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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JULY 22, 1998
HANOVER COMPRESSOR COMPANY
--------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-3071 75-2344249
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(STATE OR OTHER (COMMISSION (IRS EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
12001 NORTH HOUSTON ROSSLYN, HOUSTON, TEXAS 77086
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (281) 447-8787
N/A
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On July 22, 1998, Hanover Compressor Company (the "Company") completed
a $200 million, 5-year lease transaction arranged by Chase Securities Inc. The
transaction has been structured as a sale lease back of compression equipment to
Hanover Equipment Trust 1998A, a newly-formed Delaware business trust (the
"Trust"), unrelated to the Company, any of its affiliates or any of its officers
or directors. The equipment was sold to the Trust for $200 million, an amount as
determined by an independent appraisal. Under the lease transaction, the
compression equipment was sold to the Trust and leased back by the Company for a
5-year period and will continue to be deployed by the Company under its normal
operating procedures. Additionally, the Company has the option to repurchase the
equipment from the Trust at any time.
Proceeds from the transaction will be used to repay borrowings under
the Company's existing $200 million revolving credit facility with The Chase
Manhattan Bank, as agent (the "Bank Credit Agreement"). At the completion of
this transaction, the Company will have $180 million of availability under the
Bank Credit Agreement to fund the Company's ongoing working capital requirements
and expansion plans.
As a result of the transaction, the Company's annual depreciation
expense will decrease by approximately $7.5 million. The Company will incur
annual operating lease expense of approximately $14 million (or 7% of the $200
million sales proceeds), an amount which approximates the annual interest
expense of the Company's existing revolving credit debt that was repaid as a
result of the sale.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) - (b) Not applicable.
(c) See Exhibit Index attached hereto and incorporated herein.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
HANOVER COMPRESSOR COMPANY
By: /s/ MICHAEL J. MCGHAN
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Its: President and
Chief Executive Officer
Date: August 4, 1998
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EXHIBIT INDEX
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Exhibit Number Name
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(10.1) Lease dated as of July 20, 1998 between the
Trust and the Company.
(10.2) Guarantee dated as of July 22, 1998 and made
by the Company, Hanover/Smith, Inc., Hanover
Maintech, Inc. and Hanover Land Company.
(10.3) Lessee's and Guarantor's Consent dated as of
July 20, 1998 made by the Company,
Hanover/Smith, Inc., Hanover Maintech, Inc.
and Hanover Land Company.
(10.4) Participation Agreement dated as of July 22,
1998 among the Company, the Trust, The Chase
Manhattan Bank, as agent, Societe General &
Financial Corporation, and Wilmington Trust
Company.
(10.5) Security Agreement dated as of July 22, 1998
made by the Trust in favor of The Chase
Manhattan Bank, as agent, with the Company
joining by Joinder of Lessee.
(10.6) Lease Supplement No. 1 dated as of July 22,
1998 between the Trust and the Company.
(99.1) Press Release dated July 22, 1998
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EXHIBIT 10.1
================================================================================
================================================================================
LEASE
between
HANOVER EQUIPMENT TRUST 1998A
as Lessor,
and
HANOVER COMPRESSOR COMPANY,
as Lessee
---------------------------
Dated as of July 20, 1998
---------------------------
================================================================================
THIS LEASE IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE CHASE MANHATTAN
BANK, AS AGENT (THE "AGENT"), UNDER A CREDIT AGREEMENT, DATED AS OF JULY 20,
1998 AMONG HANOVER EQUIPMENT TRUST 1998A, THE LENDERS, AND THE AGENT, AS AMENDED
OR SUPPLEMENTED. THIS LEASE HAS BEEN EXECUTED IN SEVERAL COUNTERPARTS. TO THE
EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER (AS SUCH TERM IS
DEFINED IN THE UNIFORM COMMERCIAL CODE OF THE STATES OF ALABAMA, LOUISIANA, NEW
MEXICO, OKLAHOMA OR TEXAS), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED
THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL
COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE AGENT ON THE
SIGNATURE PAGE HEREOF.
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TABLE OF CONTENTS
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SECTION 1. DEFINITIONS
1.1 Defined Terms....................................................... 1
SECTION 2. EQUIPMENT AND TERM
2.1 Equipment........................................................... 1
2.2 Lease Term.......................................................... 1
2.3 Title............................................................... 1
2.4 Lease Supplements................................................... 1
SECTION 3. RENT
3.1 Rent................................................................ 2
3.2 Supplemental Rent................................................... 2
3.3 Performance on a Non-Business Day................................... 2
SECTION 4. WARRANTIES
4.1 Warranties.......................................................... 2
SECTION 5. QUIET ENJOYMENT
5.1 Quiet Enjoyment..................................................... 3
SECTION 6. NET LEASE
6.1 Net Lease; No Setoff; Etc........................................... 3
6.2 No Termination or Abatement......................................... 4
SECTION 7. OWNERSHIP OF EQUIPMENT
7.1 Ownership of the Equipment.......................................... 4
SECTION 8. CONDITION OF EQUIPMENT
8.1 Disclaimer of Warranties............................................ 6
8.2 Possession and Use of the Equipment................................. 7
SECTION 9. COMPLIANCE
9.1 Compliance with Legal Requirements and Insurance Requirements....... 7
9.2 Environmental Matters............................................... 7
SECTION 10. MAINTENANCE, REPAIR AND RETURN REQUIREMENTS
10.1 Maintenance and Repair............................................. 8
10.2 Return Requirements................................................ 9
10.3 Right of Inspection and Location...................................10
10.4 Environmental Inspection...........................................10
SECTION 11. MODIFICATIONS
11.1 Modifications......................................................10
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SECTION 12. TITLE
12.1 Warranty of Title..................................................11
12.2 Identification.....................................................11
SECTION 13. PERMITTED CONTESTS
13.1 Permitted Contests Other Than in Respect of Impositions............11
SECTION 14. INSURANCE
14.1 Public Liability and Workers' Compensation Insurance...............12
14.2 Hazard and Other Insurance.........................................12
14.3 Coverage...........................................................13
SECTION 15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation..........................................13
SECTION 16. LEASE TERMINATION
16.1 Termination upon Certain Events....................................15
16.2 Procedures.........................................................15
SECTION 17. DEFAULT
17.1 Lease Events of Default............................................15
17.2 Final Liquidated Damages...........................................16
17.3 Remedies...........................................................17
17.4 Additional Remedies................................................17
17.5 Proceeds of Sale; Deficiency.......................................18
17.6 Waiver of Certain Rights...........................................18
17.7 Assignment of Rights Under Contracts...............................18
SECTION 18. LESSOR'S RIGHT TO CURE
18.1 Lessor's Right to Cure Lessee's Lease Defaults.....................18
SECTION 19. LEASE TERMINATION
19.1 Provisions Relating to Lessee's Termination of this Lease or
Exercise of Purchase Option........................................18
19.2 Aggregate Tranche A Percentage.....................................19
SECTION 20. PURCHASE OPTION
20.1 Purchase Option....................................................19
20.2 Maturity Date Purchase Option......................................19
20.3 Obligation to Purchase All Equipment...............................20
SECTION 21. SALE OF EQUIPMENT
21.1 Sale Procedure.....................................................20
21.2 Application of Proceeds of Sale....................................21
21.3 Indemnity for Excessive Wear.......................................21
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21.4 Appraisal Procedure................................................21
21.5 Certain Obligations Continue.......................................22
SECTION 22. HOLDING OVER
22.1 Holding Over.......................................................22
SECTION 23. RISK OF LOSS
23.1 Risk of Loss.......................................................22
SECTION 24. SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment..........................................23
24.2 Subleases or Licenses..............................................23
SECTION 25. ESTOPPEL CERTIFICATES
25.1 Estoppel Certificates..............................................23
SECTION 26. NO WAIVER
26.1 No Waiver..........................................................23
SECTION 27. ACCEPTANCE OF SURRENDER
27.1 Acceptance of Surrender............................................24
SECTION 28. OWNERSHIP, GRANT OF SECURITY INTEREST
AND FURTHER ASSURANCES
28.1 Grant of Security Interest.........................................24
28.2 UCC Remedies.......................................................25
28.3 Waiver; Deficiency.................................................25
28.4 Agent's Appointment as Attorney-in-Fact; Agent's Performance of
Lessee's Obligations...............................................25
SECTION 29. NOTICES
29.1 Notices............................................................27
SECTION 30. MISCELLANEOUS
30.1 Miscellaneous......................................................28
30.2 Amendments and Modifications.......................................28
30.3 Successors and Assigns.............................................28
30.4 Headings and Table of Contents.....................................28
30.5 Counterparts.......................................................28
30.6 GOVERNING LAW......................................................28
30.7 Limitations on Recourse............................................28
30.8 Priority...........................................................29
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Exhibits
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Exhibit A Lease Supplement
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LEASE (this "Lease"), dated as of July 20, 1998, between
HANOVER EQUIPMENT TRUST 1998A, a Delaware business trust, having its principal
office at c/o Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, as lessor (the "Lessor"), and HANOVER
COMPRESSOR COMPANY a Delaware corporation, having its principal office at 12001
North Houston Rosslyn, Houston, Texas 77806, as lessee (the "Lessee").
In consideration of the mutual agreements herein contained,
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. Capitalized terms used herein but not
otherwise defined in this Lease shall have the respective meanings specified in
Annex A to the Participation Agreement dated as of the date hereof among Lessee,
Lessor, Agent, the Investor and the Lenders named therein, as such Participation
Agreement may be amended, supplemented or otherwise modified from time to time.
SECTION 2. EQUIPMENT AND TERM
2.1 Equipment. Subject to the terms and conditions hereinafter
set forth and contained in the respective Lease Supplement relating to each
piece of Equipment, Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, each piece of Equipment.
2.2 Lease Term. The Equipment is leased for the Term, unless
extended or earlier terminated in accordance with the provisions of this Lease.
2.3 Title. Except as otherwise expressly set forth in the
Operative Agreements, the Equipment is leased to Lessee without any
representation or warranty, express or implied, by Lessor and subject to the
rights of parties in possession, the existing state of title (including, without
limitation, the Permitted Exceptions) and all applicable Legal Requirements.
Lessee shall in no event have any recourse against Lessor for any defect in
title to the Equipment unless such defect was the result of an act or omission
of Lessor or its Affiliates. Lessor and Lessee hereby declare that it is their
mutual intent that the Equipment is to be considered movable (personal)
property, severable from the improvements in which it may be located, and not
immovables or components of immovables, for all purposes of this Lease.
2.4 Lease Supplements. On each Equipment Closing Date, Lessee
and Lessor shall each execute and deliver a Lease Supplement for the Equipment
to be leased on such date in substantially the form of Exhibit A hereto and
thereafter such Equipment shall be subject to the terms of this Lease.
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SECTION 3. RENT
3.1 Rent. (a) On each applicable Payment Date after the
Equipment Closing Date with respect to a piece of Equipment, Lessee shall pay
the Basic Rent attributable to such Equipment.
(b) Basic Rent shall be due and payable in Dollars and shall
be paid by wire transfer of immediately available funds on the due date therefor
to such account or accounts at such bank or banks or to such other Person or in
such other manner as Lessor shall from time to time direct.
(c) Lessee's inability or failure to take possession of all,
or any piece, of the Equipment when delivered by Lessor shall not delay or
otherwise affect Lessee's obligation to pay Rent in accordance with the terms of
this Lease.
3.2 Supplemental Rent. Lessee shall pay to Lessor or the
Person entitled thereto any and all Supplemental Rent promptly as the same shall
become due and payable, and if Lessee fails to pay any Supplemental Rent, Lessor
shall have all rights, powers and remedies provided for herein or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall pay to
Lessor as Supplemental Rent, among other things, on demand, to the extent
permitted by applicable Legal Requirements, interest at the applicable Overdue
Rate on any installment of Basic Rent not paid when due for the period for which
the same shall be overdue and on any payment of Supplemental Rent not paid when
due or demanded by Lessor for the period from the due date or the date of any
such demand, as the case may be, until the same shall be paid. The expiration or
other termination of Lessee's obligations to pay Basic Rent hereunder shall not
limit or modify the obligations of Lessee with respect to Supplemental Rent.
Unless expressly provided otherwise in this Lease or any other Operative
Agreement, in the event of any failure on the part of Lessee to pay and
discharge any Supplemental Rent as and when due, Lessee shall also promptly pay
and discharge any fine, penalty, interest or cost which may be assessed or added
for nonpayment or late payment of such Supplemental Rent, all of which shall
also constitute Supplemental Rent.
3.3 Performance on a Non-Business Day. If any payment is
required hereunder on a day that is not a Business Day, then such payment shall
be due on the next succeeding Business Day, unless, in the case of payments
based on the Eurodollar Rate, 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 Business Day.
SECTION 4. WARRANTIES
4.1 Warranties. Lessor agrees to take all such actions as may
be reasonably necessary to insure that Lessee is the beneficiary of any and all
warranties with respect to the Equipment, provided, however, the reasonable
costs of any such actions shall be borne by Lessee.
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SECTION 5. QUIET ENJOYMENT
5.1 Quiet Enjoyment. So long as no Lease Event of Default
shall have occurred and be continuing, Lessee shall peaceably and quietly have,
hold and enjoy the Equipment for the Term, free of any claim or other action by
Lessor or anyone claiming by, through or under Lessor.
SECTION 6. NET LEASE
6.1 Net Lease; No Setoff; Etc. This Lease shall constitute a
net lease and, except as otherwise provided herein or in the other Operative
Agreements, it is intended that Basic Rent and Supplemental Rent shall be paid
without counterclaim, setoff, deduction or defense of any kind and without
abatement, suspension, deferment, diminution or reduction of any kind, and
Lessee's obligation to pay all such amounts is absolute and unconditional,
provided, that if at any time the Lessee is required to make a payment of (i)
Termination Value or (ii) an indemnity payment pursuant to Section 12 of the
Participation Agreement to the Investor, and there shall exist any Lessor Liens
attributable to the Investor (and the Lessee shall have previously incurred a
charge to discharge any Lessor Liens attributable to the Investor), then the
Lessee shall be entitled to deduct from the portion required to be paid to the
Investor of Termination Value or payment of indemnity, as the case may be, an
amount sufficient to so reimburse the Lessee for the cost of discharging such
Lessor Liens, as the case may be. The obligations and liabilities of Lessee
hereunder shall in no way be released, discharged or otherwise affected for any
reason, including, without limitation, to the maximum extent permitted by law:
(a) any defect in the condition, merchantability, design, quality or fitness for
use of any portion of any Equipment, or any failure of any Equipment to comply
with all Legal Requirements, including any inability to use any Equipment by
reason of such non-compliance; (b) any damage to, abandonment, loss,
contamination of or Release from or destruction of or any requisition or taking
of any Equipment or any part thereof; (c) any restriction, prevention or
curtailment of or interference with any use of any Equipment or any part
thereof; (d) any defect in title to or rights to any Equipment or any Lien on
such title or rights or on any Equipment; (e) any change, waiver, extension,
indulgence or other action or omission or breach in respect of any obligation or
liability of or by Lessor, Investor, Agent or any Lender; (f) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceedings relating to Lessee, Lessor, Investor, Agent, any Lender
or any other Person, or any action taken with respect to this Lease by any
trustee or receiver of Lessee, Lessor, Investor, Agent, any Lender or any other
Person, or by any court, in any such proceeding; (g) any claim that Lessee has
or might have against any Person, including, without limitation, Lessor,
Investor, Agent or any Lender; (h) any failure on the part of Lessor to perform
or comply with any of the terms of this Lease, any other Operative Agreement or
of any other agreement; (i) any invalidity or unenforceability or disaffirmance
against or by Lessee of this Lease or any provision hereof or any of the other
Operative Agreements or any provision of any thereof; (j) the impossibility of
performance by Lessee, Lessor or both; (k) any action by any court,
administrative agency or other Governmental Authority; any restriction,
prevention or curtailment of or any interference with the construction on or any
use of any Equipment or any part thereof; or
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(m) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing, whether or not Lessee shall have notice or knowledge of any of the
foregoing. This Lease shall be noncancellable by Lessee for any reason
whatsoever except as expressly provided herein or in the other Operative
Agreements, and Lessee, to the extent permitted by Legal Requirements, waives
all rights now or hereafter conferred by statute or otherwise to quit, terminate
or surrender this Lease, or to any diminution, abatement or reduction of Rent
payable by Lessee hereunder. If for any reason whatsoever this Lease shall be
terminated in whole or in part by operation of law or otherwise, except as
otherwise expressly provided herein or in the other Operative Agreements, Lessee
shall, unless prohibited by Legal Requirements, nonetheless pay to Lessor (or,
in the case of Supplemental Rent, to whomever shall be entitled thereto) an
amount equal to each Rent payment at the time and in the manner that such
payment would have become due and payable under the terms of this Lease if it
had not been terminated in whole or in part, and in such case, so long as such
payments are made and no Lease Event of Default shall have occurred and be
continuing, Lessor will deem this Lease to have remained in effect. Each payment
of Rent made by Lessee hereunder shall be final and, absent manifest error in
the computation of the amount thereof, Lessee shall not seek or have any right
to recover all or any part of such payment from Lessor, Investor, Agent or any
party to any agreements related thereto for any reason whatsoever. Lessee
assumes the sole responsibility for the condition, use, operation, maintenance,
and management of the Equipment and Lessor shall have no responsibility in
respect thereof and shall have no liability for damage to the property of Lessee
or any subtenant of Lessee on any account or for any reason whatsoever other
than resulting from Lessor's gross negligence or wilful misconduct.
6.2 No Termination or Abatement. Lessee shall remain obligated
under this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, or any action with respect to this Lease which may
be taken by any trustee, receiver or liquidator of Lessor or by any court with
respect to Lessor, except as otherwise expressly provided herein. Lessee hereby
waives all right (i) to terminate or surrender this Lease, except as otherwise
expressly provided herein or in the other Operative Agreements, or (ii) to avail
itself of any abatement, suspension, deferment, reduction, setoff, counterclaim
or defense with respect to any Rent. Lessee shall remain obligated under this
Lease in accordance with its terms and, to the extent permitted by law, Lessee
hereby waives any and all rights now or hereafter conferred by statute or
otherwise to modify or to avoid strict compliance with its obligations under
this Lease. Notwithstanding any such statute or otherwise, to the extent
permitted by law, Lessee shall be bound by all of the terms and conditions
contained in this Lease.
SECTION 7. OWNERSHIP OF EQUIPMENT
7.1 Ownership of the Equipment. (a) Lessor and Lessee intend
that (i) for financial accounting purposes with respect to Lessee (A) this Lease
will be treated as an "operating lease" pursuant to Statement of Financial
Accounting Standards (SFAS) No. 13, as amended, (B) Lessor will be treated as
the owner and lessor of the Equipment and
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(C) Lessee will be treated as the lessee of the Equipment, but (ii) for federal,
state and local income tax and state law purposes (A) this Lease will be treated
as a financing arrangement, (B) the Lenders will be treated as senior lenders
making loans to Lessee in an amount equal to the Loans, which Loans will be
secured by the Equipment, (C) Lessor will be treated as a subordinated lender
making a loan to Lessee in an amount equal to the Investor Contribution, which
loan is secured by the Equipment, and (D) Lessee will be treated as the owner of
the Equipment and will be entitled to all tax benefits ordinarily available to
an owner of property like the Equipment for such tax purposes.
(b) Lessor and Lessee further intend and agree that, for the
purpose of securing Lessee's obligations for the repayment of the
above-described loans, (i) this Lease shall also be a security agreement (as
defined in Section 1-201(37) of the Uniform Commercial Code) and financing
statement within the meaning of Article 9 of the Uniform Commercial Code; (ii)
the conveyance provided for in Section 2 shall be deemed a grant of a security
interest in Lessee's right, title and interest in the Equipment (including the
right to exercise all remedies as are contained herein upon the occurrence of a
Lease Event of Default) and all proceeds of the conversion, voluntary or
involuntary, of the foregoing into cash, investments, securities or other
property, whether in the form of cash, investments, securities or other
property, for the benefit of the Lessor to secure the Lessee's payment of all
amounts owed by the Lessee under this Lease and the other Operative Agreements
and Lessor holds title to the Equipment so as to create and grant a first lien
and prior security interest in the Equipment (A) pursuant to this Lease for the
benefit of the Agent under the Assignment of Lease, to secure to the Agent the
obligations of the Lessee under the Lease and (B) pursuant to the Security
Agreement to secure to the Agent the obligations of the Lessor under the Credit
Agreement and the Notes; (iii) the possession by Lessor or any of its agents of
notes and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" for purposes of perfecting the security interest pursuant to
Section 9-305 of the Uniform Commercial Code; and (iv) notifications to Persons
holding such property, and acknowledgements, receipts or confirmations from
financial intermediaries, bankers or agents (as applicable) of Lessee shall be
deemed to have been given for the purpose of perfecting such security interest
under applicable law. Lessor and Lessee shall take such actions as may be
necessary to ensure that such security interest is a perfected security interest
of first priority under applicable law and will be maintained as such throughout
the Term. Nevertheless, Lessee acknowledges and agrees that none of Lessor,
Investor, the Trust Company, Agent, or any Lender has provided or will provide
tax, accounting or legal advice to Lessee regarding this Lease, the Operative
Agreements or the transactions contemplated hereby and thereby, or made any
representations or warranties concerning the tax, accounting or legal
characteristics of the Operative Agreements, and that Lessee has obtained and
relied upon such tax, accounting and legal advice concerning the Operative
Agreements as it deems appropriate.
(c) Lessor and Lessee further intend and agree that in the
event of any insolvency or receivership proceedings or a petition under the
United States bankruptcy laws or any other applicable insolvency laws or statute
of the United States of America or any State or Commonwealth thereof affecting
Lessee or Lessor, the transactions evidenced by this Lease shall be regarded as
loans made by an unrelated third party lender to Lessee.
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SECTION 8. CONDITION OF EQUIPMENT
8.1 Disclaimer of Warranties. WITHOUT LIMITING ANY CLAIM
LESSEE MAY HAVE AGAINST ANY CONTRACTOR, SUBCONTRACTOR, SUPPLIER OR MANUFACTURER,
LESSEE EXPRESSLY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY
ASSISTANCE FROM THE LESSOR, THE AGENT OR THE INVESTOR OR THEIR RESPECTIVE AGENTS
OR EMPLOYEES, AND LESSEE AGREES THAT (I) EACH PIECE OF EQUIPMENT IS OF A SIZE,
DESIGN, AND CAPACITY SELECTED BY AND ACCEPTABLE TO LESSEE, (II) LESSEE IS
SATISFIED THAT EACH ITEM OF EQUIPMENT IS SUITABLE FOR ITS PURPOSES, (III) THE
EQUIPMENT IS LEASED HEREUNDER SUBJECT TO ALL APPLICABLE LAWS AND GOVERNMENTAL
REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED, (IV) IT IS LEASING THE EQUIPMENT
FROM LESSOR IN AN "AS IS", "WHERE IS" AND "WITH ALL FAULTS" CONDITION AND (V)
NEITHER LESSOR NOR THE INVESTOR IS A MANUFACTURER OR DEALER IN EQUIPMENT OF SUCH
KIND. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THE OPERATIVE AGREEMENTS,
NEITHER LESSOR NOR THE INVESTOR SHALL BE DEEMED TO HAVE MADE, AND LESSEE HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED,
AS TO THE EQUIPMENT, ANY PART THEREOF, OR ANY RECORDS OR ANY OTHER MATTER
WHATSOEVER WITH RESPECT THERETO, INCLUDING, WITHOUT LIMITATION, THE DESIGN,
CONDITION OR CAPACITY OF THE EQUIPMENT, THEIR MERCHANTABILITY OR THEIR FITNESS
FOR ANY PARTICULAR PURPOSE, THE QUALITY OF THE MATERIALS OR WORKMANSHIP OF THE
EQUIPMENT, THEIR VALUE, TITLE OR SAFETY, THE ABSENCE OF ANY PATENT, TRADEMARK OR
COPYRIGHT INFRINGEMENT OR LATENT DEFECT (WHETHER OR NOT DISCOVERABLE BY LESSEE),
COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY APPLICABLE LAWS
(INCLUDING ENVIRONMENTAL LAWS) PERTAINING THERETO, OR THE CONFORMITY OF THE
EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY CONSTRUCTION OR PURCHASE
DOCUMENT RELATING THERETO OR ANY COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE, NOR SHALL LESSOR NOR THE INVESTOR BE LIABLE TO LESSEE, FOR ANY
DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN THE
EQUIPMENT OR ANY PART THEREOF OR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR
PROPERTY RESULTING THEREFROM OR FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE LIABILITY IN TORT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LESSEE HEREBY WAIVES, ANY CLAIM
(INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR
INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR, OR THE INVESTOR FOR ANY LOSS, DAMAGE
(INCLUDING, WITHOUT LIMITATION, DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT OR BY LESSEE'S LOSS OF
USE THEREOF FOR ANY REASON WHATSOEVER OTHER THAN WITH RESPECT TO THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF LESSOR OR INVESTOR.
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LESSEE AND ANYONE CLAIMING BY, THROUGH OR UNDER LESSEE HEREBY FULLY AND
IRREVOCABLY RELEASES LESSOR, THE INVESTOR AND EACH OTHER PERSON PARTY TO THE
OPERATIVE AGREEMENTS, AND EACH OF THEIR EMPLOYEES, OFFICERS, DIRECTORS,
REPRESENTATIVES, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS AND ASSIGNS, AND ALL PERSONS ACTING ON THEIR BEHALF,
FROM ANY AND ALL CLAIMS THAT IT MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST THE
INVESTOR, LESSOR OR ANY OTHER SUCH PERSON, FOR ANY COSTS, LOSS, LIABILITY,
DAMAGE, EXPENSES, DEMAND, ACTION OR CAUSE OF ACTION ARISING FROM OR RELATED TO
THE RELEASE OR DISCHARGE FROM THE EQUIPMENT AT ANY TIME OF ANY HAZARDOUS
MATERIALS OTHER THAN A RELEASE OR DISCHARGE OCCURRING AFTER LESSEE IS NO LONGER
IN POSSESSION OF THE EQUIPMENT AND RESULTING SOLELY FROM ACTS OR OMISSIONS OF
LESSOR, THE INVESTOR OR ANY OTHER SUCH PERSON. THIS RELEASE INCLUDES CLAIMS OF
WHICH LESSEE IS PRESENTLY UNAWARE OR WHICH LESSEE DOES NOT PRESENTLY SUSPECT TO
EXIST WHICH, IF KNOWN BY LESSEE, WOULD MATERIALLY AFFECT LESSEE'S RELEASE OF
LESSOR AND THE OTHER PERSONS RELEASED HEREBY.
8.2 Possession and Use of the Equipment. Each piece of
Equipment shall be used by Lessee in a manner consistent with its intended
purpose and in accordance with its specification. Subject to the terms of
Section 13 relating to permitted contests, Lessee shall pay, or cause to be
paid, all charges and costs required in connection with the use of the
Equipment. Lessee shall not commit or permit any waste of any Equipment or any
part thereof.
SECTION 9. COMPLIANCE
9.1 Compliance with Legal Requirements and Insurance
Requirements. Subject to the terms of Section 13 relating to permitted contests,
Lessee, at its sole cost and expense, shall, in all material respects, (a)
comply with all Legal Requirements (including all Environmental Laws) and
Insurance Requirements relating to each piece of Equipment, including the use,
construction, operation, maintenance, repair and restoration thereof, whether or
not compliance therewith shall require extraordinary changes in the Equipment or
interfere with the use and enjoyment of the Equipment, and (b) procure, maintain
and comply with all licenses, permits, orders, approvals, consents and other
authorizations required for the construction, renovation, use, repair,
maintenance and operation of each piece of Equipment.
9.2 Environmental Matters. (a) Promptly upon Lessee's actual
knowledge of the presence of Hazardous Substances with respect to any piece of
Equipment in concentrations and conditions that constitute an Environmental
Violation, Lessee shall notify Lessor in writing of such condition. In the event
of such Environmental Violation, Lessee shall, not later than thirty (30) days
after Lessee has actual knowledge of such Environmental Violation, either
deliver to Lessor and the Agent an Officer's Certificate and
<PAGE> 13
8
a Termination Notice with respect to such piece of Equipment pursuant to Section
16.1, if applicable, or, at Lessee's sole cost and expense, promptly and
diligently undertake any response, clean up, remedial or other action necessary
to remove, cleanup or remediate the Environmental Violation in accordance with
the terms of Section 9.1. If Lessee does not deliver a Termination Notice with
respect to such Equipment pursuant to Section 16.1, Lessee shall, upon
completion of remedial action by Lessee, so inform Lessor in writing and upon
Lessor's written request therefor cause to be prepared by an environmental
consultant reasonably acceptable to Lessor a report describing the Environmental
Violation and the actions taken by Lessee (or its agents) in response to such
Environmental Violation, and a statement by the consultant that such
Environmental Violation has been remedied in full compliance with applicable
Environmental Laws. The foregoing provisions of this Section 9.2(a)
notwithstanding, Lessee shall not be required to deliver a Termination Notice if
such Environmental Violation would not reasonably be expected to have a material
adverse affect on the Equipment.
