<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
Commission File Number 1-13071
HANOVER COMPRESSOR COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-2344249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12001 North Houston Rosslyn
Houston, Texas 77086
(Address of principal executive offices)
(281) 447-8787
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
No
As of August 10, 1999 there were 28,608,551 shares of the Company's common
stock, $0.001 par value, outstanding.
<PAGE>
HANOVER COMPRESSOR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT FOR PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,792 $ 11,503
Accounts receivable:
Trade, net 75,112 70,205
Other 2,586 -
Inventory 66,856 63,044
Costs and estimated earnings in excess of billings
on uncompleted contracts 8,457 7,871
Prepaid taxes 8,425 9,466
Other current assets 7,044 2,967
-------- --------
Total current assets 186,272 165,056
-------- --------
Property, plant and equipment:
Compression equipment and facilities 323,506 422,896
Land and buildings 17,859 15,044
Transportation and shop equipment 23,650 21,667
Other 15,376 11,119
-------- --------
380,391 470,726
Accumulated depreciation (64,625) (78,228)
-------- --------
Net property, plant and equipment 315,766 392,498
-------- --------
Intangible and other assets 52,647 57,036
-------- --------
$554,685 $614,590
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 446 $ 444
Accounts payable, trade 16,835 23,361
Accrued liabilities 17,469 17,599
Advance billings 9,845 9,694
Billings on uncompleted contracts in excess of
costs and estimated earnings 989 694
-------- --------
Total current liabilities 45,584 51,792
Long-term debt 39,421 156,943
Other liabilities 83,337 42,858
Deferred income taxes 52,662 46,284
-------- --------
Total liabilities 221,004 297,877
-------- --------
Common stockholders' equity:
Common stock, $.001 par value; 100 million shares authorized;
28,608,551 and 28,590,472 shares issued and
outstanding, respectively 29 29
Additional paid-in capital 269,794 269,005
Notes receivable - employee stockholders (10,707) (10,146)
Accumulated other comprehensive income (loss) (229) 152
Retained earnings 78,119 60,998
Treasury stock - 175,547 common shares, at cost (3,325) (3,325)
-------- --------
Total common stockholders' equity 333,681 316,713
-------- --------
$554,685 $614,590
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
HANOVER COMPRESSOR COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rentals $45,273 $35,249 $ 87,707 $ 67,177
Parts and service 7,732 7,360 12,363 10,604
Compressor fabrication 11,707 15,691 18,948 31,975
Production equipment fabrication 7,558 9,149 13,444 18,107
Gain on sale of assets 269 1,290 3,736 2,037
Other 1,260 194 2,045 482
------- ------- -------- --------
73,799 68,933 138,243 130,382
------- ------- -------- --------
Expenses:
Rentals 15,252 11,972 29,226 23,158
Parts and service 4,711 5,828 8,135 7,926
Compressor fabrication 9,660 13,245 15,317 26,978
Production equipment fabrication 5,495 5,925 9,937 11,946
Selling, general and administrative 7,984 6,737 15,381 12,785
Depreciation and amortization 10,237 9,988 19,450 19,102
Leasing expense 4,074 - 7,584 -
Interest expense 2,923 3,796 6,037 6,881
------- ------- -------- --------
60,336 57,491 111,067 108,776
------- ------- -------- --------
Income before income taxes 13,463 11,442 27,176 21,606
Provision for income taxes 4,981 4,470 10,055 8,383
------- ------- -------- --------
Net income 8,482 6,972 17,121 13,223
------- ------- -------- --------
Other comprehensive loss, net of tax:
Foreign currency translation adjustment (72) (2) (381) (2)
------- ------- -------- --------
Comprehensive income $ 8,410 $ 6,970 $ 16,740 $ 13,221
======= ======= ======== ========
Net income available to common stockholders $ 8,482 $ 6,972 $ 17,121 $ 13,223
======= ======= ======== ========
Weighted average common and common
equivalent shares outstanding:
Basic 28,471 28,519 28,453 28,490
------- ------- -------- --------
Diluted 30,443 30,244 30,320 30,124
------- ------- -------- --------
Earnings per common share:
Basic $ 0.30 $ 0.24 $ 0.60 $ 0.46
------- ------- -------- --------
Diluted $ 0.28 $ 0.23 $ 0.56 $ 0.44
------- ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
HANOVER COMPRESSOR COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Months
---------------------------------
ended June 30,
---------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,121 $ 13,223
Adjustments:
Depreciation and amortization 19,450 19,102
Amortization of debt issuance costs and debt discount 357 374
Bad debt expense 326 312
Gain on sale of assets (3,736) (2,037)
Equity in income of nonconsolidated affiliates (377) (211)
Deferred income taxes 6,378 4,031
Changes in assets and liabilities:
Accounts receivable (7,819) (11,003)
Inventory (3,812) (18,210)
Costs and estimated earnings in excess of billings on
uncompleted contracts (291) 48
Accounts payable and other liabilities (6,647) 12,958
Advance billings 151 821
Other (4,361) (3,694)
--------- --------
Net cash provided by operating activities 16,740 15,714
--------- --------
Cash flows from investing activities:
Cash used for business acquisition - (17,137)
Capital expenditures (117,825) (87,469)
Repayment of advances to unconsolidated subsidiaries 8,000 -
Proceeds from sale of fixed assets 216,867 6,955
--------- --------
Net cash provided by (used in) investing activities 107,042 (97,651)
--------- --------
Cash flows from financing activities:
Net borrowings (repayment) on revolving credit facility (117,500) 83,800
Repayments of shareholder notes 193 75
Equity issuance costs - (162)
Proceeds from warrant conversions and stock option exercises 80 5
Debt issuance costs - (104)
Repayment of long-term debt (234) (688)
--------- --------
Net cash provided by (used in) financing activities (117,461) 82,926
--------- --------
Effect of exchange rate changes on cash and equivalents (32) -
--------- --------
Net increase in cash and cash equivalents 6,289 989
Cash and cash equivalents at beginning of period 11,503 4,561
--------- --------
Cash and cash equivalents at end of period $ 17,792 $ 5,550
========= ========
Supplemental disclosure of cash flow information:
Common stock issued in exchange for note receivable 752
Property sold in exchange for note receivable $ 2,427 1,500
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
HANOVER COMPRESSOR COMPANY
Notes to Condensed Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Hanover Compressor Company (the "Company") included herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is the opinion of
management that the information furnished includes all adjustments, consisting
only of normal recurring adjustments, which are necessary to present fairly the
financial position, results of operations, and cash flows of the Company for the
periods indicated. The financial statement information included herein should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1998. These interim results are not necessarily indicative
of results for a full year.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed using the weighted average number
of shares outstanding for the period. Diluted earnings per common share is
computed using the weighted average number of shares outstanding adjusted for
the incremental shares attributed to outstanding options and warrants to
purchase common stock. Included in diluted shares are common stock equivalents
relating to options of 1,500,000 and 1,219,000 and warrants of 367,000 and
414,000 for the three months ended June 30, 1999 and 1998, respectively.
2. INVENTORIES
Inventory consisted of the following amounts (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Parts and supplies $36,346 $32,808
Work in progress 21,015 19,962
Finished goods 9,495 10,274
------- -------
$66,856 $63,044
======= =======
</TABLE>
<PAGE>
3. SALES AND LEASE BACK OF EQUIPMENT
In June 1999, the Company completed a $200 million sale and lease back
of certain compression equipment. The lease back of the equipment is recorded as
an operating lease. Under the agreement, the equipment was sold 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. At any time, the Company has the
option to repurchase the equipment at fair market value. The lease provides for
a substantial residual value guarantee (approximately $165 million) by the
Company, which is due upon termination of the lease and which may be satisfied
by a cash payment or the exercise of a purchase option by the Company. The
equipment sold had a book value of approximately $160 million and the equipment
sale resulted in a gain of approximately $40 million that is deferred until the
end of the lease. If the Company does not exercise its purchase options under
the agreement, the deferred gain will be recognized to the extent it exceeds
required payments by the Company under the residual value guarantee and other
requirements of the agreement.
Previously, in July 1998, the Company completed another $200 million sale and
lease back of certain compression equipment. The lease back of the equipment is
recorded as an operating lease. Under the agreement, the equipment was sold 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. At any time, the Company
has the option to repurchase the equipment at fair market value.
