.6 Inspection of Property; Books and Records;
Discussions. (a) Keep proper books of records and account in which full, true,
and correct entries in conformity with GAAP and all Requirements of Law shall
be made of all dealings and transactions in relation to its business and
activities and (b) permit representatives of the Agent and the Lenders to visit
and inspect any of its properties and the properties of its Subsidiaries and
examine and make abstracts from any of its and their books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties, and financial and other condition of the
Borrower and its Subsidiaries with officers and employees of the Borrower and
its Subsidiaries and with its independent certified public accountants;
provided, however, that no such visit, inspection, or examination or discussion
shall unreasonably disrupt normal operations of the Borrower and any such
representative of the Agent and the Lenders shall be accompanied by a
Responsible Officer of the Borrower. No failure to comply with any request for
the exercise of rights hereunder shall be cause for any Event of Default unless
such request is submitted in writing to the Borrower with reference to this
Section 4.6.
Section 4.7 Notices. Promptly give notice to the Agent of:
(a) the occurrence of any Default or Event of
Default known to the Borrower;
(b) any (i) breach or default by any Loan Party
or any of its Subsidiaries under or with respect to any of their
respective Contractual Obligations in any respect which if not cured
would reasonably be expected to have a Material Adverse Effect or
breach or default by any third party known to the Borrower under or
with respect to any Contractual Obligation of such third party with
any Loan Party or any of its Subsidiaries in any respect which if not
cured would reasonably be expected to have a Material Adverse Effect,
and in either case the action proposed to be taken by the Borrower or
its Subsidiaries in connection therewith, or (ii) litigation,
investigation, or proceeding of which the Borrower has knowledge which
may exist at any time between the Borrower or any Subsidiary of the
Borrower and any Governmental Authority which, if adversely
determined, would reasonably be expected to have a Material Adverse
Effect;
(c) any litigation or proceeding (i) affecting
the Borrower or any Subsidiary of the Borrower of which the Borrower
has knowledge in which the amount claimed is $1,000,000 or more and
not covered by insurance or (ii) in which injunctive or
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similar relief is sought and which, if adversely determined, would
reasonably be expected to have a Material Adverse Effect;
(d) the following events, as soon as possible and
in any event within 30 days after the Borrower knows thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect
to any Plan, or any withdrawal from, or the termination,
Reorganization, or Insolvency of any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the
PBGC or the Borrower or any Commonly Controlled Entity with respect to
the termination of any Single Employer Plan; and
(e) a development or event which has had or would
reasonably be expected to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Borrower proposes to take with
respect thereto.
Section 4.8 Environmental Laws.
(a) Comply with, and insure compliance by all
tenants and subtenants, if any, with, all Environmental Laws and
obtain and comply with and maintain, and insure that all tenants and
subtenants obtain and comply with and maintain, any and all licenses,
approvals, registrations, or permits required by Environmental Laws,
except to the extent that the failure to so comply, insure the
compliance with, obtain or maintain, would not in the aggregate
reasonably be expected to have a Material Adverse Effect;
(b) Conduct and complete all investigations,
studies, sampling, and testing, and all remedial, removal, and other
actions required under Environmental Laws and promptly comply with all
lawful orders and directives of all Governmental Authorities
respecting Environmental Laws, except to the extent that the failure
to so conduct, complete, or take such actions, or to comply with such
orders and directives, would not in the aggregate reasonably be
expected to have a Material Adverse Effect; and
(c) Defend, indemnify, and hold harmless the
Agent and each Lender and their respective Related Parties from and
against any claims, demands, penalties, fines, liabilities,
settlements, damages, costs, and expenses of whatever kind or nature
known or unknown, contingent or otherwise, arising out of, or in any
way relating to, the violation of or noncompliance with any
Environmental Laws applicable to the real property owned or operated
by the Borrower or any Subsidiary of the Borrower, or any orders,
requirements, or demands of Governmental Authorities related thereto,
including, without
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limitation, reasonable attorney's and consultant's fees, investigation
and laboratory fees, court costs and litigation expenses, except to
the extent that any of the foregoing arise out of the gross negligence
or willful misconduct of the party seeking indemnification therefor.
Section 4.9 Further Assurances. At the reasonable request of the
Agent, cure promptly any defects in the creation or issuance of any Loan
Documents, including this Agreement, and the Borrower and its Subsidiaries
shall at their expense promptly execute and deliver to the Agent all such other
and further documents, agreements, and instruments in compliance with or
accomplishment of the covenants and agreements of the Borrower or any of its
Subsidiaries in the Security Documents, including this Agreement, or to further
evidence and more fully describe the Collateral, or to correct any omissions in
the Security Documents, or more fully to state the security obligations set out
herein or in any of the Security Documents, or to perfect, protect, or preserve
any Liens created pursuant to any of the Security Documents, or to make any
recordings, to file any notices, or obtain any consents, all as may be
reasonably necessary or appropriate in connection therewith. No failure to
comply with any request for the exercise of rights hereunder shall be cause for
any Event of Default unless such request is submitted in writing to the
Borrower with reference to this Section 4.9.
Section 4.10 Change in Management. From time to time, and
promptly after request by the Agent, the Borrower will provide the Agent with
a list of the management of the Borrower, and each Subsidiary, including all
directors, Presidents, Vice Presidents, and Chief Financial Officers.
Section 4.11 Guaranties and Collateral. Cause each of its
Qualified Subsidiaries to execute a Guaranty in substantially the form of
Exhibit D or such other form as reasonably requested by the Agent to accomplish
the same purposes in any jurisdiction outside of the United States with respect
to Qualified Subsidiaries organized outside of the United States or with assets
outside of the United States, in each case with such changes thereto as the
Agent may reasonably request, such that each Qualified Subsidiary is directly
liable for the Loan Obligations and cause itself and each of its Qualified
Subsidiaries to execute such Pledge Agreements in substantially the form of
Exhibit E, Security Agreements in substantially the form of Exhibit F, and
Mortgages in substantially the form of Exhibit G, or such other forms as
reasonably requested by the Agent to accomplish the same purposes in any
jurisdiction outside of the United States with respect to Qualified
Subsidiaries organized outside of the United States or with assets outside of
the United States, in each case with such changes thereto as the Agent may
reasonably request, and all ancillary documents, consents, and agreements as
the Agent may reasonably request, including opinion letters regarding the
enforceability of such agreements and the perfection of the Liens created
thereunder, such that all assets of the Borrower and its Qualified
Subsidiaries, including all personal property, real property, and securities,
partnership interests, and other investments are pledged to the Collateral
Trustee for the ratable benefit of the Lenders and the other secured
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lenders under the Collateral Trust Agreement in accordance with such documents
and agreements; provided, however, that:
(a) Securities issued by Unqualified
Subsidiaries, partnership interests issued by Unqualified
Subsidiaries, and other investments in Unqualified Subsidiaries and
minority interests in Persons organized outside of the United States
with assets held primarily outside of the United States need only be
pledged to the Collateral Trustee to the extent such interests can be
pledged to the Collateral Trustee without causing deemed distributions
of the income of such Persons to the Borrower under the Code;
(b) Hanover Marketing need not execute a Guaranty
or any such Security Documents so long as the only assets owned by
Hanover Marketing are the assets owned by Hanover Marketing which are
reflected in the Financial Statements and such assets are transferred
to another Loan Party and Hanover Marketing is dissolved or merged out
of existence on or before 180 days after the date of this Agreement;
and
(c) The requirement under the Security Agreements
that the Borrower and its Qualified Subsidiaries execute, deliver, and
file financing statements and take other actions to cause the liens of
the Collateral Trustee to be perfected against the natural gas
compressors and oil and gas production equipment owned by the Borrower
and its Qualified Subsidiaries that is located offshore of Texas and
Louisiana is hereby waived by the Agent and the Lenders under this
Agreement until such time as the Agent requests that the Borrower and
its Qualified Subsidiaries take such actions in writing, and the
Borrower and its Qualified Subsidiaries shall have 20 days to complete
all such actions following such request.
ARTICLE 5
NEGATIVE COVENANTS
From the date hereof and for so long as any part of the Loan
Obligations or any Commitment is outstanding, the Borrower shall not and shall
not permit any of its Subsidiaries to (and where applicable shall cause other
Persons not to):
Section 5.1 Financial Condition Covenants.
(a) Permit the Consolidated Leverage Ratio of the
Borrower and its Qualified Subsidiaries to be greater than 0.65 to
1.00;
(b) Permit the Consolidated Current Ratio of the
Borrower and its Qualified Subsidiaries to be less than 1.00 to 1.00;
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(c) Permit the Consolidated Tangible Net Worth of
the Borrower and its Qualified Subsidiaries to be less than (i)
$90,000,000, plus (ii) 50% of consolidated net income of the Borrower
and its Qualified Subsidiaries during each fiscal quarter ending after
the date of this Agreement (excluding consolidated net income for any
fiscal quarter during which consolidated net income is less than
$1.00), plus (iii) 50% of the net proceeds of any sale of Capital
Stock in the Borrower after the date of this Agreement;
(d) As of the last day of the then most recently
ended fiscal quarter of the Borrower, permit the Consolidated Fixed
Charge Coverage Ratio of the Borrower and its Qualified Subsidiaries
for the preceding four fiscal quarters ended as of such date to be
less than 1.50 to 1.00;
(e) As of the last day of the then most recently
ended fiscal quarter of the Borrower, permit the Consolidated Interest
Coverage Ratio of the Borrower and its Qualified Subsidiaries for the
preceding four fiscal quarters ended as of such date to be less than
2.00 to 1.00; or
(f) As of the last day of the then most recently
ended fiscal quarter of the Borrower, permit the consolidated net
income before extraordinary items of the Borrower and its Qualified
Subsidiaries for the preceding four fiscal quarters ended as of such
date to be less than $1.00.
Section 5.2 Limitation on Indebtedness. Create, incur, assume,
or suffer to exist any Indebtedness, except:
(a) Indebtedness in the form of the Loans and
the other Loan Obligations;
(b) Indebtedness under the Chemical Credit
Agreement and all extensions and modifications thereof permitted by
this Agreement;
(c) Indebtedness in the form of (i) the Hanover
Land Financing and any extensions and modifications thereof permitted
by this Agreement (and any rearrangements and refinancings thereof
which would be permitted under this Agreement, including Section
5.11(b), if the same were made as an extension or modification thereof
by the same lender) and (ii) Indebtedness outstanding on the date of
this Agreement and listed on Schedule II and all extensions and
modifications thereof permitted under this Agreement;
(d) Indebtedness in the form of long-term
Indebtedness of the Borrower for borrowed money incurred in connection
with a public offering or private placement of debt securities and all
extensions and modifications thereof permitted under this Agreement
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provided that with respect to each such item of Indebtedness (i) prior
to the funding of thereof and given the information, time, and
standards set forth for the making of a Loan with the same purpose,
terms, and conditions under this Agreement, the Agent has determined
after consultation with the Borrower that the Borrower could satisfy
all requirements and conditions precedent under this Agreement for the
making of such a Loan under this Agreement with the same terms and
conditions as such Indebtedness and (ii) the terms and conditions of
such Indebtedness are less restrictive than this Agreement and are
otherwise reasonably satisfactory to the Agent;
(e) Indebtedness of the Borrower and its
Subsidiaries (i) in the form of Financing Leases of assets described
in Section 5.3(e)(i) and all extensions and modifications thereof
permitted under this Agreement provided that the terms and conditions
of such Indebtedness are less restrictive than this Agreement and are
otherwise reasonably satisfactory to the Agent and the aggregate
outstanding principal amount of such Indebtedness does not exceed
$5,000,000 and (ii) in the form of Financing Leases and purchase money
Indebtedness incurred in connection with the financing of assets
described in Section 5.3(e)(ii) and all extensions and modifications
thereof permitted under this Agreement provided that the terms and
conditions of such Indebtedness are less restrictive than this
Agreement and are otherwise reasonably satisfactory to the Agent and
the aggregate outstanding principal amount of such Indebtedness does
not exceed $1,000,000;
(f) Indebtedness owed by Persons acquired by the
Borrower or its Subsidiaries in connection with Acquisitions made by
the Borrower or its Subsidiaries and assumed by the Borrower or its
Subsidiaries in connection with such Acquisitions and Indebtedness
secured by assets acquired by the Borrower or its Subsidiaries in
connection with such Acquisitions provided that with respect to each
such item of Indebtedness (i) at the time of the Acquisition by the
Borrower or its Subsidiaries and given the information, time, and
standards set forth for the making of a Loan with the same purpose,
terms, and conditions under this Agreement, the Agent has determined
after consultation with the Borrower that the Borrower could satisfy
all requirements and conditions precedent under this Agreement for the
making of such a Loan under this Agreement with the same terms and
conditions as such Indebtedness and (ii) the terms and conditions of
such Indebtedness are less restrictive than this Agreement and are
otherwise reasonably satisfactory to the Agent;
(g) Indebtedness in the form of unsecured
Subordinated Debt of the Borrower and all extensions and modifications
thereof permitted under this Agreement, provided that with respect to
each such item of Indebtedness (i) prior to the funding of thereof and
given the information, time, and standards set forth for the making of
a Loan with the same purpose, terms, and conditions under this
Agreement, the Agent has determined after consultation with the
Borrower that the Borrower could satisfy the
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requirements of Section 2.4(a)(iii) and all conditions precedent in
Section 7.2 (other than Sections 7.2(f)(v) and 7.2(f)(vii)) under this
Agreement for the making of such a Loan under this Agreement with the
same terms and conditions as such Indebtedness and (ii) the terms and
conditions of such Indebtedness are less restrictive than this
Agreement and are otherwise reasonably satisfactory to the Agent;
(h) Indebtedness of any Loan Party to another
Loan Party not otherwise restricted under this Agreement; and
(i) Indebtedness of Unqualified Subsidiaries of
the Borrower which is nonrecourse to the Borrower and the Qualified
Subsidiaries.
Section 5.3 Limitation on Liens. Create, incur, assume, or
suffer to exist any Lien upon any of its property, assets, or revenues, whether
now owned or hereafter acquired, except for:
(a) Liens created by the Security Documents in
favor of the Agent and the Lenders;
(b) Liens created by the Security Documents in
favor of the Collateral Trustee for the ratable benefit of the Lenders
and the other secured lenders under the Collateral Trust Agreement;
(c) Liens in existence on the date of this
Agreement and listed on Schedule II securing Indebtedness permitted by
subsection 5.2(c), provided that no such Lien is spread to cover any
additional property after the date of this Agreement and that the
amount of Indebtedness secured thereby is not increased;
(d) [Reserved]
(e) Liens on (i) natural gas compressors and oil
and gas production equipment, and related equipment, usual accessories
and improvements, and the proceeds thereof, the acquisition of which
were financed with the proceeds of Indebtedness permitted by
subsection 5.2(e)(i) securing only such Indebtedness provided that any
such Lien is placed upon such assets at the time of the acquisition
thereof by the Borrower or any of its Subsidiaries, the Lien extends
to no other property, and no such Lien is spread to cover any
additional property after the date such Lien attaches and the amount
of Indebtedness secured thereby is not increased and (ii) on office
equipment, vehicles, and other equipment, usual accessories and
improvements, and the proceeds thereof, the acquisition of which were
financed with the proceeds of Indebtedness permitted by subsection
5.2(e)(ii) securing only such Indebtedness provided that any such Lien
is placed upon such assets at the time of the acquisition thereof by
the Borrower or any of its
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Subsidiaries, the Lien extends to no other property, and no such Lien
is spread to cover any additional property after the date such Lien
attaches and the amount of Indebtedness secured thereby is not
increased;
(f) Liens on assets acquired by the Borrower or
its Subsidiaries in connection with Acquisitions made by the Borrower
or its Subsidiaries securing only Indebtedness under Section 5.2(f)
outstanding and secured by such assets when such assets were acquired
by the Borrower or its Subsidiaries provided that (i) any such Lien
exists upon such assets at the time of the acquisition thereof by the
Borrower or any of its Subsidiaries, the Lien extends to no other
property and no such Lien is spread to cover any additional property
after the date of acquisition, and the amount of Indebtedness secured
thereby is not increased and (ii) each such Lien has been approved by
the Agent, the Majority Lenders with Commitments, and the Majority
Lenders with Outstandings;
(g) [Reserved]
(h) [Reserved]
(i) Liens on the assets of the Unqualified
Subsidiaries of the Borrower securing Indebtedness of such Unqualified
Subsidiaries permitted under Section 5.2(i);
(j) Liens securing obligations in connection with
Derivatives entered into by the Borrower and its Subsidiaries in
accordance with this Agreement;
(k) Liens for taxes not yet due or which are
being contested in good faith by appropriate proceedings, provided
that adequate reserves with respect thereto are maintained on the
books of the Borrower or any Subsidiary of the Borrower, as the case
may be, in conformity with GAAP;
(l) carriers', warehousemen's, mechanics',
materialmen's, repairmen's, or other like Liens arising in the
ordinary course of business which are not overdue for a period of more
than 60 days or which are being contested in good faith by appropriate
proceedings;
(m) pledges or deposits in connection with
workers' compensation, unemployment insurance, and other social
security legislation;
(n) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds, and other
obligations of a like nature incurred in the ordinary course of
business; and
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(o) easements, rights-of-way, restrictions, and
other similar encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount and which do
not in any case materially detract from the value of the property
subject thereto or materially interfere with the ordinary conduct of
the business of the Borrower or any of its Subsidiaries.
Section 5.4 Limitation on Guarantee Obligations. Create, incur,
assume, or suffer to exist any Guarantee Obligation except:
(a) the Guarantees;
(b) guaranties of the obligations of the Borrower
under the Chemical Credit Agreement;
(c) the Specific Guaranty dated June 22, 1993,
made by the Borrower in favor of First Interstate Bank of Texas, N.A.,
as successor in interest to Transfield Corporation, provided in
connection with the Hanover Land Financing and the Guaranty Agreement
dated November 22, 1993, made by the Borrower in favor of First
Interstate Bank of Texas, N.A., provided in connection with the
Hanover Land Financing; and
(d) guaranties of the obligations of Persons to
third party lenders incurred by such Persons to finance the purchase
of natural gas compressors or oil and gas production equipment from
the Borrower or any of its Subsidiaries provided that (i) such
guaranties are secured by the natural gas compressors or oil and gas
production equipment purchased from the Borrower or any of its
Subsidiaries in a manner reasonably satisfactory to the Agent
(including the capacity to purchase the Liens of the third party
lenders or the taking of second priority Liens) and (ii) the maximum
aggregate outstanding amount of such Guarantee Obligations does not
exceed $5,000,000.
Section 5.5 Limitations on Fundamental Changes. (a) Enter into
any merger, consolidation, or amalgamation, or liquidate, wind up, or dissolve
itself (or suffer any liquidation or dissolution), (b) convey, sell, lease,
assign, transfer, or otherwise dispose of all or substantially all of its
property, business, or assets, or (c) make any material change in its present
method of conducting business, except that the Borrower or any of its
Subsidiaries may merge or consolidated with or into any Person and the Borrower
or any of its Subsidiaries may sell all or substantially all of their assets to
any Person so long as such transaction does not:
(i) cause the Borrower to be merged or
consolidated with or into any Person if the Borrower is not the
continuing or surviving Person;
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(ii) cause any Qualified Subsidiary to be
merged or consolidated with or into any Person if the Borrower or any
Qualified Subsidiary is not the continuing or surviving Person;
(iii) cause the Borrower or any Qualified
Subsidiary to be merged or consolidated with or into any Person that
is not the Borrower or any Qualified Subsidiary unless the Agent is
given advance written notice thereof;
(iv) cause the transfer of all or
substantially all of the assets of the Borrower to any other Person or
cause the transfer of all or substantially all of the assets of any
Qualified Subsidiary to any Person other than the Borrower or any
Qualified Subsidiary;
(v) cause the Borrower or any Qualified
Subsidiary or all or substantially all of the assets of the Borrower
or any Qualified Subsidiary to be subject to liabilities which would
reasonably be expected to cause any Material Adverse Effect (or cause
the same to be subject to any environmental liabilities of Hanover
Land or Hanover Acquisition); or
(vi) cause any Default or Event of Default
or any circumstances which would reasonably be expected to cause any
Default or Event of Default.
Section 5.6 Limitation on Sale or Lease of Assets. Convey,
sell, lease, assign, transfer, or otherwise dispose of any of its property,
business, or assets (including, without limitation, receivables and leasehold
interests), whether now owned or hereafter acquired, except:
(a) the sale of obsolete or worn out property
disposed of in the ordinary course of business, provided that the
aggregate value of obsolete or worn out natural gas compressors and
oil and gas production equipment disposed of in the ordinary course of
business does not exceed $2,000,000 during any fiscal year of the
Borrower;
(b) the sale of inventory in the ordinary course
of business, provided that if such inventory is comprised of natural
gas compressors or oil and gas production equipment, such natural gas
compressors or oil and gas production equipment were fabricated by the
Borrower or any of its Subsidiaries and were never part of the natural
gas compressors or oil and gas production equipment leased or
previously leased by the Borrower or any of its Subsidiaries;
(c) the lease by the Borrower or any of its
Subsidiaries as lessor of natural gas compressors and oil and gas
production equipment in the ordinary course of business under
operating leases (which do not constitute Financing Leases) which are
in
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one of the forms (with appropriate insertions as to date, amounts,
parties, and designation of leased equipment) attached hereto as part
of Schedule II, provided that any such form may be modified with the
prior written consent of the Agent which consent shall not be
unreasonably withheld;
(d) the sale or discount without recourse of
defaulted accounts receivable arising in the ordinary course of
business in connection with the compromise or collection thereof;
(e) as permitted by Section 5.5;
(f) the sale of natural gas compressors and oil
and gas production equipment, other than sales covered by paragraphs
(a) and (b) above, the proceeds of which in excess of $5,000,000
during any fiscal year of the Borrower are paid to the Collateral
Trustee to be held and applied as cash collateral for the benefit of
the secured lenders under the Collateral Trust Agreement in accordance
with the terms of the Collateral Trust Agreement (with respect to any
proceeds of the sale of natural gas compressors and oil and gas
production equipment held as collateral by the Collateral Trustee,
unless an Event of Default exists, the Agent shall instruct the
Collateral Trustee to disburse the proceeds to the Borrower if the
proceeds are reinvested in natural gas compressors or oil and gas
production equipment owned by the Borrower or the Qualified
Subsidiaries of the Borrower within nine months after the sale of the
assets which produced such proceeds; if such reinvestment is not made,
the Agent shall instruct the Collateral Trustee to apply the proceeds
against the Loan Obligations and the other secured obligations under
the Collateral Trust Agreement in accordance with the Collateral Trust
Agreement; and if at any time an Event of Default exists, the Majority
Lenders with Outstandings may instruct the Agent to direct the
Collateral Trustee to apply such proceeds against the Loan Obligations
and the other secured obligations under the Collateral Trust Agreement
in accordance with the Collateral Trust Agreement);
(g) the lease of real estate properties owned by
Hanover Land to the Borrower for use by the Borrower as its site for
offices and facilities.
Section 5.7 Limitation on Leases. Permit the Consolidated
Operating Lease Expense of the Borrower and its Qualified Subsidiaries for any
fiscal year of the Borrower to exceed $1,100,000.
Section 5.8 Limitation on Dividends. Declare or pay any
dividend (other than dividends payable solely in common stock of such Person)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement, or
other acquisition of any shares of any class of Capital Stock of such
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Person or any warrants or options to purchase any such Stock, whether now or
hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
the Borrower or any Subsidiary of the Borrower, except that if no Default or
Event of Default exists or would reasonably be expected to be caused thereby
(a) Subsidiaries of the Borrower may declare and pay dividends to the Borrower
and other shareholders of such Subsidiaries, (b) the Borrower may repurchase
shares of the Borrower's common stock from its employees and former employees
so long as the aggregate amount of all such repurchases since the date of this
Agreement does not exceed $2,500,000, (c) the Borrower may pay dividends, make
stock repurchases, and otherwise make payments which are for the benefit of the
6.5% Series A Cumulative Redeemable Preferred Stock of the Borrower issued and
outstanding on the date of this Agreement, and (d) the Borrower may pay
dividends, make stock repurchases, and otherwise make payments which are for
the sole benefit of the Common Stock held by JEDI on the date of this Agreement
and the 6.5% Series B Cumulative Redeemable Convertible Preferred Stock of the
Borrower issued and outstanding on the date of this Agreement.
Section 5.9 Limitation on Derivatives. Enter into or assume any
obligations with respect to any Derivatives except for Derivatives used by the
Borrower or any of its Subsidiaries in reducing the interest rate risk exposure
of the Borrower and its Subsidiaries which have been provided by a Lender under
this Agreement or one of the lenders under the Chemical Credit Agreement.
Section 5.10 Limitation on Investments, Loans, and Advances. Make
or maintain any advance, loan, extension of credit, or asset or capital
contribution or transfer to, or make or maintain any purchase or holding of any
stock, bonds, notes, debentures, or other securities of, or any assets
constituting a business unit of, or make or maintain any other investment in
(all of the foregoing being herein collectively referred to as "investments"),
any Person, except:
(a) investments in the Borrower and Qualified
Subsidiaries of the Borrower (provided that such investments in
Hanover Land shall not exceed $35,000 per month and must be made for
the sole purpose of making repayments on Indebtedness owed by Hanover
Land to First Interstate Bank of Texas, N.A., under the Hanover Land
Financing plus all amounts necessary to maintain and operate the real
property and improvements owned by Hanover Land);
(b) investments in Subsidiaries of the Borrower
which are organized under a jurisdiction of the United States other
than Qualified Subsidiaries, investments in Subsidiaries of the
Borrower which are organized under a jurisdiction outside of the
United States, and investments in minority interests in Persons
engaged in the natural gas compression and production equipment
industries, so long as (i) on or before December 31, 1996, the
aggregate investment in such Persons does not exceed 20% of the
Consolidated Net Worth of the Borrower as of the end of the most
recently ended month
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and the aggregate investment in any one country other than the United
States does not exceed 15% of the Consolidated Net Worth of the
Borrower as of the end of the most recently ended month and (ii) after
December 31, 1996, the aggregate investment in such Persons does not
exceed 20% of the Consolidated Net Worth of the Borrower as of the end
of the most recently ended month and the aggregate investment in any
one country other than the United States does not exceed 10% of the
Consolidated Net Worth of the Borrower as of the end of the most
recently ended month (for purposes of this paragraph, financing
received by such Persons on a nonrecourse basis to the Borrower and
the Qualified Subsidiaries shall not be considered an "investment" in
such Persons);
(c) extensions of trade credit in the ordinary
course of business;
(d) investments in Cash Equivalents;
(e) loans and advances to employees of the
Borrower or its Subsidiaries for travel, entertainment, and relocation
expenses in the ordinary course of business in an aggregate amount for
the Borrower and its Subsidiaries not to exceed $250,000 at any one
time outstanding; and
(f) loans by the Borrower to members of the
management of the Borrower the proceeds of which are used by such
members of management solely to purchase shares of common stock of the
Borrower having such rate, repayment, and other terms as shall be
reasonably satisfactory to the Agent, the aggregate amount of such
loans not to exceed $5,000,000 with respect to such loans made on or
prior to the date of this Agreement and not to exceed an additional
$3,000,000 with respect to such loans made after the date of this
Agreement.
Section 5.11 Limitation on Optional Payments and Modifications of
Indebtedness Instruments. With respect to any outstanding Indebtedness, (a)
make any optional payment or prepayment on or redemption of any such
Indebtedness other than (i) prepayments of the Loan Obligations, (ii)
prepayments of long-term Indebtedness outstanding under the Chemical Credit
Agreement as of the date of the Financial Statements, (iii) prepayments of
revolving Indebtedness outstanding under the Chemical Credit Agreement, (iv)
prepayments of the Hanover Land Financing involved in any refinancing of the
entire outstanding principal amount thereof as permitted hereunder, and (v)
prepayments of existing indebtedness described in Section 5.2(c)(ii) if the
description of such existing indebtedness in Schedule II references this
Section and states that prepayments are permitted hereunder, provided in each
case of (i) through (v) above no Default or Event of Default exists or would
reasonably be expected to be caused thereby or (b) amend, modify, or change, or
consent or agree to any increase, rearrangement, amendment, modification, or
change to any of the terms of any such Indebtedness (other than any such
amendment, modification, or change which would extend the maturity or reduce
the amount of any payment
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of principal thereof or which would reduce the rate or extend the date for
payment of interest thereon, or any amendment or waiver which would render the
terms of such Indebtedness less restrictive, but in no event any amendment,
modification, or change of the Chemical Credit Agreement which would alter the
meaning of the defined terms in the Collateral Trust Agreement).
Section 5.12 Transactions with Affiliates. Except as set forth
in Schedule II, enter into any transaction, including, without limitation, any
purchase, sale, lease, or exchange of property or the rendering of any service,
with any Affiliate unless such transaction is otherwise permitted under this
Agreement, is in the ordinary course of the Person's business and is upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person not an Affiliate.
Section 5.13 Sale and Leaseback. Enter into any arrangement with
any Person providing for the leasing by the Borrower or any of the Subsidiaries
of the Borrower of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary, except that the Borrower and its Subsidiaries may enter into
Financing Leases as lessee for natural gas compressors if after giving effect
thereto this Agreement is not otherwise contravened.
Section 5.14 Corporate Documents. Amend its Certificate of
Incorporation in any way adverse to the interests of the Lenders.
Section 5.15 Fiscal Year. Permit the fiscal year of the Borrower
to end on a day other than December 31.
Section 5.16 Limitation on Negative Pledge Clauses. Enter into
any agreement, other than this Agreement and the Loan Documents, the Chemical
Credit Agreement and related loan documents, the Guaranty Agreement dated
November 22, 1993, between the Borrower and First Interstate Bank of Texas,
N.A., as successor in interest to Transfield Corporation in connection with the
Hanover Land Financing, and Financing Leases permitted by this Agreement (in
which cases, any prohibition or limitation shall only be effective against the
assets financed thereby), with any Person which prohibits or limits the ability
of the Borrower or any of the Subsidiaries of the Borrower to create, incur,
assume, or suffer to exist any Lien upon any of its property, assets, or
revenues, whether now owned or hereafter acquired.
Section 5.17 Purpose of Loans. Use the proceeds of the Loans for
any purpose other than those permitted by Section 3.16.
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ARTICLE 6
EVENTS OF DEFAULT
Section 6.1 Events of Default. An "Event of Default" shall exist
if any of the following events shall occur:
(a) the Borrower shall fail to pay any principal
of any Loan when due in accordance with the terms of the corresponding
Notes or this Agreement; or the Borrower shall fail to pay any
interest on any Loan or any other amount payable hereunder within five
days after any such interest or other amount becomes due in accordance
with the terms of the corresponding Notes or this Agreement; or the
Borrower shall fail to pay when due in accordance with the terms
thereof any amounts payable under any Derivative issued on behalf of
the Borrower under Section 2.6(d); or
(b) Any representation or warranty made or deemed
made by any Loan Party herein or in any other Loan Document or which
is contained in any certificate, document, or financial or other
statement furnished at any time under or in connection with this
Agreement or any other Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made; or
(c) The Borrower shall default in the observance
or performance of any agreement contained in Sections 4.5(c), 4.6(b),
4.7, or 4.9 of this Agreement or in Article 5 of this Agreement, or
any Loan Party shall default in the observance or performance of any
agreement contained in Section 5 of the Security Agreements, Section 5
of the Pledge Agreements, any Section of the Mortgages, or any Section
of the Collateral Trust Agreement; or
(d) The Borrower shall default in the observance
or performance of any agreement contained in Sections 2.6(e), 4.1,
4.2, or 4.11 of this Agreement and such default shall continue
unremedied for a period of 10 Business Days, or the Borrower shall
default in the observance or performance of any other agreement
contained in this Agreement (other than as provided in paragraphs (a)
through (c) of this Section 6.1 or the first clause of this paragraph
(d)), or any Loan Party shall default in the observance or performance
of any other agreement contained in the Loan Documents (other than as
provided in paragraphs (b) and (c) of this Section 6.1 or the first
clause of this paragraph (d)) and such default shall continue
unremedied for a period of 30 days; or
(e) Any Security Document shall, at any time,
cease to be in full force and effect (unless released by the
Collateral Trustee in accordance with the terms of the Collateral
Trust Agreement) or shall be declared null and void, or the validity
or
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enforceability thereof shall be contested by any Loan Party, or any of
the Liens intended to be created by any Security Document shall cease
to be or shall not be a valid and perfected Lien having the priority
contemplated thereby, or any Guaranty shall cease for any reason to be
in full force and effect or any Loan Party thereto shall so assert in
writing; or
(f) (i) Any principal, interest, fees, or other
amounts due on any Indebtedness or under any Guarantee Obligation or
Derivative Obligation of the Borrower or any of its Subsidiaries
(other than Loan Obligations) is not paid when due, whether by
scheduled maturity, required prepayment, acceleration, demand, or
otherwise, and such failure is not cured within the applicable grace
period, if any, and the aggregate amount of all such Indebtedness,
Guarantee Obligations, and Derivative Obligations of such Persons
under which payments are so in default exceeds $2,500,000 (provided,
however, that the Borrower may exclude from the calculation of such
$2,500,000 amount up to $5,000,000 of Indebtedness and Guarantee
Obligations created in connection with seller financing of assets
which have been purchased by the Borrower or any of its Subsidiaries
if the obligations thereunder are currently being contested in good
faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Borrower
or such Subsidiaries, as the case may be); (ii) any other event shall
occur or condition shall exist under any agreement or instrument
relating to any Indebtedness, Guarantee Obligation, or Derivative
Obligation of the Borrower or any of its Subsidiaries (other than Loan
Obligations) the effect of which is to accelerate or to permit the
acceleration of the maturity of any such Indebtedness, Guarantee
Obligation, or Derivative Obligation whether or not any such
Indebtedness, Guarantee Obligation, or Derivative Obligation is
actually accelerated and such event or condition shall not be cured
within the applicable grace period, if any, and the aggregate amount
of all such Indebtedness, Guarantee Obligations, and Derivative
Obligations of such Persons so subject to acceleration exceeds
$2,500,000 (provided, however, that the Borrower may exclude from the
calculation of such $2,500,000 amount up to $5,000,000 of Indebtedness
and Guarantee Obligations created in connection with seller
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financing of assets which have been purchased by the Borrower or any
of its Subsidiaries if the obligations thereunder are currently being
contested in good faith by appropriate proceedings and with respect to
which reserves in conformity with GAAP have been provided on the books
of the Borrower or such Subsidiaries, as the case may be); or (iii)
any Indebtedness, Guarantee Obligation, or Derivative Obligation of
the Borrower or any of its Subsidiaries (other than Loan Obligations)
shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled prepayment) prior to the stated
maturity thereof, and the aggregate amount of all such Indebtedness,
Guarantee Obligations, and Derivative Obligations of such Persons so
accelerated exceeds $2,500,000 (provided, however, that the Borrower
may exclude from the calculation of such $2,500,000 amount up to
$5,000,000 of Indebtedness and Guarantee Obligations created in
connection with seller financing of assets which have been purchased
by the Borrower or any of its Subsidiaries if the obligations
thereunder are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with GAAP
have been provided on the books of the Borrower or such Subsidiaries,
as the case may be); or
(g) (i) The Borrower or any of the Subsidiaries
of the Borrower shall commence any case, proceeding, or other action
(A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization, or relief
of debtors, seeking to have an order for relief entered with respect
to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition, or other relief with respect to it or its
debts, or (B) seeking appointment of a receiver, trustee, custodian,
or other similar official for it or for all or any substantial part of
its assets, or the Borrower or any of the Subsidiaries of the Borrower
shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against the Borrower or any of the
Subsidiaries of the Borrower any case, proceeding, or other action of
a nature referred to in clause (i) above which (A) results in the
entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged, or unbonded for a period of
60 days; or (iii) there shall be commenced against the Borrower or any
of the Subsidiaries of the Borrower any case, proceeding, or other
action seeking issuance of a warrant of attachment, execution,
distraint, or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded
pending appeal within 60 days from the entry thereof; or (iv) the
Borrower or any of the Subsidiaries of the Borrower shall take any
action in furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the acts set forth in clause (i), (ii), or
(iii) above; or (v) the Borrower or any of the Subsidiaries of the
Borrower shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any non-exempt
"prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (ii) any "accumulated
funding deficiency" (as defined in Section 302 of ERISA), whether or
not waived, shall exist with respect to any Plan or any lien shall
arise on the assets of the Borrower or any Commonly Controlled Entity
in favor of PBGC or a Plan, (iii) a Reportable Event shall occur with
respect to, or proceedings shall commence to have a trustee appointed,
or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion
of the Agent, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or is likely to, incur any liability
in connection with a withdrawal
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from, or the Insolvency or Reorganization of, a Multiemployer Plan, or
(vi) any other event or condition shall occur or exist, with respect
to a Plan; and in each case in clauses (i) through (v) above, such
event or condition, together with all other such events or conditions,
if any, could subject the Borrower or any of its Subsidiaries to any
tax, penalty, or other liabilities in the aggregate material in
relation to the business, operations, property, or financial or other
condition of the Borrower and its Subsidiaries taken as a whole; or
(i) One or more judgments or decrees shall be
entered against the Borrower or any of the Subsidiaries of the
Borrower involving in the aggregate a liability (not paid or fully
covered by insurance) of $2,500,000 or more and all such judgments or
decrees shall not have been vacated, discharged, stayed, or bonded
pending appeal within 60 days from the entry thereof; or
(j) If at any time the Borrower or any of the
Subsidiaries of the Borrower shall become liable for unpaid
remediation and/or environmental compliance expenses and/or fines,
penalties, or other charges which, in the aggregate, are in excess of
$2,500,000.
Section 6.2 Remedies.
(a) Upon the occurrence of any Event of Default
under Section 6.1(g), all of the commitments of the Agent and the Lenders
hereunder, including the Commitments, shall terminate. During the existence of
any Event of Default other than an Event of Default under Section 6.1(g), the
Agent shall at the request of the Majority Lenders with Commitments declare by
written notice to the Borrower all of the commitments of the Agent and the
Lenders hereunder, including the Commitments, terminated, whereupon the same
shall immediately terminate.
(b) Upon the occurrence of any Event of Default
under Section 6.1(g), the aggregate outstanding principal amount of all Loans
made hereunder, all accrued interest thereon, and all other Loan Obligations
payable by the Borrower and the other Loan Parties under this Agreement and any
other Loan Document shall immediately and automatically become due and payable.
During the existence of any Event of Default other than an Event of Default
under Section 6.1(g), the Agent shall at the request of (i) the Majority
Lenders with Commitments, with respect to unpaid standby fees, (ii) any Lender
with principal or interest payments on any Advance that are due and payable and
remain unpaid, with respect to the outstanding principal amount of such Advance
and the accrued but unpaid interest thereon, and (iii) the Majority Lenders
with Outstandings, with respect to any outstanding principal amount of Loans
made hereunder, any accrued but unpaid interest thereon, and any other Loan
Obligations payable by the Borrower and the other Loan Parties under this
Agreement and any other Loan Document (including those obligations described in
clauses (i) and (ii) above), declare by written notice to the Borrower the
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foregoing described obligations to be immediately due and payable. In
connection with the foregoing, except for the notice provided for above, the
Borrower waives notice of intent to demand, demand, presentment for payment,
notice of nonpayment, protest, notice of protest, grace, notice of dishonor,
notice of intent to accelerate, notice of acceleration, and all other notices.
(c) During the existence of an Event of Default,
the Agent and each Lender shall have the right to set off and apply against the
Loan Obligations in such manner as the Agent or such Lender may determine at
any time and without notice to the Borrower, the Borrower's interest in any and
all deposits (general or special, time or demand, provisional or final) or
other sums at any time credited by or owing from the Agent or such Lender (or
any Affiliate of the Agent or such Lender), to the Borrower, whether or not the
Loan Obligations are then due. As security for the Loan Obligations, the
Borrower hereby grants to the Agent and the Lenders a security interest in all
money, instruments, and other property of the Borrower now or hereafter held by
the Agent or any Lender and in all deposits (general or special, time or
demand, provisional or final) and other accounts of the Borrower now or
hereafter on deposit with or held by the Agent or any Lender and all other sums
at any time credited by or owing from the Agent or any Lender (or any Affiliate
of the Agent or such Lender) to the Borrower. The rights and remedies of the
Agent and the Lenders hereunder are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Agent or the
Lenders may have.
(d) If any Event of Default exists, the Agent
shall, at the request of (i) the Majority Lenders with Commitments, with
respect to unpaid standby fees, (ii) any Lender with principal or interest
payments on any Advance that are due and payable and remain unpaid, with
respect to the outstanding principal amount of such Advance and the accrued but
unpaid interest thereon, and (iii) the Majority Lenders with Outstandings, with
respect to any outstanding principal amount of Loans made hereunder, any
accrued but unpaid interest thereon, and any other Loan Obligations payable by
the Borrower and the other Loan Parties under this Agreement and any other Loan
Document (including those obligations described in clauses (i) and (ii) above),
declare by written notice to the Borrower that the Loan Obligations specified
in such notice shall bear interest beginning on the date specified in such
notice until paid in full at the applicable Default Rate for such Loan
Obligations.
(e) Upon the occurrence of any Event of Default,
(i) the Agent shall at the request of the Majority Lenders with Outstandings
instruct the Collateral Trustee to take any actions authorized under the
Collateral Trust Agreement and the Security Documents, (ii) the Agent and the
Lenders may exercise all rights and remedies available to the Agent and the
Lenders under the Loan Documents, and (iii) the Agent and the Lenders may
exercise all other rights and remedies available to the Agent and the Lenders
at law or in equity.
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(f) Notwithstanding other provisions regarding
application elsewhere in this Agreement and the Loan Documents, all payments
received by the Agent for application to the Loan Obligations (whether from the
Borrower, the Collateral Trustee, or otherwise) during the existence of any
Event of Default shall be distributed and applied to the Loan Obligations in
the following order:
(i) First, to the Lenders ratably for
application to the aggregate outstanding principal amount of the Loans
then due and payable;
(ii) Second, to the Agent and Lenders
ratably for application to the accrued but unpaid interest on the
Loans then due and payable and accrued but unpaid obligations of the
Loan Parties under derivatives provided by the Agent or any Lenders to
the Loan Parties then due and payable if such derivatives are not in
violation of this Agreement;
(iii) Third, to the Lenders ratably for
application to the accrued but unpaid standby fees on the Loans then
due and payable;
(iv) Fourth, to the Agent and the Lenders
ratably for application to all other accrued but unpaid fees,
expenses, reimbursements, indemnifications, and other Loan Obligations
then due and payable; and
(v) Finally, to the Borrower or such other
Person that is lawfully entitled to the surplus proceeds.
ARTICLE 7
CONDITIONS OF LENDING
The obligations of the Lenders holding Commitments to make Loans
pursuant to this Agreement are subject to the conditions precedent stated in
this Article 7.
Section 7.1 Initial Loan. The effectiveness of this Agreement is
subject to the following conditions precedent:
(a) The Borrower shall have delivered or shall
have caused to be delivered the documents and other items listed below,
together with any other documents requested by the Agent to document the
agreements and intent of the Loan Documents, each in form and with substance
reasonably satisfactory to the Agent:
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(i) The Agent shall have received this
Agreement, the Agents Fee Letter, the Guaranty made by Hanover/Smith,
the Guaranty made by Hanover Maintech, the Guaranty made by Hanover
Land, and the Guaranty made by Hanover Acquisition, each duly executed
and delivered by the appropriate parties;
(ii) The Agent shall have received
copies of the Chemical Credit Agreement and all related promissory
notes, guaranties, and other documents and agreements executed in
connection therewith, each duly executed and delivered by the
appropriate parties;
(iii) The Agent shall have received copies
of the Collateral Trust Agreement, the Pledge Agreement made by the
Borrower, the Security Agreement made by the Borrower, the Security
Agreement made by Hanover/Smith, the Security Agreement made by
Hanover Maintech, the Security Agreement made by Hanover Land, the
Security Agreement made by Hanover Acquisition, the Mortgages made by
the Borrower, the Mortgages made by Hanover/Smith, and the Mortgage
made by Hanover Land, each duly executed and delivered by the
appropriate parties;
(iv) The Agent shall have received
copies of all stock certificates, financing statements, lien filings,
lien waivers, and other documents and agreements necessary or
desirable to create and perfect the security interests and liens
purported to be created by the terms of the Security Documents
described in paragraph (iii) above, each duly executed and delivered
by the appropriate parties (and as required in paragraph (b) below,
ready for filing and recording);
(v) The Agent shall have received
opinions of counsel for the Borrower by Neal, Gerber & Eisenberg and
by local counsel approved by the Agent in New York, Alabama, Arkansas,
Colorado, Kansas, Louisiana, New Mexico, Oklahoma, and Texas, each
executed and delivered by the appropriate counsel;
(vi) The Agent shall have received
certificates of secretary or assistant secretary certifying the
existence, good standing, qualification to do business, articles and
bylaws, and resolutions for the transactions related to this Agreement
and the Loan Documents for the Borrower, Hanover/Smith, Hanover
Maintech, Hanover Land, and Hanover Acquisition; and
(vii) The Agent shall have received a
listing of the current asset locations of the Borrower and its
Subsidiaries, lien searches and title reports in all jurisdictions
required to create and perfect the liens purported to be created by
the Security Documents, and evidence that with respect to all material
purchase transactions entered
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into by the Borrower and its Subsidiaries the assets were acquired
free of liens and encumbrances except as permitted under Section
5.3(c);
(b) Where applicable, the Security Documents,
financing statements, and other documents and agreements described in paragraph
(a) requiring filing or recording in public records shall have been duly
delivered to the appropriate offices for filing or recording and the Agent
shall have received confirmations of receipt thereof by the appropriate filing
or recording offices, and the original copies of all chattel paper in which the
Collateral Trustee shall be granted a Lien under the Security Agreements,
including without limitation all leases of natural gas compressors or oil and
gas production equipment by any Loan Parties as lessor, shall have been stamped
or otherwise marked with the legend required by Section 5(b) of each of the
Security Agreements;
(c) The Agent and the Lenders shall have
completed their due diligence, including environmental due diligence, with
respect to the Borrower and its Subsidiaries and shall be satisfied with the
results thereof;
(d) The Agent shall have received evidence
reasonably satisfactory to it that each Loan Party has obtained the insurance
policies required by the Loan Documents;
(e) The Agent, the Lenders, and their counsel
shall have been paid and reimbursed for all fees and expenses due and payable;
(f) The Agent shall have received a pro forma
consolidated balance sheet of the Borrower as of September 30, 1995, adjusted
to give effect to the consummation of all equity transactions, the transactions
contemplated by this Agreement, and the transactions contemplated by the
Chemical Credit Agreement, in form and substance reasonably satisfactory to the
Agent;
(g) The Agent shall have received a satisfactory
business plan for fiscal year 1996 and a satisfactory written analysis of the
business and prospects of the Borrower and its Subsidiaries for the period from
the date of this Agreement through the next five years, in form and substance
reasonably satisfactory to the Agent;
(h) The Agent shall have received such other
documents as it may reasonably have requested at any time at or prior to the
execution of this Agreement;
(i) No Default exists, and the Agent shall have
received at the time a compliance certificate, which shall be true and correct,
in the form of Exhibit C attached hereto, duly and properly executed by a
Responsible Officer of the Borrower and dated as of the date of this Agreement,
reflecting that no Default exists; and
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(j) All of the representations and warranties of
the Borrower and each Loan Party contained in this Agreement and the other Loan
Documents shall be true and correct in all material respects (taking into
account certain fixed dates specified for certain representations and
warranties in this Agreement).
Section 7.2 All Loans. The obligation of the Lenders holding
Commitments to make the initial Loan and each subsequent Loan pursuant to this
Agreement is subject to the following further conditions precedent:
(a) No Change of Control shall have occurred, the
Commitments of the Lenders under this Agreement shall be Active, and the Agent
shall have received a Loan Request and all attached and requested information
in accordance with Section 2.2;
(b) The Agent shall have received for each Lender
with Commitments appropriate executed Notes representing the Loan in a form and
substance satisfactory to the Agent;
(c) No Default exists or would reasonably be
expected to occur by virtue of making such Loan, and the Agent shall have
received at the time such Loan is made a compliance certificate, which shall be
true and correct, in the form of Exhibit C attached hereto, duly and properly
executed by a Responsible Officer of the Borrower and dated as of the date of
the funding of such Loan, reflecting that no Default exists;
(d) All of the representations and warranties of
the Borrower and each Loan Party contained in this Agreement and the other Loan
Documents shall be true and correct in all material respects, and the
Borrower's request for the making of any extension of credit hereunder, and the
making of any extension of credit hereunder, shall be deemed to be a
restatement, representation, and additional warranty of the representations and
warranties made by the Borrower and each Loan Party in this Agreement and the
other Loan Documents as of each such date (taking into account certain fixed
dates specified for certain representations and warranties in this Agreement);
(e) Since the date of the Financial Statements,
no Material Adverse Effect shall have occurred; and
(f) The following financial covenants shall be
satisfied:
(i) As of the last day of the then most
recently ended fiscal quarter of the Borrower, the Consolidated Fixed
Charge Coverage Ratio of the Borrower and its Qualified Subsidiaries
for the preceding four fiscal quarters ended as of such date shall be
equal to or greater than 2.00 to 1.00;
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(ii) As of the last day of the then most
recently ended fiscal quarter of the Borrower, the Consolidated
Interest Coverage Ratio of the Borrower and its Qualified Subsidiaries
for the preceding four fiscal quarters ended as of such date shall be
equal to or greater than 2.50 to 1.00;
(iii) As of the last day of the then most
recently ended fiscal quarter of the Borrower, the consolidated net
income before extraordinary items of the Borrower and its Qualified
Subsidiaries for the preceding four fiscal quarters ended as of such
date shall be equal to or greater than $1.00;
(iv) After taking into account the
scheduled principal payments on the Loan, the consolidated scheduled
principal payments on Indebtedness of the Borrower and its Qualified
Subsidiaries during each year while any Loans will remain outstanding
shall meet the requirements of Section 2.4(a)(iii);
(v) The projected consolidated net
income before extraordinary items of the Borrower and its Qualified
Subsidiaries for each year that the Loan is scheduled to remain
outstanding shall be equal to or greater than $1.00, as determined by
the parties whose determination is required under Section 2.2;
(vi) As of the last day of 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 Leverage
Ratio of the Borrower and its Qualified Subsidiaries shall be equal to
or less than 0.60 to 1.00; and
(vii) The projected Consolidated Leverage
Ratio of the Borrower and its Qualified Subsidiaries during the term
of the Loan shall be equal to or less than 0.60 to 1.00, as determined
by the parties whose determination is required under Section 2.2; and
(g) The Borrower shall have provided to the Agent
such other information, documents, and agreements as it may reasonably have
requested.