(b) In addition, Lessee shall provide to Lessor, within five
(5) Business Days of receipt, copies of all significant written communications
with any Governmental Authority relating to any Environmental Claim in
connection with any piece of Equipment. Lessee shall also promptly provide such
detailed reports of any such Environmental Claims as reasonably may be requested
by Lessor and the Agent.
SECTION 10. MAINTENANCE, REPAIR AND RETURN REQUIREMENTS
10.1 Maintenance and Repair. (a) Lessee shall, at its sole
cost and expense, (i) take good care of the Equipment and keep the same and all
parts thereof in good and safe order and condition, with all mechanical devices,
electronic systems and component parts in good working order, normal wear and
tear excepted, consistent with maintenance practices used by Lessee with respect
to equipment similar in type owned or leased by Lessee and consistent with
customary industry standards, and (ii) promptly make all needed repairs,
restorations and replacements of parts in and to the Equipment or any part
thereof, including, without limitation, overhaul of any piece of Equipment
requiring overhaul in Lessee's commercially prudent judgment. All such repairs,
restorations and replacements of parts shall be of a standard and quality
consistent with customary industry standards and sufficient for the proper
maintenance and operation of the Equipment and shall be constructed and
installed in a good and workmanlike manner in compliance with Legal Requirements
and Insurance Requirements. In carrying out its obligations under this Section
10.1, Lessee shall not discriminate in any way in the maintenance of the
Equipment as compared with other similar equipment owned or leased by Lessee and
shall use the Equipment in a manner consistent with sound operating practices
thereof.
(b) Lessor shall under no circumstances be required to furnish
any services or facilities with respect to the Equipment or make any repairs,
replacements, alterations or renewals of any nature or description to any
Equipment, make any expenditure whatsoever in connection with this Lease or
maintain any Equipment in any way except as otherwise provided in the Operating
Agreements. Lessor shall not be required to maintain, repair or rebuild all or
any part of any Equipment, and Lessee waives the right to (i) require Lessor
<PAGE> 14
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to maintain, repair, or rebuild all or any part of any Equipment, or (ii) make
repairs at the expense of Lessor pursuant to any Legal Requirement, Insurance
Requirement, contract, agreement, covenants, condition or restriction at any
time in effect.
10.2 Return Requirements. (a) Unless Lessee shall have
exercised its Purchase Option or Maturity Date Purchase Option, Lessee shall,
upon the expiration or earlier termination of the Term with respect to each
piece of Equipment, surrender and transfer such Equipment to Lessor, at Lessee's
own expense, free and clear of all Liens other than (A) the following items set
forth under the definition of Permitted Liens: (i), (ii), (viii) and (ix) and
(B) Lessor Liens, in as good condition as they were on the Equipment Closing
Date with respect to each piece of Equipment, ordinary wear and tear excepted,
and in compliance with all Legal Requirements and the other requirements of this
Lease, including, without limitation, Section 10.1 (and in any event without (x)
any asbestos installed or maintained in any part of such Equipment, (y) any
polychlorinated byphenyls (PCBs) in, on or used with respect to such Equipment,
and (z) any other Hazardous Substances). Unless Lessee has exercised the
Purchase Option or the Maturity Date Purchase Option, Lessee shall provide, or
cause to be provided or accomplished, at the sole cost and expense of Lessee, to
or for the benefit of Lessor or a purchaser, at least thirty Business Days prior
to the expiration or earlier termination of the Term with respect to each piece
of Equipment, each of the following: (i) a Lien search showing (A) no Liens
other than the type set forth as clauses (A) and (B) in the first sentence of
this Section 10.2(a) and (B) the Security Agreement as creating a valid and
perfected first security interest in the Equipment; (ii) an environmental
assessment for the Equipment satisfying the requirements set forth in Section
10.4 below; (iii) an assignment of all of the Lessee's right, title and interest
in and to each agreement executed by Lessee in connection with the renovation,
development, use, maintenance or operation of the Equipment (including all
warranty, performance, service and indemnity provisions); (iv) an assignment of
all permits, licenses, approvals and other authorizations from all Governmental
Authorities in connection with the operation and use of the Equipment; and (v)
copies of all books and records, with respect to the renovation, maintenance,
repair, operation or use of the Equipment. Lessee shall cooperate with any
independent purchaser of the Equipment in order to facilitate the ownership and
operation by such purchaser of the Equipment after such expiration or earlier
termination of the Term, including providing all books, reports and records
regarding the maintenance, repair and ownership of the Equipment and all data
and technical information relating thereto, granting or assigning all licenses
necessary for the operation and maintenance of the Equipment and cooperating in
seeking and obtaining all necessary licenses, permits and approvals of
Governmental Authorities. Lessee shall have also paid the total cost for the
completion of all Modifications commenced prior to such expiration or earlier
termination of the Term. The obligation of Lessee under this Section 10.2(a)
shall survive the expiration or termination of this Lease.
(b) Lessee, on the expiration or earlier termination of the
Term, if requested by Lessor, shall, at Lessee's sole cost and expense dismantle
and crate each piece of Equipment that Lessor shall designate and, at Lessee's
sole cost and expense transport such Equipment to a location designated by
Lessor.
<PAGE> 15
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10.3 Right of Inspection and Location. (a) Lessor may, at
reasonable times and with reasonable prior notice and without interfering with
the operations of Lessee's customers, inspect and examine at its own cost and
expense (unless a Lease Event of Default exists, in which case the reasonable
out-of-pocket costs and expenses of Lessor shall be paid by Lessee), any piece
of Equipment. Lessee may accompany Lessor on any such inspections.
(b) Lessee shall furnish to Lessor not less than once every
six months during the Term, an Officer's Certificate, accurate in all material
respects, stating the location of each piece of Equipment, noting whether any
Equipment has been relocated and if so the correct address of the relocated
Equipment. Lessor shall have no duty to make any such inspection or inquiry and
shall not incur any liability or obligation by reason of not making any such
inspection or inquiry.
10.4 Environmental Inspection. Not less than six months prior
to the Maturity Date (unless Lessee has previously irrevocably exercised the
Maturity Date Purchase Option), and not more than thirty Business Days prior to
surrender of possession of a piece of Equipment, Lessor shall, at Lessee's sole
cost and expense, obtain a report by an environmental consultant selected by
Lessor certifying that each piece of Equipment (i) does not contain Hazardous
Substances under circumstances or in concentrations that would reasonably be
expected to result in a violation of or liability under any Environmental Law
and (ii) is in compliance with all Environmental Laws. If such is not the case
on either such date, then Lessee shall be deemed to have irrevocably exercised
the Maturity Date Purchase Option pursuant to Section 20.2.
SECTION 11. MODIFICATIONS
11.1 Modifications. (a) Lessee, at its sole cost and expense,
may at any time and from time to time make alterations, renovations,
improvements and additions to a piece of Equipment or any part thereof
(collectively, "Modifications"); provided, that: (i) except for any Modification
required to be made pursuant to a Legal Requirement or an Insurance Requirement,
no Modification, individually, or when aggregated with any other Modification
shall impair the value of such Equipment or the utility or useful life of such
Equipment from that which existed immediately prior to such Modification; (ii)
the Modification shall be performed in a timely manner and in a good and
workmanlike manner; (iii) Lessee shall comply with all Legal Requirements
(including all Environmental Laws) and Insurance Requirements applicable to the
Modification, including the obtaining of all permits, and the structural
integrity of such Equipment shall not be adversely affected; (iv) subject to the
terms of Section 13 relating to permitted contests, Lessee shall pay all costs
and expenses and discharge any Liens arising with respect to the Modification;
and (v) such Modifications shall comply with Section 10.1 and shall not change
the primary character of such Equipment or intended use of such Equipment. All
Modifications shall remain part of the Equipment and shall be subject to this
Lease, and title thereto shall immediately vest in Lessor.
<PAGE> 16
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(b) Lessee shall notify Lessor of the undertaking of any
Modifications the cost of which is anticipated to exceed $500,000.
(c) Lessee shall not without the consent of Lessor (which
consent will not be unreasonably withheld or delayed) undertake any
Modifications to any piece of Equipment if such Modifications cannot, in the
reasonable judgement of Lessee, be completed on or prior to the date that is one
month prior to the Expiration Date.
(d) Lessee, at its sole cost and expense, shall overhaul
substantially all of the Equipment during the Term, consistent with Lessee's
normal business practices.
SECTION 12. TITLE
12.1 Warranty of Title. (a) Lessee agrees that, except as
otherwise provided herein (i.e. with respect to Lessor Liens) and subject to the
terms of Section 13 relating to permitted contests, Lessee shall not directly or
indirectly create or allow to remain, and shall promptly discharge at its sole
cost and expense, any Lien, defect, attachment, levy, title retention agreement
or claim upon any piece of Equipment or any Modifications or any Lien,
attachment, levy or claim with respect to the Rent or with respect to any
amounts held by the Agent pursuant to the Credit Agreement, other than Permitted
Liens and/or Lessor Liens. Lessee shall promptly notify Lessor in the event it
has actual knowledge that a Lien (other than a Permitted Lien and/or a Lessor
Lien) exists with respect to the Equipment.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor, expressed or implied, to or for
the performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
alteration, addition, repair or demolition of or to any piece of Equipment or
any part thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
LESSEE, OR TO ANYONE HOLDING ANY EQUIPMENT OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY
EQUIPMENT.
12.2 Identification. Lessee shall not allow the name of any
Person to be placed upon any portion of any piece of Equipment as a designation
that might be interpreted as indicating a claim of ownership thereof or security
interest therein by any Person other than Lessee.
SECTION 13. PERMITTED CONTESTS
13.1 Permitted Contests Other Than in Respect of Impositions.
Except to the extent otherwise provided for in Section 12.2(g) of the
Participation Agreement, Lessee,
<PAGE> 17
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on its own or on Lessor's behalf but at Lessee's sole cost and expense, may
contest, by appropriate administrative or judicial proceedings conducted in good
faith and with due diligence, the amount, validity or application, in whole or
in part, of any Legal Requirement, or any Lien, attachment, levy, encumbrance or
encroachment, and Lessor agrees not to pay, settle or otherwise compromise any
such item, provided that (a) the commencement and continuation of such
proceedings shall suspend the collection thereof from, and suspend the
enforcement thereof against the applicable Equipment, Lessor, the Agent, the
Investor and the Lenders; (b) there shall be no risk of the imposition of a Lien
(other than a Permitted Lien) on any piece of Equipment and no part of any piece
of Equipment nor any Rent would be in any danger of being sold, forfeited, lost
or deferred; (c) at no time during the permitted contest shall there be a risk
of the imposition of criminal liability or civil liability on Lessor, the Agent
or any Lender for failure to comply therewith; and (d) in the event that, at any
time, there shall be a material risk of extending the application of such item
beyond the earlier of the Maturity Date and the Expiration Date for the
applicable Equipment, then Lessee shall deliver to Lessor an Officer's
Certificate certifying as to the matters set forth in clauses (a), (b) and (c)
of this Section 13.1. Lessor, at Lessee's sole cost and expense, shall execute
and deliver to Lessee such authorizations and other documents as may reasonably
be required in connection with any such contest and, if reasonably requested by
Lessee, shall join as a party therein at Lessee's sole cost and expense.
SECTION 14. INSURANCE
14.1 Public Liability and Workers' Compensation Insurance.
During the Term, Lessee shall procure and carry, at Lessee's sole cost and
expense, commercial general liability insurance for claims for injuries or death
sustained by persons or damage with respect to the use or operation of the
Equipment. Such insurance shall be on terms and in amounts that are no less
favorable than insurance maintained by owners of similar equipment which are in
Lessee's line of business, that are in accordance with normal industry practice.
The policy shall be endorsed to name Lessor, the Trust Company, the Investor,
the Agent and the Lenders as additional insureds. The policy shall also
specifically provide that the policy shall be considered primary insurance which
shall apply to any loss or claim before any contribution by any insurance which
Lessor, the Trust Company, the Agent or the Lenders may have in force. Lessee
shall, in the operation of the Equipment, comply with the applicable workers'
compensation laws and protect Lessor against any liability under such laws.
14.2 Hazard and Other Insurance. During the Term, Lessee shall
keep each piece of Equipment insured against loss or damage by fire and other
risks on terms and in amounts that are no less favorable than insurance
maintained by owners of similar equipment, that are in accordance with normal
industry practice, are in amounts equal to the greater of (i) Termination Value
and (ii) the actual replacement cost of the Equipment. So long as no Lease Event
of Default exists, any loss payable under the insurance policy required by this
Section will be paid to and adjusted solely by Lessee, subject to Section 15.
<PAGE> 18
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14.3 Coverage. (a) Lessee shall furnish Lessor with
certificates showing the insurance required under Sections 14.1 and 14.2 to be
in effect and naming Agent, the Lenders, the Lessor, the Investor, and the Trust
Company as an additional insured with respect to liability insurance and showing
the endorsement required by Section 14.3(c). All such insurance shall be at the
cost and expense of Lessee. Such certificates shall include a provision in which
the insurer agrees to provide thirty (30) days' advance written notice by the
insurer to Lessor and the Agent in the event of cancellation or modification of
such insurance that would reasonably be expected to be adverse to the interests
of Lessor, the Trust Company or the Agent. If a Lease Event of Default has
occurred and is continuing and Lessor so requests, Lessee shall deliver to
Lessor copies of all insurance policies required by this Lease.
(b) Lessee agrees that the insurance policy or policies
required by this Lease shall include an appropriate clause pursuant to which
such policy shall provide that it will not be invalidated should Lessee waive,
in writing, prior to a loss, any or all rights of recovery against any party for
losses covered by such policy. Lessee hereby waives any and all such rights
against Lessor, the Trust Company, the Investor, the Agent and the Lenders to
the extent of payments made under such policies.
(c) All insurance policies required by Section 14.2 shall
include a loss payee endorsement in favor of the Agent.
(d) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Lessor may carry separate
liability insurance so long as (i) Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance Lessor may have in force
which would apply to a loss covered under Lessee's policy and (ii) each such
insurance policy will not cause Lessee's insurance required under this Lease to
be subject to a coinsurance exception of any kind.
(e) Lessee shall pay as they become due all premiums for the
insurance required by this Lease, shall renew or replace each policy prior to
the expiration date thereof and shall promptly deliver to Lessor and the Agent
certificates for renewal and replacement policies.
SECTION 15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation. (a) Subject to the provisions
of this Section 15 and Section 16 (in the event Lessee delivers, or is obligated
to deliver, a Termination Notice), and prior to the occurrence and continuation
of a Lease Event of Default, Lessee shall be entitled to receive (and Lessor
hereby irrevocably assigns to Lessee all of Lessor's right, title and interest
in) any award, compensation or insurance proceeds to which Lessee or Lessor may
become entitled by reason of their respective interests in the Equipment (i) if
all or a portion of such Equipment is damaged or destroyed in whole or in part
by a Casualty or (ii) if the use, access, easement rights or title to such
Equipment or any part thereof is the subject of a Condemnation; provided,
however, if a Lease Event of
<PAGE> 19
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Default shall have occurred and be continuing such award, compensation or
insurance proceeds shall be paid directly to Lessor or, if received by Lessee,
shall be held in trust for Lessor, and shall be paid over by Lessee to Lessor.
(b) So long as no Lease Event of Default has occurred and is
continuing, Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or insurance
payment on account of any such Casualty or Condemnation and shall pay all
expenses thereof. At Lessee's reasonable request, and at Lessee's sole cost and
expense, Lessor and the Agent shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. Lessor and Lessee agree that this Lease
shall control the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
(c) If Lessor or Lessee shall receive notice of a Casualty or
a possible Condemnation of a piece of Equipment or any interest therein, Lessor
or Lessee, as the case may be, shall give notice thereof to the other and to the
Agent promptly after the receipt of such notice.
(d) In the event of a Casualty or receipt of notice by Lessee
or Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after
such occurrence, deliver to Lessor and the Agent an Officer's Certificate
stating that either (i) (x) such Casualty is not a Significant Casualty or (y)
such Condemnation is neither a Total Condemnation nor a Significant Condemnation
and that this Lease shall remain in full force and effect with respect to the
applicable piece of Equipment and, at Lessee's sole cost and expense, Lessee
shall promptly and diligently restore the applicable piece of Equipment in
accordance with the terms of Section 15.1(e) or (ii) this Lease shall terminate
with respect to the applicable Equipment in accordance with Section 16.1.
(e) If pursuant to this Section 15.1, this Lease shall
continue in full force and effect following a Casualty or Condemnation with
respect to the affected piece of Equipment, Lessee shall, at its sole cost and
expense, promptly and diligently repair any damage to the applicable piece of
Equipment caused by such Casualty or Condemnation in conformity with the
requirements of Sections 10.1 and 11.1 so as to restore the applicable piece of
Equipment to the same condition, operation, function and value as existed
immediately prior to such Casualty or Condemnation. In such event, title to the
applicable piece of Equipment shall remain with Lessor.
(f) In no event shall a Casualty or Condemnation with respect
to which this Lease remains in full force and effect under this Section 15.1
affect Lessee's obligations to pay Rent pursuant to Section 3.1.
(g) Notwithstanding anything to the contrary set forth in
Section 15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with
respect to a piece of Equipment or Lessee receives notice of a Condemnation with
respect to a piece of Equipment, and following such Casualty or Condemnation,
such piece of Equipment cannot reasonably be restored on or before the date
which is six months prior to the Maturity Date to substantially the same
condition as existed immediately prior to such Casualty or
<PAGE> 20
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Condemnation or before such day such piece of Equipment is not in fact so
restored, then Lessee shall exercise its Purchase Option with respect to such
piece of Equipment, on the next Payment Date or irrevocably agree in writing to
exercise the Maturity Date Purchase Option with respect to such piece of
Equipment and in either such event such remaining Casualty or Condemnation
proceeds shall be paid to the Agent, which shall pay such funds to Lessee upon
the closing of the purchase of such piece of Equipment.
SECTION 16. LEASE TERMINATION
16.1 Termination upon Certain Events. (a) If Lessor or Lessee
shall have received notice of a Total Condemnation, then Lessee shall be
obligated, within thirty (30) days after Lessee receives notice thereof, to
deliver a written notice in the form described in Section 16.2(a) (a
"Termination Notice") of the termination of this Lease with respect to the
applicable piece of Equipment.
(b) If either: (i) Lessee or Lessor shall have received notice
of a Condemnation, and Lessee shall have delivered to Lessor an Officer's
Certificate that such Condemnation is a Significant Condemnation; or (ii) a
Casualty occurs, and Lessee shall have delivered to Lessor an Officer's
Certificate that such Casualty is a Significant Casualty; or (iii) an
Environmental Violation occurs or is discovered and Lessee shall have delivered
to Lessor an Officer's Certificate stating that, in the reasonable, good-faith
judgment of Lessee, the cost to remediate the same will exceed 10% of the
Equipment Cost of such piece of Equipment; then, Lessee shall, simultaneously
with the delivery of the Officer's Certificate pursuant to the preceding clause
(i), (ii) or (iii), deliver a Termination Notice with respect to the affected
piece of Equipment.
16.2 Procedures. (a) A Termination Notice shall contain: (i)
notice of termination of this Lease with respect to the affected piece of
Equipment on a date not more than thirty (30) days after Lessor's receipt of
such Termination Notice (the "Termination Date"); (ii) a binding and irrevocable
agreement of Lessee to pay the Termination Value and purchase such piece of
Equipment on such Termination Date and (iii) the Officer's Certificate described
in Section 16.1(b).
(b) On the Termination Date, Lessee shall pay to Lessor the
Termination Value for the applicable piece of Equipment, plus all amounts owing
in respect of Rent for such piece of Equipment (including Supplemental Rent)
theretofore accruing and Lessor shall convey such piece of Equipment to Lessee
(or Lessee's designee) all in accordance with Section 19.1.
SECTION 17. DEFAULT
17.1 Lease Events of Default. If any one or more of the
following events (each a "Lease Event of Default") shall occur:
<PAGE> 21
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(a) Lessee shall fail to make payment of (i) any Basic Rent
within five (5) Business Days after the same has become due and payable
or (ii) any Maximum Residual Guarantee Amount, Purchase Option Price or
Termination Value after the same has become due and payable; or
(b) Lessee shall fail to make payment of any Supplemental Rent
due and payable within five (5) Business Days after receipt of notice
thereof; or
(c) Lessee shall fail to maintain insurance as required by
Section 14; or
(d) Guarantors shall default in the observance or performance
of any agreement contained in Sections 10 and 11 of the Guarantee; or
(e) Lessee or any Guarantor shall default in the observance or
performance of any term, covenant or condition of Lessee or of such
Guarantor, respectively, under this Lease, the Participation Agreement,
the Guarantee or any other Operative Agreement to which it is a party
(other than those set forth in Section 17.1(a), (b), (c) or (d) hereof)
and such default shall continue unremedied for a period of 30 days or
any representation or warranty by Lessee or any Guarantor,
respectively, set forth in this Lease, the Guarantee or in any other
Operative Agreement or in any document entered into in connection
herewith or therewith or in any document, certificate or financial or
other statement delivered in connection herewith or therewith shall be
false or inaccurate in any material respect; or
(f) a Credit Agreement Event of Default (other than those set
forth in Sections 6.1 (a), (b), (d), (f), (g), (h), (i) or (p) of the
Credit Agreement) shall have occurred and be continuing; or
(g) an event of default under the Corporate Credit Agreement
shall have occurred and be continuing;
then, in any such event, Lessor may, in addition to the other rights and
remedies provided for in this Section 17 and in Section 18.1, terminate this
Lease by giving Lessee five (5) days notice of such termination, and this Lease
shall terminate. Lessee shall, to the fullest extent permitted by law, pay as
Supplemental Rent all costs and expenses incurred by or on behalf of Lessor,
including fees and expenses of counsel, as a result of any Lease Event of
Default hereunder.
17.2 Final Liquidated Damages. If a Lease Event of Default
shall have occurred and be continuing, Lessor shall have the right to recover,
by demand to Lessee and at Lessor's election, and Lessee shall pay to Lessor, as
and for final liquidated damages, but exclusive of the indemnities payable under
Section 13 of the Participation Agreement (to the extent any such liabilities do
not constitute Supplemental Rent), and in lieu of all damages beyond the date of
such demand the sum of (a) the Termination Value, plus (b) all other amounts
owing in respect of Rent and Supplemental Rent theretofore accruing under this
Lease. Upon payment of the amount specified pursuant to the first sentence of
this Section 17.2, Lessee shall be entitled to receive from Lessor, at Lessee's
<PAGE> 22
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request and cost, an assignment of Lessor's right, title and interest in the
Equipment, in each case in conformity with local custom and free and clear of
the Lien of the Security Agreement and any Lessor Liens. The Equipment shall be
quitclaimed to Lessee (or Lessee's designee) "AS IS" and in its then present
physical condition. If any statute or rule of law shall limit the amount of such
final liquidated damages to less than the amount agreed upon, Lessor shall be
entitled to the maximum amount allowable under such statute or rule of law.
17.3 Remedies. If any Lease Event of Default shall have
occurred and be continuing, Lessor may exercise in any order one or more or all
of the remedies set forth in this Section 17.3 (it being understood that no
remedy herein conferred is intended to be exclusive of any other remedy or
remedies, but each and every remedy shall be cumulative and shall be in addition
to every other remedy given herein or now or hereafter existing at law or in
equity or by statute).
(a) Lessor may proceed by appropriate court action or actions,
either at law or in equity, to enforce performance by Lessee of the
applicable covenants of this Lease or to recover damages for the breach
thereof;
(b) Lessor may by notice in writing to Lessee terminate this
Lease but Lessee shall remain liable as hereinafter provided; and
Lessor may, at its option, do any one or more of the following: (i)
declare the Termination Value, plus all other amounts owing in respect
of Rent or Supplemental Rent theretofore accruing under the Lease, all
other amounts then payable by Lessee under this Lease and the other
Operative Agreements to be immediately due and payable, and recover any
other damages and expenses in addition thereto which Lessor shall have
sustained by reason of such Event of Default; (ii) enforce the security
interest given hereunder pursuant to the Uniform Commercial Code as
provided in Section 28 or any other law; (iii) enter upon the premises
where the Equipment is located and take possession of it; and (iv)
require Lessee to return the Equipment as provided in Section 10.2; or
(c) Lessor may require Lessee immediately to purchase the
Equipment for a purchase price equal to the sum of the Termination
Value, plus all other amounts owing in respect of Rent or Supplemental
Rent theretofore accruing under the Lease and all other amounts then
due and payable under the Operative Agreements.
17.4 Additional Remedies. In addition to the remedies set
forth in Sections 17.2 and 17.3, if any Lease Event of Default shall have
occurred and be continuing, Lessor may, but is not required to, sell the
Equipment in one or more sales, and Lessor may purchase all or any part of the
Equipment at such sale. Lessee acknowledges that sales for cash or on credit to
a wholesaler, retailer or user of such Equipment, at a public or private
auction, are all commercially reasonable. Any notice required by law of intended
disposition by Lessor shall be deemed reasonable and properly given if given at
least ten (10) Business Days before such disposition.
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18
17.5 Proceeds of Sale; Deficiency. All payments received and
amounts held or realized by the Lessor at any time when a Lease Event of Default
shall have occurred and be continuing and after the Termination Value shall have
been accelerated pursuant to Section 17.2 or 17.3 as well as all payments or
amounts then held or thereafter received by Lessor shall be conveyed to the
Agent as required by the Assignment of Lease and distributed pursuant to Section
8.2 of the Credit Agreement.
17.6 Waiver of Certain Rights. If this Lease shall be
terminated pursuant to Section 17.1, Lessee waives, to the fullest extent
permitted by law, (a) any notice of re-entry or the institution of legal
proceedings to obtain re-entry or possession; (b) any right of redemption,
re-entry or repossession; (c) the benefit of any laws now or hereafter in force
exempting property from liability for rent or for debt; and (d) any other rights
which might otherwise limit or modify any of Lessor's rights or remedies under
this Section 17.
17.7 Assignment of Rights Under Contracts. If a Lease Event of
Default shall have occurred and be continuing, and whether or not this Lease
shall have been terminated pursuant to Section 17.1 and provided that Lessee
shall not have purchased the Equipment pursuant to Section 20, Lessee shall upon
Lessor's demand immediately assign, transfer and set over to Lessor, to the
extent transferable, all of Lessee's right, title and interest in and to each
agreement executed by Lessee in connection with the use or operation of the
Equipment (including all right, title and interest of Lessee with respect to all
warranty, performance, service and indemnity provisions), as and to the extent
that the same relate to the use, maintenance or operation of the Equipment.
SECTION 18. LESSOR'S RIGHT TO CURE
18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor,
without waiving or releasing any obligation or Lease Event of Default, may (but
shall be under no obligation to) remedy any Lease Event of Default for the
account and at the sole cost and expense of Lessee, including the failure by
Lessee to maintain any insurance required by Section 14, and may, to the fullest
extent permitted by law, and notwithstanding any right of quiet enjoyment in
favor of Lessee, enter upon the premises where the Equipment is located for such
purpose and take all such action thereon as may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All reasonable
out-of-pocket costs and expenses so incurred (including the reasonable fees and
expenses of counsel), together with interest thereon at the Overdue Rate from
the date on which such sums or expenses are paid by Lessor, shall be paid by
Lessee to Lessor on demand as Supplemental Rent.
SECTION 19. LEASE TERMINATION
19.1 Provisions Relating to Lessee's Termination of this Lease
or Exercise of Purchase Option. In connection with any termination of this Lease
with respect to any Equipment pursuant to the terms of Section 16.2, or in
connection with Lessee's exercise of its Purchase Option or Maturity Date
Purchase Option, upon the date on which this Lease is
<PAGE> 24
19
to terminate with respect to the applicable piece of Equipment or upon the
Expiration Date with respect to the applicable piece of Equipment, and upon
tender by Lessee of the amounts set forth in Section 16.2(b), 20.1 or 20.2, as
applicable:
(a) Lessor shall execute and deliver to Lessee (or to Lessee's
designee) at Lessee's cost and expense an assignment of Lessor's entire
interest in the applicable Equipment, in each case in recordable form
and otherwise in conformity with local custom and free and clear of the
Lien of the Security Agreement and any Lessor Liens; and
(b) The applicable Equipment shall be conveyed to Lessee "AS
IS" and in then present physical condition.
19.2 Aggregate Tranche A Percentage. Notwithstanding any other
provision of this Lease or the other Operative Agreements, the Lessee shall not
be permitted to terminate this Lease with respect to a piece of Equipment
pursuant to Section 16 or exercise its Purchase Option with respect to a piece
of Equipment pursuant to Section 20.1 if the Aggregate Tranche A Percentage,
after giving effect to the termination of this Lease with respect to such piece
of Equipment would be less than 85% or more than 89.9%.