Both lease agreements call for variable quarterly payments that fluctuate with
the London Interbank Borrowing Rate. The following provides future minimum lease
payments under the leasing arrangements exclusive of any guarantee payments (in
thousands): 1999 -- $14,000; 2000 -- $28,000; 2001 -- $28,000; 2002 -- $28,000;
2003 -- $22,000; 2004 -- $14,000.
In July, 1998 and in connection with the 1998 leasing transaction, the Company
entered into two-year swap transactions to manage lease rental exposure with
notional amounts of $75,000,000 and $125,000,000 and strike rates of 5.51% and
5.56%, respectively. The differential paid or received on the swap transactions
is recognized as an adjustment to leasing expense. The counterparty to this
contractual arrangement is a major financial institution with which the Company
also has other financial relationships. The Company is exposed to credit loss
in the event of nonperformance by this counterparty. However, the Company does
not anticipate nonperformance by this party and no material loss would be
expected from their nonperformance. The fair market value of these interest
rate swaps is based on market quotes and is approximately $0.3 million at June
30,1999.
4. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business the Company is involved in various pending
or threatened legal actions. While management is unable to predict the ultimate
outcome of these actions, it believes that any ultimate liability arising from
these actions will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
<PAGE>
5. INDUSTRY SEGMENTS
The Company manages its business segments primarily on the type of product or
service provided. The Company has four principal industry segments: Rentals -
Domestic, Rentals - International, Compressor Fabrication and Production
Equipment Fabrication. The Rental segments provide natural gas compression
rental and maintenance services to meet specific customer requirements. The
Compressor Fabrication segment involves the design, fabrication and sale of
natural gas compression units to meet unique customer specifications. The
Production Equipment Fabrication segment designs, fabricates and sells equipment
utilized in the production of crude oil and natural gas.
The Company evaluates the performance of its segments based on segment
gross profit. Segment gross profit for each segment includes direct operating
expenses. Costs excluded from segment gross profit include selling, general and
administrative, depreciation and amortization, leasing, interest and income
taxes. Amounts defined as "Other" include sales of assets, results of other
insignificant operations, corporate related items primarily related to cash
management activities and parts and service operations which are not separately
managed. Revenues include sales to external customers and intersegment sales.
Intersegment sales are accounted for at cost and are eliminated in
consolidation. Identifiable assets are tangible and intangible assets that are
identified with the operations of a particular industry segment, or which are
allocated when used jointly.
The following table presents sales and other financial information by
industry segment for the three months ended June 30, 1999 and 1998 (in
thousands).
<TABLE>
<CAPTION>
PRODUCTION
DOMESTIC INTERNATIONAL COMPRESSOR EQUIPMENT
RENTALS RENTALS FABRICATION FABRICATION OTHER ELIMINATIONS CONSOLIDATED
--------- ------------- ----------- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
June 30,1999:
Revenues from
external customers $ 32,537 $ 12,736 $11,707 $ 7,558 $ 9,261 - $ 73,799
Intersegment sales - 300 12,143 1,536 9,902 $(23,881) -
-------- -------- ------- ------- ------- -------- --------
Total revenues 32,537 13,036 23,850 9,094 19,163 (23,881) 73,799
Gross Profit 21,977 8,044 2,047 2,063 4,550 - 38,681
Identifiable assets 350,225 128,546 37,197 20,925 17,792 - 554,685
June 30,1998:
Revenues from
external customers $ 25,977 $ 9,272 $15,691 $ 9,149 $ 8,844 - $ 68,933
Intersegment sales - 300 15,063 1,269 2,698 (19,330) -
-------- -------- ------- ------- ------- -------- --------
Total revenues 25,977 9,572 30,754 10,418 11,542 (19,330) 68,933
Gross Profit 16,747 6,530 2,446 3,224 3,016 - 31,963
</TABLE>
The following table presents sales and other financial information by
industry segment for the six months ended June 30, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
PRODUCTION
DOMESTIC INTERNATIONAL COMPRESSOR EQUIPMENT
RENTALS RENTALS FABRICATION FABRICATION OTHER ELIMINATIONS CONSOLIDATED
--------- ------------- ----------- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
June 30,1999:
Revenues from
external customers $ 62,737 $ 24,970 $18,948 $13,444 $18,144 - $138,243
Intersegment sales - 600 31,062 2,134 16,543 $(50,339) -
-------- -------- ------- ------- ------- -------- --------
Total revenues 62,737 25,570 50,010 15,578 34,687 (50,339) 138,243
Gross Profit 42,454 16,027 3,631 3,507 10,009 - 75,628
June 30,1998:
Revenues from
external customers $ 50,386 $ 16,791 $31,975 $18,107 $13,123 - $130,382
Intersegment sales - 600 28,665 2,684 4,193 $(36,142) -
-------- -------- ------- ------- ------- -------- --------
Total revenues 50,386 17,391 60,640 20,791 17,316 (36,142) 130,382
Gross Profit 32,443 11,576 4,997 6,161 5,197 - 60,374
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this document are "forward-looking statements"
intended to qualify for the safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements can generally be identified as such because the context of the
statement will include words such as the Company "believes", "anticipates",
"expects", "estimates" or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also forward-
looking statements. Such forward-looking statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from those anticipated as of the date of this report. The risks and
uncertainties include (1) the loss of market share through competition, (2) the
introduction of competing technologies by other companies, (3) a prolonged
substantial reduction in natural gas prices which would cause a decline in the
demand for the Company's compression and oil and gas production equipment, (4)
new governmental safety, health and environmental regulations which could
require significant capital expenditures by the Company and (5) changes in
economic or political conditions in the countries in which the Company operates.
The forward-looking statements included herein are only made as of the date of
this report and the Company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.
GENERAL
The Company is the market leader in full service natural gas compression and a
leading provider of service, fabrication and equipment for contract natural gas
handling applications. The Company provides this equipment on a rental,
contract compression, maintenance and acquisition leaseback basis. Founded in
1990 and publicly held since 1997, the Company's customers include premier
independent and major natural gas production, processing and transportation
companies throughout the Western Hemisphere. As of June 30, 1999, the Company
operated a fleet of 3,374 compression rental units with an aggregate capacity of
approximately 1,258,000 horsepower.
On June 15, 1999, the Company completed a $200 million, 5-year lease
transaction (the "Equipment Lease") arranged by Chase Securities Inc. The
transaction has been structured as a sale and lease back of compression
equipment to Hanover Equipment Trust 1999A, a Delaware business trust (the
"Trust"). Under the Equipment Lease, the compression equipment was sold to the
Trust for $200 million and leased back by the Company for a 5-year period. The
compression equipment 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. The lease provides for a
residual value guarantee (approximately 83% of the sales price) by the Company,
which is due upon termination of the lease and which may be satisfied by a cash
payment or the exercise of a purchase option by the Company. The sale of the
equipment resulted in a gain of approximately $40 million, which is being
deferred until the end of the lease.
<PAGE>
Proceeds from the Equipment Lease were 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").
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUES
The Company's total revenues increased by $4.9 million, or 7%, to $73.8
million during the three months ended June 30, 1999 from $68.9 million during
the three months ended June 30, 1998. The increase resulted primarily from
growth of the Company's natural gas compressor rental fleet but was offset by
decreases in compressor fabrication and production equipment fabrication
revenues.
Revenues from rentals increased by $10.1 million, or 28%, to $45.3 million
during the three months ended June 30, 1999 from $35.2 million during the three
months ended June 30, 1998. Domestic revenues from rentals increased by $6.6
million, or 25%, to $32.6 million during the three months ended June 30, 1999
from $26.0 million during the three months ended June 30, 1998. International
rental revenues increased by $3.5 million, or 37%, to $12.7 million during the
three months ended June 30, 1999 from $9.2 million during the three months ended
June 30, 1998. The increase in both domestic and international rental revenue
resulted from expansion of the Company's rental fleet. Domestic horsepower in
the rental fleet increased by 39% from approximately 751,000 horsepower at June
30, 1998 to approximately 1,046,000 horsepower at June 30, 1999. In addition,
international horsepower increased by 44% from approximately 147,000 horsepower
at June 30, 1998 to approximately 212,000 horsepower at June 30, 1999.