Section 7.3 Loans For Acquisitions. The obligation of the
Lenders holding Commitments to make any Loan pursuant to Section 2.2 of this
Agreement the proceeds of which will be used to finance or refinance any
Acquisition (other than Acquisitions by the Borrower and its Subsidiaries of
natural gas compressors and related items and oil and gas production equipment
and related items from Persons the aggregate purchase price of which, including
cash paid, stock transferred, or liabilities assumed, is equal to or less than
$1,000,000) is subject to the following further conditions precedent:
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(a) The Borrower shall have provided to the Agent
title opinions and other title information covering the acquired assets
reasonably satisfactory to the Agent;
(b) The Borrower shall have provided to the Agent
environmental reports and other environmental diligence materials covering the
acquired assets reasonably satisfactory to the Agent;
(c) The Borrower shall have provided to the Agent
evidence reasonably satisfactory to the Agent that the Collateral Trustee shall
have received a certificate evidencing that all insurance policies required by
the Loan Documents are in full force and effect and that loss payable
endorsements in favor of the Collateral Trustee have been added thereto with
respect to all insurance policies covering damage or loss to the Collateral;
(d) The Borrower shall have provided to the Agent
other due diligence materials covering the acquired assets reasonably
satisfactory to the Agent;
(e) The Borrower shall have provided to the Agent
evidence reasonably satisfactory to the Agent, including legal opinions, that
the Collateral Trustee shall have received Liens on the acquired assets or
stock in accordance with the terms of this Agreement and the Collateral Trust
Agreement, that all Security Documents and notices related thereto shall have
been duly delivered to the appropriate offices for filing or recording, and
that the Collateral Trustee shall have received confirmations of receipt
thereof by the appropriate filing or recording offices; and
(f) The following financial covenants shall be
satisfied:
(i) The projected Consolidated Fixed
Charge Coverage Ratio of the Borrower and its Qualified Subsidiaries
for each fiscal year while the Loan is scheduled to remain outstanding
shall be equal to or greater than 2.00 to 1.00, as determined by the
parties whose determination is required under Section 2.2;
(ii) The Consolidated Fixed Charge
Coverage Ratio of the Borrower and its Qualified Subsidiaries for the
most recently ended four fiscal quarters of the Borrower, 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
(but without amortization of the principal amount of the Loan), shall
be equal to or greater than 2.00 to 1.00;
(iii) The Consolidated Interest Coverage
Ratio of the Borrower and its Qualified Subsidiaries for the most
recently ended four fiscal quarters of the Borrower, adjusted to
reflect the effect of the acquired assets and the Loan as if such
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Acquisition and the Loan had been made at the beginning of such
period, shall be equal to or greater than 2.50 to 1.00; and
(iv) The projected Consolidated Interest
Coverage Ratio of the Borrower and its Qualified Subsidiaries for each
fiscal quarter during the term of the Loan shall be equal to or
greater than 2.50 to 1.00, as determined by the parties whose
determination is required under Section 2.2.
ARTICLE 8
THE AGENT
Section 8.1 Authorization and Action; Collateral Trustee.
(a) Each Lender hereby appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Agent by the terms hereof
and of the other Loan Documents, together with such powers as are reasonably
incidental thereto. Statements under the Loan Documents that the Agent may
take certain actions without reference to any Lenders mean that the Agent may
take such actions with or without the consent of any Lenders. As to any
matters not expressly provided for by this Agreement or any other Loan
Document, the Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall
be fully protected in so acting or refraining from acting) upon the joint
instructions from the Majority Lenders with Commitments and the Majority
Lenders with Outstandings; provided, however, that the Agent shall not be
required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement, any other Loan Document, or applicable
law.
(b) Each Lender agrees that all communications
and instructions to and from the Collateral Trustee and payments to and from
the Collateral Trustee shall be by and through the Agent acting in accordance
with the express terms of this Agreement and the other Loan Documents,
including the provisions regarding the action of the Agent set forth in
paragraph (a) above.
Section 8.2 Agent's Reliance, Etc. Neither the Agent nor any of
its Related Parties shall be liable for any action taken or omitted to be taken
(INCLUDING THE AGENT'S OR ANY OF ITS RELATED PARTIES' OWN NEGLIGENCE) by it or
them under or in connection with this Agreement or the other Loan Documents,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, the Agent: (a) may treat the
payee of any Note as the holder thereof until the Agent receives written notice
of the assignment or transfer thereof signed by such payee and in form
satisfactory to the Agent; (b) may consult with legal counsel (including
counsel for the Borrower), independent public accountants,
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and other experts selected by it and shall not be liable for any action taken
or omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants, or experts; (c) makes no warranty or representation
to any Lender and shall not be responsible to any Lender for any statements,
warranties, or representations made in or in connection with this Agreement or
the other Loan Documents; (d) shall not have any duty to ascertain or to
inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or any other Loan Document on the part of the Loan
Parties or to inspect the property (including the books and records) of the
Loan Parties; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency, or value of this
Agreement or any other Loan Document; and (f) shall incur no liability under or
in respect of this Agreement or any other Loan Document by acting upon any
notice, consent, certificate, or other instrument or writing (which may be by
telecopier or telex) reasonably believed by it to be genuine and signed or sent
by the proper party or parties.
Section 8.3 The Agent and Its Affiliates. With respect to its
Commitment, the Advances made by it, and the Notes issued to it, the Agent
shall have the same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not the Agent. The term "Lender"
or "Lenders" shall, unless otherwise expressly indicated, include the Agent in
its individual capacity. The Agent and its Affiliates may accept deposits
from, lend money to, act as trustee under indentures of, own securities issued
by, assist in selling securities issued by, and generally engage in any kind of
business with, any Loan Party, and any Person who may do business with or own
securities of any Loan Party, all as if the Agent were not an agent hereunder
and without any duty to account therefor to the Lenders. The Lenders
acknowledge that as of the date of this Agreement, the Agent owns issued and
outstanding equity securities of the Borrower.
Section 8.4 Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Agent or any other
Lender and based on the Financial Statements and the Interim Financial
Statements and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it shall, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement.
Section 8.5 Expenses. To the extent not paid by the Borrower,
each Lender severally agrees to pay to the Agent on demand such Lender's
ratable share, based upon the outstanding amount of Loan Obligations held by
the Lenders, but if no Loan Obligations are held by the Lenders, then evenly
among the Lenders, of the following: (i) all reasonable out-of-pocket expenses
of the Agent in the administration (both before and after the execution hereof
and including advice of counsel as to the rights and duties of the Agent with
respect thereto) of, and in connection with the negotiation, investigation,
preparation, execution, delivery, recording or
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filing, refinancing, renegotiation, and restructuring of this Agreement and the
other Loan Documents and any amendment, waiver, or consent relating thereto
(including, without limitation, the reasonable fees and disbursements of
counsel for the Agent); (ii) all out-of-pocket expenses of the Agent incurred
in connection with the collection of the Loan Obligations or the enforcement of
the rights of the Agent and the Lenders under this Agreement and the Loan
Documents, which amounts will include all court costs, attorneys' fees
(including, without limitation, for arbitration, trial, appeal, or other
proceedings), fees of auditors and accountants, and investigation expenses
incurred by the Agent in connection with any such matters; and (iii) all
amounts expended, advanced, or incurred by the Agent to satisfy any obligation
of the Borrower or any Loan Party under this Agreement or any other Loan
Document.
Section 8.6 Indemnification. To the extent not reimbursed by the
Borrower, each Lender severally agrees to indemnify the Agent and its Related
Parties (each an "Agent Indemnitee") from, hold each of them harmless against
and promptly upon demand pay or reimburse each of them for, any and all
actions, suits, proceedings (including any investigations, litigation, or
inquiries), claims, demands, and causes of action, and, in connection
therewith, all reasonable costs, losses, liabilities, damages, or expenses of
any kind or nature whatsoever (collectively the "Agent Indemnity Matters")
which may be incurred by or asserted against or involve any of them (whether or
not any of them is designated a party thereto) as a result of, arising out of,
or in any way related to any aspect of this Agreement and the other Loan
Documents, including, without limitation, the reasonable fees and disbursements
of counsel and all other expenses incurred in connection with investigating,
defending, or preparing to defend any such action, suit, proceeding (including
any investigations, litigation, or inquiries), or claim and INCLUDING ALL
INDEMNITY MATTERS ARISING BY REASON OF THE NEGLIGENCE OF ANY AGENT INDEMNITEE
(but not Agent Indemnity Matters related to the gross negligence or wilful
misconduct of any Agent Indemnitee).
Section 8.7 Successor Agent. The Agent may be removed at any
time with or without cause by the joint determination of the Majority Lenders
with Commitments and the Majority Lenders with Outstandings upon receipt of
written notice from such Lenders to such effect. Upon receipt of notice of any
such removal, such Lenders shall have the right to appoint a successor Agent
with the consent of the Borrower, which consent shall not be unreasonably
withheld. If no successor Agent shall have been so appointed by such Lenders
with the consent of the Borrower, and shall have accepted such appointment,
within 30 days after such Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders and the Borrower, appoint a
successor Agent which shall be a commercial bank organized under the laws of
the United States of America or of any political subdivision thereof and having
a combined capital and surplus of at least $500,000,000 after consultation with
the Borrower. Upon the acceptance of any appointment as Agent by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges, and duties of the retiring Agent, and the
retiring Agent shall be discharged from any further duties and obligations
under this Agreement
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and the other Loan Documents after such acceptance. After any retiring Agent's
removal hereunder as Agent, the provisions of this Article 8 shall inure to
such Person's benefit as to any actions taken or omitted to be taken by such
Person while such Person was Agent under this Agreement and the other Loan
Documents.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Notices. All notices and other communications under
this Agreement shall be in writing and mailed by certified mail (return receipt
requested), telecopied, telexed, hand delivered, or delivered by a nationally
recognized overnight courier, to the address for the appropriate party
specified in Schedule I or at such other address as shall be designated by such
party in a written notice to the other parties. Mailed notices shall be
effective when received. Telecopied or telexed notices shall be effective when
transmission is completed or confirmed by telex answerback. Delivered notices
shall be effective when delivered by messenger or courier. Notwithstanding the
foregoing, notices and communications to the Agent pursuant to Article 2 or 7
shall not be effective until received by the Agent.
Section 9.2 Modifications, Waivers, and Consents.
(a) No modification or waiver of any provision of
this Agreement or the Notes, nor any consent required under this Agreement or
the Notes, shall be effective unless such modification, waiver, or consent
shall be in writing and signed by the parties expressly required for such
modification, waiver, or consent outside of this Section 9.2 in this Agreement
or the Notes.
(b) In absence of any express requirement for any
modification, waiver, or consent outside of this Section 9.2 in this Agreement
or the Notes, no modification or waiver of any provision of this Agreement or
the Notes, nor any consent required under this Agreement or the Notes:
(i) shall be effective to waive any of
the conditions specified in Section 7.1, 7.2, or 7.3, unless agreed to
by the Agent and the Lenders;
(ii) shall be effective to increase the
Commitments of the Lenders (including any reactivation of the
Commitments after the termination thereof), unless agreed to by the
Agent, the Borrower, and the Lenders;
(iii) shall be effective to reduce the
amount of principal, interest, or fees payable under the Loan
Documents, or postpone the payment thereof (including any
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recision of the acceleration of the foregoing), unless agreed to by
the Agent, the Borrower, and the Lenders holding the Loan Obligation
which is being reduced or postponed;
(iv) shall be effective to release any
Guaranty or release any material amount of any Collateral, unless
agreed to by the Agent and the Lenders;
(v) shall be effective to change the
percentage or number of Lenders required to take any action under the
Loan Documents, including the percentage or number required for any
amendment of the definition of "Majority Lenders for Borrowing,"
"Majority Lenders in Number," "Majority Lenders with Commitments," or
"Majority Lenders with Outstandings" or any amendment to this Section
9.2, unless agreed to by the Agent, the Borrower, and the Lenders;
(vi) shall be effective for any
modification, waiver, or consent affecting any period when the
Commitments of the Lenders under this Agreement are Dormant or for any
waiver of any Event of Default which would have occurred during such
period but for the suspension of Events of Default, whether any such
modification, waiver, or consent is made during such period or
retroactively, unless agreed to by the Agent, the Borrower, and the
Lenders;
(vii) shall be effective to affect the
rights or obligations of the Agent under the Loan Documents, unless
agreed to by the Agent, the Borrower, and the Lenders; or
(viii) shall be effective for any other
modification, waiver, or consent not covered in paragraph (a) above or
in clauses (i) through (vii) in this paragraph (b), unless agreed to
by the Agent, the Borrower, the Majority Lenders with Commitments, and
the Majority Lenders with Outstandings.
(c) With respect to any modification, waiver, or
consent under any Loan Documents other than this Agreement and the Notes,
including any modification, waiver, or consent under the Guaranties, the
Collateral Trust Agreement, or any other Security Documents, the Agent shall
take such action on behalf of the Lenders only if such action has been approved
by the Lenders, if any, which would be required to approve such modification,
waiver, or consent if the same was requested under this Agreement or the Notes
in accordance with the requirements specified in paragraphs (a) and (b) above.
(d) Each modification, waiver, or consent shall
be effective only in the specific instance and for the specific purpose for
which given.
Section 9.3 Payment of Expenses, Indemnities, Etc. The Borrower
agrees to:
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(a) Pay upon demand (i) all reasonable
out-of-pocket expenses of the Agent and the Lenders in the administration (both
before and after the execution hereof and including advice of counsel as to the
rights and duties of the Agent and the Lenders with respect thereto) of, and in
connection with the negotiation, investigation, preparation, execution,
delivery, recording or filing, refinancing, renegotiation, and restructuring of
this Agreement and the other Loan Documents and any amendment, waiver, or
consent relating thereto (including, without limitation, the reasonable fees
and disbursements of counsel for the Agent); (ii) pay upon demand all
out-of-pocket expenses of the Agent and the Lenders incurred in connection with
the collection of the Loan Obligations or the enforcement of the rights of the
Agent and the Lenders under this Agreement and the Loan Documents, which
amounts will include all court costs, attorneys' fees (including, without
limitation, for arbitration, trial, appeal, or other proceedings), fees of
auditors and accountants, and investigation expenses incurred by the Agent and
the Lenders in connection with any such matters; and (iii) reimburse upon
demand the Agent for all amounts expended, advanced, or incurred by the Agent
to satisfy any obligation of the Borrower or any Loan Party under this
Agreement or any other Loan Document; and
(b) indemnify the Agent, the Lenders, and their
respective Related Parties (each an "Indemnitee") from, hold each of them
harmless against and promptly upon demand pay or reimburse each of them for,
any and all actions, suits, proceedings (including any investigations,
litigation, or inquiries), claims, demands, and causes of action, and, in
connection therewith, all reasonable costs, losses, liabilities, damages, or
expenses of any kind or nature whatsoever (collectively the "Indemnity
Matters") which may be incurred by or asserted against or involve any of them
(whether or not any of them is designated a party thereto) as a result of,
arising out of, or in any way related to (i) any actual or proposed use by the
Borrower or its Subsidiaries of the proceeds of any of the Loans, (ii) the
operations of the business of the Borrower and its Subsidiaries, (iii) any
bodily injury or death or property damage occurring in or upon or in the
vicinity of any real or personal property of the Borrower or its Subsidiaries,
(iv) any claim by any third Person against any Collateral, (v) the failure of
the Borrower or any of its Subsidiaries to comply with any Governmental
Requirement, or (vi) any other aspect of this Agreement and the other Loan
Documents, including, without limitation, the reasonable fees and disbursements
of counsel and all other expenses incurred in connection with investigating,
defending, or preparing to defend any such action, suit, proceeding (including
any investigations, litigation, or inquiries), or claim and INCLUDING ALL
INDEMNITY MATTERS ARISING BY REASON OF THE NEGLIGENCE OF ANY INDEMNITEE (but
not (i) Indemnity Matters related to the gross negligence or wilful misconduct
of any Indemnitee, (ii) Indemnity Matters related to claims against any
Indemnitee made by any security holder or creditor thereof arising out of and
based upon rights afforded any such security holder or creditor solely in its
capacity as such, and (iii) Indemnity Matters related to claims against any
Indemnitee made by the Agent or any Lender).
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Section 9.4 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other Loan Document shall, for
any reason, be held invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other
provision of the Agreement or such Loan Document.
Section 9.5 Survival of Agreements. All representations and
warranties of the Borrower herein or in the other Loan Documents, and all
covenants and agreements herein not fully performed before the effective date
or dates of this Agreement and of the other Loan Documents, shall survive such
date or dates.
Section 9.6 Successors and Assigns. This Agreement and the Loan
Documents shall bind and inure to the benefit of the Borrower and their
respective successors and assigns and the Agent and the Lenders and their
respective successors and assigns. The Borrower may not assign its rights or
delegate its duties under this Agreement and the Loan Documents.
(a) Any Lender may assign and delegate to one or
more Eligible Assignees all or any portion of its rights and obligations under
this Agreement provided that all assignments and delegations must be
denominated as transfers of Commitments held by the transferor or as transfers
of specific Advances held by the transferor. Transfers of Commitments and
Advances shall automatically transfer the rights and obligations of Lenders
holding Commitments and Advances under this Agreement and the Loan Documents in
accordance with the provisions of this Section 9.6.
(b) With respect to all assignments and
delegations of Commitments, (i) each such transfer shall be of a constant, and
not a varying, percentage of all of such Lender's Commitments under this
Agreement, (ii) no such transfer on or before December 19, 1996, shall cause
JEDI to retain less than 50.1% of the Commitments under this Agreement, no such
transfer shall cause JEDI to retain less than 20% of the Commitments under this
Agreement, no such transfer shall cause any Lender that shall retain any
Commitments under this Agreement to retain less than 10% of the Commitments
under this Agreement, Commitments must be transferred in $1,000,000 increments,
and no such transfer shall cause the number of Lenders under this Agreement to
exceed ten Lenders, (iii) each such transfer shall be to an Eligible Assignee,
(iv) the parties to each such transfer shall execute and deliver to the Agent,
for its acceptance and recording in the Register, an Assignment and Acceptance,
and (v) each transferee (other than those of the Agent) shall pay to the Agent
a $2,500 administrative fee.
(c) With respect to all assignments and
delegations of Advances, (i) each such transfer shall be of a constant, and not
a varying, percentage of the outstanding principal amount of the Advance which
is being transferred, (ii) no such transfer on or before December 19, 1996,
shall cause JEDI to retain less than 50.1% of the aggregate outstanding
principal amount of the Loans, no such transfer shall cause JEDI to retain less
than 20% of the aggregate
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outstanding principal amount of the Loans, no such transfer shall cause any
Lender that shall retain any portion of any Loan to retain less than 10% of
such Loan, and no such transfer shall cause the number of Lenders under this
Agreement to exceed ten Lenders, (iii) each such transfer shall be to an
Eligible Assignee, (iv) the parties to each such transfer shall execute and
deliver to the Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, and shall deliver to the Agent the existing Notes
subject to such transfer for reissuance, and (v) each transferee (other than
those of the Agent) shall pay to the Agent a $2,500 administrative fee.
(d) Notwithstanding any other rules regarding
transfers, JEDI may assign all of its Commitment to Enron Capital & Trade
Resources Corp. or Enron Capital Management Limited Partnership, whether or not
such Persons are Eligible Assignees at the time of transfer, in the event that
JEDI dissolves pursuant to the terms of its organizational documents.
(e) Upon receipt of an Assignment and Acceptance
executed by a Lender and an Eligible Assignee, together with the Notes subject
to such assignment, if any, the Agent shall, if such Assignment and Acceptance
has been completed in the appropriate form, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt notice thereof to the Borrower. If new Notes must be issued
in connection with the transfer, within five Business Days after the Borrower
receives notice of the transfer, the Borrower shall execute and deliver to the
Agent, in exchange for the surrendered old Notes subject to the transfer, new
Notes prepared by the Agent reflecting the transfer. Such new Notes shall be
dated the effective date of such Assignment and Acceptance and shall be in the
appropriate form and correctly reflect the effect of the transfer. Upon
execution, delivery, acceptance, and recording of the Assignment and
Acceptance, and as shown by the new Notes, if any, reflecting the transfer,
from and after the effective date specified in each Assignment and Acceptance:
(A) the transferee thereunder shall be a party hereto for all purposes and, to
the extent that rights and obligations hereunder have been transferred to the
transferee pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with respect to the Commitments or Advances
transferred to such Lender and (B) the transferor Lender thereunder shall, to
the extent that rights and obligations hereunder have been transferred by the
transferor Lender pursuant to such Assignment and Acceptance, relinquish the
transferor Lender's rights and be released from the transferor Lender's
obligations hereunder with respect to the Commitments and Advances transferred
by such Lender (and, in the case of an Assignment and Acceptance covering all
of such transferor Lender's Commitments and Advances under this Agreement, such
transferor Lender shall cease to be a party hereto).
(f) By executing and delivering an Assignment and
Acceptance, the transferor Lender thereunder and the transferee Lender
thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Acceptance, the
transferor Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties, or representations
made in or in
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connection with this Agreement or the Loan Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency, or value of this
Agreement, the Loan Documents, or any instrument or document furnished in
connection therewith; (ii) the transferor Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Loan Party or the performance or observance by any Loan Party of any of
their obligations under this Agreement, the Loan Documents, or any other
instrument or document furnished in connection therewith; (iii) such transferee
confirms that it has received a copy of this Agreement, together with copies of
the Financial Statements and Interim Financial Statements and such other
documents and information as such transferee has deemed appropriate to make
such transferee's own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such transferee Lender shall, independently and
without reliance upon the Agent, the transferor Lender, or any other Lender and
based on such documents and information as such transferee shall deem
appropriate at the time, continue to make such transferee's own credit
decisions in taking or not taking action under this Agreement and the Loan
Documents; (v) such transferee Lender appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under this
Agreement as are specified for the Agent under the terms of this Agreement and
the Loan Documents; and (vi) such transferee Lender agrees that it shall
perform as a Lender under the Loan Documents.
(g) The Agent shall maintain a copy of this
Agreement and of each Assignment and Acceptance delivered to and accepted by
the Agent, together with a register specifying the names and addresses of the
Lenders under this Agreement, the percentage of the Commitments hereunder held
by each Lender, and the percentage of each Loan hereunder held by each Lender
(the "Register"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Borrower, the Agent, and the
Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(h) Each Lender may sell participations to one or
more banks or other entities in or to all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and the Advances owing to it); provided, however,
that (i) such Lender's obligations under this Agreement (including, without
limitation, its Commitment to the Borrower hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, (iii) such Lender shall remain the
holder of its Notes for all purposes of this Agreement, (iv) the Borrower, the
Agent, and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement, and (v) such Lender shall not require the participant's consent to
any matter under this Agreement, except for change in the matters expressed in
Section 9.2(b) or (c). Each Lender which sells any participation hereunder
agrees to provide the Borrower and the Agent with notice of any such actions,
but the
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failure to provide such notice shall not invalidate such actions. In the event
that any Lender sells any participation hereunder, the participants shall have
rights under Sections 2.8, 2.9, 2.10, 2.11, 2.12, 6.2(c), and 9.3 with respect
to their participation interest to the same extent as the selling Lender.
Section 9.7 Renewal, Extension, or Rearrangement. All provisions
of this Agreement and of any other Loan Documents relating to the Loan
Obligations shall apply with equal force and effect to each and all promissory
notes and other documents hereinafter executed which in whole or in part
represent a renewal, extension, increase, or rearrangement of any part of the
Loan Obligations.
Section 9.8 No Implied Waiver. No course of dealing on the part
of the Agent or any Lender or their respective Related Parties, nor any failure
or delay with respect to exercising any right, power, or privilege of the Agent
or any Lender under this Agreement or any other Loan Document shall operate as
a waiver thereof.
Section 9.9 Cumulative Rights. Rights and remedies of the Agent
and the Lenders under this Agreement and each other Loan Document shall be
cumulative, and the exercise or partial exercise of any such right or remedy
shall not preclude the exercise of any other right or remedy.
Section 9.10 Interpretation. Words used herein in the singular,
where the context so permits, shall be deemed to include the plural and vice
versa. The definitions of words in the singular herein shall apply to such
words when used in the plural where the context so permits and vice versa. The
word "including" shall mean "including but not limited to." The word "or"
shall mean "and/or" wherever necessary to prevent interpretation of any
provision against the Agent or the Lenders. Whenever the Borrower has an
obligation under this Agreement and the Loan Documents the expense of complying
with that obligation shall be an expense of the Borrower unless otherwise
specified.
SECTION 9.11 CHOICE OF LAW. THE PARTIES AGREE THAT, EXCEPT AS
OTHERWISE SPECIFIED IN ANOTHER LOAN DOCUMENT, THIS AGREEMENT, THE NOTES, AND
THE LOAN DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES IN CONNECTION
THEREWITH, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO CONFLICTS OF LAWS RULES OR
PRINCIPLES OF THE STATE OF NEW YORK.
SECTION 9.12 SUBMISSION TO JURISDICTION; WAIVERS. EACH OF THE
BORROWER, THE AGENT, AND EACH LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
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(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT
OF ANY JUDGEMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE COURTS OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO SUCH PERSON AT ITS ADDRESS SET FORTH IN SECTION 9.1 OR AT
SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(E) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE, OR CONSEQUENTIAL DAMAGES.
SECTION 9.13 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT,
AND EACH LENDER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES, OR ANY
OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
Section 9.14 Prevention of Usury. It is the intention of the
parties hereto to conform strictly to usury laws applicable to this
transaction. Accordingly, if the transactions contemplated hereby would be
usurious under applicable law, then, in that event, notwithstanding anything to
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the contrary in this Agreement or in any other Loan Document, it is agreed as
follows: (a) the aggregate of all consideration which constitutes interest
under law applicable to the Lenders that is contracted for, taken, reserved,
charged, or received under this Agreement and the Loan Documents or agreements
or otherwise in connection with this transaction shall under no circumstances
exceed the maximum amount allowed by such applicable law, and any excess shall
be cancelled automatically and if previously paid shall be credited by the
applicable Lender on the principal amount of the Loan Obligations owed to such
Lender (or, to the extent that the principal amount of the Loan Obligations
owed to such Lender shall have been or would thereby be paid in full, refunded
to the Borrower); and (b) in the event that the maturity of the Loan
Obligations is accelerated by reason of an election of the Agent or the Lenders
resulting from any Event of Default under this Agreement or otherwise, or in
the event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to this transaction may never include
more than the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in this Agreement or otherwise in connection
with the Loans shall be cancelled automatically and, if theretofore paid, shall
be credited by the applicable Lender on the principal amount of the Loan
Obligations owed to such Lender (or, to the extent that the principal amount of
the Loan Obligations owed to such Lender shall have been or would thereby be
paid in full, refunded to the Borrower). The right to accelerate the maturity
of the Loan Obligations does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration, and no Lender
intends to collect any unearned interest in the event of acceleration. All
sums paid or agreed to be paid to each Lender for the use, forbearance, or
detention of sums included in the Loan Obligations owed to such Lender shall,
to the extent permitted by applicable law, be amortized, prorated, allocated,
and spread throughout the full term of this Agreement until payment in full so
that the rate or amount of interest on account of the Loan Obligations owed to
such Lender does not exceed the applicable usury ceiling, if any. As used in
this Section 9.14, the term "applicable law" shall mean the laws which govern
this Agreement as described in Section 9.11 (or the law of any other
jurisdiction whose laws may be mandatorily applicable notwithstanding other
provisions of this Agreement), or law of the United States of America
applicable to the applicable Lender and the Loans which would permit such
Lender to contract for, charge, take, reserve, or receive a greater amount of
interest than under any other applicable law.
Section 9.15 References. The words "herein," "hereof,"
"hereunder" and other words of similar import when used in this Agreement refer
to this Agreement as a whole, and not to any particular article, section, or
subsection. Any reference herein to a Section or Subsection shall be deemed to
refer to the applicable Section or Subsection of this Agreement unless
otherwise stated herein. Any reference herein to an exhibit shall be deemed to
refer to the applicable exhibit attached hereto unless otherwise stated herein.
Any reference herein to any instrument, document, or other agreement shall be
deemed to refer to such instrument, document, or agreement as the same may be
amended, supplemented, and otherwise modified from time to time, unless
expressly stated otherwise.
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Section 9.16 Governmental Regulation. Anything contained
in this Agreement to the contrary notwithstanding, no Lender shall be obligated
to extend credit to the Borrower in an amount in violation of any limitation or
prohibition provided by any applicable statute or regulation.
SECTION 9.17 ENTIRE AGREEMENT. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE
AGENT, THE LENDERS, AND THE BORROWER AND SUPERSEDE ALL OTHER AGREEMENTS AND
UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER THEREOF.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS 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.
Section 9.18 Exhibits and Schedules. The exhibits and
schedules attached to this Agreement are incorporated herein and shall be
considered a part of this Agreement for the purposes stated herein, except that
in the event of any conflict between any of the provisions of such exhibits and
schedules and the provisions of this Agreement, the provisions of this
Agreement shall prevail.
Section 9.19 Titles of Articles, Sections, and Subsections.
All titles or headings to articles, sections, subsections, or other divisions
of this Agreement or the exhibits hereto are only for the convenience of the
parties and shall not be construed to have any effect or meaning with respect
to the other content of such articles, sections, subsections, or other
divisions, such other content being controlling as to the agreement between the
parties hereto.
Section 9.20 Satisfaction Requirement. If any agreement,
certificate, instrument, or other writing, or any action taken or to be taken,
is by the terms of this Agreement required to be satisfactory to any party, the
determination of such satisfaction shall be made by such party in its sole and
exclusive judgment unless another standard (e.g. "reasonably satisfactory") is
expressly provided for in connection with such matter. Whenever any
determination is to be made by any party, including those determinations by the
Agent or the Lenders under Sections 2.1, 2.2, 2.3, 2.4, 7.1, 7.2, and 7.3, such
determination shall be in such party's sole and exclusive judgment unless
another standard (e.g. "reasonable determination") is expressly provided for in
connection with such matter.
Section 9.21 Counterparts. This Agreement may be executed
in two or more counterparts, and it shall not be necessary that the signatures
of all parties hereto be contained on any one counterpart hereof; each
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly 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:
---------------------------------
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Commitments LENDERS:
- -----------
$100,000,000 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:
--------------------------------
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EXHIBIT 10.3
GKH PARTNERS, L.P.
200 WEST MADISON, SUITE 2700
CHICAGO, ILLINOIS 60606
November 14, 1995
Hanover Compressor Company
12001 North Houston Rosslyn
Houston, Texas 77086
Attention: Michael O'Connor
Chairman and Chief Executive Officer
Dear Sirs:
Prior to the date hereof GKH Partners, L.P. ("GKH") has provided a
variety of investment banking, advisory and other management services to
Hanover Compressor Company (the "Company"), including, without limitation,
assistance with respect to capital formation, strategic planning and the
evaluation, analysis and negotiation and completion of business combinations,
asset swaps, investments, joint ventures with strategic partners and other
strategic and financial alternatives. This letter will confirm our
understanding that the Company has engaged GKH to act as its financial advisor
with respect to the foregoing activities which may ultimately include a
possible Sale (as defined below).
The following services have been and will be provided by GKH pursuant
to this engagement:
o Assistance in the Company's capital raising and strategic
planning efforts;
o Assistance in identifying, evaluating and consummating
potential acquisition opportunities;
o Assistance in negotiations with potential purchasers,
investors and acquisition candidates;
o Assistance in identifying, analyzing and consummating
potential business combinations; and
o Assistance in identifying, analyzing and consummating other
value enhancing transactions.
<PAGE> 2
Hanover Compressor Company
November 14, 1995
Page 2
GKH's compensation for its role as financial advisor will be determined as
follows:
(a) If during the term of this engagement or within one year after
termination of this engagement as discussed below, a Sale of
the Company occurs, the Company agrees to pay GKH concurrently
with the consummation of the closing of any such Sale a
transaction fee equal to 0.75% of the Fair Market Value of the
Company as of the date of the Sale (the "Transaction Fee"),
subject to adjustment pursuant to (b) below.
For purposes of this Agreement, the term "Sale" shall be
defined to include the sale (whether in one or a series of
transactions) of all, substantially all or a majority of the
assets or the capital stock of the Company, as well as any
recapitalization, restructuring or liquidation of the Company
by the current owners, a third party or any combination
thereof, a disposition of shares of the Company resulting in
GKH Investments, L.P. owning less than 25% of the Company or
any other form of disposition which results in the effective
sale of the principal business and operations of the Company
by the current owners; and
For purposes of this Agreement, Fair Market Value shall be
determined on the basis of the equity value ascribed to the
Company (net of any Company long term debt or preferred stock
outstanding) in the Sale transaction.
(b) The Company agrees to reimburse GKH for all reasonable
out-of-pocket expenses incurred in connection with GKH's role
hereunder; provided, however, that the Company and GKH shall
agree upon a mutually acceptable reduction of the Transaction
Fee based upon the total amount of expenses incurred by GKH
solely in its capacity as financial advisor. In addition, the
Company agrees to reimburse GKH for the reasonable fees and
expenses of legal counsel and any other advisors retained by
GKH (it being understood that the retention of any such
advisors other than legal counsel shall be with the prior
approval of the Company).
The Transaction Fee and the reimbursements described above shall be the sole
consideration payable by the Company to GKH relative to any Sale of the Company
or otherwise with respect to the services described above.
Neither GKH nor its assistance and analysis may be otherwise
referenced in any document, including a press release, without its prior
written consent, unless required by operation of law.
<PAGE> 3
Hanover Compressor Company
November 14, 1995
Page 3
Since GKH will be acting on behalf of the Company in connection with
its engagement hereunder, the Company and GKH have entered into a separate
letter agreement (the "Indemnification Agreement") providing for the
indemnification by the Company of GKH and certain related entities and persons,
a copy of which is attached hereto as Exhibit A.
If GKH is asked to act for the Company in some other capacity, then
the terms of any such additional engagement(s) will be embodied in one or more
separate written agreements, containing provisions and terms customary for such
services to be agreed upon mutually. The indemnity obligations set forth in
the Indemnification Agreement shall apply to the engagement contemplated
pursuant to this Agreement and any such additional engagement and shall remain
in full force and effect regardless of any completion, modification or
termination of GKH's engagements.
This engagement may be terminated at any time by the Company or GKH,
upon written notice thereof to the other party, provided, however, that any
termination of GKH's engagement by the Company hereunder shall not affect the
Company's obligation to pay the Transaction Fee if a Sale occurs within one
year following such termination, nor shall it affect the Company's obligation
to reimburse GKH for its out-of-pocket expenses to the extent provided for
herein and to indemnify GKH and certain related entities and persons as
provided in the Indemnification Agreement.
The Company acknowledges that GKH and certain of its affiliates own
approximately 66,500 shares of the Company's common stock and 10,000 shares of
the Company's 6.5% Series A Cumulative Redeemable Preferred Stock.
In connection with this engagement, GKH is acting as an independent
contractor with duties owing solely to the Company. This agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without regard to conflicts of law principles thereof.
<PAGE> 4
Hanover Compressor Company
November 14, 1995
Page 4
We look forward to continuing our working relationship with the
Company consistent with the terms of this agreement. Please confirm that the
foregoing is in accordance with your understanding by signing and returning to
us the enclosed duplicate of this Agreement.
Very truly yours,
GKH PARTNERS, L.P.,
a Delaware limited partnership
By: JAKK Holding Corp.,
a general partner
By:
-----------------------------------
Melvyn N. Klein, President
Accepted and Agreed to as of the
date first written above:
HANOVER COMPRESSOR COMPANY
By:
-----------------------------------
Name:
Title:
<PAGE> 5
HANOVER COMPRESSOR COMPANY
12001 NORTH HOUSTON ROSSLYN
HOUSTON, TEXAS 77086
November 14, 1995
GKH Partners, L.P.
200 W. Madison St., Suite 2700
Chicago, Illinois 60606
In connection with your engagement (the "Engagement") to advise and
assist with the possible sale of Hanover Compressor Company we agree to
indemnify and hold harmless GKH Partners, L.P. ("GKH" or "you") and its
affiliates, the respective directors, officers, partners, shareholders agents
and employees of GKH and its affiliates, and each other person, if any,
controlling GKH or any of its affiliates (collectively, "Indemnified Persons"),
from and against, and we agree that no Indemnified Person shall have any
liability to us or our owners, parents, affiliates, security holders or
creditors for, any losses, claims, damages or liabilities (including actions or
proceedings in respect thereof)(collectively "Losses") (A) related to or
arising out of (i) our actions or failures to act (including statements or
omissions made, or information provided, by us or our agents) or (ii) actions
or failures to act by an Indemnified Person with our consent or in reliance on
our actions or failures to act, or (B) otherwise related to or arising out of
the engagement or your performance thereof, except that this clause (B) shall
not apply to any Losses that are finally judicially determined or have resulted
primarily from your bad faith or gross negligence. If such indemnification is
for any reason not available, we agree to contribute to the Losses involved in
such proportion as is appropriate to reflect the relative benefits received (or
anticipated to be received) by us and by you with respect to the Engagement or,
if such allocation is judicially determined to be unavailable, in such
proportion as is appropriate to reflect other equitable considerations such as
the relative fault of us on the one hand and of you on the other hand,
provided, however, that, to the extent permitted by applicable law, the
Indemnified Persons shall not be responsible for amounts which in the aggregate
are in excess of the amount of all fees actually received by you from us in
connection with the Engagement. Relative benefits to us, on the one hand, and
you, on the other hand, with respect to the Engagement shall be deemed to be in
the same proportion as (i) the total value paid or proposed to be paid or
received or proposed to be received by us or our security holders, as the case
may be, pursuant to the transaction(s), whether or not consummated,
contemplated by the Engagement bears to (ii) all fees paid or proposed to be
paid to you by us in connection with the Engagement.
We will reimburse each Indemnified Person for all expenses (including
reasonable fees and disbursements of counsel) as they are incurred by such
Indemnified Person in connection with investigating, preparing for or defending
any action, claim or proceeding ("Action") referred to above (or enforcing this
agreement or any related Engagement agreement), whether or not in connection
with pending or threatened litigation in which any Indemnified Person is a
party, and whether or not such Action is initiated or brought by you. We
further agree that we will not settle or compromise or consent to the entry of
any judgment in any pending or threatened Action in
1
<PAGE> 6
respect of which indemnification may be sought hereunder (whether or not an
Indemnified Person is a party therein) unless we have given you reasonable
prior written notice thereof and used all reasonable efforts, after
consultation with you, to obtain an unconditional release of each Indemnified
Person from all liability arising therefrom.
Our obligations hereunder shall be in addition to any rights that any
Indemnified Person may have at common law or otherwise. Solely for the purpose
of enforcing this agreement, we hereby consent to personal jurisdiction and to
service and venue in any court in which any claim which is subject to this
agreement is brought by or against any Indemnified Person. We acknowledge that
in connection with the Engagement you are acting as an independent contractor
with duties owing solely to us. YOU HEREBY AGREE, AND WE HEREBY AGREE ON OUR
OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF OUR
SECURITY HOLDERS, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF THE ENGAGEMENT, YOUR PERFORMANCE
THEREOF OR THIS AGREEMENT.
The provisions of this agreement shall apply to the Engagement
(including related activities prior to the date hereof) and any modification
thereof and shall remain in full force and effect regardless of the completion
or termination of the Engagement. This agreement and any other agreements
relating to the Engagement shall be governed by and construed in accordance
with the laws of the State of [DELAWARE] without regard to conflicts of law
principles.
Very truly yours,
HANOVER COMPRESSOR COMPANY
By:
-----------------------------------
Name:
Title:
Accepted and Agreed:
GKH PARTNERS, L.P.,
a Delaware limited partnership
By: JAKK Holding Corp.,
a general partner
By:
--------------------------------
Melvyn N. Klein, President
2
<PAGE> 1
EXHIBIT 10.4
HANOVER COMPRESSOR COMPANY
SENIOR EXECUTIVE STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company Senior Executive Stock Option Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth
and general prosperity of Hanover Compressor Company, a Delaware corporation
(the "Company"), by permitting the Company to grant to its senior executives
options to purchase Common Stock of the Company (the "Options"). The Plan is
designed to help the Company attract and retain superior personnel for
positions of substantial responsibility and to provide senior executives of the
Company with an additional incentive to contribute to the success of the
Company. The Company intends that Options granted pursuant to the Plan will be
nonstatutory options and will not be classified as "incentive stock options"
within the meaning of Section 422 of the Code.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Only senior executives of the
Company as determined by the Committee in its sole discretion shall be eligible
to participate in the Plan.
1.5 Shares Subject to the Plan. The shares available for
issuance upon exercise of Options granted under the Plan shall be shares of
Common Stock (the "Plan Shares").
<PAGE> 2
1.6 Maximum Number of Plan Shares. Subject to adjustment
pursuant to the provisions of Section 4.2, and subject to any additional
restrictions elsewhere in the Plan, the maximum number of Plan Shares that may
be issued and sold hereunder shall be equal to 3% of the total shares of Common
Stock issued and outstanding on a fully diluted basis on the Effective Date.
1.7 Options Granted Under Plan. Plan Shares with respect to
which an Option shall have been exercised shall not again be available for
grant hereunder. If Options terminate for any reason without being wholly
exercised, new Options may be granted hereunder covering the number of Plan
Shares to which such Option termination relates.
1.8 Conditions Precedent. The Company shall not issue or
deliver any Option Agreement or any certificate for Plan Shares pursuant to the
Plan prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, if any,
unless the Committee determines in its sole discretion that such
listing is neither necessary nor advisable;
(b) The completion of any registration or other
qualification or exemption of the Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
and
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<PAGE> 3
(c) The obtaining of any approval or other clearance
from any federal or state governmental agency that the Committee shall
in its sole discretion determine to be necessary or advisable.
1.9 Reservation of Shares of Common Stock. During the term of
the Plan, the Company will at all times reserve and keep available such number
of shares of Common Stock as shall be necessary to satisfy the requirements of
the Plan as to the maximum number of Plan Shares. In addition, the Company
will from time to time, as is necessary to accomplish the purposes of the Plan,
seek or obtain from any regulatory agency having jurisdiction any requisite
authority that is necessary to issue Plan Shares hereunder. The inability of
the Company to obtain from any regulatory agency having jurisdiction the
authority deemed by the Company's counsel to be necessary to the lawful
issuance of any Plan Shares shall relieve the Company of any liability in
respect of the non-issuance of Plan Shares as to which the requisite authority
shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall determine, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, the issuance,
delivery, exercise or
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<PAGE> 4
vesting of the Options, then the issuance, delivery, exercise or
vesting of the Options shall not be effective unless the withholding
shall have been effected or obtained in a manner acceptable to the
Committee.
(b) Manner of Satisfying Withholding Obligation. When
an Optionee is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the
exercise of an Option, subject to Section 1.10(c), such individual may
satisfy the obligation, in whole or in part, by electing to (i) have
the Company withhold a portion of the Plan Shares acquired upon the
exercise of the Option and having a Fair Market Value on the date the
amount of tax to be withheld is to be determined (the "Tax Date")
equal to the amount required to be withheld or (ii) deliver to the
Company shares of Common Stock already owned and having a Fair Market
Value on the Tax Date equal to the amount required to be withheld.
The amount to be withheld shall be the minimum amount that is required
to be withheld under applicable federal and state income tax laws;
provided, however, in the event a request is made by the Optionee, the
amount to be withheld shall be the approximate amount of federal and
state income taxes that will be incurred by such Optionee with respect
to such issuance, delivery, exercise or vesting of Options under the
Plan.
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or
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<PAGE> 5
delivered out of already-owned Common Stock for this purpose (i) must
be made prior to the Tax Date, and (ii) must be irrevocable.
ARTICLE II
Administration
3.0 Committee. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee shall have sole
discretion and authority to determine to whom and the time or times at which
Options may be granted and the number of Plan Shares to be subject to each
Option. Subject to the express provisions of the Plan, the Committee shall
also have complete authority to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to it, to determine the details and
provisions of each Option Agreement, including but not limited to provisions
related to vesting and exercisability, and to make all other determinations
necessary or advisable in the administration of the Plan.
3.1 Appointment of Committee. The Committee shall be appointed
by the Board and shall consist of one or more members of the Board, provided
that in lieu of such appointment, the Board may act as the Committee.
3.2 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a
-5-
<PAGE> 6
writing executed by all members of the Committee shall constitute the action of
the Committee. Meetings of the Committee may take place by telephone
conference call.
3.3 Company Assistance. The Company shall supply full and
timely information to the Committee on all matters relating to Optionees, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE III
Stock Options
4 Option Terms and Conditions. The terms and conditions of
Options granted under this Article may differ from one another as the Committee
shall, in its discretion, determine as long as all Options granted under this
Article satisfy the requirements of this Article.
4.1 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan or the Option Agreement.
-6-
<PAGE> 7
4.2 Purchase Price. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option shall be $833.75
per share, subject to adjustment pursuant to Section 4.2.
4.3 Vesting. An Option may not be exercised until it has become
vested. Unless the Option Agreement provides for a different vesting schedule,
an Optionee will vest in his Options depending upon the period that has elapsed
since the Effective Date according to the following schedule:
<TABLE>
<CAPTION>
Number of Years
Since Effective Date Vested Percentage
-------------------- -----------------
<S> <C>
Fewer than one 0%
One but fewer than two 14.29%
Two but fewer than three 28.58%
Three but fewer than four 42.87%
Four but fewer than five 57.16%
Five but fewer than six 71.45%
Six but fewer than seven 85.74%
Seven or more 100%
</TABLE>
If an Optionee terminates employment with the Company prior to
becoming fully vested, he will forfeit the non- vested portion of his Option.
Notwithstanding the foregoing vesting schedule or any schedule contained in the
Optionee's Option Agreement, if (a) the Optionee's employment is terminated
because of death or Permanent Disability, or (b) upon a Capital Event the
Return is at least 20%, then the Optionee shall be 100% fully vested in his
Option.
4.4 Restriction on Exercise. An Option may not be exercised
during any period in which Optionee is in default under the terms of any loan
or other obligation that Optionee may have with the Company. Upon cure of such
default, the restrictions of this
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<PAGE> 8
Section 3.5 shall lapse and the Option shall be exercisable to the extent
vested and otherwise exercisable under the Plan and the Option Agreement.
4.5 Individual Option Agreements. Each Optionee receiving
Options pursuant to this Article shall be required to enter into a written
Option Agreement with the Company as a precondition to receiving an Option
under this Article. In such Option Agreement, the Optionee shall agree to be
bound by the terms and conditions of the Plan, the awards made pursuant hereto,
and such other matters as the Committee deems appropriate. Each Option
Agreement shall specify the number of Options granted to an Optionee and any
restrictions on exercise as the Committee deems appropriate.
4.6 Exercise of Options.
(a) Method of Exercise. Each Option shall be
exercisable in accordance with the terms of the Option Agreement
pursuant to which the Option was granted.
(b) Payment of Purchase Price. The purchase price of
any Plan Shares purchased upon exercise of an Option shall be paid at
the time of exercise of the Option either (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
determine,
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<PAGE> 9
including without limitation the right to repay the note partially or
wholly with Common Stock, or (v) by delivery of a copy of irrevocable
instructions from the Optionee to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the Plan Shares
purchased upon exercise of the Option or to pledge them as collateral
for a loan and promptly deliver to the Company the amount of sale or
loan proceeds necessary to pay such purchase price. If any portion of
the purchase price or a note given at the time of exercise is paid in
shares of Common Stock, those shares shall be valued at the then Fair
Market Value.
4.7 Non-Competition and Confidential Information. Each Optionee
receiving Options pursuant to this Article shall be subject to the restriction
that he or she will not compete with any business of the Company or its
subsidiaries, and will not disclose to persons outside the Company confidential
information concerning the Company or its subsidiaries without the Company's
consent during the term of the Option Agreement and, unless the Optionee's
employment is terminated without Cause or upon Optionee's Voluntary Termination
with Good Reason, for a period of one year thereafter.
4.8 Written Notice Required. Any Option shall be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
3.7.
-9-
<PAGE> 10
4.9 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.
4.10 Employment of Optionee. Nothing in the Plan or in any
Option granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of that employment.
-10-
<PAGE> 11
4.11 Option Rights Upon Termination of Employment. If an
Optionee ceases to be employed by the Company or any subsidiary or affiliate
for any reason other than for death, Permanent Disability or for Cause, his
Option shall be exercisable (to the extent vested and exercisable on the date
of termination of employment) at any time within 30 days after the date of
termination of employment unless by its terms the Option expires sooner or the
Committee agrees, in its sole discretion, to extend the term of such Option.
4.12 Termination of Employment for Cause. If an Optionee that is
an Employee ceases to be employed by the Company or any subsidiary or affiliate
of the Company because the Optionee's employment is terminated for Cause, the
Option shall automatically expire, and notwithstanding the provisions of
Section 3.4, the Optionee shall forfeit any previously vested Option.
4.13 Option Rights Upon Permanent Disability of Optionee. Except
as provided in Section 3.5 and unless either the Option or the Option Agreement
pursuant to which it was issued otherwise provides, an Option shall become
fully exercisable on the date of the Optionee's termination of employment as a
result of his or her Permanent Disability and shall expire 30 days thereafter
unless by its terms it expires sooner.
4.14 Option Rights Upon Death of Optionee. Except as provided in
Section 3.5 and unless either the Option or the Option Agreement pursuant to
which it was issued otherwise provides, an Option shall become fully
exercisable on the date of the Optionee's death and shall expire 30 days
thereafter unless by its terms its
-11-
<PAGE> 12
expires sooner. Following the death of an Optionee, the Option may be fully
exercised, to the extent that it remains unexercised on the date of death, by
the Optionee's personal representative or by the distributee to whom the
Optionee's rights under the Option shall pass by will or by the laws of descent
and distribution.
4.15 Options Not Transferable and Subject to Certain
Restrictions. Options may not be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and distribution and, if
exercised during the lifetime of the optionee, may be exercised only by that
Optionee or by his legally authorized representative. Plan Shares issued or
issuable upon exercise of an Option shall be subject to redemption pursuant to
the terms of the Stockholders' Agreement and any other similar agreement to
which Optionee is subject regarding purchase or redemptive rights.
