<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
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(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1999
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File No. 1-3071
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Hanover Compressor Company
(Exact name of registrant as specified in its charter)
Delaware 76-0625124
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
12001 North Houston Rosslyn, Houston, Texas 77086
(Address of principal executive offices)
(281) 447-8787
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange in which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $.001 par value New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to 12(g) of the Act:
Title of class
None
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Common Stock of the registrant held by
nonaffiliates as of March 24, 2000: $648,119,000. This calculation does not
reflect a determination that such persons are affiliates for any other
purpose.
Number of shares of the Common Stock of the registrant outstanding as of
March 24, 2000: 28,830,826 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 18, 2000 (to be filed on or before April 30,
2000) are incorporated by reference into Part II, as indicated herein.
The Index to Exhibits is on page E-1.
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Annual Report on Form 10-K 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 oil and gas prices which would cause a decline in the
demand for our compression and oil and gas production equipment; (4) new
governmental safety, health and environmental regulations which could require
us to make significant capital expenditures; 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.
Item 1. Business
General
Hanover Compressor Company (the "Company") was incorporated in Delaware in
1990 and is a market leader in full-service natural gas compression and a
leading provider of contract natural gas handling service, fabrication and
equipment. As of December 31, 1999, the Company operated a fleet of 3,898
compression rental units with an aggregate capacity of approximately 1,458,000
horsepower. The Company's compression services are complemented by its
compressor and oil and gas production equipment fabrication operations.
The Company believes it is currently the largest natural gas compression
company in the United States on the basis of aggregate rental horsepower with
3,608 rental units having an aggregate capacity of approximately 1,181,000
horsepower at December 31, 1999. Internationally, the Company estimates it is
one of the largest providers of compression services in the South American
market, primarily in Argentina, Colombia and Venezuela, operating 290 units
with approximately 277,000 horsepower at December 31, 1999.
The Company's products and services are important for the production,
transportation, processing and storage of natural gas and are provided
primarily to energy producers and processors. The Company's decentralized
operating structure, technically experienced personnel and high quality
compressor fleet, allow the Company to successfully provide reliable and
timely customer service. As a result, the Company has experienced substantial
growth over the past five years and has developed and maintained a number of
long-term customer relationships. This has enabled the Company to maintain an
average horsepower utilization rate of approximately 93% over the last five
years in comparison to an industry average estimated by the Company to be
approximately 83%.
The Company currently competes primarily in the transportable natural gas
compression market for units of up to 4,450 horsepower. This market, which
includes rental and owner operated units, accounts for over 14.9 million
horsepower in the United States and is believed to have grown by approximately
8% compounded rate per annum since 1992. The Company believes that the growth
in the domestic gas compression market will continue due to the increased
consumption of natural gas, the continued aging of the natural gas reserve
base and the attendant decline of wellhead pressures, and the discovery of new
reserves.
The rental portion of the domestic gas compression market is currently
estimated to comprise approximately 4.8 million horsepower amounting to 37% of
the aggregate U.S. horsepower. Growth of rental compression capacity in the
U.S. market is primarily driven by the increasing trend toward outsourcing by
energy producers
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and processors. The Company believes that outsourcing provides the customer
greater financial and operating flexibility by minimizing the customer's
investment in equipment and enabling the customer to more efficiently resize
compression units to meet the changing needs of the well, pipeline or
processing plant. In addition, the Company also believes that outsourcing
typically provides the customer with more timely and technically proficient
service and necessary maintenance which often reduces operating costs.
Internationally, the Company believes similar growth opportunities for
compressor rental and sales exist due to (i) increased worldwide energy
consumption, (ii) implementation of international environmental and
conservation laws preventing the flaring of natural gas, and (iii) increased
outsourcing by energy producers and processors.
Compressor Rental Fleet
The size and horsepower of the Company's compressor rental fleet owned or
operated under lease on December 31, 1999 is summarized in the following table.
<TABLE>
<CAPTION>
Number Aggregate
of Horsepower % of
Range of Horsepower per Unit Units (in thousands) Horsepower
---------------------------- ------ -------------- ----------
<S> <C> <C> <C>
0-99........................................ 1,435 96 6.6%
100-199..................................... 893 131 9.0%
200-499..................................... 642 193 13.2%
500-799..................................... 277 168 11.5%
800-1199.................................... 331 349 24.0%
1200-2699................................... 302 455 31.2%
2700-UP..................................... 18 66 4.5%
----- ----- ------
Total..................................... 3,898 1,458 100.00%
===== ===== ======
</TABLE>
Industry Overview
Gas Compression
Typically, compression is required several times during the natural gas
production cycle: at the wellhead, gathering lines, into and out of gas
processing facilities, into and out of storage, and throughout the intrastate
and interstate pipelines.
Over the life of an oil or gas well, natural reservoir pressure and
deliverability typically declines as reserves are produced. As the natural
reservoir pressure of the well declines below the line pressure of the gas
gathering or pipeline system used to transport the gas to market, gas no longer
naturally flows into the pipeline. It is at this time that compression
equipment is applied to economically boost the well's production levels and
allow gas to be brought to market.
In addition to such gas field gathering activities, natural gas compressors
are utilized in a number of other applications, all of which are intended to
enhance the productivity of oil and gas wells, gas transportation lines and
processing plants. Compressors are used to increase the efficiency of a low
capacity gas field by providing a central compression point from which the gas
can be removed and injected into a pipeline for transmission to facilities for
further processing. As gas is transported through a pipeline, compression
equipment is applied to allow the gas to continue to flow in the pipeline to
its destination. Additionally, compressors are utilized to re-inject associated
gas to artificially lift liquid hydrocarbons which increases the rate of crude
oil production from oil and gas wells. Furthermore, compression enables gas to
be stored in underground storage reservoirs for subsequent extraction during
periods of peak demand. Finally, in combination with oil and gas production
equipment, compressors are often utilized to process and refine oil and gas
into higher value added and more marketable energy sources.
Changing well and pipeline pressures and conditions over the life of a well
often require producers to reconfigure their compressor units to optimize the
well production or pipeline efficiency. Due to the technical nature of the
equipment, a highly trained staff of field service personnel, parts inventory
and a diversified fleet of
3
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natural gas compressors are often necessary to perform such functions in the
most economic manner. These requirements, however, have typically proven to be
an extremely inefficient use of capital and manpower for independent natural
gas producers and have caused such firms as well as natural gas processors and
transporters to increasingly outsource their non-core compression activities to
specialists such as the Company.
The advent of rental and contract compression roughly 40 years ago made it
possible for natural gas producers, transporters and processors to improve the
efficiency and financial performance of their operations. Compressors leased
from specialists generally have a higher rate of mechanical reliability and
typically generate greater productivity than those owned by oil and gas
operators. Furthermore, because compression needs of a well change over time,
outsourcing of compression equipment enables an oil and gas operator to better
match variable compression requirements to the production needs throughout the
life of the well. Also, certain major domestic oil companies are seeking to
streamline their operations and reduce their capital expenditures and other
costs. To this end, they have sold certain domestic energy reserves to
independent energy producers and are outsourcing facets of their operations.
Such initiatives, in the opinion of the Company, are likely to contribute to
increased rental of compressor equipment.
Natural gas compressor fabrication involves the design, fabrication and sale
of compressors to meet the unique specifications dictated by the well pressure,
production characteristics and the particular applications for which
compression is sought. Compressor fabrication is essentially an assembly
operation in which an engine, compressor, control panel, cooler and necessary
piping are attached to a frame called a "skid". A fabricator typically
purchases the various compressor components from third party manufacturers but
employs its own engineers and design and labor force.
In order to meet customers' needs, gas compressor fabricators typically offer
a variety of services to their customers including: (i) engineering,
fabrication and assembly of the compressor unit; (ii) installation and testing
of the units; (iii) ongoing performance review to assess the need for a change
in compression; and (iv) periodic maintenance and replacement parts supply.
Production Equipment
Oil and gas reserves are generally not commercially marketable as produced at
the wellhead. Typically, such reserves must be refined before they can be
transported to market. Oil and gas production equipment is utilized to separate
and treat such oil and gas immediately after it is produced in order to
facilitate further processing, transportation and sale of such fuels and
derivative energy sources. Oil and gas production equipment is typically
installed at the wellhead immediately prior to commencing the large scale
production phase of a well and remains at the site through the life of the
well.
Market Conditions
The Company believes that the most fundamental force driving the demand for
gas compression and production equipment is the growing consumption of natural
gas. As more gas is consumed, the demand for compression and production
equipment increases.
Additionally, although natural gas has historically been a more significant
source of energy in the United States than in the rest of the world, the
Company believes that aggregate foreign natural gas consumption (excluding the
former Soviet Union) has recently grown. Despite significant growth in energy
demand, most non-U.S. energy markets, until recently, have typically lacked the
infrastructure to transport natural gas to local markets, and natural gas
historically has been flared at the wellhead. Given recent environmental
legislation and the construction of numerous natural gas-fueled power plants
built to meet international energy demand, the Company believes that
international compression markets are experiencing growth.
Natural gas is considered to be the "fuel of the future" because it provides
the best mix of environment soundness, economy and availability of any energy
source. Rising worldwide energy demand, environmental considerations, the
further development of the natural gas pipeline infrastructure and the
increasing use of natural gas as a fuel source in power generation are the
principal reasons for this steady growth.
4
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While gas compression and production equipment typically must be highly
engineered to meet demanding and unique customer specifications, the
fundamental technology of such equipment has been stable and has not been
subject to significant technological change.
Business Segments
The Company's revenues and income are derived from its four business
segments (comprising three operating divisions)--domestic compression rentals,
international compression rentals, compressor fabrication and production
equipment fabrication. The compression rentals segments have operations
primarily in the United States, Canada and South America. For financial data
relating to the Company's divisions, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 17 to the Notes to
the Consolidated Financial Statements.
Compression Services and Fabrication
The Company provides its customers with a full range of compressor rental,
maintenance and contract compression services. As of December 31, 1999, the
Company's gas compressor fleet consisted of 3,898 units, ranging from 24 to
4,450 horsepower. The size, type and geographic diversity of this rental fleet
enables the Company to provide its customers with a range of compression units
that can serve a wide variety of applications, and to select the correct
equipment for the job, rather than trying to "fit" the job to its fleet of
equipment.
The Company bases its gas compressor rental rates on several factors,
including the cost and size of the equipment, the type and complexity of
service desired by the customer, the length of the contract, and the inclusion
of any other services desired, such as installation, transportation and the
degree of daily operation. Substantially all of the Company's units are
operated pursuant to "contract compression" or "rental with full maintenance"
contracts under which the Company performs all maintenance and repairs on such
units while under contract. In the United States onshore market, compression
rental fleet units are generally leased on minimum terms of 6 to 12 months,
which convert to month-to-month at the end of the stipulated minimum period.
Historically, the majority of the Company's customers have extended the length
of their contracts, on a month-to-month basis, well beyond the initial term.
Typically, the Company's compression rental units utilized in offshore and
international applications carry substantially longer lease terms than those
for onshore domestic applications.