Revenue from parts and service increased by $.3 million, or 5% to $7.7
million during the three months ended June 30, 1999 from $7.4 million during the
three months ended June 30, 1998. Revenues from the fabrication and sale of
compressor equipment to third parties decreased by $4.0 million, or 25%, to
$11.7 million during the three months ended June 30, 1999 from $15.7 million
during the three months ended June 30, 1998. During the three months ended June
30, 1999, an aggregate of approximately 65,000 horsepower of compression
equipment was fabricated compared to approximately 60,000 horsepower fabricated
during the three months ended June 30, 1998. The revenue decrease during the
quarter was due to a project where the customer supplied its engines which are
typically provided by the Company.
Revenues from the fabrication and sale of production equipment decreased by
$1.6 million, or 17%, to $7.6 million during the three months ended June 30,
1999 from $9.2 million during the three months ended June 30, 1998 primarily due
to the decline in well completions resulting from lower energy prices.
<PAGE>
EXPENSES
Rentals operating expenses increased by $3.3 million, or 27%, to $15.3 million
during the three months ended June 30, 1999 from $12.0 million during the three
months ended June 30, 1998. The increase resulted primarily from the
corresponding 28% increase in revenues from rentals over the corresponding
period in 1998. Operating expense of parts and service decreased by $1.1
million, or 19% to $4.7 million primarily due to sales of engines that
the Company purchased with favorable pricing. Operating expenses of compressor
fabrication decreased by $3.5 million, or 27%, to $9.7 million during the three
months ended June 30, 1999 from $13.2 million during the three months ended June
30, 1998 commensurate with the corresponding decrease in compressor fabrication
revenue. The operating expenses attributable to production equipment fabrication
decreased by $0.4 million, or 7%, to $5.5 million during the three months ended
June 30, 1999 from $5.9 million during the three months ended June 30, 1998,
resulting from the decrease in revenue from the production equipment fabrication
as previously discussed.
Selling, general and administrative expenses increased $1.3 million, or 19%,
to $8.0 million during the three months ended June 30, 1999 from $6.7 million
during the three months ended June 30, 1998. The increase resulted from the
increased activity in the Company's rentals business segments as described
above.
The Company believes that earnings before interest, leasing expense, taxes,
depreciation and amortization (EBITDA) is a standard measure of financial
performance used for valuing companies in the compression industry. EBITDA is a
useful common yardstick as it measures the capacity of companies to generate
cash without reference to how they are capitalized, how they account for
significant non-cash charges for depreciation and amortization associated with
assets used in the business (the bulk of which are long-lived assets in the
compression industry), or what their tax attributes may be. Additionally, since
EBITDA is a basic source of funds not only for growth but to service
indebtedness, lenders in both the private and public debt markets use EBITDA as
a primary determinant of borrowing capacity. EBITDA for the three months ended
June 30, 1999 increased 22% to $30.7 million from $25.2 million for the three
months ended June 30, 1998 primarily due to the increase in the Company's rental
revenue for reasons previously discussed.
Depreciation and amortization increased by $0.2 million to $10.2 million
during the three months ended June 30, 1999 compared to $10.0 million during the
three months ended June 30, 1998.
Interest expense decreased by $0.9 million to $2.9 million during the three
months ended June 30, 1999 from $3.8 million for the three months ended June 30,
1998. The Company incurred leasing expense of $4.1 million during the three
months ended June 30, 1999, resulting from the Equipment Leases entered into
July, 1998 and June, 1999. The Company expects to incur annual operating lease
expense of approximately $28 million, an amount equivalent to the annual
interest expense of the Bank Credit Agreement that was repaid with the proceeds
of the sale of the compression equipment to the Trust.
<PAGE>
INCOME TAXES
The provision for income taxes increased by $0.5 million, or 11%, to $5.0
million during the three months ended June 30, 1999 from $4.5 million during the
three months ended June 30, 1998. The increase resulted primarily from the
corresponding increase in income before taxes. The average effective income tax
rates during the three months ended June 30, 1999 and 1998 were 37% and 39%,
respectively. The decrease in average effective income tax rates is due to
expected benefits from a foreign sales corporation set up in 1998.
NET INCOME
Net income increased $1.5 million, or 22%, to $8.5 million during the three
months ended June 30, 1999 from $7.0 million during the three months ended June
30, 1998 for the reasons discussed above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUES
The Company's total revenues increased by $7.8 million, or 6%, to $138.2
million during the six months ended June 30, 1999 from $130.4 million during the
six months ended June 30, 1998. The increase resulted both from growth of the
Company's natural gas compressor rental fleet but was offset by decreases in
compressor fabrication and production equipment fabrication revenues.
Revenues from rentals increased by $20.5 million, or 31%, to $87.7 million
during the six months ended June 30, 1999 from $67.2 million during the six
months ended June 30, 1998. Domestic revenues from rentals increased by $12.3
million, or 25%, to $62.7 million during the six months ended June 30, 1999 from
$50.4 million during the six months ended June 30, 1998. International revenues
from rentals and maintenance increased by $8.2 million, or 49%, to $25.0 million
during the six months ended June 30, 1999 from $16.8 million during the six
months ended June 30, 1998. The increase in both domestic and international
rental and maintenance revenues resulted primarily from expansion of the
Company's rental fleet.
Revenue from parts and service increased by $1.8 million, or 17% to $12.4
million during the six months ended June 30, 1999 from $10.6 million during the
six months ended June 30, 1998. Revenues from the fabrication and sale of
compressor equipment to third parties decreased by $13.1 million, or 41%, to
$18.9 million during the six months ended June 30, 1999 from $32.0 million
during the six months ended June 30, 1998. During the six months ended June 30,
1999, an aggregate of approximately 119,000 horsepower of compression equipment
was fabricated compared to 115,000 horsepower for the six months ended June 30,
1998. The Company believes the revenue decrease during the six month period is
due in part to a project where a customer supplied its own engines which are
typically provided by the Company and in part to lower prices in the energy
industry.
Revenues from the fabrication and sale of production equipment decreased by
$4.7 million, or 26%, to $13.4 million during the six months ended June 30, 1999
from $18.1 million during the six months ended June 30, 1998 primarily due to
the decline in well completions resulting from lower energy prices.
<PAGE>
The Company recognized gains on sales of assets of $3.7 million during the six
months ended June 30, 1999 compared to $2.0 million during the three months
ended March 31, 1999. The increase is primarily due to the increase in
horsepower sold from the rental fleet to a major international customer which
exercised its option during March 1999, to purchase equipment it previously
rented. For the six months ended June 30, 1999, the Company sold approximately
17,000 horsepower compared to approximately 11,000 horsepower for the six months
ended June 30, 1998.
EXPENSES
Rentals operating expenses increased by $6.0 million, or 26%, to $29.2 million
during the six months ended June 30, 1999 from $23.2 million during the six
months ended June 30, 1998. The increase resulted primarily from the
corresponding 31% increase in revenues from rentals over the corresponding
period in 1998. Operating expense of parts and service increased by $0.2
million, or 3% to $8.1 million for the reasons previously discussed. Operating
expenses of compressor fabrication decreased by $11.7 million, or 43%, to $15.3
million during the six months ended June 30, 1999 from $27.0 million during the
six months ended June 30, 1998. This expense decrease was a result of the
corresponding decrease in compressor fabrication revenue. In addition, the
operating expenses attributable to production equipment fabrication decreased by
$2.0 million, or 17%, to $9.9 million during the six months ended June 30, 1999
from $11.9 million during the six months ended June 30, 1998, resulting from
the decrease in revenue from the production equipment fabrication as previously
discussed.
Selling, general and administrative expenses increased $2.6 million, or 20%,
to $15.4 million during the six months ended June 30, 1999 from $12.8 million
during the six months ended June 30, 1998. The increase in these expenses
resulted from the increased activity in the Company's rental business segments
as described above.
Depreciation and amortization increased by $0.4 million, or 2%, to $19.5
million during the six months ended June 30, 1999 from $19.1 million during the
six months ended June 30, 1998.