ARTICLE IV
Termination, Amendment, and Adjustment
4.1 Termination and Amendment. The Plan shall terminate 10
years after the Effective Date. No Options shall be granted under the Plan
after that date of termination. The Committee may at any time amend or revise
the terms of the Plan, including the form and substance of the Option
Agreements to be used in connection herewith. No amendment, suspension, or
termination of the Plan shall, without the consent of the individual who has
received an Option hereunder, alter or impair any of that individual's rights
-12-
<PAGE> 13
or obligations under any Option granted under the Plan prior to that amendment,
suspension, or termination.
4.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of Plan Shares as to which Options
may be granted under the Plan; provided, however that no adjustment shall be
made upon any conversion of preferred stock to Common Stock. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
Options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding Options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share covered by the Option. The foregoing adjustments and the
manner of application of the forgoing provisions shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests.
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<PAGE> 14
ARTICLE V
Miscellaneous
5.1 Other Compensation Plans. The adoption of the Plan shall
not affect any other stock option or incentive or other compensation plans in
effect for the Company, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation plans.
5.2 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
5.3 Plan Shares Not Outstanding. Prior to issuance upon
exercise of an Option, Plan Shares are not deemed to be outstanding for any
purpose unless and then only to the extent otherwise specifically provided, and
Participants shall have no voting, preemptive or other shareholder rights with
respect to such Plan Shares.
5.4 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
5.5 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
5.6 Governing Law. The construction and operation of the Plan
are governed by the laws of the State of Delaware.
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<PAGE> 15
ARTICLE VI
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
6.1 "Board" means the Board of Directors of the Company.
6.2 "Capital Event" means the first to occur of:
(a) the date that Hanover Energy Holding Corporation, a
Delaware corporation ("Hanover"), and GKH sell or otherwise transfer
more than 50% of the their Common Stock interest in the Company;
(b) the date all or substantially all the assets or
property of the Company or Hanover are sold, leased or otherwise
transferred to an unrelated third-party;
(c) the effective date of a merger or consolidation,
under which the Company or Hanover is not the surviving entity, or the
surviving entity is not controlled by Hanover or GKH either
individually or collectively;
(d) the dissolution or liquidation of the Company; or
(e) the effective date (as declared by the Securities
Exchange Commission) the Common Stock is registered in a public
offering and listed on a nationally recognized stock exchange or
national inter-dealer quotation system.
The Company shall notify Optionee at least 10 days prior to a contemplated
Capital Event.
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<PAGE> 16
6.3 "Cause" means a termination of Optionee's employment by the
Company due to (i) the commission by such Optionee 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 Optionee (or a plea of nolo
contendere plea 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 Optionee 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 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.
6.4 "Code" means the Internal Revenue Code of 1986, as amended.
6.5 "Committee" means the Committee appointed in accordance with
Section 2.2.
6.6 "Common Stock" means the Common Stock, par value of $0.001
per share of the Company.
6.7 "Company" means Hanover Compressor Company, a Delaware
corporation.
6.8 "Effective Date" means _______________.
6.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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<PAGE> 17
6.10 "Fair Market Value" means such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided,
however, that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the NASDAQ National Market
System, such value as shall be determined by the Committee on the basis of the
average reported sales price for the Common Stock for the ten days preceding
the date for which such determination is relevant, as reported on the national
securities exchange or the NASDAQ National Market System, as the case may be.
6.11 "GKH" means GKH Investments, L.P., a Delaware limited
partnership and GKH Partners, L.P., a Delaware limited partnership.
6.12 "Good Reason" shall have the same meaning as set forth in
the Stockholders' Agreement.
6.13 "Option" means an option granted pursuant to Article III.
6.14 "Optionee" means a senior executive of the Company to whom
an Option has been granted hereunder.
6.15 "Option Agreement" means an agreement between the Company
and an Optionee with respect to one or more Options.
6.16 "Permanent Disability" means the inability of the Optionee
to perform substantially all his duties and responsibilities to the Company for
either (i) a continuous period of six months or (ii) 180 days during any
consecutive twelve month period by reason of a physical or mental disability or
infirmity which is expected to be permanent and continuous for life as
determined by
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<PAGE> 18
a physician selected by the Board. The date of such Permanent Disability shall
be (a) in the case of clause (i) above, the last day of such six month period
or, if later, the day on which the Optionee submits satisfactory medical
evidence of such Permanent Disability or (b) in the case of clause (ii) above,
such date as is determined in good faith by the Board.
6.17 "Plan" means the Hanover Compressor Company Senior Executive
Stock Option Plan, the terms of which are set forth herein.
6.18 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan (including, but not limited to, shares of Common Stock issued or
issuable upon exercise of Options granted pursuant to the Plan).
6.19 "Return" means the compounded annual return actually
realized from a disposition determined from the Effective Date to the date of a
Capital Event on the shares of Common Stock purchased in the offering of Common
Stock made to certain members of management pursuant to that certain
Confidential Offering Memorandum dated June 21, 1993.
6.20 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor rule.
6.21 "Securities Act" means the Securities Act of 1933, as
amended.
6.22 "Stockholders' Agreement" means the 1993 Stockholders'
Agreement dated as of June __, 1993.
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<PAGE> 19
6.23 "Voluntary Termination" shall have the same meaning as set
forth in the Stockholders' Agreement.
-19-
<PAGE> 1
EXHIBIT 10.5
HANOVER COMPRESSOR COMPANY
1993 MANAGEMENT STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company 1993 Management Stock Option Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth and
general prosperity of Hanover Compressor Company, a Delaware corporation (the
"Company"), by permitting the Company to grant to certain members of its
management options to purchase Common Stock of the Company (the "Options").
The Company intends that Options granted pursuant to the Plan will be
nonstatutory options and will not be classified as "incentive stock options"
within the meaning of Section 422 of the Code.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Only management Employees who
purchase Common Stock in the Offering shall be eligible to participate in the
Plan. The Committee may grant Options to eligible Employees in accordance with
this Plan and such determinations as the Committee in its sole discretion shall
make.
1.5 Shares Subject to the Plan. The shares available for issuance
upon exercise of Options granted under the Plan shall be shares of Common Stock
(the "Plan Shares").
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 4.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum number
<PAGE> 2
of Plan Shares that may be issued and sold hereunder shall be equal to
one-third of the total shares of Common Stock previously owned by Optionees or
purchased by Optionees in the Offering.
1.7 Options Granted Under Plan. Plan Shares with respect to
which an Option shall have been exercised shall not again be available for
grant hereunder. If Options terminate for any reason without being wholly
exercised, new Options may be granted hereunder covering the number of Plan
Shares to which such Option termination relates.
1.8 Conditions Precedent. The Company shall not issue or deliver
any Option Agreement or any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, if any,
unless the Committee determines in its sole discretion that such
listing is neither necessary nor advisable;
(b) The completion of any registration or other
qualification or exemption of the Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the
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<PAGE> 3
Committee shall in its sole discretion determine to be necessary or
advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the maximum number of Plan Shares. In addition, the Company will
from time to time, as is necessary to accomplish the purposes of the Plan, seek
or obtain from any regulatory agency having jurisdiction any requisite
authority that is necessary to issue Plan Shares hereunder. The inability of
the Company to obtain from any regulatory agency having jurisdiction the
authority deemed by the Company's counsel to be necessary to the lawful
issuance of any Plan Shares shall relieve the Company of any liability in
respect of the non-issuance of Plan Shares as to which the requisite authority
shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall determine, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, the issuance,
delivery, exercise or vesting of the Options, then the issuance,
delivery, exercise or vesting of the Options shall not be effective
unless the
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<PAGE> 4
withholding shall have been effected or obtained in a manner
acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When
an Optionee is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the
exercise of an Option, subject to Section 1.10(c), such individual
may satisfy the obligation, in whole or in part, by electing to (i)
have the Company withhold a portion of the Plan Shares acquired upon
the exercise of the Option and having a Fair Market Value on the date
the amount of tax to be withheld is to be determined (the "Tax Date")
equal to the amount required to be withheld or (ii) deliver to the
Company shares of Common Stock already owned and having a Fair Market
Value on the Tax Date equal to the amount required to be withheld.
The amount to be withheld shall be the minimum amount that is required
to be withheld under applicable federal and state income tax laws;
provided, however, in the event a request is made by the Optionee,
the amount to be withheld shall be the approximate amount of federal
and state income taxes that will be incurred by such Optionee with
respect to such issuance, delivery, exercise or vesting of Options
under the Plan.
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or delivered out
of already-owned Common Stock for this purpose
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<PAGE> 5
(i) must be made prior to the Tax Date, and (ii) must be irrevocable.
ARTICLE II
Administration
2.1 Committee. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee shall have sole
discretion and authority to determine to whom and the time or times at which
Options may be granted and the number of Plan Shares to be subject to each
Option. Subject to the express provisions of the Plan, the Committee shall
also have complete authority to interpret the Plan, to prescribe, amend, and
rescind rules and regulations relating to it, to determine the details and
provisions of each Option Agreement, including but not limited to provisions
related to vesting and exercisability, and to make all other determinations
necessary or advisable in the administration of the Plan.
2.2 Appointment of Committee. The Committee shall be appointed by
the Board and shall consist of one or more members of the Board, provided that
in lieu of such appointment, the Board may act as the Committee.
2.3 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute
-5-
<PAGE> 6
the action of the Committee. Meetings of the Committee may take place by
telephone conference call.
2.4 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Optionees, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE III
Stock Options
3.1 Option Terms and Conditions. The terms and conditions of
Options granted under this Article may differ from one another as the Committee
shall, in its discretion, determine as long as all Options granted under this
Article satisfy the requirements of this Article.
3.2 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan or the Option Agreement.
3.3 Purchase Price and Number of Plan Shares. The purchase price
for Plan Shares acquired pursuant to the exercise, in whole or in part, of any
Option shall be $725 per share, subject to
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<PAGE> 7
adjustment pursuant to Section 4.2. The number of Plan Shares which an
Optionee shall be granted an Option to purchase hereunder shall be limited to
one-third of a Plan Share for each share of Common Stock owned by Optionee
immediately prior to the Offering or purchased by the Optionee in the
Offering.
3.4 Vesting. An Option may not be exercised until it has become
vested. Unless the Option Agreement provides for a different vesting schedule,
an Optionee will vest in his Options depending upon the period that has
elapsed since the Effective Date according to the following schedule:
<TABLE>
<CAPTION>
Number of Years
Since Effective Date Vested Percentage
-------------------- -----------------
<S> <C>
Fewer than one 0%
One but fewer than two 20%
Two but fewer than three 40%
Three but fewer than four 60%
Four but fewer than five 80%
Five or more 100%
</TABLE>
If an Optionee terminates employment with the Company prior to
becoming fully vested, he will forfeit the non-vested portion of his Option.
Notwithstanding the foregoing vesting schedule or any schedule contained in the
Optionee's Option Agreement, if (a) the Optionee's employment is terminated
because of death, Permanent Disability, or (b) upon occurrence of a Capital
Event, then the Optionee shall be 100% fully vested in his Option.
3.5 Restriction on Exercise. An Option may not be exercised
during any period in which Optionee is in default under the terms of any loan
or other obligation that Optionee may have with the Company. Upon cure of such
default, the restrictions of this
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<PAGE> 8
Section 3.5 will lapse and the Option shall be exercisable to the extent vested
and otherwise exercisable under the terms of the Plan and the Option Agreement.
3.6 Individual Option Agreements. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan, the awards made pursuant hereto, and such
other matters as the Committee deems appropriate. Each Option Agreement shall
specify the number of Options granted to an Optionee and any restrictions on
exercise as the Committee deems appropriate.
3.7 Exercise of Options.
(a) Method of Exercise. Each Option shall be exercisable
in accordance with the terms of the Option Agreement pursuant to which
the Option was granted.
(b) Payment of Purchase Price. The purchase price of any
Plan Shares purchased upon the exercise of an Option shall be paid at
the time of exercise of the Option either (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
-8-
<PAGE> 9
determine, including without limitation the right to repay the note
partially or wholly with Common Stock, or (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan
Shares purchased upon exercise of the Option or to pledge them as
collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price. If any
portion of the purchase price or a note given at the time of exercise
is paid in shares of Common Stock, those shares shall be valued at the
then Fair Market Value.
3.8 Non-Competition and Confidential Information. Each Optionee
receiving Options pursuant to this Article shall be subject to the restriction
that he or she will not compete with any business of the Company or its
subsidiaries, and will not disclose to persons outside the Company confidential
information concerning the Company or its subsidiaries without the Company's
consent during the term of the Option Agreement and, unless the Optionee's
employment is terminated without Cause or upon Optionee's Voluntary Termination
with Good Reason, for a period of one year thereafter.
3.9 Written Notice Required. Any Option shall be deemed to
be exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
3.7.
-9-
<PAGE> 10
3.10 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed) and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.
3.11 Employment of Optionee. Nothing in the Plan or in any Option
granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of that employment.
-10-
<PAGE> 11
3.12 Option Rights Upon Termination of Employment. If an Optionee
ceases to be employed by the Company or any subsidiary or affiliate for any
reason other than for death, Permanent Disability or for Cause, his Option
shall be exercisable (to the extent vested and exercisable on the date of
termination of employment) at any time within 30 days after the date of
termination of employment unless by its terms the Option expires sooner or the
Committee agrees, in its sole discretion, to extend the term of such Option.
3.13 Termination of Employment for Cause. If an Optionee that is
an Employee ceases to be employed by the Company or any subsidiary or affiliate
of the Company because the Optionee's employment is terminated for Cause, the
Option shall automatically expire, and notwithstanding the provisions of
Section 3.4, the Optionee shall forfeit any previously vested Option.
3.14 Option Rights Upon Permanent Disability of Optionee. Except as
provided in Section 3.5 and unless either the Option or the Option Agreement
pursuant to which it was issued otherwise provides, an Option shall become
fully exercisable on the date of the Optionee's termination of employment as a
result of his or her Permanent Disability and shall expire 30 days thereafter
unless by its terms it expires sooner.
3.15 Option Rights Upon Death of Optionee. Except as provided in
Section 3.5 and unless either the Option or the Option Agreement pursuant to
which it was issued otherwise provides, an Option shall become fully
exercisable on the date of the Optionee's death and shall expire 30 days
thereafter unless by its terms its expires
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<PAGE> 12
sooner. Following the death of an Optionee, the Option may be fully exercised,
to the extent that it remains unexercised on the date of death, by the
Optionee's personal representative or by the distributee to whom the Optionee's
rights under the Option shall pass by will or by the laws of descent and
distribution.
3.16 Options Not Transferable and Subject to Certain Restrictions.
Options may not be sold, pledged, assigned, or transferred in any manner other
than by will or the laws of descent and distribution and may be exercised
during the lifetime of an Optionee only by that Optionee or by his legally
authorized representative. Plan Shares issued or issuable upon exercise of any
Option shall be subject to redemption pursuant to the terms of the
Stockholders' Agreement and any other similar agreement to which Optionee is
subject regarding purchase or redemptive rights.
ARTICLE IV
Termination, Amendment, and Adjustment
4.1 Termination and Amendment. The Plan shall terminate 10 years
after the Effective Date. No Options shall be granted under the Plan after
that date of termination. The Committee may at any time amend or revise the
terms of the Plan, including the form and substance of the Option Agreements
to be used in connection herewith. No amendment, suspension, or termination
of the Plan shall, without the consent of the individual who has received an
Option hereunder, alter or impair any of that individual's rights or
obligations under any Option granted under the Plan prior to that amendment,
suspension, or termination.
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<PAGE> 13
4.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of Plan Shares as to which Options
may be granted under the Plan; provided, however that no adjustment shall be
made upon any conversion of preferred stock to Common Stock. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
Options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding Options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share covered by the Option. The foregoing adjustments and the
manner of application of the forgoing provisions shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests.
ARTICLE V
Miscellaneous
5.1 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in
effect for the Company, nor shall the Plan
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<PAGE> 14
preclude a the Company from establishing any other forms of incentive or other
compensation plans.
5.2 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
5.3 Plan Shares Not Outstanding. Prior to issuance upon exercise
of an Option, Plan Shares are not deemed to be outstanding for any purpose
unless and then only to the extent other specifically provided, and
Participants shall have no voting, preemptive or other shareholder rights with
respect to such Plan Shares.
5.4 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
5.5 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
5.6 Governing Law. The construction and operation of the Plan
are governed by the laws of the State of Delaware.
ARTICLE VI
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
6.1 "Board" means the Board of Directors of the Company.
6.2 "Capital Event" means the first to occur of:
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<PAGE> 15
(a) the date that Hanover Energy Holding Corporation, a
Delaware corporation ("Hanover"), and GKH Investments, L.P. and GKH
Partners, L.P. sell or otherwise transfer more than 50% of the their
Common Stock interest in the Company;
(b) the date all or substantially all the assets or
property of the Company or Hanover are sold, leased or otherwise
transferred to an unrelated third-party;
(c) the effective date of a merger or consolidation,
under which the Company or Hanover is not the surviving entity or, the
surviving entity is not controlled by Hanover or GKH either
individually or collectively;
(d) the dissolution or liquidation of the Company; or
(e) the effective date (as declared by the Securities Exchange
Commission) the Common Stock is registered in a public offering and
listed on a nationally recognized stock exchange or national
inter-dealer quotation system.
The Company shall notify Optionee at least 10 days prior to a contemplated
Capital Event.
6.3 "Cause" means a termination of Optionee's employment by the
Company due to (i) the commission by such Optionee 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 Optionee (or a plea of nolo
contendere plea in lieu thereof) for a felony or a crime involving fraud,
dishonesty or moral turpitude, (iii) willful misconduct as an employee of the
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<PAGE> 16
Company, (iv) the willful failure of such Optionee 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 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.
6.4 "Code" means the Internal Revenue Code of 1986, as amended.
6.5 "Committee" means the Committee appointed in accordance with
Section 2.2.
6.6 "Common Stock" means the Common Stock, par value of $0.001 per
share of the Company.
6.7 "Company" means Hanover Compressor Company, a Delaware
corporation.
6.8 "Effective Date" means June 29, 1993.
6.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
6.10 "Fair Market Value" means such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided,
however, that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the NASDAQ National Market
System, such value as shall be determined by the Committee on the basis of the
average reported sales price for the Common Stock for the ten days preceding
the date for which such determination is relevant, as reported on the
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<PAGE> 17
national securities exchange or the NASDAQ National Market System, as the case
may be.
6.11 "Good Reason" shall have the same meaning as set forth in the
Stockholders' Agreement.
6.12 "Offering" means the offering of Common Stock made to certain
members of management pursuant to that certain Confidential Offering Memorandum
dated June 21, 1993.
6.13 "Option" means an option granted pursuant to Article III.
6.14 "Optionee" means a management employee of the Company to whom
an Option has been granted hereunder.
6.15 "Option Agreement" means an agreement between the Company and
an Optionee with respect to one or more Options.
6.16 "Permanent Disability" means the inability of the Optionee to
perform substantially all his duties and responsibilities to the Company for
either (i) a continuous period of six months or (ii) 180 days during any
consecutive twelve month period by reason of a physical or mental disability or
infirmity which is expected to be permanent and continuous for life as
determined by a physician selected by the Board. The date of such Permanent
Disability shall be (a) in the case of clause (i) above, the last day of such
six month period or, if later, the day on which the Optionee submits
satisfactory medical evidence of such Permanent Disability or (b) in the case
of clause (ii) above, such date as is determined in good faith by the Board.
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<PAGE> 18
6.17 "Plan" means the Hanover Compressor Company 1993 Management
Stock Option Plan, the terms of which are set forth herein.
6.18 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan (including, but not limited to, shares of Common Stock issued or
issuable upon exercise of Options granted pursuant to the Plan).
6.19 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor rule.
6.20 "Securities Act" means the Securities Act of 1933, as amended.
6.21 "Stockholders' Agreement" means the 1993 Stockholders'
Agreement dated as of June 29, 1993.
6.22 "Voluntary Termination" shall have the same meaning as set
forth in the Stockholders' Agreement.
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<PAGE> 1
EXHIBIT 10.6
HANOVER COMPRESSOR COMPANY
INCENTIVE OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company Incentive Option Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth
and general prosperity of Hanover Compressor Company, a Delaware corporation
(the "Company"), by permitting the Company to grant to its Employees options to
purchase Common Stock of the Company (the "Options"). The Plan is designed to
help the Company attract and retain superior personnel for positions of
substantial responsibility and to provide Employees with an additional
incentive to contribute to the success of the Company. The Company intends
that Options granted pursuant to the Plan will be nonstatutory options and will
not be classified as "incentive stock options" within the meaning of Section
422 of the Code.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Only Employees who participate
in the Offering and who own shares of Common Stock on the Exit Date shall be
eligible to participate in the Plan. The Committee may grant Options to
eligible Employees in accordance with this Plan and such determinations as the
Committee from time to time in its sole discretion shall make.
<PAGE> 2
1.5 Shares Subject to the Plan. The shares available for
issuance upon exercise of Options granted under the Plan shall be shares of
Common Stock (the "Plan Shares").
1.6 Maximum Number of Plan Shares. Subject to adjustment
pursuant to the provisions of Section 4.2, and subject to any additional
restrictions elsewhere in the Plan, the maximum number of Plan Shares that may
be issued and sold hereunder shall not exceed 8.75% of the Common Stock, and
shall be determined based upon the IRR at the Exit Date according to the
following table:
<TABLE>
<CAPTION>
Incremental
Minimum IRR
-----------
Plan Shares
-----------
<S> <C>
26% 0.25%
27% 0.25%
28% 0.25%
29% 0.25%
30% 0.50%
31% 0.50%
32% 0.50%
33% 0.50%
34% 0.50%
35% 0.50%
36% 0.50%
37% 0.50%
38% 0.50%
39% 0.50%
40% 0.25%
41% 0.25%
42% 0.25%
43% 0.25%
44% 0.25%
45% 0.25%
46% 0.25%
47% 0.25%
48% 0.25%
49% 0.25%
50% 0.25%
Maximum 8.75%
</TABLE>
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<PAGE> 3
No Plan Shares may be issued and sold hereunder if the IRR is less than 26%.
1.7 Options Granted Under Plan. Plan Shares with respect to
which an Option shall have been exercised shall not again be available for
grant hereunder.
1.8 Conditions Precedent. The Company shall not issue or
deliver any Option Agreement or any certificate for Plan Shares pursuant to the
Plan prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, if any,
unless the Committee determines in its sole discretion that such
listing is neither necessary nor advisable;
(b) The completion of any registration or other
qualification or exemption of the Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance
from any federal or state governmental agency that the Committee shall
in its sole discretion determine to be necessary or advisable.
1.9 Reservation of Shares of Common Stock. During the term of
the Plan, the Company will at all times reserve and keep available such number
of shares of Common Stock as shall be
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<PAGE> 4
necessary to satisfy the requirements of the Plan as to the maximum number of
Plan Shares. In addition, the Company will from time to time, as is necessary
to accomplish the purposes of the Plan, seek or obtain from any regulatory
agency having jurisdiction any requisite authority that is necessary to issue
Plan Shares hereunder. The inability of the Company to obtain from any
regulatory agency having jurisdiction the authority deemed by the Company's
counsel to be necessary to the lawful issuance of any Plan Shares shall relieve
the Company of any liability in respect of the non-issuance of Plan Shares as
to which the requisite authority shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall determine, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, the issuance,
delivery, exercise or vesting of the Options, then the issuance,
delivery, exercise or vesting of the Options shall not be effective
unless the withholding shall have been effected or obtained in a
manner acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When
an Optionee is required to pay to the Company an amount required to be
withheld under applicable income tax laws in
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connection with the exercise of an Option, subject to Section 1.10(c),
such individual may satisfy the obligation, in whole or in part, by
electing to (i) have the Company withhold a portion of the Plan Shares
acquired upon the exercise of the Option and having a Fair Market
Value on the date the amount of tax to be withheld is to be determined
(the "Tax Date") equal to the amount required to be withheld or (ii)
deliver to the Company shares of Common Stock already owned and having
a Fair Market Value on the Tax Date equal to the amount required to be
withheld. The amount to be withheld shall be the minimum amount that
is required to be withheld under applicable federal and state income
tax laws; provided, however, in the event a request is made by an
Optionee, the amount to be withheld shall be the approximate amount of
federal and state income taxes that will be incurred by such Optionee
with respect to such issuance, delivery, exercise or vesting of
Options under the Plan.
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or delivered out
of already-owned Common Stock for this purpose (i) must be made prior
to the Tax Date, and (ii) must be irrevocable.
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ARTICLE II
Administration
3 Committee. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee shall have sole
discretion and authority to determine the Employees to whom and the time or
times at which Options may be granted and the number of Plan Shares to be
subject to each Option. Subject to the express provisions of the Plan, the
Committee shall also have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to
determine the details and provisions of each Option Agreement, including but
not limited to provisions related to vesting and exercisability, and to make
all other determinations necessary or advisable in the administration of the
Plan.
3.1 Appointment of Committee. The Committee shall be appointed
by the Board and shall consist of one or more members of the Board, provided
that in lieu of such appointment, the Board may act as the Committee.
3.2 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute the action of the Committee. Meetings of the
Committee may take place by telephone conference call.
3.3 Company Assistance. The Company shall supply full and
timely information to the Committee on all matters relating to Optionees, their
employment, death, retirement, disability, or
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other termination of employment, and such other pertinent facts as the
Committee may require. The Company shall furnish the Committee with such
clerical and other assistance as is necessary in the performance of its duties.
ARTICLE III
Stock Options
4 Option Terms and Conditions. The terms and conditions of Options
granted under this Article may differ from one another as the Committee shall,
in its discretion, determine as long as all Options granted under this Article
satisfy the requirements of this Article.
4.1 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan or the Option Agreement.
4.2 Purchase Price and Number of Plan Shares. The purchase
price for Plan Shares acquired pursuant to the exercise, in whole or in part,
of any Option shall be $725 per share subject to adjustment pursuant to Section
4.2. The number of Plan Shares which an Optionee shall be granted an Option to
purchase hereunder shall be determined pro rata based on the lesser of (a) the
number of shares of Common Stock such Optionee subscribed for in the
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Offering or (b) the number of shares of Common Stock owned by Optionee on the
Exit Date, bears to the number of shares all Optionees under this Plan
subscribed to in the Offering.
4.3 Individual Option Agreements. Each Optionee receiving
Options pursuant to this Article shall be required to enter into a written
Option Agreement with the Company as a precondition to receiving an Option
under this Article. In such Option Agreement, the Optionee shall agree to be
bound by the terms and conditions of the Plan, the awards made pursuant hereto,
and such other matters as the Committee deems appropriate.
4.4 Exercise of Options.
(a) Method of Exercise. Each Option shall be
exercisable in accordance with the terms of the Option Agreement
pursuant to which the Option was granted. No Option may be exercised
for a fraction of a Plan Share.
(b) Payment of Purchase Price. The purchase price of
any Plan Shares purchased upon exercise of an Option shall be paid at
the time of exercise of the Option either (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
determine, including without limitation the right to repay the note
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<PAGE> 9
partially or wholly with Common Stock, or (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan
Shares purchased upon exercise of the Option or to pledge them as
collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price. If any
portion of the purchase price or a note given at the time of exercise
is paid in shares of Common Stock, those shares shall be valued at the
then Fair Market Value.
4.5 Vesting. No Option shall be exercisable prior to
occurrence of a Capital Event. In addition, no Option shall be exercisable if
on the Exit Date the IRR does not exceed 26%.
4.6 Notice of Capital Event. The Company shall notify each
Participant at least 10 days prior to the date on which a Capital Event is
contemplated to occur.
4.7 Written Notice of Exercise Required. Any Option shall be
deemed to be exercised for purposes of the Plan when written notice of exercise
has been received by the Company at its principal office from the person
entitled to exercise the Option and payment for the Plan Shares with respect to
which the Option is exercised has been received by the Company in accordance
with Section 3.5. Upon notice of a Capital Event, a Participant may exercise
an Option conditioned upon the occurrence of the Capital Event.
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4.8 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.
4.9 Employment of Optionee. Nothing in the Plan or in any
Option granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of that employment.
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4.10 Options Not Transferable and Subject to Certain
Restrictions. Options may not be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and distribution and may
be exercised during the lifetime of an Optionee only by that Optionee or by his
legally authorized representative. Plan Shares issued or issuable upon
exercise of any Option shall be subject to redemption pursuant to the terms of
the 1993 Stockholders' Agreement dated as of June ___, 1993 and any other
similar agreement to which Optionee is subject to regarding purchase or
redemptive rights.
ARTICLE IV
Termination, Amendment, and Adjustment
4.1 Termination and Amendment. The Plan shall terminate 10
years after the Effective Date. No Options shall be granted under the Plan
after that date of termination. The Committee may at any time amend or revise
the terms of the Plan, including the form and substance of the Option
Agreements to be used in connection herewith. No amendment, suspension, or
termination of the Plan shall, without the consent of the individual who has
received an Option hereunder, alter or impair any of that individual's rights
or obligations under any Option granted under the Plan prior to that amendment,
suspension, or termination.
4.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization,
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recapitalization, reclassification, stock dividend, stock split, or reverse
stock split, an appropriate and proportionate adjustment shall be made in the
maximum number and kind of Plan Shares as to which Options may be granted under
the Plan; provided, however, that no adjustment shall be made for the
conversion of preferred stock into Common Stock. A corresponding adjustment
changing the number or kind of shares allocated to unexercised Options or
portions thereof, which shall have been granted prior to any such change, shall
likewise be made. Any such adjustment in outstanding Options shall be made
without change in the aggregate purchase price applicable to the unexercised
portion of the Option, but with a corresponding adjustment in the price for
each share covered by the Option. The foregoing adjustments and the manner of
application of the forgoing provisions shall be determined solely by the
Committee, and any such adjustment may provide for the elimination of
fractional share interests.
ARTICLE V
Miscellaneous
6 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company, nor shall the Plan preclude the Company from establishing any
other forms of incentive or other compensation plans.
6.1 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
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6.2 Plan Shares Not Outstanding. Prior to issuance upon
exercise of an Option, Plan Shares are not deemed to be outstanding for any
purpose unless and then only to the extent otherwise specifically provided, and
Participants shall have no voting, preemptive or other shareholder rights with
respect to such Plan Shares.
6.3 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
6.4 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
6.5 Governing Law. The construction and operation of the Plan
are governed by the laws of the State of Delaware.
ARTICLE VI
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
6.1 "Board" means the Board of Directors of the Company.
6.2 "Capital Event" means the first to occur of:
(a) the date that Hanover and GKH sell or otherwise
transfer more than 50% of their Common Stock interest in the Company;
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<PAGE> 14
(b) the date all or substantially all the assets or
property of the Company or Hanover are sold, leased or otherwise
transferred to an unrelated third-party;
(c) the effective date of a merger or consolidation,
under which the Company or Hanover is not the surviving entity, or the
surviving corporation is not controlled by Hanover or GKH either
individually or collectively;
(d) the dissolution or liquidation of the Company; or
(e) the effective date (as declared by the Securities
Exchange Commission) the Common Stock is registered in a public
offering and listed on a nationally recognized stock exchange or
national inter-dealer quotation system.
The Company shall notify Optionee at least 10 days prior to a contemplated
Capital Event.
6.3 "Code" means the Internal Revenue Code of 1986, as amended.
6.4 "Committee" means the Committee appointed in accordance with
Section 2.2.
6.5 "Common Stock" means the Common Stock, par value of $0.001
per share of the Company .
6.6 "Company" means Hanover Compressor Corporation, a Delaware
corporation.
6.7 "Effective Date" means _____________, 1993.
6.8 "Employee" means an employee of the Company, as determined
under Section 3401(c) of the Code and the regulations thereunder.
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6.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
6.10 "Exit Date" means the date on which a Capital Event occurs.
6.11 "Fair Market Value" means such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided,
however, that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the NASDAQ National Market
System, such value as shall be determined by the Committee on the basis of the
average reported sales price for the Common Stock for the ten days preceding
the date for which such determination is relevant, as reported on the national
securities exchange or the NASDAQ National Market System, as the case may be.
6.12 "GKH" means GKH Investments, L.P., a Delaware limited
partnership and GKH Partners, L.P., a Delaware limited partnership.
6.13 "Hanover" means Hanover Energy Holdings Corporation, a
Delaware corporation.
6.14 "IRR" means the annual compounded internal rate of return
generated to Hanover calculated from the Effective Date to the Exit Date. The
IRR shall be determined on the Exit Date.
6.15 "Offering" means the offering of Common Stock made to
certain members of management pursuant to that certain Confidential Offering
Memorandum dated June 21, 1993.
6.16 "Option" means an option granted pursuant to Article III.
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<PAGE> 16
6.17 "Optionee" means an Employee to whom an Option has been
granted hereunder.
6.18 "Option Agreement" means an agreement between the Company
and an Optionee with respect to one or more Options.
6.19 "Plan" means the Hanover Compressor Company Incentive Option
Plan, the terms of which are set forth herein.
6.20 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan (including, but not limited to, shares of Common Stock issued or
issuable upon exercise of Options granted pursuant to the Plan).
6.21 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor rule.
6.22 "Securities Act" means the Securities Act of 1933, as
amended.
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<PAGE> 1
EXHIBIT 10.7
AMENDMENT AND RESTATEMENT OF THE
HANOVER COMPRESSOR COMPANY
INCENTIVE OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company Incentive Option Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth and
general prosperity of Hanover Compressor Company, a Delaware corporation (the
"Company"), by permitting the Company to grant to its Employees options to
purchase Common Stock of the Company (the "Options"). The Plan is designed to
help the Company attract and retain superior personnel for positions of
substantial responsibility and to provide Employees with an additional
incentive to contribute to the success of the Company. The Company intends
that Options granted pursuant to the Plan will be nonstatutory options and will
not be classified as "incentive stock options" within the meaning of Section
422 of the Code.
1.3 Effective Date. The Plan originally was effective June 29,
1993. This Amendment and Restatement of the Plan is effective July 17, 1995.
1.4 Eligibility to Participate. Only Employees who participated
in the Offering and who own shares of Common Stock on the Grant Date shall be
eligible to participate in the Plan. The Committee may grant Options to
eligible Employees in accordance
<PAGE> 2
with this Plan and such determinations as the Committee from time to time in
its sole discretion shall make.
1.5 Shares Subject to the Plan. The shares available for issuance
upon exercise of Options granted under the Plan shall be shares of Common Stock
(the "Plan Shares").
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 4.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum number of Plan Shares that may be issued and
sold hereunder shall not exceed 8,554.
1.7 Options Granted Under Plan. Plan Shares with respect to which
an Option shall have been exercised shall not again be available for grant
hereunder.
1.8 Conditions Precedent. Options shall not vest nor shall the
Company issue or deliver any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, if any,
unless the Committee determines in its sole discretion that such
listing is neither necessary nor advisable;
(b) The completion of any registration or other
qualification or exemption of the Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other
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<PAGE> 3
governmental regulatory body that the Committee shall in its sole
discretion deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the Committee shall in
its sole discretion determine to be necessary or advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the maximum number of Plan Shares. In addition, the Company will
from time to time, as is necessary to accomplish the purposes of the Plan, seek
or obtain from any regulatory agency having jurisdiction any requisite
authority that is necessary to issue Plan Shares hereunder. The inability of
the Company to obtain from any regulatory agency having jurisdiction the
authority deemed by the Company's counsel to be necessary to the lawful
issuance of any Plan Shares shall relieve the Company of any liability in
respect of the non-issuance of Plan Shares as to which the authority shall not
have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall determine, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any
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<PAGE> 4
state or federal law is necessary or desirable as a condition of, or
in connection with, the issuance, delivery, exercise or vesting of the
Options, then the issuance, delivery, exercise or vesting of the
Options shall not be effective unless the withholding shall have been
effected or obtained in a manner acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When an
Optionee is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the
exercise of an Option, subject to Section 1.10(c), such individual may
satisfy the obligation, in whole or in part, by electing to (i) have
the Company withhold a portion of the Plan Shares acquired upon the
exercise of the Option and having a Fair Market Value on the date the
amount of tax to be withheld is to be determined (the "Tax Date")
equal to the amount required to be withheld or (ii) deliver to the
Company shares of Common Stock already owned and having a Fair Market
Value on the Tax Date equal to the amount required to be withheld.
The amount to be withheld shall be the minimum amount that is required
to be withheld under applicable federal and state income tax laws;
provided, however, in the event a request is made by an Optionee, the
amount to be withheld shall be the approximate amount of federal and
state income taxes that will be incurred by such Optionee with respect
to such issuance, delivery, exercise or vesting of Options under the
Plan.
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<PAGE> 5
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or delivered out
of already-owned Common Stock for this purpose (i) must be made prior
to the Tax Date, and (ii) must be irrevocable.
ARTICLE II
Administration
2.1 Committee. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee shall have sole
discretion and authority to determine the Employees to whom and the time or
times at which Options may be granted and the number of Plan Shares to be
subject to each Option. Subject to the express provisions of the Plan, the
Committee shall also have complete authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to it, to
determine the details and provisions of each Option Agreement, including but
not limited to provisions related to vesting and exercisability, and to make
all other determinations necessary or advisable in the administration of the
Plan.
2.2 Appointment of Committee. The Committee shall be appointed by
the Board and shall consist of one or more members of the Board, provided that
in lieu of such appointment, the Board or the Compensation Committee of the
Board may act as the Committee.
2.3 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any
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<PAGE> 6
action taken without a meeting evidenced by a writing executed by all members
of the Committee shall constitute the action of the Committee. Meetings of the
Committee may take place by telephone conference call.
2.4 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Optionees, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE III
Stock Options
3.1 Option Terms and Conditions. The terms and conditions of
Options granted under this Article may differ from one another as the Committee
shall, in its discretion, determine as long as all Options granted under this
Article satisfy the requirements of this Article.
3.2 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the Grant Date. In addition, each Option shall be
subject to early
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<PAGE> 7
termination as provided elsewhere in the Plan or the Option Agreement.
3.3 Purchase Price and Number of Plan Shares. The purchase price
for Plan Shares acquired pursuant to the exercise, in whole or in part, of any
Option shall be $725 per share subject to adjustment pursuant to Section 4.2.
The number of Plan Shares which an Optionee shall be granted an Option to
purchase hereunder shall be determined pro rata based on the number of shares
of Common Stock such Optionee subscribed for in the Offering and are owned by
Optionee on the Grant Date, bears to the number of shares all Optionees under
this Plan subscribed to in the Offering and held on the Grant Date.
3.4 Individual Option Agreements. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan, the awards made pursuant hereto, and such
other matters as the Committee deems appropriate.
3.5 Exercise of Options.
(a) Method of Exercise. Each Option shall be exercisable
in accordance with the terms of the Option Agreement pursuant to which
the Option was granted. No Option may be exercised for a fraction of
a Plan Share.
(b) Payment of Purchase Price. The purchase price of any
Plan Shares purchased upon exercise of an Option shall be
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<PAGE> 8
paid at the time of exercise of the Option either (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
determine, including without limitation the right to repay the note
partially or wholly with Common Stock, or (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan
Shares purchased upon exercise of the Option or to pledge them as
collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price. If any
portion of the purchase price or a note given at the time of exercise
is paid in shares of Common Stock, those shares shall be valued at the
then Fair Market Value.
3.6 Vesting. No Option shall be exercisable prior to its vesting.
Options shall vest based on the number of years elapsed from the Grant Date
according to the following schedule:
<TABLE>
<CAPTION>
Years Elapsed Vesting
---------------------- -------
<S> <C>
Two but fewer than three 0%
3 years but fewer than 4 20%
4 years but less than 5 40%
5 years but less than 6 60%
6 year but less than 7 80%
7 or more years 100%
</TABLE>
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<PAGE> 9
An Optionee shall forfeit that portion of his Option which is not vested on the
date he terminates employment with the Company and all subsidiaries and
affiliates for any reason other than death or disability. If an Optionee's
employment with the Company is terminated on account of his death or
Disability, then such Optionee shall be 100% fully vested in such Option
regardless of the number of years elapsed from the Grant Date. Upon the
occurrence of a Capital Event each Optionee who is then employed by the Company
shall become 100% fully vested in his Option, regardless of the number of years
elapsed from the Grant Date.
3.7 Period for Exercise. If Optionee ceases to be employed by the
Company or any subsidiary or affiliate for any reason other than death or
disability, the Option shall be exercisable (to the extent exercisable on the
date of termination of employment) at any time prior to the earlier of (a) the
date such Option would otherwise terminate under Section 3.2, or (b) 90 days
after the date of termination of employment. The Option shall be fully vested
and exercisable if the Optionee's employment is terminated due to death or
Disability prior to the date such Option would otherwise expire under Section
3.2. Following the death of the Optionee, the Option may be exercised by the
Optionee's personal representative or by the distributee to whom the Optionee's
rights under the Option shall pass by will or by the laws of descent and
distribution.
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<PAGE> 10
3.8 Written Notice of Exercise Required. Any Option shall be
deemed to be exercised for purposes of the Plan when written notice of exercise
has been received by the Company at its principal office from the person
entitled to exercise the Option and payment for the Plan Shares with respect to
which the Option is exercised has been received by the Company in accordance
with Section 3.5. Upon notice of a Capital Event, an Optionee may exercise an
Option conditioned upon the occurrence of the Capital Event.
3.9 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued
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<PAGE> 11
upon the exercise of the Option restricting their transferability as required
by law or by this Section.
3.10 Employment of Optionee. Nothing in the Plan or in any Option
granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of that employment.
3.11 Options Not Transferable and Subject to Certain Restrictions.
Options may not be sold, pledged, assigned, or transferred ln any manner other
than by will or the laws of descent and distribution and may be exercised
during the lifetime of an Optionee only by that Optionee or by his legally
authorized representative. Plan Shares issued or issuable upon exercise of any
Option shall be subject to redemption pursuant to the terms of the Amended and
Restated Stockholders' Agreement dated as of August 7, 1995 and any other
similar agreement to which Optionee is subject to regarding purchase or
redemptive rights.
ARTICLE IV
Termination Amendment and Adjustment
4.1 Termination and Amendment. The Plan shall terminate 10 years
after the Effective Date. No Options shall be granted under the Plan after
that date of termination. The Committee may at any time amend or revise the
terms of the Plan, including the form and
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substance of the Option Agreements to be used in connection herewith. No
amendment, suspension, or termination of the Plan shall, without the consent of
the Optionee, alter or impair any of that Optionee's rights or obligations
under any Option granted under the Plan prior to that amendment, suspension, or
termination.
4.2 Adjustments. If the outstanding Common Stock is increased or
decreased by reason of a stock dividend, stock split, or reverse stock split,
an appropriate and proportionate adjustment shall be made in the maximum number
of Plan Shares as to which Options may be granted under the Plan; provided,
however, that no adjustment shall be made for the conversion of preferred stock
into Common Stock. A corresponding adjustment changing the number or kind of
shares allocated to unexercised Options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in outstanding Options shall be made without change in the aggregate
purchase price applicable to the unexercised portion of the Option, but with a
corresponding adjustment in the price for each share covered by the Option.
The foregoing adjustments and the manner of application of the forgoing
provisions shall be determined solely by the Committee, and any such adjustment
may provide for the elimination of fractional share interests.
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ARTICLE V
Miscellaneous
5.1 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in
effect for the Company, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation plans.
5.2 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
5.3 Plan Shares Not Outstanding. Prior to issuance upon exercise
of an Option, Plan Shares are not deemed to be outstanding for any purpose
unless and then only to the extent otherwise specifically provided, and
Participants shall have no voting, preemptive or other shareholder rights with
respect to such Plan Shares.
5.4 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
5.5 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
5.6 Governing Law. The construction and operation of the Plan are
governed by the laws of the State of Delaware.
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<PAGE> 14
ARTICLE VI
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
6.1 "Board" means the Board of Directors of the Company.
6.2 "Capital Event" means the first to occur of:
(a) the date that GKH sells or otherwise transfers more
than 50% of their Common Stock interest in the Company;
(b) the date all or substantially all the assets or
property of the Company are sold, leased or otherwise transferred to
an unrelated third-party;
(c) the effective date of a merger or consolidation,
under which the Company is not the surviving entity, or the surviving
corporation is not controlled by GKH;
(d) the dissolution or liquidation of the Company; or
(e) the effective date (as declared by the Securities
Exchange Commission) the Common Stock is registered in a public
offering and listed on a nationally recognized stock exchange or
national inter-dealer quotation system.
The Company shall notify Optionee at least 10 days prior to a contemplated
Capital Event.
6.3 "Code" means the Internal Revenue Code of 1986, as amended.
6.4 "Committee" means the Committee appointed in accordance with
Section 2.2.
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<PAGE> 15
6.5 "Common Stock" means the Common Stock, par value of $0.001 per
share of the Company.
6.6 "Company" means Hanover Compressor Corporation, a Delaware
corporation.
6.7 "Disability" means the inability of the Optionee to perform
substantially all his duties and responsibilities to the Company for either (i)
a continuous period of six months, or (ii) 180 days during any consecutive
twelve month period by reason of a physical or mental disability or infirmity
which is expected to be permanent and continuous for life as determined by a
physician selected by the Committee. The date of such Disability shall be (a)
in the case of clause (i) above, the last day of such six month period or, if
later, the day on which the Optionee submits satisfactory medical evidence of
such Disability, or (b) in the case of clause (ii) above, such date as is
determined in good faith by the Committee.
6.8 "Employee" means an employee of the Company, as determined
under Section 3401(c) of the Code and the regulations thereunder.
6.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
6.10 "Fair Market Value" means such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided,
however, that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the NASDAQ National Market
System, such value as shall be
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<PAGE> 16
determined by the Committee on the basis of the average reported sales price
for the Common Stock for the ten days preceding the date for which such
determination is relevant, as reported on the national securities exchange or
the NASDAQ National Market System, as the case may be.
6.11 "Grant Date" means the Effective Date, unless the Committee,
pursuant to Section 2.1, grants Options at times other than the Effective Date,
where in such cases the "Grant Date" would be the date of such grant.
6.12 "GKH" means GKH Investments, L.P., a Delaware limited
partnership and GKH Partners, L.P., a Delaware limited partnership.
6.13 "Offering" means the offering of Common Stock made to certain
members of management pursuant to that certain Confidential Offering Memorandum
dated June 21, 1993.
6.14 "Option" means an option granted pursuant to Article III.
6.15 "Optionee" means an Employee to whom an Option has been
granted hereunder.
6.16 "Option Agreement" means an agreement between the Company and
an Optionee with respect to one or more Options.
6.17 "Plan" means the Hanover Compressor Company Incentive Option
Plan, the terms of which are set forth herein.
6.18 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan (including, but not limited to, shares of Common Stock issued or
issuable upon exercise of Options granted pursuant to the Plan).
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<PAGE> 17
6.19 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor rule.
6.20 "Securities Act" means the Securities Act of 1933, as amended.
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<PAGE> 1
EXHIBIT 10.8
HANOVER COMPRESSOR COMPANY
1995 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company 1995 Employee Stock Option Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth and
general prosperity of Hanover Compressor Company, a Delaware corporation (the
"Company"), by permitting the Company to grant to certain employees options to
purchase Common Stock of the Company (the "Options"). The Company intends that
Options granted pursuant to the Plan will be nonstatutory options and will not
be classified as "incentive stock options" within the meaning of Section 422 of
the Code.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Only employees who purchase
Common Stock in the Offering shall be eligible to participate in the Plan. The
Committee may grant Options to eligible employee in accordance with this Plan
and such determinations as the Committee in its sole discretion shall make.
1.5 Shares Subject to the Plan. The shares available for issuance
upon exercise of Options granted under the Plan shall be shares of Common Stock
(the "Plan Shares").
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 4.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum number
<PAGE> 2
of Plan Shares that may be issued and sold hereunder shall be equal to
one-third of the total shares of Common Stock purchased by Optionees in the
Offering.
1.7 Options Granted Under Plan. Plan Shares with respect to which
an Option shall have been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to
which such Option termination relates.
1.8 Conditions Precedent. The Company shall not issue or deliver
any Option Agreement or any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, if any,
unless the Committee determines in its sole discretion that such
listing is neither necessary nor advisable;
(b) The completion of any registration or other
qualification or exemption of the Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the
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<PAGE> 3
Committee shall in its sole discretion determine to be necessary or advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the maximum number of Plan Shares. In addition, the Company will
from time to time, as is necessary to accomplish the purposes of the Plan, seek
or obtain from any regulatory agency having jurisdiction any requisite
authority that is necessary to issue Plan Shares hereunder. The inability of
the Company to obtain from any regulatory agency having jurisdiction the
authority deemed by the Company's counsel to be necessary to the lawful
issuance of any Plan Shares shall relieve the Company of any liability in
respect of the non-issuance of Plan Shares as to which the requisite authority
shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall determine, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, the issuance,
delivery, exercise or vesting of the Options, then the issuance,
delivery, exercise or vesting of the Options shall not be effective
unless the
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<PAGE> 4
withholding shall have been effected or obtained in a manner
acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When an
Optionee is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the
exercise of an Option, subject to Section 1.10(c), such individual may
satisfy the obligation, in whole or in part, by electing to (i) have
the Company withhold a portion of the Plan Shares acquired upon the
exercise of the Option and having a Fair Market Value on the date the
amount of tax to be withheld is to be determined (the "Tax Date")
equal to the amount required to be withheld or (ii) deliver to the
Company shares of Common Stock already owned and having a Fair Market
Value on the Tax Date equal to the amount required to be withheld.
The amount to be withheld shall be the minimum amount that is required
to be withheld under applicable federal and state income tax laws;
provided, however, in the event a request is made by the Optionee, the
amount to be withheld shall be the approximate amount of federal and
state income taxes that will be incurred by such Optionee with respect
to such issuance, delivery, exercise or vesting of Options under the
Plan.
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or delivered out
of already-owned Common Stock for this purpose
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<PAGE> 5
(i) must be made prior to the Tax Date, and (ii) must be irrevocable.
ARTICLE II
Administration
3 Committee. The Plan shall be administered by the Committee. Subject
to the express provisions of the Plan, the Committee shall have sole discretion
and authority to determine to whom and the time or times at which Options may
be granted and the number of Plan Shares to be subject to each Option. Subject
to the express provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to it, to determine the details and provisions of each
Option Agreement, including but not limited to provisions related to vesting
and exercisability, and to make all other determinations necessary or advisable
in the administration of the Plan.