An essential element to the Company's success is its ability to provide its
compression services to customers with contractually committed compressor run-
times of at least 97%. Historically, run time credits have been insignificant,
due largely to the Company's rigorous preventive maintenance program and
extensive field service network which permits the Company to promptly address
maintenance requirements. The Company's rental compressor maintenance
activities are conducted at nine Company facilities staffed by approximately
600 experienced and factory trained maintenance personnel. Such maintenance
facilities are situated in close proximity to actual rental fleet deployment
to permit superior service response times.
All rental fleet units are serviced at manufacturers' recommended
maintenance intervals, modified as required by the peculiar characteristics of
each individual job, and the actual operating experience of each compressor
unit. Prior to the conclusion of any rental job, the Company field management
evaluates the condition of the equipment and, where practical, corrects any
problems before the equipment is shipped out from the job site. Although
natural gas compressors generally do not suffer significant technological
obsolescence, they do require routine maintenance and periodic refurbishing to
prolong their useful life. Routine maintenance includes alignment, compression
checks, and other parametric checks which indicate a change in the condition
of the equipment. In addition, oil and wear-particle analysis is performed on
all units prior to their redeployment at specific compression rental jobs.
Overhauls are done on a condition-based interval instead of a time-based
schedule. In the Company's experience, these rigorous procedures maximize
component life and unit availability and minimize avoidable downtime.
Typically, the Company overhauls each rental compressor unit for general
refurbishment every 36-48 months and anticipates performing a comprehensive
overhaul of each rental compressor unit every 60 to 72 months. This
maintenance program has provided the Company with a highly reliable fleet of
compressors in excellent condition.
5
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The Company's field service mechanics provide all operating and maintenance
services for each of the Company's compression units leased on a contract
compression or full maintenance basis and are on-call 24 hours a day. Such
field personnel receive regular mechanical and safety training both from the
Company and its vendors. Each of the Company's field mechanics is responsible
for specific compressor unit installations and has at his disposal a dedicated,
local parts inventory. Additionally, each field mechanic operates from a fully-
equipped service vehicle. Each mechanic's field service vehicle is radio or
cellular telephone equipped which allows that individual to be the Company's
primary contact with the customer's field operations staff and to be contacted
at either his residence or mobile phone 24 hours a day. Accordingly, the
Company's field service mechanics are given the responsibility to promptly
respond to customer service needs as they arise based on the mechanic's trained
judgment and field expertise.
The Company considers itself to be unique in its industry in that its sales
and field service organizations enjoy managerial parity within the Company,
enabling these two vital organizations to work together in a highly coordinated
fashion in order to deliver maximum customer service, responsiveness and
reliability. The foundation for Hanover's successful field operations effort is
the experience and responsiveness of its approximately 600 member compressor
rental field service and shop staff of factory-trained and field-tested
compressor mechanics. The Company's field service mechanics are coordinated and
supported by regional operations managers who have supervisory responsibility
for specific geographic areas.
The Company's compressor fabrication subsidiary doing business as Hanover
Maintech, designs, engineers and assembles compression units for sale to third
parties as well as for placement in its compressor fleet. As of December 31,
1999, the Company had a compressor unit fabrication backlog for sale to third
parties of $2.2 million. All backlog is expected to be produced within a 90-120
day period. In general, units to be sold to third parties are assembled
according to each customer's specifications and sold on a turnkey basis.
Components for such compressor units are acquired from third party suppliers.
Oil and Gas Production Equipment
The Company, through its wholly-owned subsidiary doing business as Hanover
Smith designs, engineers, fabricates and either sells or occasionally rents a
broad range of oil and gas production equipment designed to heat, separate,
dehydrate and measure crude oil and natural gas. The product line includes line
heaters, oil and gas separators, glycol dehydration units and skid mounted
production packages designed for both onshore and offshore production
facilities. The Company generally maintains standard product inventories in
excess of $5 million and is therefore able to meet most customers' rapid
response requirements and minimize customer downtime. As of December 31, 1999,
the Company had a production equipment fabrication backlog of $2.9 million. All
backlog is expected to be produced within a 90-120 day period. The Company also
purchases and reconditions used production equipment which is then sold or
rented.
Market and Customers
The Company's customer base consists of over 800 U.S. and international
companies engaged in all aspects of the oil and gas industry, including major
integrated oil and gas companies, large and small independent producers,
natural gas processors, gatherers and pipelines. Additionally, the Company has
negotiated more than 15 strategic alliances or preferred vendor relationships
with key customers pursuant to which the Company receives preferential
consideration in customer compressor and oil and gas production equipment
procurement decisions in exchange for enhanced product availability, product
support, automated procurement practices and limited pricing concessions. No
individual customer accounted for more than 10% of the Company's consolidated
revenues during 1998 or 1999.
The Company's domestic compressor leasing activities are currently located in
Texas, Oklahoma, Arkansas, Louisiana, New Mexico, Mississippi, Alabama, Kansas,
Colorado, California, Utah, Wyoming and offshore Gulf of Mexico. International
locations include Argentina, Venezuela, Colombia, Trinidad, Bolivia, Mexico,
Indonesia and Canada. As of December 31, 1999, approximately 9% and 19% of the
Company's compressor horsepower was being used in offshore and international
applications, respectively.
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Sales and Marketing
The Company's more than 60 salespeople are organized into eight sales regions
reporting to three sales vice presidents. The sales vice presidents report to
the Company's Senior Vice President of Sales. The Company's sales
representatives aggressively pursue the rental and sale market in their
respective territories for compressors and production equipment. Each Company
salesperson is assigned a customer list on the basis of the experience and
personal relationships of the salesperson and the individual service
requirements of the customer. This customer and relationship-focused strategy
is communicated through frequent direct contact, technical presentations, print
literature, print advertising and direct mail. The Company's advertising and
promotion strategy is a "concentrated" approach, tailoring specific messages
into a very focused presentation methodology.
Additionally, the Company's salespeople coordinate with each other to
effectively pursue customers who operate in multiple regions. The salespeople
maintain intensive contact with the Company's operations personnel in order to
promptly respond to and satisfy customer needs. The Company's sales efforts
concentrate on demonstrating the Company's commitment to enhancing the
customer's cash flow through superior product design, fabrication,
installation, customer service and after-market support.
Upon its receipt of a request for proposal or bid by a customer, the Company
assigns a team of sales, operations and engineering personnel to analyze the
application and prepare a quotation, including selection of the equipment,
pricing and delivery date. The quotation is then delivered to the customer, and
if the Company is selected as the vendor, final terms are agreed upon and a
contract or purchase order is executed. The Company's engineering and
operations personnel also often provide assistance on complex compressor
applications, field operations issues or equipment modifications.
Competition
The natural gas compression services and fabrication business is highly
competitive. Overall, the Company experiences considerable competition from
companies with significantly greater financial resources and, on a regional
basis, from several smaller companies which compete directly with the Company.
The Company believes it is currently the largest natural gas compression
company in the United States on the basis of aggregate rental horsepower.
Compressor industry participants can achieve significant advantages through
increased size and geographic breadth. As the number of rental units increases
in a rental fleet, the number of sales, engineering, administrative and
maintenance personnel required does not increase proportionately. As a result,
companies such as Hanover with larger rental fleets have relatively lower
operating costs and higher margins due to economies of scale than smaller
companies.
One of the significant cost items in the compressor rental business is the
amount of inventory required to service rental units. Each rental company must
maintain a minimum amount of inventory to stay competitive. As the size of the
rental fleet increases, the required amount of inventory does not increase in
the same proportion. The larger rental fleet companies can generate cost of
capital savings through improved purchasing power and vendor support.
The Company believes that it competes effectively on the basis of price,
customer service, including the availability of personnel in remote locations,
flexibility in meeting customer needs and quality and reliability of its
compressors and related services.
The Company's compressor fabrication business competes with other fabricators
of compressor units. The compressor fabrication business is dominated by a few
major competitors, several of which also compete with the Company in the
compressor rental business. The Company is the largest compressor fabrication
company in the United States.
The production equipment business is a highly fragmented business with
approximately eight substantial U.S. competitors. Although sufficient
information is not available to definitively estimate the Company's relative
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position in this market, the Company believes that it is among the top three
oil and gas production equipment fabricators in the United States.
Government Regulation
The Company is subject to various federal and state laws and regulations
relating to environmental protection, including regulations regarding emission
controls. These laws and regulations may affect the costs of the Company's
operations. As with any owner of property, the Company is also subject to
clean-up costs and liability for hazardous materials, asbestos, or any other
toxic or hazardous substance that may exist on or under any of its properties.
The Company believes that it is in substantial compliance with environmental
laws and regulations and that the phasing in of emission controls and other
known regulatory requirements at the rate currently contemplated by such laws
and regulations will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
Notwithstanding, in part because of the Company's rapid growth through
acquisitions, the Company may not be in compliance with certain environmental
requirements for recently acquired facilities. The Company investigates these
issues and takes action where appropriate.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances. Under
CERCLA, such persons may be subject to joint and several liability for the
costs of cleaning up the hazardous substances that have been released into the
environment, for damages to natural resources, and for the costs of certain
health studies. Furthermore, it is not uncommon for neighboring landowners and
other third parties to file claims for personal injury and property damage
allegedly caused by hazardous substances or other pollutants released into the
environment.
The Resource Conservation and Recovery Act ("RCRA") and regulations
promulgated thereunder govern the generation, storage, transfer and disposal of
hazardous wastes. The Company must comply with RCRA regulations for any of its
operations that involve the generation, management, or disposal of hazardous
wastes (such as painting activities or the use of solvents).
Stricter standards in environmental legislation that may affect the Company
may be imposed in the future, such as proposals to make hazardous wastes
subject to more stringent and costly handling, disposal and clean-up
requirements. While the Company may be able to pass on the additional costs of
complying with such laws to its customers, there can be no assurance that
attempts to do so will be successful. Accordingly, new laws or regulations or
amendments to existing laws or regulations could require the Company to
undertake significant capital expenditures and could otherwise have a material
adverse effect on the Company's business, results of operations, cash flows and
financial condition.
Executive Officers
The following sets forth, as of March 23, 2000, the name, age and business
experience for the last five years of each of the executive officers of the
Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael A. O'Connor.. 64 Chairman of the Board; Director
Michael J. McGhan.... 45 President and Chief Executive Officer; Director
</TABLE>
8
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<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Curtis Bedrich.................. 57 Chief Financial Officer and Treasurer
William S. Goldberg............. 41 Executive Vice President; Director
</TABLE>
MICHAEL A. O'CONNOR has served as Chairman of the Board and a director of the
Company since January 1992. Mr. O'Connor also serves as an officer and a
director of certain subsidiaries of the Company.
MICHAEL J. MCGHAN has served as President and Chief Executive Officer of the
Company since October 1991. Mr. McGhan has served as a director of the Company
since March 1992. Mr. McGhan also serves as an officer and as a director of
certain subsidiaries of the Company.
CURTIS BEDRICH has served as Chief Financial Officer and Treasurer of the
Company since November 1991. Mr. Bedrich also serves as an officer of certain
subsidiaries of the Company.
WILLIAM S. GOLDBERG has served as Executive Vice President and director of
the Company since May 1991. Mr. Goldberg has been employed by GKH Investments,
L.P., a Delaware limited partnership (the "Fund") and GKH Private Limited
(collectively with the Fund, "GKH") since 1988 and has served as Managing
Director of GKH since June 1990. The Fund is the Company's largest stockholder.