SECTION 20. PURCHASE OPTION
20.1 Purchase Option. Lessee shall have the option
(exercisable by giving Lessor irrevocable written notice (the "Purchase Notice")
of Lessee's election, to exercise such option not less than ten (10) days prior
to the date of purchase pursuant to such option) to purchase one or more of the
pieces of Equipment on the date specified in such Purchase Notice, which date
must occur prior to the date which is six months prior to the Maturity Date, at
a price equal to the Termination Value (the "Purchase Option Price") (which the
parties do not intend to be a "bargain" purchase price) of such piece of
Equipment; provided, however, that Lessee shall only have such option with
respect to less than all of the Equipment if no Lease Default or Lease Event of
Default shall have occurred and be continuing. If Lessee exercises its option to
purchase one or more of the pieces of Equipment pursuant to this Section 20.1
(the "Purchase Option"), Lessor shall transfer to Lessee or Lessee's designee
all of Lessor's right, title and interest in and to such piece of Equipment as
of the date specified in the Purchase Notice upon receipt of the Purchase Option
Price and all Rent and other amounts then due and payable under this Lease and
any other Operative Agreement, in accordance with Section 19.1. Notwithstanding
the foregoing, (A) Lessee on not less than three (3) days prior notice may
exercise the Purchase Option to purchase one or more pieces of Equipment if the
purchase of such Equipment will cure an Event of Default and (B) if the Houston
Pipeline Purchase Option or a purchase option held by a sublessee or licensee of
a piece of Equipment has been exercised, then Lessee may exercise the Purchase
Option with respect to such piece of Equipment even if a Lease Default or Lease
Event of Default has occurred.
20.2 Maturity Date Purchase Option. Not less than six months
prior to the Maturity Date, Lessee may give Lessor and Agent irrevocable written
notice (the "Maturity
<PAGE> 25
20
Date Election Notice") that Lessee is electing to exercise the Maturity Date
Purchase Option. If Lessee does not give a Maturity Date Election Notice on or
before the date six months prior to the Maturity Date or if Lessee has not
exercised the Purchase Option with respect to all of the Equipment, then Lessee
shall be obligated to remarket the Equipment pursuant to Section 21. If Lessee
has elected to exercise the Maturity Date Purchase Option, then on the Maturity
Date Lessee shall pay to Lessor an amount equal to the Termination Value for all
the Equipment (which the parties do not intend to be a "bargain" purchase price)
and, upon receipt of such amount plus all Rent and other amounts then due and
payable under this Lease and any other Operative Agreement, Lessor shall
transfer to Lessee or Lessee's designee all of Lessor's right, title and
interest in and to the Equipment in accordance with Section 19.1.
20.3 Obligation to Purchase All Equipment. If six months prior
to the Maturity Date, the then Termination Value of all the Equipment is less
than the Maximum Purchase Option Amount, then on the Maturity Date Lessee shall
be required to exercise its Maturity Date Purchase Option on the Maturity Date
with respect to all remaining Equipment.
SECTION 21. SALE OF EQUIPMENT
21.1 Sale Procedure. (a) With respect to each piece of
Equipment, unless Lessee shall have elected to purchase such Equipment and has
paid the relevant purchase price pursuant to Section 20.1 or 20.2 with respect
thereto, or otherwise terminated this Lease with respect thereto and paid the
Termination Value with respect thereto, Lessee shall (i) pay to Lessor the
Maximum Residual Guarantee Amount for such piece of Equipment as provided for in
Section 21.1(c), and (ii) sell such piece of Equipment, to one or more third
parties for cash in accordance with Section 21.1(b).
(b) During the Marketing Period, Lessee, as nonexclusive
broker for Lessor, shall use its best efforts to obtain bids for the cash
purchase of each piece of Equipment, being sold for the highest price available
in the relevant market, shall notify Lessor promptly of the name and address of
each prospective purchaser and the cash price which each prospective purchaser
shall have offered to pay for such piece of Equipment and shall provide Lessor
with such additional information about the bids and the bid solicitation
procedure as Lessor may reasonably request from time to time. Lessor may reject
any and all bids and may assume sole responsibility for obtaining bids by giving
Lessee written notice to that effect; provided, however, that notwithstanding
the foregoing, Lessor may not reject a bid if such bid, together with any
amounts to be paid pursuant to Section 21.3, is greater than or equal to the sum
of the Limited Deficiency Amount and all costs and expenses referred to in
Section 21.2(i) and is a bona fide offer by a third party purchaser who is not
an Affiliate of Lessee. If the price which a prospective purchaser shall have
offered to pay for all or any of the Equipment is less than the sum of the
Limited Deficiency Amount and all costs and expenses referred to in Section
21.2(i), Lessor may elect to retain the Equipment by giving Lessee at least two
Business Days' prior written notice of Lessor's election to retain the
Equipment, and upon receipt of such notice, Lessee shall surrender the Equipment
to Lessor pursuant to Section 10.2. Unless Lessor shall have elected to retain
the Equipment pursuant to the preceding sentence, following the
<PAGE> 26
21
Maturity Date Lessor shall sell the Equipment free of any Lessor Liens
attributable to it, without recourse or warranty, for cash to the purchaser or
purchasers identified by Lessee or Lessor, as the case may be. Lessee shall
surrender the Equipment so sold to each purchaser in the condition specified in
Section 10.2.
(c) On each date during the Marketing Period on which a piece
of Equipment is sold pursuant to Section 21.1(b), and on the Maturity Date with
respect to any Equipment remaining unsold, Lessee shall pay to Lessor the
Maximum Residual Guarantee Amount for such Equipment.
21.2 Application of Proceeds of Sale. Lessor shall apply the
proceeds of sale of each piece of Equipment in the following order of priority:
(i) FIRST, to pay or to reimburse Lessor and Lessee for
the payment of all reasonable costs and expenses incurred by Lessor and
Lessee in connection with the sale; and
(ii) SECOND, the balance shall be paid to the Agent to be
applied pursuant to the provisions of Section 8 of the Credit
Agreement.
21.3 Indemnity for Excessive Wear. If the proceeds of the sale
described in Section 21.1(b) with respect to any piece of Equipment, less all
expenses incurred by Lessor or Lessee in connection with such sale, shall be
less than the Limited Deficiency Amount for such piece of Equipment at the time
of such sale and if it shall have been determined (pursuant to the Appraisal
Procedure) that the Fair Market Sales Value of such piece of Equipment shall
have been impaired by greater than expected wear and tear during the Term,
Lessee shall pay to Lessor within ten (10) days after receipt of Lessor's
written statement (i) the amount of such excess wear and tear determined by the
Appraisal Procedure or (ii) the amount of the Net Sale Proceeds Shortfall,
whichever amount is less; provided that such Wear and Tear Payments shall not
prevent Lessee from accounting for this Lease as an operating lease under SFAS
NO. 13.
21.4 Appraisal Procedure. For determining the Fair Market
Sales Value of a piece of Equipment or any other amount which may, pursuant to
any provision of any Operative Agreement, be determined by an appraisal
procedure but with respect to which no appraisal or valuation method is
specified, Lessor and Lessee shall use the following procedure (the "Appraisal
Procedure"). Lessor and Lessee shall endeavor to reach a mutual agreement as to
such amount for a period of ten (10) days from commencement of the Appraisal
Procedure, and if they cannot agree within ten (10) days, then two qualified
appraisers, one chosen by Lessee and one chosen by Lessor, shall mutually agree
thereupon, but if either party shall fail to choose an appraiser within twenty
(20) days after notice from the other party of the selection of its appraiser,
then the appraisal by such appointed appraiser shall be binding on Lessee and
Lessor. If the two appraisers cannot agree within twenty (20) days after both
shall have been appointed, then a third appraiser from a nationally recognized
independent appraisal firm (with at least 15 years of experience appraising
equipment similar to and used in the same industry as the Equipment) shall be
selected by the two appraisers or, failing agreement as to such third appraiser
within thirty
<PAGE> 27
22
(30) days after both shall have been appointed, by the American Arbitration
Association. The decisions of the three appraisers shall be given within twenty
(20) days of the appointment of the third appraiser and the decision of the
appraiser most different from the average of the other two shall be discarded
and such average shall be binding on Lessor and Lessee; provided that if the
highest appraisal and the lowest appraisal are equidistant from the third
appraisal, the third appraisal shall be binding on Lessor and Lessee. The fees
and expenses of all of the appraisers shall be paid by the Lessee.
21.5 Certain Obligations Continue. During the Marketing
Period, the obligation of Lessee to pay Rent with respect to each piece of
Equipment (including the installment of Basic Rent due on the Maturity Date)
shall continue undiminished until payment in full to Lessor of the sale
proceeds, the Maximum Residual Guarantee Amount, if any, the amount due under
Section 21.3, if any, and all other amounts due to Lessor with respect to the
piece of Equipment. Lessor shall have the right, but shall be under no duty, to
solicit bids, to inquire into the efforts of Lessee to obtain bids or otherwise
to take action in connection with any such sale, other than as expressly
provided in this Section 21.
SECTION 22. HOLDING OVER
22.1 Holding Over. If Lessee shall for any reason remain in
possession of a piece of Equipment after the expiration or earlier termination
of this Lease (unless the piece of Equipment is conveyed to Lessee), such
possession shall be as a tenancy at sufferance during which time Lessee shall
continue to pay Supplemental Rent that would be payable by Lessee hereunder were
the Lease then in full force and effect with respect to such piece of Equipment
and Lessee shall continue to pay Basic Rent at an annual rate equal to the rate
payable hereunder immediately preceding such expiration or earlier termination;
provided, however, that from and after the sixtieth (60th) day Lessee shall
remain in possession of such piece of Equipment after such expiration or earlier
termination, Lessee shall pay Basic Rent at an annual rate equal to two hundred
percent (200%) of the Basic Rent payable hereunder immediately preceding such
expiration or earlier termination. Such Basic Rent shall be payable from time to
time upon demand by Lessor. During any period of tenancy at sufferance, Lessee
shall, subject to the second preceding sentence, be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to tenants
at sufferance, to continue its occupancy and use of the piece of Equipment.
Nothing contained in this Section 22 shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease as to any piece of Equipment and nothing contained
herein shall be read or construed as preventing Lessor from maintaining a suit
for possession of any piece of Equipment or exercising any other remedy
available to Lessor at law or in equity.
SECTION 23. RISK OF LOSS
23.1 Risk of Loss. The risk of loss of or decrease in the
enjoyment and beneficial use of the Equipment as a result of the damage or
destruction thereof by fire, the
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23
elements, casualties, thefts, riots, wars or otherwise is assumed by Lessee, and
Lessor shall in no event be answerable or accountable therefor (except
specifically with respect to its gross negligence or wilful misconduct).
SECTION 24. SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment. Lessee may not assign this
Lease or any of its rights or obligations hereunder in whole or in part other
than as permitted by the Operative Agreements. Lessee may, without the consent
of Lessor, sublease or license the Equipment or any piece of Equipment to any
Person; provided that as of the Expiration Date no sublease or license shall
provide for a purchase option on behalf of the sublessee or licensee nor have a
remaining term of more than six months. No sublease, license or other
relinquishment of possession of the Equipment shall in any way discharge or
diminish any of Lessee's obligations to Lessor hereunder and Lessee shall remain
directly and primarily liable under this Lease as to the Equipment so sublet or
licensed.
24.2 Subleases or Licenses. Promptly following the execution
and delivery of any sublease or license permitted by this Section 24, Lessee
shall deliver an executed copy thereof to Lessor and the Agent if requested by
either.
SECTION 25. ESTOPPEL CERTIFICATES
25.1 Estoppel Certificates. At any time and from time to time
upon not less than twenty (20) days' prior request by Lessor, the Lessee shall
furnish to the Lessor a certificate signed by an individual having the office of
vice president or higher with Lessee certifying to the extent accurate that this
Lease is in full force and effect (or that this Lease is in full force and
effect as modified and setting forth the modifications); the dates to which the
Basic Rent and Supplemental Rent have been paid; to the best knowledge of the
signer of such certificate, whether or not the Lessor is in default under any of
its obligations hereunder (and, if so, the nature of such alleged default); and
such other matters under this Lease as the Lessor may reasonably request. Any
such certificate furnished pursuant to this Section 25 may be relied upon by the
Lessor, and any existing or prospective purchaser or lender, and any accountant
or auditor, of, from or to the Lessor (or any Affiliate thereof).
SECTION 26. NO WAIVER
26.1 No Waiver. No failure by Lessor or Lessee to insist upon
the strict performance of any term hereof or to exercise any right, power or
remedy upon a default hereunder, and no acceptance of full or partial payment of
Rent during the continuance of any such default, shall constitute a waiver of
any such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
<PAGE> 29
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SECTION 27. ACCEPTANCE OF SURRENDER
27.1 Acceptance of Surrender. (a) As of the Expiration Date,
if any Lease Default shall have occurred and be continuing under the Lease or
the representations and warranties set forth in Section 7.5(h)-(m) of the
Participation Agreement shall not be true and correct in any material respects,
then Lessee shall be deemed to have irrevocably exercised the Maturity Date
Purchase Option pursuant to Section 20.2.
(b) Except as otherwise expressly provided in this Lease, no
surrender to Lessor of this Lease or of all or any portion of the Equipment or
of any interest therein shall be valid or effective unless agreed to and
accepted in writing by Lessor and, prior to the payment or performance of all
obligations under the Credit Documents, the Agent, and no act by Lessor or the
Agent or any representative or agent of Lessor or the Agent, other than a
written acceptance, shall constitute an acceptance of any such surrender.
SECTION 28. OWNERSHIP, GRANT OF SECURITY
INTEREST AND FURTHER ASSURANCES
28.1 Grant of Security Interest. Other than Equipment
purchased by Lessee pursuant to Section 20, title to the equipment shall remain
in Lessor as security for the obligations of the Guarantors under the Guarantee
and the obligations of Lessee hereunder and under each of the other Operative
Agreements to which it is a party, until such time as Lessee and the Guarantors
have fulfilled all of their obligations hereunder and under such other Operative
Agreements. Lessee hereby assigns, grants and pledges to Lessor for the benefit
of Lessor a security interest in all of Lessee's right, title and interest,
whether now or hereafter existing or acquired, in (A) the Equipment (other than
Equipment purchased by Lessee pursuant to Section 20) and (B) any proceeds in
connection with the Houston Pipeline Purchase Option, to secure the payment and
performance of all obligations of Lessee now or hereafter existing under this
Lease or any other Operative Agreement and of the Guarantors under the Guarantee
(the "Lease Secured Obligations"). Lessee shall, at its expense, do any further
act and execute, acknowledge, deliver, file, register and record any further
documents which Lessor may reasonably request in order to protect its title to
and perfected security interest in the Equipment, subject to no Liens other than
Permitted Liens, and Lessor's rights and benefits under this Lease. Subject to
the provisions of Section 10.3(b) of the Lease, Lessee shall promptly and duly
execute and deliver to Lessor such documents and assurances and take such
further action as Lessor may from time to time reasonably request in order to
carry out more effectively the intent and purpose of this Lease and the other
Operative Agreements, to establish and protect the rights and remedies created
or intended to be created in favor of Lessor hereunder and thereunder, and to
establish, perfect and maintain the right, title and interest of Lessor, in and
to the Equipment, subject to no Lien other than Permitted Liens and Lessor
Liens, or of such financing statements or fixture filings or other documents
with respect hereto as Lessor may from time to time reasonably request, and
Lessee agrees to execute and deliver promptly such of the foregoing financing
statements and fixture filings or other documents as may require execution by
Lessee. To the extent permitted by applicable laws, Lessee hereby
<PAGE> 30
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authorizes any such financing statements and fixture filings to be filed without
the necessity of the signature of Lessee, if Lessee has failed to sign any such
instrument within 10 Business Days after written request therefor by Lessor.
28.2 UCC Remedies. If a Lease Event of Default shall occur and
be continuing, Lessor may exercise, in addition to all other rights and remedies
granted to it in this Lease and in any other Operative Agreement, all rights and
remedies of a secured party under the UCC. Without limiting the generality of
the foregoing, Lessor, 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 Lessee 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 Equipment, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Equipment or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of Lessor or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lessor 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 Equipment so sold, free of any right or equity of
redemption in which right or equity is hereby waived or released. Lessee further
agrees, at Lessor's request, to assemble the Equipment and make it available to
the Lessor at places which the Lessor shall reasonably select, whether at
Lessee's premises or elsewhere. Lessor shall apply the net proceeds of any
action taken by it pursuant to this subsection, after deducting all reasonable
costs and expenses of every kind incurred in connection therewith or incidental
to the care or safekeeping of any of the Equipment or in any way relating to the
Equipment or the rights of Lessor, including, without limitation, reasonable
attorneys' fees and disbursements, to the payment in whole or in part of the
Lease Secured Obligations, in such order as Lessor may elect, and only after
such application and after the payment by Lessor of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
UCC, need Lessor account for the surplus, if any, to Lessee. If any notice of a
proposed sale or other disposition of the Equipment shall be required by law,
such notice shall be deemed reasonable and proper if given at lease 10 Business
Days before such sale or other disposition.
28.3 Waiver; Deficiency. Lessee waives and agrees not to
assert any rights or privileges which it may acquire under Section 9-112 of the
UCC. Lessee shall remain liable for any deficiency if the proceeds of any sale
or other disposition of the Equipment are insufficient to pay the Lease Secured
Obligations and the reasonable fees and disbursements of any attorneys employed
by Lessor to collect such deficiency.
28.4 Agent's Appointment as Attorney-in-Fact; Agent's
Performance of Lessee's Obligations. Lessee hereby irrevocable constitutes and
appoints the Agent and any officer or agent thereof, as assignee of all of
Lessor right under this Lease pursuant to the Assignment of Lease, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Lessee and in the name
<PAGE> 31
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of Lessee or in its own name, from time to time in the Agent's discretion, for
the purpose of carrying out the terms of this Lease, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Lease, and,
without limiting the generality of the foregoing, Lessee hereby gives the Agent
the power and right, on behalf of Lessee, without notice to or assent by Lessee,
to do any or all of the following:
(a) in the name of Lessee or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under or
with respect to the Equipment and file any claim or take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by the Agent for the purpose of collecting any and all such
moneys due under or with respect to the Equipment whenever payable;
(b) pay or discharge taxes and Liens levied or placed on or
threatened against the Equipment, effect any repairs or any insurance
called for by the terms of this Lease and to pay all or any part of the
premiums therefor and the costs thereof;
(c) execute, in connection with the sale provided for in
Section 28.2 hereof, any indorsements, assignments or other instruments
of conveyance or transfer with respect to the Equipment; and
(d) (1) direct any party liable for any payment under any of
the Equipment to make payment of any and all moneys due or to become
due thereunder directly to the Agent or as the Agent shall direct; (2)
ask or demand for, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time
in respect of or arising out of any Equipment; (3) sign and indorse any
invoices, freight or express bills, bills of lading, storage or
warehouse receipts, drafts against debtors, assignments, verifications,
notices and other documents in connection with any of the Equipment;
(4) commence and prosecute any suits, actions or proceedings at law or
in equity in any court of competent jurisdiction to enforce any other
right in respect of any Equipment; (5) defend any suit, action or
proceeding brought against Lessee with respect to any Equipment; (6)
settle, compromise or adjust any such suit, action or proceeding and,
in connection therewith, to give such discharges or releases as the
Agent may deem appropriate; and (7) generally, sell, transfer, pledge
and make any agreement with respect to or otherwise deal with any of
the Equipment as fully and completely as thought the Agent were the
absolute owner thereof for all purposes, and do, at the Agent's option
and the Lessee's expense, at any time, or from time to time, all acts
and things which the Agent reasonably deems necessary to protect,
preserve or realize upon the Equipment and the Agent's security
interests therein and to effect the intent of this Lease, all as fully
and effectively as the Lease might do.
Anything in this subsection to the contrary notwithstanding, the Agent
agrees that it will not exercise any rights under the power of attorney provided
for in this subsection unless a Lease Event of Default shall have occurred and
be continuing.
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SECTION 29. NOTICES
29.1 Notices. Unless otherwise specifically provided herein,
all notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person to be effective shall be in writing (including by facsimile transmission)
and shall be deemed to have been duly given or made (a) when delivered by hand,
(b) one Business Day after delivery to such nationally recognized courier
service specifying overnight delivery, (c) three Business Days after being
deposited in the mail, certified or registered, postage prepaid or (d) in the
case of facsimile notice, when received, addressed to such Person as indicated:
If to Lessee: Hanover Compressor Company
12001 North Houston Rosslyn
Houston, Texas 77806
Attention: Chief Financial Officer
Telecopy: (281) 447-0821
With a copy to: Neal, Gerber & Eisenberg
Two North LaSalle, Suite 2100
Chicago, Illinois 60602
Attention: Richard S. Meller
Telecopy: (312) 269-1747
If to Lessor: Hanover Equipment Trust 1998A
C/O Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
with a copy to the Agent:
The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza
New York, New York 10081
Attention: Daniel Fischer
Telecopy: (212) 552-5777
and
<PAGE> 33
28
Credit and Lending
The Chase Manhattan Bank
270 Park Avenue, 32nd Floor
New York, NY 10017
Attention: Peter Ling
Telecopy: (212) 270-3897
or such additional parties and/or other address as such party may hereafter
designate.
SECTION 30. MISCELLANEOUS
30.1 Miscellaneous. Anything contained in this Lease to the
contrary notwithstanding, all claims against and liabilities of Lessee or Lessor
arising from events commencing prior to the expiration or earlier termination of
this Lease shall survive such expiration or earlier termination. If any term or
provision of this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby.
30.2 Amendments and Modifications. Neither this Lease nor any
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Lessor and Lessee.
30.3 Successors and Assigns. All the terms and provisions of
this Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
30.4 Headings and Table of Contents. The headings and table of
contents in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
30.5 Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
30.6 GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND
SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE.
30.7 Limitations on Recourse. Except as expressly set forth in
the Operative Agreements, Lessee agrees to look solely to Lessor's estate and
interest in the Equipment, the proceeds of sale thereof, any insurance proceeds
or any other award or any third party proceeds received by Lessor in connection
with the Equipment for the collection of any
<PAGE> 34
29
judgment requiring the payment of money by Lessor in the event of liability by
Lessor, and no other property or assets of Lessor, the Trust Company member,
partner or other owner of an interest, direct or indirect, in Lessor, or any
director, officer, shareholder, employee, beneficiary, Affiliate of any of the
foregoing shall be subject to levy, execution or other enforcement procedure for
the satisfaction of Lessee's remedies under or with respect to this Lease, the
relationship of Lessor and Lessee hereunder or Lessee's use of the Equipment or
any other liability of Lessor to Lessee. Nothing in this Section shall be
interpreted so as to limit the terms of Section 6.1 or 6.2.
30.8 Priority. On and prior to the Maturity Date, the Security
Agreement shall be subject and subordinate to this Lease and following the
Maturity Date, the Security Agreement, at the sole election of the Agent, shall
be senior to this Lease without any further act by any Person.
<PAGE> 35
30
IN WITNESS WHEREOF, the parties have caused this Lease be duly
executed and delivered as of the date first above written.
HANOVER COMPRESSOR COMPANY
By: /s/ CURTIS BEDRICH
------------------------------------
Name: Curtis Bedrich
Title: Treasurer
HANOVER EQUIPMENT TRUST 1998A
By: Wilmington Trust Company, not
individually but solely as Trustee
By: /s/ DONALD G. MACKELCAN
------------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
The undersigned agrees to the provisions of Section 28.4 and
acknowledges receipt of this original counterpart of the foregoing Lease on this
20th day of July, 1998.
THE CHASE MANHATTAN BANK, as the
Agent for the Lenders
By: /s/ PETER M. LING
------------------------------------
Name: Peter M. Ling
Title: Vice President
<PAGE> 1
EXHIBIT 10.2
GUARANTEE
GUARANTEE dated as of July 22, 1998, made by HANOVER
COMPRESSOR COMPANY, a Delaware corporation, HANOVER/SMITH, INC., a Delaware
corporation, HANOVER MAINTECH, INC., a Texas corporation and HANOVER LAND
COMPANY, a Texas corporation (individually, a "Guarantor", collectively, the
"Guarantors"), in favor of the Beneficiaries (as hereinafter defined).
Preliminary Statement
The Guarantors wish to induce (i) Hanover Equipment Trust
1998A (the "Lessor") to enter into the Lease and the other Operative Agreements
to which it is a party; (ii) the Lenders to enter into the Credit Agreement and
the other Operative Agreements to which they are party; and (iii) Societe
Generale Financial Corporation (the "Investor") to enter into the Participation
Agreement (as hereinafter defined) and the other Operative Agreements to which
it is a party.
NOW, THEREFORE, in consideration of the premises contained
herein and to induce (i) the Lessor to enter into the Lease and the other
Operative Agreements to which it is a party; (ii) the Lenders to enter into the
Credit Agreement and the other Operative Agreements to which it is a party; and
(iii) the Investor to enter into the Participation Agreement and the other
Operative Agreements to which it is a party, the Guarantors hereby agree for the
benefit of the Lessor, the Agent, for the ratable benefit of the Lenders and the
Investor and their respective successors and assigns (individually a
"Beneficiary", collectively, the "Beneficiaries"), as follows:
1. Defined Terms. (a) Capitalized terms not otherwise defined
herein (including in the Preliminary Statement) shall have the meanings ascribed
to them in Annex A to the Participation Agreement dated as of the date hereof
among Hanover Compressor Company ("HCC"), the Lessor, the Investor, The Chase
Manhattan Bank, as agent (the "Agent") and the several banks and financial
institutions from time to time party thereto (the "Lenders"), as the same may
from time to time be amended, supplemented or otherwise modified (the
"Participation Agreement").
(b) As used herein, the following terms shall have the
following meanings:
"Contribution Obligations" means the collective reference
to the outstanding amount of the Investor Contributions and the Investor Yield
with respect thereto and all rights of the Investor to receive distributions
under the Trust Agreement and any of the other Operative Agreements.
"Guaranteed Obligations" means the collective reference to
(i) the Note Obligations, (ii) the Contribution Obligations and (iii) the Lease
Obligations and, with respect to each such obligation, interest accruing thereon
at the applicable rate provided in
<PAGE> 2
2
the Operative Agreements after maturity and interest accruing at the then
applicable rate provided in the Operative Agreements after the filing of any
petition in bankruptcy, or the commencement of an insolvency, reorganization or
like proceeding, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and whether such obligations are direct
or indirect, absolute or contingent, due or to become due, or now existing or
hereinafter incurred, which may arise, under, out of or in connection with any
of the Operative Agreements, any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
Investor Contributions or Investor Yield, reimbursement obligations, fees,
indemnities, costs, expenses, or payment obligations (including, without
limitation, all fees and disbursements of counsel to any of the Beneficiaries
that are required to be paid by HCC pursuant to the terms of the Operative
Agreements).
"Lease Obligations" means the collective reference to the
payment obligations and undertakings applicable to HCC contained in or arising
under the Lease or any of the other Operative Agreements to which HCC is a
party, including, but not limited to, the full and punctual payment by HCC, when
due, of any and all Rent, the payments required pursuant to Section 17.2 and
17.3 of the Lease, the Purchase Option Price and the Maximum Residual Guarantee
Amount.
"Note Obligations" means the collective reference to the
unpaid principal of and interest on the Notes and all other payment obligations
and liabilities of the Lessor to the Agent and the Lenders under the Notes, the
Credit Agreement and any of the other Operative Agreements.
2. Guaranty. (a) Subject to the provisions of paragraph 2(b)
and (c), the Guarantors hereby, jointly and severally, unconditionally and
irrevocably guaranty to the Beneficiaries and their respective successors,
endorsees, transferees and assigns the prompt and complete payment when due
(whether at the stated maturity, by acceleration or otherwise) of the Guaranteed
Obligations.
(b) Anything to the contrary notwithstanding, the Guarantors
shall not at anytime be required to make any payment with regard to the Tranche
B Loans or with respect to the Contribution Obligations unless at such time a
Lease Event of Default has occurred and is continuing.
(c) Anything herein or in any other Operative Agreement to the
contrary notwithstanding, the maximum liability of each Guarantor (other than
HCC) hereunder and under the other Operative Agreement shall in no event exceed
the amount which can be guaranteed by such Guarantor under applicable federal
and state laws relating to the insolvency of debtors.
(d) The Guarantors further agree, jointly and severally, to
pay any and all costs, expenses (including all fees and disbursements of
counsel) and damages which may be paid or incurred in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting from
the Guarantors, any or all of the Guaranteed Obligations
<PAGE> 3
3
and/or enforcing any rights with respect to, or collecting against, the
Guarantors under this Guarantee.
3. Right of Set-off. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
an Event of Default, the Investor, Agent and each Lender is hereby authorized at
any time or from time to time, without presentment, demand, protest or other
notice of any kind to the Borrower, the Guarantors or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by the Investor, Agent or such Lender (including, without
limitation, by branches and agencies of the Investor, Agent or such Lender
wherever located) to or for the credit or the account of the Guarantors against
and on account of the obligations and liabilities of the Guarantors hereunder or
under any of the other Operative Agreements, and all other claims of any nature
or description arising out of or connected with this Guarantee or any other
Operative Agreement, irrespective of whether the Investor, Agent or such Lender
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, shall be contingent or unmatured. The Investor, Agent
and each Lender shall notify such Guarantor promptly of any such set-off and the
application made by the Investor, Agent or such Lender; provided, that the
failure to give such notice shall not affect the validity of such set-off and
application.