3.1 Appointment of Committee. The Committee shall be appointed by
the Board and shall consist of one or more members of the Board, provided that
in lieu of such appointment, the Board may act as the Committee.
3.2 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute
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<PAGE> 6
the action of the Committee. Meetings of the Committee may take place by
telephone conference call.
3.3 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Optionees, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE III
Stock Options
4 Option Terms and Conditions. The terms and conditions of Options
granted under this Article may differ from one another as the Committee shall,
in its discretion, determine as long as all Options granted under this Article
satisfy the requirements of this Article.
4.1 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan or the Option Agreement.
4.2 Purchase Price and Number of Plan Shares. The purchase price
for Plan Shares acquired pursuant to the exercise, in whole
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<PAGE> 7
or in part, of any Option shall be $1,500 per share, subject to adjustment
pursuant to Section 4.2. The number of Plan Shares which an Optionee shall be
granted an Option to purchase hereunder shall be limited to one-third of a Plan
Share for each share of Common Stock purchased by the Optionee in the Offering.
4.3 Vesting. An Option may not be exercised until it has become
vested. Unless the Option Agreement provides for a different vesting schedule,
an Optionee will vest in his Options depending upon the period that has elapsed
since the Effective Date according to the following schedule:
<TABLE>
<CAPTION>
Number of Years
Since Effective Date Vested Percentage
-------------------- -----------------
<S> <C>
Fewer than one 0%
One but fewer than two 20%
Two but fewer than three 40%
Three but fewer than four 60%
Four but fewer than five 80%
Five or more 100%
</TABLE>
If an Optionee terminates employment with the Company prior to
becoming fully vested, he will forfeit the non-vested portion of his Option.
Notwithstanding the foregoing vesting schedule or any schedule contained in the
Optionee's Option Agreement, if (a) the Optionee's employment is terminated
because of death or Permanent Disability, or (b) upon occurrence of a Capital
Event, then the Optionee shall be 100% fully vested in his Option.
4.4 Restriction on Exercise. An Option may not be exercised
during any period in which an Optionee is in default under the terms of any
loan or other obligation that such Optionee may have with the Company. Upon
cure of such default, the restrictions of
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<PAGE> 8
this Section 3.5 will lapse and the Option shall be exercisable to the extent
vested and otherwise exercisable under the terms of the Plan and the Option
Agreement.
4.5 Individual Option Agreements. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan, the awards made pursuant hereto, and such
other matters as the Committee deems appropriate. Each Option Agreement shall
specify the number of Options granted to an Optionee and any restrictions on
exercise as the Committee deems appropriate.
4.6 Exercise of Options.
(a) Method of Exercise. Each Option shall be exercisable
in accordance with the terms of the Option Agreement pursuant to which
the Option was granted.
(b) Payment of Purchase Price. The purchase price of any
Plan Shares purchased upon the exercise of an Option shall be paid at
the time of exercise of the Option either (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
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<PAGE> 9
determine, including without limitation the right to repay the note
partially or wholly with Common Stock, or (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan
Shares purchased upon exercise of the Option or to pledge them as
collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price. If any
portion of the purchase price or a note given at the time of exercise
is paid in shares of Common Stock, those shares shall be valued at the
then Fair Market Value.
4.7 Non-Competition and Confidential Information. Each Optionee
receiving Options pursuant to this Article shall be subject to the restriction
that, during the term of the Option Agreement and for a period of one year
thereafter, he or she (i) will not compete with any business of the Company or
its subsidiaries or affiliates and (ii) will not disclose to persons outside
the Company confidential information concerning the Company or its subsidiaries
or affiliates without the Company's express written consent.
4.8 Written Notice Required. Any Option shall be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
3.7.
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<PAGE> 10
4.9 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.
4.10 Employment of Optionee. Nothing in the Plan or in any
Option granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of such employment.
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<PAGE> 11
4.11 Option Rights Upon Termination of Employment. If an
Optionee ceases to be employed by the Company or any subsidiary or affiliate
for any reason other than for death, Permanent Disability or for Cause, his
Option shall be exercisable (to the extent vested and exercisable on the date
of termination of employment) at any time within 30 days after the date of
termination of employment unless by its terms the Option expires sooner or the
Committee agrees, in its sole discretion, to extend the term of such Option.
4.12 Termination of Employment for Cause. If an Optionee that is
an employee ceases to be employed by the Company or any subsidiary or affiliate
of the Company because the Optionee's employment is terminated for Cause, the
Option shall automatically expire, and notwithstanding the provisions of
Section 3.4, the Optionee shall forfeit any previously vested Option.
4.13 Option Rights Upon Permanent Disability of Optionee. Except
as provided in Section 3.5 and unless either the Option or the Option Agreement
pursuant to which it was issued otherwise provides, an Option shall become
fully exercisable on the date of the Optionee's termination of employment as a
result of his or her Permanent Disability and shall expire 30 days thereafter
unless by its terms it expires sooner.
4.14 Option Rights Upon Death of Optionee. Except as provided in
Section 3.5 and unless either the Option or the Option Agreement pursuant to
which it was issued otherwise provides, an Option shall become fully
exercisable on the date of the Optionee's death and shall expire 30 days
thereafter unless by its terms it
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<PAGE> 12
expires sooner. Following the death of an Optionee, an Option may be fully
exercised, to the extent that it remains unexercised on the date of death, by
the Optionee's personal representative or by the distributee to whom the
Optionee's rights under such Option shall pass by will or by the laws of
descent and distribution.
4.15 Options Not Transferable and Subject to Certain
Restrictions. Options may not be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and distribution and may
be exercised during the lifetime of an Optionee only by that Optionee or by his
legally authorized representative. Plan Shares issued or issuable upon
exercise of any Option shall be subject to redemption pursuant to the terms of
the Stockholders' Agreement and any other similar agreement to which an
Optionee is subject regarding purchase or redemptive rights.
ARTICLE IV
Termination, Amendment, and Adjustment
4.1 Termination and Amendment. The Plan shall terminate 10 years
after the Effective Date, and no Options shall be granted under the Plan after
such date. The Committee may at any time amend or revise the terms of the
Plan, including the form and substance of the Option Agreements to be used in
connection herewith. No amendment, suspension, or termination of the Plan
shall, without the consent of the individual who has received an Option
hereunder, alter or impair any of that such individual's
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<PAGE> 13
rights or obligations under any Option granted under the Plan prior to such
amendment, suspension, or termination.
4.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of Plan Shares as to which Options
may be granted under the Plan; provided, however that no adjustment shall be
made upon any conversion of preferred stock to Common Stock. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
Options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding Options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share covered by the Option. The foregoing adjustments and the
manner of application of the forgoing provisions shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests.
ARTICLE V
Miscellaneous
5.1 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other
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<PAGE> 14
compensation plans in effect for the Company, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation
plans.
5.2 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
5.3 Plan Shares Not Outstanding. Prior to issuance upon exercise
of an Option, Plan Shares are not deemed to be outstanding for any purpose
unless and then only to the extent otherwise specifically provided, and
Participants shall have no voting, preemptive or other shareholder rights with
respect to such Plan Shares.
5.4 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
5.5 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
5.6 Governing Law. The construction and operation of the Plan are
governed by the laws of the State of Delaware.
ARTICLE VI
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
6.1 "Board" means the Board of Directors of the Company.
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<PAGE> 15
6.2 "Capital Event" means the first to occur of:
(a) the date that GKH sells or otherwise transfer more
than 50% of its Common Stock interest in the Company;
(b) the date all or substantially all the assets or
property of the Company are sold or otherwise transferred to an
unrelated third-party;
(c) the effective date of a merger or consolidation,
under which the Company is not the surviving entity or the surviving
entity is not controlled by GKH;
(d) the dissolution or liquidation of the Company; or
(e) the effective date (as declared by the Securities and
Exchange Commission) the Common Stock is registered in a public
offering and listed on a nationally recognized stock exchange or
national inter-dealer quotation system.
The Company shall notify each Optionee at least 10 days prior to a contemplated
Capital Event.
6.3 "Cause" means a termination of an Optionee's employment by the
Company due to (i) the commission by such Optionee 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 Optionee (or a plea of nolo
contendere in lieu thereof) for a felony or a crime involving fraud, dishonesty
or moral turpitude, (iii) willful misconduct as an employee of the Company,
(iv) the willful failure of such Optionee to render services to the Company in
accordance with his employment, which failure amounts to a
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<PAGE> 16
material neglect of his duties to the Company or (v) substantial dependence, as
determined by the Board, on alcohol or any 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.
6.4 "Code" means the Internal Revenue Code of 1986, as amended.
6.5 "Committee" means the Committee appointed in accordance with
Section 2.2.
6.6 "Common Stock" means the Common Stock, par value of $0.001 per
share of the Company.
6.7 "Company" means Hanover Compressor Company, a Delaware
corporation.
6.8 "Effective Date" means August 31, 1995.
6.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
6.10 "Fair Market Value" means such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided,
however, that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the NASDAQ National Market
System, such value as shall be determined by the Committee on the basis of the
average reported sales price for the Common Stock for the ten days preceding
the date for which such determination is relevant, as reported on the national
securities exchange or the NASDAQ National Market System, as the case may be.
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<PAGE> 17
6.11 "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.
6.12 "Offering" means the offering of Common Stock made to
certain employees of the Company pursuant to that certain Confidential Offering
Memorandum dated August 2, 1995.
6.13 "Option" means an option granted pursuant to Article III.
6.14 "Optionee" means an employee of the Company to whom an
Option has been granted hereunder.
6.15 "Option Agreement" means an agreement between the Company
and an Optionee with respect to one or more Options.
6.16 "Permanent Disability" means the inability of the Optionee
to perform substantially all his duties and responsibilities to the Company for
either (i) a continuous period of six months or (ii) 180 days during any
consecutive twelve month period by reason of a physical or mental disability or
infirmity which is expected to be permanent and continuous for life as
determined by a physician selected by the Board. The date of such Permanent
Disability shall be (a) in the case of clause (i) above, the last day of such
six month period or, if later, the day on which the Optionee submits
satisfactory medical evidence of such Permanent Disability or (b) in the case
of clause (ii) above, such date as is determined in good faith by the Board.
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<PAGE> 18
6.17 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan (including, but not limited to, shares of Common Stock issued or
issuable upon exercise of Options granted pursuant to the Plan).
6.18 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor rule.
6.19 "Securities Act" means the Securities Act of 1933, as
amended.
6.20 "Stockholders' Agreement" means the Amended and Restated
Stockholders' Agreement dated as of August 7, 1995.
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<PAGE> 1
EXHIBIT 10.9
HANOVER COMPRESSOR COMPANY
1995 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company 1995 Employee Stock Option Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth and
general prosperity of Hanover Compressor Company, a Delaware corporation (the
"Company"), by permitting the Company to grant to certain employees options to
purchase Common Stock of the Company (the "Options"). The Company intends that
Options granted pursuant to the Plan will be nonstatutory options and will not
be classified as "incentive stock options" within the meaning of Section 422 of
the Code.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Only employees who purchase
Common Stock in the Offering shall be eligible to participate in the Plan. The
Committee may grant Options to eligible employee in accordance with this Plan
and such determinations as the Committee in its sole discretion shall make.
1.5 Shares Subject to the Plan. The shares available for issuance
upon exercise of Options granted under the Plan shall be shares of Common Stock
(the "Plan Shares").
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 4.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum number
<PAGE> 2
of Plan Shares that may be issued and sold hereunder shall be equal to
one-third of the total shares of Common Stock purchased by Optionees in the
Offering.
1.7 Options Granted Under Plan. Plan Shares with respect to which
an Option shall have been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to
which such Option termination relates.
1.8 Conditions Precedent. The Company shall not issue or deliver
any Option Agreement or any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, if any,
unless the Committee determines in its sole discretion that such
listing is neither necessary nor advisable;
(b) The completion of any registration or other
qualification or exemption of the Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the
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<PAGE> 3
Committee shall in its sole discretion determine to be necessary or
advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the maximum number of Plan Shares. In addition, the Company will
from time to time, as is necessary to accomplish the purposes of the Plan, seek
or obtain from any regulatory agency having jurisdiction any requisite
authority that is necessary to issue Plan Shares hereunder. The inability of
the Company to obtain from any regulatory agency having jurisdiction the
authority deemed by the Company's counsel to be necessary to the lawful
issuance of any Plan Shares shall relieve the Company of any liability in
respect of the non-issuance of Plan Shares as to which the requisite authority
shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall determine, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, the issuance,
delivery, exercise or vesting of the Options, then the issuance,
delivery, exercise or vesting of the Options shall not be effective
unless the
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<PAGE> 4
withholding shall have been effected or obtained in a manner
acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When an
Optionee is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the
exercise of an Option, subject to Section 1.10(c), such individual may
satisfy the obligation, in whole or in part, by electing to (i) have
the Company withhold a portion of the Plan Shares acquired upon the
exercise of the Option and having a Fair Market Value on the date the
amount of tax to be withheld is to be determined (the "Tax Date")
equal to the amount required to be withheld or (ii) deliver to the
Company shares of Common Stock already owned and having a Fair Market
Value on the Tax Date equal to the amount required to be withheld.
The amount to be withheld shall be the minimum amount that is required
to be withheld under applicable federal and state income tax laws;
provided, however, in the event a request is made by the Optionee, the
amount to be withheld shall be the approximate amount of federal and
state income taxes that will be incurred by such Optionee with respect
to such issuance, delivery, exercise or vesting of Options under the
Plan.
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or delivered out
of already-owned Common Stock for this purpose
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(i) must be made prior to the Tax Date, and (ii) must be irrevocable.
ARTICLE II
Administration
3 Committee. The Plan shall be administered by the Committee. Subject
to the express provisions of the Plan, the Committee shall have sole discretion
and authority to determine to whom and the time or times at which Options may
be granted and the number of Plan Shares to be subject to each Option. Subject
to the express provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to it, to determine the details and provisions of each
Option Agreement, including but not limited to provisions related to vesting
and exercisability, and to make all other determinations necessary or advisable
in the administration of the Plan.
3.1 Appointment of Committee. The Committee shall be appointed by
the Board and shall consist of one or more members of the Board, provided that
in lieu of such appointment, the Board may act as the Committee.
3.2 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute
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<PAGE> 6
the action of the Committee. Meetings of the Committee may take place by
telephone conference call.
3.3 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Optionees, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE III
Stock Options
4 Option Terms and Conditions. The terms and conditions of Options
granted under this Article may differ from one another as the Committee shall,
in its discretion, determine as long as all Options granted under this Article
satisfy the requirements of this Article.
4.1 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan or the Option Agreement.
4.2 Purchase Price and Number of Plan Shares. The purchase price
for Plan Shares acquired pursuant to the exercise, in whole
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<PAGE> 7
or in part, of any Option shall be $1,100 per share, subject to adjustment
pursuant to Section 4.2. The number of Plan Shares which an Optionee shall be
granted an Option to purchase hereunder shall be limited to one-third of a Plan
Share for each share of Common Stock purchased by the Optionee in the Offering.
4.3 Vesting. An Option may not be exercised until it has become
vested. Unless the Option Agreement provides for a different vesting schedule,
an Optionee will vest in his Options depending upon the period that has elapsed
since the Effective Date according to the following schedule:
<TABLE>
<CAPTION>
Number of Years
Since Effective Date Vested Percentage
-------------------- -----------------
<S> <C>
Fewer than one 0%
One but fewer than two 20%
Two but fewer than three 40%
Three but fewer than four 60%
Four but fewer than five 80%
Five or more 100%
</TABLE>
If an Optionee terminates employment with the Company prior to
becoming fully vested, he will forfeit the non-vested portion of his Option.
Notwithstanding the foregoing vesting schedule or any schedule contained in the
Optionee's Option Agreement, if (a) the Optionee's employment is terminated
because of death or Permanent Disability, or (b) upon occurrence of a Capital
Event, then the Optionee shall be 100% fully vested in his Option.
4.4 Restriction on Exercise. An Option may not be exercised
during any period in which an Optionee is in default under the terms of any
loan or other obligation that such Optionee may have with the Company. Upon
cure of such default, the restrictions of
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<PAGE> 8
this Section 3.5 will lapse and the Option shall be exercisable to the extent
vested and otherwise exercisable under the terms of the Plan and the Option
Agreement.
4.5 Individual Option Agreements. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan, the awards made pursuant hereto, and such
other matters as the Committee deems appropriate. Each Option Agreement shall
specify the number of Options granted to an Optionee and any restrictions on
exercise as the Committee deems appropriate.
4.6 Exercise of Options.
(a) Method of Exercise. Each Option shall be exercisable
in accordance with the terms of the Option Agreement pursuant to which
the Option was granted.
(b) Payment of Purchase Price. The purchase price of any
Plan Shares purchased upon the exercise of an Option shall be paid at
the time of exercise of the Option either (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
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<PAGE> 9
determine, including without limitation the right to repay the note
partially or wholly with Common Stock, or (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan
Shares purchased upon exercise of the Option or to pledge them as
collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price. If any
portion of the purchase price or a note given at the time of exercise
is paid in shares of Common Stock, those shares shall be valued at the
then Fair Market Value.
4.7 Non-Competition and Confidential Information. Each Optionee
receiving Options pursuant to this Article shall be subject to the restriction
that, during the term of the Option Agreement and for a period of one year
thereafter, he or she (i) will not compete with any business of the Company or
its subsidiaries or affiliates and (ii) will not disclose to persons outside
the Company confidential information concerning the Company or its subsidiaries
or affiliates without the Company's express written consent.
4.8 Written Notice Required. Any Option shall be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
3.7.
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<PAGE> 10
4.9 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.
4.10 Employment of Optionee. Nothing in the Plan or in any
Option granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of such employment.
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<PAGE> 11
4.11 Option Rights Upon Termination of Employment. If an
Optionee ceases to be employed by the Company or any subsidiary or affiliate
for any reason other than for death, Permanent Disability or for Cause, his
Option shall be exercisable (to the extent vested and exercisable on the date
of termination of employment) at any time within 30 days after the date of
termination of employment unless by its terms the Option expires sooner or the
Committee agrees, in its sole discretion, to extend the term of such Option.
4.12 Termination of Employment for Cause. If an Optionee that is
an employee ceases to be employed by the Company or any subsidiary or affiliate
of the Company because the Optionee's employment is terminated for Cause, the
Option shall automatically expire, and notwithstanding the provisions of
Section 3.4, the Optionee shall forfeit any previously vested Option.
4.13 Option Rights Upon Permanent Disability of Optionee. Except
as provided in Section 3.5 and unless either the Option or the Option Agreement
pursuant to which it was issued otherwise provides, an Option shall become
fully exercisable on the date of the Optionee's termination of employment as a
result of his or her Permanent Disability and shall expire 30 days thereafter
unless by its terms it expires sooner.
4.14 Option Rights Upon Death of Optionee. Except as provided in
Section 3.5 and unless either the Option or the Option Agreement pursuant to
which it was issued otherwise provides, an Option shall become fully
exercisable on the date of the Optionee's death and shall expire 30 days
thereafter unless by its terms it
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<PAGE> 12
expires sooner. Following the death of an Optionee, an Option may be fully
exercised, to the extent that it remains unexercised on the date of death, by
the Optionee's personal representative or by the distributee to whom the
Optionee's rights under such Option shall pass by will or by the laws of
descent and distribution.
4.15 Options Not Transferable and Subject to Certain
Restrictions. Options may not be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and distribution and may
be exercised during the lifetime of an Optionee only by that Optionee or by his
legally authorized representative. Plan Shares issued or issuable upon
exercise of any Option shall be subject to redemption pursuant to the terms of
the Stockholders' Agreement and any other similar agreement to which an
Optionee is subject regarding purchase or redemptive rights.
ARTICLE IV
Termination, Amendment, and Adjustment
4.1 Termination and Amendment. The Plan shall terminate 10 years
after the Effective Date, and no Options shall be granted under the Plan after
such date. The Committee may at any time amend or revise the terms of the
Plan, including the form and substance of the Option Agreements to be used in
connection herewith. No amendment, suspension, or termination of the Plan
shall, without the consent of the individual who has received an Option
hereunder, alter or impair any of that such individual's
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<PAGE> 13
rights or obligations under any Option granted under the Plan prior to such
amendment, suspension, or termination.
4.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of Plan Shares as to which Options
may be granted under the Plan; provided, however that no adjustment shall be
made upon any conversion of preferred stock to Common Stock. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
Options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding Options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share covered by the Option. The foregoing adjustments and the
manner of application of the forgoing provisions shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests.
ARTICLE V
Miscellaneous
5.1 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other
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<PAGE> 14
compensation plans in effect for the Company, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation
plans.
5.2 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
5.3 Plan Shares Not Outstanding. Prior to issuance upon exercise
of an Option, Plan Shares are not deemed to be outstanding for any purpose
unless and then only to the extent otherwise specifically provided, and
Participants shall have no voting, preemptive or other shareholder rights with
respect to such Plan Shares.
5.4 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
5.5 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
5.6 Governing Law. The construction and operation of the Plan are
governed by the laws of the State of Delaware.
ARTICLE VI
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
6.1 "Board" means the Board of Directors of the Company.
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<PAGE> 15
6.2 "Capital Event" means the first to occur of:
(a) the date that GKH sells or otherwise transfer more
than 50% of its Common Stock interest in the Company;
(b) the date all or substantially all the assets or
property of the Company are sold or otherwise transferred to an
unrelated third-party;
(c) the effective date of a merger or consolidation,
under which the Company is not the surviving entity or the surviving
entity is not controlled by GKH;
(d) the dissolution or liquidation of the Company; or
(e) the effective date (as declared by the Securities and
Exchange Commission) the Common Stock is registered in a public
offering and listed on a nationally recognized stock exchange or
national inter-dealer quotation system.
The Company shall notify each Optionee at least 10 days prior to a contemplated
Capital Event.
6.3 "Cause" means a termination of an Optionee's employment by the
Company due to (i) the commission by such Optionee 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 Optionee (or a plea of nolo
contendere in lieu thereof) for a felony or a crime involving fraud, dishonesty
or moral turpitude, (iii) willful misconduct as an employee of the Company,
(iv) the willful failure of such Optionee to render services to the Company in
accordance with his employment, which failure amounts to a
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<PAGE> 16
material neglect of his duties to the Company or (v) substantial dependence, as
determined by the Board, on alcohol or any 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.
6.4 "Code" means the Internal Revenue Code of 1986, as amended.
6.5 "Committee" means the Committee appointed in accordance with
Section 2.2.
6.6 "Common Stock" means the Common Stock, par value of $0.001 per
share of the Company.
6.7 "Company" means Hanover Compressor Company, a Delaware
corporation.
6.8 "Effective Date" means July 7, 1995.
6.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
6.10 "Fair Market Value" means such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided,
however, that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the NASDAQ National Market
System, such value as shall be determined by the Committee on the basis of the
average reported sales price for the Common Stock for the ten days preceding
the date for which such determination is relevant, as reported on the national
securities exchange or the NASDAQ National Market System, as the case may be.
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<PAGE> 17
6.11 "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.
6.12 "Offering" means the offering of Common Stock made to
certain employees of the Company pursuant to that certain Confidential Offering
Memorandum dated June 20, 1995.
6.13 "Option" means an option granted pursuant to Article III.
6.14 "Optionee" means an employee of the Company to whom an
Option has been granted hereunder.
6.15 "Option Agreement" means an agreement between the Company
and an Optionee with respect to one or more Options.
6.16 "Permanent Disability" means the inability of the Optionee
to perform substantially all his duties and responsibilities to the Company for
either (i) a continuous period of six months or (ii) 180 days during any
consecutive twelve month period by reason of a physical or mental disability or
infirmity which is expected to be permanent and continuous for life as
determined by a physician selected by the Board. The date of such Permanent
Disability shall be (a) in the case of clause (i) above, the last day of such
six month period or, if later, the day on which the Optionee submits
satisfactory medical evidence of such Permanent Disability or (b) in the case
of clause (ii) above, such date as is determined in good faith by the Board.
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6.17 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan (including, but not limited to, shares of Common Stock issued or
issuable upon exercise of Options granted pursuant to the Plan).
6.18 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor rule.
6.19 "Securities Act" means the Securities Act of 1933, as
amended.
6.20 "Stockholders' Agreement" means the Amended and Restated
Stockholders' Agreement dated as of August 7, 1995.
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<PAGE> 1
EXHIBIT 10.10
HANOVER COMPRESSOR COMPANY
1996 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company 1996 Employee Stock Option Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth and
general prosperity of Hanover Compressor Company, a Delaware corporation (the
"Company"), by permitting the Company to grant to certain employees options to
purchase Common Stock of the Company (the "Options"). The Company intends that
Options granted pursuant to the Plan will be nonstatutory options and will not
be classified as "incentive stock options" within the meaning of Section 422 of
the Code.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Only employees who purchase
Common Stock in the Offering shall be eligible to participate in the Plan. The
Committee may grant Options to eligible employee in accordance with this Plan
and such determinations as the Committee in its sole discretion shall make.
1.5 Shares Subject to the Plan. The shares available for issuance
upon exercise of Options granted under the Plan shall be shares of Common Stock
(the "Plan Shares").
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 4.2, and subject to any
<PAGE> 2
additional restrictions elsewhere in the Plan, the maximum number of Plan
Shares that may be issued and sold hereunder shall be equal to one-third of
the total shares of Common Stock purchased by Optionees in the Offering.
1.7 Options Granted Under Plan. Plan Shares with respect to which
an Option shall have been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to
which such Option termination relates.
1.8 Conditions Precedent. The Company shall not issue or deliver
any Option Agreement or any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, if any,
unless the Committee determines in its sole discretion that such
listing is neither necessary nor advisable;
(b) The completion of any registration or other
qualification or exemption of the Plan Shares under any federal or
state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the
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<PAGE> 3
Committee shall in its sole discretion determine to be necessary or
advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the maximum number of Plan Shares. In addition, the Company will
from time to time, as is necessary to accomplish the purposes of the Plan, seek
or obtain from any regulatory agency having jurisdiction any requisite
authority that is necessary to issue Plan Shares hereunder. The inability of
the Company to obtain from any regulatory agency having jurisdiction the
authority deemed by the Company's counsel to be necessary for the lawful
issuance of any Plan Shares shall relieve the Company of any liability in
respect of the non-issuance of Plan Shares to the extent requisite authority
shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall determine, in its
discretion, that the satisfaction of withholding tax or other
withholding liabilities under any state or federal law is necessary or
desirable as a condition of, or in connection with, the issuance,
delivery, exercise or vesting of the Options, then the issuance,
delivery, exercise or vesting of the Options shall not be effective
unless the
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<PAGE> 4
withholding shall have been effected or obtained in a manner
acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When an
Optionee is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with the
exercise of an Option, subject to Section 1.10(c), such individual may
satisfy the obligation, in whole or in part, by electing to (i) have
the Company withhold a portion of the Plan Shares acquired upon the
exercise of the Option and having a Fair Market Value on the date the
amount of tax to be withheld is to be determined (the "Tax Date")
equal to the amount required to be withheld or (ii) deliver to the
Company shares of Common Stock already owned and having a Fair Market
Value on the Tax Date equal to the amount required to be withheld.
The amount to be withheld shall be the minimum amount that is required
to be withheld under applicable federal and state income tax laws;
provided, however, in the event a request is made by the Optionee, the
amount to be withheld shall be the approximate amount of federal and
state income taxes that will be incurred by such Optionee with respect
to such issuance, delivery, exercise or vesting of Options under the
Plan.
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or delivered out
of already-owned Common Stock for this purpose
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<PAGE> 5
(i) must be made prior to the Tax Date, and (ii) must be irrevocable.
ARTICLE II
Administration
3 Committee. The Plan shall be administered by the Committee. Subject
to the express provisions of the Plan, the Committee shall have sole discretion
and authority to determine to whom and the time or times at which Options may
be granted and the number of Plan Shares to be subject to each Option. Subject
to the express provisions of the Plan, the Committee shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to it, to determine the details and provisions of each
Option Agreement, including but not limited to provisions related to vesting
and exercisability, and to make all other determinations necessary or advisable
in the administration of the Plan.
3.1 Appointment of Committee. The Committee shall be appointed by
the Board and shall consist of one or more members of the Board, provided that
in lieu of such appointment, the Board may act as the Committee.
3.2 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute
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<PAGE> 6
the action of the Committee. Meetings of the Committee may take place by
telephone conference call.
3.3 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Optionees, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary
in the performance of its duties.
ARTICLE III
Stock Options
4 Option Terms and Conditions. The terms and conditions of Options
granted under this Article may differ from one another as the Committee shall,
in its discretion, determine as long as all Options granted under this Article
satisfy the requirements of this Article.
4.1 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option granted under this Article expire
later than 10 years after the date on which the Option is granted. In
addition, each Option shall be subject to early termination as provided
elsewhere in the Plan or the Option Agreement.
4.2 Purchase Price and Number of Plan Shares. The purchase price
for Plan Shares acquired pursuant to the exercise, in whole
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or in part, of any Option shall be $1,800 per share, subject to adjustment
pursuant to Section 4.2. The number of Plan Shares which an Optionee shall be
granted an Option to purchase hereunder shall be limited to one-third of a Plan
Share for each share of Common Stock purchased by the Optionee in the Offering.
4.3 Vesting. An Option may not be exercised until it has become
vested. Unless the Option Agreement provides for a different vesting schedule,
an Optionee will vest in his Options depending upon the period that has elapsed
since the Effective Date according to the following schedule:
<TABLE>
<CAPTION>
Number of Years
Since Effective Date Vested Percentage
-------------------- -----------------
<S> <C>
Fewer than one 0%
One but fewer than two 20%
Two but fewer than three 40%
Three but fewer than four 60%
Four but fewer than five 80%
Five or more 100%
</TABLE>
If an Optionee terminates employment with the Company prior to
becoming fully vested, he will forfeit the non-vested portion of his Option.
Notwithstanding the foregoing vesting schedule or any schedule contained in the
Optionee's Option Agreement, if (a) the Optionee's employment is terminated
because of death or Permanent Disability, or (b) upon occurrence of a Capital
Event, then the Optionee shall be 100% fully vested in his Option.
4.4 Restriction on Exercise. An Option may not be exercised
during any period in which an Optionee is in default under the terms of any
loan or other obligation that such Optionee may have with the Company. Upon
cure of such default, the restrictions of
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<PAGE> 8
this Section 3.5 will lapse and the Option shall be exercisable to the extent
vested and otherwise exercisable under the terms of the Plan and the Option
Agreement.
4.5 Individual Option Agreements. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan, the awards made pursuant hereto, and such
other matters as the Committee deems appropriate. Each Option Agreement shall
specify the number of Options granted to an Optionee and any restrictions on
exercise as the Committee deems appropriate.
4.6 Exercise of Options.
(a) Method of Exercise. Each Option shall be exercisable
in accordance with the terms of the Option Agreement pursuant to which
the Option was granted.
(b) Payment of Purchase Price. The purchase price of any
Plan Shares purchased upon the exercise of an Option shall be paid at
the time of exercise of the Option either (i) in cash, (ii) by
certified or cashier's check, (iii) if permitted by the Committee, by
shares of Common Stock, (iv) if permitted by the Committee, by cash or
certified or cashier's check for the par value of the Plan Shares plus
a promissory note for the balance of the purchase price, which note
shall provide for full personal liability of the maker and shall
contain such other terms and provisions as the Committee may
-8-
<PAGE> 9
determine, including without limitation the right to repay the note
partially or wholly with Common Stock, or (v) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer,
reasonably acceptable to the Company, to sell certain of the Plan
Shares purchased upon exercise of the Option or to pledge them as
collateral for a loan and promptly deliver to the Company the amount
of sale or loan proceeds necessary to pay such purchase price. If any
portion of the purchase price or a note given at the time of exercise
is paid in shares of Common Stock, those shares shall be valued at the
then Fair Market Value.
4.7 Non-Competition and Confidential Information. Each Optionee
receiving Options pursuant to this Article shall be subject to the restriction
that, during the term of the Option Agreement and for a period of one year
thereafter, he or she (i) will not compete with any business of the Company or
its subsidiaries or affiliates and (ii) will not disclose to persons outside
the Company confidential information concerning the Company or its subsidiaries
or affiliates without the Company's express written consent.
4.8 Written Notice Required. Any Option shall be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office from the person entitled to
exercise the Option and payment for the Plan Shares with respect to which the
Option is exercised has been received by the Company in accordance with Section
3.7.
-9-
<PAGE> 10
4.9 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed) and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.
4.10 Employment of Optionee. Nothing in the Plan or in any
Option granted hereunder shall confer upon any Optionee any right to continued
employment by the Company or any of its subsidiaries or affiliates or limit in
any way the right of the Company or any subsidiary or affiliate at any time to
terminate or alter the terms of such employment.
-10-
<PAGE> 11
4.11 Option Rights Upon Termination of Employment. If an
Optionee ceases to be employed by the Company or any subsidiary or affiliate
for any reason other than for death, Permanent Disability or for Cause, his
Option shall be exercisable (to the extent vested and exercisable on the date
of termination of employment) at any time within 30 days after the date of
termination of employment unless by its terms the Option expires sooner or the
Committee agrees, in its sole discretion, to extend the term of such Option.
4.12 Termination of Employment for Cause. If an Optionee that is
an employee ceases to be employed by the Company or any subsidiary or affiliate
of the Company because the Optionee's employment is terminated for Cause, the
Option shall automatically expire, and notwithstanding the provisions of
Section 3.4, the Optionee shall forfeit any previously vested Option.
4.13 Option Rights Upon Permanent Disability of Optionee. Except
as provided in Section 3.5 and unless either the Option or the Option Agreement
pursuant to which it was issued otherwise provides, an Option shall become
fully exercisable on the date of the Optionee's termination of employment as a
result of his or her Permanent Disability and shall expire 30 days thereafter
unless by its terms it expires sooner.
4.14 Option Rights Upon Death of Optionee. Except as provided in
Section 3.5 and unless either the Option or the Option Agreement pursuant to
which it was issued otherwise provides, an Option shall become fully
exercisable on the date of the Optionee's death and shall expire 30 days
thereafter unless by its terms it
-11-
<PAGE> 12
expires sooner. Following the death of an Optionee, an Option may be fully
exercised, to the extent that it remains unexercised on the date of death, by
the Optionee's personal representative or by the distributee to whom the
Optionee's rights under such Option shall pass by will or by the laws of
descent and distribution.
4.15 Options Not Transferable and Subject to Certain
Restrictions. Options may not be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and distribution and may
be exercised during the lifetime of an Optionee only by that Optionee or by his
legally authorized representative. Plan Shares issued or issuable upon
exercise of any Option shall be subject to redemption pursuant to the terms of
the Stockholders' Agreement and any other similar agreement to which an
Optionee is subject regarding purchase or redemptive rights.
ARTICLE IV
Termination, Amendment, and Adjustment
4.1 Termination and Amendment. The Plan shall terminate 10 years
after the Effective Date, and no Options shall be granted under the Plan after
such date. The Committee may at any time amend or revise the terms of the
Plan, including the form and substance of the Option Agreements to be used in
connection herewith. No amendment, suspension, or termination of the Plan
shall, without the consent of the individual who has received an Option
hereunder, alter or impair any of that such individual's
-12-
<PAGE> 13
rights or obligations under any Option granted under the Plan prior to such
amendment, suspension, or termination.
4.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of Plan Shares as to which Options
may be granted under the Plan; provided, however that no adjustment shall be
made upon any conversion of preferred stock to Common Stock. A corresponding
adjustment changing the number or kind of shares allocated to unexercised
Options or portions thereof, which shall have been granted prior to any such
change, shall likewise be made. Any such adjustment in outstanding Options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the Option, but with a corresponding adjustment in the
price for each share covered by the Option. The foregoing adjustments and the
manner of application of the forgoing provisions shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests.
ARTICLE V
Miscellaneous
5.1 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other
-13-
<PAGE> 14
compensation plans in effect for the Company, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation
plans.
5.2 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
5.3 Plan Shares Not Outstanding. Prior to issuance upon exercise
of an Option, Plan Shares are not deemed to be outstanding for any purpose
unless and then only to the extent otherwise specifically provided, and
Participants shall have no voting, preemptive or other shareholder rights with
respect to such Plan Shares.
5.4 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
5.5 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
5.6 Governing Law. The construction and operation of the Plan are
governed by the laws of the State of Delaware.
ARTICLE VI
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
6.1 "Board" means the Board of Directors of the Company.
-14-
<PAGE> 15
6.2 "Capital Event" means the first to occur of:
(a) the date that GKH sells or otherwise transfer more
than 50% of its Common Stock interest in the Company;
(b) the date all or substantially all the assets or
property of the Company are sold or otherwise transferred to an
unrelated third-party;
(c) the effective date of a merger or consolidation,
under which the Company is not the surviving entity or the surviving
entity is not controlled by GKH;
(d) the dissolution or liquidation of the Company; or
(e) the effective date (as declared by the Securities and
Exchange Commission) the Common Stock is registered in a public
offering and listed on a nationally recognized stock exchange or
national inter-dealer quotation system.
The Company shall notify each Optionee at least 10 days prior to a contemplated
Capital Event.
6.3 "Cause" means a termination of an Optionee's employment by the
Company due to (i) the commission by such Optionee 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 Optionee (or a plea of nolo
contendere in lieu thereof) for a felony or a crime involving fraud, dishonesty
or moral turpitude, (iii) willful misconduct as an employee of the Company,
(iv) the willful failure of such Optionee to render services to the Company in
accordance with his employment, which failure amounts to a
-15-
<PAGE> 16
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.
6.4 "Code" means the Internal Revenue Code of 1986, as amended.
6.5 "Committee" means the Committee appointed in accordance with
Section 2.2.
6.6 "Common Stock" means the Common Stock, $0.001 par value per
share of the Company.
6.7 "Company" means Hanover Compressor Company, a Delaware
corporation.
6.8 "Effective Date" means April 25, 1996.
6.9 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
6.10 "Fair Market Value" means such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided,
however, that if the Common Stock is traded on a national securities exchange
or transactions in the Common Stock are quoted on the NASDAQ National Market
System, such value as shall be determined by the Committee on the basis of the
average reported sales price for the Common Stock for the ten days preceding
the date for which such determination is relevant, as reported on the national
securities exchange or the NASDAQ National Market System, as the case may be.
-16-
<PAGE> 17
6.11 "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.
6.12 "Offering" means the offering of Common Stock made to
certain employees of the Company pursuant to that certain Confidential Offering
Memorandum dated March 21, 1996.
6.13 "Option" means an option granted pursuant to Article III.
6.14 "Optionee" means an employee of the Company to whom an
Option has been granted hereunder.
6.15 "Option Agreement" means an agreement between the Company
and an Optionee with respect to one or more Options.
6.16 "Permanent Disability" means the inability of the Optionee
to perform substantially all his duties and responsibilities to the Company for
either (i) a continuous period of six months or (ii) 180 days during any
consecutive twelve month period by reason of a physical or mental disability or
infirmity which is expected to be permanent and continuous for life as
determined by a physician selected by the Board. The date of such Permanent
Disability shall be (a) in the case of clause (i) above, the last day of such
six month period or, if later, the day on which the Optionee submits
satisfactory medical evidence of such Permanent Disability or (b) in the case
of clause (ii) above, such date as is determined in good faith by the Board.
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<PAGE> 18
6.17 "Plan Shares" means shares of Common Stock issuable pursuant
to the Plan (including, but not limited to, shares of Common Stock issued or
issuable upon exercise of Options granted pursuant to the Plan).
6.18 "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange
Act or any successor rule.
6.19 "Securities Act" means the Securities Act of 1933, as
amended.
6.20 "Stockholders' Agreement" means the Amended and Restated
Stockholders' Agreement dated as of August 7, 1995, and any stockholders'
agreement entered into by an Optionee as a condition to purchasing shares of
Common Stock in an Offering and, thus, allowing such Optionee to become
eligible for Options under this Plan.
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<PAGE> 1
EXHIBIT 10.11
OEM SALES AND PURCHASE AGREEMENT
THIS AGREEMENT, made the ___ day of ____________, 199_ between the WAUKESHA
ENGINE DIVISION OF DRESSER INDUSTRIES, INC., a Delaware corporation,
hereinafter called "WAUKESHA", and ________________, hereinafter called "OEM".
1. PRELIMINARY STATEMENT
WAUKESHA manufactures and sells internal combustion engines. OEM
wishes to purchase from WAUKESHA and WAUKESHA wishes to sell to OEM
AT, VHP, VGF, VSG and Intermediate engines hereinafter called
"WAUKESHA Products". OEM incorporates Waukesha Products into
equipment packages utilized for petroleum market including gas and air
compression hereinafter called "OEM Products".
2. SALES AND PURCHASES
WAUKESHA shall sell to OEM and OEM shall purchase from WAUKESHA,
WAUKESHA Products on the terms stated in this Agreement. Except as
otherwise provided in this Agreement, the terms of sale by WAUKESHA to
OEM shall be WAUKESHA's Standard Terms of Sale, which are included in
the Power Partners Policy Manual.
<PAGE> 2
If this agreement differs in any way from OEM's order or terms, then
Waukesha's performance is expressly made conditional on OEM's assent
to any terms or conditions of Waukesha. Any terms or conditions which
conflict with Waukesha's terms and conditions shall have no effect.
3. PRICES AND PAYMENT
OEM shall pay WAUKESHA or WAUKESHA Products, the prices mutually
agreed upon from time to time which shall be confirmed in writing and
become a part of this Agreement. Payment by OEM to WAUKESHA for
WAUKESHA Products delivered to OEM shall be due and payable on a net
thirty (30) day basis pursuant to invoices rendered by WAUKESHA to
OEM. Alternative payment terms must be agreed upon in advance of
order placement with WAUKESHA.
4. RIGHTS
WAUKESHA grants OEM the right to purchase and sell such WAUKESHA
Products in conjunction with OEM Products. OEM agrees to purchase,
incorporate and sell WAUKESHA Products where suitable in the
construction of OEM Products.
-2-
<PAGE> 3
5. TRADEMARKS AND LIMITATIONS
Nothing herein shall be construed as granting OEM any license or right
to manufacture any engine parts or service parts for WAUKESHA
Products.
Since OEM will be manufacturing products using the WAUKESHA Products
as components and since OEM will be selling the products it has
manufactured, OEM shall not utilize any trade names of WAUKESHA, nor
any of WAUKESHA's trademarks in promoting the sale of such products
without first obtaining the prior written consent of WAUKESHA, which
consent may be withheld by WAUKESHA in its absolute discretion.
6. RISK
OEM shall purchase WAUKESHA Products, incorporate them into OEM
Products and sell and service the OEM Products at its risk and in its
name and for its account, and shall not undertake any engagements on
behalf of WAUKESHA.
Notwithstanding the foregoing, OEM agrees to consult with WAUKESHA
regarding the potential use for WAUKESHA Products purchased by OEM and
to permit WAUKESHA to veto the right of OEM to sell such engine in a
market or application for which WAUKESHA determines its engine is
unsuitable.
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<PAGE> 4
7. TECHNICAL INFORMATION AND CONFIDENTIALITY
WAUKESHA shall have no obligation to provide OEM with any design or
manufacturing drawings, technical information or know-how for WAUKESHA
Products.
OEM shall have no obligation to provide WAUKESHA with any design or
manufacturing drawings, technical information or know-how for OEM
Products.
Each party shall hold in strict confidence all designs, drawings,
technical information and know-how, that it may at any time receive
from the other party, and will not use or transmit any of same for any
reason or purpose without the prior written consent of the other
party.
This undertaking is valid as long as the Agreement is effective and
for three (3) years following termination of the Agreement.
8. SUPPLY
WAUKESHA shall at all times continue to timely provide Products to OEM
as required by OEM for so long as OEM purchases WAUKESHA Products,
provided; however, that, if WAUKESHA hereafter discontinues the
manufacture, sale and supply of any engine, then WAUKESHA shall have
no continuing
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<PAGE> 5
obligation to supply OEM with such engine. In the event that WAUKESHA
chooses to discontinue to manufacture and supply hereunder, it will
give OEM ample notice of such discontinuance.
9. CHANGES
WAUKESHA reserves the right to make changes to its WAUKESHA Products.
WAUKESHA will normally give OEM notice of such changes. WAUKESHA
shall have no obligation to build WAUKESHA Products of old designs for
OEM.
10. TERM
This Agreement shall continue in effect until terminated by either
party on not less than three (3) months notice to the other party.
11. DELIVERY
WAUKESHA Products shall be delivered FOB Carrier, plant of
manufacture. OEM shall notify WAUKESHA of the carrier selected by OEM
sufficiently in advance of delivery so as to enable WAUKESHA to make
timely delivery. WAUKESHA shall be responsible for the proper packing
of the Products and all
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<PAGE> 6
other steps needed to properly transport the Products to the carrier.
12. WARRANTIES
WAUKESHA's warranty compensation to OEM shall be as per WAUKESHA's
warranty terms included in the Power Partners Policy Manual.
13. INDEMNITY
OEM hereby indemnifies and holds WAUKESHA harmless from and against
all liability, loss, damages, costs and expenses, including reasonable
attorneys' fees, which WAUKESHA may sustain or incur by reason of any
action or omission of OEM.
14. ENTIRE AGREEMENT
This Agreement constitutes the complete agreement between WAUKESHA and
OEM. No amendment shall be valid unless in writing and signed by the
duly authorized representative of the party sought to be bound.
However, the OEM Power Partners manual and other material may be
reasonably modified or changed by Waukesha at any time for any reason.
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<PAGE> 7
15. DISPUTE RESOLUTION
The parties shall attempt to resolve any dispute arising our of or
relating to this Agreement promptly by negotiation between executives.
If the matter has not been resolved within sixty (60) days of a
party's request for negotiation, either party may initiate the
arbitration as hereinafter provided.
Any controversy arising under or in relation to this Agreement shall
be settled by arbitration, before a panel of three arbitrators in the
United States of America in the City of Milwaukee, Wisconsin, in
accordance with the Commercial Arbitration Rules then in force of the
American Arbitration Association. Such arbitration shall be conducted
in English and shall be binding upon the parties, and judgment upon
the award of the arbitrators may be entered in any court having
jurisdiction thereof. The laws of Wisconsin shall apply to this
contract and all matters in relation to it.
WAUKESHA ENGINE DIVISION,
DRESSER INDUSTRIES, INC.
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
- -----------------------------------------------------
OEM:
--------------------------------
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
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<PAGE> 1
EXHIBIT 10.12
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
THIS AGREEMENT, made and entered into by and between Ariel Corporation, having
its registered office at 35 Blackjack Road, Mt. Vernon, Ohio 43050, USA
(hereinafter referred to as the Company or Ariel) and Hanover Maintech, Div.
Hanover Co. having its registered office at P.O. Box 690349, Houston, TX 77269,
USA (hereinafter referred to as the Distributor or Buyer).
1. PURPOSES OF THIS AGREEMENT
The general purposes of this Agreement are to establish the Distributor as one
of Ariel's distributors of the products of the Company covered by this
Agreement, and to govern the full and complete relationship between the
Distributor and the Company in promoting the sales of those products, in their
purchase and sale by the Distributor, and in providing service for their users.
1.1 MUTUAL BENEFITS
The Company and Distributor both recognize that mutually beneficial
sale of Ariel products and the proper application and service of such
equipment are dependent not only upon the highest standards of
manufacture by Ariel but also the highest standards of sales and
service performance by the Distributor.
1.2 DEFINITIONS
Authorized Ariel Distributor - Promotes and offers for sale only Ariel
products, provides parts, service, and product support for compression
equipment. (See Section 8.1.4 of this Agreement.)
Rental Fleet Operator purchases Ariel products for his own use.
CNG OEM promotes and offers only Ariel equipment as a component of his
product for use in his compressed natural gas systems for NGV.
Special Fabricator purchases Ariel products for special applications,
niche markets, and select customers on an occasional basis.
Domestic Sale: Products and/or services originating in the
Distributor's domestic territory with substantial value added by the
Distributor's support infrastructure located within the destination
domestic territory.
Export Sale: Products and/or services originating in Distributor's
domestic territory for destination and use outside Distributor's
domestic territory.
________________________________________________________________________________
November 17, 1995 Page 1
<PAGE> 2
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
International Sale: Products and services originating in the
Distributor's domestic territory with substantial value added by the
Distributor's destination support infrastructure located outside the
Distributor's domestic territory.
1.3 BUSINESS CAPABILITIES
The Company has elected to enter into this Agreement with Distributor
in reliance upon the business ability of the Distributor to meet and
perform the operating requirements hereof. The Company requires of
the Distributor, and the Distributor by entering into this Agreement,
acknowledges that the Distributor shall at all times use all
reasonable, commercial efforts to develop business in, to promote the
sale of, and to sell the products covered by this Agreement, to
customers in the area of sales responsibility described in Paragraph
2.1 hereof and will furnish prompt, efficient and courteous service to
the users of Ariel products. Where applicable, the Distributor will
assist and support the Company's efforts for joint market development
of defined products and/or applications. The Distributor agrees that
it will conduct its business in a manner which will reflect most
favorably not only upon the Distributor but also the Company and which
will preserve and continue the product goodwill created by the
manufacture and sale of Ariel products of the highest quality and
design.
The Distributor, on its part, has elected to enter into this Agreement
with the Company because of its knowledge of the Ariel reputation for
integrity and fair business practices and of the customer's acceptance
of Ariel products. The Distributor expects of the Company, and the
Company acknowledges, that the Company will produce and provide
product, parts and accessories which are saleable in the Distributor's
area of sales responsibility, and which are of a quality and design
that under normal conditions and when properly installed, adjusted and
maintained will give satisfactory performance for their owners.
Insofar as possible, the Company will make such products available in
quantities to meet the Distributor's reasonable requirements in the
Distributor's area of sales responsibility. The Company will assist
in creating a demand for such products by advertising in various
advertising media; and will assist the Distributor in the sale of such
products by making available to Distributor sales assistance,
engineering and application advice, advertising material and campaigns
and instructions in sales and service, and business methods.