Mr. Goldberg also serves as an officer and a director of certain affiliates of
the Company. Mr. Goldberg is also a director of DVI, Inc.
Employees
As of December 31, 1999, the Company had approximately 1,433 employees. No
employees are represented by labor unions and the Company believes that its
relations with its employees are satisfactory.
Item 2. Properties
The Company owns its corporate offices in Houston, Texas, which are housed in
a combination corporate office and compressor fabrication complex, including a
192,000 square foot plant located on approximately 28 acres. The Company also
owns (i) a 11,700 square foot combination office and maintenance facility
located on 6.5 acres in Yukon, Oklahoma, (ii) a 8,000 square foot combination
office and maintenance facility situated on 6 acres in Pocola, Oklahoma, (iii)
12,000 square feet of maintenance facilities situated on 3.5 acres in Midland,
Texas, (iv) a 5,000 square foot sales and service facility situated on one acre
located in Corpus Christi, Texas, (v) a 345,000 square foot manufacturing
facility in Davis, Oklahoma, (vi) a 16,750 square foot facility situated on 9.2
acres in Kilgore, Texas, (vii) a 210,000 square foot production equipment
manufacturing facility located on 82 acres in Columbus, Texas (viii) a 35,000
square foot combination of office, warehouse and maintenance facility situated
on 17 acres in Broussard, Louisiana and, (viiii) a 19,000 square foot office
and maintenance facility located on 15.3 acres in Farmington, New Mexico. The
Company also leases a maintenance facility of 19,000 square feet in Victoria,
Texas under a five year lease. In addition, the Company has a three year lease
on a 190,000 square foot fabrication facililty in Houston, Texas with an option
to purchase the facility at the end of the lease.
The Company's executive offices are located at 12001 North Houston Rosslyn,
Houston, Texas 77086 and its telephone number is (281) 447-8787.
Item 3. Legal Proceedings
The Company is not currently involved in any material litigation or
proceeding and is not aware of any such litigation or proceeding threatened
against it.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of its fiscal year ended December 31, 1999.
9
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock began trading on the New York Stock Exchange on July 1,
1997 under the symbol "HC." The following table sets forth the range of the
high and low on market prices for the Common Stock, for the periods indicated.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C> <C>
First Quarter 1998................................ $20 3/4 $17 5/16
Second Quarter 1998............................... $29 5/8 $23 1/4
Third Quarter 1998................................ $28 11/16 $17 1/2
Fourth Quarter 1998............................... $27 1/16 $17 11/16
First Quarter 1999................................ $28 $19 1/4
Second Quarter 1999............................... $35 9/16 $26 1/8
Third Quarter 1999................................ $38 1/8 $31 3/8
Fourth Quarter 1999............................... $38 3/8 $28 1/16
</TABLE>
As of December 31, 1999, there were 28,752,937 shares of Common Stock
outstanding, held by approximately 233 stockholders of record.
The Company has not paid any cash dividends on its Common Stock since its
formation and does not anticipate paying such dividends in the foreseeable
future. The Board of Directors anticipates that all cash flow generated from
operations in the foreseeable future will be retained and used to develop and
expand the Company's business. The Company's $200 million credit facility with
The Chase Manhattan Bank, as agent (the "Bank Credit Agreement") limits the
amount of dividends payable by the Company (without the lender's prior
approval) on its Common Stock to no more than 25% of the Company's net income
for the period from January 1, 1998 until December 15, 2002. In addition, the
Company's 7% Subordinated Notes due 2000 (the "Subordinated Notes") prohibit
the payment of cash dividends on the Company's capital stock without the
lenders' prior written consent. Any future determinations to pay cash
dividends on the Common Stock will be at the discretion of the Company's Board
of Directors and will be dependent upon the Company's results of operations
and financial condition, credit and loan agreements in effect at that time and
other factors deemed relevant by the Board of Directors.
In December 1999, the Company issued $86,250,000 of 7.25% Mandatorily
Redeemable Convertible Preferred Securities (the "Convertible Preferred
Securities") through Hanover Compressor Capital Trust, a Delaware business
trust and subsidiary of the Company. The Convertible Preferred Securities have
a liquidation amount of $50 per unit. The Convertible Preferred Securities
mature in 30 years but may be redeemed partially or in total any time on or
after December 20, 2002. The Convertible Preferred Securities also provide for
annual cash distributions at the rate of 7.25%, payable quarterly in arrears,
however, payments may be deferred up to 20 quarters subject to certain
restrictions. Each Convertible Preferred Security is convertible into 1.3986
shares of Hanover common stock, subject to adjustment for certain events.
10
<PAGE>
Set forth below is certain information with respect to all securities of the
Company sold by the Company in 1999 which were not registered under the
Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
Aggregate Offering
Date of Title and Amount Price and Initial Exemption
Sale of Securities Purchasers Purchaser's Commission Claimed
------- ---------------- ---------- ---------------------- ------------
<C> <S> <C> <C> <C>
12/15/99 1,500,000 7.25% Credit Suisse First Aggregate Offering Sec. 4(2)
Convertible Boston Corporation, Price: $75,000,000
Preferred Goldman Sachs & Co., ($50 per Preferred
Securities Salomon Smith Barney, Security) Commission
Inc. and Dain Rauscher to Initial Purchasers:
Wessels Incorporated $2,250,000 ($1.50 per
Preferred Security)
12/27/99 225,000 7.25% Credit Suisse First Aggregate Offering Sec. 4(2)
Convertible Boston Corporation, Price: $11,250,000
Preferred Goldman Sachs & Co., ($50 per Preferred
Securities Salomon Smith Barney, Security) Commission
Inc. and Dain Rauscher to Initial Purchasers:
Wessels Incorporated $370,500 ($1.50 per
Preferred Security)
</TABLE>
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA (HISTORICAL)
(Dollars and shares in thousands, except per share data)
The following table presents certain selected financial data for the Company
for each of the five years in the period ended December 31, 1999. The selected
financial data have been derived from the audited consolidated financial
statements of the Company. The following information should be read together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements of the Company.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995(1)
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Rentals.................. $192,655 $147,609 $100,685 $72,897 $43,859
Parts and service........ 34,461 23,870 10,254 6,458 4,495
Compressor fabrication... 52,531 67,453 49,764 28,764 29,593
Production equipment
fabrication............. 28,037 37,466 37,052 26,903 16,960
Gain on sale of
property, plant &
equipment............... 5,927 2,552 148 352 412
Other.................... 3,417 3,007 895 637 645
-------- -------- -------- ------- -------
Total revenues......... 317,028 281,957 198,798 136,011 95,964
======== ======== ======== ======= =======
Expenses:
Rentals.................. 64,949 49,386 35,113 26,012 13,691
Parts and service........ 21,724 17,341 6,360 4,788 4,122
Compressor fabrication... 43,663 58,144 41,584 24,657 25,265
Production equipment
fabrication............. 20,833 25,781 26,375 19,574 13,178
Selling, general and
administrative.......... 33,782 26,626 20,782 16,439 12,542
Depreciation and
amortization(2)......... 37,337 37,154 28,439 20,722 13,494
Leasing expense.......... 22,090 6,173
Interest expense......... 8,786 11,716 10,728 6,594 4,560
Distributions on
mandatorily redeemable
convertible preferred
securities.............. 278
-------- -------- -------- ------- -------
Total costs and
expenses.............. 253,442 232,321 169,381 118,786 86,852
-------- -------- -------- ------- -------
Income before income
taxes.................... 63,586 49,636 29,417 17,225 9,112
Provision for income
taxes.................... 23,145 19,259 11,314 6,844 3,498
-------- -------- -------- ------- -------
Net income................ $ 40,441 $ 30,377 $ 18,103 $10,381 $ 5,614
-------- -------- -------- ------- -------
Other comprehensive income
(loss), net of tax:
Foreign currency
translation
adjustment.............. (463) 152
-------- -------- -------- ------- -------
Comprehensive income...... $ 39,978 $ 30,529 $ 18,103 $10,381 $ 5,614
======== ======== ======== ======= =======
Net income available to
common stockholders:
Net Income............... 40,441 30,377 18,103 10,381 5,614
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1999 1998 1997 1996 1995(1)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Dividends on Series A
and Series B preferred
stock................. (1,773) (832)
Series A preferred
stock exchange........ (3,794)
Series B preferred
stock conversion...... (1,400)
-------- -------- -------- -------- --------
Net income available to
common stockholders.... $ 40,441 $ 30,377 $ 18,103 $ 3,414 $ 4,782
======== ======== ======== ======== ========
Weighted average common
and common equivalent
shares:
Basic.................. 28,524 28,468 25,623 20,498 14,373
-------- -------- -------- -------- --------
Diluted................ 30,527 30,091 27,345 22,023 15,358
-------- -------- -------- -------- --------
Earnings per common
share:
Basic.................. $ 1.42 $ 1.07 $ .71 $ .17 $ .33
======== ======== ======== ======== ========
Diluted................ $ 1.32 $ 1.01 $ .66 $ .16(3) $ .31
======== ======== ======== ======== ========
Other Data:
EBITDA (4)............. $132,077 $104,679 $ 68,584 $ 44,541 $ 27,166
======== ======== ======== ======== ========
Cashflows provided by
(used in):
Operting activities.... $ 68,222 $ 31,147 $ 32,219 $ 20,276 $ 9,088
Investing activities... (92,114) (14,699) (164,490) (87,683) (68,474)
Financing activities... 18,218 (9,328) 129,510 71,740 62,206
Balance Sheet Data (end
of period):
Working capital........ $107,966 $113,264 $ 58,027 $ 41,513 $ 23,270
Net property, plant and
equipment............. 497,465 392,498 394,070 266,406 198,074
Total assets........... 756,510 614,590 506,452 341,387 252,313
Long-term debt......... 69,681 156,943 158,838 122,756 50,451
Mandatorily redeemable
convertible preferred
securities............ 86,250
Preferred stockholders'
equity................ 26,894
Common stockholders'
equity................ 369,157 316,713 288,271 176,895 139,302
</TABLE>
- --------
(1) The selected historical financial information includes the results of
operations of the Company and its wholly-owned subsidiaries. During 1995,
the Company acquired Astra Resources Compression, Inc., a significant
subsidiary.
(2) In order to more accurately reflect the estimated useful lives of natural
gas compressor units in the rental fleet; effective January 1, 1996 the
Company changed the lives over which these units are depreciated from 12
to 15 years. The effect of this change was a decrease in depreciation
expense of $2.6 million and an increase in net income of $1.5 million
($.07 per diluted common share) for the year ended December 31, 1996.
(3) Diluted earnings per share in 1996 was $.46 per share before the effects
of charging retained earnings for $1.8 million relating to dividends on
redeemable preferred stock and one time charges to retained earnings for
(i) $3.8 million related to the exchange of all Series A preferred stock
for subordinated notes and (ii) $1.4 million related to the conversion of
all Series B preferred stock to Common Stock.