4. No Subrogation. Notwithstanding any payment or payments
made by the Guarantors hereunder or any set-off or application of funds of the
Guarantors by any Lender, the Guarantors shall not be entitled to exercise or
enforce any subrogation rights of the Investor, Agent or any Lender against the
Borrower or any other Person or any collateral security or guarantee or right of
offset held by the Investor, Agent or any Lender for the payment of the
Guaranteed Obligations, nor shall the Guarantors seek or be entitled to seek any
contribution or reimbursement from the Borrower or any other Person in respect
of payments made by the Guarantors hereunder, until all amounts owing to the
Investor, Agent and the Lenders by the Borrower on account of the Guaranteed
Obligations and all amounts owing hereunder are paid in full and the Commitments
are terminated. If any amount shall be paid to the Guarantors on account of such
subrogation rights at any time when all of the Guaranteed Obligations and all
amounts owing hereunder shall not have been paid in full or the Commitments
shall not have been terminated, such amount shall be held by the Guarantors in
trust for the Investor, Agent and the Lenders, segregated from other funds of
the Guarantors, and shall, forthwith upon receipt by the Guarantors, be turned
over to the Agent in the exact form received by the Guarantors (duly indorsed by
the Guarantors to the Agent, if required), to be applied against the Guaranteed
Obligations, whether matured or unmatured, in such order as the Agent may
determine.
5. Amendments, etc. with respect to the Guaranteed
Obligations; Waiver of Rights. The Guarantors shall remain obligated hereunder
notwithstanding that, without any reservation of rights against the Guarantors
and without notice to or further assent by the Guarantors, any demand for
payment of any of the Guaranteed Obligations made by the Investor, Agent or any
Lender may be rescinded by such party and any of the Guaranteed Obligations
continued, and the Guaranteed Obligations, or the liability of any other party
<PAGE> 4
4
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Investor, Agent or any Lender, and the Credit
Agreement, the Participation Agreement and the other Operative Agreements may be
amended, modified, supplemented or terminated, in whole or in part, as the Agent
(or the Required Lenders, as the case may be) may deem advisable from time to
time in accordance with the terms thereof, and any collateral security,
guarantee or right of offset at any time held by the Investor, Agent or any
Lender for the payment of the Guaranteed Obligations may be sold, exchanged,
waived, surrendered or released. Neither the Investor, Agent nor any Lender
shall have any obligation to protect, secure, perfect or insure any Lien at any
time held by it as security for the Guaranteed Obligations or for this Guarantee
or any property subject thereto. When making any demand hereunder against the
Guarantors, the Investor, Agent or any Lender may, but shall be under no
obligation to, make a similar demand on the Borrower or any other guarantor, and
any failure by the Investor, Agent or any Lender to make any such demand or to
collect any payments from the Borrower or any other guarantor or any release of
the Borrower or such other guarantor shall not relieve the Guarantors from their
obligations under this Guarantee, and shall not impair or affect the rights and
remedies, express or implied, or as a matter of law, of the Investor, Agent or
any Lender against the Guarantors. For the purposes hereof "demand" shall
include the commencement and continuance of any legal proceedings.
6. Guarantee Absolute and Unconditional. Each Guarantor waives
any and all notice of the creation, renewal, extension or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by the Investor, Agent
or any Lender upon this Guarantee or acceptance of this Guarantee, the
Guaranteed Obligations, and any of them, shall conclusively be deemed to have
been created, contracted or incurred, or renewed, extended, amended or waived,
in reliance upon this Guarantee; and all dealings between the Borrower and such
Guarantor, on the one hand, and the Agent and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had or consummated in
reliance upon this Guarantee. Each Guarantor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon the
Borrower or such Guarantor with respect to the Guaranteed Obligations. Each
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee and surety of payment without
regard to (a) the validity, regularity or enforceability of the Credit Agreement
or any other Operative Agreement, any of the Guaranteed Obligations or any other
collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Investor, Agent or any
Lender, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted by
the Borrower or such Guarantor against the Investor, Agent or any Lender, or (c)
any other circumstance whatsoever (with or without notice to or knowledge of the
Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Guaranteed
Obligations, or of such Guarantor under this Guarantee, in bankruptcy or in any
other instance. When pursuing its rights and remedies hereunder against any
Guarantor, the Agent and any Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Borrower or any
<PAGE> 5
5
other Person or against any collateral security or guarantee for the Guaranteed
Obligations or any right of offset with respect thereto, and any failure by the
Investor, Agent or any Lender to pursue such other rights or remedies or to
collect any payments from the Borrower or any such other Person or to realize
upon any such collateral security or guarantee or to exercise any such right of
offset, or any release of the Borrower or any such other Person or any such
collateral security, guarantee or right of offset, shall not relieve such
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
Agent and the Lenders against such Guarantor. This Guarantee shall remain in
full force and effect and be binding in accordance with and to the extent of its
terms upon such Guarantor and the successors and assigns thereof, and shall
inure to the benefit of the Agent and the Lenders, and their respective
successors, indorsees, transferees and assigns, until all the Guaranteed
Obligations and the obligations of such Guarantor under this Guarantee shall
have been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Guaranteed Obligations.
7. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Guaranteed Obligations is rescinded or must
otherwise be restored or returned by the Investor, Agent or any Lender upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or the Guarantors, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or the Guarantors or any substantial part of its property, or
otherwise, all as though such payments had not been made.
8. Payments. The Guarantors hereby guarantee that payments
hereunder will be paid to the Agent without set-off or counterclaim in Dollars
at the office of the Agent located at 270 Park Avenue, New York, New York 10017.
9. Representations, Warranties. In order to induce the Lenders
to enter into the Credit Agreement and to make the Loans, the Investor to enter
into the Participation Agreement and make the Investor Contribution and the
Lessor to enter into the Lease, HCC hereby represents and warrants to the
Beneficiaries as follows, all of which shall survive the execution and delivery
of this Guarantee and the Credit Agreement and the making of the Loans:
9.1 Financial Condition. (a) The consolidated balance sheets
of HCC and its consolidated Subsidiaries as at December 31, 1997 and December
31, 1996 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 Lender, present fairly, in all
material respects, 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, 1998, the related unaudited consolidated statements
of income and of cash flows for the three month period ended on such date,
certified by a Responsible Officer of HCC, copies
<PAGE> 6
6
of which have heretofore been furnished to each Lender, present fairly, in all
material respects, 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 month period 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 as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein). Other than the Guarantor Obligations permitted under Section 11.4
below, neither HCC nor any of its consolidated Subsidiaries had, at the date of
the most recent balance sheet referred to above, any material Guarantor
Obligation, reasonably foreseeable 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 9.1(b) hereto, during the period from
March 31, 1998 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 March 31, 1998.
9.2 No Change. Except as set forth in HCC's form 10-Q filed
with respect to the period ending March 31, 1998, (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 9.2 to this Guarantee, as of the date hereof, 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.
9.3 Corporate Existence; Compliance with Law. Each Guarantor
(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
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.
9.4 Corporate Power; Authorization; Enforceable Obligations.
Each Guarantor has the corporate power and authority, and the legal right, to
make, deliver and perform the Operative Agreements to which it is a party. HCC
has the corporate power and authority, and the legal right, to perform the
Operative Agreements and has taken all
<PAGE> 7
7
necessary corporate action to authorize the performing under the Operative
Agreements on the terms and conditions of the Operative Agreements. Each
Guarantor has taken all necessary corporate action to authorize the execution,
delivery and performance of this Guarantee. 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 that have been obtained and consents or
authorizations the failure to obtain would not, in the aggregate, reasonably be
expected to have a Material Adverse Effect) is required in connection with the
Loans or with the execution, delivery, performance, validity or enforceability
of this Guarantee or any of the other Operative Agreements. This Guarantee has
been duly executed and delivered on behalf of the Guarantors party hereto. This
Guarantee constitutes, each Operative Agreement when executed and delivered will
constitute, a legal, valid and binding obligation of the Guarantors party
thereto enforceable against such Guarantors 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).
9.5 No Legal Bar. The execution, delivery and performance of
this Guarantee and the other Operative Agreements, the Loans and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of any Guarantor 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 and except to the extent any such
violation or creation or imposition of a Lien would not reasonably be expected
to have a Material Adverse Effect.
9.6 No Material Litigation. Except as set forth in HCC's Form
10-Q, filed with respect to the period ending March 31, 1998, 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
Guarantor or against any of their respective properties or revenues (a) with
respect to this Guarantee or the other Operative Agreements or any of the
transactions contemplated hereby, or (b) which would reasonably be expected to
have a Material Adverse Effect.
9.7 No Default. None of the Guarantors 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.
9.8 Ownership of Property; Liens; Leases of Equipment. Each of
the Guarantors 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 Section 11.3. None of the Equipment or Inventory (as defined in the Uniform
Commercial Code) owned by any Guarantor has been leased by such Guarantor as
lessor, except pursuant to operating leases (which do not constitute Financing
Leases). As used
<PAGE> 8
8
herein, Equipment or Inventory leased by a Guarantor under a Financing Lease
shall be deemed "owned" by such Guarantor.
9.9 Intellectual Property. Each Guarantor 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 each Guarantor, 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 each Guarantor 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 Guarantors 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.
9.10 Taxes. Each of the Guarantors has filed or caused to be
filed all tax returns which, to the knowledge of each Guarantor, 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
Guarantors, as the case may be); no tax Lien has been filed against the property
of any Guarantor, and, to the knowledge of each Guarantor, no claim is being
asserted, with respect to any such tax, fee or other charge.
9.11 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 Lender or the Agent,
HCC will furnish to the Agent and each Lender a statement to the foregoing
effect in conformity with the requirements of FR Form U-1 referred to in said
Regulation U.
9.12 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 representation is made or deemed made, exceed the value of the assets of
such Plan allocable to such
<PAGE> 9
9
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.
9.13 Investment Company Act; Other Regulations. None of the
Guarantors 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 Guarantors 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 Guarantors 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.
9.14 Subsidiaries. As of the Initial Closing Date, HCC has no
Subsidiaries other than as set forth on Schedule 9.14. Except if a Guarantor,
other than cash or Cash Equivalents located in bank accounts at the Agent, none
of the assets owned by any Unqualified Subsidiary as of the date hereof are
located within the United States of America or any territory thereof.
9.15 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 Guarantors (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 9.15, the Properties do
not contain, and have not previously contained, in, on, or under,
including, without limitation, the soil and groundwater thereunder, any
Hazardous Substances in concentrations which violate Environmental
Laws.
(b) Except as set forth on Schedule 9.15, the Properties and
all operations and facilities at the Properties are in compliance with
all Environmental Laws, and there is no Hazardous Substances
contamination or violation of any Environmental Law which would
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 9.15, none of the
Guarantors has received any complaint, notice of violation, alleged
violation, investigation or
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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 Guarantor any such notice.
(d) Hazardous Substances have not been generated, treated,
stored, disposed of, at, on or under any of the Properties, nor have
any Hazardous Substances 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 Guarantor.
(e) There are no governmental, administrative actions or
judicial proceedings pending or contemplated under any Environmental
Laws to which any Guarantor is or to HCC's knowledge will be named as a
party with respect to the Properties, nor to HCC's knowledge 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.
9.16 Accuracy and Completeness of Information. The factual
statements contained in the Operative Agreements 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 Lenders by any
Guarantor from time to time in connection with this Guarantee (in any case
excluding any of the financial statements referred to in Section 9.1(a) and 10.1
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 or therein.
10. Affirmative Covenants of the Guarantor. Each Guarantor
hereby covenants and agrees that so long as this Guarantee is in effect and
until the Commitments have terminated and the Guaranteed Obligations and all
amounts owing hereunder are paid in full such Guarantor will:
10.1 Financial Statements. Furnish to each Lender and the
Investor:
(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 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 Lenders;
<PAGE> 11
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(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; and
(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;
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).
10.2 Certificates; Other Information. Furnish to each Lender
and the Investor:
(a) concurrently with the delivery of the financial statements
referred to in subsection 10.1(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 10.1(a) and 10.1(c), a certificate of a
Responsible Officer stating that, to the best of such Responsible
Officer's knowledge, HCC during such period has observed or performed
all of its covenants and other agreements, and satisfied every material
condition, contained in this Guarantee and the other Operative
Agreements to which it is a party to be observed, performed or
satisfied by it, and that such Responsible 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
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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 HCC'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 10.1(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) 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
(g) promptly, such additional financial and other information
as any Lender or the Investor may from time to time reasonably request.
10.3 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.
10.4 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 Section 11.5; 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.
10.5 Maintenance of Property; Insurance. HCC will, and will
cause each of its Subsidiaries to, (a) keep and maintain all property material
to the conduct of its business in good working order and condition, ordinary
wear and tear excepted, and (b) maintain, with financially sound and reputable
insurance companies, insurance in such
<PAGE> 13
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amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.
10.6 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 Investor or any Lender 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 examination or discussion shall unreasonably
disrupt or interfere with normal operations of HCC or any of its Subsidiaries
and any such representatives of the Investor, Agent and the Lenders 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 10.6.
10.7 Notices. Promptly give notice to the Investor, Agent and
each Lender 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 or (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 $5,000,000 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 has actual knowledge 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
<PAGE> 14
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(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 occurrence referred to therein
and stating what action HCC proposes to take with respect thereto.
10.8 Environmental Laws.
(a) Comply in all material respects with, and undertake all
reasonable efforts to ensure compliance by all tenants and subtenants,
if any, with, all Environmental Laws and obtain and comply in all
material respects with and maintain, and undertake all reasonable
efforts to ensure 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 in all material respects 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 the
Lenders, 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) Maintain 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.
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10.9 Subsequent Guarantees. HCC shall cause each Qualified
Subsidiary of HCC for which the aggregate value of all assets owned by such
Qualified Subsidiary is or becomes greater than $20,000,000, to execute an
amendment to this Guarantee, substantially in the form of Exhibit A hereto
within one-year after the later of (i) the date on which such Qualified
Subsidiary becomes a Subsidiary of HCC and (ii) the date on which such Qualified
Subsidiary's assets attain an aggregate value in excess of $20,000,000;
provided, however, that if during such one-year period the aggregate value of
such Qualified Subsidiary's assets is or becomes $20,000,000 or less, such
Qualified Subsidiary shall not be required to become a party to this Guarantee.
10.10 Year 2000 Matters. Any reprogramming required to permit
the proper functioning (but only to the extent that such proper functioning
would otherwise be impaired by the occurrence of the year 2000) in and following
the year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by Guarantors or used or relied
upon in the conduct of their business (including any such systems and other
equipment supplied by others or with which the computer systems of Guarantors
interface), and the testing of all such systems and other equipment as so
reprogrammed, will be completed by January 1, 1999. The costs to Guarantors that
have not been incurred as of the date hereof for such reprogramming and testing
and for the other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably be
expected to result in an Event of Default or to have a Material Adverse Effect.
Except for any reprogramming referred to above, the computer systems of
Guarantors are and, with ordinary course upgrading and maintenance, will
continue to be, sufficient for the conduct of Guarantors' business as currently
conducted.
11. Negative Covenants. Each Guarantor hereby agrees that so
long as this Guarantee is in effect and until the Commitments have terminated
and the Guaranteed Obligations and all amounts owing hereunder are paid in full,
the Guarantor shall not, directly or indirectly:
11.1 Financial Condition Covenants. (a) Maintenance of
Consolidated Indebtedness to Consolidated Capitalization. Permit the ratio
(expressed as a percentage) of Consolidated 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 to 1.0.
(b) 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.
(c) Consolidated U.S. EBITDA to Consolidated Indebtedness.
Permit the ratio of Consolidated U.S. EBITDA to Consolidated Indebtedness for
the four consecutive fiscal quarters of HCC most recently ended to be less than
1.0 to 4.5.
(d) Interest Coverage Ratio. Permit the ratio of Consolidated
EBITDA to Consolidated Interest Expense for the period of four consecutive
fiscal quarters of HCC most recently ended to be less than 2.5 to 1.0.
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11.2 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 Guarantors under the Corporate Credit Agreement and
the other Loan Documents as defined in the Corporate Credit Agreement;
(b) Indebtedness of HCC to any of its Subsidiaries and of any
such Subsidiary which is a Guarantor to HCC or any other Subsidiary of
HCC;
(c) Indebtedness outstanding on the Initial Closing Date and
listed on Schedule 11.2 and all extensions, renewals, replacements,
refinancings and modifications thereof permitted hereunder;
(d) Indebtedness of HCC or any of its Subsidiaries in an
aggregate amount not to exceed $10,000,000 at any time outstanding
which is recourse only to the assets of HCC or any Subsidiaries
acquired or financed with the proceeds of such Indebtedness;
(e) Indebtedness in respect of Financing Leases provided that,
after giving effect thereto, Section 11.7 is not contravened;
(f) Indebtedness in respect of Subordinated Debt, the terms
and conditions of which have been approved in writing by the Required
Lenders and all extensions, renewals, replacements, refinancings and
modifications thereof permitted hereunder;
(g) Indebtedness of Unqualified Subsidiaries of HCC; provided
that any such Indebtedness is Non-Recourse Indebtedness;
(h) Indebtedness of a Person which becomes a Subsidiary after
the date hereof in an aggregate principal amount not exceeding as to
HCC and its Subsidiaries $10,000,000 at any time outstanding, provided
that (i) such indebtedness existed at the time such Person became a
Subsidiary and was not created in anticipation thereof and (ii)
immediately after giving effect to the acquisition of such Person by
HCC or any of its Subsidiaries no Default or Event of Default shall
have occurred and be continuing;
(i) Indebtedness in respect of the Tranche A Loans; and
(j) Indebtedness not contemplated by clauses (a)-(i) above not
exceeding (i) $35,000,000 until the earlier of (A) September 10, 1998
and (B) the date of the initial extension of credit made under the
Operative Agreements, and (ii) thereafter $5,000,000 in the aggregate
at any time outstanding.
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11.3 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 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;
(b) 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;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
insurance or self insurance arrangements;
(d) 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;
(e) 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;
(f) leases or subleases granted to third Persons not
interfering in any material respect with the business of HCC or any of
its Subsidiaries;
(g) Liens arising from UCC financing statements regarding
leases permitted by the Corporate Credit Agreement;
(h) any interest or title of a lessor or sublessor under any
lease permitted by the Corporate Credit Agreement;
(i) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of custom duties in connection
with the importation of goods so long as such Liens attach only to the
imported goods;
(j) Liens arising out of consignment or similar arrangements
for the sale of goods entered into by HCC or any of its Subsidiaries in
the ordinary course of business;
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(k) Liens created pursuant to Financing Leases permitted
pursuant to Section 11.2(e);
(l) Liens in existence on the Initial Closing Date listed on
Schedule 11.3(l), securing Indebtedness permitted by Section 11.2(c),
provided that no such Lien is spread to cover any additional property
after the Initial Closing Date and that the amount of Indebtedness
secured thereby is not increased;
(m) Liens on (i) natural gas compressors and related
equipment, and usual accessories and improvements and proceeds thereof
(other than the Equipment), and (ii) oil and gas production equipment,
in each case, the acquisition of which were financed with the proceeds
of the Indebtedness permitted by Section 11.2(e) 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;
(n) Liens on assets of the Guarantors listed on Schedule
11.3(n), provided that no such Lien is spread to cover any additional
property after the Initial Closing Date and that the amount of
Indebtedness secured thereby is not increased;
(o) Liens on the assets of Unqualified Subsidiaries of HCC
securing Indebtedness of such Unqualified Subsidiaries permitted under
Section 11.2(g);
(p) Liens securing Derivatives entered into by HCC and its
Subsidiaries which are permitted hereunder;
(q) Liens securing Indebtedness of HCC or any Subsidiary
permitted under Section 11.2(d) so long as such Liens attach only to
the assets acquired or financed pursuant to such subsection;
(r) Liens on the property or assets of a Person which becomes
a Subsidiary of HCC after the date hereof securing Indebtedness
permitted by Section 11.2(h), provided that (i) such Liens existed at
the time such Person became a Subsidiary and were not created in
anticipation thereof, (ii) any such Lien is not spread to cover any
property or assets of such Person after the time such Person becomes a
Subsidiary, and (iii) the amount of Indebtedness secured thereby is not
increased;
(s) Liens that arise in connection with the Operative
Agreements;
(t) Lessor Liens; and
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(u) Liens not otherwise permitted in clauses (a)-(t) above
securing Indebtedness not exceeding $2,500,000 in the aggregate.
11.4 Limitation on Guarantor Obligations. Create, incur,
assume or suffer to exist any Guarantor Obligation except:
(a) this Guarantee;
(b) the Corporate Guarantees;
(c) the Wartsilla Guaranty Obligation;
(d) up to $5,000,000 in the aggregate of Guarantor 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;
(e) Guarantor Obligations (in respect of obligations not
constituting Indebtedness) arising under agreements entered into by HCC
or any Subsidiary in the ordinary course of business;
(f) guarantees in respect of Indebtedness (other than
Subordinated Debt) permitted under the Corporate Credit Agreement; and
(g) the Guarantor Obligations arising pursuant to the
Operative Agreements.
11.5 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 may be merged or consolidated
with or into HCC or any other Qualified Subsidiary; provided, that HCC
or a Qualified Subsidiary shall be the continuing or surviving
corporation;
(b) HCC or any Qualified 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 may sell, lease, assign, transfer
or otherwise dispose of any or all of its assets to HCC or any
Qualified Subsidiary;
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(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 provided that, if merged or
consolidated with or into a Qualified Subsidiary, the Qualified
Subsidiary will remain as a "Qualified Subsidiary" after the merger;
and
(e) pursuant to the Operative Documents.
11.6 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 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
$5,000,000 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 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 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);
(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 11.5;
(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, provided that the fair market value of natural gas
compressors and oil and gas production equipment sold during the Term
does not exceed ten percent of the aggregate fair market value of all
natural gas compressors and oil and gas production equipment owned by
HCC and its Qualified Subsidiaries; provided further that 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, such proceeds shall not be included for purposes of this
covenant;
(g) the lease by Hanover Land Company or any other Qualified
Subsidiary as lessor of real estate properties to HCC or any Qualified
Subsidiary of
<PAGE> 21
21
HCC for use by HCC or such Qualified Subsidiary as the site of its
offices and facilities; and
(h) the sale of natural gas compressors to the Lessor in
connection with the Operative Agreements.
11.7 Limitation on Leases. Permit Consolidated Lease Expense
for any fiscal year of HCC to exceed $10,000,000.
11.8 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 Capital 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 or redeem shares of HCC common stock from its employees and
former employees so long as the aggregate amount of all such repurchases since
the Initial Closing Date does not exceed $7,500,000, (iii) HCC may make open
market repurchases of shares of HCC common stock so long as the aggregate amount
of all such repurchases during the Term does not exceed $25,000,000, (iv) HCC
may declare or pay dividends on and make mandatory stock repurchases (pursuant
to the terms of the applicable certificate of designation) of its preferred
stock, if any, and (v) HCC may declare or pay dividends on shares of HCC common
stock, provided that the aggregate amount of such declarations or payments
pursuant to this clause (v) above does not exceed 25% of the Consolidated Net
Income of HCC for the period (taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the Initial Closing Date to the end
of HCC's most recently ended fiscal quarter for which financial statements have
been delivered to the Agent and the Lenders pursuant to subsection 10.1 at or
prior to the time of such declaration or payment.
11.9 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 Lender under the Corporate
Credit Agreement or the Operative Agreements; provided, that the aggregate
notional amounts of such Derivatives shall not exceed the aggregate amount of
loans outstanding hereunder.
11.10 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 herein collectively referred to as "Investments"), any Person,
except:
(a) extensions of trade credit in the ordinary course of
business;
<PAGE> 22
22
(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
Guarantors and investments by such Subsidiaries which are or become
Guarantors in HCC and in other Subsidiaries of HCC which are or become
Guarantors;
(e) Investments by HCC in Hanover Land Company in an aggregate
amount not to exceed $5,000,000 plus amounts necessary to maintain and
operate the real property and improvements thereon owned by Hanover
Land Company;
(f) Investments in Unqualified Subsidiaries of HCC;
(g) Investments constituting Permitted Business Acquisitions
so long as, after giving effect to the consummation of the transactions
contemplated by each Permitted Business Acquisition and the Loans and
the loans to be made and the Letters of Credit to be issued in
connection with the Corporate Credit Agreement, the sum of (i) the cash
and Cash Equivalents then held by HCC and (ii) an amount equal to the
difference between (A) the aggregate Commitments under the Corporate
Credit Agreement, the aggregate Commitments, and the aggregate Investor
Commitments in effect at such time and (B) the aggregate amount of the
Aggregate Outstanding Extensions of Credit under the Corporate Credit
Agreement, the Available Commitments and the Available Investor
Commitments at such time, equals at least $20,000,000;
(h) Investments or acquisitions by HCC or its Subsidiaries in
up to 50% of the shares of capital stock, partnership interests, joint
venture interests, limited liability company interests or other similar
equity interests in, a Person (other than a Subsidiary), provided that
the aggregate amount of all such investments or acquisitions does not
exceed $25,000,000 in any fiscal year; and
(i) Loans to employees, officers and directors of HCC and its
Subsidiaries to acquire shares of capital stock of HCC not to exceed
$20,000,000.
11.11 Limitation on Optional Payments and Modifications of
Debt Instruments. (i) Make any optional payment or prepayment on or redemption
of any portion of the Shareholder Subordinated Debt or (ii) with respect to any
Indebtedness other than the Shareholder Subordinated Debt, Indebtedness under
the Corporate Credit Agreement or the Operative Agreements, (a) make any
optional payment or prepayment in excess of $10,000,000 during any calendar year
on or redemption of any Indebtedness (other than Indebtedness pursuant to the
Corporate Credit Agreement or the Operative Agreements) 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
<PAGE> 23
23
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).
11.12 Transactions with Affiliates. Except for transactions of
a type set forth on Schedule 11.12, 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.
11.13 Sale and Leaseback. Except for the transactions
contemplated by the Operative Agreements or of a type set forth on Schedule
11.13, enter into any arrangement with any Person where HCC or any of the
Subsidiaries of HCC is the lessee 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 (any
of such arrangements, a "Sale or Leaseback Transaction"), except that (i) HCC
and its Subsidiaries may enter into Financing Leases as lessee for natural gas
compressors and oil and gas production equipment if after giving effect thereto
subsection 11.2 is not contravened and (ii) HCC may enter into Sale and
Leaseback Transactions as lessee for natural gas compressors in connection with
the Operative Agreements.
11.14 Corporate Documents. Amend its Certificate of
Incorporation in any way adverse to the interests of the Agent and the Lenders.
11.15 Fiscal Year. Permit the fiscal year of HCC to end on a
day other than December 31.
11.16 Nature of Business. Engage in any business other than
(a) the leasing, maintenance, purchase, sale and operation of natural gas
compressor units and oil and gas production equipment, (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.
11.17 Unqualified Subsidiaries. Permit any Unqualified
Subsidiary to directly or indirectly own any assets (other than cash or Cash
Equivalents located in bank accounts at Chase) which are located in the United
States of America or any territory thereof.
12. Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or
<PAGE> 24
24
made (a) when delivered by hand, (b) one Business Day after delivery to a
nationally recognized courier service specifying overnight delivery, (c) three
Business Days after being deposited in the mail, certified or registered,
postage prepaid, or (d) in the case of facsimile notice, when sent and receipt
has been confirmed, addressed as follows:
(a) if to the Investor, Agent or any Lender, at its address or
transmission number for notices provided in Section 9.2 of the Credit
Agreement; and
(b) if to any Guarantor, at its address or transmission number
for notices set forth on the signature page below.
The Investor, Agent, each Lender and each Guarantor may change
its address and transmission numbers for notices by notice in the manner
provided in this Section 12.
13. Severability. Any provision of this Guarantee 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.
14. Integration. This Guarantee and the other Operative
Agreements represents the agreement of the Guarantors with respect to the
subject matter hereof and there are no promises or representations by the
Investor, Agent or any Lender relative to the subject matter hereof not
reflected herein or in the other Operative Agreements.
15. Amendments in Writing; No Waiver; Cumulative Remedies (a)
None of the terms or provisions of this Guarantee may be waived, amended,
supplemented or otherwise modified except as provided in Section 9.1 of the
Credit Agreement.
(b) Neither the Investor, Agent nor any Lender shall not by
any act (except by a written instrument pursuant to Section 15(a) hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default 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 Investor, Agent or any Lender,
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 Investor, Agent or any Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Investor, Agent or such Lender would otherwise
have on any future occasion.
(c) 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.
<PAGE> 25
25
16. Section Headings. The section headings used in this
Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
17. Successors and Assigns. This Guarantee shall be binding
upon the successors and assigns of the Guarantors and shall inure to the benefit
of the Investor, Agent and the Lenders and their successors and assigns.
18. SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH GUARANTOR
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTEE AND THE OTHER OPERATIVE
AGREEMENTS 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;
(ii) 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;
(iii) 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 12 OR AT
SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO;
(iv) 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
(v) 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,
INDIRECT OR CONSEQUENTIAL DAMAGES.