Interest expense decreased by $0.9 million, or 12%, to $6.0 million during the
six months ended June 30, 1999 from $6.9 million during the six months ended
June 30, 1998. The decrease in interest expense resulted from the Equipment
Leases entered into July, 1998 and June, 1999 the proceeds from which were used
to repay borrowings under the Bank Credit Agreement. Consequently, the Company
incurred leasing expense of $7.6 million during the six months ended June 30,
1999.
INCOME TAXES
The provision for income taxes increased by $1.7 million, or 20%, to $10.1
million during the six months ended June 30, 1999 from $8.4 million during the
six months ended June 30, 1998. The increase resulted primarily from the
corresponding increase in income before taxes. The effective income tax rates
during the six months ended June 30, 1999 and 1998 were 37% and 39%,
respectively. The decrease in average effective income tax rates is due to
expected benefits from a foreign sales corporation set up in 1998.
<PAGE>
NET INCOME
Net income increased $3.9 million, or 30%, to $17.1 million during the six
months ended June 30, 1999 from $13.2 million during the six months ended June
30, 1998 for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized internally generated funds and equity
and debt financing to finance the growth of its compressor fleet and maintain
sufficient compression and production equipment inventory. Capital expenditures
for property, plant and equipment were $117.8 million for the six months ended
June 30, 1999 as compared to $87.5 million for the six-month period ended June
30, 1999.
The proceeds from the 1999 Equipment Lease agreement were used to repay
borrowings under the Bank Credit Agreement. As a result of the 1999 Lease
Transaction, the Company has approximately $191 million of availability under
the Credit Facility at June 30, 1999. The Company believes its available Credit
Facility plus available cash and internally generated funds will be sufficient
to fund its anticipated level of 1999 capital expenditures estimated to be
approximately $100 million.
IMPACT OF THE YEAR 2000
Many computer systems, software products and other equipment utilize
microprocessors in which the year is represented by only two digit entries, as
"19" is inferred to be the century. Date sensitive software may interpret a
date using "00" as the year 1900 rather than the year 2000, which could disrupt
operations due to systems failures or software miscalculations. These date
fields need to accept four digit entries to distinguish dates beginning in the
year 2000. Issues related to this situation are commonly referred to as "Year
2000 issues".
Primarily to accommodate its growth, the Company has installed or plans to
install various modifications or upgrade existing computer software and hardware
which include, among others things, an accommodation of Year 2000 issues. The
costs associated with the software modifications are being incurred in the
ordinary course of business and are not expected to be material in relation to
either future operating results, cash flows or financial condition. The Company
expects that all hardware and software upgrades will be substantially completed
by October 1999.
The Company has reviewed its machinery and equipment operations and believes
that none of the significant machinery and equipment utilized in its core
operations is dependent on microprocessors which may be materially affected by
Year 2000 complications.
The Company is communicating with its significant customers, suppliers and
vendors to ensure that those parties have appropriate plans to address Year 2000
issues where they may otherwise impact the operations of the Company. There is
inherent uncertainty related to Year 2000 issues due to the possibility of
failures by third party customers, suppliers and vendors, which cannot be
anticipated. The Company cannot guarantee the systems of other companies on
which it relies will be converted timely and will not have a material adverse
effect on the Company's operations, cash flows or financial position. The
<PAGE>
Company has not developed contingency plans to address any possible operation
disruptions resulting from third party failures but expects to do so by the end
of 1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to interest rate and foreign currency risk. The
Company periodically enters into interest rate swaps to manage its exposure to
fluctuations in interest rates. At June 30, 1999, the fair market value of these
interest rate swaps is approximately $0.3 million. The Company does not use
derivative financial instruments to mitigate foreign currency risk.
<PAGE>
PART II. OTHER INFORMATION
Item 4. As its Annual Meeting of Stockholders held on May 19, 1999, the Company
presented the following matters to the stockholders for action and the votes
cast are indicated below:
<TABLE>
<CAPTION>
Matter For Withheld
--------------------------- ----------------------------- ------------------
<S> <C> <C> <C>
1. Re-election of Directors
Michael A. O'Connor 25,604,841 32,875
Michael J. McGhan 25,604,841 32,875
William S. Goldberg 25,604,841 32,875
Ted Collins, Jr. 25,604,841 32,875
Melvyn N. Klein 25,604,841 32,875
Alvin V. Shoemaker 25,604,841 32,875
Robert A. Fergason 25,604,841 32,875
Carl M. Koupal, Jr. 25,604,641 33,075
2. Reappointment of PricewaterhouseCoopers LLP as Independent Accountants.
For Against Abstain
--------------------------- ----------------------------- ------------------
25,604,841 0 32,875
</TABLE>
<PAGE>
II. OTHER INFORMATION
Item 6: Exhibits and reports on Form 8-K
(a) Exhibits
10.36 Lease dated as of June 15, 1998 between Hanover Equipment Trust 1999
and the Company.
10.37 Guarantee dated as of June 15, 1999 and made by the Company,
Hanover/Smith, Inc., Hanover Maintech, Inc. and Hanover Land Company.
10.38 Participation Agreement dated as of June 15, 1999 among the Company,
the Trust, Societe Generale Financial Corporation and FTBC Leasing
Corp., The Chase Manhattan Bank, as agent, and Wilmington Trust
Company.
10.39 Security Agreement dated as of June 15, 1999 made by the Trust in
favor The Chase Manhattan Bank, as agent.
10.40 Lease Supplement No. 1 dated June 15, 1999 between the Trust and the
Company.
10.41 Lessee's and Guarantor's Consent dated as of June 15, 1999 made by the
Company, Hanover/Smith, Inc., Hanover Maintech, Inc. and Hanover Land
Company.
27 Financial Data Schedule
(b) Reports submitted on Form 8-K; none.
All other items specified by Part II of this report are inapplicable and have
been omitted.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANOVER COMPRESSOR COMPANY
Date: August 13, 1999
By:
/s/ Michael J. McGhan
_______________________
Michael J. McGhan
President and Chief Executive Officer
Date: August 13, 1999
By:
/s/ Curtis A. Bedrich
_______________________
Curtis A. Bedrich
Chief Financial Officer
<PAGE>
EXHIBIT 10.36
EXECUTION COPY
================================================================================
LEASE
Between
HANOVER EQUIPMENT TRUST 1999A
as Lessor,
and
HANOVER COMPRESSOR COMPANY,
as Lessee
-------------------------
Dated as of June 15, 1999
-------------------------
================================================================================
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 JUNE 15,
1999 AMONG HANOVER EQUIPMENT TRUST 1999A, 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 MAYBE 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.
<PAGE>
i
TABLE OF CONTENTS
Page
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
i
<PAGE>
ii
Page
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. .................................... 9
10.4 Environmental Inspection ............................................. 10
SECTION 11. MODIFICATIONS
11.1 Modifications ........................................................ 10
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 ............................................................. 12
SECTION 15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation ............................................ 13
SECTION 16. LEASE TERMINATION
16.1 Termination upon Certain Events....................................... 14
16.2 Procedures ........................................................... 15
SECTION 17. DEFAULT
17.1 Lease Events of Default .............................................. 15
17.2 Final Liquidated Damages ............................................. 16
17.3 Remedies ............................................................. 16
ii
<PAGE>
iii
Page
17.4 Additional Remedies .................................................. 17
17.5 Proceeds of Sale; Deficiency ......................................... 17
17.6 Waiver of Certain Rights ............................................. 17
17.7 Assignment of Rights Under Contracts ................................. 17
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 ....................................... 18
SECTION 20. PURCHASE OPTION
20.1 Purchase Option ...................................................... 18
20.2 Maturity Date Purchase Option ........................................ 19
20.3 Obligation to Purchase All Equipment ................................. 19
21. SALE OF EQUIPMENT
21.1 Sale Procedure ....................................................... 19
21.2 Application of Proceeds of Sale ...................................... 20
21.3 Indemnity for Excessive Wear ......................................... 20
21.4 Appraisal Procedure .................................................. 21
21.5 Certain Obligations Continue ......................................... 21
SECTION 22. HOLDING OVER
22.1 Holding Over ......................................................... 21
SECTION 23. RISK OF LOSS
23.1 Risk of Loss ......................................................... 22
SECTION 24. SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment ............................................ 22
24.2 Subleases or Licenses ................................................ 22
SECTION 25. ESTOPPEL CERTIFICATES
25.1 Estoppel Certificates ................................................ 22
iii
<PAGE>
iv
Page
SECTION 26. NO WAIVER
26.1 No Waiver ............................................................ 23
SECTION 27. ACCEPTANCE OF SURRENDER
27.1 Acceptance of Surrender............................................... 23
SECTION 28. OWNERSHIP, GRANT OF SECURITY INTEREST AND FURTHER ASSURANCES
28.1 Grant of Security Interest. .......................................... 23
28.2 UCC Remedies. ........................................................ 24
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 .............................................................. 26
SECTION 30. MISCELLANEOUS
30.1 Miscellaneous......................................................... 27
30.2 Amendments and Modifications ......................................... 27
30.3 Successors and Assigns ............................................... 27
30.4 Headings and Table of Contents ....................................... 27
30.5 Counterparts ......................................................... 27
30.6 GOVERNING LAW ........................................................ 28
30.7 Limitations on Recourse .............................................. 28
30.8 Priority ............................................................. 28
Exhibits
Exhibit A Lease Supplement
iv
<PAGE>
LEASE (this "Lease"), dated as of June 15, 1999, between HANOVER
EQUIPMENT TRUST 1999A, 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.