(4) EBITDA consists of the sum of consolidated net income before interest
expense, lease expense, distributions on mandatorily redeemable preferred
securities, income tax, and depreciation and amortization. The Company
believes that EBITDA is a meaningful measure of its operating performance
and is also used to measure the Company's ability to meet debt service
requirements. EBITDA should not be considered as an alternative
performance measure prescribed by generally accepted accounting
principles.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto.
GENERAL
The Company's operations consist of providing gas compression services
through renting, maintaining and operating natural gas compressors and
engineering, fabricating and selling gas compression and oil and gas
production equipment. See "Business".
12
<PAGE>
The following table summarizes revenues, expenses and gross profit
percentages for each of the Company's business segments (Dollars in millions):
<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenues:
Rentals--Domestic..................................... $136.5 $107.4 $ 78.7
Rentals--International................................ 56.2 40.2 22.0
Compressor fabrication................................ 52.5 67.4 49.8
Production equipment fabrication...................... 28.0 37.5 37.1
Other................................................. 43.8 29.5 11.2
------ ------ ------
Total............................................... $317.0 $282.0 $198.8
====== ====== ======
Expenses:
Rentals--Domestic..................................... $ 46.2 $ 36.6 $ 27.5
Rentals--International................................ 18.8 12.8 7.6
Compressor fabrication................................ 43.7 58.1 41.6
Production equipment fabrication...................... 20.8 25.8 26.4
Other................................................. 31.2 22.9 7.4
------ ------ ------
Total............................................... $160.7 $156.2 $110.5
====== ====== ======
Gross profit percentage:
Rentals--Domestic..................................... 66.1% 65.9% 65.1%
Rentals--International................................ 66.6% 68.2% 65.5%
Compressor fabrication................................ 16.8% 13.8% 16.5%
Production equipment fabrication...................... 25.7% 31.2% 28.8%
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
Revenues
The Company's total revenues increased by $35.0 million, or 12%, to $317.0
million during 1999 from $282.0 million during 1998. The increase resulted
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 $45.1 million, or 31%, to $192.7 million
during 1999 from $147.6 million during 1998. Domestic revenues from rentals
increased by $29.1 million, or 27%, to $136.5 million during 1999 from $107.4
million during 1998. International revenues from rentals increased by $16.0
million, or 40%, to $56.2 million during 1999 from $40.2 million during 1998.
At December 31, 1999 the compressor rental fleet consisted of approximately
1,458,000 horsepower, a 37% increase over the 1,067,000 horsepower in the
rental fleet at December 31, 1998. Domestically, the rental fleet increased by
289,000 horsepower, or 32%, during 1999 and internationally by 103,000
horsepower, or 59%. The increase in both domestic and international rental
revenues resulted primarily from expansion of the Company's rental fleet.
Revenue from parts and service increased by $10.6 million, or 44% to $34.5
million during 1999 from $23.9 million during 1998. Revenues from the
fabrication and sale of compressor equipment to third parties decreased by
$14.9 million, or 22%, to $52.5 million during from $67.4 million during 1998.
An aggregate of 147,000 horsepower was sold during 1999. In addition, 130,000
horsepower was fabricated and placed in the rental fleet during 1999. The
Company believes the revenue decrease during 1999 was 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 energy prices earlier in 1999, which reduced the
demand for compressors thereby adversely impacting sales prices.
Revenues from the fabrication and sale of production equipment decreased by
$9.5 million, or 25%, to $28.0 million during 1999 from $37.5 million during
1998 primarily due to the decline in well completions resulting from lower
energy prices during the first half of 1999.
The Company recognized gains on sales of assets of $5.9 million during 1999
compared to $2.6 million during the 1998. The increase is primarily due to the
increase in horsepower sold from the rental fleet to
13
<PAGE>
customers exercising options to purchase equipment they previously had rented.
During 1999 the Company sold approximately 20,000 horsepower compared to
14,000 horsepower during 1998.
Expenses
Operating expenses of the rentals segment increased by $15.6 million, or 32%
to $65.0 million during 1999 from $49.4 million during 1998. The increase
resulted primarily from the corresponding 31% increase in revenues from
rentals over the corresponding period in 1998. The gross profit percentage
from rentals was 66% during 1999 and 67% during 1998. Operating expenses of
parts and service increased $4.4 million, or 25% to $21.7 million during 1999
from $17.3 million during 1998, which relates to the 44% increase in parts and
service revenue. The gross profit percentage from parts and service increased
to 37% during 1999 from 27% in 1998. Operating expenses of compressor
fabrication decreased by $14.4 million, or 25% to $43.7 million from $58.1
million during 1998. The gross profit margin on compression fabrication
increased to 17% during 1999, from 14% during 1998. Production equipment
fabrication operating expenses decreased by $5.0 million, or 19%, during 1999
to $20.8 million from $25.8 million during 1998. The decrease in operating
expenses is reflective of the corresponding change in production equipment
fabrication revenues during 1999. The gross profit margin attributable to
production equipment fabrication decreased to 26% during 1999, from 31% during
1998.
Selling, general and administrative expenses increased by $7.2 million, or
27% to $33.8 million during 1999. The increase is attributable to increased
personnel and other administrative and selling expenses associated with the
increase in operating activity in the Company's rentals business segments, as
described above.
Depreciation and amortization expense increased by $.2 million, or 1% during
1999 to $37.3 million. The increase in depreciation on the additions to the
rental fleet was offset by the decrease in depreciation as a result of the
equipment leases entered into in July 1998 and June 1999.
Interest expense decreased by $2.9 million, or 25% during 1999 to $8.8
million. The decrease in interest expense was due in part to utilization of
proceeds from the equipment lease which was used to reduce indebtedness under
the Bank Credit Agreement and the capitalization of interest expense on assets
that are under construction.
The Company incurred compression equipment lease expense of $22.1 million
during 1999 and $6.2 million during 1998. As a result of the Equipment Leases,
the Company expects to incur annual operating leasing expense of approximately
$30 million.
Income Taxes
The provision for income taxes increased by $3.8 million, or 20%, to $23.1
million during 1999 from $19.3 million during 1998. The increase resulted
primarily from the corresponding increase in income before taxes. The
Company's effective income tax rate was approximately 36.4% during 1999 and
38.8% during 1998. The decrease in average effective income rates is due to
expected benefits from a foreign sales corporation established in 1998.
Net Income and Earnings Per Share
Net income increased $10.1 million, or 33%, to $40.4 million for 1999 from
$30.4 million in 1998 for the reasons discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues
Revenues from rentals increased by $46.9 million, or 47% to $147.6 million
due to growth in the rental fleet. At December 31, 1998 the compressor rental
fleet consisted of approximately 1,067,000 horsepower, a 37% increase over the
781,000 horsepower in the rental fleet at December 31, 1997. Domestically, the
rental fleet increased by 224,000 horsepower, or 34%, during 1998 and
internationally by 61,000 horsepower, or 54%. Revenue from parts and service
increased by $13.6 million, or 133% to $23.9 million as a result of increased
14
<PAGE>
marketing focus on parts and services and the increase in growth in the rental
fleet. Revenues from compressor fabrication amounted to $67.4 million,
increasing by 36% over 1997. An aggregate of 113,000 horsepower was sold
during 1998. In addition, 88,000 horsepower was fabricated and placed in the
rental fleet during 1998. Revenues from the fabrication of production
equipment remained relatively unchanged with an increase of $0.4 million from
1997, or 1% to $37.5 million during 1998. The change in 1998 production
equipment revenue was negligible as a result of declining well completions.
Expenses
Operating expenses of the rentals segment increased by $14.3 million, or 41%
to $49.4 million during 1998. The gross profit percentage from rentals
increased to 67% during 1998 from 65% in 1997. Operating expenses of parts and
service increased $11.0 million, or 173% to $17.3 million during 1998, which
relates to the 133% increase in parts and service revenue. The gross profit
percentage from parts and service decreased to 27% during 1998 from 38% in
1997. Operating expenses of compressor fabrication increased by $16.5 million,
or 40% to $58.1 million, which relates to the 36% increase in compression
fabrication revenue achieved during 1998. In addition, the gross profit margin
on compression fabrication decreased to 14% during 1998, from 16% during 1997.
Production equipment fabrication operating expenses decreased by $0.6 million,
or 2%, during 1998 to $25.8 million. The decrease in operating expenses is
reflective of the corresponding change in production equipment fabrication
revenues during 1998. The gross profit margin attributable to production
equipment fabrication increased to 31% during 1998, up from 29% during 1997.
Selling, general and administrative expenses increased by $5.8 million, or
28% to $26.6 million during 1998. The increase is attributable to increased
personnel and other administrative and selling expenses associated with the
increase in operating activity in the Company's rentals and compression
fabrication operating segments as well as increased administrative costs
relating to being a public reporting entity. Depreciation and amortization
expense increased by $8.7 million, or 31% during 1998 to $37.1 million as the
Company continued to expand its rental fleet with capital expenditures and net
business acquisitions that amounted to approximately $212.0 million. In
addition, the company sold certain compression equipment with a book value of
approximately $158.0 million in July, 1998 under a sale and lease back
arrangement. See "LIQUIDITY AND CAPITAL RESOURCES" for a description of the
Equipment Lease. Consequently, the Company incurred compression equipment
lease expense of $6.2 million during 1998. As a result of the Equipment Lease,
the Company expects to incur annual operating lease expense of approximately
$14 million. Interest expense increased by $1.0 million, or 9% during 1998 to
$11.7 million.
Income Taxes
The Company's effective income tax rate was approximately 39% during 1998
and during 1997. Accordingly, the provision for income taxes increased by $7.9
million, or 70%, during 1998 to $19.3 million as a result of income before
income taxes increasing by 69% during 1998 over 1997.
Net Income and Earnings Per Share
Net income increased $12.3 million, or 68%, to $30.4 million for 1998 from
$18.1 million in 1997 for the reasons discussed above. Weighted average shares
outstanding was affected by the additional shares issued in conjunction with
the Company's initial public offering which were outstanding for all of 1998.
LIQUIDITY AND CAPITAL RESOURCES
In June 1999 and in July 1998, the Company completed two individual $200
million sale and lease back transactions of certain compression equipment. The
transactions are recorded as a sale and lease back of the equipment and are
recorded as operating leases. Under both agreements, 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 options to repurchase the equipment at fair market value. The
Company has substantial residual value guarantees under the agreements
(approximately $333 million for both transactions) that are due upon
termination of the leases and which may be satisfied by a cash payment or the
exercise of the Company's purchase options. The equipment sold in the June
1999 transaction had a book value
15
<PAGE>
of approximately $162 million and resulted in a gain of approximately $38
million. The equipment sold in the July 1998 transaction had a book value of
$158 million and resulted in a gain of approximately $42 million. Both gains
are deferred until the end of the respective lease terms.
In December 1999, the Company issued $86.3 million of 7.25% Convertible
Preferred Securities through Hanover Compressor capital Trust, a Delaware
business trust and subsidiary of the Company. The Convertible Preferred
Securities have a liquidation amount of $50 per unit. The Convertible
Preferred Securities mature in 30 years but may be redeemed partially or in
total any time on or after December 20, 2002.