2. CONSIDERATIONS
IN CONSIDERATION of the foregoing and of the promises hereinafter made by the
parties to each other, it is agreed as follows:
________________________________________________________________________________
November 17, 1995 Page 2
<PAGE> 3
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
2.1 TERMS, DISCOUNTS, MARKETS, AND PRODUCTS
Subject to the terms and conditions hereof, the Company will sell and
Distributor will buy Ariel products, parts and accessories provided in
the "MULTIPLIER SCHEDULE", "EXHIBIT A" of this Agreement with
Distributor having the obligation to develop properly the sale
thereof, in the domestic territories set forth in "SALES TERRITORIES,
MARKETS, PRODUCTS AND AFFILIATES", "EXHIBIT B" of this Agreement.
Sales in all other territories will be considered Export or
International. Resale of frames and cylinders to other packagers
shall be in accordance with "EXHIBIT H", "ARIEL CORPORATION COMPRESSOR
RESALE POLICY."
2.2 SALES GOALS
The Distributors and Ariel shall mutually develop, monitor and review
sales goals in accordance with "ARIEL CORPORATION SALES GOALS",
"EXHIBIT F".
2.3 TERMS AND CONDITION OF SALE
The terms and conditions set forth in the attached "ARIEL CORPORATION
TERMS AND CONDITIONS OF SALE", "EXHIBIT D", which may be amended or
modified from time to time, are hereby made a part of this Agreement.
2.4 PRICE BOOK
"Ariel Corporation Price Book" shall mean the most recent version of
same and as such shall be in full force and effect as and when the
same shall be amended and deposited in the U.S. Mail addressed to the
Distributor at the address set forth in Paragraph 16.0 herein.
2.5 CONFIDENTIALITY
The Company and Distributor shall mutually treat as confidential and
safeguard all information, reports and records pertaining to this
distributorship.
2.6 EXECUTION OF THE AGREEMENT
This Agreement shall not be effective or binding on the Company until
signed on its behalf by an Executive Officer of the Company.
3. PACKAGER STANDARDS
The Distributor shall implement and comply with various criteria and standards
as set forth by the Company to maintain quality, reputation and integrity of
both the Ariel compressor and the finished compressor package. These shall
include, but not be limited to "ARIEL CORPORATION PACKAGER STANDARDS", "EXHIBIT
C". The Distributor shall agree to periodic (annually as a minimum) review,
survey, audit and rating of operation relative to established criteria.
Distributor agrees to maintain acceptable rating based on "ARIEL CORPORATION
PACKAGER SURVEY," "EXHIBIT G", to continue as an "Authorized Ariel
Distributor".
________________________________________________________________________________
November 17, 1995 Page 3
<PAGE> 4
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
4. USE OF TRADEMARKS AND SIGNS
The Distributor shall not use directly, or indirectly, in whole or in part, the
Company's name, "Ariel", or any other trademark or name that is now or may
hereafter be owned by the Company as part of the Distributor's corporate or
business name, or in any way in connection with the Distributor's business,
except in the manner, and to the extent that the Company may specifically
consent in advance of such use in writing. If any such trademarks or names are
used in any way by the Distributor with the express written consent of the
Company, the Distributor on the termination of this agreement, shall cease,
desist and otherwise discontinue all such use and shall not thereafter use any
name, title, or expression in connection with any business in which the
Distributor may thereafter be engaged which, in the judgement of the Company,
so nearly resembles any trademark or name, or imparts confusion or uncertainty
on the part of users of the manufactures of Ariel Corporation.
5. RIGHT TO CHANGE PRICES
The Company shall at all times, and from time to time, have the right to change
prices, discounts, and conditions applicable to the purchase of its products
and to change the discounts payable under this Agreement as set out from time
to time in the "MULTIPLIER SCHEDULE", "EXHIBIT A". Any change in discounts
hereunder shall be made by furnishing the Distributor with new or superseding
discount schedules in writing. The Company shall likewise at all times, and
from time to time, have the right to withdraw or supersede any one or more of
the individual models of products specified in the "ARIEL CORPORATION PRICE
BOOK", EXHIBIT C".
6. WARRANTY
The Warranty on new Ariel products, parts and accessories is as set forth in
the "ARIEL CORPORATION TERMS AND CONDITIONS OF SALE", "EXHIBIT D" Warranty
claims procedures are as set forth in the "ARIEL CORPORATION PACKAGER
STANDARDS", "EXHIBIT C".
7. SALE OF EQUIPMENT
7.1 SERVICE TO OWNERS
Both the Company and Distributor realize that it is of primary
importance to maintain the goodwill of ultimate user and that this can
be best achieved by rendering prompt and efficient service at a
reasonable cost. Distributor shall at all times maintain a staff of
application engineers and salespersons adequate to take care of the
sales potential and shall employ or have available under contract a
sufficient number of competent service personnel to adequately meet
the service requirements of the owners of Ariel products in the
Distributor's area of sales and service responsibilities.
________________________________________________________________________________
November 17, 1995 Page 4
<PAGE> 5
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
7.1.1 SERVICE AND SERVICE RECORDS
In furtherance of the purposes, objectives and obligations
provided for in this Agreement, Distributor shall keep and
maintain complete and up-to-date records regarding the sale
and service of new Ariel products and shall upon ten ( 10)
days written notice permit Ariel Corporation at all reasonable
times in business hours to inspect such records.
7.1.2 OWNER COMPLAINTS
For merchandise sold by Distributor, Distributor shall
receive, investigate and otherwise respond to all complaints
received from owners of Ariel products with a view to securing
and maintaining the goodwill of the user toward the
Distributor, and the Company.
7.1.3 CARE OF OWNER
All complaints received by Distributor or of which the
Distributor has knowledge which cannot be readily remedied
shall be promptly reported in detail and in writing to the
Company.
7.1.3.1 STOCK OF PARTS
The Distributor shall carry in stock during the terms
of this Agreement an inventory of parts and
accessories, as mutually agreed upon between
Distributor and the Company, to render proper
service to owners of Ariel products in the
Distributor's area of sales and service
responsibility.
7.1.3.2 REPRESENTATION AS TO PARTS
Distributor shall not sell, offer for sale, or use in
the repair of Ariel products as "new Ariel parts",
any part or parts which are not in fact new Ariel
parts.
7.1.3.3 START-UP AND COMMISSIONING OF NEW PRODUCTS,
AND AFTERMARKET SERVICE.
Distributor shall provide start-up and commissioning
service of each new complete machine unless waived
in writing by the ultimate user. Service personnel
engaged shall meet Ariel criteria required for the
service to be performed.
7.1.3.4 CUSTOMER RELATIONSHIP
The Distributor shall furnish to owners and ultimate
users of Ariel products in the Distributor's area of
sales responsibilities prompt, efficient and
courteous service and shall establish and maintain
regular contact either by
________________________________________________________________________________
November 17, 1995 Page 5
<PAGE> 6
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
correspondence or personal interview with all persons
or companies purchasing Ariel products from the
Distributor.
8. DURATION AND TERMINATION OF AGREEMENT
This Agreement shall become effective as of the date hereof and shall remain in
effect for a period of one (1) year from such date. This agreement shall be
automatically continued for one year periods beginning on the anniversary date
of the original agreement unless either party notifies the other of termination
in writing prior to sixty (60) days of said anniversary date.
8.1 DURATION
Distributor agrees that occurrence of any of the following events
shall constitute cause for termination and that upon the happening of
any of same, the Company may terminate this Agreement by giving
written notice of termination to Distributor, effective immediately or
as otherwise hereinafter indicated:
8.1.1 COMPLIANCE WITH AGREEMENT
Distributor has failed to comply with any material part of
this Agreement and has not remedied such failure within ninety
(90) days after the Company gives notice of such failure.
8.1.2 FAILURE TO FUNCTION AS A GOING CONCERN
Distributor ceases to function as a going concern, or a
petition under any bankruptcy or corporate reorganization law,
other than the Federal Bankruptcy Law, is filed by or against
it, or it makes an assignment for the benefit of creditors.
8.1.3 CHANGE IN UPPER MANAGEMENT OR CONTROL
There is a change in upper management or control of
Distributor, whether caused by a sale, transfer or assignment
of equity, shares or other ownership interest, or whether
caused by death or incapacity of a principal officer, owner or
stockholder, or otherwise. To assist Distributor to realize
the value of its investment in the Ariel distributorship, the
Company may, at its sole option, cancel the Agreement
immediately or agree to continue the term of this Agreement
for a period of ninety (90) days after the Company is given
notice of a change in management or control or otherwise
learns of such change to enable Distributor to find a
successor who is acceptable to the Company. The Company at
its sole discretion may extend, this period for an additional
ninety (90) day period, provided Distributor requests the
extension in writing and provides evidence that Distributor is
diligently attempting to locate a successor on commercially
acceptable and realistic terms.
________________________________________________________________________________
November 17, 1995 Page 6
<PAGE> 7
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
8.1.4 SALE OF COMPETITIVE PRODUCTS
Distributor promotes and offers for sale or represents a
product or line of products that is competitive with the Ariel
products and fails to discontinue such representation within
ninety (90) days after the Company gives notice.
Distributor to furnish a list of existing compression products
and upon acceptance by Ariel, these products shall be deemed
non-competitive. These products are defined in "SALES
TERRITORIES, MARKETS, PRODUCTS AND AFFILIATES", "EXHIBIT B".
8.2 RIGHT OF TERMINATION
Upon the occurrence of any of the above events which gives the
Company the right to terminate this Agreement, the Company and
Distributor agree that they will in good faith negotiate
within the time limits set forth above, to reach a mutual
agreement for the orderly termination of or transfer of this
Agreement and the Distributorship in such a manner that will
be least disruptive to both parties. The Company shall be
deemed to have discharged its duty to act in good faith and
its duty of fair dealing by granting any further extension of
time hereunder, particularly with respect to termination
pursuant to 8.1.3 above.
8.3 TERMINATION BY COMPANY
In the event of termination by the Company, Distributor may return new
unused current model complete machines, and parts in Distributor's
stock, which are unsold on the effective date of the termination for
credit in an amount not to exceed 25% of Distributor's net purchases
from Ariel in the twelve (12) month period immediately preceding the
effective date of termination, less 15% restocking charge of list
price less discount. Only current production items in new, unused,
current and resalable condition will be considered for return. All
returns must first be authorized in writing and are subject to
inspection upon return. Distributor shall also return all documents,
computer software, instruments and other writings, including but not
limited to plans, specifications, performance data, promotional and
marketing materials and data, and Ariel customer lists and data.
8.4 TERMINATION BY DISTRIBUTOR
Distributor shall have the right to terminate this agreement upon
ninety (90) days written notice. In the event of termination by the
Distributor, no equipment or parts will be accepted for return or
credit by the Company without prior written agreement.
9. EXPORT CONTROLS
No products shall be shipped by the Company, pursuant to orders procured by the
Distributor, that are prohibited by the Foreign Assets Control Regulations of
the United States Treasury
________________________________________________________________________________
November 17, 1995 Page 7
<PAGE> 8
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
Department, nor will such shipments contravene the prohibitions of the rules
administered by the Office of Export Control of the United States Commerce
Department.
10. AGREEMENT PERSONAL IN CHARACTER
This Agreement is personal in character and any assignment hereof by either
party, unless the Company and Distributor have entered into a prior written
Agreement to the contrary, shall automatically terminate this Agreement as of
the date of the assignment. The Company agrees to make every reasonable effort
to avoid any newspaper publicity or electronic media relative to this Agreement
and agrees not to divulge or disclose to persons outside this relationship the
details of this Agreement, provided, however, that in the event newspaper
publicity or electronic media does occur or the Company is lawfully required to
disclose the details of this Agreement to any regulatory agency or governmental
authority in the United States which is lawfully entitled to such information,
Distributor hereby consents to such disclosure and acknowledge that such does
not give rise to any claim or legal action by Distributor against the Company
or its Representatives.
11. DISTRIBUTOR INDEPENDENT CONTRACTOR
It is understood and agreed that for the purpose of this Agreement the
Distributor is, and shall at all times be and remain, an independent
contractor, and that the Company shall have no liability for any suits or
claims brought against Distributor by virtue of the relationship of Buyer and
Seller contemplated herein.
12. AGREEMENT SUPERSEDES
This Agreement may not be modified, changed or amended unless and until such
time as such modification, change or amendment has been stated in writing and
signed by the duly authorized representatives of both of the parties hereto.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of Ohio, in the United States of America, and
this Agreement also constitutes the entire Agreement between the Parties.
There are no understandings and/or oral representation upon which the
Distributor has relied which have not been stated in writing and included in
this Agreement.
14. CORPORATE ORGANIZATION
This agreement is specific in nature with the named Distributor only, who must
fully comply with the terms of this Agreement. Arms length relationships must
be maintained between Distributor's subsidiaries, joint ventures, parent
corporations or other organizations that may handle products competitive to
Ariel. The company may exercise the provisions of Clause 8.1.4, if, in the
Company's sole opinion, the Distributor is violating arms length relationships.
________________________________________________________________________________
November 17, 1995 Page 8
<PAGE> 9
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
The terms, conditions, rights, and responsibilities of this agreement are
applicable to other companies related to the named Distributor as defined in
"EXHIBIT B", SALES TERRITORIES, MARKETS, PRODUCTS AND AFFILIATES.
15. EXHIBITS
The following "Exhibits" are attached and made a part of this Agreement:
"EXHIBIT A" - MULTIPLIER SCHEDULE
"EXHIBIT B" - SALES TERRITORIES, MARKETS, PRODUCTS and AFFILIATES
"EXHIBIT C" - ARIEL CORPORATION PACKAGER STANDARDS
"EXHIBIT D" - ARIEL CORPORATION TERMS AND CONDITIONS OF SALE
"EXHIBIT E" - ARIEL CORPORATION PRICE BOOK
"EXHIBIT F" - SALES GOALS
"EXHIBIT G" - ARIEL CORPORATION PACKAGER SURVEY
"EXHIBIT H" - ARIEL CORPORATION COMPRESSOR RESALE POLICY
16. NOTICES
Any, all and every notice required by this Agreement shall be deemed given out
by the party giving such notice and received by the party for whom such notice
is intended when such notice is deposited in the United States Mail, postage
paid, and addressed as follows:
AS TO COMPANY: Ariel Corporation
35 Blackjack Road
Mount Vernon, Ohio 43050
AS TO DISTRIBUTOR: Hanover Maintech, Div. Hanover Co.
P.O. Box 690349
Houston, TX 77269
Attention: Mr. Robert (Bo) Pierce
The foregoing shall be and remain in full force and effect for the purpose of
giving notice provided for herein, unless and until such time as a new mailing
address shall be provided to the other party and shall have, in fact, been
received by the other party.
________________________________________________________________________________
November 17, 1995 Page 9
<PAGE> 10
ARIEL CORPORATION DISTRIBUTOR AGREEMENT
- --------------------------------------------------------------------------------
MADE AND EXECUTED THIS _____ DAY OF ___________, 1995.
COMPANY: Ariel Corporation
By:
--------------------------------------------------
John P. Wright,
President
WITNESS:
------------------------------------------------------
Subscribed to before me and subscribed in my presence this ____ day of
____________, 1995.
--------------------------------------------------
Notary Public
DISTRIBUTOR: Hanover Maintech, Div. Hanover Co.
By:
--------------------------------------------------
Mike McGhan
Its:
--------------------------------------------------
WITNESS:
------------------------------------------------------
Subscribed to before me and subscribed in my presence this ____ day of
________________, 1995.
--------------------------------------------------
Notary Public
________________________________________________________________________________
November 17, 1995 Page 10
<PAGE> 1
EXHIBIT 10.13
EXCLUSIVE DISTRIBUTION AGREEMENT
This Exclusive Distribution Agreement ("AGREEMENT") is made as of the
23rd day of February, 1995 and is by and between Hanover/Smith, Inc.
("HANOVER/SMITH"), a wholly-owned subsidiary of Hanover Compressor Company, and
Uniglam Resources Ltd., a company organized and existing under the laws of the
Province of Alberta ("UNIGLAM").
WHEREAS, Hanover/Smith fabricates certain oil and gas field equipment,
including glycol type gas dehydrators, various separators, heaters, production
units, treaters, dehydrators, and a variety of other special products
(hereinafter collectively called the "PRODUCTS"); and
WHEREAS, Uniglam wishes to sell the Products throughout Canada upon
the terms set out in this Agreement; and
WHEREAS, Hanover/Smith wants to appoint Uniglam as its exclusive
distributor for the purposes of carrying out direct sales of the Products in
Canada; and
WHEREAS, both parties wish to maximize the mutual benefits of the
relationship and to maintain the high reputation of Hanover/Smith and its
Products; and
WHEREAS, simultaneous with execution hereof the parties are entering
into a Security Agreement ("SECURITY AGREEMENT");
NOW, THEREFORE, the parties agree as follows:
1. Definitions. In this Agreement, including this section,
(a) "AGREEMENT" shall mean this Agreement and any renewal thereof;
(b) "COPYRIGHTS") shall mean the copyrights of Hanover/Smith as they
relate to the promotional, marketing, advertising materials and sales
aids relating to the Products, as well as any copyrights as may exist
in relation to the Products themselves and training manuals and
similar materials, whether or not such copyrights are registered;
(c) "EFFECTIVE DATE" shall mean February 23, 1995;
(d) "TERRITORY" shall mean the geographic area of Canada, including all
its provinces and territories and territorial waters;
(e) "TRADE MARKS" shall mean the following trade marks and tradenames of
Hanover/Smith:
<PAGE> 2
(i) the SI gear logo;
(ii) the names "Smith" and "Hanover/Smith"; and
any specific product trade names.
2. Appointment of Representative. Hanover/Smith hereby appoints Uniglam
as its exclusive distributor and agent for the purpose of making direct sales
of its Products to customers in the Territory, using the Trademarks and
Copyrights for so long as this Agreement is in force and effect, in accordance
with the terms of this Agreement. In consideration of this appointment,
Uniglam covenants and agrees during the term of this Agreement that it will not
directly or indirectly sell or promote the sale of any products which are
competitive with the Products.
3. Scope of Appointment. The appointment made under this Agreement
authorizes Uniglam:
(a) To use and publish throughout the Territory and reproduce the
promotional materials, sales aids and other works provided to it by
Hanover/Smith from time to time;
(b) To use the Trade Marks exclusively throughout the Territory in support
of the sale of Products;
(c) To publish and distribute its own marketing information and sales aids
in support of the sale of the Products, only after receiving specific
approval from Hanover/Smith as to the copy and content thereof, such
approval not to be unreasonably withheld by Hanover/Smith;
(d) To act as a conduit between its customers and Hanover/Smith for
Hanover/Smith's usual warranty, maintenance and training services; and
(e) To provide warranty service, maintenance and training in respect of
Products, subject to the provisions of Section 6.
4. Use of Rights. Uniglam shall have the right to use the Trade Marks
and the Copyrights on the following basis:
(a) Uniglam shall have the right to exclusive use in the Territory of the
Trade Marks and the Copyrights in respect of the sale and promotion of
Products, and in connection with its provision of warranty,
maintenance and training services relating to the Products;
(b) Uniglam may use materials protected by the Trade Marks and Copyrights,
including literary and artistic works provided by Hanover/Smith, but
any such use shall be in strict accordance with the manner designated
by Hanover/Smith and, in particular
-2-
<PAGE> 3
without limiting the generality of the foregoing, shall include an
appropriate copyright notice on all such materials.
5. Copyright, Trade Mark and other Intellectual Property Right
Infringement. Uniglam shall take all reasonable steps to help maintain the
validity and enforceability of the Copyrights and Trade Marks. Each of
Hanover/Smith and Uniglam shall promptly notify the other of any infringement
on any the Copyrights or Trade Marks within the Territory which come to its
attention and they shall jointly review any question as to whether any action
should be taken against an infringer and the extent of any such action.
6. Support by Hanover/Smith. Hanover/Smith agrees during the term of
this Agreement to use reasonable commercial efforts to retain the high quality
of its Products and to provide support for the efforts of Uniglam hereunder
including by:
(a) recognizing and accepting responsibility for its standard
manufacturer's warranty made by it in respect of Products purchased by
customers of Uniglam and providing warranty service to such customers
in accordance with its usual practices, whether directly upon request
of the customer or upon request of Uniglam;
(b) providing ongoing maintenance services in support of the repair,
proper use and maintenance of the Products upon such terms as
Hanover/Smith provides to its other customers;
(c) providing training for staff of Uniglam or the customers of Uniglam at
mutually agreeable times relating to the proper use of the Products.
Hanover/Smith shall make no charge for the provision of such training
services to the extent they are provided at Hanover/Smith's facilities
in the Houston, Texas area. However, if such training services are
held in a mutually agreed upon location other than Houston, Texas,
then Uniglam shall pay or promptly reimburse Hanover/Smith for the
reasonable accommodation, meals and travel expenses for the staff of
Hanover/Smith providing such training services. In each case, Uniglam
and its customers shall be responsible for their own travel, meal and
accommodation expenses;
(d) providing to staff of Uniglam training services relating to the
provision of preliminary warranty service for the Products at no
expense to Uniglam. Uniglam shall pay or promptly reimburse
Hanover/Smith for the reasonable accommodation, meals and travel
expenses for the staff of Hanover/Smith providing such training
services. Uniglam shall be responsible for the travel, meal and
accommodation expenses of its staff;
(e) providing to Uniglam access to Hanover/Smith's regularly scheduled
training sessions relating to marketing of Products,
3
<PAGE> 4
at no expense to Uniglam. Uniglam shall be responsible for the
travel, meal and accommodation expenses of its staff attending such
sessions.
7. Consignment and Purchase of Products.
(a) In consideration for the substantial investment of Uniglam in the
development of a market for Products in the Territory, Hanover/Smith
agrees that it shall not directly sell or cause to be sold or induce
others to cause to be sold Products in the Territory without the prior
written consent of Uniglam.
(b) From time to time Hanover/Smith shall provide Uniglam with a price
list for the Products with all such prices being in U.S. dollars and
being identical or lower than the prices charged by Hanover/Smith for
such Products to its most creditworthy customers. Hanover/Smith shall
be entitled to vary its price list upon reasonable actual notice to
Uniglam. Hanover/Smith shall be bound by the previous price list
provided to Uniglam (i) until Uniglam has actual notice of any price
change, and (ii) for all orders of Uniglam made until Uniglam receives
actual notice of the change, and (iii) for all sales made in respect
of quotations made by Uniglam in writing to its customers prior to
receiving actual notice of the price change for which Uniglam provides
Hanover/Smith reasonably satisfactory evidence of a written quotation
made by Uniglam prior to receiving actual notice of the price change.
(c) All prices of Products sold hereunder shall be paid in U.S. dollars
and shall be F.O.B. loaded at Hanover/Smith's location in the Houston,
Texas area. Hanover/Smith shall supply Uniglam with a complete Canada
Customs Invoice, a commercial invoice, and a U.S. Export Declaration
in respect of all Products purchased by or delivered to Uniglam
hereunder. Uniglam shall pay or promptly reimburse Hanover/Smith for
any transportation and insurance and related charges incurred if
Hanover/Smith arranges for delivery to Uniglam's facility in Calgary.
Hanover/Smith shall seek and obtain at its expense all other
permissions, permits, and licenses as may be necessary or advisable
for Hanover/Smith to export Products to the Territory.
(d) Uniglam shall supply Hanover/Smith with blank Canada Customs Invoices
upon the request of Hanover/Smith. Unless otherwise agreed in writing
with respect to any particular shipment, Uniglam shall be responsible
for securing insurance, arranging shipping and all costs related
thereto, for the Products from the loading at Hanover/Smith's location
in the Houston, Texas area. Uniglam shall be responsible for all
import charges, fees, duties, and taxes in respect of the import of
Products into the Territory.
4
<PAGE> 5
(e) Hanover/Smith shall supply Uniglam with a certificate certifying that
Hanover/Smith has obtained a comprehensive liability policy providing
coverage for Hanover/Smith and Uniglam in respect of claims arising
from any use, defect or otherwise in relation to the Products (and in
particular, products liability claims) in the amount of $1,000,000.
Uniglam shall be specifically covered by the terms of this insurance
policy. Likewise, Uniglam shall supply Hanover/Smith with a
certificate certifying that Uniglam has obtained a comprehensive
liability insurance policy providing coverage for Hanover/Smith and
Uniglam in respect of claims arising from Uniglam's performance of
sales, service and warranty work and storage of Products contemplated
under this Agreement or any other Uniglam activity in relation to
Products in the amount of $1,000,000. Hanover/Smith shall be
specifically covered by the terms of this insurance policy.
(f) Hanover/Smith warrants that all Products that require ASME coding
shall be ASME code approved and appropriately marked prior to
shipment.
(g) Hanover/Smith warrants that it will provide fabrication of Products
ordered hereunder in its fastest commercially reasonable time and in
no case shall deliveries to Uniglam hereunder take longer to complete
from the time of placement of an order than fabrication of similar
Products to other customers of Hanover/Smith. Hanover/Smith shall be
excused from this warranty to the extent of any force majeure.
(h) Uniglam shall order Products from Hanover/Smith on the terms set out
in this Agreement or as otherwise specified with particularity in the
purchase order provided by Uniglam and accepted by Hanover/Smith. Any
such purchase order must be in writing and actually communicated to
Hanover/Smith by Uniglam and accepted by Hanover/Smith in writing.
For Products ordered on consignment, Uniglam shall make payment in
full within thirty (30) days following sale by Uniglam of a Product to
its customer. Title to any such Product shall pass directly from
Hanover/Smith to Uniglam's customer upon such sale. Uniglam shall
bear all risk of non-payment or underpayment by its customer and shall
be unconditionally liable to Hanover/Smith for the full invoiced
amount in U.S. Dollars, plus interest, if any as described below, in
respect of each consignment sale. If Uniglam makes payment in full
for a Product, whether or not sold on consignment, within ninety (90)
days after shipment from Hanover/Smith's yard, the invoice amount
shall not bear interest. After the expiration of such ninety (90)
days, the invoice amount shall bear interest at the rate of one
percent (1%) per calendar month, pro rated on a per diem basis for any
portion of a month. If payment is not made in full within one year,
Hanover shall have the right to retake possession of the consigned
Products
5
<PAGE> 6
at Uniglams's expense. For products not ordered on consignment,
payment shall be made within thirty (30) days after shipment from
Hanover/Smith's yard.
(i) Products shipped on consignment shall be and remain the property of
Hanover/Smith until sold to a customer of Uniglam in accordance with
this Agreement. All such Products shall be properly stored and
maintained on the premises of Uniglam in Calgary until sale and
Uniglam shall cooperate with Hanover/Smith to enable Hanover/Smith to
perfect and maintain its security interest therein. Uniglam shall not
cause or permit any of such Products to be removed from its yard prior
to sale or return to Hanover/Smith. Hanover/Smith may enter the
premises of Uniglam and retake any Products held there on consignment
immediately upon termination of this Agreement. Products held on
consignment shall be insured by Uniglam against casualty loss or theft
and Uniglam shall provide Hanover/Smith with proof of such insurance.
Hanover/Smith shall be an additional insured on such insurance policy.
Uniglam shall pay any and all taxes and fees assessed in respect of
Products while they are on consignment hereunder. In the event Uniglam
returns or Hanover retakes possession of any Products delivered to
Uniglam it on consignment, Uniglam shall thereupon pay to Hanover a
restock fee in the amount of fifty percent (50%) of the original
invoice amount and Uniglam shall pay freight and insurance for the
return.
(j) Hanover/Smith shall provide the type and amount of testing, inspection
and other assessments for Products shipped hereunder which it
ordinarily provides its other customers with respect to such Products.
Uniglam may arrange for additional inspections, tests or assessments
at its expense. Hanover/Smith shall cooperate with the reasonable
requests of any inspector authorized and provided by Uniglam.
(k) Uniglam shall be solely responsible for all other charges, fees,
payments, taxes (other than upon the income of Hanover/Smith), duties,
permission fees, charges, sales taxes, goods and services taxes,
customers, duties, ad valorem taxes, or any other costs or expense
required by it to carry out its business as contemplated under this
Agreement.
(l) If either party shall default in payment of any sums required
hereunder to by paid by it to the other party, the defaulting party
covenants and agrees to pay interest on all arrears at the rate of
eighteen percent (18%) per annum from the date of default until paid.
Further, Hanover Smith has the right to refuse to manufacture or ship
Products under this Agreement, if at the time such equipment would
otherwise be ready for production or shipment, Uniglam is thirty (30)
days or more in arrears on any payment due hereunder.
6
<PAGE> 7
(m) Uniglam shall include in its quote memoranda regarding Products
disclosure that Hanover/Smith is the owner of the Product and that
Hanover/Smith will retain title to such Product and a security
interest therein until the Product is fully paid for. Uniglam will
use its reasonable business efforts to request that each customer sign
a copy of such quote. In the event any customer does not timely pay
for Products, upon Hanover's reasonable request, Uniglam will perfect
the security interest of Hanover/Smith by promptly making necessary
registrations, filings and recordings.
8. Maintenance of Reputation. Uniglam agrees to use reasonable
commercial efforts to maintain the reputation and quality of the
Products of Hanover/Smith.
9. Verification of Compliance.
(a) Uniglam shall be entitled at any reasonable time during business hours
and from time to time to have any or all of the accounting records,
sales records and procedures of Hanover/Smith relating to Products
audited or examined at Uniglam's expense by an independent chartered
or certified public accountant authorized to carry on business in
Texas and designated by Uniglam to determine whether Hanover/Smith has
complied with Section 7(a) of this Agreement.
(b) Hanover/Smith shall be entitled at any reasonable time during business
hours and from time to time to have any or all of the accounting
records, sales records and procedures of Uniglam relating to Products
audited or examined at Hanover/Smith's expense by an independent
chartered or certified public accountant authorized to carry on
business in Alberta and designated by Hanover/Smith to determine
whether Uniglam has complied with Section 7(h) of this Agreement and
the obligations of Uniglam under the Security Agreement.
10. Term of Agreement. Unless earlier terminated pursuant to Section 11,
this Agreement shall remain in full force and effect until the third
anniversary of the Effective Date. Thereafter this Agreement shall
automatically renew for successive one (1) year periods. Notwithstanding
anything herein to the contrary, after the expiration of the third anniversary
of the effective date hereof, either party may terminate this Agreement at any
time without cause upon sixty (60) days written notice to the other.
11. Termination. If any of the following events of default occurs and is
continuing, Hanover/Smith may (but shall not be obligated to) terminate this
Agreement upon written notice to Uniglam specifying the nature of the default
and Uniglam's rights hereunder shall thereupon be immediately terminated. Any
such termination shall be effective upon the date that notice of the
termination is
7
<PAGE> 8
received by Uniglam. Each of the following shall constitute an event of
default:
(a) By the first anniversary of the Effective Date Uniglam shall not have
sold at least $500,000 (USD) in Products in the Territory (based upon
the amount owing to Hanover/Smith for such Products), and such failure
continues for thirty days after notice;
(b) In any subsequent six month (from one anniversary of the Effective
Date to the end of six months thereafter, and so on) Uniglam shall not
have sold at least $250,000 (USD) in Products in the Territory (based
upon the amount owing to Hanover/Smith for such Products), and such
failure continues for thirty days after notice;
(c) Uniglam commits an act of bankruptcy, becomes insolvent, proposes a
compromise or arrangement to its creditors generally, has any petition
or has any order in bankruptcy filed against it, makes a voluntary
assignment in bankruptcy, takes any proceeding with respect to a
compromise or arrangement with creditors, takes any proceeding to have
itself declared bankrupt or to be wound up, takes any proceeding to
have a receiver appointed for any part of its assets, has any creditor
take possession of its assets, has any execution, charging order, levy
or distress warrant become enforceable or become levied upon any of
its assets, or proposes any dissolution or liquidation;
(d) failure of Uniglam to pay any amount hereunder when due, which failure
continues for at least sixty (60) days; or
(e) breach by Uniglam of any of its covenants, agreements or
representations hereunder and failure to cure the same within thirty
(30) days after written notice of such breach.
12. Consequences of Termination. Upon termination of this Agreement:
(a) Except in the case of a termination under Section 11 (c) or 11 (d),
Uniglam shall be entitled to fulfill any unfulfilled written
commitment for sale of Products which Hanover/Smith received and
accepted prior to Uniglam's receipt of the notice of termination. Any
such order shall be handled by the parties as if this Agreement is
then still in force and effect, provided, however, that Hanover/Smith
may demand payment upon delivery of Products to Uniglam.
(b) Except in the case of a termination under Section 11 (c) or 11(d),
Uniglam shall have a period of sixty (60) days to sell any remaining
inventory of Products held by it on consignment hereunder.
Immediately upon the expiration of such sixty (60)
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day period, Uniglam shall return all unsold Products to
Hanover/Smith's facility in the Houston, Texas area at Uniglam's risk
and expense.
(c) In the event of a termination under Section 11 (c) or 11 (d), Uniglam
shall have no further rights hereunder and shall immediately return at
it sole risk and expense all Products remaining at its facility on
consignment.
(d) If Section 12(b) applies, at the end of the sixty day period referred
to therein, and if Section 12(b) does not apply, immediately upon
termination, Uniglam shall immediately deliver to Hanover/Smith all
marketing, promotional and advertising materials, and all promotional
or advertising materials and sales aids relating to the Products and
all other materials containing Copyrights or Trade Marks.
13. Confidentiality. Uniglam acknowledges that in the performance of this
Agreement it will come into possession of certain confidential and proprietary
information relating to Hanover/Smith and the Products and other business of
Hanover/Smith or its affiliates (collectively, the "CONFIDENTIAL INFORMATION").
Uniglam, on behalf of itself and its owners, employees and agents, warrants and
guarantees that it will use all reasonable means to safeguard and maintain the
confidentiality of the Confidential Information and will use the Confidential
Information only in fulfilling its obligations and exercising its rights under
this agreement and Uniglam will not disclose any of the Confidential
information to any third party without Hanover/Smith's prior written consent.
14. Assignment. This Agreement is not assignable by either party without
the prior written consent of the other party.
15. Governing Law. The validity, interpretation and operation of this
Agreement shall be governed by the internal laws of the State of Texas.
16. Time of the Essence. Time is of the essence in this Agreement.
17. Advertising. All Uniglam's advertising and other promotional material
relating to the exercise of its rights granted hereunder shall name
Hanover/Smith and shall identify Uniglam as the exclusive Canadian distributor
for Hanover/Smith, or shall include other similar identification which is
reasonably acceptable to Hanover/Smith.
18. No Agency. Nothing in this Agreement creates a relationship of
agency, partnership, or employee/employer between Uniglam and Hanover/Smith and
it is the intent and desire of the parties that
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the relationship be and be construed as that of independent contracting parties
and not as agents, partners, joint venturers or a relationship of
employer/employee.
19. Notice. Any notice ("Notice") given pursuant to this Agreement must
be in writing. If the Notice is sent by telecopier, it must be properly
addressed, reflecting the telecopier telephone number of the addressee(s), and
must be transmitted by a telecopier which produces a dated message completed
confirmation. If the Notice is sent by other than telecopier, the Notice must
be enclosed in a sealed wrapper, properly addressed, and either (i) deposited
with the domestic mail service of the United States Postal Service or Canadian
Postal Service at a post office or official depository under the care and
custody of the such postal Service with sufficient postage prepaid, sent by
registered mail, return receipt requested. The addresses and telecopier
telephone numbers to which any Notice is to be sent are as follows:
if to Uniglam to: 425, 550 - 6th Ave. S.W.
Calgary, Alberta
Canada T2P 0S2
Telephone number: (403) 234-7211
Telecopier number: (403) 234-8135
if to Hanover/Smith to: Hanover/Smith, Inc.
c/o Hanover Compressor Company
12001 North Houston Rosslyn
Houston, Texas 77086 USA
Attn: Michael J. McGhan
Telephone number: (713) 447-8787
Telecopier number: (713) 447-8781
or to such other telecopier telephone number or address within continental
North American as any addressee(s) shall specify in writing, which change of
telecopier telephone number or address, in order to be effective, must actually
have been received not fewer than ten (10) days prior to the giving of any such
Notice. Any Notice sent by telecopier shall be timely given if transmitted by
telecopier on or before 11:59 p.m. in the recipient's time zone of the date the
Notice is to be given; any Notice sent by mail shall be timely given if
deposited with the domestic mail service on or before 11:59 p.m., three (3)
business days prior to the date the Notice is to be given. Any Notice sent in
accordance with the preceding sentence shall be deemed to have been received on
the next day after the sending of the Notice by telecopier; or on the date of
the first attempted delivery of the mailed Notice, as shown on the postal
service's return receipt. Notwithstanding any other provision of this Section
to the contrary, any Notice shall be effective from and after the date actually
received by an addressee, however addressed or delivered.
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20. Amendment. This Agreement may not be amended or modified orally.
This Agreement may only be amended or modified by an instrument in writing
executed by the parties hereto.
21. Headings. Headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
22. Counterpart Execution. This Agreement may be executed in two or more
counterparts or originals, each of which shall be deemed an original of one and
the same document, but all of which together shall constitute but one and the
same instrument.
23. Integrated Agreement. This Agreement constitutes the entire agreement
between the parties hereto, and there are no agreements, understandings,
restrictions, warranties or representations between the parties other than
those set forth herein or herein provided for.
24. Arbitration. Upon the request of either party, whether made before or
after the institution of any legal proceeding, any action, dispute or
controversy of any kind between the parties relating to this Agreement (each a
"DISPUTE") shall be resolved by mandatory and binding arbitration. All
Disputes shall be resolved by mandatory and binding arbitration administered by
the American Arbitration Association ("AAA") pursuant to the Federal
Arbitration Act in accordance with the Commercial Arbitration Rules of the AAA.
If Title 9 of the United States Code is inapplicable to any such Dispute, such
arbitration shall be conducted pursuant to the Texas General Arbitration Act.
Any arbitration proceeding shall be conducted in Harris County, Texas by a
panel of three arbitrators, each having substantial and recognized experience
and recognized expertise in the filed or fields of the matters in Dispute.
HANOVER/SMITH, INC.
By:
---------------------------------
Michael J. McGhan, President
UNIGLAM RESOURCES, LTD.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
11
<PAGE> 1
EXHIBIT 10.14
LEASE AGREEMENT WITH OPTION TO PURCHASE
THIS LEASE AGREEMENT (the "Lease") is entered into by and between
SMITH INDUSTRIES, INCORPORATED, a Texas corporation debtor-in-possession in a
proceeding pending under Chapter 11 of the United States Code pending in the
United States Bankruptcy Court (the "Bankruptcy Court"), Southern District of
Texas, Houston Division, as Case No. 94-43705-H3-11 ("Landlord") and HANOVER
COMPRESSOR COMPANY, a Delaware corporation ("Tenant").
W I T N E S S E T H:
It is agreed by the parties hereto as follows:
1. DESCRIPTION OF PREMISES.
Landlord hereby leases to Tenant, and Tenant hereby takes from
Landlord those certain premises ("Demised Premises") situated within the County
of Colorado, State of Texas described on Exhibit "A" attached hereto and made a
part hereof, together with all rights, privileges, easements and appurtenances
belonging to or in any way pertaining to the Demised Premises and all
improvements now situated or to be erected upon the Demised Premises.
2. TERM.
The term of this Lease shall be for a period of 24 months, commencing
on a date that the Demised Premises are ready for occupancy, but in no event
later than May 31, 1995, and terminating 24 months thereafter, unless sooner
terminated as provided in this Lease.
Tenant shall give at least three (3) days advance written notice to
Landlord providing that Tenant shall commence occupying the Demised Premises.
3. RENT.
a) Tenant shall perform all covenants and obligations as
stated herein, including making all monthly rental payments and all other
payments to Landlord provided for herein during the term of this Lease.
b) Tenant shall pay Landlord rent for the Demised
Premises in the amount of Fifteen Thousand and No/100 Dollars ($15,000.00) per
month. The first of such monthly rental payments is due and payable on
_____________, 1995, with a like monthly rental payment being due and payable
on the first day of each succeeding calendar month thereafter during the term
of this Lease; provided that, in the event the Lease term shall not commence or
end on the first day of a calendar month, the rent for any
<PAGE> 2
fractional calendar month following the commencement or proceeding the end of
the term of this Lease shall be pro rated accordingly.
c) All payments of monthly rent hereunder shall be made
to Landlord at its address stated in Paragraph 30 herein, or to such other
address the Landlord may designate from time to time in writing to Tenant.
Should Tenant fail to timely pay any installment of monthly rent due hereunder,
Landlord shall have the option to charge Tenant a late fee equal to ten percent
(10%) of the delinquent installment. In the event the monthly rent due remains
unpaid after the expiration of thirty (30) days from its due date, interest
shall accrue thereon at the rate of ten percent (10%) per annum but in no event
to exceed the maximum rate allowed under applicable law.
d) The obligation of Tenant to pay rent hereunder and
the obligations of Tenant to perform other covenants and duties hereunder
constitute independent and unconditional obligations to be performed at all
times as provided for herein. All obligations of Landlord hereunder are
covenants and not conditions to Tenant's performance of obligations hereunder;
Tenant waives and relinquishes all rights which Tenant might have to claim any
nature of lien against, withhold, deduct or off-set against, any rentals and
other sums provided hereunder to be paid to Landlord by Tenant.
4. USE.
a) The premises are leased to the Tenant for the purpose
of conducting an oil and gas equipment fabrication business, or with any other
lawful business with prior written notice to Landlord.
b) Tenant shall not commit or suffer to be committed any
waste on the Demised Premises nor shall Tenant permit the Demised Premises to
be used in any way which would, in the opinion of Landlord, be extra hazardous
on account of fire, environmental contamination or otherwise or which would in
any way increase or render void any of the liability insurance, including, but
not limited to, the fire insurance on the Demised Premises or contents in the
buildings. Tenant and Landlord hereby acknowledge that the business of Tenant
will require the use of hazardous substances, and Tenant hereby agrees that it
will comply with all applicable governmental licensed regulations. In
addition, Tenant shall not change its status as a licensed user of such
hazardous substances or cause or permit the storage, manufacture,
transportation or treatment in any manner of hazardous substances, hazardous
waste, or toxic waste on the Demised Premises, and shall not install or permit
to be installed any asbestos containing material or underground storage tanks
thereon.
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5. ACCEPTANCE OF PREMISES.
a) Tenant acknowledges that it has fully inspected the
Demised Premises and accepts same in their present condition, "AS IS, WHERE IS"
and with all faults. Tenant further acknowledges that Landlord makes no
representations or warranties, express, implied or statutory, relating to the
Demised Premises or the improvements and structures located thereon, including,
without limitation, any representations, or warranties relating to the
improvements' and structures' condition, suitability for any intended purpose,
or compliance with any applicable laws, statutes, ordinances or regulations;
the quality or condition of the Demised Premises; the suitability or safety of
the Demised Premises for any and all activities and uses which Tenant may
conduct thereon, the environmental condition of the Demised Premises and the
presence or absence of or contamination by hazardous or toxic materials or the
compliance of the Demised Premises with all regulations or laws relating to
health or the environment; or the soil conditions, drainage, flooding
characteristics, topography, geologic conditions, utilities or other conditions
existing in or on the Demised Premises. Landlord and Tenant expressly disclaim
any implied warranty that the Demised Premises are suitable for Tenant's
intended commercial purpose. Tenant hereby expressly assumes all risks,
liabilities, claims, damages and costs (and agrees Landlord shall not be liable
for any special, indirect, consequential or other damages) resulting or arising
from or related to the Demised Premises or other use, condition, location,
maintenance, repair or operation thereof; expressly provided that, Tenant shall
not be responsible for any damages to the Demised Premises that were existing
prior to the occupancy of the Demised Premises by Tenant.
b) In connection with the option to purchase the Demised
Premises contained in Paragraph 28 hereof, Tenant acknowledges that during the
term of this Lease, it shall have the right to make such inspections and
perform such examinations and investigations of the Demised Premises as it may
require, at its sole cost and expense, including specifically, without
limitation, examinations and inspections relating to the status of title of the
Demised Premises; the surveying of the Demised Premises; the electrical,
mechanical, topographical, geological and environmental condition of the
Demised Premises; and the presence of hazardous wastes and toxic materials on
the Demised Premises; provided however, upon termination of this Lease, Tenant
shall deliver the Demised Premises to Landlord in good order and condition and
in substantially the same condition as of the commencement of this Lease,
excepting reasonable wear and tear.
6. MAINTENANCE.
a) Tenant shall, at its own expense, during the term of
this Lease, maintain all of the Demised Premises in good repair and condition,
including all necessary replacements, and any periodic repainting and
resurfacing that is required to prevent
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<PAGE> 4
deterioration thereof. Subject to the provisions herein, upon termination of
this Lease, Tenant shall deliver the Demised Premises to Landlord in good order
and condition and in substantially the same condition as of the commencement of
this Lease, excepting reasonable wear and tear.
b) Landlord shall not be required to furnish any
services or make any repairs or alterations in or to the Demised Premises,
throughout the term of this Lease, the Tenant hereby assuming the full and sole
responsibility for the maintenance, repair and protection of the Demised
Premises.
7. ALTERATIONS.
a) Tenant shall not create any openings in the roof or
exterior walls, nor make any alterations, additions or improvements to the
exterior Demised Premises without prior written consent of Landlord. Consent
for minor alterations, additions, or improvements shall not be unreasonably
withheld by Landlord. Tenant shall have the right to make alterations and
improvements to the interior of the building on the Demised Premises and at all
times to install Tenant's shelves, bins, machinery, equipment and trade
fixtures, provided Tenant complies with all applicable governmental laws,
ordinances and regulations, and further provided that such installations by
Tenant shall not cause any structural or other damage or deface the Demised
Premises. Providing Tenant is not in default of any of the terms, covenants or
conditions of this Lease, Tenant shall have the right to remove at the
termination of this Lease such items so installed, including any machinery or
equipment installed and paid for by Tenant, if any (as specifically
differentiated from any such equipment owned by Landlord); however, Tenant
shall, prior to the termination of this Lease, promptly repair any damage
caused by such removal.
b) Except as otherwise provided above regarding Tenant's
right to remove certain installations or additions, all alterations, additions
and improvements made by Tenant shall become the property of Landlord at the
termination or expiration of this Lease, or Landlord may require Tenant to
remove such alterations, additions and improvements and any other property
placed in or on the Demised Premises by Tenant and restore the property to its
original condition, and Tenant shall repair any damage caused by such removal
and leave the Demised Premises in a broom clean and orderly condition.
8. COMPLIANCE WITH LAW.
Tenant shall comply with all governmental laws, ordinances and
regulations applicable to the use of the Demised Premises, and shall promptly
comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances in or upon, or connected with the Demised
Premises, all at Tenant's sole
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risk and expense. Tenant hereby indemnifies and holds the Landlord, its
officers, directors, employees and agents harmless from and against any and all
liability, loss, damages, claims, causes of action, costs and expenses
(including without limitation, reasonable attorneys' fees and court costs)
incurred or suffered by Landlord, its officers, directors, employees and agents
arising from the violation of any such laws, rules, ordinances or regulations
by Tenant.
9. ASSIGNMENT AND SUBLEASING.
a) Tenant shall be permitted, with thirty (30) days
prior written notice to Landlord, to assign this Lease or sublet the Demised
Premises or any portion thereof. In the event Tenant effects a transfer in
connection with a merger, a share exchange or sale of all or substantially all
of the assets of Tenant, Tenant shall be permitted, upon providing written
notice to Landlord, to assign the option to purchase the Demised Premises
contained in Paragraph 28 hereof. Any permitted assignment or subletting shall
be expressly subject to all terms and provisions of this Lease, including the
provisions of Paragraph 4 pertaining to the use of the Demised Premises. In
the event of any assignment or subletting, Tenant shall remain fully liable for
the full performance of all Tenant's obligations under this Lease. Tenant
shall not assign its rights hereunder or sublet the Demised Premises without
first obtaining a written agreement from assignee or sublessee whereby assignee
or sublessee agrees to be bound by the terms of this Lease. No such assignment
or subletting shall constitute a novation. In the even of the occurrence of an
event of default while the Demised Premises are assigned or sublet, Landlord,
in addition to any other remedies provided herein or by law, may at Landlord's
option, collect directly from such assignee or subtenant all rents becoming due
under such assignment or subletting and apply such rent against any sums due to
Landlord hereunder. No direct collection by Landlord from any such assignee or
subtenant shall release Tenant for the performance of its obligations
hereunder.
b) Landlord shall have the right to sell, convey,
transfer or assign, in whole or in part, all and every feature of Landlord's
rights and obligations hereunder and in the Demised Premises. Upon the
occurrence of such sale, conveyance, transfer or assignment, Landlord shall be
immediately and unconditionally released from all obligations hereunder. Upon
any such sale or conveyance, the purchaser or transferee of the Demised
Premises shall be substituted as to all rights and obligations of Landlord.
10. FIRE AND CASUALTY DAMAGE.
If the building or other improvements on the Demised Premises should
be damaged or destroyed by fire or other casualty, Tenant shall give immediate
written notice thereof to Landlord. The
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rights and obligations of Landlord and Tenant in the event of such casualty
shall be as follows:
a) Total Destruction: If the building situated on
the Demised Premises should be totally destroyed by fire, tornado or other
casualty, or if it should be so damaged that rebuilding or repairs cannot
reasonably be completed within one hundred and twenty (120) working days after
the date of written notification by Tenant to Landlord of the happening of the
damage, either the Landlord or Tenant may terminate this Lease, and the rent
shall be abated for the unexpired portion of this Lease from the date of
destruction; provided, however, that if Landlord given Tenant written
notification of its intent to terminate this Lease, Tenant shall have the
right, for a period of thirty (30) days following any such notice, to exercise
its option to purchase the Demised Premises in accordance with the terms and
provisions of Paragraph 28.
b) Partial Destruction: If the building or other
improvements situated on the Demised Property should be damaged by fire,
tornado or other casualty but not to such an extent that rebuilding or repairs
cannot be reasonable completed within sixty (60) working days from the date of
written notification by Tenant to Landlord of the happening of the damage, this
Lease shall not terminate, but Landlord shall, subject to the terms of (c)
below, out of the insurance proceeds, proceed with reasonable diligence to
rebuild or repair such building and other improvements to substantially the
condition in which they existed prior to such damage. If the Demised Premises
are to be rebuilt or repaired and are untenantable in whole or in part
following such damage, and such damage was not caused by act or negligence of
the Tenant, its agents, employees, invitees or those for whom the Tenant is
responsible, the rent payable hereunder during the period in which they are
untenantable shall be adjusted to such extent as may be fair and reasonable
under all of the circumstances.
c) Notwithstanding the foregoing, Tenant acknowledges
that the insurance proceeds relating to the Demised Premises have been assigned
by Landlord to Texas Commerce Bank National Association ("Bank") in accordance
with the terms of that certain Deed of Trust and Security Agreement (the "Deed
of Trust") dated as of June 1, 1994, executed by Landlord in favor of Bank.