<PAGE>
2
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.
<PAGE>
3
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 (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
<PAGE>
4
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 (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
<PAGE>
5
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.
<PAGE>
6
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 PATENTOR 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. LESSEE AND ANYONE
CLAIMING BY, THROUGH OR UNDER LESSEE HEREBY FULLY AND IRREVOCABLY RELEASES
LESSOR, THE
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7
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 ARE LEASE 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 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
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8
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 am 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 Section9.2(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 Operative
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 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.
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9
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 by phenyls (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.
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.
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10
(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.
(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.
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11
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, 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 from, and
suspend the enforcement 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
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12
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.
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 beat 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
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13
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 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 maybe, shall give notice thereof to the other and to the
Agent promptly after the receipt of such notice.
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14
(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 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
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15
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 or
substitute such piece of Equipment in accordance with Section 30 on such
Termination Date and (iii) the Officer's Certificate described in Section
16.1(b).
(b) On the Termination Date, Lessee shall (i) 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 or (ii) substitute
such piece of Equipment in accordance with Section 30.
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:
(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
<PAGE>
16
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 or the
Other Equipment Leases 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
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
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17
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.
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.
<PAGE>
18
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 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 82.45%.
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
<PAGE>
19
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 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 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.
21. SALE OF EQUIPMENT
21.1 Sale Procedure. (a) With respect to each piece of Equipment
(unless Lessee shall have elected to (x) substitute such Equipment pursuant to
Section 30, (y) purchase such Equipment and has paid the relevant purchase price
pursuant to Section 20.1 or 20.2 with respect thereto, or (z) otherwise
terminated this Lease 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).
<PAGE>
20
(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 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
<PAGE>
21
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
appraiser 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 (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
<PAGE>
22
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 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 unless Lessee has exercised its
Purchase Option or Maturity Date Purchase Option with respect to the Equipment
subject to a sublease or license, 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
<PAGE>
23
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 thereunder, 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.
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 and subject to Section 7.1, 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 the Equipment
(other than Equipment purchased by Lessee pursuant to
<PAGE>
24
Section 20), 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 Lessor's 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 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
<PAGE>
25
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 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
<PAGE>
26
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.
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: Latham & Watkins
Sears Tower, Suite 5800
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Richard S. Meller and Michael A. Pucker
Telecopy: (312) 993-9767
If to Lessor: Hanover Equipment Trust 1999A
C/O Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
<PAGE>
27
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
Credit and Lending
The Chase Manhattan Bank
270 Park Avenue32nd 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. SUBSTITUTION
30.1 Substitution. Lessee shall be entitled to convey to Lessor one or
more pieces of Equipment ("Replacement Equipment") to be leased to Lessee
hereunder as substitution for Equipment which is (i) the subject of a
Significant Casualty or Significant Condemnation, (ii) purchased by the
sublessee of such Equipment or (iii) purchased by or on behalf of Lessee as
permitted by Section 20.1(A) hereof; provided, such Replacement Equipment to be
free and clear of all Liens (other than Permitted Liens) and to have a value,
utility and remaining economic useful life at least equal to the Equipment being
replaced (assuming the Equipment being replaced was in the condition required to
be maintained by the terms of this Lease) as of the Replacement Equipment
Closing Date; provided, further, that no Equipment shall be replaced unless the
following conditions are met as of the Replacement Equipment Closing Date:
(a) no Event of Default shall have occurred and be continuing;
(b) no more than 5% of the Equipment (including the Replacement
Equipment) will be located in an Unperfected Jurisdiction;
(c) the aggregate amount of Replacement Equipment since the Initial
Closing Date shall not exceed 25% of the Termination Value;
<PAGE>
28
(d) the representations and warranties of the Lessee contained in
Subsection 7.5 of the Participation Agreement and in Section 9 of the Guarantee
shall be true and correct in all material respects as of the date such
substitution occurs;
(e) Subsections 6.2(a)-(f) to the Participation Agreement shall have
been satisfied or waived with respect to such Replacement Equipment; and
(f) the Lessee shall have delivered an Officer's Certificate to the
Lessor, Agent and the Investor at least five (5) days prior to the date such
substitution shall occur, setting forth the location of the Replacement
Equipment and certifying that the conditions set forth in paragraphs (a) through
(e) above have been satisfied.
SECTION 31. MISCELLANEOUS
31.1 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.
31.2 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.
31.3 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.
31.4 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.
31.5 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.
31.6 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.
31.7 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
<PAGE>
29
received by Lessor in connection with the Equipment for the collection of any
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.
31.8 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>
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:
------------------------------------
Name:
Title:
HANOVER EQUIPMENT TRUST 1999A
By: Wilmington Trust Company, not individually
but solely as Trustee
By:
------------------------------------
Name:
Title
The undersigned agrees to the provisions of Section 28.4 and
acknowledges receipt of this original counterpart of the foregoing Lease on this
15th day of June, 1999.
THE CHASE MANHATTAN BANK, as the
Agent for the Lenders
By:
------------------------------------
Name:
Title
<PAGE>
EXHIBIT A
LEASE SUPPLEMENT NO. __
THIS LEASE SUPPLEMENT NO. __ (this "Lease Supplement") dated as
of _______________, between [Lessor], a Delaware business trust, as lessor (the
"Lessor"), and HANOVER COMPRESSOR COMPANY, a [ ] 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 [ ], 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. __ 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. __ be duly executed and delivered as of the date first above written.
HANOVER COMPRESSOR COMPANY
By:
------------------------------------
Name:
Title
[LESSOR]
By: [TRUST COMPANY], not in its individual
capacity but solely as Trustee
By:
------------------------------------
Name:
Title
<PAGE>
3
Receipt of this original counterpart of the foregoing Lease Supplement is
hereby acknowledged on this ___ day of ______, _____.
THE CHASE MANHATTAN BANK, as the Agent
for the Lenders
By:
------------------------------------
Name:
Title
<PAGE>
EXECUTION COPY
GUARANTEE
GUARANTEE dated as of June 15, 1999, 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 1999A (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 and FBTC Leasing Corp. (the "Investors") 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 Investors
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 Investors 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 Investors, 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 Investors 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 the Operative
<PAGE>
2
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 and/or enforcing any rights
with respect to, or collecting against, the Guarantors under this Guarantee.
<PAGE>
3
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,
each of the Investors, 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 such Investor, Agent or such Lender (including, without limitation, by
branches and agencies of such 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 such 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. Each of the Investors,
Agent and each Lender shall notify such Guarantor promptly of any such set-off
and the application made by such 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 Investors, Agent or any Lender against the Borrower or
any other Person or any collateral security or guarantee or right of offset held
by the Investors, 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
Investors, 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 Investors, 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 Investors, 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 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 Investors, Agent or any Lender, and the Credit Agreement, the
Participation Agreement and the other Operative
<PAGE>
4
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
Investors, Agent or any Lender for the payment of the Guaranteed Obligations may
be sold, exchanged, waived, surrendered or released. Neither the Investors,
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 Investors, 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 Investors, 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 Investors, 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 Investors,
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 Investors, 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 Investors, 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 Investors, 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 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 Investors, 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,
<PAGE>
5
whether express, implied or available as a matter of law, of the Investors, 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 Investors, the Lessor, 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 Investors, 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 Investors 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, 1998 and December 31, 1997 and
the related consolidated statements of income and of cash flows for the fiscal
year ended on such date, reported on by PricewaterhouseCoopers LLP 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, 1999, 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 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
<PAGE>
6
be, and as disclosed therein). Other than the Other Equipment Leases and 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, 1999 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, 1999.