The Company's cash balance amounted to $5.8 million at December 31, 1999
compared to $11.5 million at December 31, 1998. Primary sources of cash during
1999 were cash provided by internal operations of $68.2 million, net proceeds
of $200 million from the sale of compression equipment under the Equipment
Lease and net proceeds of $82.9 million from the private offering of the
Convertible Preferred Securities. Principal uses of cash during the year ended
December 31, 1999 were capital expenditures of $282.9 million, business
combinations and investments in unconsolidated entities of $40.2 million and
$279.1 million repayment of long-term debt.
Total current assets increased from $165.1 million at December 31, 1998 to
$192.5 million at December 31, 1999 primarily as a result of increases in
accounts receivable and inventories. Accounts receivable at December 31, 1999
increased by $23.5 million to $93.7 million. The increase corresponds with 18%
increase in total revenue of $94.3 million realized by the Company during the
three months ended December 31, 1999 compared to $79.8 million during the
three months ended December 31, 1998. In addition, inventories increased by
$3.5 million to $66.5 million at December 31, 1999. The increase in
inventories reflects increases in parts and supplies, work in progress and
finished goods as the level of activity in the Company's domestic and
international rental and maintenance increased over 1998. Working capital at
December 31, 1999 was also affected by an $32.8 million increase in total
current liabilities at December 31, 1999 to $84.6 million. The 63% increase in
total current liabilities results largely from the increase in vendor accounts
payable caused by the expansion of the Company's operating activities and also
due to the Subordinated Notes in the aggregate principal amount of $15.4
million becoming due on December 31, 2000.
The amounts invested in property, plant and equipment and business
combinations during 1999 was $318.2 million which resulted in the addition of
approximately 391,000 horsepower to the rental fleet. At December 31, 1999,
the rental fleet consisted of 1,181,000 horsepower domestically and 277,000 in
the international rental fleet. Current plans are to spend in excess of $250
million during 2000, exclusive of any major acquisition, in continued
expansion of the rental fleet. Historically, the Company has funded capital
expenditures with a combination of internally generated cash flow, borrowings
under the revolving credit facility, lease transactions and raising additional
equity. As of December 31, 1999 the Company had approximately $138 million of
credit capacity remaining on its $200 million Bank Credit Agreement (7.7% rate
at December 31, 1999). In March 2000, the Company finalized a third sale and
lease back transaction. Under the agreement, the Company received $100 million
proceeds from the sale of the compression equipment at closing and may sell an
additional $100 million of equipment to the Trust during the next twelve
months. The equipment sold will be leased back by the Company for a five-year
period and will continue to be deployed by the Company under its normal
operating procedures. Hanover has the option to repurchase the equipment from
the Trust at any time. The Company feels it has adequate capital resources to
fund its estimated level of capital expenditures for the year 2000.
Impact of Year 2000
The Company did not experience any material problems during the rollover to
the year 2000 that affected operations and does not anticipate any year 2000
compliance problems in the future. The Company completed its year 2000
readiness in conjunction with normal expansion and upgrades of its computer
systems and hardware. The costs related to the year 2000 were not material to
the Company's operating results, cash flows or financial position.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that, upon
adoption, all derivative instruments (including certain
16
<PAGE>
derivative instruments embedded in other contracts) be recognized in the
balance sheet at fair value, and that changes in such fair values be
recognized in earnings unless specific hedging criteria are met. Changes in
the values of derivatives that meet these hedging criteria will ultimately
offset related earnings effects of the hedged item pending recognition in
earnings. SFAS 133 is effective for the Company beginning in 2001. The impact
of SFAS 133 on the Company's financial statements will depend on a variety of
factors, including future interpretive guidance from the FASB, the future
level of actual foreign currency transactions, the extent of our hedging
activities, the type of hedging instruments used and the effectiveness of such
instruments. However management does not believe the effect of adoption will
have a material effect on the Company's results of operations, cash flows or
financial position.
Item 7A. 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 December 31, 1999, the fair market value of
these interest rate swaps is approximately $2.9 million. The Company does not
use derivative financial instruments to mitigate foreign currency risk.
Item 8. Financial Statements and Supplementary Data
In this report, the consolidated financial statements and supplementary data
appearing on pages F-1 through F-22 are incorporated in this item 8 by
reference. See Index to the Financial Statements at 19.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information included or to be included in the Company's definitive proxy
statement for its 2000 Annual Meeting of Stockholders under the captions
"Nominees for Election as Directors," and "Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated by reference herein.
Item 11. Executive Compensation
The information included or to be included under the caption "Executive
Compensation" in the Company's definitive proxy statement for its 2000 Annual
Meeting of Stockholders is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information included or to be included under the caption "Security
Ownership of Certain Beneficial Owners and Management" in the Company's
definitive proxy statement for its 2000 Annual Meeting of Stockholders is
incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
The information included or to be included under the caption "Certain
Relationships and Related Transactions" in the Company's definitive proxy
statement for its 2000 Annual Meeting of Stockholders is incorporated by
reference herein.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS--The financial statements listed in the
accompanying Index to Consolidated Financial Statements are filed as
part of this annual report and such Index to Consolidated Financial
Statements is incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES--All schedules are omitted because the
required information is inapplicable or the information is presented
in the Consolidated Financial Statements or related notes.
3. EXHIBITS--The exhibits listed on the accompanying Index to Exhibits
are filed as part of this annual report and such Index to Exhibits
is incorporated herein by reference.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ Michael J. McGhan
By: _________________________________
Michael J. McGhan
President and Chief Executive
Officer
Date: March 27, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael J. McGhan President and Chief March 27, 2000
______________________________________ Executive Officer
Michael J. McGhan (Principal Executive
Officer and Director)
/s/ Curtis Bedrich Chief Financial Officer March 27, 2000
______________________________________ and Treasurer (Principal
Curtis Bedrich Financial and Accounting
Officer)
/s/ Ted Collins, Jr. Director March 27, 2000
______________________________________
Ted Collins, Jr.
/s/ Robert R. Furgason Director March 27, 2000
______________________________________
Robert R. Furgason
/s/ William S. Goldberg Director March 27, 2000
______________________________________
William S. Goldberg
/s/ Melvyn N. Klein Director March 27, 2000
______________________________________
Melvyn N. Klein
/s/ Michael A. O'Connor Director March 27, 2000
______________________________________
Michael A. O'Connor
Director March 27, 2000
______________________________________
Alvin V. Shoemaker
</TABLE>
18
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.................................... F-1
Consolidated Balance Sheet........................................... F-2
Consolidated Statement of Income and Comprehensive Income............ F-3
Consolidated Statement of Cash Flows................................. F-4,F-5
Consolidated Statement of Common Stockholders' Equity................ F-6
Notes to Consolidated Financial Statements........................... F-7
Selected Quarterly Financial Data (unaudited)........................ F-22
</TABLE>
19
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Hanover Compressor Holding Co.*
3.2 Certificate of Amendment of Certificate of Incorporation of Hanover
Compressor Holding Co. dated December 9, 1999.*
3.3 By-laws of Hanover Compressor Company*
4.1 Third Amended and Restated Registration Rights Agreement, dated as of
December 5, 1995, among the Company, GKH Partners, L.P., GKH
Investments, L.P., Astra Resources, Inc. and other stockholders of the
Company party thereto (1) [4.1]
4.10 Form of Warrant Agreement (1) [4.10]
4.11 Specimen Stock Certificate (1) [4.11]
4.12 Form of Second Amended and Restated Stockholders Agreement of Hanover
Compressor Company dated as of June, 1997 (1) [4.12]
4.13 Form of Amended and Restated Stockholders Agreement (JEDI) dated as of
May, 1997 (1) [4.13]
4.14 Form of Amended and Restated Stockholders Agreement (Westar Capital,
Inc.) dated as of May, 1997 (1) [4.14]
4.15 Form of Amended and Restated Stockholders Agreement (HEHC) dated as of
May, 1997 (1) [4.15]
10.1 Credit Agreement, dated as of December 15, 1997, by and between the
Company, The Chase Manhattan Bank, a New York banking corporation as
Administrative Agent and several banks and other financial
institutions that are parties thereto (2) [10.30]
10.2 Subsidiaries' Guarantee, dated as of December 15, 1997, by certain of
the Company's subsidiaries in favor of The Chase Manhattan Bank, as
agent (2) [10.31]
10.3 Management Fee Letter, dated November 14, 1995 between GKH Partners,
L.P. and the
Company (1) [10.3]
10.4 Hanover Compressor Company Senior Executive Stock Option Plan (1)
[10.4]
10.5 1993 Hanover Compressor Company Management Stock Option Plan (1)
[10.5]
10.6 Hanover Compressor Company Incentive Option Plan (1) [10.6]
10.7 Amendment and Restatement of Hanover Compressor Company Incentive
Option Plan (1) [10.7]
10.8 Hanover Compressor Company 1995 Employee Stock Option Plan (1) [10.8]
10.9 Hanover Compressor Company 1995 Management Stock Option Plan (1)
[10.9]
10.10 Hanover Compressor Company 1996 Employee Stock Option Plan (1) [10.10]
10.11 OEM Sales and Purchase Agreement, between Hanover Compressor Company
and the Waukesha Engine Division of Dresser Industries, Inc. (1)
[10.11]
10.12 Distribution Agreement, dated February 23, 1995, between Ariel
Corporation and Maintech Enterprises, Inc. (1) [10.12]
10.13 Exclusive Distribution Agreement, dated as of February 23, 1995 by and
between Hanover/Smith, Inc. and Uniglam Resources, Ltd. (1) [10.13]
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.14 Lease Agreement, dated December 4, 1990, between Hanover Compressor
Company and Ricardo J. Guerra and Luis J. Guerra as amended (1)
[10.15]
10.15 Indemnification Agreement, dated as of December 5, 1995, between
Hanover Compressor Company and Western Resources (formerly Astra
Resources, Inc.) (1) [10.18]
10.16 Put Agreement, dated December 5th, 1995, by and between Western
Resources, Inc. (formerly Astra Resources, Inc.) an Hanover Compressor
Company and Hanover Acquisition Corporation (formerly Astra Resources
Compression, Inc.) (1) [10.19]
10.17 Exchange and Subordinated Loan Agreement dated as of December 23,
1996, among the Company and GKH Partners, L.P., GK December 23, 1996,
among the Company and GKH Partners, L.P., GK Investments, L.P., IPP95,
L.P., Hanna Investment Group, Ott Candies, Inc., Phyllis S. Hojel, Ted
Collins, Jr. and L.O. Ward (1) [10.20]
10.18 1997 Stock Option Plan, as amended (1) [10.23]
10.19 1997 Stock Purchase Plan (1) [10.24]
10.20 Exchange Agreement by and between Hanover Compressor Company and JEDI,
dated December 23, 1996 (1) [10.27]
10.21 Lease dated as of July 20, 1998 between Hanover Equipment Trust 1998A
(the "Trust") and the Company. (3) [10.1]
10.22 Guarantee dated as of July 22, 1998 and made by the Company,
Hanover/Smith, Inc., Hanover Maintech, Inc. and Hanover Land Company.