<PAGE> 26
26
19. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
20. Survival of Representations, Warranties, etc. All
representations, warranties, covenants and agreements made herein and in
statements or certificates delivered pursuant hereto shall survive any
investigation or inspection made by or on behalf of the Lessor and shall
continue in full force and effect until all of the obligations of the Guarantors
under this Guaranty shall be fully performed in accordance with the terms
hereof, and until the payment in full of all the Guaranteed Obligations, and
until performance in full of all obligations of HCC in accordance with the terms
and provisions of such agreements.
21. Authority of Agent. Each Guarantor acknowledges that the
rights and responsibilities of the Agent under this Guarantee with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Guarantee shall, as between the
Investor, Agent and the Lenders, be governed by the Credit Agreement and by such
other agreements with respect thereto as may exist from time to time among them,
but, as between the Agent and each Guarantor, the Agent shall be conclusively
presumed to be acting as agent for the Lenders with full and valid authority so
to act or refrain from acting, and no Guarantor shall be under any obligation,
or entitlement, to make any inquiry respecting such authority.
22. Third Party Beneficiaries. Each Guarantor expressly
acknowledges and agrees that each Indemnified Person shall be a third party
beneficiary of this Guaranty.
23. Right of Contribution. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate share
of any payment made hereunder, such Guarantor shall be entitled to seek and
receive contribution from and against any other Guarantor hereunder who has not
paid its proportionate share of such payment. Each Guarantor's right of
contribution shall be subject to the terms and conditions of Section 4 hereof.
The provisions of this Section shall in no respect limit the obligations and
liabilities of any Guarantor to Beneficiaries and each Guarantor shall remain
liable to the Beneficiaries for the full amount guaranteed by such Guarantor
hereunder.
24. WAIVER OF JURY TRIAL. THE GUARANTORS EACH HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS GUARANTY AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE> 27
27
IN WITNESS WHEREOF, the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.
HANOVER COMPRESSOR COMPANY
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
HANOVER/SMITH, INC.
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
HANOVER MAINTECH, INC.
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
HANOVER LAND COMPANY
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
Address for Notices for all Guarantors:
12001 North Houston Rosslyn
Houston, Texas 77806
Attention: Chief Financial Officer
Telecopy: 281-477-0821
<PAGE> 28
with a copy to:
Neal, Gerber & Eisenberg
Two North LaSalle, Suite 2100
Chicago, Illinois 60602
Attention: Richard S. Meller
Telecopy: 312-269-1747
<PAGE> 1
EXHIBIT 10.3
LESSEE'S AND GUARANTOR'S CONSENT
As of this 20th day of July, 1998, HANOVER COMPRESSOR COMPANY,
a Delaware corporation ("Lessee"), HANOVER/SMITH, INC., a Delaware corporation,
HANOVER MAINTECH, INC., a Texas corporation and HANOVER LAND COMPANY, a Texas
corporation (collectively the "Guarantors", individually a "Guarantor"), hereby
consent and agree to all of the terms of the Assignment of Leases, Rents and
Guarantee dated as of the date hereof (the "Assignment") made by HANOVER
EQUIPMENT TRUST 1998A, a Delaware business trust ("Assignor"), and joined in by
SOCIETE GENERALE FINANCIAL CORPORATION, a Delaware corporation, in favor of The
Chase Manhattan Bank, as Agent under the Credit Agreement dated as of the date
hereof (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among the Assignor, the Agent and the financial institutions
from time to time parties thereto (the "Lenders"), and further agree as follows:
1. Definitions. Each capitalized term used herein and not
otherwise defined herein shall have the respective meanings ascribed thereto in
the Assignment, as such Assignment may be amended, supplemented or otherwise
modified from time to time.
2. Acknowledgments, Confirmations and Agreements. (a) The
Lessee acknowledges, confirms and agrees that: (i) the Lessee has the right,
power and authority to enter into this consent (this "Consent"); (ii) the Lease
is in full force and effect and enforceable in accordance with its terms; (iii)
neither the Lessee nor, to the Lessee's knowledge, the Assignor is in default in
the observance or performance of any condition or agreement to be observed or
performed by the Lessee or the Assignor, respectively, thereunder; (iv) no Lease
Rents have been paid by the Lessee except as provided in the Lease; (v) no Rent
has been waived, released, reduced, discounted or otherwise discharged or
compromised by the Assignor; and (vi) the Lessee has not received notice of any
other assignment of the Lessor's interest in the Lease.
(b) The Guarantors acknowledge, confirm and agree that: (i)
the Guarantors have the right, power and authority to enter into this Consent;
and (ii) the Guarantee is in full force and effect and enforceable in accordance
with its terms.
3. Consent. (a) The Lessee, as lessee under the Lease,
consents to the Assignment and each of the terms thereof, and agrees to pay and
deliver to the Assignee (or its designee) all Lease Rents and other sums payable
under the Lease without any offset, deduction, defense, abatement, deferment,
diminution or counterclaim, and the Lessee will not assert any offset,
deduction, defense (other than the defense of payment to the Assignee (or its
designee)), abatement, deferment, diminution or counterclaim in any proceeding
brought under the Assignment or with respect to the transactions contemplated
therein or herein. The Lessee will not, for any reason whatsoever, seek to
recover from the Assignee (or its designee) any moneys paid to the Assignee (or
its designee) by virtue of the Assignment. Lessee agrees (i) to deliver to the
Assignee (or its designee) and the Assignor, at their addresses provided in the
Participation Agreement or at such other
<PAGE> 2
2
addresses as the Assignee or the Assignor, as the case may be, may designate,
duplicate original or copies of all notices, undertakings, demands, statements,
documents and other communications which the Lessee is required or permitted to
deliver pursuant to the Lease or the Assignment; (ii) that, subject to the
Excepted Rights, any notice delivered or declaration made to the Lessee by the
Assignee (or its designee) pursuant to the Lease shall be effective as a notice
given or declaration made to the Lessee by the Assignor as lessor under the
Lease; (iii) that the Assignee (and its designee) shall not by reason of the
Assignment be subject to any liability or obligation under the Lease; and (iv)
that, subject to the Excepted Rights, any waiver, consent or approval by the
Assignor under the Lease shall not be valid unless approved in writing by the
Assignee (or its designee).
(b) The Guarantors consent to the Assignment and each of the
terms thereof, and agrees to pay and deliver to the Assignee (or its designee)
the Guaranteed Obligations, subject to the Excepted Rights, and other sums
payable under the Guarantee without any offset, deduction, defense, abatement,
deferment, diminution or counterclaim, and the Guarantors will not assert any
offset, deduction, defense (other than the defense of payment to the Assignee
(or its designee)), abatement, deferment, diminution or counterclaim in any
proceeding brought under the Assignment or with respect to the transactions
contemplated therein or herein. The Guarantors will not, for any reason
whatsoever, seek to recover from the Assignee (or its designee) any moneys paid
to the Assignee (or its designee) by virtue of the Assignment.
(c) Subject to the Excepted Rights, the Lessee shall cause the
Lease Rents and other sums payable to the Assignor under the Lease to be
delivered to the Assignee (or its designee), as agent under the Credit
Agreement, as an absolute net sum, in such manner that the Assignee (or its
designee) shall have "collected funds" on the date and at the time payments are
due under the Lease.
(d) The Guarantors shall cause the Guaranteed Obligations,
subject to the Excepted Rights, and other sums payable to the Assignor under the
Guarantee to be delivered to the Assignee (or its designee), as agent under the
Credit Agreement, at its address set forth in Section 13.3 of the Participation
Agreement.
(e) The Lessee hereby agrees to remain obligated under the
Lease and this Consent in accordance with their respective terms, and to take no
action to terminate (except in accordance with the express terms of the Lease),
annul, rescind or avoid the Lease or this Consent or to abate, reduce, offset,
suspend or defer or make any counterclaim or raise any defense (other than the
defense of payment to the Assignee (or its designee)) with respect to the Lease
Rents payable thereunder or to cease paying such Lease Rents to the Assignee (or
its designee) as provided herein.
(f) The Guarantors hereby agree to remain obligated under the
Guarantee and this Consent in accordance with their respective terms, and to
take no action to terminate (except in accordance with the express terms of the
Guarantee), annul, rescind or avoid the Guarantee or this Consent or to abate,
reduce, offset, suspend or defer or make
<PAGE> 3
3
any counterclaim or raise any defense (other than the defense of payment to the
Assignee (or its designee)) with respect to the Guaranteed Obligations payable
thereunder.
(g) The Lessee and the Guarantors hereby agree that upon the
occurrence of a Default or an Event of Default, the Assignee (or its designee)
shall have the right to deliver a notice of such default and make demand for
payment under the Guarantee, which shall be effective for all purposes as if
sent by the Assignor.
(h) The Lessee shall notify the Assignee (or its designee) at
its address specified in the Participation Agreement, or such other address as
the Assignee may designate, of any Lease Event of Default and agrees that no
such default shall entitle the Lessee to terminate, annul, rescind or avoid the
Lease or reduce or abate the Lease Rents or other sums payable thereunder.
4. Amendment or Termination; Assignee's Designation. (a) The
Lessee agrees that it will not, unilaterally or by agreement, subordinate,
amend, supplement, modify, extend (except in accordance with the express terms
of the Lease), discharge, waive or terminate (except in accordance with the
express terms of the Lease) the Lease or this Consent or any provision of any
thereof without the Assignee's prior written consent, which consent may be
withheld in the Assignee's sole discretion, and that any attempted
subordination, amendment, supplement, modification, extension, discharge, waiver
or termination without such consent shall be null and void. In the event that
the Lease shall be amended or supplemented as herein permitted, the Lease, as so
amended or supplemented, shall continue to be subject to the provisions of the
Assignment and this Consent without the necessity of any further act by any of
the parties hereto. Nothing in this Section 4 shall be construed as limiting or
otherwise affecting in any way the Assignor's Excepted Rights or Shared Rights.
(b) The Guarantors agree that they will not, unilaterally or
by agreement, subordinate, amend, supplement, modify, extend (except in
accordance with the express terms of the Guarantee), discharge, waive or
terminate (except in accordance with the express terms of the Guarantee) the
Guarantee or this Consent or any provision of any thereof without the Assignee's
prior written consent, which consent may be withheld in the Assignee's sole
discretion, and that any attempted subordination, amendment, supplement,
modification, extension, discharge, waiver or termination without such consent
shall be null and void. In the event that the Guarantee shall be amended or
supplemented as herein permitted, the Guarantee, as so amended or supplemented,
shall continue to be subject to the provisions of the Assignment and this
Consent without the necessity of any further act by any of the parties hereto.
Nothing in this Section 4 shall be construed as limiting or otherwise affecting
in any way the Assignor's Excepted Rights or Shared Rights.
5. Continuing Obligations of the Assignor and the Lessee.
Neither the execution and delivery of the Assignment, nor any action or inaction
on the part of the Assignee shall impair or diminish any obligations of the
Assignor or the Lessee under the Lease or the Guarantors under the Guarantee,
and shall not impose on the Assignee (or its
<PAGE> 4
4
designee) any such obligations, nor shall it impose on the Assignee (or its
designee) a duty to produce Rents or cause the Assignee to be a mortgagee in
possession for any purpose.
6. Severability. If any provision or provisions, or if any
portion of any provision or provisions, in this Consent is found by a court of
law of competent jurisdiction to be in violation of any local, state or Federal
ordinance, statute, law, administrative or judicial decision, or public policy,
and if such court should declare such portion, provision or provisions to be
illegal, invalid, unlawful, void or unenforceable as written, then it is the
intent of the Lessee that such portion, provision or provisions shall be given
force to the fullest possible extent that they are legal, valid and enforceable,
that the remainder of this Consent shall be construed as if such illegal,
invalid, unlawful, void or unenforceable portion, provision or provisions were
not contained herein, and that the obligations of the Lessee under the remainder
of this Consent shall continue in full force and effect.
7. Governing Law. THIS CONSENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK,
EXCEPT AS TO MATTERS RELATING TO THE CREATION OF LIENS AND THE EXERCISE OF
REMEDIES WITH RESPECT
THERETO, WHICH SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE
EQUIPMENT IS LOCATED.
IN WITNESS WHEREOF, the Lessee and the Guarantors have caused
this Consent to be duly executed as of the date first written above.
HANOVER COMPRESSOR COMPANY, as
Lessee and Guarantor
By: /s/ CURTIS BEDRICH
---------------------------------
Name: Curtis Bedrich
Title: Treasurer
HANOVER/SMITH, INC., as Guarantor
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
<PAGE> 5
5
HANOVER MAINTECH, INC., as Guarantor
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
HANOVER LAND COMPANY, as Guarantor
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
For purposes of Section 5 hereof:
HANOVER EQUIPMENT TRUST 1998A
By: Wilmington Trust Company, not in
its individual capacity but solely
as trustee
By: /s/ DONALD G. MACKELCAN
---------------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10.4
================================================================================
PARTICIPATION AGREEMENT
among
HANOVER COMPRESSOR COMPANY,
as Lessee,
HANOVER EQUIPMENT TRUST 1998A,
a Delaware business trust,
as Lessor,
SOCIETE GENERALE FINANCIAL CORPORATION,
as Investor,
THE CHASE MANHATTAN BANK,
as Agent for the
Lenders
and
THE LENDERS PARTIES HERETO
------------------------------
Dated as of July 22, 1998
------------------------------
================================================================================
<PAGE> 2
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SECTION 1. THE LOANS...................................................................................... 1
1.1 Loans...................................................................................... 1
1.2 Credit Agreement........................................................................... 1
1.3 Collateral For Loans....................................................................... 1
1.4 Guarantee.................................................................................. 1
SECTION 2. INVESTOR CONTRIBUTION.......................................................................... 2
2.1 Investor Contribution...................................................................... 2
SECTION 3. SUMMARY OF THE TRANSACTIONS.................................................................... 2
3.1 Operative Agreements....................................................................... 2
3.2 Equipment Purchase and Lease............................................................... 2
3.3 Aggregate Tranche A Percentage; Tranche A Percentage....................................... 2
SECTION 4. THE CLOSINGS................................................................................... 3
4.1 Initial Closing Date....................................................................... 3
4.2 Subsequent Closing Dates................................................................... 3
4.3 Trust Company Authorization................................................................ 3
SECTION 5. FUNDING OF ADVANCES............................................................................ 3
5.1 General.................................................................................... 3
5.2 Procedures for Funding..................................................................... 4
SECTION 6. CONDITIONS OF THE CLOSING...................................................................... 4
6.1 General Conditions to the Investor's and the Lenders' Obligations to
Make Loans and Investor Contributions...................................................... 4
6.2 Conditions to the Investor's and the Lenders' Obligations to Make
Advances to pay Equipment Acquisition Costs................................................ 8
SECTION 7. REPRESENTATIONS AND WARRANTIES ................................................................ 10
7.1 Representations and Warranties of the Investor on the Initial Closing
Date....................................................................................... 10
7.2 Representations and Warranties of Lessor on the Initial Closing Date....................... 11
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7.3 Representations and Warranties of the Lessee on the Initial Closing
Date....................................................................................... 13
7.4 Representations and Warranties of the Trust Company on the Initial
Closing Date............................................................................... 13
7.5 Representations and Warranties of the Lessee on Equipment Closing
Dates...................................................................................... 15
7.6 Representations and Warranties of the Lessor on Equipment Closing
Dates...................................................................................... 17
SECTION 8. PAYMENT OF CERTAIN EXPENSES.................................................................... 18
8.1 Transaction Expenses....................................................................... 18
8.2 Brokers' Fees and Stamp Taxes.............................................................. 19
8.3 Certain Fees and Expenses.................................................................. 19
8.4 Credit Agreement and Related Obligations................................................... 19
8.5 Commitment Fees............................................................................ 20
8.6 Overdue Rate............................................................................... 20
8.7 Continuous Perfection of Security Interests................................................ 20
8.8 Oklahoma Equipment Subleases............................................................... 20
SECTION 9. OTHER COVENANTS AND AGREEMENTS................................................................. 21
9.1 Covenants of the Trust and the Investor and the Trust Company.............................. 21
9.2 Repayment of Certain Amounts on Maturity Date.............................................. 23
9.3 Amendment of Certain Documents............................................................. 23
9.4 Proceeds of Casualty....................................................................... 23
SECTION 10. CREDIT AGREEMENT.............................................................................. 24
10.1 Lessee's Credit Agreement Rights........................................................... 24
SECTION 11. TRANSFER OF INTEREST.......................................................................... 25
11.1 Restrictions on Transfer................................................................... 25
11.2 Effect of Transfer......................................................................... 25
SECTION 12. INDEMNIFICATION............................................................................... 26
12.1 General Indemnity.......................................................................... 26
12.2 General Tax Indemnity...................................................................... 27
SECTION 13. MISCELLANEOUS................................................................................. 31
13.1 Survival of Agreements..................................................................... 31
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13.2 No Broker, etc............................................................................. 31
13.3 Notices.................................................................................... 31
13.4 Counterparts............................................................................... 33
13.5 Amendments and Termination................................................................. 33
13.6 Headings, etc.............................................................................. 33
13.7 Parties in Interest........................................................................ 34
13.8 Governing Law.............................................................................. 34
13.9 Severability............................................................................... 34
13.10 Liability Limited.......................................................................... 34
13.11 Rights of Lessee........................................................................... 34
13.12 Further Assurances......................................................................... 34
13.13 Successors and Assigns..................................................................... 35
13.14 No Representation or Warranty.............................................................. 35
13.15 Highest Lawful Rate........................................................................ 35
13.16 Waiver..................................................................................... 36
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Annex A Rules of Usage and Definitions
Exhibits
Exhibit A Form of Assignment of Leases and Consent to Assignment
Exhibit B Form of Security Agreement
Exhibit C Form of Guarantee
Exhibit D Form of Requisition
Exhibit E-1 Form of Opinion of Counsel to Lessee and Guarantor
Exhibit E-2 Form of Opinion of Counsel to Lessor and Trust Company
Exhibit E-3 Form of Opinion of Local Counsel to Lessee and Guarantor
Exhibit F Equipment Closing Certificate
Exhibit G Form of Supplement to Assignment of Lease
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<PAGE> 5
PARTICIPATION AGREEMENT, dated as of July 22, 1998 (this
"Agreement"), among HANOVER COMPRESSOR COMPANY, a Delaware corporation (the
"Lessee"); HANOVER EQUIPMENT TRUST 1998A, a Delaware business trust (the "Trust"
or the "Lessor"); THE CHASE MANHATTAN BANK, a New York banking corporation, as
agent (in such capacity, the "Agent") for the Lenders; SOCIETE GENERALE
FINANCIAL CORPORATION, as investor (the "Investor"); WILMINGTON TRUST COMPANY,
in its individual capacity, and each of the financial institutions listed on the
signature pages hereof (each, a "Lender"; collectively, the "Lenders").
Capitalized terms used but not otherwise defined in this Agreement shall have
the meanings set forth in Annex A hereto.
Preliminary Statement
In consideration of the mutual agreements herein contained and
other good and valuable consideration, receipt of which is hereby acknowledged,
the parties hereto hereby agree as follows:
SECTION 1. THE LOANS
1.1 Loans. The Lenders have agreed to make loans to the Lessor
in an aggregate principal amount of up to $194,000,000 in order for the Lessor
to acquire the Equipment and to pay other Equipment Acquisition Costs, and in
consideration of the receipt of the proceeds of such Loans, the Lessor will
issue the Tranche A Notes and the Tranche B Notes.
1.2 Credit Agreement. The Loans shall be made and the Notes
shall be issued pursuant to the Credit Agreement. Pursuant to this Agreement and
the Credit Agreement, the Loans will be made to the Lessor from time to time at
the request of the Lessee.
1.3 Collateral For Loans. The Loans and the obligations of the
Lessor under the Credit Agreement shall be secured by, inter alia, (i) a first
priority assignment of the Lease, granted pursuant to the Assignment of Lease
and consented to by the Lessee pursuant to the Consent to Assignment (in each
case in the respective forms set forth on Exhibit A hereto), and (ii) a first
priority security interest in each piece of Equipment pursuant to a Security
Agreement in the form set forth on Exhibit B hereto.
1.4 Guarantee. The obligations of the Lessor under the Credit
Agreement shall be guaranteed by the Guarantors to the extent provided in the
Guarantee (in the form attached hereto as Exhibit C).
<PAGE> 6
2
SECTION 2. INVESTOR CONTRIBUTION
2.1 Investor Contribution. Subject to the terms and conditions
of this Agreement, and in reliance on the representations and warranties of each
of the parties hereto contained herein or made pursuant hereto, on each Closing
Date, the Investor shall make an investment in the Lessor (each, an "Investor
Contribution") in an amount equal to 3% of the amount of the Advance requested
by the Lessee in the Requisition for such Closing Date. The aggregate amount of
Investor Contributions made by the Investor shall not exceed the Investor
Commitment. The Lessor shall use the Investor Contributions to pay a portion of
the Equipment Acquisition Costs simultaneously and pro rata with the Loans
advanced by the Lenders. The Lessee shall have the right to prepay the Investor
Contribution, in connection with the exercise by the Lessee of its right to
direct the Lessor to prepay the Loans in accordance with Section 10.1(e).
SECTION 3. SUMMARY OF THE TRANSACTIONS
3.1 Operative Agreements. On the Initial Closing Date, each of
the respective parties thereto shall execute and deliver this Agreement, the
Lease, the Security Agreement, the Notes, the Guarantee, the Credit Agreement,
the Assignment of Lease, the Consent to Assignment, and such other documents,
instruments, certificates and opinions of counsel as agreed to by the parties
hereto.
3.2 Equipment Purchase and Lease. (a) On each Equipment
Closing Date and subject to the terms and conditions of this Agreement and the
Credit Agreement (i) the Investor will make an Investor Contribution in
accordance with Section 2 hereof, (ii) the Lenders will make Loans in accordance
with Section 5 hereof and the terms and provisions of the Credit Agreement,
which Loans will be secured by the Security Agreement executed and delivered by
the Lessor and joined in by the Lessee, (iii) the Lessor will purchase all
right, title and interest of Lessee in and to each piece of Equipment to be
purchased on such Equipment Closing Date and (iv) the Lessor will simultaneously
lease all of its right, title and interest in such Equipment to the Lessee by
executing and delivering a Lease Supplement.
(b) On each Equipment Closing Date, the Lessee shall certify
to the Agent on the Equipment Closing Certificate the Tranche A Percentage for
each piece of Equipment being acquired on such Equipment Closing Date. The
Tranche A Percentage so certified shall be the Tranche A Percentage for such
piece of Equipment for the duration of the Term.
3.3 Aggregate Tranche A Percentage; Tranche A Percentage. (a)
Notwithstanding any other provision of this Agreement or the other Operative
Agreements, the
<PAGE> 7
3
Lessee agrees that in no event shall the Lessee specify a piece of Equipment for
the Lessor to acquire and lease pursuant to the execution and delivery of a
Lease Supplement if the Aggregate Tranche A Percentage after giving effect to
the acquisition and lease pursuant to the execution and delivery of a Lease
Supplement of such Equipment would be less than 85% or more than 89.9%.
(b) Notwithstanding any other provision of this Agreement or
the other Operative Agreements, the Lessee agrees that in no event shall the
Lessee specify a piece of Equipment for the Lessor to acquire and lease pursuant
to the execution and delivery of a Lease Supplement if the Tranche A Percentage
with respect to such Equipment would be less than 85% or more than 89.9%.
SECTION 4. THE CLOSINGS
4.1 Initial Closing Date. All documents and instruments
required to be delivered on the Initial Closing Date shall be delivered at the
offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York,
or at such other location as may be determined by the Agent and the Lessee.
4.2 Subsequent Closing Dates. The Lessee shall deliver to the
Lessor, the Investor and the Agent a Requisition appropriately completed, in
connection with each Closing Date.
4.3 Trust Company Authorization. The Investor agrees that,
with respect to each Closing Date, the satisfaction or waiver of the conditions
contained in Section 6 hereof shall constitute, without further act,
authorization and direction by the Investor to the Trust Company to take on
behalf of the Lessor the actions specified in Section 2.1 of the Trust
Agreement.
SECTION 5. FUNDING OF ADVANCES
5.1 General. To the extent funds have been made available to
the Lessor as Loans and Investor Contributions, the Lessor will: (i) acquire the
Equipment in accordance with the terms of this Agreement and the other Operative
Agreements; (ii) on behalf of the Lessee, pay Transaction Expenses; and (iii)
pay all other Equipment Acquisition Costs.
<PAGE> 8
4
5.2 Procedures for Funding. (a) Not less than three Business
Days prior to each proposed Closing Date, the Lessee shall deliver to the
Investor and the Agent, a requisition (a "Requisition"), appropriately
completed, in the form of Exhibit D hereto.
(b) Each Requisition shall: (i) be irrevocable; and (ii)
request funds in an amount of at least $200,000 (or such lesser amounts as shall
be equal to the total aggregate of the Available Commitments plus the Available
Investor Commitment at such time) for the payment of Equipment Acquisition Costs
or other Equipment Acquisition Costs which have previously been incurred and
were not the subject of and funded pursuant to a prior Requisition, in each case
as specified in the Requisition.
(c) So long as no Default or Event of Default has occurred and
is continuing and subject to the Lessor and the Agent having each received the
materials required by Section 6.1 and/or 6.2, as applicable, on each Closing
Date (i) the Lenders shall make Loans to the Lessor in an aggregate amount equal
to 97% of the funds specified in any Requisition, up to an aggregate principal
amount equal to the Available Commitments; (ii) the Investor shall make an
Investor Contribution in an amount equal to 3% of the funds specified in any
Requisition, up to an amount equal to the Available Investor Commitment; and
(iii) the total amount of such Loans and Investor Contribution made on such date
shall be used to pay the Equipment Acquisition Costs.
(d) Notwithstanding anything to the contrary in this
Agreement, (i) the Lenders shall not be required to make Loans with respect to a
piece of Equipment in an aggregate amount in excess of 97% of the amount
allocated to such piece of Equipment in the Requisition, and (ii) the Investor
shall not be required to make Investor Contributions with respect to a piece of
Equipment in an aggregate amount in excess of 3% of the amount allocated to such
piece of Equipment in the Requisition.