9.2 No Change. Except as set forth in HCC's form 10-Q filed with respect
to the period ending March 31, 1999, (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 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
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7
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, 1999, 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 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
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8
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 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
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9
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
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.
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10
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 Investors, 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.
9.17 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, has
been 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.
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 each of the
Investors:
(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;
(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
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11
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 each of
the Investors:
(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
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
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12
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 either of the Investors 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 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
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13
all Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and permit representatives of either of
the Investors 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 such 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 Investors, 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 (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.
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14
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 Investors, the Lessor, 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.
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.
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15
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 Indebtedness to Consolidated U.S. EBITDA. Permit the
ratio of Consolidated Indebtedness to Consolidated U.S. EBITDA for the four
consecutive fiscal quarters of HCC most recently ended to be greater than 5.25
to 1.0.
(d) Consolidated Indebtedness to Consolidated EBITDA. Permit the ratio
of Consolidated Indebtedness to Consolidated EBITDA for the four consecutive
fiscal quarters of HCC most recently ended to be greater than 4.0 to 1.0.
(e) 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.
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;
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16
(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 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 the Other
Equipment Lease Tranche A Loans; and
(j) Indebtedness not contemplated by clauses (a)-(i) above not exceeding
$5,000,000 in the aggregate at any time outstanding.
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;
<PAGE>
17
(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 or the Other Equipment Leases;
(h) any interest or title of a lessor or sublessor under any lease
permitted by the Corporate Credit Agreement or the Other Equipment Leases;
(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;
(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;
<PAGE>
18
(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 and the
Other Equipment Lease Operative Agreements;
(t) Lessor Liens; and
(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 and the Other Equipment Lease Guarantees;
(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 and the Other Equipment Lease 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
<PAGE>
19
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;
(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 Agreements and Other Equipment Lease
Operative Agreements.
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 or sublease 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);
<PAGE>
20
(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 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 and Other
Equipment Lessors in connection with the Operative Agreements and the Other
Equipment Lease 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 fiscal
quarter
<PAGE>
21
commencing October 1, 1998 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 or foreign currency
risk exposure of HCC and its Subsidiaries which have been provided by a lender
under the Corporate Credit Agreement, the Operative Agreements or the Other
Equipment Lease Operative Agreements; provided, that the aggregate notional
amounts of such Derivatives shall not exceed the aggregate amount of loans
outstanding under the Corporate Credit Agreement, the Operative Agreements and
the Other Equipment Lease Operative Agreements.
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;
(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
<PAGE>
22
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 except for prepayments aggregating
up to $7,817,055 made on or prior to June 30, 1999 or (ii) with respect to any
Indebtedness other than the Shareholder Subordinated Debt, Indebtedness under
the Corporate Credit Agreement, the Operative Agreements or the Other Equipment
Lease 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, the Operative Agreements or the Other Equipment Lease 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 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, the Other Equipment Lease 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
<PAGE>
23
natural gas compressors in connection with the Operative Agreements and the
Other Equipment Lease 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 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 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.
(c) if to the Investors, at their address or transmission number for
notices provided in Section 13.3 of the Participation Agreement.
The Investors, 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.
<PAGE>
24
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 Investors, Agent, any
Lender or any Guarantor 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 Investors, 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 Investors, 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 both Investors, 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 Investors, 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.
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
Investors, 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
<PAGE>
25
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.
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 Investors,
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.
<PAGE>
26
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
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: ______________________________
Name:
Title:
HANOVER/SMITH, INC.
By: ______________________________
Name:
Title:
HANOVER MAINTECH, INC.
By: ______________________________
Name:
Title:
HANOVER LAND COMPANY
By: ______________________________
Name:
Title:
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:
Latham & Watkins
Sears Tower, Suite 5800
233 South Wacker Drive
Chicago, Illinois 60602
Attention: Richard S. Meller and Michael A. Pucker
Telecopy: 312-993-9767
<PAGE>
EXHIBIT 10.38
EXECUTION COPY
================================================================================
PARTICIPATION AGREEMENT
Among
HANOVER COMPRESSOR COMPANY,
as Lessee,
HANOVER EQUIPMENT TRUST 1999A,
a Delaware business trust,
as Lessor,
SOCIETE GENERALE FINANCIAL CORPORATION
and FBTC LEASING CORP.,
as Investors,
THE MANAGING AGENTS NAMED IN SCHEDULE 1 HERETO,
THE CHASE MANHATTAN BANK,
as Agent for the
Lenders
and
THE LENDERS PARTIES HERETO
---------------
Dated as of June 15, 1999
---------------
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
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 ............. 3
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 ........................................... 3
SECTION 6. CONDITIONS OF THE CLOSING ................................. 4
6.1 General Conditions to the Investors' and the Lenders' Obligations
to Make Loans and Investor Contributions ......................... 4
6.2 Conditions to the Investors' and the Lenders' Obligations to Make
Advances to pay Equipment Acquisition Costs ...................... 8
SECTION 7. REPRESENTATIONS AND WARRANTIES ............................ 9
7.1 Representations and Warranties of the Investors on the Initial
Closing Date...................................................... 9
7.2 Representations and Warranties of Lessor on the Initial Closing
Date.............................................................. 11
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............................................................. 14
7.6 Representations and Warranties of the Lessor on Equipment Closing
Dates............................................................. 17
i
<PAGE>
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 ............................ 20
9.1 Covenants of the Trust and the Investors and the Trust Company ... 20
9.2 Repayment of Certain Amounts on Maturity Date .................... 22
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
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 ............................................. 33
13.8 GOVERNING LAW ................................................... 33
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 ......................................... 34
13.14 No Representation or Warranty .................................. 35
13.15 Highest Lawful Rate ............................................ 35
13.16 Waiver ......................................................... 36
ii
<PAGE>
Annex A Rules of Usage and Definitions
Schedules
Schedule 1 Managing Agents
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
iii
<PAGE>
PARTICIPATION AGREEMENT, dated as of June 15, 1999 (this "Agreement"),
among HANOVER COMPRESSOR COMPANY, a Delaware corporation (the "Lessee"); HANOVER
EQUIPMENT TRUST 1999A, 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,
a Delaware corporation, and FBTC LEASING CORP., a New York corporation, as
investors (the "Investors"); 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>
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 Investors 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 Investors 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 Investors 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 Lessee agrees that in no event shall the Lessee specify a piece
of Equipment for the Lessor to acquire and lease pursuant
<PAGE>
3
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 82.45%.
(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 82.45%.
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 Investors and the Agent a Requisition appropriately completed, in connection
with each Closing Date.
4.3 Trust Company Authorization. The Investors agree 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 both Investors 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.
5.2 Procedures for Funding. (a) Not less than three Business Days prior
to each proposed Closing Date (other than the Initial Closing Date), the Lessee
shall deliver to the Investors 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
<PAGE>
4
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 Investors 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 Investors 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 Investors' and the Lenders' Obligations to
Make Loans and Investor Contributions. The agreement of each Lender to make
Loans, and the Investors 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 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 Investors 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);
<PAGE>
5
(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 both
Investors;
(c) Governmental Approvals. All necessary (or, in the reasonable opinion
of the Agent, the Investors 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 Investors 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 both Investors);
(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 Investors 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 Investors shall have received a copy of
the resolutions or minutes, in form and substance satisfactory to the Agent and
both Investors, 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 both Investors and shall state that the
resolutions or minutes thereby certified have not been amended, modified,
revoked or rescinded;
(g) Lessee and Guarantor Incumbency Certificate. On the Initial Closing
Date, the Agent and the Investors 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 both Investors, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Lessee or of such Guarantor;
(h) [Reserved]
<PAGE>
6
(i) Corporate Proceedings of the Trust Company. On the Initial Closing
Date, the Agent, the Investors and the Lessee shall have received a copy of the
resolutions, in form and substance reasonably satisfactory to the Agent, both
Investors 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, both Investors 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, both Investors 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, both Investors 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 both Investors 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 each of the Investors,
certified as of the Initial Closing Date as complete and correct copies thereof
by the Secretary or an Assistant Secretary of each of the Investors;
(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;
<PAGE>
7
(n) Legal Opinions. (i) The Agent and the Investors shall have received
the executed legal opinion of Latham & Watkins, counsel to the Lessee and each
Guarantor, substantially in the form of Exhibit E-1 hereto;
(ii) The Agent, the Lessee and the Investors 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 Investors 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 the Investors, desirable to perfect the Liens created by
the Security Documents shall have been completed;
(p) Lien Searches. The Agent and the Investors 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 both Investors;
(q) Representations and Warranties. The representations and warranties
of the Lessor, the Lessee, the Investors 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.