(3) [10.2]
10.23 Lessee's and Guarantor's Consent dated as of July 20, 1998 made by the
Company, Hanover/Smith, Inc., Hanover Maintech, Inc. and Hanover Land
Company. (3) [10.3]
10.24 Participation Agreement dated as of July 22, 1998 among the Company,
the Trust, The Chase Manhattan Bank, as agent, Societe General &
Financial Corporation, and Wilmington Trust Company. (3) [10.4]
10.25 Security Agreement dated as of July 22, 1998 made by the Trust in
favor of The Chase Manhattan Bank, as agent, with the Company joining
by Joinder of Lessee. (3) [10.5]
10.26 Lease Supplement No. 1 dated as of July 22, 1998 between the Trust and
the Company. (3) [10.6]
10.27 1998 Stock Option Plan (4) [10.7]
10.28 December 10, 1998 Stock Option Plan (5)
10.29 1999 Stock Option Plan (5)
10.30 1998 Amendments to Credit Agreement, dated as of December 15, 1997,
with the Chase Manhattan Bank, a New York banking corporation as
Administrative Agent and several banks and other financial
institutions that are parties thereto (7)[10.35]
10.31 Lease dated as of June 15, 1999 between Hanover Equipment Trust 1999
and the Company. (8)[10.36]
10.32 Guarantee dated as of June 15, 1999 and made by the Company,
Hanover/Smith, Inc., Hanover Maintech, Inc. and Hanover Land Company.
(8) [10.37]
10.33 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. (8) [10.38]
10.34 Security Agreement dated as of June 15, 1999 made by the Trust in
favor The Chase Manhattan Bank, as agent. (8) [10.39]
10.35 Lease supplement No. 1 dated June 15, 1999 between the Trust and the
Company. (8) [10.40]
10.36 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. (8) [10.41]
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.37 Amended and Restated Declaration of Trust of Hanover Compressor
Capital Trust, dated as of December 15, 1999, among Hanover Compressor
Company, as sponsor, Wilmington Trust Company, as property trustee,
and Richard S. Meller, William S. Goldberg and Curtis A. Bedrich, as
administrative trustees. (6)[4.5]
10.38 Indenture for the Convertible Junior Subordinated Indentures due 2029,
dated as of December 15, 1999 among Hanover Compressor Company, as
issuer, and Wilmington Trust Company, as trustee. (6)[4.6]
10.39 Form of Hanover Compressor Capital Trust 7 1/4% Convertible Preferred
Securities. (6)[4.8]
10.40 Form of Hanover Compressor Company Convertible Subordinated Junior
Debentures due 2029. (6)[4.9]
10.41 Preferred Securities Guarantee, dated as of December 15, 1999, between
Hanover Compressor Company, as guarantor, and Wilmington Trust
Company, as guarantee trustee. (6)[4.10]
10.42 Common Securities Guarantee dated as of December 15, 1999, by Hanover
Compressor Company, as guarantor. (6)[4.11]
10.43 Lease dated as of March 13, 2000 between Hanover Equipment Trust 2000A
and the Hanover Compression Inc.*
10.44 Guarantee dated as of March 13, 2000 and made by the Company, Hanover
Compression Inc. and certain of their Subsidiaries.*
10.45 Participation Agreement dated as of March 13, 2000 among the Company,
the Hanover Equipment Trust 2000A and various banks.*
10.46 Security Agreement dated as of March 13, 2000 made by the Trust in
favor The Chase Manhattan Bank, as agent.*
10.47 Assignment of leases, rents and Guarantee from Hanover Equipment Trust
2000A to The Chase Manhattan Bank dated as of March 13, 2000.*
12.1 Computation of ratio of earnings to fixed charges*
21.1 List of Subsidiaries*
23.1 Consent of PricewaterhouseCoopers LLP*
27.1 Financial Data Schedule*
</TABLE>
- --------
(1) Such exhibit previously filed as an exhibit to the registration Statement
(File No. 333-27953) on Form S-1, as amended, under the exhibit number
indicated in brackets [ ], and is incorporated by reference.
(2) Such exhibit previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the Year Ended 1997 under the exhibit number indicated in
brackets [ ], and is incorporated by reference.
(3) Such exhibit previously filed as an exhibit to the Company's Current
Report on Form 8-K dated July 22, 1998, under the exhibit number indicated
in brackets [ ], and is incorporated by reference.
(4) Such exhibit previously filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the Third Quarter of 1998, under the exhibit
number indicated in brackets [ ], and is incorporated by reference.
(5) Compensatory plan or arrangement required to be filed.
(6) Such exhibit previously filed as an exhibit to the Registration Statement
(File No. 333-30344) on Form S-3 under the exhibit number indicated in
brackets [ ], and is incorporated by reference.
(7) Such exhibit previously filed as an exhibit to the Company's Annual Report
on Form 10-K for the Year Ended 1998 under the exhibit number indicated in
brackets [ ], and is incorporated by reference.
(8) Such exhibit previously filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the Second Quarter of 1999, under the exhibit
number indicated in brackets [ ], and is incorporated by reference.
*Filed herewith.
E-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Hanover Compressor Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income, of cash flows and
of common stockholders' equity present fairly, in all material respects, the
financial position of Hanover Compressor Company and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 8, 2000
F-1
<PAGE>
HANOVER COMPRESSOR COMPANY
Consolidated Balance Sheet
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands of
dollars, except
for par value and
share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 5,756 $ 11,503
Accounts receivable, net................................. 93,715 70,205
Inventory................................................ 66,562 63,044
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 4,782 7,871
Prepaid taxes............................................ 16,430 9,466
Other current assets..................................... 5,287 2,967
-------- --------
Total current assets................................... 192,532 165,056
-------- --------
Property, plant and equipment:
Compression equipment and facilities..................... 520,403 422,896
Land and buildings....................................... 19,000 15,044
Transportation and shop equipment........................ 27,616 21,667
Other.................................................... 10,029 11,119
-------- --------
577,048 470,726
Accumulated depreciation................................. (79,583) (78,228)
-------- --------
Net property, plant and equipment...................... 497,465 392,498
-------- --------
Intangible and other assets................................ 66,513 57,036
-------- --------
$756,510 $614,590
======== ========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt..................... $ 15,967 $ 444
Accounts payable, trade.................................. 32,308 23,361
Accrued liabilities...................................... 22,065 17,599
Advance billings......................................... 13,328 9,694
Billings on uncompleted contracts in excess of costs and
estimated earnings...................................... 898 694
-------- --------
Total current liabilities.............................. 84,566 51,792
Long-term debt............................................. 69,681 156,943
Other liabilities.......................................... 80,549 42,858
Deferred income taxes...................................... 66,307 46,284
-------- --------
Total liabilities...................................... 301,103 297,877
-------- --------
Mandatorily redeemable convertible preferred securities.... 86,250 --
Commitments and contingencies (Note 15)
Common stockholders' equity:
Common stock, $.001 par value; 100 million shares
authorized; 28,752,937 and 28,590,472 shares issued and
outstanding, respectively............................... 29 29
Additional paid-in capital............................... 272,973 269,005
Notes receivable--employee stockholders.................. (3,387) (10,146)
Accumulated other comprehensive income................... (311) 152
Retained earnings........................................ 101,439 60,998
Treasury stock--83,697 and 175,547 common shares,
respectively, at cost................................... (1,586) (3,325)
-------- --------
Total common stockholders' equity...................... 369,157 316,713
-------- --------
$756,510 $614,590
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
HANOVER COMPRESSOR COMPANY
Consolidated Statement of Income and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands, except
per share amounts)
<S> <C> <C> <C>
Revenues:
Rentals.......................................... $192,655 $147,609 $100,685
Parts and service................................ 34,461 23,870 10,254
Compressor fabrication........................... 52,531 67,453 49,764
Production equipment fabrication................. 28,037 37,466 37,052
Gain on sale of property, plant and equipment.... 5,927 2,552 148
Other............................................ 3,417 3,007 895
-------- -------- --------
317,028 281,957 198,798
-------- -------- --------
Expenses:
Rentals.......................................... 64,949 49,386 35,113
Parts and service................................ 21,724 17,341 6,360
Compressor fabrication........................... 43,663 58,144 41,584
Production equipment fabrication................. 20,833 25,781 26,375
Selling, general and administrative.............. 33,782 26,626 20,782
Depreciation and amortization.................... 37,337 37,154 28,439
Leasing expense.................................. 22,090 6,173 --
Interest expense................................. 8,786 11,716 10,728
Distributions on mandatorily redeemable
convertible preferred securities................ 278 -- --
-------- -------- --------
253,442 232,321 169,381
-------- -------- --------
Income before income taxes......................... 63,586 49,636 29,417
Provision for income taxes......................... 23,145 19,259 11,314
-------- -------- --------
Net income......................................... 40,441 30,377 18,103
-------- -------- --------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment.......... (463) 152 --
-------- -------- --------
Comprehensive income............................... $ 39,978 $ 30,529 $ 18,103
======== ======== ========
Net income available to common stockholders........ $ 40,441 $ 30,377 $ 18,103
======== ======== ========
Weighted average common and common equivalent
shares outstanding
Basic............................................ 28,524 28,468 25,623
======== ======== ========
Diluted.......................................... 30,527 30,091 27,345
======== ======== ========
Earnings per common share
Basic............................................ $ 1.42 $ 1.07 $ 0.71
======== ======== ========
Diluted.......................................... $ 1.32 $ 1.01 $ 0.66
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
HANOVER COMPRESSOR COMPANY
Consolidated Statement of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands of dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 40,441 $ 30,377 $ 18,103
Adjustments:
Depreciation and amortization.................. 37,337 37,154 28,439
Amortization of debt issuance costs and debt
discount...................................... 884 852 892
Bad debt expense............................... 1,475 349 594
Gain on sale of property, plant and equipment.. (5,927) (2,552) (148)
Equity in income of nonconsolidated
affiliates.................................... (1,188) (1,369) 206
Deferred income taxes.......................... 11,396 12,358 6,233
Changes in assets and liabilities, net of
effects of business combinations:
Accounts receivable........................... (23,974) (28,337) (13,604)
Inventory..................................... (1,918) (24,169) (14,726)
Costs and estimated earnings versus billings
on uncompleted contracts..................... 3,293 (3,000) 2,929
Accounts payable and other liabilities........ 11,969 14,358 7,728
Advance billings.............................. 3,634 2,942 51
Other......................................... (9,200) (7,816) (4,478)
-------- -------- --------
Net cash provided by operating activities.... 68,222 31,147 32,219
-------- -------- --------
Cash flows from investing activities:
Capital expenditures............................ (282,940) (169,498) (150,995)
Proceeds from sale of property, plant and
equipment...................................... 223,037 208,644 2,887
Cash used for business acquisitions, net........ (35,311) (42,581) (6,287)
Cash returned from unconsolidated subsidiary.... 8,000
Cash used to acquire investments in
unconsolidated subsidiaries.................... (4,900) (11,264) (10,095)
-------- -------- --------
Net cash used in investing activities........ (92,114) (14,699) (164,490)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) on revolving credit
facility....................................... (64,400) (4,700) 63,681
Proceeds from issuance of long-term debt........ 2,825 5,000
Issuance of common stock, net................... 92,088
Equity issuance costs........................... (687)
Proceeds from mandatorily redeemable convertible
preferred securities, net...................... 82,940
Proceeds from warrant conversions and stock
option exercises............................... 545 121
Repayment of long-term debt..................... (8,357) (2,226) (31,757)
Purchase of treasury stock...................... (5,950)
Repayments of shareholder notes................. 7,490 602 1,185
-------- -------- --------
Net cash provided by (used in) financing
activities.................................. 18,218 (9,328) 129,510
-------- -------- --------
Effect of exchange rate changes on cash and
equivalents..................................... (73) (178)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (5,747) 6,942 (2,761)
Cash and cash equivalents at beginning of year... 11,503 4,561 7,322
-------- -------- --------
Cash and cash equivalents at end of year......... $ 5,756 $ 11,503 $ 4,561