Tenant further acknowledges that such proceeds may be applied to Landlord's
indebtedness to Bank at the option of Bank. In the event that Bank applies
insurance proceeds to Landlord's indebtedness to it and Landlord does not make
the repairs as described in (b) above, (i) Tenant shall have the right to
terminate the Lease; or (ii) provided that Tenant elects to purchase the
Demised Premises in accordance with Paragraph 28 hereof, Tenant shall receive a
credit to the Purchase Price (as hereinafter defined) in the amount of the
insurance proceeds applied against Landlord's indebtedness to Bank.
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<PAGE> 7
11. CONDEMNATION.
a) If, during the term of this Lease, all or a
substantial part of the Demised Premises should be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by
right of eminent domain, or should be sold to the condemning authority under
threat of condemnation, this Lease shall terminate and the rent shall be abated
during the unexpired portion of this Lease, effective from the date of taking
of the Demised Premises by the condemning authority.
b) If less than a substantial part of the Demised
Premises is taken for public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain, or is sold to the
condemning authority under threat of condemnation, Landlord, at its option, may
by written notice terminate this Lease or shall forthwith at its sole expense
restore and reconstruct the buildings and improvements (other than leasehold
improvements made by Tenant or any assignee, subtenant or other occupant of the
Demised Premises) situated on the Demised Premises in order to make the same
reasonably tenantable and suitable for the uses for which the Demised Premises
are leased as defined in Paragraph 4. The rent payable hereunder during the
unexpired portion of this Lease shall be reduced on an average price basis that
depends on whether improvements or raw land was condemned and an abatement that
is based on the value of the property actually taken in proportion to the
number of square feet condemned.
c) Landlord and Tenant shall each be entitled to receive
such separate awards and portions of lump sum awards as may be allocated to
their respective interests in any condemnation proceedings. The termination of
this Lease shall not affect the rights of the respective parties to such
awards. Notwithstanding the foregoing, any such awards received by Landlord
have been collaterally assigned by Landlord to Bank in accordance with the
terms of the Deed of Trust; and Tenant agrees that, upon demand from Bank, it
shall immediately send any such awards received by it for the account of the
Landlord to Bank. In the event that Bank applies condemnation award to
Landlord's indebtedness to it and Landlord doe snot make the repairs as
described in (b) above, and Tenant elects to purchase the Demised Premises in
accordance with Paragraph 28 hereof, Tenant shall receive a credit to the
Purchase Price (as hereinafter defined) in the amount of the condemnation
awards applied against Landlord's indebtedness to Bank.
12. INDEMNITY AND PUBLIC LIABILITY INSURANCE.
a) Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the Demised Premises,
caused by the negligence or misconduct
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of Tenant, its agents, servants, employees, or of any other person entering
upon the Demised Premises under express or implied invitation of Tenant, or
caused by the buildings and improvements located on the Demised Premises
becoming out of repair, or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Demised Premises, or due to any other cause
whatsoever, and Tenant agrees to indemnify Landlord and hold it harmless from
and against any loss, expense or claims including attorneys' fees, arising out
of any such damage or injury, INCLUDING LANDLORD'S OWN NEGLIGENCE, except
injury to persons or damage to property the cause of which is the gross
negligence or willful misconduct of the Landlord. Tenant agrees that such
indemnification shall survive the expiration or termination of the Lease.
b) Tenant shall procure and maintain throughout the term
of this Lease a policy or policies of insurance, at its sole cost and expense,
insuring Landlord, Tenant and Bank against all claims, demands, or actions
arising out of or in connection with: (i) the Demised Premises; and (ii) the
condition of the Demised Premises. The limits of such policy or policies shall
be in the amount of not less than $1,000,000 per person and $2,000,000 per
occurrence in respect of injury to persons (including death), and in the amount
of not less than $1,000,000 per occurrence in respect to property damage or
destruction, including loss of use thereof. All such policies shall be
procured by Tenant from responsible insurance companies satisfactory to
Landlord. Current certificates of insurance naming Landlord and Bank as
additional insured, together with receipts evidencing payment of premiums
therefor, shall be delivered to Landlord prior to the commencement date of this
Lease. Not less than fifteen (15) days prior to the expiration date of any
such policies, certificates of insurance of the renewals thereof (bearing
notations evidencing the payment of renewal premiums) shall be delivered to
Landlord. Such policies shall further provide that not less than thirty (30)
days written notice shall be given to Landlord and Bank before such policy may
be cancelled or changed to reduce insurance provided thereby.
c) If Tenant should fail to comply with the foregoing
requirements relating to insurance, Landlord may obtain such insurance, and
Tenant shall pay to Landlord on demand, as additional rental hereunder, the
premium cost thereof plus interest at the rate of ten percent (10%) per annum
from the date of payment by Landlord until repaid by Tenant.
13. QUIET ENJOYMENT.
Subject to Bankruptcy Court approval, Landlord covenants, warrants and
represents that it has full right and power to execute this Lease and to grant
the estate demised herein and that Tenant, upon payment of the rents herein
reserved, and performing the terms, conditions, covenants, and agreements
herein contained, shall peaceably and quietly have, hold and enjoy the Demised
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Premises during the full term of this Lease. Notwithstanding anything herein
to the contrary, Tenant accepts this Lease subject and subordinate to any
recorded mortgage, deed of trust or any other lien presently existing upon the
Demised Premises. Landlord is hereby irrevocably vested with full power and
authority to subordinate Tenant's interest hereunder to any mortgage, deed of
trust or other lien hereafter placed on the Demised Premises, provided same is
then recorded, and Tenant agrees upon demand to execute such further
instruments subordinating this Lease as Landlord may request, provided such
further subordination shall be upon the express condition that this Lease shall
be recognized by the mortgagee and that the rights of the Tenant shall remain
in full force and effect during the term of this Lease, so long as the Tenant
shall continue to perform all the covenants of this Lease. Landlord hereby
agrees to use its good faith efforts to obtain an agreement of quiet enjoyment
and nondisturbance from Bank.
14. REAL ESTATE TAXES.
Tenant shall pay all taxes and assessments which may be levied
or assessed upon the Demised Premises, and Tenant shall provide proof of such
payment to Landlord by copies of receipts furnished to Tenant prior to
delinquency; provided that, all real estate taxes and assessments on the
Demised Premises shall be prorated accordingly between Landlord and Tenant with
respect to the tax year in which this Lease commences, and in the event the
option provided in Paragraph 28 is not exercised by Tenant, with respect to the
tax year in which this Lease expires or is terminated.
15. FIRE AND EXTENDED COVERAGE INSURANCE.
a) Tenant agrees, at its sole cost and expense, to keep
the building and improvements leased hereunder insured to the full extent of
the insurable replacement value thereof in reliable companies against loss or
damage by fire or other causes insured by extended coverage. Any proceeds from
such insurance shall be payable to Landlord or to Tenant as their interests in
the improvements may appear.
b) All such insurance policies shall be procured by
Tenant from responsible insurance companies satisfactory to Landlord. Current
certificates of insurance naming Landlord and Bank as additional insured,
together with receipts evidencing payment of premiums therefor, shall be
delivered to Landlord prior to the commencement date of this Lease. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certificates of insurance of the renewals thereof (bearing notations evidencing
the payment of renewal premiums) shall be delivered to Landlord. Such policies
shall further provide that not less than thirty (30) days written notice shall
be given to
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Landlord and Bank before such policy may be cancelled or changed to reduce
insurance provided thereby.
c) If Tenant should fail to comply with the foregoing
requirements relating to insurance, Landlord may obtain such insurance, and
Tenant shall pay to Landlord on demand, as additional rental hereunder, the
premium cost thereof plus interest at the rate of ten percent (10%) per annum
from the date of payment by Landlord until repaid by Tenant.
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EXHIBIT 10.15
November 30, 1993
Mr. Mike McGhan
Hanover Compressor Company
P.O. Box 690349
Houston, Texas 77269
Re: Lone Tree Road Shop/Office Complex
Victoria County, Texas
Lease Agreement Extension
Dear Mike:
In accordance with our previous conversations, and per your request,
we propose the following revised Articles II, III, and XIX to our agreement of
lease dated December 4, 1990 as follows:
Article II
2.01 Term. The term of this lease extension (the "Term"), unless
sooner terminated as provided in this Lease, shall commence on December 4th,
1993, and shall expire one (1) year from said date.
Article III
Rent
Tenant shall pay to Landlord at Landlord's address for notice, an
annual fixed rent ("Rental") of Forty Seven Thousand Eight Hundred Eighty and
No/100 Dollars ($47,800.00), to be paid, without deduction or set-off of any
kind (unless expressly permitted herein), in advance on the first day of each
calendar month, in equal consecutive monthly installments of Three Thousand
Nine Hundred Ninety and No/100 Dollars ($3990.00) each, with the first such
monthly installment to be paid on the Commencement Date. Rental for any
fractional month at the beginning or end of the Term shall be prorated.
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Page 2
Article XIX
Notices
All notices provided for in this Lease shall be in writing and shall
be delivered personally, by overnight messenger service, by telecopy or
facsimile transmission, or deposited in the United States mail, registered or
certified, postage pre-paid, addressed as follows:
Lease Agreement Revisions
If to Landlord: San Rafael Corporation
4726 Merwin Street
Houston, Texas 77027
If to Tenant: Hanover Compressor Company
7503 Chippewa
Houston, Texas 77086
It is understood that the balance of the lease agreement terms and
conditions remain the same as agreed to in the original agreement, dated
December 4, 1990 (copy attached). If the aforegoing is agreeable to you please
indicate by signing in the space provided below.
Sincerely,
R.J. Guerra, PE
Tenant: Landlord:
By:____________________ By:____________________
Title:_________________ Date:__________________
Date:__________________
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AGREEMENT OF LEASE
THIS AGREEMENT OF LEASE ("Lease") made and entered by and between
Ricardo J. Guerra and Luis A. Guerra (hereinafter collectively referred to as
"Landlord"), and Guerra Engineering, Inc., a Texas corporation ("Tenant").
W I T N E S S E T H
WHEREAS, the Landlord has terminated the lease agreement, with respect
to its Lone Tree Road Shop/Office Complex, Victoria County, Texas, dated
January 1, 1987 by and between Landlord and Tenant and desires to lease the
same property to Tenant on the terms provided herein; and
WHEREAS, Tenant desires to lease the same property from Landlord; and
THAT, in consideration of the mutual covenants and agreements
hereinafter set forth in this Lease, Landlord and Tenant agree, as follows:
ARTICLE I
PREMISES
Landlord does hereby lease, let and demise to Tenant, and Tenant does
hereby lease, let and demise from Landlord the following premises (the
"Premises"):
1. The exclusive use of that certain tract of land situated in
and lying in Victoria County, Texas, more particularly
described on Exhibit "A" attached hereto and incorporated
herein for all purposes (the "Land"); and,
2. All buildings and improvements now located on the Land (the
"Buildings"); and,
3. All roadways, rights-of-ways, easements, privileges,
servitudes and appurtenances thereunto pertaining to the Land
(the "Appurtenances").
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ARTICLE II
TERM OF LEASE AND POSSESSION OF PREMISES
2.1 Term. The term of this Lease (the "Term"), unless sooner
terminated as provided in this Lease, shall commence on December 4, 1990 (the
"Commencement Date"), and shall expire three (3) years from and after the
Commencement Date.
2.2 Surrender of Premises and Holding Over. On or before the
expiration of the Term of the Lease, Tenant shall remove from the Premises all
of Tenant's property and repair any damage caused by such removal. Any
personal property which shall remain in or on the Premises for more than
fifteen (15) days following the termination of this Lease or the termination of
Tenant's right of possession of the Premises following Tenant's default
hereunder shall, at Landlord's option, become the property of Landlord. If
Tenant fails to remove any of Tenant's property prior to the expiration of
fifteen (15) days from the expiration or earlier termination of this Lease,
Landlord may remove the same at Tenant's cost and Tenant shall pay Landlord on
demand all reasonable costs incurred in removing, storing and/or disposing of
such property. In the event of holding over by Tenant after expiration or
earlier termination of this Lease or in the event Tenant continues to occupy
the Premises after the termination of Tenant's right of possession, Tenant
shall, throughout the entire hold over period, pay rent equal to one hundred
fifty percent (150%) of the sum of the Rental which would have been applicable
had the term of this Lease continued throughout the period of such holding over
by Tenant. No holding over by Tenant or payments of money by Tenant to
Landlord after the expiration of the term of this Lease shall be construed to
extend the term of this Lease or prevent Landlord from recovery of immediate
possession of the Premises by summary proceedings or otherwise unless Landlord
has sent written notice to Tenant that Landlord has elected to extend the term
of this Lease. Tenant shall be liable to Landlord for damages, including
reasonably foreseeable consequential damages, which Landlord may suffer by
reason of any holding over by Tenant and Tenant shall indemnify Landlord
against any and all claims by any other tenant or prospective tenant against
Landlord for delay by Landlord in delivering possession of the Premises to such
other tenant or prospective tenant.
2.3 Peaceful Possession. Tenant shall, and may peacefully have,
hold and enjoy the Premises subject to the other terms hereof, provided that
Tenant pays the Rental, hereinafter defined, and other sums herein recited to
be paid by Tenant and performs all Tenant's covenants and agreements herein
contained. This covenant and any and all other covenants of Landlord shall be
binding upon Landlord and its successors only with respect to breaches
occurring
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during its or their respective periods of ownership of the Landlord's interest
hereunder.
2.4 Acceptance of Premises. Subject to Landlord's representation
and warranty contained in Sections 4.2 and 4.3, Tenant hereby agrees to accept
the Premises in its "as is, where is," condition, with all faults. The taking
possession of the Premises by Tenant shall be conclusive evidence as against
Tenant (i) that Tenant accepts the Premises as suitable for the purposes for
which the same are leased, (ii) that it accepts the Premises and each and every
part and appurtenance thereof as being in a good and satisfactory condition,
and (iii) that, as of the date of such acceptance, Landlord has fully complied
with Landlord's obligations contained in this Lease.
ARTICLE III
RENT
Tenant shall pay to Landlord at Landlord's address for Notice, an
annual fixed rent ("Rental") of Fifty Thousand Four Hundred and No/100 Dollars
($50,400.00), to be paid, without deduction or set-off of any kind (unless
expressly permitted herein), in advance on the first day of each calendar
month, in equal consecutive monthly installments of Four Thousand Two Hundred
and No/100 Dollars ($4,200.00) each, with the first such monthly installment to
be paid on the Commencement Date. Rental for any fractional month at the
beginning or end of the Term shall be prorated.
ARTICLE IV
CONDITION AND MAINTENANCE OF PREMISES
4.1 Delivery of Premises. On the Commencement Date, Landlord
shall deliver the Premises to Tenant in broom clean condition and in good
repair, free of all occupants and all of Landlord's personal property,
excluding fixtures.
4.2 Condition and Maintenance of Premises. The structural parts
of the roof, the foundation, the walls, the floors and all other structural
members of the Building (collectively, the "Structural Members") and all
building service fixtures installed or located on or about the Premises as of
the Commencement Date which are used in the operation, maintenance or
protection of the Premises (such as, but not limited to, heating, air
conditioning, ventilating, electrical and plumbing systems, (collectively, the
"Service Fixtures"), to the knowledge of Landlord are in good condition and
fully operational and usable without need of repair or replacement on the
Commencement Date and Tenant hereby agrees to surrender same to Landlord in
good condition and fully operational and usable without need of repair or
replacement on the expiration or earlier termination of the Term of this Lease.
In the event the Structural Members or any part thereof are in need of repair
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or replacement, in whole or in part, during the Term of the Lease, Landlord
shall promptly repair any such item, at Landlord's expense. Landlord shall not
be liable to Tenant for any damage to merchandise, trade fixtures or personal
property of Tenant in the Premises caused by water leakage from roof, water
lines, sprinkler, heating and air condition equipment, unless such damages
results from Landlord's gross negligence or willful misconduct. Tenant agrees,
at Tenant's expense, to keep the Premises in good order and repair, clean,
sanitary and safe. Tenant will maintain the interior of the Premises, and the
Service Systems (except that Landlord will reimburse Tenant for costs incurred
by Tenant to replace any Major Components, hereinafter defined, of the Service
Systems). The term "Major Components" shall mean any component or part which
costs in excess of $1000.00. In no event will Tenant be required to make any
repair otherwise required to be performed by Tenant by this Section if such
repair is covered by any product warranty of Landlord. If Tenant fails to make
repairs and/or maintain the Premises or any part thereof, as required in this
Lease, Landlord may, following notice to Tenant of such failure and the
continuation of such failure for thirty (30) days following such notice, make
such repairs or perform such maintenance on behalf of and for the account of
Tenant. In such event, Landlord's reasonable expenses incurred in connection
therewith shall be promptly payable by Tenant, as additional rental, following
Tenant's receipt of a bill therefor.
4.3 Landlord's Warranties Re: Zoning and Compliance with Laws.
Landlord represents and warrants to Tenant that as of the Commencement Date,
the Premises will be in compliance with all laws, including, but not limited
to, building, zoning, environmental, and other ordinances and codes of all
state, federal, and local authorities having or claiming to have jurisdiction
of the Premises; provided, however, that any breach of a representation or
warranty contained herein shall be exclusively enforced pursuant to the terms
of that certain Stock and Assets Purchase Agreement of even date hereof,
including but not limited to those provisions contained in Article XIII
thereof.
4.4 Compliance as to Premises. Tenant will comply with all laws,
ordinances, rules, regulations and orders of all duly constituted authorities
which affect the carrying on of the business being conducted in the Premises,
as distinguished from the physical facilities in which such business is being
conducted. Landlord will bear the expense of any alterations or improvements
or repairs to the Premises ordered by any governmental authority unless such
alterations or improvements or repairs relate solely to
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the manner in which Tenant is carrying on Tenant's business in the Premises.
4.5 Crane. Tenant hereby acknowledges and agrees that the crane
located in the Building has been delivered to Tenant in good condition, fully
operational and usable and that Tenant shall maintain the same in good
condition, fully operational and usable throughout the Term and shall surrender
the same in good condition, fully operational and usable, ordinary wear and
tear expected. If, during the final twelve (12) months of the Term, Tenant is
required to replace any major component of the crane (provided such replacement
is not necessitated by Tenant's negligence or misuse, in which case, Tenant
shall bear the full expense of such repair or replacement), Landlord will,
within thirty (30) days after receipt of an invoice therefor, pay Tenant fifty
percent (50%) of the cost of such Major Component. In no event will Tenant be
required to make any repair otherwise required to be performed by Tenant by
this Section if such repair is covered by any product warranty of Landlord, or
if caused by or necessitated by shifting or settling of the Building. Tenant
hereby acknowledges and agrees that the crane is Landlord's property and shall
remain with the Building upon the expiration or earlier termination of the Term
of the Lease.
ARTICLE V
USE OF PREMISES
5.1 Use of Premises. Landlord understands and acknowledges that
Tenant is desirous of taking and leasing the Premises only if the Premises may
be used throughout the Term for the operation of a compressor repair and
refurbishing business and for related use as office space, ancillary to such
business, or for any other lawful purpose, consented to by Landlord in writing,
which consent shall not be unreasonably withheld; and Landlord does hereby
grant to Tenant during the Term of the Lease, the right to use the Premises for
the foregoing purposes.
5.2 Signs. Tenant shall have the right to construct signs and
other identification bearing its trade name and corporate name on or about the
Premises and Tenant shall determine in its discretion, subject to compliance
with all Laws. All signs placed on or about the Premises by Tenant shall be
removed by Tenant at the expiration of the term, at Tenant's sole cost and
expense.
5.3 Tenant's Property. All furniture, furnishings, trade
fixtures, removable equipment, machinery, inventory and other items of personal
property located on or about the Premises, owned by Tenant or in the care,
custody and control of Tenant, shall at all
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times for purposes of this Lease be considered the property of Tenant
(collectively "Tenant's Property"). Tenant shall have the right to install,
replace and remove items of Tenant's Property at any time and from time to time
during the term of this Lease. Tenant at Tenant's expense will immediately
repair any damage occasioned to the Premises by reason of the removal of any
Tenant's Property. All other improvements made by Tenant to the Premises,
including, but not limited to, floor coverings, carpeting, and partitions, will
become the property of Landlord upon expiration or earlier termination of this
Lease, unless otherwise provided herein.
ARTICLE VI
ALTERATIONS OR IMPROVEMENTS
Tenant may make non-structural alterations or improvements to the
Building, without the prior written consent of Landlord, but shall not make
structural alterations or improvements to the Building without the prior
written consent of Landlord. Any alterations or improvements made by the
Tenant to the Building shall be made in accordance with all applicable laws and
building codes, in a good and workmanlike manner. Tenant shall promptly pay
all costs attributable to such alterations and improvements. Tenant shall
ensure that all persons who perform any work in connection with any alterations
or improvements to the Building procure and maintain insurance coverage against
such risks, in such amounts and with such companies, as Landlord may reasonably
require, including, but not limited to, Builder's Risk and Worker's
Compensation insurance. In the event any mechanics' lien is filed against the
Premises, or any part thereof, for work claimed to have been done for, or
material claimed to have been furnished to, Tenant, Tenant shall cause such
mechanics' lien to be discharged of record within forty (40) days after filing
by bonding or as provided or required by law or in any other lawful manner.
Tenant will indemnify and save Landlord harmless from all costs, losses,
expenses and attorneys' fees in connection with any such mechanics' lien.
ARTICLE VII
TAXES, ASSESSMENTS AND UTILITIES
Tenant shall pay any personal property taxes and assessments, levies,
fees and charges in respect to Tenant's property in the Premises. All charges
for water, gas, heat and electricity rendered to or used on or about the
Premises shall be the
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responsibility of Tenant and Tenant shall pay the same prior to delinquency.
ARTICLE VIII
PROPERTY INSURANCE, CASUALTY, AND LIABILITY INSURANCE
8.1 Property Insurance. Landlord, at its sole cost and expense,
shall keep in force throughout the Term of the Lease, a policy or policies of
insurance covering loss or damage to the Building, in at least the same amounts
as and with an insurance company rated equivalent to or better in "Best's
Insurance Guide," as Landlord's currently existing policy or policies.
Landlord shall provide Tenant with a certificate of insurance which provides
that no less than thirty (30) days prior written notice shall be given to
Tenant before such policy may be canceled or changed to reduce the insurance
provided thereby.
8.2 Damage; Termination of Lease. If any substantial portion of
the Building is substantially destroyed by fire or other casualty, such that,
in the reasonable judgment of Landlord's contractor (certified in writing to
Tenant prior to the 15th day following such casualty) repair cannot be
substantially completed within (90) days after the date of such casualty,
Tenant shall, for a period of ten (10) days after receipt of such certification
from Landlord's contractor, have the right to terminate this Lease upon written
notice to Landlord, effective as of the date of such casualty.
8.3 Damage; Continuation of Lease. If the Building is damaged by
fire or other casualty, such that, in the reasonable judgment of Landlord's
contractor (certified in writing to Tenant prior to the 15th day following such
casualty) repair can be substantially completed within ninety (90) days after
the date of such casualty, Tenant shall not have the right to terminate this
Lease and Landlord shall proceed with diligence to repair the Building to
substantially the same condition in which it existed immediately prior to such
casualty. If the Building is untenantable in whole or in part following such
casualty, the Rental shall abate in an equitable manner. If Landlord fails to
substantially complete such repairs and rebuilding within ninety (90) days
after the date of such casualty, Tenant may, at its option, terminate this
Lease by delivering written notice to Landlord.
8.4 Liability Insurance. Tenant shall maintain throughout the
Term, a Commercial General Liability Insurance Policy for claims arising in or
on the Premises, with the premiums therefor paid on or before the due date.
Such policy shall include coverage
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for personal injuries with limits of not less than $1,000,000.00 combined
single limit for death, personal injury and property damage, per occurrence,
shall name Landlord as an "additional insured" and shall require not less than
thirty (30) days prior written notice to the other party prior to cancellation
or reduction in coverage. Each such policy shall be issued by an insurance
company rated equivalent to or better than Reliance Insurance Company of
Illinois, in "Best's Insurance Guide" and authorized to carry on business in
the State of Texas. On or before fifteen (15) days following the date of this
Lease, Tenant will cause its insurer(s) to issue and deliver to Landlord
certificate(s) of insurance evidencing the existence and coverage of insurance
required hereunder.
8.5 Waiver of Subrogation. Each party expressly waives any and
every claim which arises or may arise in such party's favor against the other
party for any and all loss of or damage to any of such party's property located
within or upon, or constituting a part of the Premises, which loss or damage is
caused by a peril required by this Lease to be covered by the insurance of the
party incurring the loss.
ARTICLE IX
EMINENT DOMAIN
If the whole or any substantial portion of the Premises shall be taken
for any public quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (any such event shall hereinafter be referred to as a "Taking"), such
that in Tenant's reasonable judgment, the operation of Tenant's business within
the Premises shall be adversely affected, Tenant shall have the option to
continue this Lease as provided in the following sentence, or terminate this
Lease, on the date upon which the Taking occurs. If Tenant elects to continue
the Lease following a Taking, the Rental payable hereunder by Tenant during the
unexpired portion of the Term shall be reduced in an equitable manner. In the
event of any condemnation or taking, whether partial or total, all compensation
awarded for any such taking or condemnation, or sale proceeds in lieu thereof,
shall be the property of Landlord and Tenant shall have no claim thereto, the
same being hereby expressly waived by Tenant, except for any portions of such
award or proceeds which are specifically allocated by the condemning or
purchasing party for the taking of or damage to trade fixtures of Tenant, which
Tenant specifically reserves to itself.
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ARTICLE X
ASSIGNMENT AND SUBLETTING
Tenant shall have the right to assign this Lease or sublease the
Premises, in whole or in part, with the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. Tenant shall have
the right to assign the Lease, or sublet the Premises without the prior written
consent of Landlord, to a person, firm, partnership, corporation or other
enterprise (i) which is an eighty percent (80%) or greater subsidiary or an
eighty percent (80%) or greater affiliate of Tenant, (ii) which is the result
of a merger or consolidation with Tenant, or (iii) which is a successor to
substantially all of the business and assets of Tenant. Tenant shall remain
liable to Landlord under the Lease, notwithstanding any assignment permitted in
the preceding sentence.
ARTICLE XI
NON-DISTURBANCE AGREEMENT
As promptly as practicable after the date hereof, Landlord shall use
its reasonable efforts (which efforts shall not include the payment of money)
to cause the holder of any mortgage, or other encumbrance against the Premises
to execute and deliver to Tenant, a non-disturbance agreement, in form and
substance reasonably acceptable to Tenant.
ARTICLE XII
EVENTS OF DEFAULT AND REMEDIES
The following events (herein referred to individually as an "Event of
Default") will be deemed to be events of default by Tenant under the Lease:
(i) Failure by Tenant to pay Rental and such failure continues for five (5)
days after the date such Rental is due under this Lease, (a "Monetary
Default"), provided during each calendar year of the term, Tenant shall be
given two (2) notices of Monetary Default and not less than three (3) days
opportunity to cure each such Monetary Default following each such notice, and
thereafter, for the remainder of such calendar year a failure by Tenant to pay
Rental on or before the date due under this Lease shall be deemed a Monetary
Default, (ii) failure by Tenant to perform or observe any of the nonmonetary
covenants contained in this Lease to be performed or observed by Tenant within
ten (10) days after receipt by Tenant of written notice from Landlord
specifying the failure (or within such additional period, if any, as may be
reasonably required to cure the failure if the failure cannot be cured within a
ten (10) day period), (iii) Tenant or any guarantor of this Lease shall become
insolvent, or shall
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make a transfer in fraud of creditors, or shall commit an act of bankruptcy or
shall make an assignment for the benefit of creditors, or Tenant or any
guarantor shall admit in writing its inability to pay its debts as they become
due, or (iv) a receiver or trustee shall be appointed for all or substantially
all of the assets of Tenant or any guarantor or of any of Tenant's property
located thereon in any proceeding brought by Tenant or any guarantor, or any
such receiver or trustee shall be appointed in any proceeding brought by Tenant
or any guarantor and shall not be discharged within sixty (60) days after such
appointment or Tenant or such guarantor shall consent to or acquiesce in such
appointment. On the occurrence of any Event of Default, Landlord will have the
option to terminate this Lease or terminate Tenant's right of possession of the
Premises, in either of which events, Tenant will immediately surrender the
Premises to Landlord. If Landlord terminates Tenant's right of possession of
the Premises, Tenant will be liable to Landlord for the present value of the
Rental to accrue under the Lease for the unexpired portion of the Term, reduced
by the present value of the reasonable cash market value of the Lease for the
unexpired portion of the Term. If Tenant fails to surrender possession of the
Premises to Landlord prior to the expiration of fifteen (15) days following the
termination of Tenant's right of possession, Landlord may enter upon and take
possession of the Premises and expel or remove Tenant and any other person who
may be occupying the Premises or any part thereof. Except as otherwise herein
provided, no repossession or re-entering on the Premises or any part thereof
shall relieve Tenant or any guarantor of its liabilities and obligations
hereunder, all of which shall survive such repossession or re-entering. In
determining the amount of loss which Landlord suffers by reason of termination
of this Lease, or a termination of Tenant's right of possession of the
Premises, allowance will be made for the expense of repossession and any
necessary repairs, but not for any remodeling undertaken by Landlord following
repossession. In addition to other remedies provided in this Lease, Landlord
shall be entitled, to the extent permitted by applicable law, to injunctive
relief in case of the violation, or attempted or threatened violation, of any
of the covenants, agreements, conditions or provisions of this Lease, or to a
decree compelling performance of any of the other covenants, agreement,
conditions or provisions of this Lease, or to any other remedy allowed to
Landlord at law or in equity unless prohibited herein. Forbearance by Landlord
to enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default.
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ARTICLE XIII
ENTRY BY LANDLORD
Provided Landlord gives Tenant reasonable advance notice and exercises
reasonable efforts to minimize interference with Tenant's business, Tenant
agrees to permit Landlord or its agents or representatives to enter into and
upon any part of the Premises at all reasonable hours (and emergencies at all
times, by any means Landlord may deem proper, and without liability therefore,
except for damages resulting from the gross negligence or willful misconduct of
Landlord or its agents or representatives) to inspect the same, or to show the
Premises to purchasers, mortgagees, tenants or insurers, or to claim or make
repairs, alterations or additions thereto, as otherwise permitted hereunder,
and Tenant shall not be entitled to any abatement or reduction of Rental by
reason thereof.
ARTICLE XIV
ENVIRONMENTAL LAWS
In respect to the operation of Tenant's business in the Premises (but
not in respect to the physical condition of the Premises unless non-compliance
is caused by Tenant or Tenant's employees, agents, assignees, sublessees or
guests) Tenant hereby covenants and agrees to comply with any and all federal,
state or local laws, statutes, ordinances, or regulations, or any utility
district, federal or state agency regulation, ruling or standard, or any
private agreement pertaining to health, industrial hygiene, or any
environmental condition on, under or about the Premises, including without
limitation, air, water, soil, noise or chemical pollution, and including
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA") as amended, 42 U.S.C. Section 9601 et seq.,
and the Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C.
Section 6901 et seq. Tenant hereby indemnifies Landlord from and against any
and all costs, liabilities or expenses (including, but not limited to
reasonable attorney's fees) that Landlord may incur as a result of Tenant's
failure to comply with the above covenant and agreement. Landlord shall
indemnify, defend and hold Tenant harmless from and against all costs and
liabilities of Tenant which arise during or after the lease Term as a result of
the contamination of the Premises by any hazardous waste, hazardous substance
or pollutant, or non-compliance with the above referenced laws, statutes,
ordinances or regulations, but only to the extent that Landlord is determined
by any governmental authority to be responsible for the presence of such
hazardous waste, hazardous substance or pollutant or for the non-compliance
with such laws, statutes, ordinances or regulations.
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ARTICLE XV
INDEMNITY
15.1 Tenant's Indemnity. Tenant agrees to indemnify, defend and
hold Landlord and Landlord's agents (and employees harmless from and against
any and all claims, action, damages, liabilities and expenses allegedly or
actually occasioned by any act or omission of Tenant, or Tenant's agents,
employees, contractors, sublessees, invitees, licensees, and any other person
entering the Premises under the invitation of Tenant, excepting, however, in
each case, any claims arising out of the gross negligence (but not the ordinary
negligence) or willful misconduct of Landlord, or Landlord's agents, employees
or contractors or any other person entering the Premises under the invitation
of Landlord.
15.2 Landlord's Indemnity. Landlord agrees to indemnify, defend,
and hold Tenant and Tenant's shareholders, officers, employees and sublessees
harmless from and against any and all claims, actions, damages, liabilities and
expenses allegedly or actually occasioned by any act or omission of Landlord,
or Landlord's agents, employees, contractors, or any other person entering the
Premises under the invitation of Landlord, excepting, however, in each case,
any claims arising out of the gross negligence (but not the ordinary
negligence) or willful misconduct of Tenant, or Tenant's officers, employees,
contractors, agents, sublessees or any other person entering the Premises under
the invitation of Tenant.
ARTICLE XVI
NO WAIVER
Failure of Landlord to declare any default immediately upon its
occurrence, or delaying taking any action in connection with an Event of
Default, shall not be considered a waiver of such default, nor shall it
constitute an estoppel against the Landlord, but Landlord shall have the right
to declare the default at any time so long as same is continuing and take such
action as is lawful or authorized under this Lease. Failure by Landlord to
enforce such rights with respect to any one default shall not constitute a
waiver of its right with respect to any subsequent default. Receipt by
Landlord of Tenant's keys to the Premises shall not constitute acceptance or
surrender of the Premises.
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ARTICLE XVII
ATTORNEY'S FEES
In the event that at any time either Landlord or Tenant institutes any
action or proceeding against the other relating to the provisions of this
Lease, or any default hereunder, the prevailing party in such action or
proceeding will be entitled to recover from the other party reasonable and
necessary costs and attorneys' fees.
ARTICLE XVIII
AUTHORITY
In the event Tenant is a corporation (including any form of
professional association), partnership (general or limited), or other form of
organization other than an individual, then each individual executing or
testing in this Lease on behalf of Tenant hereby covenants, warrants and
represents:
(i) that such individual is duly authorized to execute or
attest and deliver this Lease on behalf of Tenant in
accordance with the organizational documents of
Tenant;
(ii) that this Lease is binding upon Tenant;
(iii) that Tenant is duly organized and legally existing
in the state of its organization, and is qualified
to do business in the State of Texas;
(iv) that the execution and delivery of this Lease by
Tenant will not result in any breach of, or
constitute a default under, any mortgage, deed of
trust, lease, loan, credit agreement, partnership
agreement, or other contract or instrument to which
Tenant is a party or by which Tenant may be bound.
If Tenant is a corporation, Tenant will, prior to
Commencement Date, deliver to Landlord a copy of a
resolution of Tenant's board of directors authorizing
or ratifying the execution and delivery of this
Lease, which resolution will be duly certified to
Landlord's satisfaction by the secretary or assistant
secretary of Tenant.
ARTICLE XIX
NOTICES
All notices provided for in this Lease shall be in writing and shall
be delivered personally, by overnight messenger service, by
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telecopy or facsimile transmission, or deposited in the United States mail,
registered or certified, postage pre-paid, addressed as follows:
If to Landlord: Rick Guerra Enterprises
5007 Pine Street
Bellaire, Texas 77401
Attention: Mr. Ricardo J. Guerra
If to Tenant: Guerra Engineering, Inc.
c/o Hanover Compressor Company
2911 Turtle Creek, Suite 500
Dallas, Texas 75219
Attention: President
or to Landlord or Tenant at such other address or addresses as may be
designated by them by notice during given and in accordance with this Article.
All notices shall have been deemed to have been given, served or delivered at
the time the same shall have been received in case of notices personally
served, sent by overnight messenger service, or sent by telecopy or facsimile
transmission, or one (1) day following the post-mark date if the same shall
have been deposited in the United States mail, addressed and postage pre-paid
as described above.
ARTICLE XX
MISCELLANEOUS AND GENERAL PROVISIONS
20.1 Consents and Approvals. Whenever in this Lease, Landlord or
Tenant is entitled to exercise some right or option with the prior consent or
approval of Landlord or Tenant, such consent or approval shall not be
unreasonably withheld or delayed by Landlord or Tenant as the case may be.
20.2 Recording of Memorandum of Lease. Tenant may record a short
form memorandum of this Lease in reasonable form, prepared by Tenant's counsel,
subject to Landlord's approval, such approval not to be unreasonably withheld
or delayed.
20.3 Complete Agreement; Amendments. This Lease, including all
Exhibits attached hereto, constitutes the entire agreement between the parties
with respect to the subject matter hereof, and supersedes all previous
understandings and agreements, oral or written, between the parties or their
respective representatives, with respect to the subject matter hereof. This
Lease, or any of the provisions hereof, may not be amended, modified or waived
in any way (including without limitations, by the parties' course of
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conduct), except in a writing executed by duly authorized officers and partners
of the parties hereto.
20.4 Successors and Assigns. This Lease and the respective rights
and obligations of the parties hereto shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto.
20.5 Severability of Invalid Provisions. If any provision of this
Lease shall be held to be invalid, void or unenforceable, the remaining
provisions hereof shall not be affected or impaired, and such remaining
provisions shall remain in full force and effect.
20.6 Definition of the Relationship Between the Parties. Landlord
shall not, by virtue of the execution of this Lease become or be deemed a
partner or a joint venturer with Tenant in the conduct of Tenant's business on
the Premises, or otherwise, and their relationship is nothing more than
landlord and tenant.
20.7 Headings. The topical headings of the articles and sections
of this Lease are inserted only as a matter of convenience and reference, and
do not affect, define or limit or describe the scope or intent of the parties
to this Lease.
20.8 Brokers. Each party hereto represents and warrants to the
other that it is under no obligation to pay any broker, finder, middleman, or
other person a commission or fee, or any other amount, with respect to the
transactions contemplated by this Lease.
20.9 Uncontrollable Delays. If either party is prevented or
delayed from performing an obligation under this Lease due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials
or reasonable substitutes therefor (provided such inability does not arise from
the inability of the applicable party to pay for same), war, civil commotion or
other cause beyond the reasonable control of the party obligated to perform
(collectively "Uncontrollable Delays"), the time for performance by such party
shall be extended for a period of time equal to the period of any
Uncontrollable Delay, provided that in order for a party to avail itself of an
extension for Uncontrollable Delay, such party must notify the other party of
the nature and status of such Uncontrollable Delay within five (5) days of the
beginning and end of such Uncontrollable Delay and further provided that unless
expressly permitted in another Section of this Lease, no Uncontrollable Delay
shall excuse Tenant's obligation to timely pay Rentals under this Lease.
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IN WITNESS WHEREOF, the parties hereto by their duly authorized
partners and officers, have executed and delivered this Lease as of the ___ day
of _____________, 19__.
LANDLORD:
---------------------------------------
Ricardo J. Guerra
---------------------------------------
Luis A. Guerra
TENANT:
GUERRA ENGINEERING, INC.
By:
------------------------------------
Its:
-----------------------------------
GUARANTY BY HANOVER COMPRESSOR COMPANY
Hanover Compressor Company ("Hanover"), as the parent corporation of
Tenant, executes this Lease for the purpose of unconditionally guaranteeing to
Landlord the full and timely performance and observance of all the covenants,
conditions and agreements contained in this Lease to be performed and observed
by Tenant. Hanover further covenants and agrees that no assignment or other
transfer of this Lease, or any interest herein, from Tenant shall operate to
extinguish or diminish the liability of Hanover hereunder. This guaranty is a
guaranty of payment and not a guaranty of collection.
HANOVER COMPRESSOR COMPANY
By:
------------------------------------
Its:
-----------------------------------
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<PAGE> 1
EXHIBIT 10.16
LEASE AGREEMENT WITH OPTION TO PURCHASE
THIS LEASE AGREEMENT (the "Lease") is entered into by and between
SMITH INDUSTRIES, INCORPORATED, a Texas corporation debtor-in-possession in a
proceeding pending under Chapter 11 of the United States Code pending in the
United States Bankruptcy Court (the "Bankruptcy Court"), Southern District of
Texas, Houston Division, as Case No. 94- 43705-H3-11 ("Landlord") and HANOVER
COMPRESSOR COMPANY, a Delaware corporation ("Tenant").
W I T N E S S E T H:
It is agreed by the parties hereto as follows:
1. DESCRIPTION OF PREMISES.
Landlord hereby leases to Tenant, and Tenant hereby takes from
Landlord those certain premises ("Demised Premises") situated within the County
of Colorado, State of Texas described on Exhibit "A" attached hereto and made a
part hereof, together with all rights, privileges, easements and appurtenances
belonging to or in any way pertaining to the Demised Premises and all
improvements now situated or to be erected upon the Demised Premises.
2. TERM.
The term of this Lease shall be for a period of 24 months, commencing
on a date that the Demised Premises are ready for occupancy, but in no event
later than May 31, 1995, and terminating 24 months thereafter, unless sooner
terminated as provided in this Lease.
Tenant shall give at least three (3) days advance written notice to
Landlord providing that Tenant shall commence occupying the Demised Premises.
3. RENT.
a) Tenant shall perform all covenants and obligations as
stated herein, including making all monthly rental payments and all other
payments to Landlord provided for herein during the term of this Lease.
b) Tenant shall pay Landlord rent for the Demised
Premises in the amount of Fifteen Thousand and No/100 Dollars ($15,000.00) per
month. The first of such monthly rental payments is due and payable on ______,
1995, with a like monthly rental payment being due and payable on the first day
of each succeeding calendar month thereafter during the term of this Lease;
provided that, in the event the Lease term shall not commence or end on the
first day of a calendar month, the rent for any fractional calendar month
following the commencement or proceeding the end of the term of this Lease
shall be pro rated accordingly.
<PAGE> 2
c) All payments of monthly rent hereunder shall be made
to Landlord at its address stated in Paragraph 30 herein, or to such other
address the Landlord may designate from time to time in writing to Tenant.
Should Tenant fail to timely pay any installment of monthly rent due hereunder,
Landlord shall have the option to charge Tenant a late fee equal to ten percent
(10%) of the delinquent installment. In the event the monthly rent due remains
unpaid after the expiration of thirty (30) days from its due date, interest
shall accrue thereon at the rate of ten percent (10%) per annum but in no event
to exceed the maximum rate allowed under applicable law.
d) The obligation of Tenant to pay rent hereunder and
the obligations of Tenant to perform other covenants and duties hereunder
constitute independent and unconditional obligations to be performed at all
times as provided for herein. All obligations of Landlord hereunder are
covenants and not conditions to Tenant's performance of obligations hereunder;
Tenant waives and relinquishes all rights which Tenant might have to claim any
nature of lien against, withhold, deduct or off-set against, any rentals and
other sums provided hereunder to be paid to Landlord by Tenant.
4. USE.
a) The premises are leased to the Tenant for the purpose
of conducting an oil and gas equipment fabrication business, or with any other
lawful business with prior written notice to Landlord.
b) Tenant shall not commit or suffer to be committed any
waste on the Demised Premises nor shall Tenant permit the Demised Premises to
be used in any way which would, in the opinion of Landlord, be extra hazardous
on account of fire, environmental contamination or otherwise or which would in
any way increase or render void any of the liability insurance, including, but
not limited to, the fire insurance on the Demised Premises or contents in the
buildings. Tenant and Landlord hereby acknowledge that the business of Tenant
will require the use of hazardous substances, and Tenant hereby agrees that it
will comply with all applicable governmental licensed regulations. In addition,
Tenant shall not change its status as a licensed user of such hazardous
substances or cause or permit the storage, manufacture, transportation or
treatment in any manner of hazardous substances, hazardous waste, or toxic
waste on the Demised Premises, and shall not install or permit to be installed
any asbestos containing material or underground storage tanks thereon.
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5. ACCEPTANCE OF PREMISES.
a) Tenant acknowledges that it has fully inspected the
Demised Premises and accepts same in their present condition, "AS IS, WHERE IS"
and with all faults. Tenant further acknowledges that Landlord makes no
representations or warranties, express, implied or statutory, relating to the
Demised Premises or the improvements and structures located thereon, including,
without limitation, any representations, or warranties relating to the
improvements' and structures' condition, suitability for any intended purpose,
or compliance with any applicable laws, statutes, ordinances or regulations;
the quality or condition of the Demised Premises; the suitability or safety of
the Demised Premises for any and all activities and uses which Tenant may
conduct thereon, the environmental condition of the Demised Premises and the
presence or absence of or contamination by hazardous or toxic materials or the
compliance of the Demised Premises with all regulations or laws relating to
health or the environment; or the soil conditions, drainage, flooding
characteristics, topography, geologic conditions, utilities or other conditions
existing in or on the Demised Premises. Landlord and Tenant expressly disclaim
any implied warranty that the Demised Premises are suitable for Tenant's
intended commercial purpose. Tenant hereby expressly assumes all risks,
liabilities, claims, damages and costs (and agrees Landlord shall not be liable
for any special, indirect, consequential or other damages) resulting or arising
from or related to the Demised Premises or other use, condition, location,
maintenance, repair or operation thereof; expressly provided that, Tenant shall
not be responsible for any damages to the Demised Premises that were existing
prior to the occupancy of the Demised Premises by Tenant.
b) In connection with the option to purchase the Demised
Premises contained in Paragraph 28 hereof, Tenant acknowledges that during the
term of this Lease, it shall have the right to make such inspections and
perform such examinations and investigations of the Demised Premises as it may
require, at its sole cost and expense, including specifically, without
limitation, examinations and inspections relating to the status of title of the
Demised Premises; the surveying of the Demised Premises; the electrical,
mechanical, topographical, geological and environmental condition of the
Demised Premises; and the presence of hazardous wastes and toxic materials on
the Demised Premises; provided however, upon termination of this Lease, Tenant
shall deliver the Demised Premises to Landlord in good order and condition and
in substantially the same condition as of the commencement of this Lease,
excepting reasonable wear and tear.
6. MAINTENANCE.
a) Tenant shall, at its own expense, during the term of
this Lease, maintain all of the Demised Premises in good repair and condition,
including all necessary replacements, and any periodic repainting and
resurfacing that is required to prevent
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deterioration thereof. Subject to the provisions herein, upon termination of
this Lease, Tenant shall deliver the Demised Premises to Landlord in good order
and condition and in substantially the same condition as of the commencement of
this Lease, excepting reasonable wear and tear.
b) Landlord shall not be required to furnish any
services or make any repairs or alterations in or to the Demised Premises,
throughout the term of this Lease, the Tenant hereby assuming the full and sole
responsibility for the maintenance, repair and protection of the Demised
Premises.
7. ALTERATIONS.
a) Tenant shall not create any openings in the roof or
exterior walls, nor make any alterations, additions or improvements to the
exterior Demised Premises without prior written consent of Landlord. Consent
for minor alterations, additions, or improvements shall not be unreasonably
withheld by Landlord. Tenant shall have the right to make alterations and
improvements to the interior of the building on the Demised Premises and at all
times to install Tenant's shelves, bins, machinery, equipment and trade
fixtures, provided Tenant complies with all applicable governmental laws,
ordinances and regulations, and further provided that such installations by
Tenant shall not cause any structural or other damage or deface the Demised
Premises. Providing Tenant is not in default of any of the terms, covenants or
conditions of this Lease, Tenant shall have the right to remove at the
termination of this Lease such items so installed, including any machinery or
equipment installed and paid for by Tenant, if any (as specifically
differentiated from any such equipment owned by Landlord); however, Tenant
shall, prior to the termination of this Lease, promptly repair any damage
caused by such removal.
b) Except as otherwise provided above regarding Tenant's
right to remove certain installations or additions, all alterations, additions
and improvements made by Tenant shall become the property of Landlord at the
termination or expiration of this Lease, or Landlord may require Tenant to
remove such alterations, additions and improvements and any other property
placed in or on the Demised Premises by Tenant and restore the property to its
original condition, and Tenant shall repair any damage caused by such removal
and leave the Demised Premises in a broom clean and orderly condition.
8. COMPLIANCE WITH LAW.
Tenant shall comply with all governmental laws, ordinances and
regulations applicable to the use of the Demised Premises, and shall promptly
comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances in or upon, or connected with the Demised
Premises, all at Tenant's sole
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<PAGE> 5
risk and expense. Tenant hereby indemnifies and holds the Landlord, its
officers, directors, employees and agents harmless from and against any and all
liability, loss, damages, claims, causes of action, costs and expenses
(including without limitation, reasonable attorneys' fees and court costs)
incurred or suffered by Landlord, its officers, directors, employees and agents
arising from the violation of any such laws, rules, ordinances or regulations
by Tenant.
9. ASSIGNMENT AND SUBLEASING.
a) Tenant shall be permitted, with thirty (30) days
prior written notice to Landlord, to assign this Lease or sublet the Demised
Premises or any portion thereof. In the event Tenant effects a transfer in
connection with a merger, a share exchange or sale of all or substantially all
of the assets of Tenant, Tenant shall be permitted, upon providing written
notice to Landlord, to assign the option to purchase the Demised Premises
contained in Paragraph 28 hereof. Any permitted assignment or subletting shall
be expressly subject to all terms and provisions of this Lease, including the
provisions of Paragraph 4 pertaining to the use of the Demised Premises. In the
event of any assignment or subletting, Tenant shall remain fully liable for the
full performance of all Tenant's obligations under this Lease. Tenant shall
not assign its rights hereunder or sublet the Demised Premises without first
obtaining a written agreement from assignee or sublessee whereby assignee or
sublessee agrees to be bound by the terms of this Lease. No such assignment or
subletting shall constitute a novation. In the even of the occurrence of an
event of default while the Demised Premises are assigned or sublet, Landlord,
in addition to any other remedies provided herein or by law, may at Landlord's
option, collect directly from such assignee or subtenant all rents becoming due
under such assignment or subletting and apply such rent against any sums due to
Landlord hereunder. No direct collection by Landlord from any such assignee or
subtenant shall release Tenant for the performance of its obligations
hereunder.
b) Landlord shall have the right to sell, convey,
transfer or assign, in whole or in part, all and every feature of Landlord's
rights and obligations hereunder and in the Demised Premises. Upon the
occurrence of such sale, conveyance, transfer or assignment, Landlord shall be
immediately and unconditionally released from all obligations hereunder. Upon
any such sale or conveyance, the purchaser or transferee of the Demised
Premises shall be substituted as to all rights and obligations of Landlord.