<PAGE>
8
6.2 Conditions to the Investors' and the Lenders' Obligations to Make
Advances to pay Equipment Acquisition Costs.
The obligations of the Investors 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 and the Investors 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
other than on the Initial 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;
(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 that is not already subject to the Security Agreement. 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 that is not already subject to the Assignment of Lease;
<PAGE>
9
(g) Appraisal. The Agent and the Investors 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, both
Investors 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 Investors 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 Investors 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 Investors shall have received the executed
legal opinion of counsel to Lessee and the Guarantors, substantially in the form
of Exhibit E-1 hereto.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 Representations and Warranties of the Investors on the Initial
Closing Date. Each of the Investors 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 its state of incorporation 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
<PAGE>
10
(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 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. To its knowledge, 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
attributable to the Investors.
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
<PAGE>
11
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.
(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.
<PAGE>
12
(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 violates, or is
inconsistent with, the provisions of Regulations of the Board, including but not
limited to, 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.
<PAGE>
13
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 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 both Investors) 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 both
Investors, 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
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14
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.
(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.
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15
(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).
(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 fully executed and delivered to the Agent on
the Equipment Closing Date or 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 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.
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16
(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
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.
(S) (S) 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
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17
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 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 attributable to the Lessor
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).
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18
(e) Conditions Precedent in Operative Agreements. All conditions
precedent contained in this Agreement and in the other Operative Agreements to
be satisfied by the Lessor 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 Investors, 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 Investors in
connection with the transactions contemplated 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 Investors' 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 Investors, 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
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19
Investors, 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.
(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 Investors in respect of the Investor
Contribution under Sections 2.13, 2.14 and 2.15 of the Credit Agreement (it
being agreed that the Investors are, for purposes of this Agreement,
beneficiaries 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) Pay to the Investors the Investor Commitment Fee on each Commitment
Fee Payment Date in accordance with each investor's pro rata portion of the
Available Investor Commitment.
(c) The Commitment Fee and the Investor 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 or the Investor
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 Investors 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
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20
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 90 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 (S) 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
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 Investors 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 Investors, 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 Investors' right under the
Trust Agreement to remove the institution acting as Trustee, each of the
Investors 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
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21
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 both Investors 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.
(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 Investors 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 Investors 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 Investors 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 Investors 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.
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22
(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.
(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 Investors, 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 Investors have
received any Marketing Period Equity Return, then on the Maturity Date the
Investors shall ratably 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 both
Investors.
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 Investors
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 both
Investors, as the case may be, if such amendment, alteration or modification
would adversely affect the interests of the Trust or the Investors. 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 Investors 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 Investors agree, for the benefit of the Agent and the Lenders, that if
at any time either the Lessor or the either of the Investors 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 both Investors agree that
they will promptly deposit such amounts in an account with the Agent. The Lessor
and the Investors also agree that they will execute and deliver such documents
and instruments as the Agent may request in order to
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23
grant the Agent, for the benefit of the Lenders, a valid and perfected, first
priority security interest in such proceeds.
9.5 Intercreditor Agreement. The Lessee, the Agent, the Lenders, the
Investors 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.
9.6 Appraisal. The Lessee agrees that on or prior to any Replacement
Equipment Closing Date, and upon the written request of the Required Lenders or
both Investors, the Lessee shall provide to the Agent and the Investors an
Appraisal of the Replacement Equipment, such Appraisal in form and substance
satisfactory to the Agent and both Investors; provided, the Lessee is not
required to provide more than one such Appraisal in any twelve month period.
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 Investors 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;
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24
(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;
(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, both
Investors 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. Neither of the Investors may, 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 either of the Investors without the consent of the Agent
and the Lessee, which consent shall not be unreasonably withheld or delayed. Any
transfer by either of the Investors as above provided, shall be effected
pursuant to an agreement in form and substance reasonably satisfactory to the
Agent, the Investors, the Trust Company, the Lessee and their respective
counsel.
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25
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 either of the Investors 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.
<PAGE>
26
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 Investors 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 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
<PAGE>
27
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 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
<PAGE>
28
transactions contemplated by the Operative Agreements, any Tax 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 or the Certificates 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 permissible under applicable law or regulation) by, in
the sole discretion of the Person conducting and controlling such contest, (1)
<PAGE>
29
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 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
<PAGE>
30
(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 Investors 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 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,
<PAGE>
31
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: Latham & Watkins
Sears Tower, Suite 5800
233 South Wacker Drive
Chicago, Illinois 60602
Attention: Richard S. Meller and Michael A.
Pucker
Telecopy No.: 312-993-9767
If to the Trust, to it at: Hanover Equipment Trust 1999A
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy No.: 302-651-8882
If to the Investors, to them at: Societe Generale Financial Corporation
1221 Sixth Avenue
New York, New York 10020
Attention: Richard Crannell
Telecopy No.: 212-278-7320
FBTC Leasing Corp.
Two World Trade Center
New York, New York 10049
Attention: Carl B. Marcantonio
Telecopy No.: 212-775-7276
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>
32
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
21st 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,
both Investors, 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>
33
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 Investors 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 to maintain and protect
all security interests provided for hereunder or under any other Operative
Agreement.
<PAGE>
34
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 Investors 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 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);
<PAGE>
35
(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 WAIVES, 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>
36
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: ____________________________________
Name:
Title:
HANOVER EQUIPMENT TRUST 1999A
By: Wilmington Trust Company, not individually
but solely as Trustee
By: ____________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Agent and as
a Lender
By: ____________________________________
Name:
Title:
WILMINGTON TRUST COMPANY, in its individual
capacity, only to the extent expressly set
forth herein
By: ____________________________________
Name:
Title:
<PAGE>
SOCIETE GENERALE FINANCIAL CORPORATION as an
Investor
By: ____________________________________
Name:
Title:
<PAGE>
FBTC LEASING CORP., as an Investor and as a
Lender
By: ____________________________________
Name:
Title:
<PAGE>
ABN AMRO BANK N.V., as a Managing Agent and a
Lender
By: ____________________________________
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA, as a Managing Agent
By: ____________________________________
Name:
Title:
<PAGE>
BANK OF SCOTLAND, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
PARIBAS, as a Lender
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE>
FUJI BANK, LIMITED, as a Managing Agent and a
Lender
By: ____________________________________
Name:
Title:
<PAGE>
BANKERS TRUST COMPANY, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
COMERICA BANK, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK AG,as a
Lender
By: ____________________________________
Name:
Title:
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO, as a
Managing Agent and a Lender
By: ____________________________________
Name:
Title:
<PAGE>
FUJI BANK, LIMITED, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN, LTD., NEW YORK
BRANCH, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
SUNTRUST BANK, ATLANTA, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY, as a
Managing Agent and a Lender
By: ____________________________________
Name:
Title:
<PAGE>
WELLS FARGO BANK (TEXAS) N.A., as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
Schedule 1
MANAGING AGENTS
ABN AMRO Bank, N.V.