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
HANOVER COMPRESSOR COMPANY
Consolidated Statement of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
(in thousands of
dollars)
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Interest paid, net of capitalized amounts......... $ 7,897 $ 10,992 $10,069
======= ======== =======
Income taxes paid................................. $12,065 $ 2,249 $ 5,857
======= ======== =======
Supplemental disclosure of noncash transactions:
Debt issued for property, plant and equipment..... $ 379
=======
Property sold in exchange for note receivable..... $ 3,538 $ 1,500
======= ========
Common stock issued in exchange for notes
receivable....................................... $ 731 $ 5,163
======= =======
Acquisitions of businesses:
Property, plant and equipment acquired............ $39,105 $ 31,015
======= ========
Other noncash assets acquired..................... $ 9,711 $ 25,000
======= ========
Liabilities assumed............................... $(1,578) $ (1,261)
======= ========
Deferred taxes.................................... $(8,627) $(12,174)
======= ========
Common stock issued............................... $(3,300) $ (3,300)
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
HANOVER COMPRESSOR COMPANY
Consolidated Statement of Common Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
(in thousands of dollars, except share data)
<TABLE>
<CAPTION>
Accumulated Notes
Common Stock Additional Other Receivable--
----------------- Paid-in Comprehensive Treasury Employee Retained
Shares Amount Capital Income Stock Stockholders Earnings
---------- ------ ---------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 22,938,541 $23 $171,342 $ (218) $(6,770) $ 12,518
Issuance of common
stock.................. 5,163,843 5 92,083
Issuance of common stock
to employees........... 264,785 5,163 (5,163)
Repayment of employee
shareholder notes...... 1,185
Net income.............. 18,103
---------- --- -------- ------- ------- --------
Balance at December 31,
1997................... 28,367,169 28 268,588 (218) (10,748) 30,621
Conversion of warrants.. 198,480 1
Exercise of stock
options................ 24,823 120
Other comprehensive
income................. $ 152
Purchase of 294,200
treasury shares, at
cost................... (5,950)
Issuance of 150,000
treasury shares at
$22.00 per share....... 457 2,843
Repayment of employee
shareholder notes...... 602
Other................... (160)
Net income.............. 30,377
---------- --- -------- ----- ------- ------- --------
Balance at December 31,
1998................... 28,590,472 29 269,005 152 (3,325) (10,146) 60,998
Conversion of warrants.. 26,339
Exercise of stock
options................ 98,676 545
Other comprehensive
loss................... (463)
Issuance of common stock
to employees........... 37,450 731 (731)
Issuance of 91,850
treasury shares at
$35.93 per share....... 1,561 1,739
Repayment of employee
shareholder notes...... 7,490
Income tax benefit from
stock options
exercised.............. 1,176
Other................... (45)
Net income.............. 40,441
---------- --- -------- ----- ------- ------- --------
Balance at December 31,
1999................... 28,752,937 $29 $272,973 $(311) $(1,586) $(3,387) $101,439
========== === ======== ===== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. The Company, Business and Significant Accounting Policies
Hanover Compressor Company and its subsidiaries ("Hanover" or the "Company")
is a leading provider of a broad array of natural gas compression rental,
operations, parts and maintenance services in the United States and select
international markets. Hanover's compression services are complemented by its
compressor and oil and gas production equipment fabrication operations.
Hanover is a Delaware corporation originally formed on October 17, 1990. In
December 1999, the Company adopted a holding company structure and merged into
the new holding company that assumed the name of Hanover Compressor Company.
The charter and by-laws of the new holding company are substantially the same
as the old Company.
On June 6, 1997, the Board of Directors approved an increase of authorized
shares of preferred stock and common stock to 3,000,000 and 100,000,000
shares, respectively. In addition, the Board of Directors approved a 158-for-1
stock split of the Company's common stock. The stock split has been effected
in the form of a stock dividend. All share and per share information included
herein reflects the stock split.
On June 30, 1997, Hanover issued 5,158,691 shares of common stock for cash
of $92,020,000 (net of approximately $1,771,000 of equity issuance costs) in
connection with the Company's initial public offering (the Offering).
Principles of Consolidation
The accompanying consolidated financial statements include Hanover and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses, as well as the disclosures of contingent assets and liabilities.
Because of the inherent uncertainties in this process, actual future results
could differ from those expected at the reporting date. Management believes
that the estimates are reasonable.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Revenue Recognition
Revenue from equipment rentals is recorded when earned over the period of
rental and maintenance contracts which generally range from one month to five
years. Parts and service revenue is recorded as products are delivered or
services are performed for the customer.
Compressor and production equipment fabrication revenue is recognized using
the percentage-of-completion method. The Company estimates percentage-of-
completion for compressor fabrication on a direct labor hour-to-total labor
hour basis. Production equipment fabrication percentage-of-completion is
estimated using the cost-to-total cost basis.
F-7
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist of cash and cash equivalents and accounts receivable.
The Company believes that the credit risk in temporary cash investments that
the Company has with financial institutions is minimal. Trade accounts
receivable are due from companies of varying size engaged principally in oil
and gas activities in the United States, Canada and South America. The Company
reviews the financial condition of customers prior to extending credit and
generally does not obtain collateral for receivables. Payment terms are on a
short-term basis and in accordance with industry standards. Trade accounts
receivable are recorded net of estimated doubtful accounts of $1,730,000 and
$1,212,000 at December 31, 1999 and 1998, respectively. The Company considers
this credit risk to be limited due to these companies financial resources.
Inventory
Inventory consists of parts used for fabrication or maintenance of natural
gas compression units and production equipment, and also includes compression
units and production equipment that are held for sale. Inventory is stated at
the lower of cost or market using the average-cost method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated using
the straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Compression equipment and facilities........................ 4 to 25 years
Buildings................................................... 30 years
Transportation, shop equipment and other.................... 3 to 12 years
</TABLE>
Major improvements that extend the useful life of an asset are capitalized.
Repairs and maintenance are expensed as incurred. When property, plant and
equipment is sold, retired or otherwise disposed of, the cost and related
accumulated depreciation are eliminated and the gain or loss is recognized.
Depreciation expense was $34,696,000, $35,768,000 and $27,789,000 in 1999,
1998 and 1997, respectively.
Assets under construction of $18,937,000 and $6,984,000 are included in
compression equipment at December 31, 1999 and 1998, respectively. Interest is
capitalized in connection with the compression equipment and facilities that
are constructed for the Company's use in its rental operations. The
capitalized interest is recorded as part of the assets to which it relates and
is amortized over the asset's estimated useful life. In 1999, $1,533,000 of
interest cost was capitalized. No interest was capitalized for 1998 and 1997.
Long-Lived Assets
The Company reviews for the impairment of long-lived assets, including
property, plant and equipment, and goodwill whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss exists when estimated undiscounted cash flows
expected to result from the use of the asset and its eventual disposition are
less than its carrying amount. The impairment loss recognized represents the
excess of the assets carrying value as compared to its estimated fair market
value.
Intangible and Other Assets
Investments in affiliated corporations in which the Company does not have a
controlling interest are accounted for using the equity method. The excess of
cost over net assets of acquired businesses is recorded as
F-8
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
goodwill and amortized on a straight-line basis over 15 years commencing on the
dates of the respective acquisitions. Accumulated amortization was $3,822,000
and $1,810,000 at December 31, 1999 and 1998, respectively.
Included in intangible and other assets are debt issuance costs, net of
accumulated amortization, totaling $1,099,000 and $1,186,000 at December 31,
1999 and 1998, respectively. Such costs are amortized over the period of the
respective debt agreements.
Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123 (FAS
123) "Accounting for Stock-Based Compensation," the Company measures
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed in APB Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees," and has provided in Note 12, pro forma
disclosures of the effect on net income and earnings per share as if the fair
value-based method prescribed by FAS 123 had been applied in measuring
compensation expense.
Income Taxes
The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, all expected future events are considered other than enactments
of changes in the tax law or rates.
Foreign Currency Translation
The financial statements of subsidiaries outside the U.S., except those
located in highly inflationary economies, are measured using the local currency
as the functional currency. Assets, including goodwill, and liabilities of
these subsidiaries are translated at the rates of exchange at the balance sheet
date. Income and expense items are translated at average monthly rates of
exchange. The resulting gains and losses from the translation of accounts are
included in accumulated other comprehensive income. For subsidiaries located in
highly inflationary economies, translation gains and losses are included in net
income. The resulting translation adjustment for the year ended December 31,
1997 was not significant.
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 1,648,000, 1,230,000 and 1,153,000 in 1999, 1998 and 1997, respectively, and
warrants of 356,000, 393,000 and 569,000 in 1999, 1998 and 1997, respectively.
The common stock equivalents excluded from the computation of diluted earnings
per share as the effect would be anti-dilutive were approximately 106,000 and
146,000 in 1999 and 1998. No common stock equivalents were anti-dilutive in
1997.
F-9
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Comprehensive Income
Components of comprehensive income are net income and all changes in equity
during a period except those resulting from transactions with owners.
Accumulated other comprehensive income consists of the foreign currency
translation adjustment.
Financial Instruments
The Company utilizes off-balance sheet derivative financial instruments with
the principal objective being to minimize the risks and/or costs associated
with financial and global operating activities by managing its exposure to
interest rate fluctuation on a portion of its variable rate debt and leasing
obligations. The Company does not utilize derivative financial instruments for
trading or other speculative purposes. The Company designates and assigns the
financial instruments as hedges of specific assets, liabilities or anticipated
transactions. The cash flow from hedges is classified in the Consolidated
Statements of Cash Flows under the same category as the cash flows from the
underlying assets, liabilities or anticipated transactions. The cash flow from
hedges is classified in the Consolidated Statements of Cash Flows under the
same category as the cash flows from the underlying assets, liabilities or
anticipated transactions. The carrying amounts reported in the balance sheet
for all financial instruments approximate fair value. See Notes 7 and 8.
Reclassifications
Certain amounts in the prior years' financial statements have been
reclassified to conform to the 1999 financial statement classification. These
reclassifications have no impact on net income.
2. Business Combinations
Acquisitions were accounted for under the purchase method of accounting.
Results of operations of companies acquired are included from the dates of
such acquisitions. The Company allocates the cost of the acquired business to
the assets acquired and the liabilities assumed based upon fair value
estimates thereof. These estimates are revised during the allocation period as
necessary when information regarding contingencies becomes available to define
and quantify assets acquired and liabilities assumed. The allocation period
varies for each acquisition but does not exceed one year. To the extent
contingencies are resolved or settled during the allocation period, such items
are included in the revised purchase price allocation. After the allocation
period, the effect of changes in such contingencies is included in results of
operations in the periods the adjustments are determined. The Company's
management does not believe potential deviations between its fair value
estimates and actual fair values to be material.