10. FIRE AND CASUALTY DAMAGE.
If the building or other improvements on the Demised Premises should
be damaged or destroyed by fire or other casualty, Tenant shall give immediate
written notice thereof to Landlord. The rights and obligations of Landlord and
Tenant in the event of such casualty shall be as follows:
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<PAGE> 6
a) Total Destruction: If the building situated on
the Demised Premises should be totally destroyed by fire, tornado or other
casualty, or if it should be so damaged that rebuilding or repairs cannot
reasonably be completed within one hundred and twenty (120) working days after
the date of written notification by Tenant to Landlord of the happening of the
damage, either the Landlord or Tenant may terminate this Lease, and the rent
shall be abated for the unexpired portion of this Lease from the date of
destruction; provided, however, that if Landlord given Tenant written
notification of its intent to terminate this Lease, Tenant shall have the
right, for a period of thirty (30) days following any such notice, to exercise
its option to purchase the Demised Premises in accordance with the terms and
provisions of Paragraph 28.
b) Partial Destruction: If the building or other
improvements situated on the Demised Property should be damaged by fire,
tornado or other casualty but not to such an extent that rebuilding or repairs
cannot be reasonable completed within sixty (60) working days from the date of
written notification by Tenant to Landlord of the happening of the damage, this
Lease shall not terminate, but Landlord shall, subject to the terms of (c)
below, out of the insurance proceeds, proceed with reasonable diligence to
rebuild or repair such building and other improvements to substantially the
condition in which they existed prior to such damage. If the Demised Premises
are to be rebuilt or repaired and are untenantable in whole or in part
following such damage, and such damage was not caused by act or negligence of
the Tenant, its agents, employees, invitees or those for whom the Tenant is
responsible, the rent payable hereunder during the period in which they are
untenantable shall be adjusted to such extent as may be fair and reasonable
under all of the circumstances.
c) Notwithstanding the foregoing, Tenant acknowledges
that the insurance proceeds relating to the Demised Premises have been assigned
by Landlord to Texas Commerce Bank National Association ("Bank") in accordance
with the terms of that certain Deed of Trust and Security Agreement (the "Deed
of Trust") dated as of June 1, 1994, executed by Landlord in favor of Bank.
Tenant further acknowledges that such proceeds may be applied to Landlord's
indebtedness to Bank at the option of Bank. In the event that Bank applies
insurance proceeds to Landlord's indebtedness to it and Landlord does not make
the repairs as described in (b) above, (i) Tenant shall have the right to
terminate the Lease; or (ii) provided that Tenant elects to purchase the
Demised Premises in accordance with Paragraph 28 hereof, Tenant shall receive a
credit to the Purchase Price (as hereinafter defined) in the amount of the
insurance proceeds applied against Landlord's indebtedness to Bank.
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11. CONDEMNATION.
a) If, during the term of this Lease, all or a
substantial part of the Demised Premises should be taken for any public or
quasi-public use under any governmental law, ordinance or regulation or by
right of eminent domain, or should be sold to the condemning authority under
threat of condemnation, this Lease shall terminate and the rent shall be abated
during the unexpired portion of this Lease, effective from the date of taking
of the Demised Premises by the condemning authority.
b) If less than a substantial part of the Demised
Premises is taken for public or quasi-public use under any governmental law,
ordinance or regulation, or by right of eminent domain, or is sold to the
condemning authority under threat of condemnation, Landlord, at its option, may
by written notice terminate this Lease or shall forthwith at its sole expense
restore and reconstruct the buildings and improvements (other than leasehold
improvements made by Tenant or any assignee, subtenant or other occupant of the
Demised Premises) situated on the Demised Premises in order to make the same
reasonably tenantable and suitable for the uses for which the Demised Premises
are leased as defined in Paragraph 4. The rent payable hereunder during the
unexpired portion of this Lease shall be reduced on an average price basis that
depends on whether improvements or raw land was condemned and an abatement that
is based on the value of the property actually taken in proportion to the
number of square feet condemned.
c) Landlord and Tenant shall each be entitled to receive
such separate awards and portions of lump sum awards as may be allocated to
their respective interests in any condemnation proceedings. The termination of
this Lease shall not affect the rights of the respective parties to such
awards. Notwithstanding the foregoing, any such awards received by Landlord
have been collaterally assigned by Landlord to Bank in accordance with the
terms of the Deed of Trust; and Tenant agrees that, upon demand from Bank, it
shall immediately send any such awards received by it for the account of the
Landlord to Bank. In the event that Bank applies condemnation award to
Landlord's indebtedness to it and Landlord doe snot make the repairs as
described in (b) above, and Tenant elects to purchase the Demised Premises in
accordance with Paragraph 28 hereof, Tenant shall receive a credit to the
Purchase Price (as hereinafter defined) in the amount of the condemnation
awards applied against Landlord's indebtedness to Bank.
12. INDEMNITY AND PUBLIC LIABILITY INSURANCE.
a) Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the Demised Premises,
caused by the negligence or misconduct
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of Tenant, its agents, servants, employees, or of any other person entering
upon the Demised Premises under express or implied invitation of Tenant, or
caused by the buildings and improvements located on the Demised Premises
becoming out of repair, or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Demised Premises, or due to any other cause
whatsoever, and Tenant agrees to indemnify Landlord and hold it harmless from
and against any loss, expense or claims including attorneys' fees, arising out
of any such damage or injury, INCLUDING LANDLORD'S OWN NEGLIGENCE, except
injury to persons or damage to property the cause of which is the gross
negligence or willful misconduct of the Landlord. Tenant agrees that such
indemnification shall survive the expiration or termination of the Lease.
b) Tenant shall procure and maintain throughout the term
of this Lease a policy or policies of insurance, at its sole cost and expense,
insuring Landlord, Tenant and Bank against all claims, demands, or actions
arising out of or in connection with: (i) the Demised Premises; and (ii) the
condition of the Demised Premises. The limits of such policy or policies shall
be in the amount of not less than $1,000,000 per person and $2,000,000 per
occurrence in respect of injury to persons (including death), and in the amount
of not less than $1,000,000 per occurrence in respect to property damage or
destruction, including loss of use thereof. All such policies shall be procured
by Tenant from responsible insurance companies satisfactory to Landlord.
Current certificates of insurance naming Landlord and Bank as additional
insured, together with receipts evidencing payment of premiums therefor, shall
be delivered to Landlord prior to the commencement date of this Lease. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certificates of insurance of the renewals thereof (bearing notations evidencing
the payment of renewal premiums) shall be delivered to Landlord. Such policies
shall further provide that not less than thirty (30) days written notice shall
be given to Landlord and Bank before such policy may be cancelled or changed to
reduce insurance provided thereby.
c) If Tenant should fail to comply with the foregoing
requirements relating to insurance, Landlord may obtain such insurance, and
Tenant shall pay to Landlord on demand, as additional rental hereunder, the
premium cost thereof plus interest at the rate of ten percent (10%) per annum
from the date of payment by Landlord until repaid by Tenant.
13. QUIET ENJOYMENT.
Subject to Bankruptcy Court approval, Landlord covenants, warrants and
represents that it has full right and power to execute this Lease and to grant
the estate demised herein and that Tenant, upon payment of the rents herein
reserved, and performing the terms, conditions, covenants, and agreements
herein contained, shall peaceably and quietly have, hold and enjoy the Demised
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Premises during the full term of this Lease. Notwithstanding anything herein to
the contrary, Tenant accepts this Lease subject and subordinate to any recorded
mortgage, deed of trust or any other lien presently existing upon the Demised
Premises. Landlord is hereby irrevocably vested with full power and authority
to subordinate Tenant's interest hereunder to any mortgage, deed of trust or
other lien hereafter placed on the Demised Premises, provided same is then
recorded, and Tenant agrees upon demand to execute such further instruments
subordinating this Lease as Landlord may request, provided such further
subordination shall be upon the express condition that this Lease shall be
recognized by the mortgagee and that the rights of the Tenant shall remain in
full force and effect during the term of this Lease, so long as the Tenant
shall continue to perform all the covenants of this Lease. Landlord hereby
agrees to use its good faith efforts to obtain an agreement of quiet enjoyment
and nondisturbance from Bank.
14. REAL ESTATE TAXES.
Tenant shall pay all taxes and assessments which may be levied
or assessed upon the Demised Premises, and Tenant shall provide proof of such
payment to Landlord by copies of receipts furnished to Tenant prior to
delinquency; provided that, all real estate taxes and assessments on the
Demised Premises shall be prorated accordingly between Landlord and Tenant with
respect to the tax year in which this Lease commences, and in the event the
option provided in Paragraph 28 is not exercised by Tenant, with respect to the
tax year in which this Lease expires or is terminated.
15. FIRE AND EXTENDED COVERAGE INSURANCE.
a) Tenant agrees, at its sole cost and expense, to keep
the building and improvements leased hereunder insured to the full extent of
the insurable replacement value thereof in reliable companies against loss or
damage by fire or other causes insured by extended coverage. Any proceeds from
such insurance shall be payable to Landlord or to Tenant as their interests in
the improvements may appear.
b) All such insurance policies shall be procured by
Tenant from responsible insurance companies satisfactory to Landlord. Current
certificates of insurance naming Landlord and Bank as additional insured,
together with receipts evidencing payment of premiums therefor, shall be
delivered to Landlord prior to the commencement date of this Lease. Not less
than fifteen (15) days prior to the expiration date of any such policies,
certificates of insurance of the renewals thereof (bearing notations evidencing
the payment of renewal premiums) shall be delivered to Landlord. Such policies
shall further provide that not less than thirty (30) days written notice shall
be given to Landlord and Bank before such policy may be cancelled or changed to
reduce insurance provided thereby.
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c) If Tenant should fail to comply with the foregoing
requirements relating to insurance, Landlord may obtain such insurance, and
Tenant shall pay to Landlord on demand, as additional rental hereunder, the
premium cost thereof plus interest at the rate of ten percent (10%) per annum
from the date of payment by Landlord until repaid by Tenant.
16. UTILITIES.
Tenant accepts the present utility service connections to the Demised
Premises. Tenant shall pay the cost of all utility services, including, but not
limited to, all gas, water, sewer charges and electricity used by Tenant on the
Demised Premises. In the event Tenant exercises its option to purchase the
Demised Premises in accordance with the terms and provisions of Paragraph 28,
Landlord may seek the return of any deposits currently held by a utility, and
Tenant shall be responsible for providing any new deposit required.
17. WAIVER OF SUBROGATION.
Each party hereto waives any and every claim which arises or may arise
in its favor against the other party hereto during the term of this Lease for
any and all loss of, or damage to, any of its property located within or upon,
or constituting a party of, the Demised Premises, which loss or damage is
covered by valid and collectible fire and extended coverage insurance policies,
to the extent that such loss or damage is recoverable under such insurance
policies. Such mutual waivers shall be in addition to, and not in limitation or
derogation of, any other waiver or release contained in this Lease with respect
to any loss of, or damage to, property of the parties hereto. Inasmuch as such
mutual waivers will preclude the assignment of any aforesaid claim by way of
subrogation or otherwise to an insurance company (or any other person), each
party hereby agrees immediately to give to each insurance company which has
issued its policies of fire and extended coverage insurance, written notice of
the terms of such mutual waivers, and to cause such insurance policies to be
properly endorsed, if necessary, to prevent the invalidation of such insurance
coverages by reason of such waivers.
18. LIENS.
If any act or omission of Tenant or claim against Tenant results in a
lien or claim of lien against Landlord's title, Tenant, upon notice thereof, is
obligated to and shall promptly remove or release same by posting of bond or
otherwise. If not so released in thirty (30) days after notice to Tenant to do
so, Landlord shall have the right (but not the obligation) to pay or
10
<PAGE> 11
discharge the same without inquiry as to the validity thereof and the costs
therefor expended by Landlord shall be paid by Tenant on written demand. Tenant
may contest said lien by first furnishing Landlord with a good and sufficient
surety bond issued on terms acceptable to Landlord by a reputable surety
company.
19. LANDLORD'S EXPENDITURES.
Landlord shall have the right (but not the obligation) in the event of
the Tenant's failure, omission or inadequate compliance with any of its
undertakings hereunder, to make all expenditures or to do such acts and things
necessary to fulfill and satisfy any such undertakings. Such expenditures and
costs in connection therewith shall be at the Tenant's expense and shall be
payable upon demand. The Tenant shall also pay the Landlord's reasonable costs
and expenses, including the reasonable attorneys' fees, which may be occasioned
in enforcing the Tenant's obligations hereunder.
20. WAIVER AND CUMULATIVE RIGHTS.
No waiver of any breach of this Lease by Tenant or Landlord shall be
considered to be a waiver of any other or subsequent breach. All rights and
remedies of Landlord or Tenant herein provided or allowed by law shall be
cumulative.
21. DEFAULT BY TENANT.
The following events shall be deemed to be events of default under
this Lease:
a) Failure of Tenant to pay any installment of the rent
or other sum payable to Landlord hereunder on the date that same is due, and
such failure shall not be cured within ten (10) days after written notice
thereof to Tenant. Landlord shall only be obligated to give Tenant notice of
default in payment twice in any calendar year; after giving notice twice,
Tenant's cure period shall commence on the day after the payment is due.
b) Failure of Tenant to comply with any term, condition
or covenant of this Lease, other than the payment of rent or other sum of
money, and such failure shall not be cured within twenty (20) days after
written notice thereof to Tenant.
c) Insolvency of Tenant, or the making of a transfer in
fraud of creditors, or an assignment for the benefit of creditors by Tenant or
any guarantor of Tenant's obligations.
d) Filing of a petition under any section or chapter of
the United States Bankruptcy Code, as amended, or under any similar law or
statute of the United States or any state thereof by Tenant or any guarantor of
Tenant's obligations, or the adjudication of
11
<PAGE> 12
Tenant or such guarantor as a bankrupt or insolvent in any such proceeding.
e) Appointment of a receiver or trustee for all or
substantially all of the assets of Tenant or any guarantor of Tenant's
obligations hereunder.
f) Abandonment by Tenant of any substantial portion of
the Demised Premises or cessation of use of the Demised Premises for the
purpose leased.
22. REMEDIES OF LANDLORD.
Upon the occurrence of any of the events of default listed in
Paragraph 21, Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever:
a) Terminate this Lease, in which event Tenant shall
immediately surrender the Demised Premises to Landlord. If Tenant fails to so
surrender the Demised Premises, Landlord may, without prejudice to any other
remedy which it may have for possession of the Demised Premises or arrearages
in rent, enter upon and take possession of the Demised Premises and expel or
remove Tenant and any other person who may be occupying such premises or any
part thereof, without being liable for prosecution or any claim for damages
therefor. Tenant shall pay to Landlord on demand the amount of all loss and
damage which Landlord may suffer by reason of such termination, whether through
inability to relet the Demised Premises on satisfactory terms or otherwise.
b) Enter upon and take possession of the Demised
Premises, by force if necessary, without terminating this Lease and without
being liable for prosecution or for any claim for damages therefor, and expel
or remove Tenant and any other person who may be occupying such premises or any
part thereof. Landlord may relet the Demised Premises and receive the rent
therefor. Tenant agrees to pay to Landlord monthly or on demand from time to
time any deficiency that may arise by reason of any such reletting. In
determining the amount of such deficiency, the brokerage commission, attorney's
fees, remodeling expenses and other costs of reletting shall be subtracted from
the amount of rent received under such reletting.
c) Enter upon the Demised Premises, without terminating
this Lease and without being liable for any prosecution or for any claim for
damages therefor, and do whatever Tenant is obligated to do under the terms of
this Lease. Tenant agrees to pay Landlord on demand for expenses which Landlord
may incur in effecting compliance with Tenant's obligations under this Lease,
together with interest thereon at the rate of 10% per annum from the date
expended until paid. Landlord shall not be liable for any damages
12
<PAGE> 13
resulting to the Tenant from such action, whether caused by negligence of
Landlord or otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law
or equity, nor shall pursuit of any remedy herein provided constitute a
forfeiture or waiver of any rent due to Landlord hereunder or of any damages
accruing to Landlord by reason of the violation of any of the terms, conditions
and covenants herein contained.
23. LANDLORD'S LIEN.
In addition to the statutory Landlord's lien, Tenant hereby grants to
Landlord a security interest to secure payment of all rent and other sums of
money becoming due hereunder from Tenant, upon all vehicles, trailers, goods,
wares, inventory, equipment, fixtures, furniture and other personal property of
Tenant situated in or upon the Demised Premises, together with the proceeds
from the sale or lease thereof, subject to and subordinate to any first and
prior liens on assets of Tenant by bank of Tenant. Such property shall not be
removed without the consent of Landlord until all arrearages in rent and other
sums of money then due to Landlord hereunder shall first have been paid and
discharged. Upon the occurrence of any event of default, Landlord may, in
addition to any other remedies provided herein or by law or equity, enter upon
the Demised Premises and take possession of any and all goods, wares,
inventory, equipment, fixtures, furniture and other personal property of Tenant
situated on the Demised Premises without liability for trespass or conversion,
and sell the same at public or private sale, with or without having such
property at the sale, after giving Tenant reasonable notice of the time and
place of any such sale. Unless otherwise required by law, notice to Tenant of
such sale shall be deemed sufficient if given in the manner prescribed in this
Lease at least ten (10) days before the time of the sale. Any public sale made
under this paragraph shall be deemed to have been conducted in a commercially
reasonable manner if held on the Demised Premises or where the property is
located, after the time, place and method of sale and a general description of
the types of property to be sold have been advertised in a daily newspaper
published in Colorado County, Texas for five (5) consecutive days before the
date of the sale. Landlord or its assigns may purchase at a public sale and,
unless prohibited by law, at a private sale. The proceeds from any disposition
dealt with in this paragraph, less any and all expenses connected with the
taking of possession, holding and selling of the property (including reasonable
attorneys' fees and legal expenses), shall be applied as a credit against the
indebtedness secured by the security interest granted herein. Any surplus shall
be paid to Tenant or as otherwise required by law; Tenant shall pay any
deficiencies forthwith. Upon request by Landlord, Tenant agrees to execute and
deliver to Landlord a financing statement in form
13
<PAGE> 14
sufficient to perfect the security interest of Landlord in the aforementioned
property and proceeds thereof under the provisions of the Uniform Commercial
Code in force in the State of Texas. The statutory lien for rent is expressly
reserved; the security interest herein granted is in addition and supplementary
thereto.
24. ATTORNEYS' FEES.
If, on account of any breach or default by Landlord or Tenant of their
respective obligations under this Lease, it shall become necessary for the
other to employ an attorney to enforce or defend any of its rights or remedies
hereunder, and should such party prevail, it shall be entitled to any
reasonable attorneys' fees incurred in such connection.
25. USE OF LANGUAGE.
Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular shall be held
to include the plural, unless the context otherwise requires.
26. CAPTIONS OR HEADINGS.
The captions or headings of paragraphs in this Lease are inserted and
included solely for convenience and shall never be considered or given any
effect in construing the provisions hereof if any question of intent should
arise.
27. LANDLORD'S RIGHT OF ENTRY.
Landlord and its authorized agents shall have the right to enter the
Demised Premises during normal working hours for the following purposes: (a)
inspecting the general condition and state of repair of the Demised Premises;
(b) any making of repairs required of Landlord; or (c) to show the building for
any other legal or reasonable purpose.
28. OPTION TO PURCHASE.
a) For and in consideration of the sum of TEN and NO/100
DOLLARS ($10.00), the execution and delivery of certain other agreements of
even date herewith by and between Landlord and Tenant, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, Landlord, for itself and its successors and
assigns, hereby grants and gives to Tenant the right and option to purchase
from Landlord, subject to the terms and conditions hereinafter set forth and as
set fort in the Special Warranty Deed (the "Special Warranty Deed"), attached
hereto as Exhibit "B," the Demised Premises. At time of such sale, Landlord
shall cause the Bank to release its lien against the Demised Premises.
14
<PAGE> 15
b) Provided Tenant is not then in default, it shall have
the right and option to purchase the Demised Premises at any time during the
term hereof, for a cash purchase price in an amount equal to Two Million Five
Hundred Thousand and No/100 Dollars ($2,500,000.00) (the "Purchase Price").
Tenant's option to purchase the Demised Premises granted herein shall be
exercised by giving written notice thereof to Landlord as herein provided.
Within fifteen (15) days after Landlord's receipt of such written notice, the
Landlord shall be obligated to convey and the Tenant shall be obligated to
accept the Demised Premises pursuant to the terms of the Special Warranty Deed.
c) Landlord's sale of the Demised Premises to Tenant
pursuant to the terms of this Paragraph 28 is subject to all of the
disclaimers, waivers and other matters set forth in Paragraph 5 hereof, which
are fully incorporated into this Paragraph 28 by reference.
d) At the Closing (defined below) Landlord shall provide
Tenant an Owner Policy of Title Insurance, subject to the standard printed
exceptions and all matters shown of record as of the date hereof. Landlord
shall have no obligation to cure any defects in title, but shall render
reasonable cooperation to Tenant in the event Tenant desires to cure any
objections. In the event Tenant desires a survey of the Demised Premises, it
may obtain one and, at Closing, Landlord shall give Tenant a credit of
$10,000.00 for the survey.
e) Within the period provided in (b) above, a closing of
the sale of the Demised Premises (the "Closing") shall occur at the offices of
Sheinfeld, Maley & Kay, 1001 Fannin, Suite 3700, Houston, Texas 77002. At the
Closing, Landlord shall (i) deliver to Tenant the Special Warranty Deed,
executed and acknowledged by Landlord, conveying the Demised Premises to
Tenant, subject to the terms and provisions therein; (ii) deliver to Tenant a
FIRPTA Affidavit duly executed by Landlord, stating that Landlord is not a
"foreign person" as defined in the federal Foreign Investment in Real Property
Tax Act of 1980 and the 1984 Tax Reform Act, and in the event Landlord is
unable or unwilling to deliver the FIRPTA Affidavit, in lieu thereof the
Purchase Price payable to Landlord shall be adjusted in such a manner as to
comply with the withholding provisions of such statutes; (iii) deliver to
Tenant such evidence as Tenant's counsel may reasonably require authorizing the
execution and delivery of all documents required to be executed by Landlord,
and the consummation of the transactions contemplated herein; (iv) join with
Tenant in the execution of a Closing Statement relating to the sale of the
Demised Premises; and (v) execute such other necessary documents to effectuate
the sale and transfer of the Demised Premises. At the Closing, Tenant shall (i)
deliver, in cash, the Purchase Price to Landlord; (ii) deliver to Landlord such
evidence as Landlord's counsel may reasonably require authorizing the execution
and delivery of all documents
15
<PAGE> 16
required to be executed by Tenant, and the consummation of the transactions
contemplated herein; (iii) join with Landlord in the execution of a Closing
Statement relating to the sale of the Demised Premises; and (iv) execute such
other necessary documents to effectuate the sale and transfer of the Demised
Premises.
29. HOLDING OVER.
In the event Tenant remains in possession of the Demised Premises or
any portion thereof, after expiration of this Lease term without exercising its
option to purchase or after termination of this Lease, then Tenant shall be
deemed to be a tenant from month to month, at a monthly rental equal to 150% of
the monthly rental provided for in the Lease unless otherwise agreed in writing
by the Landlord and the Tenant.
30. NOTICES.
Any notice or document required or permitted to be delivered hereunder
may be delivered in person or shall be deemed to be delivered, whether actually
received or not, when deposited in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, addressed to the party
to whom directed at the addresses indicated below, or at such other addresses
as may have theretofore been specified by written notice delivered in
accordance herewith, as follows:
TO LANDLORD:
Smith Industries, Incorporated
8300 Hempstead Highway
P.O. Box 7398
Houston, TX 77248
Attn: Gary T. Jones, President
WITH COPY TO:
Sheinfeld, Maley & Kay, P.C.
1001 Fannin, Suite 3700
Houston, Texas 77002-6797
Attn: Adrienne Randle Bond, Esq.
TO TENANT:
Hanover Compressor Company
12001 N. Houston Rosslyn
Houston, Texas 77086
Attn: Michael A. O'Conner, Chairman
16
<PAGE> 17
WITH COPY TO:
Sinex & Stephenson, L.L.P.
2323 S. Shepherd Drive, Suite 1400
Houston, Texas 77019
Attn: James F. Stephenson, Esq.
31. SEVERABILITY.
If any provision in this Lease should be held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Lease shall not be affected thereby.
32. BROKERAGE COMMISSIONS.
a) Subject to the terms of this Paragraph 32, Landlord
agrees to pay to Appelt, Womack, Ricks, Herder and Parsley, Inc. ("Broker"), a
brokerage commission equal to five percent (5%) of the monthly rental due under
this Lease, month by month, if, as and when Landlord receives such monthly
rental payments from Tenant. In the event Tenant exercises its option to
purchase the Demised Premises in accordance with Paragraph 28 of this Lease,
Landlord further agrees to pay to Broker, a brokerage commission equal to five
percent (5%) of the Purchase Price, if, as and when Landlord receives the
Purchase Price from the Tenant.
b) Landlord and Tenant each represents to the other that
there has been no broker or finder other than the Broker engaged in connection
with the sale or lease of the Demised Premises. Each party agrees that should
any claim be made for brokerage commissions or finder's fees by any broker or
finder other than the Broker by, through or on account of any acts of the said
party or its representatives, said party will hold the other party free and
harmless from and against any and all loss, liability, cost, damage and expense
in connection therewith.
33. EXHIBITS.
All exhibits, attachments, annexed instruments and addenda referred to
herein shall be considered a part hereof for all purposes with the same force
and effect as if copied at full length herein.
34. AMENDMENTS.
No modifications, amendments or changes to any provision in this Lease
shall be effective unless in writing.
35. SUCCESSORS AND ASSIGNS.
The covenants and conditions hereof shall be binding upon and for the
benefit of the heirs, executors, administrators,
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<PAGE> 18
successors, permissive sublessees and assigns of the parties hereto, except as
otherwise herein expressly provided. Without limiting the foregoing, all of
Landlord's rights hereunder shall be assignable to the holder of the first lien
on the Demised Premises, Bank, and Bank shall, upon foreclosure of its lien or
receipt of a deed in lieu of foreclosure, be entitled to enforce all of
Landlord's rights hereunder.
36. MEMORANDUM OF LEASE.
A memorandum of this Lease shall be filed in the Real Property Records
of Colorado County, Texas.
EXECUTED on this ___day of January, 1995.
LANDLORD:
SMITH INDUSTRIES, INCORPORATED
By:
--------------------------------
Gary T. Jones
President
TENANT:
HANOVER COMPRESSOR COMPANY
By:
--------------------------------
Michael A. O'Connor
Chairman
18
<PAGE> 19
EXHIBIT A
A tract or parcel of land containing 27.2 acres of land in the James
Stuart Survey, Abstract 507, Colorado County, Texas, and being a portion of
that certain 99.1 acre tract or parcel of land which is described as "Fourth
Tract" in that certain Deed from Edmund Wendel, et ux, to E.V. Heffley, dated
October 3, 1935, recorded in Volume 97 at Page 210-213 of the Deed Records in
the Office of the County Clerk of Colorado County, Texas, said 27.2 acre tract
or parcel of land being more particularly described by metes and bounds as
follows, to-wit:
Beginning at 3"x3" concrete monument at the base of old fence corner
post, set at the more Westerly corner of the above-mentioned 99.1 acre
tract or parcel of land;
Thence North 45 degrees 25' 26" East along and with the Northwest
boundary line of the above mentioned 99.1 acre tract or parcel of land
a distance of 1786.84 feet to a 3"x3" concrete monument at the base of
a fence corner post, 40 feet from the centerline of State F.M. Highway
No. 949, which said concrete monument is in the Southwesterly
right-of-way line of said State F.M. Highway No. 949;
Thence South 44 degrees 47' 28" East along and with the Southwesterly
right-of-way line of said State F.M. Highway 949, a distance of
662.10' to a 3'x3" concrete monument set in said Southwesterly right-
of-way line of State F.M. Highway No. 949 for the more Easterly corner
of this 27.2 acre tract;
Thence South 45 degrees 25' 26" West a distance of 1782.71' to the
Southwesterly boundary line of the above- mentioned 99.1 acre tract or
parcel of land to a 3"x3" concrete monument at base of old fence
corner post for corner;
Thence North 45 degrees 09' 12" West along and with the Southwesterly
boundary line of the above-mentioned 99.1 acre tract or parcel of land
a distance of 662.10' to a 3"x3" concrete monument at base of old
fence corner post set for the more Westerly corner of the
above-mentioned 99.1 acre tract or parcel of land and the PLACE OF
BEGINNING, containing 27.2 acres of land, together with all
improvements thereon and together with and including all of the
estate, right, title and, or, interest of Grantor in and, or, to that
portion of the right-of-way for State F.M. Highway No. 949 upon which
this 27.2 acre tract or parcel of land abuts;
A tract or parcel of land containing 56.174 acres of land situated
partly in the James Stuart Survey, Abstract 507, Colorado County,
Texas, and partly in the John McCrosky Survey, Abstract 31, Colorado
County, Texas, and described by metes and bounds as follows:
<PAGE> 20
Beginning for connection at a 3"x3" concrete monument at base of old
fence corner post located at the more Westerly corner of the 99.1 acre
tract or parcel of land which is described as "Fourth Tract" in that
certain deed from Edmund Wendel, et ux to E.V. Heffley, dated October
3, 1935, recorded in Volume 97 at Page 210-213 of the Colorado County
Deed Records, and, also, the more Westerly corner of a 27.2 acre tract
or parcel of land described in deed of even date from Grantor to
Grantee, thence South 45 degrees 09' 12" East along and with the
Southwesterly boundary line of said 27.2 acre tract a distance of
662.10 feet to a 3"x3" concrete monument set at base of old fence
corner post and which concrete monument marks the more Southerly
corner of said 27.2 acre tract or parcel of land;
Thence South 47 degrees 40' West a distance of 430.27 feet to a 3"x3"
concrete monument at base of old fence corner post;
Thence South 36 degrees 59' 38" East a distance of 401.53 feet to a
3/8" iron Rebar near a 3"x3" concrete monument and 12" creosote fence
corner post on the Northerly right-of-way line of Interstate Highway
No. 10;
Thence North 78 degrees 25' 25" East along and with the Northerly
right-of-way of said Interstate Highway No. 10, a distance of
1,790.27 feet to a concrete highway monument in said Northerly
right-of-way line of Interstate Highway No. 10, and thence continuing
with the Northerly right-of-way line of said Interstate Highway No.10,
North 56 degrees 38' 03" East a distance of 161.19 feet to a concrete
highway monument, North 78 degrees 25' 25" East a distance of 99.52
feet to a concrete highway monument in said Northerly right-of-way
line and being the more Westerly corner of a 1.917 acre tract or
parcel of land now or formerly owned by Mrs. O.L. Gross and which is
described in Deed recorded in Volume 101 at Page 493 of the Deed
Records in the Office of the County Clerk of Colorado County, Texas;
Thence North 37 degrees 23' 04" East along and with the Northwesterly
line of said tract now or formerly owned by Mrs. O.L. Gross a distance
of 444.78 feet to a 3"x3" concrete monument near base of a fence
corner and old Iron, on the Southwesterly right-of-way line of State
F.M. Highway No. 949; said 3"x3" concrete monument being 40 feet from
the centerline of said State F.M. Highway No. 949;
Thence North 44 degrees 47' 28" West along and with the Southwesterly
right-of-way line of said State F.M. Highway No. 949 a distance of
1520.14 feet to a 3"x3" concrete monument set for the more Easterly
corner of the said 27.2 acre tract or parcel of land described in deed
of even date from Grantor to Grantee;
<PAGE> 21
Thence South 45 degrees 25' 26" West along and with the Southeasterly
boundary line of the said 27.2 acre tract or parcel of land a distance
of 1782.71 feet to a 3"x3" concrete monument at the base of old fence
corner post marking the more Southerly corner of the said 27.2 acre
tract or parcel of land and being the PLACE OF BEGINNING, together
with and improvements thereon and together with and including all of
the estate, right, title and, or, interest of Grantor in and, or, to
the portions of the rights-of-way of said State F.M. Highway 949 and
Interstate Highway No. 10 upon which this 56.174 acre tract or parcel
of land abuts;
<PAGE> 1
EXHIBIT 10.17
FIRST AMENDMENT OF LEASE AGREEMENT
WITH OPTION TO PURCHASE
This First Amendment of Lease Agreement with Option to Purchase (this
"First Amendment") is made and entered into effective as of August 12, 1993, by
and between C & M LAND ACCOUNT, a Louisiana partnership ("Lessor"), and HANOVER
COMPRESSOR COMPANY, a Delaware corporation ("Lessee").
R E C I T A L S
A. On or before June 8, 1993, Lessor and Lessee entered into a
Lease Agreement with Option to Purchase (the "Lease") concerning all of that
certain tract or parcel of land located in Lafayette, Louisiana being described
in Exhibit "A" attached hereto, together with any and all improvements now
located thereon or hereafter constructed.
B. Simultaneously with the execution of the Lease, Lessor and
Lessee entered into that certain Workletter (the "Workletter") dated June 8,
1993, relative to the construction and completion of the Leased Premises
described in the Lease.
C. Lessor and Lessee desire to execute this First Amendment to
amend the "Term of Lease" and "Delayed Possession" provisions of the Lease and
to make certain agreements concerning the Final Plans (as defined in the
Workletter).
A G R E E M E N T S
NOW THEREFORE, for and in consideration of the mutual promises and
covenants set forth herein and for other good and valuable consideration,
Lessor and Lessee hereby agree as follows:
<PAGE> 2
1. Section 2 of the Lease is hereby deleted in its entirety and
the following is hereby substituted in lieu thereof:
"2. TERM OF LEASE
Subject to the terms, covenants, agreements, and conditions
herein, the lease term shall be for ten (10) years commencing on
August 12, 1993, and expiring on August 11, 2003."
2. Section 6 of the Lease is hereby deleted in its entirety and
the following is hereby substituted in lieu thereof:
"6. DELAYED POSSESSION
Notwithstanding anything to the contrary herein, in the event
Lessor is not able to tender possession of the Leased Premises to
Lessee with all Leasehold Improvements (as defined in the Workletter)
fully completed on or before February 28, 1994, Lessee shall have the
option to terminate this Lease on or before March 31, 1994."
3. Notwithstanding the terms and provisions of Section 1 of the
Workletter, Lessor and Lessee hereby agree that those certain architectural
drawings dated July 22, 1993, prepared for Hanover Compressor Company by Edmond
E. Dupre, Inc. consisting of eight (8) pages shall constitute the Final Plans
as defined in the Workletter. In addition, Lessor and Lessee hereby agree to
amend the Final Plans as follows:
a. Gas drop lines will be located in the main shop and
the paint shop as required by Lessee.
-2-
<PAGE> 3
b. A Gardner/Denver Model APOQ 30 horsepower (233 Phase)
air compressor will be installed in the Leased
Premises in a manner and location acceptable to
Lessee, and air "hook-up" lines will be located in
the main shop and the paint shop as required by
Lessee.
c. Overhead doors will be installed with high lift
manufacturing as required by Lessee. In the event
high lift doors will not be able to clear the fifty
(50) foot span of the crane, canister doors
acceptable to Lessee will be installed.
d. Lessee will assure that the crane to be installed in
the Leased Premises will accept 230 three phase
power.
4. Lessor and Lessee specifically acknowledge and agree that,
except as modified and amended herein, the Lease and Workletter are hereby
ratified and affirmed in their entirely and remain in full force and effect as
though set forth herein.
-3-
<PAGE> 4
EXECUTED as of the date set forth first above.
LESSOR:
C & M LAND ACCOUNT
By:
---------------------------
Name:
-------------------------
Title:
------------------------
LESSEE:
HANOVER COMPRESSOR COMPANY
By:
---------------------------
Name:
-------------------------
Title:
------------------------
-4-
<PAGE> 5
LEASE AGREEMENT
WITH OPTION TO PURCHASE
This Lease Agreement (hereinafter this "Lease"), dated June _, 19_,
between C & M LAND ACCOUNT, a Louisiana partnership whose address is P.O. Box
51808, Lafayette, Louisiana 70505-1808, and/or assigns (hereinafter referred to
as "Lessor"), and HANOVER COMPRESSOR COMPANY, a Delaware corporation, whose
address is 4245 North Central Expressway, Suite 350, Dallas, Texas 75205
(hereinafter referred to as "Lessee").
1. LEASED PREMISES
The "Leased Premises" consists of that certain tract or parcel of land
located in Lafayette, Louisiana being described in Exhibit "A" and made a part
hereof for all intents and purposes, together with any and all improvements now
located thereon or hereafter constructed.
2. TERM OF LEASE
Subject to the terms, covenants, agreements and conditions herein,
lease term shall be for ten (10) years commencing on the date Lessee
acknowledges in writing to Lessor approval of the plans and specifications for
all improvements to be constructed by Lessor pursuant to that certain
workletter (the "Workletter") of even date herewith between Lessor and Lessee
(the "Commencement Date").
3. RENT
Lessee shall pay to Lessor as rent during the term of this Lease Four
Thousand Nine Hundred Ninety-Five and No/100 Dollars ($4,995.00) per month
payable in advance. Notwithstanding the Commencement Date of the Lease set
forth in Paragraph 2 above Lessee shall not be obligated to commence rent
payments until the date Lessor tenders possession of the Leased Premises to
Lessee with all Leasehold Improvements (as defined in the Workletter) fully
completed pursuant to the Workletter and Lessee occupies the Leased Premises.
Rent shall be due and payable upon such occupancy by Tenant and rent for
subsequent months shall be payable on the first day of each calendar month
thereafter. Rent payments for any fractional month shall be prorated. All rent
payments shall be made by Lessee to Lessor at Lessor's address first designated
above, or such other place as the Lessor may designate in advance to Lessee in
writing.
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4. SECURITY DEPOSIT
On or before the Commencement Date, Lessee shall deposit with Lessor a
security deposit in the amount of Fourteen Thousand Nine Hundred Eight-Five and
No/100 Dollars ($14,985.00) which is pledged to secure the faithful performance
of all obligations of Lessee under this Lease. Said deposit shall be
non-interest bearing and shall not be considered rent under this Lease. Said
deposit shall not be released until this Lease has terminated and it has been
determined by Lessor that Lessee has complied with all of Lessee's obligations
under this Lease. If Lessee fails to pay rent or other charges due hereunder,
or otherwise defaults with respect to any provision of this Lease, Lessor may
use, apply, or retain all or any portion of said deposit for the payment of any
rent or other sum to which Lessor may become obligated by reason of Lessee's
default, or to compensate Lessor for any loss or damage which Lessor may suffer
thereby.
5. EARLY OCCUPANCY
If Lessee occupies the Leased Premises prior to the Commencement Date,
Lessee's occupancy of the Leased Premises shall be subject to all of the
provisions of this Lease Early occupancy of the Leased Premises shall not
advance the expiration date of this Lease. Lessee shall pay rent and all other
charges specified in this Lease for the early occupancy period.
6. DELAYED POSSESSION
Notwithstanding anything to the contrary herein, Lessee shall have the
option to terminate this Lease on or before January 31, 1994, if Lessor is not
able to tender possession of the Leased Premises to Lessee with all Leasehold
Improvements (as defined in the Workletter) fully completed on or before
December 31, 1993.
7. UTILITY CHARGES
Lessee shall pay all charges for water, electricity, gas, telephone,
and all other utility services furnished to the Leased Premises, and shall also
pay sewer charges and associated taxes.
8. USE, COMPLIANCE WITH LAWS, AND RESTRICTIONS
Lessee may use and the Leased Premises for any industrial purpose
permitted by law and for any other lawful purpose. Lessee shall have the
peaceful and quiet use of the Leased Premises for the previously stated purpose
without hindrance on the part of Lessor, and Lessor shall warrant and defend
Lessee in such peaceful and quiet use against the lawful claims of all persons.
Lessee shall not breach or suffer the breach of any of the conditions,
agreements, and current restrictions of record affecting the Leased Premises
and shall hold Lessor harmless from all consequences of any such breach.
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Lessee agrees at all pertinent times herein to comply with all city,
state, and federal environmental laws, rules, and regulations concerning but
not limited to the storage, removal, or use of hazardous materials or wastes,
and Lessee further agrees to allow annual inspections by Lessor or its agents
to determine if Lessee is in full compliance with this subpart.
Lessee further agrees to hold Lessor harmless and to indemnify it from
any and all claims or liability, plus reasonable attorney's fees, arising
solely from Lessee's use of the Leased Premises for any violation or damages
therefrom, whether such incident occurred prior to this Lease, during the term
of this Lease, or after the termination of this Lease of any environmental
laws, rules, and/or regulations of the city, state, or federal government,
including all punitive damages which may be awarded.
Lessee shall not violate or permit to be violated any of the
conditions of the policies of insurance described herein and shall perform and
satisfy all requirements of the insurers.
Lessee has Lessor's permission to erect a sign on the exterior of the
buildings on the Leased Premises and in the front of the Leased Premises, the
size of said signs to conform with governing code requirements. Lessee shall
remove such signs upon termination of this Lease.
9. REPAIRS
Lessee agrees, to take good care of the Leased Premises, and, at its
expense and within a reasonable period of time, to make all repairs, structural
and ordinary in and about the Leased Premises necessary to preserve and
maintain them in good order and condition as when received under this Lease,
except those rendered necessary by fire or other perils covered by the
insurance provided by Lessor. Notwithstanding anything to the contrary
contained within this Lease, Lessor shall enforce for the Lessee's benefit any
construction warranties or guarantees. The provisions of this paragraph are
subject to the provisions of the Workletter.
10. ALTERATIONS OR ADDITIONS BY LESSEE
Lessee shall not make any material alterations or additions to the
Leased Premises, without obtaining Lessor's prior written consent, which
consent shall not be unreasonably withheld or delayed, but any and all
alterations, additions, or other improvements made by Lessee, with or without
the consent of Lessor, regardless of how attached (except movable trade
fixtures and
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equipment), shall become the property of Lessor upon termination of this Lease,
without compensation thereof to Lessee, provided Lessor shall have the right to
require that Lessee, prior to the termination of this Lease, remove any or all
such alterations, additions, or improvements and restore the Leased Premises to
their condition at the time of the commencement of this Lease, normal wear and
tear excepted.
Any such alterations, additions, or other improvements made by Lessee
shall be made at Lessee's cost and Lessee warrants that such work shall be done
in a workmanlike manner, and Lessee shall provide adequate liability insurance
and workmen's compensation; Lessee further warrants that such work; shall be
free and clear of any liens for labor or materials furnished on or to the
herein Leased Premises.
11. LESSOR'S RIGHT TO INSPECT
Lessor or Lessor's duly appointed agent, upon advance written notice
to Lessee except in the case of an emergency, shall have the right to enter the
Leased Premises at all reasonable times for the purpose of inspecting the same.
12. INSPECTION BY PROSPECTS
Upon advance written notice to Lessee, Lessee agrees to allow persons
authorized by Lessor to inspect the Leased Premises during the term of this
Lease with the view of purchasing the same and during the last year of the term
of this Lease with the view of renting the same, such inspections to be at
reasonable hours.
13. GENERAL LIABILITY INSURANCE
During the term of this Lease, Lessee shall keep in effect, at its own
cost, public liability and property damage insurance covering any and all
claims for injuries to persons or property with a limit of at least $500,000.00
per occurrence. The policy shall name Lessor as an additional insured; and the
policy shall contain a clause providing for thirty (30) days written notice to
Lessor of cancellation or intent not to renew. A copy of the policy evidencing
such insurance shall be delivered to Lessor. After the first five years of the
term of this Lease, Lessor may require the aforementioned $500,000.00 policy
limit to be increased to $1,000,000.00 upon written notice to Lessee.
During the term of this Lease, Lessor shall keep in effects at its own
cost, public liability and property damage insurance covering any and all
claims for injuries to persons or property with a limit of at least $500,000.00
per occurrence. The policy shall name Lessee as an additional insured; and the
policy shall
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contain a clause providing for thirty (30) days written notice to Lessee of
cancellation or intent not to renew. A copy of the policy evidencing such
insurance shall be delivered to Lessee.
14. PROPERTY INSURANCE
a. Tenant agrees to carry insurance against fire and such other
perils as are included in a standard extended coverage endorsement in the
amount of $450,000.00.
b. Tenant shall insure the contents within the Leased Premises
against fire and the other standard perils in an amount not less than 80% of
its face value.
15. INDEMNIFICATION
At all times pertinent herein, Lessee shall have custody and control
of the building and the Leased Premises; however, in the event Lessor and/or
its agents, employees or contractors are on the Leased Premises and its actions
or inactions while on the Leased Premises occasion any claim, loss, cost and/or
damage then and in that event it shall be primarily liable for any such claim,
loss, cost, and/or damage and Lessor agrees to hold Tenant harmless for losses
occasioned by such acts notwithstanding anything to the contrary herein.
Otherwise, Lessee will at all times protect, indemnify and save and keep Lessor
harmless and indemnified against and from all claims, loss, cost, attorneys'
fees, damage or expenses arising out of or from any accident or other
occurrence in or about the Leased Premises causing injury to any person or
property whomsoever or whatsoever, and that they will protect, indemnify, save
and keep Lessor harmless against and from any and all claims, loss, cost,
attorneys' fees, damages or expense arising out of any failure of Lessee, its
agents, employees, licensees, contractors or persons and entities claiming or
holding under Lessee in any respect to comply with and perform any of the
requirements and provisions of this Lease.
16. SUBROGATION
Neither Lessor nor Lessee shall be liable (by way of subrogation or
otherwise) to the other party (or to any insurance company insuring the other
party) for any loss or damage to any of the property of Lessor or Lessee, as
the case may be, covered by insurance carried or required to be carried by a
party hereto even though such loss or damage might have been occasioned by the
negligence of Lessor or Lessee or their respective invitees.
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17. TAXES
Tenant shall be responsible for all property and ad valorem taxes
against the Leased Premises. Taxes shall be paid to the Sheriff of Lafayette
Parish and to the City of Lafayette on the later to occur of (a) December 31 of
each year, or (b) within fifteen (15) days of receipt of the tax notice from
the Lessor. Lessee shall not be responsible for the payment of any special
assessments against the Leased Premises which shall remain the obligation of
Lessor.
18. DAMAGE BY FIRE OR OTHER CASUALTY
If the Leased Premises are destroyed, or damaged to an extent so as to
render them wholly unfit for the purposes for which they are leased, by fire or
other casualty, this Lease shall automatically terminate, provided such
destruction or damage is not caused by the neglect or design of Lessee. If,
however, the Leased Premises are destroyed by fire or other casualty and can be
repaired within one hundred eighty (180) days after the date of such fire or
other casualty, this Lease shall not terminate and Lessor shall give notice to
Lessee within thirty (30) days after such fire or other casualty that Lessor
will repair such damage, at Lessor's cost, within said one hundred and eighty
(180) day period, in which case Lessee shall be entitled to a reduction or
remission of rent such as shall be just and proportionate, but shall not be
entitled to any other damages. If Lessor fails to complete such repairs within
said one hundred eighty (180) day period, Lessee shall have the right to
terminate this Lease. In the event the cause of the fire is casually related to
the acts or omissions of Tenant, rent during the reconstruction phase shall not
be abated.
19. SURRENDER OF POSSESSION
Upon the expiration or termination of this Lease, Lessee shall
surrender possession of the Leased Premises immediately to Lessor. Any holding
over by Lessee shall not operate, except by written agreement, to extend or
renew this Lease, but in such case, Lessor may terminate Lessee's occupancy at
once or may consider such occupancy to be from month to month, and Lessee, in
the event of such holding over without Lessor's consent shall pay twice the
rent stipulated in this Lease, together with such loss or damage as may be
caused to Lessor by such holding over. Notwithstanding anything to the
contrary herein, in the event Lessee becomes a holdover tenant, twice rent will
not be required during the holdover period unless adequate and timely demand is
made by Lessor for payment of twice rent, upon Lessee, and Lessee fails to
vacate within thirty (30) days thereafter.
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20. DEFAULT
If Lessee fails to pay any installment of rent due under this Lease or
fails to comply with any other provisions of this Lease, within ten (10) days
after notice by Lessor to Lessee demanding same, provided that said notice need
not be given with regard to nonpayment of rent after such notice has been given
twice during any consecutive twelve (12) month period of this Lease, or Lessee
removes from the Leased Premises any property against which Lessor is entitled
to a Lessor's lien after a default has occurred or Lessee is adjudged a
bankrupt in any involuntary bankruptcy proceeding or files any type of
proceeding or applies for any relief under the laws of the United States
relating to bankruptcy or state laws relating to insolvency or if a receiver or
other custodian is appointed for Lessee for any of Lessee's property by any
court, then in any such events, Lessor shall have the right, at Lessor's
option, without putting Lessee in default and without notice to vacate, notice
of default, (1) to cancel this Lease effective immediately or effective as of
any date Lessor may select or (2) to proceed one or more times for past due
installments or rent only, without prejudicing the right to proceed later for
additional installments or exercise any other remedy, or (3) to declare the
unpaid rent for the entire unexpired term of this Lease immediately due and
payable and at once demand and receive payment thereof or (4) to have recourse
to any other remedy or mode of redress to which Lessor may be entitled by law.
In the event Lessor exercises the right to cancel this Lease, then (a) Lessor
shall have the right, as soon as said cancellation is effective, to re-enter
the Leased Premises and to re-let the same for such price and on such terms as
may be immediately available, without notice or court proceedings, Lessee
hereby assenting thereto and expressly waiving any notice to vacate, and (b)
Lessee shall be and remain liable not only for rent payable to the date such
cancellation becomes effective, but also for all damage or loss suffered by
Lessor for the remaining term of this Lease resulting from such cancellation.
Failure of Lessor to exercise any right granted in this paragraph shall not be
construed as a waiver of the right and no indulgence by Lessor shall be
construed as a waiver of any right herein granted.
21. NOTICES
Any notice to be given under this Lease by Lessor to Lessee shall be
considered as duly given if made in writing and delivered to Lessee or
deposited in the mail (effective two days after deposit), postage prepaid, by
registered or certified mail, addressed to Lessee at the Leased Premises. Any
notice to be given under this Lease by Lessee to Lessor shall be considered as
duly given if made in writing and delivered to Lessor or deposited in the mail,
postage prepaid, by registered or certified mail, addressed to Lessor at the
place where rent is required to be paid under this Lease as above provided.