Bank of Nova Scotia
FNB - Chicago/Bank One
Fuji Bank
Societe Generale
<PAGE>
EXHIBIT D TO THE
PARTICIPATION AGREEMENT
FORM
REQUISITION
HANOVER COMPRESSOR COMPANY (the "Lessee"), submits this Requisition and
certifies, represents and warrants to each of the Lessor, Investors, The Chase
Manhattan Bank, as agent (in such capacity, the "Agent"), and each of the
financial institutions from time to time parties to the Credit Agreement (the
"Lenders") dated as of June __, 1999, as follows (capitalized terms used in this
Requisition and not otherwise defined herein shall have the meaning assigned to
such terms in Annex A to the Participation Agreement dated as of June __, 1999,
among the Lessee, the Lessor, the Investor, the Agent and the Lenders) in each
case as of the date hereof:
1. Amount. (a) The total amount of the Advance requested by this
Requisition is $[ ]. The Advance will be comprised of Loans totalling $[ $[ ]
(97% of the amount requested) and an Investor Contribution in the amount of $[ ]
(3% of the amount requested).
(b) The total amounts of the Available Commitments and the Available
Investor Commitment (after giving effect to the amount requested by this
Requisition) are $[ ] and $[ ], respectively.
2. Date of Advance. The Lessee requests that the Advance be made on [ ].
3. Type of Loan and Contribution. The Lessee requests that the Loans be
made as [Eurodollar Rate] [ABR Rate] Loans.
4. Interest Period for Eurodollar Loans. [ ] months.
5. Proceeds. The Lessee represents and warrants that the proceeds of the
Advance shall be used solely to pay the Equipment Acquisition Costs and
Transaction Expenses with respect to the Equipment identified in this
Requisition.
6. Representations and Warranties. The Lessee hereby represents and
warrants as follows in each case as of the date hereof:
<PAGE>
2
(a) The representations and warranties of the Lessee and the Guarantors
set forth in the Operative Agreements are true and correct in all material
respects on and as of the date hereof. The Lessee and the Guarantors are in
compliance with their respective obligations under the Operative Agreements and
there exists no Default or Event of Default (other than a Borrower Default)
under any of the Operative Agreements. No Default or Event of Default (other
than a Borrower Default) will occur under any of the Operative Agreements as a
result of the Advance requested by this Requisition.
(b) Attached to this Requisition is a schedule identifying the Equipment
which is the subject of this Requisition.
(c) All conditions precedent contained in the Participation Agreement
and in the other Operative Agreements relating to the acquisition of the
Equipment by the Lessor have been satisfied in full.
7. Indemnity. The Lessee agrees to indemnify and hold harmless each of
the Trust, the Trust Company, the Investors, the Agent and the Lenders and each
director, officer, employee, agent, shareholder, partner or holder of beneficial
interest thereof (each, an "indemnified person") against, and to reimburse each
indemnified person, upon its demand, for, any losses, claims, damages,
liabilities or other expenses ("Losses") to which such indemnified person may
become subject insofar as such Losses arise out of or in any way relate to the
breach by the Lessee of any representation or warranty contained in this
Requisition or any untrue statement made in this Requisition, including, without
limitation, Losses consisting of reasonable legal or other expenses incurred in
connection with investigating, defending or participating in any legal
proceeding relating to any of the foregoing (whether or not such indemnified
person is a party thereto); provided, however, that no such indemnification will
be required for any losses to the extent such losses arise solely out of the
gross negligence or willful misconduct of such indemnified person.
8. Survival. The agreements, statements, representation and warranties
contained in this Requisition shall survive and remain effective until the Loans
and all other obligations under the Credit Agreement and the other Operative
Agreements are paid or otherwise satisfied in full by the Lessee and the Lessee,
as applicable.
Date: ___________ HANOVER COMPRESSOR COMPANY
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT F TO
PARTICIPATION AGREEMENT
FORM OF EQUIPMENT CLOSING CERTIFICATE
Pursuant to that certain Participation Agreement, dated as of June __,
1999, among Hanover Compressor Company, as Lessee (the "Lessee"), Hanover
Equipment Trust 1999A, as Lessor, The Chase Manhattan Bank, as Agent, the
Investors, the Trust Company and the Lenders named therein, the undersigned, a
[ ] of Lessee, does hereby certify on behalf of Lessee as follows (capitalized
terms used herein shall have the meanings ascribed thereto in the Participation
Agreement):
(a) The Tranche A Percentage for the Equipment being acquired on the
date hereof is [ ]%.
(b) The Aggregate Tranche A Percentage for all Equipment after giving
effect to the acquisition of the Equipment being acquired on the date hereof is
[ ]%.
IN WITNESS WHEREOF, I have signed my name this ____ day of June, 1999.
HANOVER COMPRESSOR COMPANY
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT 10.39
EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of June 15, 1999, made by HANOVER EQUIPMENT
TRUST 1999A, 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 Investors, 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.
"Collateral": as defined in Section 2.
<PAGE>
"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) all books and records pertaining to the foregoing, (d) 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 (e) 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 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
<PAGE>
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. (a) 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 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
<PAGE>
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; (2) commence and prosecute any suits, actions or proceedings at law
or in equity in any court of competent jurisdiction to collect the Collateral or
any portion thereof and to enforce any other right in respect of any Collateral;
(3) defend any suit, action or proceeding brought against the Borrower with
respect to any Collateral; (4) settle, compromise or adjust any such suit,
<PAGE>
action or proceeding and, in connection therewith, to give such discharges or
releases as the Agent may deem appropriate; and (5) 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 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
<PAGE>
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.
<PAGE>
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.
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 1999A
By: Wilmington Trust Company, not
individually but solely as trustee
By:__________________________________________
Name:
Title:
<PAGE>
Schedule 1
EQUIPMENT
<PAGE>
JOINDER OF LESSEE
HANOVER COMPRESSOR COMPANY, a Delaware corporation ("Lessee") hereby
joins in the Security Agreement dated as of June 15, 1999 made by HANOVER
EQUIPMENT TRUST 1999A, 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 expressly agrees that the rights of the Agent and the Lenders,
under the Security Agreement, 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>
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 June 15, 1999.
HANOVER COMPRESSOR COMPANY
By: _______________________
Name:
Title:
<PAGE>
EXHIBIT 10.40
LEASE SUPPLEMENT NO. 1
THIS LEASE SUPPLEMENT NO. 1 (this "Lease Supplement") dated as of June
15, 1999, between HANOVER EQUIPMENT TRUST 1999A, 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 June 15,
1999, 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>
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.
<PAGE>
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: ___________________________________
Name:
Title:
HANOVER EQUIPMENT TRUST 1999A
By: Wilmington Trust Company, not in its
individual capacity but solely as Trustee
By: _____________________________
Name:
Title:
<PAGE>
Receipt of this original counterpart of the foregoing Lease Supplement
is hereby acknowledged on this 15th day of June, 1999.
THE CHASE MANHATTAN BANK, as the Agent
for the Lenders
By: ___________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.41
LESSEE'S AND GUARANTOR'S CONSENT
As of this 15th day of June, 1999, 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, and FBTC LEASING
CORP., a [], 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 (the "Consent"); (ii) the Lease 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 addresses as the Assignee or the Assignor, as the
case may be, may designate, duplicate original or copies of all notices,
undertakings, demands, statements,
<PAGE>
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 Assignee 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 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.
<PAGE>
(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 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.
<PAGE>
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>
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 1999A
By: Wilmington Trust Company, not in
its individual capacity but solely
as trustee
By: /s/ Patricia A. Evans
---------------------------------
Name: Patricia A. Evans
Title: Financial Services Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE HANOVER COMPRESSOR COMPANY FINANCIAL STATEMENTS AS OF AND FOR THE THREE
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,792
<SECURITIES> 0
<RECEIVABLES> 79,225
<ALLOWANCES> 1,527
<INVENTORY> 66,856
<CURRENT-ASSETS> 186,272
<PP&E> 380,391
<DEPRECIATION> 64,625
<TOTAL-ASSETS> 554,685
<CURRENT-LIABILITIES> 45,584
<BONDS> 0
0
0
<COMMON> 269,823
<OTHER-SE> 63,858
<TOTAL-LIABILITY-AND-EQUITY> 554,685
<SALES> 19,265
<TOTAL-REVENUES> 73,799
<CGS> 15,155
<TOTAL-COSTS> 57,413
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,923
<INCOME-PRETAX> 13,463
<INCOME-TAX> 4,981
<INCOME-CONTINUING> 8,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,482
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.28
</TABLE>