SECTION 6. CONDITIONS OF THE CLOSINGS AND ADVANCES
6.1 General Conditions to the Investor's and the Lenders'
Obligations to Make Loans and Investor Contributions. The agreement of each
Lender to make Loans, and the Investor to make Investor Contributions, is
subject to the satisfaction or waiver, immediately prior to or concurrently with
the making of such Loans and Investor Contribution, of the following conditions
precedent:
(a) Operative Agreements. Each of the Operative Agreements
entered into on the Initial Closing Date or subsequently on an
Equipment Closing Date shall have been duly authorized, executed,
acknowledged and delivered by the parties thereto and shall
<PAGE> 9
5
be in full force and effect, and no event of default thereunder or
default under Section 17.1(a) or (b) of the Lease shall exist (both
before and after giving effect to the transactions contemplated by the
Operative Agreements), and the Agent and the Investor shall have
received a fully executed copy of each of the Operative Agreements
(other than the Notes of which the Agent shall have received the
originals thereof);
(b) Taxes. All taxes, fees and other charges in connection
with the execution, delivery, and, where applicable, recording, filing
and registration of the Operative Agreements shall have been paid or
provisions for such payment shall have been made to the reasonable
satisfaction of the Agent and the Investor;
(c) Governmental Approvals. All necessary (or, in the
reasonable opinion of the Agent, the Investor and their respective
counsel, advisable) Governmental Actions, in each case required by any
law or regulation enacted, imposed or adopted on or after the date
hereof or by any change in fact or circumstances since the date hereof,
shall have been obtained or made and be in full force and effect;
(d) Insurance. The Agent and the Investor shall have received
evidence in form and substance reasonably satisfactory to them that all
of the requirements of Section 14 of the Lease shall have been
satisfied (which evidence shall include a report from a reputable
insurance broker certifying that all such requirements have been
satisfied and otherwise in form and substance satisfactory to Agent and
Investor);
(e) Legal Requirements. The transactions contemplated by the
Operative Agreements do not and will not violate in any respect any
Legal Requirements that would reasonably be expected to have a Material
Adverse Effect and do not and will not subject the Agent, any Lender or
the Investor to any adverse regulatory prohibitions or constraints;
(f) Corporate Proceedings of the Lessee and Each Guarantor. On
the Initial Closing Date, the Agent and the Investor shall have
received a copy of the resolutions or minutes, in form and substance
satisfactory to the Agent and the Investor, of the Board of Directors
of the Lessee and each Guarantor authorizing the execution, delivery
and performance of this Agreement, the Guarantee and the other
Operative Agreements to which it is a party, certified by the Secretary
or an Assistant Secretary of the Lessee or of such Guarantor as of the
Initial Closing Date, which certificate shall be in form and substance
reasonably satisfactory to the Agent and the Investor and shall state
that the resolutions or minutes thereby certified have not been
amended, modified, revoked or rescinded;
<PAGE> 10
6
(g) Lessee and Guarantor Incumbency Certificate. On the
Initial Closing Date, the Agent and the Investor shall have received a
certificate of the Lessee and each Guarantor, dated the Initial Closing
Date, as to the incumbency and signature of the officers of the Lessee
and each Guarantor executing any Operative Agreement reasonably
satisfactory in form and substance to the Agent and the Investor,
executed by the President or any Vice President and the Secretary or
any Assistant Secretary of the Lessee or of such Guarantor;
(h) Investor Incumbency Certificate. On the Initial Closing
Date, the Agent and the Lessee shall have received a certificate of the
Investor, dated the Initial Closing Date, as to the incumbency and
signature of the officers of the Investor executing any Operative
Agreements reasonably satisfactory in form and substance to the Agent
and the Lessee, executed by a Vice President and the Secretary or an
Assistant Secretary of the Investor;
(i) Corporate Proceedings of the Trust Company. On the Initial
Closing Date, the Agent, the Investor and the Lessee shall have
received a copy of the resolutions, in form and substance reasonably
satisfactory to the Agent, the Investor and the Lessee, of the Board of
Directors of the Trust Company authorizing the execution, delivery and
performance of the Operative Agreements to which it is a party,
certified by the Secretary or an Assistant Secretary of the Trust
Company as of the Initial Closing Date, which certificate shall be in
form and substance satisfactory to the Agent, the Investor and the
Lessee and shall state that the resolutions thereby certified have not
been amended, modified, revoked or rescinded;
(j) Trust Company Incumbency Certificate. On the Initial
Closing Date, the Agent, the Investor and the Lessee shall have
received a certificate of the Trust Company, dated the Initial Closing
Date, as to the incumbency and signature of the officers of the Trust
Company executing any Operative Agreement, satisfactory in form and
substance to the Agent, the Investor and the Lessee, executed by the
President or any Vice President, Assistant Vice President, or a duly
authorized Trust Officer and the Secretary or any Assistant Secretary
of the Trust Company;
(k) Corporate Documents. (i) The Agent and the Investor shall
have received true and complete copies of the certificate of
incorporation and by-laws of the Lessee, certified as of the Initial
Closing Date as complete and correct copies thereof by the Secretary or
an Assistant Secretary of the Lessee;
(ii) The Agent and the Lessee shall have received true and
complete copies of the articles of incorporation and by-laws of the
Investor, certified as of the Initial Closing
<PAGE> 11
7
Date as complete and correct copies thereof by the Secretary or an
Assistant Secretary of the Investor;
(l) Consents, Licenses and Approvals. All consents,
authorizations and filings required in order to allow Lessee to
consummate the transaction contemplated by this Agreement shall have
been obtained and be in full force and effect, except to the extent the
failure to obtain or maintain any such consent, authorization or filing
would not individually or in the aggregate have a Material Adverse
Effect;
(m) Fees. The Agent and the Arranger shall have received the
fees to be paid on the Initial Closing Date pursuant to the Fee Letter
which fees shall not be paid using the proceeds of the Loans or
Investor Contributions;
(n) Legal Opinions. (i) The Agent and the Investor shall have
received the executed legal opinion of Neal, Gerber & Eisenberg,
counsel to the Lessee and each Guarantor, substantially in the form of
Exhibit E-1 hereto;
(ii) The Agent, the Lessee and the Investor shall have
received the executed legal opinion of Morris, James, Hitchens &
Williams, counsel to the Lessor and the Trust Company, substantially in
the form of Exhibit E-2 hereto; and
(iii) The Agent, the Lessee, and the Investor shall have
received the executed legal opinions of (a) Jackson & Walker, L.L.P.,
(b) Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P. and (c) Mock,
Schwabe, Waldo, Elder, Reeves & Bryant, local counsel to the Lessee and
the Guarantors in (a) Texas and Louisiana, (b) New Mexico and (c)
Oklahoma, respectively, substantially in the form of Exhibit E-3
hereto;
(o) Actions to Perfect Liens. The Agent shall have received
evidence in form and substance satisfactory to it that all filings,
recordings, registrations and other actions, including the filing of
duly executed Lender Financing Statements and Lessor Financing
Statements, necessary or, in the opinion of the Agent or Investor,
desirable to perfect the Liens created by the Security Documents shall
have been completed;
(p) Lien Searches. The Agent and the Investor shall have
received the results of a recent search by a Person reasonably
satisfactory to the Agent, of the Uniform Commercial Code, judgement
and tax lien filings which may have been filed in each State in which
any Equipment is located with respect to personal property of the
Lessee, and the results of such search shall be satisfactory to the
Agent and the Investor;
<PAGE> 12
8
(q) Representations and Warranties. The representations and
warranties of the Lessor, the Lessee, the Investor and the Guarantor
contained herein and in each of the other Operative Agreements shall be
true and correct in all material respects on and as of each Closing
Date as if made on and as of each Closing Date (unless such
representations and warranties specifically refer to another date);
(r) Performance of Operative Agreements. The parties hereto
(other than the Investors or the Lenders) shall have performed in all
material respects their respective agreements contained herein and in
the other Operative Agreements on or prior to each such Closing Date;
and
(s) Default. There shall not have occurred and be continuing
any Default or Event of Default and no Default or Event of Default will
have occurred after giving effect to the Advance requested by such
Requisition.
6.2 Conditions to the Investor's and the Lenders' Obligations
to Make Advances to pay Equipment Acquisition Costs.
The obligations of the Investor to make each Investor
Contribution, and of the Lenders to make Loans to the Lessor, on an Equipment
Closing Date for the purpose of providing funds to the Lessor necessary to
acquire a piece of Equipment are subject to the satisfaction or waiver of the
following conditions precedent:
(a) Requisition. The Agent shall have received a fully
executed counterpart of the Requisition dated as of the Equipment
Closing Date (but delivered at least three Business Days prior to the
Equipment Closing Date), appropriately completed;
(b) Bill of Sale. There shall have been delivered to the
Lessor, a bill of sale (the "Bill of Sale"), in form and substance
reasonably acceptable to the Agent, with respect to each piece of
Equipment being purchased on such Equipment Closing Date, conveying
title to such piece of Equipment to the Lessor, subject only to the
Permitted Exceptions;
(c) Title. The Lessor shall have good and valid title to the
Equipment being acquired on such Equipment Closing Date subject only to
the Permitted Exceptions, and the Lessor shall have granted the
security interest pursuant to the Security Agreement with respect to
the Equipment.
<PAGE> 13
9
(d) Lease Supplement. The Lessee shall have delivered a Lease
Supplement executed by the Lessee and the Lessor with respect to all
Equipment being acquired on such Equipment Closing Date to the Agent;
(e) Security Agreement Supplement. The Lessee shall have
delivered a supplement to the Security Agreement executed by the Lessor
and Lessee with respect to each piece of Equipment being acquired on
such Equipment Closing Date to the Agent. The Lien of the Security
Agreement, as supplemented, shall conform to the representations and
warranties set forth in Section 7.5(f);
(f) Supplement to Assignment of Lease. The Lessee shall have
executed and delivered an original Supplement to Assignment of Lease
executed by the Lessor with respect to each piece of Equipment being
acquired on such Equipment Closing Date, in the form of Exhibit G
hereto;
(g) Appraisal. The Agent and the Investor shall have received
an Appraisal of the Equipment being acquired on such Equipment Closing
Date and such Appraisal shall be in form and substance acceptable to
the Agent, the Investor and the Lessor;
(h) Default. There shall not have occurred and be continuing
any Default or Event of Default and no Default or Event of Default will
have occurred after giving effect to the Advance requested by such
Requisition;
(i) Local Opinions. With respect to each piece of Equipment
being acquired on such Equipment Closing Date
(i) the Agent and the Investor shall have received the
executed legal opinion of local counsel to the Lessee and the
Guarantors in the state in which such Equipment is located,
substantially in the form of Exhibit E-3 hereto;
(ii) the Agent, the Lessee and the Investor shall have
received the executed legal opinion of counsel to Lessor and the Trust
Company, substantially in the form of Exhibit E-2 hereto; and
(iii) the Agent and the Investor shall have received the
executed legal opinion of counsel to Lessee and the Guarantors,
substantially in the form of Exhibit E-1 hereto.
<PAGE> 14
10
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of the Investor on the
Initial Closing Date. The Investor represents and warrants to each of the other
parties hereto as of the Initial Closing Date as follows:
(a) Due Organization, etc. It is a duly organized and validly
existing corporation in good standing under the laws of the State of
Delaware and has the power and authority to carry on its business as
now conducted and to enter into and perform its obligations under this
Agreement, each Operative Agreement to which it is a party and each
other agreement, instrument and document executed and delivered by it
on the Closing Date in connection with or as contemplated by each such
Operative Agreement to which it is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is a party has been
duly authorized by all necessary action on its part and neither the
execution and delivery thereof by the Investor, nor the consummation of
the transactions contemplated thereby by the Investor, nor compliance
by it with any of the terms and provisions thereof (i) requires or will
require any approval of (which approval has not been obtained) the
shareholders of, or approval or consent of any Person, (ii) contravenes
or will contravene any Legal Requirement applicable to or binding on it
as of the date hereof, (iii) does or will contravene or result in any
breach of or constitute any default under, or result in the creation of
any Lessor Lien upon the Equipment, its articles of incorporation or
by-laws, any indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, bank loan or credit agreement or other
agreement or instrument to which it or its properties may be bound or
(iv) does or will require any Governmental Action by any Governmental
Authority other than any Governmental Action required solely due to the
nature of the Equipment.
(c) Enforceability, etc. Each Operative Agreement to which it
is a party has been duly executed and delivered by it and constitutes,
or upon execution and delivery will constitute, a legal, valid and
binding obligation enforceable against it in accordance with the terms
thereof 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).
(d) ERISA. The Investor is making the Investor Contribution
contemplated to be made by it hereunder for its own account and with
its general corporate assets in the
<PAGE> 15
11
ordinary course of its business, and no part of such amount constitutes
(i) "plan assets" under 29 CFR 2510.3-101 or (ii) assets of a
"governmental plan" as defined under Section 3(32) of ERISA.
(e) Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or
threatened by or against the Investor (a) with respect to any of the
Operative Agreements or any of the transactions contemplated hereby or
thereby, or (b) which would reasonably be expected to have a material
adverse effect on the assets, liabilities, operations, business or
financial condition of the Investor.
(f) Lessor Liens. The Equipment is free and clear of Lessor
Liens.
7.2 Representations and Warranties of Lessor on the Initial
Closing Date. Lessor represents and warrants to each of the other parties hereto
as of the Initial Closing Date as follows:
(a) Due Organization, etc. Lessor is a duly organized and
validly existing business trust in good standing under the laws of the
State of Delaware and has the power and authority to carry on its
business as now conducted and to enter into and perform its obligations
under this Agreement, each Operative Agreement to which it is a party
and each other agreement, instrument and document executed and
delivered by it on the Closing Date in connection with or as
contemplated by each such Operative Agreement.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is a party has been
duly authorized by all necessary action on its part and neither the
execution and delivery thereof by the Lessor, nor the consummation of
the transactions contemplated thereby by the Lessor, nor compliance by
it with any of the terms and provisions thereof (i) requires or will
require any approval of (which approval has not been obtained) any
party or approval or consent of any Person, (ii) contravenes or will
contravene any Legal Requirement applicable to or binding on it as of
the date hereof, (iii) does or will contravene or result in any breach
of or constitute any default under, or result in the creation of any
Lessor Lien upon the Equipment or the Trust Agreement, any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales contract,
bank loan or credit agreement or other agreement or instrument to which
it or its properties may be bound or (iv) does or will require any
Governmental Action by any Governmental Authority.
<PAGE> 16
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(c) Enforceability, etc. Each Operative Agreement to which it
is a party has been duly executed and delivered by it and constitutes,
or upon execution and delivery will constitute, a legal, valid and
binding obligation enforceable against it in accordance with the terms
thereof 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).
(d) Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or
threatened by or against the Lessor (a) with respect to any of the
Operative Agreements or any of the transactions contemplated hereby or
thereby, or (b) which would reasonably be expected to have a material
adverse effect on the assets, liabilities, operations, business or
financial condition of the Lessor.
(e) Assignment. Lessor has not assigned or transferred any of
its right, title or interest in or under the Lease, any other Operative
Agreement or any Equipment, except in accordance with the other
Operative Agreements.
(f) No Default. The Lessor is not in default under or with
respect to any of its Contractual Obligations in any respect which
would reasonably be expected to have a material adverse effect on the
assets, liabilities, operations, business or financial condition of the
Lessor. No Default or Event of Default attributable to it has occurred
and is continuing.
(g) Use of Proceeds. The proceeds of the Loans and the
Investor Contribution shall be applied by the Lessor solely in
accordance with the provisions of the Operative Agreements.
(h) Chief Place of Business. The Lessor's chief place of
business, chief executive office and office where the documents,
accounts and records relating to the transactions contemplated by this
Agreement and each other Operative Agreement are kept are located at
1100 North Market Street, Wilmington, Delaware 19890-0001.
(i) Federal Reserve Regulations. The Lessor is not engaged
principally in, and does not have as one of its most important
activities, the business of extending credit for the purpose of
purchasing or carrying any margin stock (within the meaning of
Regulation U of the Board), and no part of the proceeds of the Loans
will be used by it, directly or indirectly, to purchase or carry any
margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or for any purpose that
<PAGE> 17
13
violates, or is inconsistent with, the provisions of Regulations of the
Board, including but not limited to, G, T, U or X of the Board.
(j) Investment and Holding Company Status. The Lessor is not
(i) an "investment company" as defined in, or subject to regulation
under the Investment Company Act of 1940 or (ii) a "holding company" as
defined in, or subject to regulation under, the Public Utility Holding
Company Act of 1935.
(k) Securities Act. Neither the Lessor nor any Person
authorized by the Lessor to act on its behalf has offered or sold any
interest in the Equipment or the Notes, or in any similar security or
interest relating to the Equipment, or in any security the offering of
which for the purposes of the Securities Act would be deemed to be part
of the same offering as the offering of the aforementioned securities
to, or solicited any offer to acquire any of the same from, any Person
other than, in the case of the Notes, the Agent, and neither the Lessor
nor any Person authorized by the Lessor to act on its behalf will take
any action which would subject the issuance or sale of any interest in
the Equipment or the Notes to the provisions of Section 5 of the
Securities Act or require the qualification of any Operative Agreement
under the Trust Indenture Act of 1939, as amended.
(l) ERISA. The Lessor is making the Lessor Contribution
contemplated to be made by it hereunder in the ordinary course of its
business, and no part of such amount constitutes (i) "plan assets"
under 29 CFR 2510.3-101 or (ii) assets of a "governmental plan" as
defined under Section 3(32) of ERISA.
(m) Lessor Liens. The Equipment is free and clear of all
Lessor Liens.
7.3 Representations and Warranties of the Lessee on the
Initial Closing Date. Each of the representations and warranties of the
Guarantors set forth in Section 9 of the Guaranty are hereby incorporated by
reference as if made by Lessee pursuant to the terms of this Agreement and shall
for all purposes be deemed to have been made by Lessee hereunder on the Initial
Closing Date.
7.4 Representations and Warranties of the Trust Company on the
Initial Closing Date. The Trust Company represents and warrants to each of the
other parties hereto that:
(a) Due Organization, etc. It is a banking corporation duly
organized and validly existing and in good standing under the laws of
the State of Delaware and has the power and authority to enter into and
perform its obligations under the Trust Agreement and has the corporate
power and authority to act as the trustee under the Trust
<PAGE> 18
14
Agreement and to enter into and perform the obligations under each of
the other Operative Agreements to which Trust Company or the Trust, as
the case may be, is or will be a party and each other agreement,
instrument and document to be executed and delivered by it on or before
the Initial Closing Date in connection with or as contemplated by each
such Operative Agreement to which the Trust Company or the Trust, as
the case may be, is or will be a party.
(b) Authorization; No Conflict. The execution, delivery and
performance of each Operative Agreement to which it is a party, either
in its individual capacity or (assuming due authorization, execution
and delivery of the Trust Agreement by the Investor) as the Trust, as
the case may be, has been duly authorized by all necessary action on
its part and neither the execution and delivery thereof, nor the
consummation of the transactions contemplated thereby, nor compliance
by it with any of the terms and provisions thereof (i) does or will
require any approval or consent of any Person (ii) does or will
contravene any current United States federal law, governmental rule or
regulation relating to its banking or trust powers, (iii) does or will
contravene or result in any breach of or constitute any default under,
or result in the creation of any Lien upon any of its property under,
its charter or by-laws, or any indenture, mortgage, chattel mortgage,
deed of trust, conditional sales contract, bank loan or credit
agreement or other agreement or instrument to which it is a party or by
which it or its properties may be bound or affected or (iv) does or
will require any Governmental Action by any Governmental Authority.
(c) Trust Agreement Enforceability, etc. The Trust Agreement
and, assuming the Trust Agreement is the legal, valid and binding
obligation of the Investor, each other Operative Agreement to which
Trust Company or the Trust, as the case may be, is a party have been,
or on or before the Closing Date will be, duly executed and delivered
by Trust Company or the Trust, as the case may be, and the Trust
Agreement and each such other Operative Agreement to the extent entered
into by the Trust Company constitutes, or upon execution and delivery
will constitute, a legal, valid and binding obligation enforceable
against Trust Company in accordance with the terms thereof 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).
(d) Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or
threatened by or against the Trust Company with respect to any of the
Operative Agreements or any of the transactions contemplated hereby or
thereby.
<PAGE> 19
15
(e) Liens. The Trust Estate is free and clear of Lessor Liens
attributable to the Trust Company, and there are no Liens affecting the
title of the Trust to the Equipment or resulting from any act or claim
against the Trust Company arising out of any event or condition not
related to the ownership, leasing use or operation of the Equipment or
any other transaction contemplated by this Agreement or any of the
other Operative Agreements, including any Lien resulting from the
nonpayment by the Trust Company of any Taxes imposed or measured by its
net income.
7.5 Representations and Warranties of the Lessee on Equipment
Closing Dates. The Lessee hereby represents and warrants as of each Equipment
Closing Date as follows:
(a) Representations and Warranties. The representations and
warranties of the Lessee and the Guarantor set forth herein and in each of the
other Operative Agreements are true and correct in all material respects on and
as of such Equipment Closing Date as if made on and as of such Equipment Closing
Date (unless such representations and warranties specifically refer to another
date). The Lessee and each Guarantor are in compliance in all material respects
with their respective obligations under the Operative Agreements and there
exists no Lease Default or Lease Event of Default.
(b) No Default. No Default or Event of Default attributable to
Lessee will occur as a result of, or after giving effect to, the Advance
requested by the Requisition on such Equipment Closing Date.
(c) Authorization by the Lessee. The execution and delivery of
each Lease Supplement and other Operative Agreement delivered by the Lessee on
such Equipment Closing Date and the performance of the obligations of the Lessee
under each such Lease Supplement and other Operative Agreements have been duly
authorized by all requisite corporate action of the Lessee.
(d) Execution and Delivery by the Lessee. Each Lease
Supplement and other Operative Agreement delivered on such Equipment Closing
Date by the Lessee have been duly executed and delivered by the Lessee.
(e) Valid and Binding Obligations. Each Lease Supplement and
other Operative Agreement delivered by the Lessee on such Equipment Closing Date
is a legal, valid and binding obligation of the Lessee, enforceable against the
Lessee in accordance with its 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).
<PAGE> 20
16
(f) Filing of UCC Financing Statements and Priority of Liens.
The UCC Financing Statements with respect to the Equipment being acquired on
such Equipment Closing Date have been filed with the appropriate Governmental
Authorities so that the liens created pursuant to each of the Security Agreement
and the Lease (together with the Assignment of Lease) constitutes a valid and
perfected security interest on each applicable piece of Equipment located
thereon in an amount not less than the Tranche A/B Equipment Cost with respect
to such Equipment subject, in all cases, to the Lessee's right to relocate the
Equipment.
(g) Insurance Coverage. The Lessee maintains insurance
coverage for each piece of Equipment being acquired by the Lessor on such
Equipment Closing Date which meets the requirements of Section 14.1 of the Lease
and all of such coverage is in full force and effect.
(h) Legal Requirements. Each piece of Equipment being acquired
by the Lessor on such Equipment Closing Date complies in all material respects
with all Legal Requirements (including all zoning and land use laws and
Environmental Laws).
(i) Consents, etc. All material consents, licenses and permits
required by all Legal Requirements for operation of each piece of Equipment
being acquired on such Equipment Closing Date have been obtained and are in full
force and effect.
(j) Environmental Matters.
(1) The Equipment being acquired on such Equipment
Closing Date does not contain any Hazardous Substances in
amounts or concentrations which (i) constitute a material
violation of, or (ii) would reasonably be expected to give
rise to material liability under, any Environmental Law.
(2) The Equipment being acquired on such Equipment
Closing Date is in compliance in all material respects with
all applicable Environmental Laws.
(3) Neither the Lessee nor any of its Subsidiaries has
received any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding any
material non-compliance with Environmental Laws with regard to
the Equipment being acquired on such Equipment Closing Date,
nor does the Lessee have knowledge that any such notice will
be received or is being threatened.
(4) Hazardous Substances have not been transported or
discharged from the Equipment being acquired on such Equipment
Closing Date so as to create a material violation of any
Environmental Law, nor have any Hazardous Substances
<PAGE> 21
17
been generated, treated, or used with respect to the Equipment
being acquired on such Equipment Closing Date so as to create
a material violation of any applicable Environmental Law.
(5) No judicial proceeding or governmental or
administrative action is pending or, to the best knowledge of
the Lessee, threatened, under any Environmental Law to which
the Lessee or any Subsidiary is or, to Lessee's knowledge,
will be named as a party with respect to the Equipment being
acquired on such Equipment Closing Date, 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 the Equipment being acquired on such
Equipment Closing Date.
(6) There has been no release or threat of release of
Hazardous Substances at or from the Equipment being acquired
on such Equipment Closing Date, or arising from or related to
the operations of the Lessee or any Subsidiary in connection
with the Equipment being acquired on such Equipment Closing
Date, in violation of or in amounts or in a manner that would
reasonably be expected to give rise to any material liability
under any Environmental Laws.
(k) Location of the Equipment. Each piece of Equipment being
acquired on such Equipment Closing Date is located within the United States or
on lands covered by leases under the exclusive jurisdiction of the United States
of America pursuant to the Outer Continental Shelf Lands Act, as amended, 43
U.S.C. ss. ss. 1331, et seq. (1986).
(l) Conditions Precedent in Operative Agreements. All
conditions precedent contained in this Agreement and in the other Operative
Agreements required to be satisfied by Lessee relating to the acquisition of a
piece of Equipment by the Lessor have been satisfied in full or waived by the
Agent and the Lessee.
(m) Hart-Scott-Rodino The acquisition of the Equipment being
acquired on such Equipment Closing Date does not conflict with, violate or
require the consent of, any Governmental Authority under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
7.6 Representations and Warranties of the Lessor on Equipment
Closing Dates. The Lessor hereby represents and warrants as of each Equipment
Closing Date as follows:
(a) Representations and Warranties; No Default. The
representations and warranties of the Lessor set forth herein and in each of the
other Operative Agreements are true
<PAGE> 22
18
and correct in all material respects on and as of such Equipment Closing Date as
if made on and as of such Equipment Closing Date (unless such representations
and warranties specifically refer to another date). The Lessor is in compliance
with its respective obligations under the Operative Agreements and there exists
no Default or Event of Default under any of the Operative Agreements. No Default
or Event of Default will occur as a result of, or after giving effect to, the
Advance requested by the Requisition on such Equipment Closing Date.
(b) Authorization by the Lessor. The execution and delivery of
each Lease Supplement, Security Agreement, Supplement to Assignment of Lease and
other Operative Agreement delivered by the Lessor on such Equipment Closing Date
and the performance of the obligations of the Lessor under each such Lease
Supplement, Security Agreement Supplement to the Assignment of Lease and other
Operative Agreement have been duly authorized by all requisite action of the
Lessor.
(c) Execution and Delivery by the Lessor. Each Lease
Supplement, Security Agreement, Supplement to the Assignment of Lease and other
Operative Agreement delivered by the Lessor on such Equipment Closing Date have
been duly executed and delivered by the Lessor.
(d) Valid and Binding Obligations. Each Lease Supplement,
Security Agreement, Supplement to the Assignment of Lease and other Operative
Agreement delivered by the Lessor on such Equipment Closing Date is a legal,
valid and binding obligation of the Lessor, enforceable against the Lessor in
accordance with its 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).
(e) Conditions Precedent in Operative Agreements. All
conditions precedent contained in this Agreement and in the other Operative
Agreements to be satisfied by the Lessee relating to the acquisition of a piece
of Equipment by the Lessor have been satisfied in full.
SECTION 8. PAYMENT OF CERTAIN EXPENSES
Lessee agrees, for the benefit of the Investor, the Trust Company, the
Lessor, the Agent and each of the Lenders, to:
8.1 Transaction Expenses. (a) On the Initial Closing Date,
pay, or cause to be paid, all reasonable fees, expenses and disbursements of one
counsel to each of the Lessor, the Trust Company, the Agent, and the Investor in
connection with the transactions contemplated
<PAGE> 23
19
by the Operative Agreements and incurred in connection with such Initial Closing
Date, including all Transaction Expenses, and all other reasonable expenses in
connection with such Initial Closing Date, including all expenses relating to
all fees, taxes and expenses for the recording, registration and filing of
documents.
(b) On each Equipment Closing Date, pay, or cause to be paid,
all reasonable fees, expenses and disbursements of each of the Lessor's, the
Trust Company's, the Agent's and the Investor's counsel in connection with the
transactions contemplated by the Operative Agreements and incurred in connection
with such Equipment Closing Date, including all Transaction Expenses arising
from such Equipment Closing Date, and all other reasonable expenses in
connection with such Equipment Closing Date, including all expenses relating to
each Appraisal, and all fees, taxes and expenses for the recording, registration
and filing of documents.
8.2 Brokers' Fees and Stamp Taxes. Pay or cause to be paid
brokers' fees with respect to brokers retained by or with the prior written
consent of Lessee and any and all stamp, transfer and other similar taxes, fees
and excises, if any, including any interest and penalties, which are payable in
connection with the transactions contemplated by this Agreement and the other
Operative Agreements.
8.3 Certain Fees and Expenses. Pay or cause to be paid (i) the
initial and annual Trust Company's fee and all expenses of the Trust Company and
any necessary co-trustees (including reasonable counsel fees and expenses) or
any successor owner trustee, for acting as trustee under the Trust Agreement,
(ii) all costs and expenses incurred by the Lessee, the Agent, the Investor, the
Trust Company or the Lessor in entering into any future amendments or
supplements with respect to any of the Operative Agreements, whether or not such
amendments or supplements are ultimately entered into, or giving or withholding
of waivers of consents hereto or thereto, which have been requested by the
Lessee, and (iii) all costs and expenses incurred by the Lessor, the Lessee, the
Investor, the Trust Company or the Agent in connection with any purchase of any
Equipment by the Lessee pursuant to Section 20 of the Lease.
8.4 Credit Agreement and Related Obligations. (a) Pay, on or
prior to the due date thereof, all costs, fees, indemnities, expenses and other
amounts (other than principal and interest on the Loans, but including breakage
costs and interest on overdue amounts pursuant to Section 2.14 of the Credit
Agreement or otherwise) required to be paid by the Lessor under any Operative
Agreement.
<PAGE> 24
20
(b) Pay to the Agent all fees specified in the Fee Letter at
the time and in the manner required by the Fee Letter, which fees may not be
paid by using the proceeds of the Loans or the Investor Contribution.
(c) Pay to the Lessor promptly after receipt of notice
therefor any additional amounts payable to the Investor in respect of the
Investor Contribution under Sections 2.13, 2.14 and 2.15 of the Credit Agreement
(it being agreed that the Investor is, for purposes of this Agreement, a
beneficiary of the provisions of Sections 2.13, 2.14 and 2.15 of the Credit
Agreement).
8.5 Commitment Fees. (a) Pay to the Agent for the account of
each Lender the Commitment Fee on each Commitment Fee Payment Date.
(b) The Commitment Fee shall be calculated on the basis of a
365- (or 366-, as the case may be) day year for the actual days elapsed. If all
or a portion of the Commitment Fee shall not be paid when due, such overdue
amount shall bear interest, payable by the Lessee on demand, at a rate per annum
equal to the applicable Overdue Rate, from the date of such non-payment until
such amount is paid in full (as well after as before judgment).
8.6 Overdue Rate. If all or a portion of the Investor Yield,
the Investor Contribution or any other amount owed to the Investor shall not be
paid when due, such overdue amount shall bear interest, payable on demand, at a
rate per annum equal to the applicable Overdue Rate, from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
8.7 Continuous Perfection of Security Interests. If the
Officer's Certificate required to be delivered by Lessee pursuant to Section
10.3(b) of the Lease shall indicate that any of the Equipment has been
relocated, then Lessee will provide to the Agent, together with the Officer's
Certificate, evidence in form and substance satisfactory to Agent that all
filings, recordings, registrations and other actions, including the filing of
duly executed Lender Financing Statements and Lessor Financing Statements,
necessary or, in the reasonable opinion of the Agent, desirable to perfect the
Liens granted by the Security Documents shall have been completed.