Either Lessor or Lessee may
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change the designated place to which written notice is to be sent by mail, by
so advising the other, in writing, by delivery of such advice or by registered
or certified mail addressed to the place designated in this Lease or such place
as may have been subsequently designated, in accordance with this paragraph.
22. SUBLEASING OR ASSIGNMENT
Tenant shall be permitted to sublease, subject to the conditions
stated below, but within fifteen (15) days after written notice of its intent
to sublease, Lessor has the option to cancel the lease provided that Lessor
fully releases Tenant from its obligations set forth in this Lease. No
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of
any provision hereof. In the event of default by any assignee of Lessee or any
successor of Lessee, if the performance of any of the terms hereof, Lessor may
proceed directly against Lessee without the necessity of exhausting remedies
against said assignee, Lessor may consent to subsequent assignments or
subletting of this Lease or amendments or modifications to this Lease with
assignee of Lessee, without notifying Lessee, or any successor of Lessee, and
without obtaining its or their consent thereto and such action shall not
relieve Lessee of liability under this Lease.
23. RELEASE OF LESSOR ON SALE
Upon a sale or transfer of the Leased Premises by Lessor or a
subsequent purchaser or transferor thereof, the purchaser or transferee by
virtue of such sale or transfer shall be bound for the performance of all
Lessor's agreements and obligations under this Lease and the vendor or
transferor shall thereupon be released from any and all liability thereafter
arising under this Lease. Lessor hereunder shall insure that a subsequent
purchaser or transferor assumes the obligations of this Lease in writing.
24. LATE CHARGES
Lessee hereby acknowledges that late payment by Lessee to Lessor of
rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include but are not limited to processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust not covering the Leased Premises. Accordingly,
if any installment of rent or any other sum due from Lessee shall not be
received by Lessor or Lessor's design within ten (10) days after
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such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder.
25. PAST DUE OBLIGATIONS
Except as expressly herein provided, any amount due to Lessor not paid
when due shall bear interest at the maximum rate then allowable by law from the
date due. Payment of such interest shall not excuse or cure any default by
Lessee under this Lease provided, however, that interest shall not be payable
on late charges incurred by Lessee nor on any amounts upon which late charges
are paid by Lessee.
26. ATTORNEY'S FEES
If either party employs an attorney to enforce any provision hereof,
or to protect such party's interest in any manner arising under this Lease, the
nonprevailing party in any such action pursued in an alternative dispute
resolution format or in courts of competent jurisdiction, the finality of which
is not legally contestable, agrees to pay the prevailing party all reasonable
attorneys' fees expended or incurred by the prevailing party in connection
therewith. The provisions of this paragraph shall survive the termination of
this Lease.
27. ESTOPPEL CERTIFICATE
Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge, and deliver to Lessor a
statement in writing (i) certifying that this Lease is modified and in full
force and effect (or, if modified, stating the nature of such modification, and
certifying that this Lease, as so modified, is in full force and effect) and
the date to which the rent and other charges are paid in advance, if any, and
(ii) acknowledging that there are not, to Lessee's knowledge, any uncured
defaults on the part of Lessor hereunder, or specifying defaults if any are
claimed. Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Leased Premises. Lessor shall reimburse Lessee
for its reasonable attorney's fees incurred in connection with any request
under this paragraph.
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At Lessor's option Lessee's failure to deliver such statement within
such time shall be conclusive upon Lessee (i) that this Lease is in full force
and effect, without modification except as may be represented by Lessor, (ii)
that there are no uncured defaults in Lessor's performance, and (iii) that not
more than one month's rent has been paid in advance or such failure may be
considered by Lessor as a default by Lessee under this Lease.
28. SUBORDINATION
Lessee agrees that Lessee will at any time, upon demand of Lessor
subordinate this Lease to the lien of any mortgage or mortgages which Lessor
has placed or may hereafter place on the Leased Premises, provided that in any
such mortgage the mortgagee shall agree, for itself and for each and every
subsequent owner or holder of the mortgage and mortgage note and for any
receiver or purchaser of the Leased Premises the event of foreclosure, that
Lessee's peaceable and quite possession of the Leased Premises will not be
disturbed on account of such mortgage or by reason of anything done or caused
to be done thereunder, so long as Lessee pays the rents reserved under this
Lease and keeps the covenants, agreements, and stipulations of this Lease on
the part of Lessee to be kept.
29. WHOLE AGREEMENT
The whole agreement between the parties hereto is set forth in this
instrument and they shall not be bound by any agreements, conditions,
understandings, or representations other than are expressly stipulated and set
forth herein or in any amendments hereto.
30. CONFLICT
If there is any conflict between the printed portions and the
typewritten or handwritten portions of this Lease, the typewritten or
handwritten portions shall prevail.
31. LESSOR'S RIGHTS
Lessor reserves to itself the right, from time to time, to grant such
easements, rights, and dedications that Lessor deems necessary or desirable,
and to cause the recordation or servitudes and restrictions, so long as such
easements, rights, dedications, servitudes, and restrictions do not
unreasonably interfere with the use of the Leased Premises by Lessee. Lessee
shall sign any of the aforementioned documents upon request of Lessor and
failure to do so shall constitute a material breach of this Lease.
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32. STRICT PERFORMANCE
Failure of Lessor to require strict performance by Lessee of any of
the covenants, provisions, or conditions of this Lease, on one or more
occasions, shall not constitute a waiver by Lessor of the right thereafter to
require strict compliance with said covenants, provisions, and conditions.
33. RECORDATION
Lessor shall duly record a fully executed copy of this Lease (with
purchase option) within ten (10) days of execution by Lessee and delivery
hereof to Lessor.
34. BINDING AGREEMENT
All the provisions contained herein shall be binding upon and shall
inure to the benefit of the parties hereto, their heirs, executors,
administrators, successors, assigns, affiliates, nominees, and representatives.
35. DISCRIMINATION
Lessor promises, and it is a condition to the continuance of this
Lease, that there will be no discrimination against, or segregation of, any
person or group of persons on the basis of race, color, sex, religion, national
origin, or marital status in the leasing, subleasing, transferring, occupancy,
tenure, or use of the Leased Premises or any portion thereof.
36. GOVERNING LAWS
This Lease shall be deemed to be a contract made under the laws of the
State of Louisiana and shall be construed in accordance with and governed by
the laws of the State of Louisiana and ordinances of the municipality and
Parish where the Leased Premises are situated and the rules and regulations of
their duly constituted authorities.
37. AUTHORITY
The person signing this Lease on behalf of Lessee represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Lessee shall
deliver to Lessor a certified copy of a resolution of Lessee's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Lessor. The person signing this Lease for
Lessor represents and warrants that he is a partner of the partnership, that he
has full authority to sign for the partnership and that this Lease binds the
partnership and all partners of the partnership. Lessor shall give written
notice to Lessee of any
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general partner's withdrawal or addition. Within thirty (30) days after this
Lease is signed, Lessor shall deliver to Lessee a copy of Lessor's recorded
statement of partnership or certificate of limited partnership.
38. LESSEE'S PURCHASE OPTION
Provided that Lessee has paid in full all rental then due hereunder
and is not then in default, at any time after seven (7) years from the date of
the first rental payment of this Lease to the end of the primary term, Lessee
shall have the option (the "Option") to purchase the Leased Premises, together
with any improvements or fixtures located thereon. Lessee may exercise the
Option by giving Lessor written notice of Lessee's election to exercise the
Option. Within twenty (20) days after the date (the "Exercise Date") Lessee
exercises the Option, Lessor shall, at Lessor's expense, deliver or cause to be
delivered to Lessee the following: (a) a title commitment (the "Title
Commitment") setting forth the status of the title to the Leased Premises, (b)
two (2) current original signed surveys of the Leased Premises (the "Survey")
with a certification reasonably acceptable to Lessee, and (c) any reports or
information regarding the Leased Premises in Lessor's possession. Lessee may
object to any matters reflected by, or omitted in, any such items by giving
Lessor written notice of such objection within fifteen (15) days after Lessee's
receipt of all such items. Lessor may attempt to cure such objectionable
matters within fifteen (15) days of the date of Lessee's notice. If Lessor
fails to timely cure such objectionable matters, Lessee may (a) terminate the
Option, in which event this Lease shall continue in full force and effect, or
(b) elect to purchase the Leased Premises subject to the objectionable matters.
The purchase price (the "Purchase Price") for the Leased Premises shall be Four
Hundred Eighty-Five Thousand and No/100 Dollars ($485,000.00).
If all obligations and conditions described above are satisfied, the
closing (the "Closing") of the purchase and sale of the Leased Premises shall
occur sixty (60) days after the Exercise Date. At the Closing, the matters
described below shall occur. The performance or tender of performance of such
matters are concurrent conditions and neither Lessor nor Lessee shall be
obligated to perform its obligations under this paragraph unless, coincident
therewith, the other party performs or tenders performance of its obligations
under this paragraph.
Lessor shall perform the following at the Closing:
(a) Lessor shall execute, have acknowledged, and deliver to Lessee
an Act of Cash Sale in reasonably acceptable form conveying to
Lessee good and indefeasible fee simple title to the Leased
Premises;
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(b) Lessor shall execute and deliver to Lessee a sworn certificate
stating Lessor's United States taxpayer identification number
and stating that Lessor is not a "foreign person" within the
meaning of Section 1445 of the United States Internal Revenue
Code of 1986, as amended, and otherwise complying with Section
T1.1445-2T of the regulations promulgated under Section 1445;
(c) Lessor, at Lessor's expense, shall cause an Owner's Policy of
Title Insurance, insuring fee simple title to the Leased
Premises in Lessee in the amount of the Purchase Price to be
delivered to Lessee; and
(d) Lessor shall execute and deliver to Lessee an assignment of
Lessor's interest in and to any contracts related to the
Leased Premises.
At the Closing, Lessee shall pay to Lessor the Purchase Price. All
rent due hereunder shall be prorated on a daily basis to the date of the
Closing. At the Closing the parties will execute and deliver such documents,
and take such other actions, as may be reasonable, necessary, or appropriate to
affect the sale of the Leased Premises to Lessee. At the Closing, Lessor and
Lessee shall execute, acknowledge, and deliver to one another a recordable
instrument evidencing the termination of this Lease with respect to the Leased
Premises. At the Closing, the other costs of Closing shall be allocated between
Lessor and Lessee in the manner customarily allocated between buyers and
sellers of real property in Lafayette, Louisiana.
Between the Exercise Date and the Closing, Lessor will not, without
the prior written consent of Lessee, (i) create any lien, security interest,
pledge, assignment, claim, charge, encumbrance, conditional sales contract,
option, lease, restrictive covenant, right of first refusal, preferential
purchase right, condition, easement, right-of- way, exception, encroachment,
overlay, title defect, or other outstanding right, title, interest, or estate
applicable to the Leased Premises or (ii) enter into any material contracts,
agreements, or understandings pertaining to the Leased Premises.
If Lessor fails to close the purchase and sale of the Leased Premises
or fails to satisfy any of its obligations under this Section 38, Lessee may,
at Lessee's option, (a) terminate this Lease and terminate Lessee's obligation
to purchase the Leased Premises, (b) terminate this Lease and seek specific
performance of Lessor's obligations under this Section 38, (c) terminate
Lessee's obligation to purchase the Leased Premises and maintain this Lease in
full force and effect, or (d) maintain this Lease in full force and effect and
seek specific performance of Lessor's obligations under this Section 38. If
Lessee fails to close the purchase and
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sale of the Leased Premises or fails to satisfy any of its obligations under
this Section 38, Lessor shall, as Lessor's sole and exclusive remedy, terminate
the Option, recover all costs incurred, including reasonable attorney's fees,
in satisfying its obligation to convey title, and either terminate or maintain
this Lease in full.
IN WITNESS WHEREOF, the parties have executed this Lease on the ____
day of _______________, 1993.
LESSOR:
C & M LAND ACCOUNT
By:
- --------------------------- ----------------------------
Witness Don Carlin, Partner
LESSEE:
HANOVER COMPRESSOR COMPANY
By:
- --------------------------- ----------------------------
Witness
Name:
-----------------------
Title:
----------------------
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STATE OF TEXAS )
)
COUNTY OF HARRIS )
On this ______ day of _________________, 1993, before me personally
came ______________________________, to me known, who being by me duly sworn,
did depose and say that he is the ____________________ of HANOVER COMPRESSOR
COMPANY, the corporation described in and which executed the above instrument;
that he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the Board
of Directors of said corporation, and that he signed his name thereto by like
order.
-------------------------------------
Notary Public
STATE OF LOUISIANA )
)
PARISH OF LAFAYETTE )
On this ______ day of _________________, 1993, before me personally
came ______________________________, to me known, who being by me duly sworn,
did depose and say that he is the Managing Partner of C & M LAND ACCOUNT, the
partnership described in and which executed the above instrument; that he
signed this document as the act of said partnership.
-------------------------------------
Notary Public
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<PAGE> 20
EXHIBIT "A"
Those certain parcels of land situated in Section 97, T-10-S, R-5-E,
Lafayette Parish, Louisiana, and being further identified and
designated as Lot 40 and Lot 41, Thruway Park Annex 1A, as shown on a
Plat of Survey prepared by Richard A. Dupuis, Land Surveyor, dated May
22, 1975, and revised May 4, 1977, and June 13, 1977, which is
paraphed "Ne Varietur" for identification and attached to File No.
77-14391, attached hereto by reference thereto.
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<PAGE> 21
WORKLETTER
THIS WORKLETTER (herein so called) is made and entered into this _____
day of June, 1993, in connection with a Lease Agreement (the "Lease"), executed
concurrently herewith by and between C & M LAND ACCOUNT ("Landlord") and
HANOVER COMPRESSOR COMPANY ("Tenant"), which together with the Lease
constitutes the entire agreement of Landlord and Tenant with respect to the
construction and completion of the Leased Premises described in the Lease.
1. Description of Work. Landlord is responsible for completing in a good
and workmanlike manner all work (the "Leasehold Improvements") described in the
plans and specifications (the "Final Plans") attached hereto as Exhibit "A" and
made a part hereof for all intents and purposes. Tenant shall not be
responsible for any work.
2. Building Permit; Certificate of Occupancy; Availability of Utilities.
Landlord is responsible for obtaining all necessary building and other permits
for construction of the Leasehold Improvements and for obtaining a certificate
of occupancy permitting unconditional occupancy and use of the Leased Premises
after completion of the Leasehold Improvements, and shall provide a true copy
to Tenant promptly upon Landlord's receipt thereof. Additionally Landlord shall
be responsible for insuring all necessary utilities are available at the Leased
Premises ready for connection by Tenant.
3. Construction. Construction of the Leasehold Improvements shall be
performed by Landlord and its contractors so long as Landlord's contractor is a
reputable, experienced commercial contractor and has been approved by Tenant,
as agreed in writing between Landlord and Tenant.
4. Ready for Occupancy. For the purpose of the Lease, the Leased Premises
are "ready for occupancy" on the first to occur of (1) the date that there is
delivered to Tenant a certificate of substantial completion from the Landlord's
architect, or (ii) on the date on which Tenant begins occupancy of the Leased
Premises.
EXECUTED as of the date and year first above written.
LANDLORD: TENANT:
C & M LAND ACCOUNT HANOVER COMPRESSOR COMPANY
By: By:
------------------------- -------------------------
Name: Name:
----------------------- -----------------------
Title: Title:
---------------------- ----------------------
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<PAGE> 1
EXHIBIT 10.18
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement"), dated as of the 5th day
of December, 1995, is made and entered into by and among Western Resources,
Inc., a Kansas corporation ("Western") and Hanover Compressor Company, a
Delaware corporation ("Parent") and Hanover Acquisition Corp. ("Sub").
WHEREAS, Astra Resources, Inc., and Astra Resources Compression, Inc.
(the "Company"), Parent and Sub have entered into an Agreement and Plan of
Merger dated as of October 13, 1995 (the "Merger Agreement"), providing for the
merger of Sub into the Company.
WHEREAS, Astra, is a wholly-owned subsidiary of Western.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
All capitalized terms not specifically defined herein shall have the
meanings set forth in the Merger Agreement.
ARTICLE II
INDEMNIFICATION
SECTION 2.1 Tax Liability Indemnification Western hereby agrees
to assume all consolidated return liabilities, and Western hereby further
agrees to indemnify Parent, Sub and the Surviving Corporation and their
respective officers, directors, shareholders and representatives against any
liability for Taxes which may be imposed as a result of the Company or any
Company Subsidiary being a member of a consolidated group, as defined in
Regulation Section 1.1502-1(b) and 1.1502-1(h) respectively for any period
prior to the Effective Time under Regulation Section 1.1502-6. Such
indemnification obligation shall survive until expiration of the applicable
statute of limitations.
SECTION 2.2 ERISA and COBRA Liability Indemnification.
Western hereby agrees to indemnify Parent, Sub and the Surviving Corporation
and their respective officers, directors, shareholders and representatives
against any liability which may be imposed (i) under ERISA and/or the Code as a
result of the Company or any
<PAGE> 2
Company Subsidiary being treated prior to the Effective Time as a single
employer under Sections 414(b), (c), (m) or (o) of the Code with any other
Person, and (ii) under Section 4980B of the Code and/or ERISA for failure to
provide COBRA to any COBRA Beneficiary as set forth in Section 6.01(c) of the
Merger Agreement. Such indemnification obligation shall survive until
expiration of the applicable statute of limitations.
SECTION 2.3 Procedure for Claims.
(a) Notice of Claim. Promptly, but in any event within 30 days
after obtaining knowledge of any claim or demand which may give rise to, or
could reasonably give rise to, a claim for indemnification hereunder (any such
claim an "Indemnification Claim"), the party or parties entitled to
indemnification hereunder (the "Indemnified Party") shall give written notice
to the party or parties subject to indemnification obligations therefor (the
"Indemnifying Party") of such Indemnification Claim (a "Notice of Claim"). A
Notice of Claim shall be given with respect to all Indemnification Claims;
provided, however, that the failure to timely give a Notice of Claim to the
Indemnifying Party shall not relieve the Indemnified Party hereunder to the
extent that the Indemnifying Party is not prejudiced by such failure. The
Notice of Claim shall set forth, to the extent known to the particular
Indemnified Party, the amount (or a reasonable estimate) of the loss, damage or
expense suffered, or which may be suffered, by the Indemnified Party as a
result of such Indemnification Claim and a brief description of the facts
giving rise to such Indemnification Claim. The Indemnified Party shall furnish
to the Indemnifying party such information (in reasonable detail) as the
Indemnified party may have with respect to such Indemnification Claim
(including copies of any summons, complaint or other pleading which may have
been served on it and any written claim demand, invoice, billing or other
document evidencing or asserting the same).
(b) Third-Party Claims.
(i) If the claim or demand set forth in the Notice of
Claim is a claim or demand asserted by a third party (a "Third-Party
Claim"),the Indemnifying Party shall have 15 days (or such shorter period if an
answer or other response or filing with respect to the pleadings served by the
third party is required prior to the 15th day) after the date of receipt by the
Indemnifying Party of the Notice of Claim (the "Notice Date") to notify the
Indemnified Party in writing of the election by the Indemnifying Party to
defend the Third Party Claim on behalf of the Indemnified Party.
(ii) If the Indemnifying Party elects to defend a Third
Party Claim on behalf of the Indemnified Party, the Indemnified Party shall
make available to the Indemnifying Party and its agents and representatives all
records and other materials in its
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<PAGE> 3
possession which are reasonably required in the defense of the Third Party
Claim and the Indemnifying Party shall pay any expenses payable in connection
with the defense of the Third Party Claim as they are incurred (whether
incurred by the Indemnified Party or Indemnifying Party).
(iii) In no event may the Indemnifying Party settle or
compromise any Third Party Claim without the Indemnified Party's consent, which
shall not be unreasonably withheld.
(iv) If the Indemnifying Party elects to defend a Third
Party Claim, the Indemnified Party shall have the right to participate in the
defense of the Third Party Claim, at the Indemnified Party's expense (and
without the right to indemnification for such expense under this Agreement);
provided, however, that the reasonable fees and expenses of counsel retained by
the Indemnified Party shall be at the expense of the Indemnifying Party if (A)
the use of the counsel chosen by the Indemnifying Party to represent the
Indemnified Party would present such counsel with a conflict of interest; (B)
the parties to such proceeding include both the Indemnified Party and the
Indemnifying Party and there may be legal defenses available to the Indemnified
Party which are different from or additional to those available to the
Indemnifying Party; (C) within 10 days after being advised by the Indemnifying
Party of the identity of counsel to be retained to represent the Indemnified
Party, the Indemnified Party shall have objected to the retention of such
counsel for valid reasons (which shall be stated in a written notice to
Indemnifying Party), and the Indemnifying Party shall not have retained
different counsel reasonably satisfactory to the Indemnified Party; or (D) the
Indemnifying Party shall authorize the Indemnified Party to retain separate
counsel at the expense of the Indemnifying Party.
(v) If the Indemnifying Party does not elect to defend a
Third Party Claim, or does not continue to defend a Third Party Claim, the
Indemnified Party shall have the right, in addition to any other right or
remedy it may have hereunder, at the sole and exclusive expense of the
Indemnifying Party, to defend such Third Party Claim; provided, however, that
such expenses shall be payable by the Indemnifying Party only if and when such
Third Party Claim becomes payable.
(vi) To the extent that an Indemnified Party recovers on a
Third Party Claim, the amount of such recovery (after deduction of all costs
and expenses incurred in connection with such Third Party Claim) shall reduce,
dollar-for-dollar, the indemnification obligation otherwise owing by the
Indemnifying Party.
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<PAGE> 4
(c) Cooperation in Defense. The Indemnified Party shall
cooperate with the Indemnifying Party in the defense of a Third Party Claim.
Subject to the foregoing, (i) the Indemnified Party shall not have any
obligation to participate in the defense of or to defend any Third Party Claim,
and (ii) the Indemnified Party's defense of or its participation in the defense
of any Third Party Claim shall not in any way diminish or lessen its right to
indemnification as provided in this Agreement.
ARTICLE III
GENERAL PROVISIONS
SECTION 3.1 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given or made
(and shall be deemed to have been duly given or made upon receipt) by delivery
in person, by courier service, by cable, by telecopy, by telegram, by telex or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
3.1):
(a) if to Parent:
Hanover Compressor Company
12001 North Houston Rosslyn
Houston, Texas 77086
Telecopy: (713) 447-0821
Attention: Michael McGhan, President
with a copy to:
Neal Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
Telecopy: (312) 269-1747
Attention: Richard S. Meller, Esq.
(b) if to Sub:
Hanover Acquisition Corp.
12001 North Houston Rosslyn
Houston, Texas 77086
Telecopy: (713) 447-0821
Attention: Michael McGhan, President
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<PAGE> 5
with a copy to:
Neal Gerber & Eisenberg
Two North LaSalle Street
Chicago, Illinois 60602
Telecopy: (312) 269-1747
Attention: Richard S. Meller, Esq.
(c) if to Western:
Western Resources, Inc.
818 Kansas Avenue
Topeka, KS 66612
Telecopy: (913) 575-6322
Attention: Mark Ruell, Vice President
with a copy to:
John K. Rosenberg, General Counsel
818 Kansas Avenue
Topeka, KS 66612
Telecopy: (913) 575-8136
SECTION 3.3 Headings. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 3.4 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner in order that the transactions contemplated hereby are consummated as
originally contemplated to the greatest extent possible.
SECTION 3.5 Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject matter
hereof and thereof and supersedes all prior agreements and undertakings, both
written and oral, between Western on the one hand, and Parent and/or Sub, on
the other hand, with respect to the subject matter hereof.
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<PAGE> 6
SECTION 3.6 Amendment. This Agreement may not be amended or
modified except by an instrument in writing signed by, or on behalf of Western
and Parent.
SECTION 3.7 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Texas, applicable to
contracts executed in and to be performed entirely within that state. All
action and proceedings arising out of or relating to this Agreement shall be
heard and determined in any Texas state or federal court sitting in the city of
Houston, Texas.
SECTION 3.8 Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
WESTERN RESOURCES, INC.
Attest: By:
------------------------ -----------------------------
Name: Name:
Title: Title:
HANOVER COMPRESSOR COMPANY
Attest: By:
------------------------ -----------------------------
Name: Name:
Title: Title:
HANOVER ACQUISITION CORP.
Attest: By:
------------------------ -----------------------------
Name: Name:
Title: Title:
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<PAGE> 1
EXHIBIT 10.19
AGREEMENT
WITNESS this agreement dated the 5th day of December, 1995 by and between Astra
Resources, Inc. ("Astra"), a Kansas corporation, Hanover Compressor Company
("Hanover"), a Delaware corporation and Astra Resources Compression, Inc.
("Compression"), a Texas corporation, collectively referred to as the
"Parties."
WHEREAS the Parties have entered into an Agreement and Plan of Merger of like
date which provides for the merger of Hanover Acquisition Corp., a wholly owned
subsidiary of Hanover, into ("Compression"), a wholly owned subsidiary of
Astra. Upon such combination Compression will become a wholly-owned subsidiary
of Hanover,
WHEREAS Compression is the owner of its shop facilities in East Bernard, Texas
(the "Facility"), and
WHEREAS Compression's predecessor(s) in title, including any Trustees or
Receivers of a predecessor, caused a portion of the Facility formerly used as a
solid waste landfill to be remediated by the removal of all, or substantially
all, of the solid waste from the site for disposal, and
WHEREAS Hanover has expressed concern over the marketability of the Facility
under the circumstances described above,
NOW THEREFORE the Parties agree as follows:
1. THE FACILITY: Pursuant to the terms and conditions contained in the
Agreement and Plan of Merger the Facility will continue as property of the
surviving entity, Compression. This Agreement provides for the possibility of
conveyance of the Facility from Compression to Astra within five years of the
date of this agreement (the "Hanover Option").
2. HANOVER OPTION: Astra agrees to the Hanover Option for conveyance of
the property to Astra under the following conditions:
(a) Hanover shall provide substantial evidence of its good faith
to market the Facility, which effort failed to result in a bona fide offer
resulting in a sale in excess of $150,000 from an entity capable of purchasing,
(i) primarily as a result of the perceived impact of the remediated solid waste
landfill, or (ii) the obligation for continued compliance by such transferee(s)
of paragraph 2(b) hereof as required by the Agreement and Plan of Merger, and
(b) Hanover shall provide evidence that it has not conducted any
of the following prohibited activities concerning the Facility:
<PAGE> 2
(i) Hanover and Compression, their employees,
agents, representatives or contractors, have not conducted any Phase II
environmental audit review or drilling for purposes of taking soil or
groundwater samples at the Facility unless required to do so by a regulatory
agency having jurisdiction over soil and groundwater contamination,
(ii) Hanover and Compression, their employees,
agents, representatives or contractors have not operated the Facility or taken
any action subsequent to the date hereof which would reasonably be expected to
have a negative environmental impact on the Facility, and
(iii) Hanover and Compression, their employees,
agents, representatives or contractors have not initiated, nor caused to be
initiated any investigation of the Facility, for which Astra does not
reasonably believe the parties are legally obligated to initiate.
3. EXERCISE OF THE HANOVER OPTION: Hanover has the sole option to
convey, or cause to be conveyed from Compression, the Facility to Astra, or its
successor, at any time within five years from the date of this agreement if the
conditions specified above have all been met. Good and marketable title shall
be transferred by Special Warranty Deed.
4. CONSIDERATION: The total consideration to be paid by Astra for the
Facility upon exercise of the Hanover Option will be One Hundred, Fifty
Thousand Dollars ($150,000).
5. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
between the Parties relating to the Hanover Option and all prior discussions
and writings are superseded by this Agreement, which may not be amended except
in writing by the Parties.
6. APPLICABLE LAW: This Agreement shall be governed by the laws of the
State of Texas.
HANOVER COMPRESSOR COMPANY
BY:
----------------------------
ASTRA RESOURCES, INC.
BY
----------------------------
ASTRA RESOURCES COMPRESSION, INC.
BY:
----------------------------
<PAGE> 1
EXHIBIT 10.20
HANOVER COMPRESSOR COMPANY
STOCK COMPENSATION PLAN
ARTICLE I
The Plan
1.1 Name. This plan shall be known as the "Hanover Compressor
Company Stock Compensation Plan" (the "Plan").
1.2 Purpose. The purpose of the Plan is to promote the growth and
general prosperity of Hanover Compressor Company, a Texas corporation (the
"Company"), by permitting the Company to grant to its Directors, Officers,
Employees and Advisors options to purchase Common Stock of the Company (the
"Options"). The Plan is designed to help the Company and its subsidiaries and
affiliates attract and retain superior personnel for positions of substantial
responsibility and to provide Directors, Officers, Employees and Advisors with
an additional incentive to contribute to the success of the Company. The
Company intends that Options granted pursuant to the Plan will be nonstatutory
options and will not be classified as "incentive stock options" within the
meaning of Section 422 of the Code.
1.3 Effective Date. The Plan shall become effective upon the
Effective Date.
1.4 Eligibility to Participate. Any Director, Officer, Employee
or Advisor shall be eligible to participate in the Plan. The Committee may
grant Options to a Director, Officer, Employee or Advisor in accordance with
such determinations as the Committee from time to time in its sole discretion
shall make.
<PAGE> 2
1.5 Shares Subject to the Plan. The shares available for issuance
upon exercise of Options granted under the Plan shall be shares of Common Stock
(the "Plan Shares").
1.6 Maximum Number of Plan Shares. Subject to adjustment pursuant
to the provisions of Section 5.2, and subject to any additional restrictions
elsewhere in the Plan, the maximum number of Plan Shares that may be issued and
sold hereunder shall be equal to 15% of the total shares of Common Stock
outstanding, computed on a fully diluted basis and including the unissued Plan
Shares, at the time of the grant of an Option.
1.7 Options Granted Under Plan. Plan Shares with respect to which
an Option shall have been exercised shall not again be available for grant
hereunder. If Options terminate for any reason without being wholly exercised,
new Options may be granted hereunder covering the number of Plan Shares to
which such Option termination relates.
1.8 Conditions Precedent. The Company shall not issue or deliver
any Option Agreement or any certificate for Plan Shares pursuant to the Plan
prior to fulfillment of all of the following conditions:
(a) The admission of the Plan Shares to listing on all
stock exchanges on which the Common Stock is then listed, unless the
Committee determines in its sole discretion that such listing is
neither necessary nor advisable;
(b) The completion of any registration or other
qualification of the Plan Shares under any federal or state
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<PAGE> 3
law or under the rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body that the
Committee shall in its sole discretion deem necessary or advisable;
and
(c) The obtaining of any approval or other clearance from
any federal or state governmental agency that the Committee shall in
its sole discretion determine to be necessary or advisable.
1.9 Reservation of Shares of Common Stock. During the term of the
Plan, the Company will at all times reserve and keep available such number of
shares of Common Stock as shall be necessary to satisfy the requirements of the
Plan as to the number of Plan Shares. In addition, the Company will from time
to time, as is necessary to accomplish the purposes of the Plan, seek or obtain
from any regulatory agency having jurisdiction any requisite authority that is
necessary to issue Plan Shares hereunder. The inability of the Company to
obtain from any regulatory agency having jurisdiction the authority deemed by
the Company's counsel to be necessary to the lawful issuance of any Plan Shares
shall relieve the Company of any liability in respect of the non-issuance of
Plan Shares as to which the requisite authority shall not have been obtained.
1.10 Tax Withholding.
(a) Condition Precedent. The issuance, delivery,
exercise or vesting of any Options under the Plan is subject to the
condition that if at any time the Committee shall
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<PAGE> 4
determine, in its discretion, that the satisfaction of withholding tax
or other withholding liabilities under any state or federal law is
necessary or desirable as a condition of, or in connection with, the
issuance, delivery, exercise or vesting of the Options, then the
issuance, delivery, exercise or vesting of the Options shall not be
effective unless the withholding shall have been effected or obtained
in a manner acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When a
Director, Officer, Employee or Advisor participating in the Plan is
required to pay to the Company an amount required to be withheld under
applicable income tax laws in connection with the exercise of an
Option, subject to Section 1.10(c), such individual may satisfy the
obligation, in whole or in part, by electing to (i) have the Company
withhold a portion of the Plan Shares acquired upon the exercise of
the Option and having a Fair Market Value on the date the amount of
tax to be withheld is to be determined (the "Tax Date") equal to the
amount required to be withheld or (ii) deliver to the Company shares
of Common Stock already owned and having a Fair Market Value on the
Tax Date equal to the amount required to be withheld. The amount to
be withheld shall be the minimum amount that is required to be
withheld under applicable federal and state income tax laws; provided,
however, in the event a request is made by a Director, Officer,
Employee or Advisor, the amount to be withheld shall be the
approximate
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<PAGE> 5
amount of federal and state income taxes that will be incurred by such
Director, Officer, Employee or Advisor with respect to such issuance,
delivery, exercise or vesting of Options under the Plan.
(c) Special Rules for Use of Stock. An election to have
Plan Shares or other shares of Common Stock withheld or delivered out
of already-owned Common Stock for this purpose will be subject to the
following restrictions: (i) must be made prior to the Tax Date, and
(ii) will be irrevocable.
ARTICLE II
Administration
2.1 Committee. The Plan shall be administered by the Committee.
Subject to the express provisions of the Plan, the Committee shall have sole
discretion and authority to determine the Directors, Officers, Employees and
Advisors to whom and the time or times at which Options may be granted and the
number of Plan Shares to be subject to each Option. Subject to the express
provisions of the Plan, the Committee shall also have complete authority to
interpret the Plan, to prescribe, amend, and rescind rules and regulations
relating to it, to determine the details and provisions of each Option
Agreement and to make all other determinations necessary or advisable in the
administration of the Plan.
2.2 Appointment of Committee. The Committee shall be appointed by
the Board and shall initially consist of the members of the Board. The Board
may remove any Committee member with or without cause and appoint successor or
additional Committee members at any time.
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<PAGE> 6
2.3 Majority Rule; Unanimous Written Consent. A majority of the
members of the Committee shall constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the
Committee shall constitute the action of the Committee. Meetings of the
Committee may take place by telephone conference call.
2.4 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to Directors, Officers,
Employees and Advisors, their employment, death, retirement, disability, or
other termination of employment, and such other pertinent facts as the
Committee may require. The Company shall furnish the Committee with such
clerical and other assistance as is necessary in the performance of its duties.
ARTICLE III
Stock Options
3.1 Option Terms and Conditions. The terms and conditions of
Options granted under this Article may differ from one another as the Committee
shall, in its discretion, determine as long as all Options granted under this
Article satisfy the requirements of this Article.
3.2 Duration of Options. Each Option granted pursuant to this
Article and all rights thereunder shall expire on the date determined by the
Committee, but in no event shall any Option
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<PAGE> 7
granted under this Article expire later than 15 years after the date on which
the Option is granted. In addition, each Option shall be subject to early
termination as provided elsewhere in the Plan.
3.3 Purchase Price. The purchase price for Plan Shares acquired
pursuant to the exercise, in whole or in part, of any Option shall be
determined by the Committee at the time of the grant of the Option.
3.4 Individual Option Agreements. Each Optionee receiving Options
pursuant to this Article shall be required to enter into a written Option
Agreement with the Company as a precondition to receiving an Option under this
Article. In such Option Agreement, the Optionee shall agree to be bound by the
terms and conditions of the Plan, the awards made pursuant hereto, and such
other matters as the Committee deems appropriate.
3.5 Non-Competition and Confidential Information. Each Optionee
receiving Options pursuant to this Article shall be subject to the restriction
that during the term of the Option Agreement and for a period of one year
thereafter, he or she will not compete with any business of the Company, and
will not disclose to persons outside the Company confidential information
concerning the Company without the Company's consent.
3.6 Exercise of Options.
(a) Method of Exercise. Each Option shall be exercisable
in accordance with the terms of the Option Agreement pursuant to which
the Option was granted. No Option may be exercised for a fraction of
a Plan Share.
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<PAGE> 8
(b) Payment of Purchase Price. The purchase price of any
Plan Shares purchased shall be paid at the time of exercise of the
Option either (i) in cash, (ii) by certified or cashier's check, (iii)
if permitted by the Committee, by shares of Common Stock, (iv) if
permitted by the Committee, by cash or certified or cashier's check
for the par value of the Plan Shares plus a promissory note for the
balance of the purchase price, which note shall provide for full
personal liability of the maker and shall contain such other terms and
provisions as the Committee may determine, including without
limitation the right to repay the note partially or wholly with Common
Stock, or (v) by delivery of a copy of irrevocable instructions from
the Optionee to a broker or dealer, reasonably acceptable to the
Company, to sell certain of the Plan Shares purchased upon exercise of
the Option or to pledge them as collateral for a loan and promptly
deliver to the Company the amount of sale or loan proceeds necessary
to pay such purchase price. If any portion of the purchase price or a
note given at the time of exercise is paid in shares of Common Stock,
those shares shall be valued at the then Fair Market Value.
3.7 Written Notice Required. Any Option shall be deemed to be
exercised for purposes of the Plan when written notice of exercise has been
received by the Company at its principal office
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<PAGE> 9
from the person entitled to exercise the Option and payment for the Plan Shares
with respect to which the Option is exercised has been received by the Company
in accordance with Section 3.6.
3.8 Compliance with Securities Laws. Plan Shares shall not be
issued with respect to any Option unless the exercise of the Option and the
issuance and delivery of the Plan Shares shall comply with all applicable
provisions of state and federal law (including without limitation (a) the
Securities Act, the Exchange Act, Rule 16b-3, and the rules and regulations
promulgated thereunder, and (b) the requirements of any stock exchange upon
which the Plan Shares may then be listed) and shall be further subject to the
approval of counsel for the Company with respect to such compliance. The
Committee may also require an Optionee to furnish evidence satisfactory to the
Company, including a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation. Further, each Optionee shall
consent to the imposition of a legend on the certificate representing the Plan
Shares issued upon the exercise of the Option restricting their transferability
as required by law or by this Section.
3.9 Employment of Participant or Optionee. Nothing in the Plan or
in any Option granted or Restricted Stock issued hereunder shall confer upon
any Participant or Optionee any right to
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<PAGE> 10
continued employment by the Company or any of its subsidiaries or affiliates or
limit in any way the right of the Company or any subsidiary or affiliate at any
time to terminate or alter the terms of that employment.
3.10 Option Rights Upon Termination of Employment. If an Optionee
that is an Employee ceases to be employed by the Company or any subsidiary or
affiliate for any reason other than death, Permanent Disability, or for Cause
(as defined in Section 3.11), his Option shall be exercisable (to the extent
exercisable on the date of termination of employment) at any time within 90
days after the date of termination of employment unless by its terms the Option
expires sooner or the Committee agrees, in its sole discretion, to extend the
term of such Option.
3.11 Termination of Employment for Cause. If an Optionee that is
an Employee ceases to be employed by the Company or any subsidiary or affiliate
of the Company because the Optionee is terminated for Cause, the Option shall
automatically expire. For purposes of this Article III and Section 4.3,
"Cause" shall mean an act or acts involving a felony, fraud, willful
misconduct, the commission of any act that causes or reasonably may be expected
to cause substantial injury to the Company, a violation of the restrictions
imposed by Section 3.5, or other good cause. The term "other good cause" as
used in this Section shall include, but shall not be limited to, habitual
impertinence, a pattern of conduct that tends to hold the Company up to
ridicule in the community, conduct disloyal to the Company, conviction of any
crime of moral
-10-
<PAGE> 11
turpitude, and substantial dependence, as judged by the Committee, on alcohol
or any controlled substance. "Controlled substance" means a drug, immediate
precursor, or other substance listed in Schedules I-V of the Federal
Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended.
3.12 Option Rights Upon Permanent Disability of Optionee. Unless
either the Option or the Option Agreement pursuant to which it was issued
otherwise provides, an Option that is issued to (a) an Employee shall become
fully exercisable on the date of the Optionee's termination of employment if
the Optionee ceases to be an Employee as a result of his or her Permanent
Disability and shall expire 1 year thereafter unless by its terms it expires
sooner or (b) a Non-employee Director or Advisor that is not also classified as
an Employee shall not be affected as a result of the Permanent Disability of
the Optionee.
3.13 Option Rights Upon Death of Optionee. Unless either the
Optionor the Option Agreement pursuant to which it was issued otherwise
provides, an Option that is issued to (a) an Employee shall become fully
exercisable on the date of the Employee's death and shall expire 1 year
thereafter unless by its terms its expires sooner or (b) a Non- employee
Director or Advisor that is not also classified as an Employee shall not be
affected as a result of the Death of the Optionee. Following the death of an
Optionee, the Option may be fully exercised, to the extent that it remains
unexercised on the date of death, by the Optionee's personal representative or
by the distributee to whom the Optionee's rights under the Option shall pass by
will or by the laws of descent and distribution.
-11-
<PAGE> 12
3.14 Options Not Transferable and Subject to Certain Restrictions.
Options may not be sold, pledged, assigned, or transferred in any manner other
than by will or the laws of descent and distribution and may be exercised
during the lifetime of an Optionee only by that Optionee or by his legally
authorized representative.
ARTICLE IV
Change in Control and
Constructive Termination of Employment
4.1 Consequences of Change in Control and Constructive Termination
of Employment. Notwithstanding any other term or provision of this Plan, upon
the occurrence of a Change in Control of the Company followed or accompanied
within two years thereafter by a Constructive Termination of Employment of a
person who holds an Option, that portion of each such Option that is not then
exercisable shall become exercisable.
4.2 Change in Control Defined. As used herein, a "Change in
Control of the Company" shall be deemed to have occurred if, after the
Effective Date (a) any "person", or persons acting as a "group" (as such terms
are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended, but excluding any Company employee stock ownership plan and any
person that was a stockholder of the Company at the Effective Date), (i)
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 50% or more of the combined voting power of
-12-
<PAGE> 13
the Company's then outstanding securities, or (ii) acquires or obtains,
directly or indirectly, the power, authority or ability, whether through share
ownership, contract, proxy, voting agreement or any other arrangement,
understanding or circumstance, to mange or direct the operations of the
Company, (b) the Company or its stockholders enter into an agreement to dispose
of all or substantially all of the assets of the Company by means of a sale,
merger, or other reorganization or liquidation, or otherwise in a
reorganization transaction in which the Company is not the surviving
corporation, or (c) the Board of Directors of the Company ceases to consist of
a majority of Continuing Directors. For purposes hereof, "Continuing Director"
shall mean a member of the Board of Directors of the Company who either (1) was
a member of the Board of Directors as of the Effective Date or (2) was
nominated, appointed or approved (before initial election as a director) to
serve as a director by a majority of the then Continuing Directors.
4.3 Constructive Termination of Employment. As used herein,
"Constructive Termination of Employment" shall mean the termination of an
Employee's employment by the Company for reasons other than Cause (as defined
in Section 3.11) or Permanent Disability, or if any of the following shall
occur without the Employee's written consent:
(a) The assignment of duties and responsibilities
materially inconsistent with or of materially lesser statute than, the
Employee's positions, duties, responsibilities and
-13-
<PAGE> 14
status with the Company immediately prior to the first Change in
Control of the Company that occurred prior to such assignment;
(b) The removal of the Employee from, or any failure to
re-elect the Employee to, any office of the Company or any successor
of the Company, except in connection with his termination of
employment for cause, death, disability or retirement;
(c) A reduction by the Company or any successor of the
Company in the Employee's annual base salary in effect immediately
prior to the first Change in Control of the Company that occurred
prior to such reduction or as the said salary may thereafter be
increased from time to time;
(d) Failure by the Company or any successor to the
Company to permit the Employee to continue to participate in incentive
compensation and benefit programs (other than stock-related plans or
arrangements) comparable to those in effect immediately prior to the
first Change in Control of the Company that occurred prior to such
failure; or
(e) Any purported termination of the Employee's
employment for Cause or Permanent Disability not in accordance with
the provisions of this Plan with respect thereto.
ARTICLE V
Termination, Amendment, and Adjustment
5.1 Termination and Amendment. The Plan shall terminate 10 years
after the Effective Date. No Options shall be granted under
-14-
<PAGE> 15
the Plan after that date of termination. The Committee may at any time amend
or revise the terms of the Plan, including the form and substance of the Option
Agreements to be used in connection herewith. No amendment, suspension, or
termination of the Plan shall, without the consent of the individual who has
received an Option hereunder, alter or impair any of that individual's rights
or obligations under any Option granted under the Plan prior to that amendment,
suspension, or termination.
5.2 Adjustments. If the outstanding Common Stock is increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities through merger, consolidation, combination, exchange of shares,
other reorganization, recapitalization, reclassification, stock dividend, stock
split, or reverse stock split, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of Plan Shares as to which Options
may be granted under the Plan. A corresponding adjustment changing the number
or kind of shares allocated to unexercised Options or portions thereof, which
shall have been granted prior to any such change, shall likewise be made. Any
such adjustment in outstanding Options shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the Option,
but with a corresponding adjustment in the price for each share covered by the
Option. The foregoing adjustments and the manner of application of the
forgoing provisions shall be determined solely by the Committee, and any such
adjustment may provide for the elimination of fractional share interests.
-15-
<PAGE> 16
ARTICLE VI
Miscellaneous
6.1 Other Compensation Plans. The adoption of the Plan shall not
affect any other stock option or incentive or other compensation plans in
effect for the Company or any subsidiary or affiliate of the Company, nor shall
the Plan preclude the Company or any subsidiary or affiliate thereof from
establishing any other forms of incentive or other compensation plans.
6.2 Plans Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company and any subsidiary or affiliate of
the Company that adopts the Plan.
6.3 Number and Gender. Whenever used herein, nouns in the
singular shall include the plural where appropriate, and the masculine pronoun
shall include the feminine gender.
6.4 Headings. Headings of articles and sections hereof are
inserted for convenience of reference and constitute no part of the Plan.
ARTICLE VII
Definitions
As used herein with initial capital letters, the following terms have
the meanings hereinafter set forth unless the context clearly indicates to the
contrary:
7.1 "Advisor" shall mean any person performing services for the
Company or any subsidiary or affiliate of the Company, with or
-16-
<PAGE> 17
without compensation, to whom the Company chooses to grant Options in
accordance with the Plan, provided that bona fide services must be rendered by
such person and such services shall not be rendered in connection with the
offer or sale of securities in a capital-raising transaction.
7.2 "Board" shall mean the Board of Directors of the Company.
7.3 "Code" shall mean the Internal Revenue Code of 1986, as
amended.
7.4 "Committee" shall mean the Committee appointed in accordance
with Section 2.2.
7.5 "Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company or, in the event that the outstanding shares of such
Common Stock are hereafter changed into or exchanged for shares of a difference
stock or security of the Company or some other corporation, such other stock or
security.
7.6 "Company" shall mean Hanover Compressor Company, a Texas
corporation.
7.7 "Director" shall mean a member of the Board of Directors of
the Company or any subsidiary or affiliate of the Company.
7.8 "Effective Date" shall meant the date of the Plan's adoption
by the Board.
7.9 "Employee" shall mean an employee of the Company, or of any
subsidiary or affiliate of the Company the board of directors of which adopts
the Plan, as determined under Section 3401(c) of the Code and the regulations
thereunder. Unless the context otherwise indicates, the term "Employee" shall
include Officers and Directors that are not Non-employee Directors.
-17-
<PAGE> 18
7.10 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
7.11 "Fair Market Value" shall mean such value as determined by the
Committee on the basis of such factors as it deems appropriate; provided that
if the Common Stock is traded on a national securities exchange or transactions
in the Common Stock are quoted on the NASDAQ National Market System, such value
as shall be determined by the Committee on the basis of the average reported
sales price for the Common Stock for the ten days preceding the date for which
such determination is relevant, as reported on the national securities exchange
or the NASDAQ National Market System, as the case may be.
7.12 "Non-employee Director" shall mean a Director who is not an
Officer or Employee.
7.13 "Officer" shall mean an officer of the Company or any
subsidiary or affiliate of the Company.
7.14 "Option" shall mean an option granted pursuant to Article III.
7.15 "Optionee" shall mean a Director, Officer, Employee or Advisor
to whom an Option has been granted hereunder.
7.16 "Option Agreement" shall mean an agreement between the Company
and an Optionee with respect to one or more Options.
7.17 "Permanent Disability" or "Permanently Disabled" shall mean
the Employee's inability, because of mental or physical
-18-
<PAGE> 19
illness or incapacity, to perform his or her duties for the Company for a
continuous period of 120 days or for 120 days out of a 150-day period.
7.18 "Plan" shall mean Hanover Compressor Company Stock
Compensation Plan, the terms of which are set forth herein.
7.19 "Plan Shares" shall mean shares of Common Stock issuable
pursuant to the Plan (including, but not limited to, shares of Common Stock
issued or issuable upon exercise of Options granted pursuant to the Plan).
7.20 "Rule 16b-3" shall mean Rule 16b-3 promulgated under the
Exchange Act or any successor rule.
7.21 "Securities Act" shall mean the Securities Act of 1933, as
amended.
-19-
<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 7,388 10,326 12,407 13,646 19,460
Common equivalent shares(2) 32 98 510 860 1,260
Cheap stock(3) 696 696 696 696 326
-------------------------------------------
Total common and common equivalent shares 8,116 11,120 13,613 15,202 21,046
===========================================
Earnings per common share $ 0.12 $ 0.24 $ 0.32 $ 0.31 $ 0.16
===========================================
Supplemental Earnings Per Common Share:
- ---------------------------------------
Net income available for common
shareholders $ 3,414
Add interest on debt to be repaid from
proceeds
Less income tax effect
-------
Net income used in supplemental EPS $
=======
Shares used in primary EPS computation 21,046
Plus shares assumed to be issued to retire
debt
-------
Shares used in supplemental EPS computation
=======
Supplemental earnings per common share
=======
</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 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>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,322
<SECURITIES> 0
<RECEIVABLES> 28,506
<ALLOWANCES> 494
<INVENTORY> 18,134
<CURRENT-ASSETS> 66,639
<PP&E> 315,976
<DEPRECIATION> 49,570
<TOTAL-ASSETS> 341,387
<CURRENT-LIABILITIES> 25,126
<BONDS> 122,756
0
0
<COMMON> 171,365
<OTHER-SE> 5,530
<TOTAL-LIABILITY-AND-EQUITY> 341,387
<SALES> 55,667
<TOTAL-REVENUES> 136,011
<CGS> 44,231
<TOTAL-COSTS> 109,177
<OTHER-EXPENSES> 3,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,594
<INCOME-PRETAX> 17,225
<INCOME-TAX> 6,844
<INCOME-CONTINUING> 10,381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,381
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