8.8 Oklahoma Equipment Subleases. With respect to any leases
or other agreements entered into by Lessee with respect to Equipment located in
the State of Oklahoma ("Oklahoma Subleases"), Lessee shall, within 60 days of
the Initial Closing Date (or the date any Oklahoma Sublease is subsequently
entered into), undertake to file, in accordance with 60 Okla. Stat. 1991 ss.
319, et. seq., the original Oklahoma Sublease instrument or a true copy thereof
in the chattel mortgage records of the office of the county clerk in the county
where the
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21
Equipment is located and provide Agent with reasonably satisfactory evidence of
Lessee's compliance with this Section 8.8.
SECTION 9. OTHER COVENANTS AND AGREEMENTS
9.1 Covenants of the Trust and the Investor and the Trust
Company. Each of the parties hereby agrees that so long as this Agreement is in
effect:
(a) Discharge of Liens. Each of the Investor, the Trust and
the Trust Company, in its individual capacity, will not create or permit to
exist at any time, and will, at its own cost and expense, promptly take such
action as may be necessary duly to discharge, or to cause to be discharged, all
Lessor Liens on the Equipment attributable to it or any of its Affiliates;
provided, however, that the Investor, the Trust and the Trust Company shall not
be required to so discharge any such Lessor Lien while the same is being
contested in good faith by appropriate proceedings diligently prosecuted so long
as such proceedings shall not cause Lessee or any other party hereto to be in
default under any of the Operative Documents and shall not involve any material
danger of impairment of the Liens of the Security Documents or of the sale,
forfeiture or loss of, and shall not materially interfere with the use or
disposition of, the Equipment or title thereto or any interest therein or the
payment of Rent.
(b) Trust Agreement. Without prejudice to any right under the
Trust Agreement of the Trust Company to resign, or the Investor's right under
the Trust Agreement to remove the institution acting as Trustee, each of the
Investor and the Trust Company hereby agrees with the Lessee and the Agent (i)
not to terminate or revoke the trust created by the Trust Agreement except as
permitted by the Trust Agreement, (ii) not to amend, supplement, terminate or
revoke or otherwise modify any provision of the Trust Agreement without the
prior written consent of any party adversely affected by such amendment and in
any event with prior notice to the Lessee and (iii) to comply with all of the
terms of the Trust Agreement, the nonperformance of which would adversely affect
such party. The Trust Company will provide each party hereto with a copy of any
amendment to the Trust Agreement within thirty (30) days after such amendment is
effective.
(c) Successor Trust Company. The Trust Company or any
successor may resign or be removed by the Investor as owner trustee, a successor
owner trustee may be appointed, and a corporation may become the owner trustee
under the Trust Agreement, only in accordance with the provisions of Section 8
of the Trust Agreement and with the consent of the Lessee, which consent shall
not be unreasonably withheld or delayed.
<PAGE> 26
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(d) Indebtedness; Other Business. The Trust shall not contract
for, create, incur or assume any indebtedness, or enter into any business or
other activity, or hold title to any assets other than pursuant to or under the
Operative Agreements.
(e) No Violation. Neither the Investor nor the Trust Company
will instruct the Trust to take any action in violation of the terms of any
Operative Agreement.
(f) No Voluntary Bankruptcy. Neither the Investor nor the
Trust shall (i) commence, consent to, approve of or acquiesce to any case,
proceeding or other action under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization,
arrangement, winding-up, liquidation, dissolution, composition or other relief
with respect to it or its debts, or (ii) seek appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or make a general assignment for the benefit of
its creditors; and neither the Investor nor the Trust shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in this paragraph.
(g) Change of Chief Place of Business. The Trust shall give
prompt prior notice to the Lessee and the Agent if the Trust's chief place of
business or chief executive office, or the office where the records concerning
the accounts or contract rights relating to the Equipment are kept, shall cease
to be located at the address set forth in Section 7.2(h) or if it shall change
its name.
(h) Loan Documents. Provided that no Lease Event of Default is
continuing, none of the Lenders, the Trust Company, the Lessor, the Agent nor
the Investor shall consent to or permit any material amendment, supplement,
waiver or other modification of the terms and provisions of the Credit
Agreement, the Notes or the Security Documents which would reasonably be
expected to adversely impact the Lessee, in each case without the prior written
consent of the Lessee.
(i) Disposition of Assets. The Trust shall not convey, sell,
lease, assign, transfer or otherwise dispose of any of its property, business or
assets, whether now owned or hereafter acquired, except to the extent expressly
authorized by the Operative Agreements.
(j) Compliance with Operative Agreements. It shall at all
times observe and perform all of the covenants, conditions and obligations
required to be performed by it under each Operative Agreement to which it is a
party.
<PAGE> 27
23
(k) Tax Reporting. No party hereto other than the Lessee will
file (or permit to be filed) any tax return taking the position that such party
(or its affiliates) is the owner of the Equipment for federal, state or local
tax purposes.
9.2 Repayment of Certain Amounts on Maturity Date. The
Investor, the Lessor and the Agent hereby agree that if (i) on the Maturity Date
(after giving effect to all payments made by the Lessee under the Lease and the
application of all sales proceeds pursuant to Section 8 of the Credit Agreement)
there remains any outstanding principal or accrued and unpaid interest under the
Tranche B Notes (the aggregate amount of such outstanding principal, the
"Tranche B Deficit") and (ii) during the Marketing Period the Lessor or the
Investor have received any Marketing Period Equity Return, then on the Maturity
Date the Investor shall pay to the Agent an amount up to the amount of the
Tranche B Deficit to be applied pursuant to Section 8 of the Credit Agreement,
but in no event greater than the Marketing Period Equity Return received by
Investor.
9.3 Amendment of Certain Documents. The Agent, for itself and
on behalf of the Lenders, hereby agrees for the benefit of the Trust and the
Investor that it will not amend, alter or otherwise modify, or consent to any
amendment, alteration or modification of, the Lease (including the definitions
of any terms used in such document) without the prior written consent of the
Trust and the Investor, as the case may be, if such amendment, alteration or
modification would adversely affect the interests of the Trust or the Investor.
Provisions requiring consent, include any amendment, alteration or modification
that would release the Lessee from any of its obligations in respect of the
payment of Basic Rent, Supplemental Rent, Termination Value, Maximum Residual
Guarantee Amount or the Purchase Option Price or any other payments in respect
of the Equipment as set forth in the Lease, or amend the provisions of Section 8
of the Credit Agreement, or reduce the amount of, or change the time or manner
of payment of, obligations of the Lessee as set forth in the Lease, or create or
impose any obligation on the part of the Trust or the Investor under the Lease,
or extend or shorten the duration of the Term, or modify the provisions of this
Section 9.3.
9.4 Proceeds of Casualty. Subject to Section 15 of the Lease,
the Lessor and the Investor agree, for the benefit of the Agent and the Lenders,
that if at any time either the Lessor or the Investor receives any proceeds as a
result, directly or indirectly, of any Casualty or Condemnation with respect to
the Equipment which the Lessor is entitled to retain and hold in accordance with
the terms of the Lease, the Lessor and the Investor agree that they will
promptly deposit such amounts in an account with the Agent. The Lessor and the
Investor also agree that they will execute and deliver such documents and
instruments as the Agent may request in order to grant the Agent, for the
benefit of the Lenders, a valid and perfected, first priority security interest
in such proceeds.
<PAGE> 28
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9.5 Intercreditor Agreement. The Lessee, the Agent, the
Lenders, the Investor and the Lessor hereby agree and confirm that the
provisions of Section 8 of the Credit Agreement are intended to constitute an
intercreditor agreement and a subordination agreement under Section 510 of the
Bankruptcy Code or any similar provision therein.
SECTION 10. CREDIT AGREEMENT
10.1 Lessee's Credit Agreement Rights. Notwithstanding
anything to the contrary contained in the Credit Agreement, the Agent, the
Lenders, the Lessee, the Investor and the Trust hereby agree that:
(a) the Lessee shall have the right to give the notices
referred to in Section 2.3 of the Credit Agreement;
(b) the Lessee shall have the right to convert or continue
Loans in accordance with Section 2.6 of the Credit Agreement;
(c) the Lessee shall receive copies of all notices delivered
to the Lessor under the Credit Agreement and the other Operative Agreements and
such notices shall not be effective until received by Lessee;
(d) the Lessee shall have the right to select Interest Periods
in accordance with the terms of the Credit Agreement;
(e) the Lessee shall have the right to give notice of
prepayment of the Loans in accordance with the Credit Agreement, provided that
if the Lessee shall give notice of prepayment of the Loans, the Lessee shall
prepay a pro rata portion of the Investor Contribution;
(f) the Lessee shall have the right to cure, to the extent
susceptible to a cure, any Credit Agreement Default or Credit Agreement Event of
Default of the Lessor;
(g) the Lessee shall have the right to approve any successor
Agent pursuant to Section 7.9 of the Credit Agreement;
(h) the Lessee shall have the right, on behalf of the Lessor,
to select any Person or Persons (including the Lessee) to whom funds may be paid
at the discretion of the Lessor in accordance with Sections 8.1 and 8.2 of the
Credit Agreement;
<PAGE> 29
25
(i) the Lessee shall have the right to consent to any
assignment by a Lender, if required pursuant to Section 9.7 of the Credit
Agreement;
(j) the Lessee shall have the right to request that another
lending office be designated pursuant to Section 2.15(a) of the Credit
Agreement;
(k) Lessee shall have the right to cause a Lender to assign
its rights and delegate its obligation under the Credit Agreement pursuant to
Section 2.16 of the Credit Agreement;
(l) the Lessee shall have the obligation to notify the Agent
of the amounts or information specified in Section 5.8 of the Credit Agreement;
and
(m) without limiting the foregoing clauses (a) through (l),
and in addition thereto, (x) the Trust shall not exercise any right under the
Credit Agreement without giving the Lessee at least fifteen (15) Business Days'
prior written notice (or such shorter period as may be required but in no case
less than five (5) Business Days) and, following such notice, the Trust shall
take such action, or forbear from taking such action, as the Lessee shall direct
and (y) the Lessee shall have the right to exercise any other right of the Trust
under the Credit Agreement upon not less than two (2) Business Days' prior
written notice from the Lessee to the Trust. Notwithstanding the foregoing, the
Investor shall retain the exclusive right to direct the Trust with respect to
the exercise of the Excepted Rights.
SECTION 11. TRANSFER OF INTEREST
11.1 Restrictions on Transfer. The Investor may not, directly
or indirectly, assign, convey or otherwise transfer any of its right, title or
interest in or to the Trust Estate or the Trust Agreement nor shall there be any
change in control of the Investor without the consent of the Agent and the
Lessee, which consent shall not be unreasonably withheld or delayed. Any
transfer by the Investor as above provided, shall be effected pursuant to an
agreement in form and substance reasonably satisfactory to the Agent, the
Investor, the Trust Company, the Lessee and their respective counsel.
11.2 Effect of Transfer. From and after any transfer effected
in accordance with this Section 11, the transferor shall be released, to the
extent of such transfer, from its liability hereunder and under the other
documents to which it is a party in respect of obligations to be performed on or
after the date of such transfer; provided, however, that any transferor Investor
shall remain liable under the Trust Agreement to the extent that the transferee
Investor shall not have assumed the obligations of the transferor Investor
thereunder. Upon any transfer by the
<PAGE> 30
26
Investor as above provided, any such transferee shall assume the obligations of
the same entity, and the Lessor or Investor, as the case may be, and shall be
deemed the "same entity", as the case may be, for all purposes of such documents
and each reference herein to the transferor shall thereafter be deemed a
reference to such transferee for all purposes, except as provided in the
preceding sentence. Notwithstanding any transfer of all or a portion of the
transferor's interest as provided in this Section 11, the transferor shall be
entitled to all benefits accrued and all rights vested prior to such transfer
including rights to indemnification under any such document.
SECTION 12. INDEMNIFICATION
12.1 General Indemnity. The Lessee, hereby assumes liability
for and agrees to defend, indemnify and hold harmless each Indemnified Person on
an After Tax Basis from and against any Claims which may be imposed on, incurred
by or asserted against an Indemnified Person in any way relating to or arising
out of (a) the financing, refinancing, purchase, acceptance, rejection,
ownership, design, delivery, acceptance, nondelivery, leasing, subleasing,
possession, use, operation, repair, modification, transportation, condition,
sale, return, repossession (whether by summary proceedings or otherwise), or any
other disposition of the Equipment or any part thereof; (b) any latent or other
defects in any piece of Equipment whether or not discoverable by an Indemnified
Person or the Lessee; (c) a violation of Environmental Laws, Environmental
Claims or other loss of or damage relating to the Equipment; (d) the Operative
Agreements, or any transaction contemplated thereby; (e) any breach by the
Lessee of any of its representations or warranties under the Operative
Agreements or failure by the Lessee to perform or observe any covenant or
agreement to be performed by it under any of the Operative Agreements; and (f)
personal injury, death or property damage relating to the Equipment, including
Claims based on strict liability in tort; but in any event excluding (v) Claims
to the extent such Claims arise solely out of the gross negligence or willful
misconduct of such Indemnified Person, (w) Claims to the extent such Claims
arise solely out of events occurring after Lessee's discharge of all its
obligations under the Lease or (x) any Taxes including any Claim (or any portion
of a Claim) made upon an Indemnified Person by a third party that at its origin
is based upon a Tax (other than amounts necessary to make any payments hereunder
on an After Tax Basis, where the Lessee is otherwise specifically required to
make such payments on an After Tax Basis), (y) legal proceedings commenced
against an Indemnified Person by any security holder or creditor solely in its
capacity as such, or (z) legal proceedings commenced against an Indemnified
Person by any other Indemnified Person or by any transferee of an Indemnified
Person. The Lessee shall be entitled to control, and shall assume full
responsibility for the defense of any Claim; provided, however, that the Trust,
the Trust Company, the Agent and the Investor named in such Claim, may each
retain separate counsel at the expense of the Lessee in the event of and to the
extent of an actual conflict or a potential conflict. The Lessee and each
Indemnified Person agree to give each other prompt
<PAGE> 31
27
written notice of any Claim hereby indemnified against but the giving of any
such notice by an Indemnified Person shall not be a condition to the Lessee's
obligations under this Section 12.1, except to the extent failure to give such
notice materially prejudices Lessee's rights hereunder or with respect to the
defense or settlement of such Claim. After an Indemnified Person has been fully
indemnified for a Claim pursuant to this Section 12.1, and so long as no Lease
Event of Default shall have occurred and be continuing, the Lessee shall be
subrogated to any right of such Indemnified Person with respect to such Claim.
None of the Indemnified Persons shall settle a Claim without the prior written
consent of the Lessee, which consent shall not be unreasonably withheld or
delayed.
12.2 General Tax Indemnity. (a) The Lessee shall pay and
assume liability for, and does hereby agree to indemnify, protect and defend the
Equipment and all Tax Indemnitees, and hold them harmless against, all
Impositions on an After Tax Basis.
(b) Provided that no Default or Event of Default has occurred
and is continuing, if any Tax Indemnitee obtains a refund or a reduction in a
liability (but only if such reduction relates to a Tax not otherwise
indemnifiable hereunder and has not been taken into account in determining the
amount of a payment on an After Tax Basis) as a result of any Imposition paid or
reimbursed by the Lessee (in whole or in part), such Tax Indemnitee shall
promptly pay to the Lessee the lesser of (x) the amount of such refund or
reduction in liability and (y) the amount previously so paid or advanced by the
Lessee, in each case net of reasonable expenses not already paid or reimbursed
by the Lessee.
(c)(i) Subject to the terms of Section 12.2(g), the Lessee
shall pay or cause to be paid all Impositions directly to the taxing authorities
where feasible and otherwise to the Tax Indemnitee, as appropriate, and the
Lessee shall at its own expense, upon such Tax Indemnitee's reasonable request,
furnish to such Tax Indemnitee copies of official receipts or other satisfactory
proof evidencing such payment.
(ii) In the case of Impositions for which no contest is
conducted pursuant to Section 12.2(g) and which the Lessee pays directly to the
taxing authorities, the Lessee shall pay such Impositions prior to the latest
time permitted by the relevant taxing authority for timely payment. In the case
of Impositions for which the Lessee reimburses a Tax Indemnitee, the Lessee
shall do so within twenty (20) days after receipt by the Lessee of demand by
such Tax Indemnitee describing in reasonable detail the nature of the Imposition
and the basis for the demand (including the computation of the amount payable),
but in no event shall the Lessee be required to pay such reimbursement prior to
15 days before the latest time permitted by the relevant taxing authority for
timely payment. In the case of Impositions for which a contest is conducted
pursuant to Section 12.2(g), the Lessee shall pay such Impositions or reimburse
such Tax Indemnitee for such Impositions, to the extent not previously paid or
reimbursed pursuant
<PAGE> 32
28
to subsection (a), prior to the latest time permitted by the relevant taxing
authority for timely payment after conclusion of all contests under Section
12.2(g).
(iii) Impositions imposed with respect to a piece of Equipment
for a billing period during which the Lease expires or terminates with respect
to such Equipment (unless the Lessee has exercised the Purchase Option with
respect to the Equipment) shall be adjusted and prorated on a daily basis
between the Lessee and the Lessor, whether or not such Imposition is imposed
before or after such expiration or termination and each party shall pay or
reimburse the other for each party's pro rata share thereof.
(iv) At the Lessee's request, the amount of any indemnification
payment by the Lessee pursuant to subsection (a) shall be verified and certified
by an independent public accounting firm mutually acceptable to the Lessee and
the Tax Indemnitee. The fees and expenses of such independent public accounting
firm shall be paid by the Lessee unless such verification shall result in an
adjustment in the Lessee's favor of 10% or more of the payment as computed by
such Tax Indemnitee, in which case such fee shall be paid by such Tax
Indemnitee.
(d)(i) The Lessee shall be responsible for preparing and
filing any real and personal property or ad valorem tax returns in respect of
the Equipment. In case any other report or tax return shall be required to be
made with respect to any obligations of the Lessee under or arising out of
subsection (a) and of which the Lessee has knowledge, the Lessee, at its sole
cost and expense, shall notify the relevant Tax Indemnitee of such requirement
and (except if such Tax Indemnitee notifies the Lessee that such Person intends
to file such report or return) (A) to the extent required or permitted by and
consistent with Legal Requirements, make and file in its own name such return,
statement or report; and (B) in the case of any other such return, statement or
report required to be made in the name of such Tax Indemnitee, advise such Tax
Indemnitee of such fact and prepare such return, statement or report for filing
by such Tax Indemnitee or, where such return, statement or report shall be
required to reflect items in addition to any obligations of the Lessee under or
arising out of subsection (a), provide such Tax Indemnitee at the Lessee's
expense with information sufficient to permit such return, statement or report
to be properly made with respect to any obligations of the Lessee under or
arising out of subsection (a). Such Tax Indemnitee shall, upon the Lessee's
request and at the Lessee's expense, provide any data maintained by such Tax
Indemnitee (and not otherwise within the control of the Lessee) with respect to
the Equipment which the Lessee may reasonably require to prepare any required
tax returns or reports;
(e) If as a result of the payment or reimbursement by the
Lessee of any expenses of a Tax Indemnitee or the payment of any Transaction
Expenses incurred in connection with the transactions contemplated by the
Operative Agreements, any Tax
<PAGE> 33
29
Indemnitee, shall suffer a net increase in any federal, state or local income
tax liability, the Lessee shall indemnify such Tax Indemnitees (without
duplication of any indemnification required by subsection (a)) on an After Tax
Basis for the amount of such increase. The calculation of any such net increase
shall take into account any current or future tax savings realized or reasonably
expected to be realized by such Tax Indemnitees, in respect thereof, as well as
any interest, penalties and additions to tax payable by such Tax Indemnitees, in
respect thereof;
(f) As between the Lessee and the Lessor, the Lessee shall be
responsible for, and the Lessee shall indemnify and hold harmless the Trust
Company in its individual capacity and as the Lessor (without duplication of any
indemnification required by subsection (a)) on an After Tax Basis against, any
obligation for United States withholding taxes imposed in respect of the
interest payable on the Notes to the extent, but only to the extent, Lessor has
actually paid funds to a taxing authority with respect to such withholding taxes
(and, if the Lessor receives a demand for such payment from any taxing
authority, the Lessee shall discharge such demand on behalf of the Lessor);
(g)(i) If a written claim is made against any Tax Indemnitee
or if any proceeding shall be commenced against such Tax Indemnitee (including a
written notice of such proceeding), for any Impositions, such Tax Indemnitee
shall promptly notify Lessee in writing and shall not take action with respect
to such claim or proceeding without the consent of Lessee for thirty (30) days
after the receipt of such notice by Lessee; provided, that, in the case of any
such claim or proceeding, if action shall be required by law or regulation to be
taken prior to the end of such 30-day period, such Tax Indemnitee shall, in such
notice to Lessee, inform Lessee, and no action shall be taken with respect to
such claim or proceeding without the consent of Lessee before the end of such
shorter period; provided, further, that the failure of such Tax Indemnitee to
give the notices referred to this sentence shall not diminish Lessee's
obligation hereunder except to the extent such failure materially adversely
affects Lessee in contesting all or part of such claim.
(ii) If, within thirty (30) days of receipt of such notice
from the Tax Indemnitee (or such shorter period as the Tax Indemnitee has
noticed Lessee is required by law or regulation for the Tax Indemnitee to
commence such contest), Lessee shall request in writing that such Tax Indemnitee
contest such Imposition, the Tax Indemnitee shall, at the expense of Lessee, in
good faith conduct and control such contest (including, without limitation, by
pursuit of appeals) relating to the validity, applicability or amount of such
Impositions (provided, however, that (A) if such contest can be pursued
independently from any other proceeding involving a tax liability of such Tax
Indemnitee, the Tax Indemnitee, at Lessee's request, shall allow Lessee to
conduct and control such contest and (B) in the case of any contest that Lessee
is not entitled to control, the Tax Indemnitee may request Lessee to conduct and
control such contest if possible or
<PAGE> 34
30
permissible under applicable law or regulation) by, in the sole discretion of
the Person conducting and controlling such contest, (1) resisting payment
thereof, (2) not paying the same except under protest, if protest is necessary
and proper, (3) if the payment be made, using reasonable efforts to obtain a
refund thereof in appropriate administrative and judicial proceedings, or (4)
taking such other action as is reasonably requested by Lessee from time to time.
(iii) The party controlling any contest shall consult in good
faith with the non-controlling party and shall keep the non-controlling party
reasonably informed as to the conduct of such contest; provided that all
decisions ultimately shall be made in the sole discretion of the controlling
party. The parties agree that an Tax Indemnitee may at any time decline to take
further action with respect to the contest of any Imposition and may settle such
contest if such Tax Indemnitee shall waive its rights to any indemnity from
Lessee that otherwise would be payable in respect of such claim (and any future
claim by any taxing authority with respect to other taxable periods that are
based, in whole or in part, upon the resolution of such claim) and shall pay to
Lessee any amount previously paid or advanced by Lessee pursuant to this Section
12.2 by way of indemnification or advance for the payment of an Imposition, and
no other then future liability of the Lessee is likely with respect to such
Imposition.
(iv) Notwithstanding the foregoing provisions of this Section
12.2, a Tax Indemnitee shall not be required to take any action and Lessee shall
not be permitted to contest any Impositions in its own name or that of the Tax
Indemnitee unless (A) Lessee shall have agreed to pay and shall pay to such Tax
Indemnitee on demand and on an After Tax Basis all reasonable costs, losses and
expenses that such Tax Indemnitee actually incurs in connection with contesting
such Impositions, including, without limitation, all reasonable legal,
accounting and investigatory fees and disbursements, (B) in the case of a claim
that must be pursued in the name of an Tax Indemnitee (or an Affiliate thereof),
the amount of the potential indemnity (taking into account all similar or
logically related claims that have been or could be raised in any audit
involving such Tax Indemnitee for which Lessee may be liable to pay an indemnity
under this Section 12.2) is more than $25,000, unless the pursuit of such
contest is in a manner mutually satisfactory to the Tax Indemnitee and the
Lessee, but in no event shall such right prevent the Lessee from prosecuting or
continuing such contest, (C) the Tax Indemnitee shall have reasonably determined
that the action to be taken will not result in any material danger of sale,
forfeiture or loss of any piece of Equipment, or any part thereof or interest
therein, will not interfere with the payment of Rent, and will not result in
risk of criminal liability, (D) if such contest shall involve the payment of the
Imposition prior to the contest, Lessee shall provide to the Tax Indemnitee an
interest-free advance in an amount equal to the Imposition that the Tax
Indemnitee is required to pay (with no additional net after-tax cost to such Tax
Indemnitee), (E) in the case of a claim that must be pursued in the name of an
Tax Indemnitee (or an Affiliate thereof), Lessee shall have provided to such Tax
Indemnitee an opinion of independent tax
<PAGE> 35
31
counsel selected by the Lessee and reasonably satisfactory to such Tax
Indemnitee stating that a reasonable basis exists to contest such claim (or, in
the case of an appeal of an adverse determination, an opinion of such counsel to
the effect that there is substantial authority for the position asserted in such
appeal) and (F) no Event of Default shall have occurred and be continuing. In no
event shall a Tax Indemnitee be required to appeal an adverse judicial
determination to the United State Supreme Court. In addition, a Tax Indemnitee
shall not be required to contest any claim in its name (or that of an Affiliate)
if the subject matter thereof shall be of a continuing nature and shall have
previously been decided adversely by a court of competent jurisdiction pursuant
to the contest provisions of this Section 12.2, unless there shall have been a
change in law (or interpretation thereof) and the shall Tax Indemnitee have
received, at the Lessee's expense, an opinion of independent tax counsel
selected by the Lessee and reasonably acceptable to the Tax Indemnitee stating
that as a result of such change in law (or interpretation thereof), it is more
likely than not that the Tax Indemnitee will prevail in such contest.
SECTION 13. MISCELLANEOUS
13.1 Survival of Agreements. The representations, warranties,
covenants, indemnities and agreements of the parties provided for in the
Operative Agreements, and the parties' obligations under any and all thereof,
shall survive the execution and delivery of this Agreement, the transfer of the
Equipment to the Trust, any disposition of any interest of the Trust in the
Equipment or any interest of the Investor in the Trust, the payment of the Notes
and any disposition thereof and shall be and continue in effect notwithstanding
any investigation made by any party and the fact that any party may waive
compliance with any of the other terms, provisions or conditions of any of the
Operative Agreements. Except as otherwise expressly set forth herein or in other
Operative Agreements, the indemnities of the parties provided for in the
Operative Agreements shall survive the expiration or termination of any thereof.
13.2 No Broker, etc. Each of the parties hereto represents to
the others that it has not retained or employed any broker, finder or financial
adviser to act on its behalf in connection with this Agreement, nor has it
authorized any broker, finder or financial adviser retained or employed by any
other Person so to act, except for the Arranger, the fees of which shall be paid
by the Lessee in accordance with the Fee Letter. Any party who is in breach of
this representation shall indemnify and hold the other parties harmless from and
against any liability arising out of such breach of this representation.
13.3 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless
<PAGE> 36
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otherwise expressly provided herein, shall be deemed to have been duly given or
made (a) when delivered by hand, (b) one Business Day after delivery to a
nationally recognized courier service specifying overnight delivery, (c) three
Business Days after being deposited in the mail, certified or registered,
postage prepaid, or (d) in the case of facsimile notice, when sent and receipt
has been confirmed, addressed as follows in the case of the Lessee, the Trust,
the Trust Company and the Agent, and as set forth in Schedule 1.1 of the Credit
Agreement in the case of the Lenders:
If to the Lessee, to it at: Hanover Compressor Company
12001 North Houston Rosslyn
Houston, Texas 77806
Attention: Chief Financial Officer
Telecopy No.: 281-447-8781
With a copy to: Neal, Gerber & Eisenberg
Two North LaSalle, Suite 2100
Chicago, Illinois 60602
Attention: Richard S. Meller
Telecopy No.: 312-269-1747
If to the Trust, to it at: Hanover Equipment Trust 1998A
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
Telecopy No.: 302-651-8882
If to the Investor, to it at: Societe Generale Financial Corporation
1221 Sixth Avenue
New York, New York 10020
Attention:
Telecopy No.:
If to the Trust Company, to it at: Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust
Administration
Telecopy No.: 302-651-8882
<PAGE> 37
33
If to the Agent, to it at: The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza
New York, New York 10081
Attention: Daniel Fischer
Telecopy No.: 212-552-5777
and
Credit and Lending
The Chase Manhattan Bank
270 Park Avenue
32nd Floor
New York, NY 10017
Attention: Peter Ling
Telecopy No.: 212-270-3897
From time to time any party may designate a new address for purposes of notice
hereunder by notice to each of the other parties hereto.
13.4 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
13.5 Amendments and Termination. Neither this Agreement nor
any of the terms hereof may be terminated, amended, supplemented, waived or
modified except by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification shall be sought. This Agreement may be terminated by an agreement
signed in writing by the Trust, the Investor, the Lessee, the Agent and the
Lenders. Notwithstanding the foregoing provisions to the contrary, in the case
of the Lenders, the action of the Required Lenders shall control, except as
otherwise provided in Section 9.1 of the Credit Agreement.
13.6 Headings, etc.. The Table of Contents and headings of the
various Sections and Subsections of this Agreement are for convenience of
reference only and shall not modify, define, expand or limit any of the terms or
provisions hereof.
13.7 Parties in Interest. Except as expressly provided herein,
none of the provisions of this Agreement are intended for the benefit of any
Person except the parties hereto.
<PAGE> 38
34
13.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
13.9 Severability. Any provision of this Agreement that 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.
13.10 Liability Limited. The Lessee and the Investor each
acknowledge and agree that the Trust Company is (except as otherwise expressly
provided herein or therein) entering into this Agreement and the other Operative
Agreements to which it is a party (other than the Trust Agreement), solely in
its capacity as trustee under the Trust Agreement and not in its individual
capacity and that Trust Company shall not be liable or accountable under any
circumstances whatsoever in its individual capacity for or on account of any
statements, representations, warranties, covenants or obligations stated to be
those of the Trust, except for its own gross negligence or willful misconduct
and as otherwise expressly provided herein or in the other Operative Agreements.
13.11 Rights of Lessee. Notwithstanding any provision of the
Operative Agreements, if at any time all obligations (i) of the Trust under the
Credit Agreement and the Security Documents and (ii) of the Lessee under the
Operative Agreements have in each case been satisfied or discharged in full,
then the Lessee shall be entitled to (a) terminate the Lease (to the extent not
previously terminated) and (b) receive all amounts then held under the Operative
Agreements and all proceeds with respect to the Equipment. Upon the fulfillment
of the obligations contained in clauses (i) and (ii) above, the Lessor shall
transfer to the Lessee all of its right, title and interest in and to the
Equipment (to the extent not previously transferred to the Lessee in accordance
with the Lease) and any amounts or proceeds referred to in the foregoing clause
(b) shall be paid over to the Lessee.
13.12 Further Assurances. The parties hereto shall promptly
cause to be taken, executed, acknowledged or delivered, at the sole expense of
the Lessee (other than with respect to the removal of Lessor Liens), all such
further acts, conveyances, documents and assurances as the other parties may
from time to time reasonably request in order to carry out and effectuate the
intent and purposes of this Agreement, the other Operative Agreements and the
transactions contemplated hereby and thereby (including, without limitation, the
preparation, execution and filing of any and all Uniform Commercial Code
financing statements and other filings or registrations which the parties hereto
may from time to time request to be filed or effected). The Lessee, at its own
expense, shall take such action as may be reasonably requested in order
<PAGE> 39
35
to maintain and protect all security interests provided for hereunder or under
any other Operative Agreement.
13.13 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
13.14 No Representation or Warranty. Nothing contained herein,
in any other Operative Agreement or in any other materials delivered to the
Lessee in connection with the transactions contemplated hereby or thereby shall
be deemed a representation or warranty by the Agent or the Arranger or any of
their Affiliates as to the proper accounting treatment or tax treatment that
should be afforded to the Lease and the Lessor's ownership of the Equipment and
the Agent expressly disclaims any representation or warranty with respect to
such matters.
13.15 Highest Lawful Rate. It is the intention of the parties
hereto conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the obligations of the Lessee, the Lessor or the
Investor or any other party under any Operative Agreement, shall be subject to
the limitation that payments of interest or of other amounts constituting
interest shall not be required to the extent that receipt thereof would be in
excess of the Highest Lawful Rate, or otherwise contrary to provisions of law
applicable to the recipient limiting rates of interest which may be charged or
collected by the recipient. Accordingly, if the transactions or the amount paid
or otherwise agreed to be paid for the use, forbearance or detention of money
under this Agreement, the Lease and any other Operative Agreement would exceed
the Highest Lawful Rate or otherwise be usurious with respect to the recipient
of any such amount, then, in that event, notwithstanding anything to the
contrary in this Agreement, the Lease or any other Operative Agreement, it is
agreed as follows as to the recipient of any such amount:
(a) the provisions of this Section 13.15 shall govern and
control over any other provision in this Agreement, the Lease and any other
Operative Agreement and each provision set forth therein is hereby so limited;
(b) the aggregate of all consideration which constitutes
interest that is contracted for, charged or received under this Agreement, the
Lease, or any other Operative Agreement shall under no circumstances exceed the
maximum amount of interest allowed by any Requirement of Law (such maximum
lawful interest rate, if any, with respect to such Lender herein called the
"Highest Lawful Rate"), and all amounts owed under this Agreement, the Lease and
any other Operative Agreement shall be held subject to reduction and (i) the
amount of interest which would otherwise be payable to the recipient hereunder
and under the Lease, the Loan Documents and any other Operative Agreement, shall
be automatically reduced to the amount allowed under any Requirement of Law and
(ii) any unearned interest paid in excess of
<PAGE> 40
36
the Highest Lawful Rate shall be credited to the payor by the recipient (or, if
such consideration shall have been paid in full, refunded to the payee);
(c) all sums paid, or agreed to be paid for the use,
forbearance and detention of the money under this Agreement, the Lease, or any
other Operative Agreement shall, to the extent permitted by any Requirement of
Law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the actual rate of interest is
uniform throughout the full term thereof; and
(d) if at any time the interest, together with any other fees,
late charges and other sums payable pursuant to or in connection with this
Agreement, the Lease, and any other Operative Agreement executed in connection
herewith or therewith, and deemed interest under any Requirement of Law exceeds
that amount which would have accrued at the Highest Lawful Rate, the amount of
interest and any such fees, charges and sums to accrue to the recipient of such
interest, fees, charges and sums pursuant to the Operative Agreement shall be
limited, notwithstanding anything to the contrary in the Operative Agreement to
that amount which would have accrued at the Highest Lawful Rate for the
recipient, but any subsequent reductions, as applicable, shall not reduce the
interest to accrue pursuant to the Operative Agreement below the recipient's
Highest Lawful Rate until the total amount of interest payable to the recipient
(including all consideration which constitutes interest) equals the amount of
interest which would have been payable to the recipient (including all
consideration which constitutes interest), plus the amount of fees which would
have been received but for the effect of this Section 13.15.
13.16 Waiver. EACH PARTY HERETO FOR THE BENEFIT OF THE PARTIES
HERETO AND THE GUARANTORS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAVES, TO THE
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
LEGAL ACTION OR PROCEEDING PURSUANT TO THE OPERATIVE AGREEMENTS ANY SPECIAL,
EXEMPLARY, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES.
<PAGE> 41
37
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
HANOVER COMPRESSOR COMPANY, as Lessee
By: /s/ CURTIS BEDRICH
-----------------------------------
Name: Curtis Bedrich
Title: Treasurer
HANOVER EQUIPMENT TRUST 1998A
By: Wilmington Trust Company, not
individually but solely as Trustee
By: /s/ DONALD G. MACKELCAN
-----------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
THE CHASE MANHATTAN BANK, as Agent and
as a Lender
By: /s/ PETER M. LING
-----------------------------------
Name: Peter M. Ling
Title: Vice President
CREDIT LYONNAIS, as a Co-Agent and a
Lender
By: /s/ PHILIPPE SOUSTRA
-----------------------------------
Name: Philippe Soustra
Title: Senior Vice President
<PAGE> 42
38
FIRST UNION NATIONAL BANK, as a Co-Agent and a
Lender
By: /s/ ROBERT R. WETTEROFF
---------------------------------------------
Name: Robert R. Wetteroff
Title: Senior Vice President
BANK OF NOVA SCOTIA, as a Co-Agent and a Lender
By: /s/ F.C.H. ASHBY
---------------------------------------------
Name: F.C.H. Ashby
Title: Senior Manager, Loan Operations
ABN AMRO BANK, as a Lender
By: /s/ W. BRYAN CHAPMAN
---------------------------------------------
Name: W. Bryan Chapman
Title: Group Vice President
By: /s/ STUART MURRAY
---------------------------------------------
Name: Stuart Murray
Title: Vice President
FUJI BANK LIMITED, as a Co-Agent and a Lender
By: /s/ TOSHIAKI YAKURA
---------------------------------------------
Name: Toshiaki Yakura
Title: Senior Vice President
SOCIETE GENERALE, as a Co-Agent and a Lender
By: /s/ THIERRY NAMUROY
---------------------------------------------
Name: Thierry Namuroy
Title: Vice President
<PAGE> 43
39
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES, as a Co-Agent and a Lender
By: /s/ A.R. MARRE, FVR
---------------------------------------------
A. R. Marre, FVR
By: /s/ B. CRAIG ERICKSON
---------------------------------------------
Name: B. Craig Erickson
Title: Vice President
SUNTRUST BANK, as a Lender
By: /s/ JOHN A. FIELDS, JR.
---------------------------------------------
Name: John A. Fields, Jr.
Title: Vice President
SOCIETE GENERALE FINANCIAL CORPORATION, as
Investor
By: /s/ RICHARD W. CRANNELL, JR.
---------------------------------------------
Name: Richard W. Crannell, Jr.
Title: Vice President
WILMINGTON TRUST COMPANY, in its individual
capacity, only to the extent expressly set
forth herein
By: /s/ DONALD G. MACKELCAN
---------------------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10.5
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of July 22, 1998, made by HANOVER
EQUIPMENT TRUST 1998A, a Delaware business trust (the "Borrower"), in favor of
THE CHASE MANHATTAN BANK, as Agent (in such capacity, the "Agent") for the
Lenders parties to the Credit Agreement, dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the Agent and such Lenders.
Preliminary Statement
A. Pursuant to the Credit Agreement, the Lenders have
severally agreed to make Loans to the Borrower upon the terms and subject to
the conditions set forth therein; and
B. It is a condition precedent to the obligation of the
Lenders to make their respective Loans to the Borrower under the Credit
Agreement that the Borrower shall have executed and delivered this Security
Agreement to the Agent for the ratable benefit of the Lenders.
NOW, THEREFORE, in consideration of the premises and to induce
the Agent and the Lenders to enter into the Credit Agreement and to induce the
Lenders to make their respective Loans to the Borrower, the Borrower hereby
agrees with the Agent, for the ratable benefit of the Lenders, as follows:
1. Defined Terms.
1.1 Definitions . Unless otherwise defined herein, capitalized
terms used herein shall have the respective meanings, and this Agreement shall
be interpreted in accordance with the rules of usage, set forth in Annex A
attached to the Participation Agreement dated as of the date hereof among the
Lessee, the Borrower, the Investor, the Trust Company, the Agent and the
Lenders, and the following terms shall have the following meanings:
"Agreement": this Security Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Code": the Uniform Commercial Code as from time to time in
effect in the State of New York.
<PAGE> 2
2
"Collateral": as defined in Section .
"Equipment": the equipment set forth on Schedule 1 annexed
hereto, and all other tangible personal property now or hereafter
acquired by the Borrower, together with any and all accessions,
additions, improvements, substitutions and replacements thereto and
therefor.
"Obligations": shall mean the Guaranteed Obligations.
"Proceeds": as defined in the Code.
2. Grant of Security Interest. 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, the Borrower hereby grants to
the Agent for the ratable benefit of the Lenders a security interest in all of
its respective right, title and interest, whether the same be goods, fixtures,
equipment, general intangibles, accounts or chattel paper, in and to (a) the
Equipment, (b) rights and interests of Borrower as Lessor pursuant to the Lease,
(c) the proceeds of the Houston Pipeline Purchase Option, (d) all books and
records pertaining to the foregoing, (e) all warranties and guarantees given by
any Person with respect to any of the foregoing, as well as all chooses in
action, claims, and causes of action arising from any breach thereof, and (f) to
the extent not otherwise included, all Proceeds and products of the foregoing,
in each case whether now existing or hereafter acquired (collectively, the
"Collateral"), subject to the rights of the Lessee, as Lessee under the Lease,
so long as no Lease Event of Default has occurred and is continuing.
3. Representations and Warranties.
3.1 Equipment . The Borrower hereby represents and warrants that, the
Equipment will be kept at the locations listed on Schedule 1 subject only to the
Lessee's rights to relocate the Equipment as provided for in the Operative
Agreements.
3.2 Chief Executive Office . The Borrower hereby represents and
warrants that the Borrower's chief place of business, chief executive office and
office where the documents, accounts and records related to the Collateral are
kept is located at 1100 North Market Street, Wilmington, Delaware 19890.
3.3 Farm Products . The Borrower hereby represents and warrants that
none of the Collateral constitutes, or is the Proceeds of, Farm Products.
4. Covenants. From and after the date of this Agreement until the
Obligations shall have been paid in full and the Commitments shall have expired
or otherwise been terminated:
4.1 Further Documentation . At any time and from time to time, upon the
written request of the Agent, and at the sole expense of the Borrower, the
Borrower will promptly and duly execute and deliver such further instruments and
documents and take such further
<PAGE> 3
3
actions as the Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests created hereby.
4.2 Changes in Locations . 20. Except with respect to the rights of the
Lessee under the Operative Agreements, the Borrower will not permit any of the
Equipment to be kept at a location other than those listed on Schedule 1; and
(b) The Borrower will not change the location of its chief executive
offices from that specified in Section 3.2.
4.3 Change in Name. The Borrower will not change its name, identity or
structure to such an extent that any financing statement filed by the Agent in
connection with this Agreement would become seriously misleading, unless they
shall have given the Agent at least 30 days' prior written notice of such
change.
4.4 Further Identification of Collateral . The Borrower will cause the
Lessee to furnish to the Agent from time to time statements and schedules
further identifying and describing the Collateral and its location and such
other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
5. Remedies.
5.1 Code Remedies . If a Credit Agreement Event of Default shall occur
and be continuing, the Agent, on behalf of the Lenders, may exercise, in
addition to all other rights and remedies granted to them in this 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 Code. Without
limiting the generality of the foregoing, the Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law or as referred to below) to or upon
the Borrower, the Lessee or any other Person (all and each of which demands,
defenses, advertisements and notices are hereby waived to the extent permitted
by law), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give an 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, at any
exchange, broker's board or office of the Agent or any Lender or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk, but subject to the rights of the Lessee under the Lease so long
as no Lease Event of Default shall have occurred and be continuing. The Agent or
any Lender 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 the Borrower, which right or equity is hereby waived or released
to the extent permitted by
<PAGE> 4
4
law. The Borrower further agrees, at the Agent's request, to assemble the
Collateral and make it available to the Agent at places which the Agent shall
reasonably select. The Agent shall apply the net proceeds of any action taken
by it pursuant to this subsection, after deducting all reasonable costs and
expenses of every kind incurred in connection therewith or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Agent and the Lenders hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the
payment in whole or in part of the Obligations, in accordance with Section 8.2
of the Credit Agreement, and only after such application and after the payment
by the Agent of any other amount required by any provision of law, including,
without limitation, Section 9-504(1)(c) of the Code, need the Agent account for
the surplus, if any, to the Borrower. To the extent permitted by applicable
law, the Borrower waives all claims, damages and demands it may acquire against
the Agent or any Lender arising out of the exercise by them of any rights
hereunder. 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 10 days before such sale or other disposition. The Agent agrees
that if it shall proceed to foreclose the Lien of this Agreement, it shall, to
the extent that it is entitled to do so hereunder and under the other Operative
Agreements, and is not then stayed or prevented from doing so by law or
otherwise, proceed (to the extent it has not already done so) to exercise one
or more of the significant possessory remedies referred to in the Lease (as it
shall determine in its sole good faith discretion).
6. Agent's Appointment as Attorney-in-Fact; Agent's Performance of
Obligations.
6.1 Powers . The Borrower hereby irrevocably constitutes and appoints
the Agent and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of the Borrower and in the name of the Borrower or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, the
Borrower hereby gives the Agent the power and right, on behalf of the Borrower,
without notice to or assent by the Borrower, to do any or all of the following:
(a) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance called
for by the terms of the Lease and pay all or any part of the premiums therefor
and the costs thereof;
(b) execute, in connection with any sale provided for in
Section 5.1, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(c)(1) sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; 32. commence and prosecute any suits, actions or proceedings
at law or in equity in any court of
<PAGE> 5
5
competent jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral; 33. defend any suit,
action or proceeding brought against the Borrower with respect to any
Collateral; 34. settle, compromise or adjust any such suit, action or
proceeding and, in connection therewith, to give such discharges or releases as
the Agent may deem appropriate; and 35. generally, sell, transfer, pledge and
make any agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Agent were the absolute owner thereof for
all purposes, and do, at the Agent's option and the Borrower's expense, at any
time, or from time to time, all acts and things which the Agent deems necessary
to protect, preserve or realize upon the Collateral and the Agent's and the
Lenders' security interests therein and to effect the intent of this Agreement,
all as fully and effectively as the Borrower might do.
Anything in this subsection to the contrary notwithstanding, the Agent
agrees that it will not exercise any rights under the power of attorney provided
for in this subsection unless a Credit Agreement Event of Default shall have
occurred and be continuing.
6.2 Performance by Agent of Borrower's Obligations . If the Borrower
fails to perform or comply with any of its agreements contained herein, the
Agent, at its option, but without any obligation so to do, may perform or
comply, or otherwise cause performance or compliance, with such agreement.
6.3 Borrower's Reimbursement Obligation . The expenses of the Agent
incurred in connection with actions undertaken as provided in this Section,
together with interest thereon after a Credit Agreement Event of Default at the
Overdue Rate from the date of payment by the Agent to the date reimbursed by the
Borrower, shall be payable by the Borrower to the Agent on demand.
6.4 Ratification; Power Coupled With An Interest . All powers,
authorizations and agencies contained in this Agreement are coupled with an
interest and are irrevocable until this Agreement is terminated and the security
interests created hereby are released.
7. Duty of Agent. The Agent's sole duty with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession, under
Section 9-207 of the Code or otherwise to the extent permitted by law, shall be
to deal with it in the same manner as the Agent deals with similar property for
its own account. Neither the Agent, any Lender nor any of their respective
officers, directors, 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 the Borrower or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Agent and the Lenders hereunder are solely to protect the
Agent's and the Lenders' interests in the Collateral and shall not impose any
duty upon the Agent or any Lender to exercise any such powers. Neither the
Agent, the Lenders nor any of their officers, directors, employees or agents
shall be responsible to the Borrower for any act or failure to
<PAGE> 6
6
act hereunder, except for the negligence or willful misconduct of the Agent,
any Lender or any of their officers, directors, employees or agents.
8. Execution of Financing Statements. Pursuant to and to the extent
permitted by Section 9-402 of the Code, the Borrower authorizes the Agent to
file financing statements with respect to the Collateral without the signature
of the Borrower in such form and in such filing offices as the Agent reasonably
determines appropriate to perfect the security interests of the Agent under this
Agreement. A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement for filing in any jurisdiction.
9. Authority of Agent. The Borrower acknowledges that the rights and
responsibilities of the Agent under this Agreement with respect to any action
taken by the Agent or the exercise or non-exercise by the Agent of any request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Agent and the Lenders, be governed
by the Credit Agreement and by such other agreements with respect thereto as may
exist from time to time among them, but, as between the Agent and the Borrower,
the Agent shall be conclusively presumed to be acting as agent for the Lenders
with full and valid authority so to act or refrain from acting, and the Borrower
shall not be under any obligation, or entitlement, to make any inquiry
respecting such authority.
10. Notices. Unless otherwise specifically provided herein, all
notices, requests and demands required or permitted by the terms hereof to be
given to any person shall be given pursuant to and in accordance with Section
13.3 of the Participation Agreement.
11. 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.
12. Amendments in Writing; Cumulative Remedies.
12.1 Amendments in Writing . None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Borrower and the Agent, provided that any
provision of this Agreement imposing obligations on the Borrower may be waived
by the Agent in a written instrument executed by the Agent.
12.2 Remedies Cumulative . 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.
13. Section Headings. The Section headings used in this Agreement are
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
<PAGE> 7
7
14. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns the Borrower and shall inure to the benefit of the Agent
and the Lenders and their successors and permitted assigns.
15. Governing Law. This Agreement shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.
16. Obligations Are Without Recourse. Anything in this Agreement to
the contrary notwithstanding, the Borrower's liability hereunder shall be
limited as provided in Section 9.17 of the Credit Agreement.
17. Counterparts. This Agreement may be executed in any number
of separate counterparts, each of which shall be an original, but all of which
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement
to be duly executed and delivered as of the date first above written.
HANOVER EQUIPMENT TRUST 1998A
By: Wilmington Trust Company, not
individually but solely as trustee
By: /s/ DONALD G. MACKELCAN
----------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE> 8
SCHEDULE 1
EQUIPMENT
<PAGE> 9
JOINDER OF LESSEE
HANOVER COMPRESSOR COMPANY, a Delaware corporation ("Lessee")
hereby joins in the Security Agreement dated as of July 22, 1998 made by HANOVER
EQUIPMENT TRUST 1998A, as the Borrower in favor of The Chase Manhattan Bank, as
the Agent for the Lenders (the "Security Agreement") in order to, and HEREBY
GRANTS TO THE AGENT FOR THE RATABLE BENEFIT OF THE LENDERS A SECURITY INTEREST
IN all of its right, title and interest, if any, in and to the Collateral for
the purpose of securing the Obligations. Lessee acknowledges and agrees that,
upon the occurrence of a Credit Agreement Event of Default and subject to the
terms of the Lease, the Agent on behalf of the Lenders shall have the right to
exercise any and all of its remedies hereunder as against the Collateral.
Lessee agrees that if Lessee has any right, title, estate or
interest in the Collateral, Lessee is to that extent a guarantor or surety for
the benefit of the Agent and the Lenders. In such event, Lessee expressly agrees
that the rights of the Agent and the Lenders shall in no way be affected or
impaired by reason of the occurrence of any of the following events: (i) the
waiver by the Agent or the Lenders of the performance or observance by the
Borrower, Lessee or any other party of any terms of the Operative Agreements;
(ii) the extension, in whole or in part, of the time for payment by the Borrower
of any sums owing or payable under the Operative Agreements; (iii) any failure,
delay or inability of the Agent or the Lenders in enforcing any remedies or any
other provisions under the Operative Agreements; (iv) the occurrence of any
event described in Section 7.1(1) of the Credit Agreement; or (v) the inability
of the Borrower to perform (or the release of the Borrower's performance) under
the Operative Agreements due to any Legal Requirement. Notwithstanding the
foregoing, Lessee shall not have any personal liability under this Security
Agreement and Joinder in excess of its personal liability under the Guaranty and
the other Operative Agreements.
This Joinder shall be considered part of the Security
Agreement to which it is attached, and all references in the Operative
Agreements to the Security Agreement shall mean the Security Agreement together
with this Joinder.
<PAGE> 10
2
All capitalized terms used herein and not otherwise defined
herein shall have the meaning ascribed to such terms in the Security Agreement.
This Joinder has been duly executed by Lessee as of July 22,
1998.
HANOVER COMPRESSOR COMPANY
By:/s/ DONALD G. MACKELCAN
-------------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10.6
LEASE SUPPLEMENT NO. 1
THIS LEASE SUPPLEMENT NO. 1 (this "Lease Supplement") dated as
of July 22, 1998, between HANOVER EQUIPMENT TRUST 1998A, a Delaware business
trust, as lessor (the "Lessor"), and HANOVER COMPRESSOR COMPANY, a Delaware
corporation, as lessee (the "Lessee").
WHEREAS, the Lessor is the owner of the Equipment described on
Schedule I hereto (the "Leased Equipment") and wishes to lease the same to the
Lessee;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Definitions; Rules of Usage. For purposes of this Lease
Supplement, capitalized terms used herein and not otherwise herein shall have
the meanings assigned to them in Annex A to the Participation Agreement, dated
as of July 22, 1998, among the Lessee, the Lessor, the Investors, the Agent, and
the Lenders, as it may be amended, supplemented or otherwise modified from time
to time.
2. The Equipment. Attached hereto as Schedule I is the
description of the Leased Equipment. Effective upon the execution and delivery
of this Lease Supplement by the Lessor and the Lessee, the Leased Equipment
shall be subject to the terms and provisions of the Lease.
3. Ratification. Except as specifically modified hereby, the
terms and provisions of the Lease are hereby ratified and confirmed and remain
in full force and effect.
4. Original Lease Supplement. The single executed original of
this Lease Supplement marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED
COUNTERPART" on the signature page thereof and containing the receipt of the
Agent therefor on or following the signature page thereof shall be the Original
Executed Counterpart of this Lease Supplement (the "Original Executed
Counterpart"). To the extent that this Lease Supplement constitutes chattel
paper, as such term is defined in the Uniform Commercial Code as in effect in
any applicable jurisdiction, no security interest in this Lease Supplement may
be created through the transfer or possession of any counterpart other than the
Original Executed Counterpart.
5. GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL
IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.
<PAGE> 2
6. Counterpart Execution. This Lease Supplement may be
executed in any number of counterparts and by each of the parties hereto in
separate counterparts, all such counterparts together constituting but one and
the same instrument.
7. Recordation. The Lessor and the Lessee agree that a
memorandum of this Lease Supplement No. 1 shall be recorded at the Lessee's sole
cost and expense as required by the Lease.
IN WITNESS WHEREOF, the parties have caused this Lease
Supplement No. 1 be duly executed and delivered as of the date first above
written.
HANOVER COMPRESSOR COMPANY
By: /s/ CURTIS BEDRICH
----------------------------------
Name: Curtis Bedrich
Title: Treasurer
By: Wilmington Trust Company,
not in its individual capacity
but solely as Trustee
By: /s/ DONALD G. MACKELCAN
----------------------------------
Name: Donald G. MacKelcan
Title: Assistant Vice President
<PAGE> 3
Receipt of this original counterpart of the foregoing Lease
Supplement is hereby acknowledged on this 22nd day of July, 1998.
THE CHASE MANHATTAN BANK, as the Agent
for the Lenders
By: /s/ PETER M. LING
----------------------------------
Name: Peter M. Ling
Title: Vice President
<PAGE> 1
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
FROM: G.A. KRAUT COMPANY Inc. [LOGO]
275 Madison Avenue
New York, NY 10016
212-696-5600
Contact: Jeffrey Luth
FOR: Hanover Compressor Company
12001 N. Houston Rosslyn
Houston, TX 77086
281-447-8787
Contact: Mr. Michael J. McGhan
HANOVER COMPRESSOR COMPLETES $200 MILLION
TRANSACTION TO FUND GROWTH STRATEGIES
HOUSTON, TX - July 22, 1998 -- Hanover Compressor Company (NYSE:HC) announced
today that it has completed a $200 million, 5 year lease transaction arranged by
Chase Securities Inc. The transaction has been structured as a sale lease back
of compression equipment with a newly formed Trust and will be accounted for as
an operating lease. Under the agreement, the compression equipment will be sold
to the Trust and leased back by Hanover for a 5 year period and will continue to
be deployed the Company's normal operating procedures. Additionally, Hanover has
the option to repurchase the equipment from the Trust at any time.
Proceeds from the transaction will be used to repay borrowings under the
Company's existing revolving credit facility. As of the completion of this
transaction, Hanover has $180 million of availability under its existing
revolving credit facility to fund the Company's ongoing working capital
requirements and expansion plans.
As a result of the transaction, Hanover's annualized depreciation expense will
decrease by approximately $7.5 million. The Company will incur annual operating
lease expense of approximately $14 million (or 7% of the $200 million sale
proceeds), an amount equivalent to the annual interest expense of the revolving
credit debt that was repaid as a result of the sale.
"This transaction represents an important component of our plan to expand
Hanover's cash flow, earnings and equity value," said Michael J. McGhan,
President and CEO of Hanover Compressor. "It allows Hanover to make better use
of its borrowing capacity by employing a degree of financial leverage that is
well supported by our strong cash flow at what we believe is an extremely
attractive cost of capital."
-more-
<PAGE> 2
"Importantly," Mr. McGhan continued, "we now have significantly enhanced both
our financial flexibility and our capability to fund Hanover's growth. Following
this transaction, our existing revolving credit facility is available to fund
activities associated with our stated, four-part growth strategy of expanding
domestic market share, increasing international penetration, facilitating
compression outsourcing through acquisition leaseback transactions, and
selectively pursuing industry Indeed, we've made important progress towards
achieving these goals, as we recently completed two regional company
acquisitions and two acquisition/leasebacks of customer-owned compressor fleets
(including one with a Canadian operator), representing an aggregate investment
by Hanover of approximately $30 million," McGhan added.
Hanover Compressor is the market leader in full service natural gas compression.
Natural gas compressors play a critical role in facilitating the distribution of
energy from its source to industrial, commercial and residential consumers.
Hanover provides this equipment on a rental, contract compression, maintenance,
and acquisition leaseback basis to natural gas production, processing and
transportation companies that are increasingly seeking outsourcing solutions. In
addition, Hanove specialized fabrication of compressors and production
equipment.
THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE
SECURITIES LITIGATION REFORM ACT RELATING TO THE EXPECTED IMPACT OF THE
TRANSACTION ON THE COMPANY'S RESULTS FROM OPERATIONS AND ANTICIPATED GROWTH.
THESE PROJECTIONS AND STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH
RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE PROJECTED AS A RESULT OF CERTAIN FACTORS. A DISCUSSION OF
THESE FACTORS IS INCLUDED IN THE COMPANY'S PERIODIC REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION INCLUDING ITS FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31,1997.
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