Year Ended December 31, 1999
In July 1999, the Company purchased preferred stock and a purchase option
for the common stock of CDI Holdings, Inc. and its subsidiary Compressor
Dynamics, Inc. ("CDI"). In August 1999, the Company exercised its option to
purchase CDI. The total cost for CDI was approximately $18,525,000 in cash.
In August 1999, the Company purchased the stock of Victoria Compression
Services, Inc., Contract Engineering and Operating, Inc. and Unit Partners,
Inc. ("CEO") for approximately $16,786,000 in cash, 91,850 shares of the
Company's treasury stock valued at $3,300,000 and notes payable of
approximately $452,000.
Year Ended December 31, 1998
In June 1998, the Company purchased the stock of Arkoma Compression
Services, Inc. for approximately $17,245,000 in cash. In October 1998, the
Company purchased the stock of Eureka Energy Systems, Inc. for approximately
$25,335,000 in cash.
F-10
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The pro forma information set forth below assumes acquisitions in 1999 and
1998 are accounted for had the purchases occurred at the beginning of 1998.
The pro forma information is presented for informational purposes only and is
not necessarily indicative of the results of operations that actually would
have been achieved had the acquisitions been consummated at that time (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1999 1998
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
Revenue..................................... $ 323,002 $ 308,870
Net income.................................. 40,412 31,391
Earnings per common share--basic............ 1.42 1.10
Earnings per common share--diluted.......... $ 1.32 $ 1.04
</TABLE>
Year Ended December 31, 1997
In September 1997, Hanover purchased Wagner Equipment, Inc. and Gas Tech
Compression Services, Inc. for approximately $6,287,000 in cash. Results of
operations for 1997 were not materially impacted by the transaction.
3. Inventory
Inventory consisted of the following amounts (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
-------- -------
<S> <C> <C>
Parts and supplies....................................... $ 44,058 $32,808
Work in progress......................................... 18,677 19,962
Finished goods........................................... 3,827 10,274
-------- -------
$ 66,562 $63,044
======== =======
</TABLE>
4. Compressor and Production Equipment Fabrication Contracts
Costs, estimated earnings and billings on uncompleted contracts are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
<S> <C> <C>
Costs incurred on uncompleted contracts................. $11,041 $18,605
Estimated earnings...................................... 2,150 3,488
------- -------
13,191 22,093
Less--billings to date.................................. (9,307) (14,916)
------- -------
$ 3,884 $ 7,177
======= =======
</TABLE>
Presented in the accompanying financial statements as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- ------
<S> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ $ 4,782 $7,871
Billings on uncompleted contracts in excess of costs
and estimated earnings............................... (898) (694)
------- ------
$ 3,884 $7,177
======= ======
</TABLE>
F-11
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
5. Intangible and Other Assets
Intangible and other assets consisted of the following (in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Goodwill.............................................. $ 33,613 $26,686
Investments in unconsolidated subsidiaries............ 18,892 24,104
Deferred debt issuance and other transaction costs.... 10,317 4,957
Notes receivable...................................... 9,214 3,799
Other................................................. 1,862 3,237
-------- -------
73,898 62,783
Accumulated amortization.............................. (7,385) (5,747)
-------- -------
$ 66,513 $57,036
======== =======
</TABLE>
Amortization of goodwill and other intangible assets totaled $2,641,000,
$1,386,000 and $650,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, the Company's investments in unconsolidated
subsidiaries included a 35% interest in Collicutt Mechanical Services, Ltd.; a
35% interest in the Consortium Cosacol/Hanover (the "Consortium"); and a non-
controlling 60% interest in the Hanover/Enron Joint Venture. In September
1999, the Company acquired a 20% interest in Meter Acquisition Company LP,
LLLP for approximately $2,200,000 and a non-controlling 52.5% interest in
Hanover Measurement Services Company, LP for approximately $2,700,000. The
Company had a 33% interest in a joint venture with Wartsila Diesel
International Ltd., OY that was dissolved in 1998. There were no distributions
or dividends received during the year ended December 31, 1998. Equity in
income of joint ventures was $1,188,000 and $1,369,000 for 1999 and 1998,
respectively and a loss of $206,000 for 1997 and is included in other
revenues.
In December 1998, the Company restructured its relationship in the
Consortium. The Company purchased all of the capitalized construction from the
Consortium for 150,000 shares of Hanover common stock valued at $3,300,000.
The capitalized construction was transferred to property, plant and equipment
in 1999. In addition, the Company acquired a 10% interest in Cosacol for
$2,000,000 in cash.
In December 1998, the Company advanced $8,000,000 to Transportadora de Gas
del Sur S.A. ("TGS"), an Argentina company for a 25% interest in a joint
venture. In 1999, the Company withdrew from the joint venture and the
$8,000,000 was repaid.
In November 1997, Hanover acquired 35% of the common stock of Collicutt
Mechanical Services, Ltd. for approximately $5,608,000 in cash. The investment
is accounted for using the equity method of accounting. The excess of the
Company's investment over the underlying net equity of $703,000 is being
amortized on a straight-line basis over ten years and is included in other
assets at December 31, 1999 and 1998.
The notes receivable result primarily from customers for sales of equipment
or advances to other parties in the ordinary course of business. The notes
vary in length, are non-interest bearing or bear interest at rates ranging
from prime to 15% and are collateralized by equipment.
F-12
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
6. Accrued Liabilities
Accrued liabilities are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Accrued salaries and wages............................... $ 224 $ 1,055
Accrued bonuses.......................................... 1,669 1,539
Accrued income and other taxes........................... 8,033 6,105
Accrued leasing expense.................................. 3,496 2,336
Accrued other............................................ 8,643 6,564
------- -------
$22,065 $17,599
======= =======
</TABLE>
7. Long-Term Debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Revolving credit facility........................... $ 62,100 $126,500
Subordinated promissory notes, net of unamortized
discount of $289 and $855.......................... 15,364 22,648
Real estate mortgage, interest at 7.5%,
collateralized by certain land and buildings,
payable through 2002............................... 4,250 4,583
Other, interest at various rates, collateralized by
equipment and other assets, net of unamortized
discount........................................... 3,934 3,656
-------- --------
85,648 157,387
Less--current maturities............................ (15,967) (444)
-------- --------
$ 69,681 $156,943
======== ========
</TABLE>
The Company's primary credit agreement provides for a $200,000,000 revolving
credit facility that matures on December 17, 2002. Advances bear interest at
the bank's prime or a negotiated rate (7.7% and 6.9% at December 31, 1999 and
1998, respectively). A commitment fee of 0.35% per annum on the average
available commitment is payable quarterly.
The credit agreement contains certain financial covenants and limitations
on, among other things, indebtedness, liens, leases and sales of assets. The
credit agreement also limits the payment of cash dividends on the Company's
common stock to 25% of net income for the respective period.
The subordinated promissory notes mature on December 31, 2000 and bear
interest at 7%, payable semi-annually.
Maturities of long-term debt at December 31, 1999 are (in thousands): 2000--
$15,967; 2001--$722; 2002--$66,093; 2003--$380; 2004--$328 and $2,158
thereafter.
In January 1998 and in connection with the revolving credit facility, the
Company entered into a two-year interest rate swap transaction to manage
interest rate exposure with a notional amount of $75,000,000 and a strike rate
of 5.43%. The differential paid or received on the swap transaction was
recognized as an adjustment to interest expense. This swap transaction was
cancelled in July 1998.
F-13
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
8. Leasing Transactions
In June 1999 and in July 1998, the Company completed two individual
$200,000,000 sale and lease back transactions of certain compression
equipment. The transactions are recorded as a sale and lease back of the
equipment and are recorded as operating leases. Under both agreements, 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 options to repurchase the equipment at fair
market value. The Company has substantial residual value guarantees under the
agreements (approximately $333,000,000 for both transactions) that are due
upon termination of the leases and which may be satisfied by a cash payment or
the exercise of the Company's purchase options. The equipment sold in the June
1999 transaction had a book value of approximately $162,014,000 and resulted
in a gain of approximately $37,986,000. The equipment sold in the July 1998
transaction had a book value of $158,007,000 and resulted in a gain of
approximately $41,993,000. Both gains are deferred until the end of the
respective lease terms. Should the Company not exercise its purchase options
under the agreements, the deferred gains will be recognized to the extent they
exceed any required payments under the residual value guarantees and any other
requirements under the agreements. The Company incurred transaction costs of
approximately $1,799,000 and $1,423,000 for the 1999 and 1998 transactions,
respectively. These costs are included in intangible and other assets and are
being amortized over the respective lease terms.
Both lease agreements call for variable quarterly rental payments that vary
with the London Interbank Borrowing Rate. The following provides future
minimum lease payments under the leasing arrangement exclusive of any
guarantee payments (in thousands): 2000--$30,300; 2001--$30,700; 2002--
$30,700; 2003--23,300; 2004--$7,900.
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 at December 31, 1999 is approximately
$2,900,000 based on market quotes.
9. Income Taxes
The components of income before income taxes were as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Domestic......................................... $ 47,741 $39,160 $23,596
Foreign.......................................... 15,845 10,476 5,821
-------- ------- -------
$ 63,586 $49,636 $29,417
======== ======= =======
</TABLE>
F-14
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current tax expense:
Federal........................................ $ 6,958 $ 3,421 $ 3,308
State.......................................... 1,412 1,741 1,281
Foreign........................................ 3,379 1,739 492
------- ------- -------
Total current................................ 11,749 6,901 5,081
------- ------- -------
Deferred tax expense:
Federal........................................ 10,670 10,312 4,543
State.......................................... 151 85 (23)
Foreign........................................ 575 1,961 1,713
------- ------- -------
Total deferred............................... 11,396 12,358 6,233
------- ------- -------
Total provision.................................. $23,145 $19,259 $11,314
======= ======= =======
</TABLE>
The income tax expense for 1999, 1998 and 1997 resulted in effective tax
rates of 36.4%, 38.8% and 38.5%, respectively. The reasons for the differences
between these effective tax rates and the U.S. statutory rate of 35% are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Federal income tax at statutory rates......... $22,255 $17,373 $10,296
State income taxes, net of federal income tax
benefit...................................... 1,016 1,187 817
Foreign income taxes.......................... 211 33 226
Other, net.................................... (337) 666 (25)
------- ------- -------
$23,145 $19,259 $11,314
======= ======= =======
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Deferred tax assets:
Net operating losses.............................. $ 7,490 $ 3,345
Alternative minimum tax carryforward.............. 19,005 13,276
Other............................................. 1,572 3,683
--------- --------
Gross deferred tax assets........................... 28,067 20,304
--------- --------
Deferred tax liabilities:
Property, plant and equipment..................... (82,764) (58,249)
Other............................................. (11,610) (8,339)
--------- --------
Gross deferred tax liabilities...................... (94,374) (66,588)
--------- --------
$(66,307) $(46,284)
========= ========
</TABLE>
The Company has net operating loss carryforwards at December 31, 1999 of
$21,400,000 expiring in 2006 to 2018. In addition, the Company has an
alternative minimum tax credit carryforward of $19,005,000 that does not
expire.
F-15
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
In 1999, the company recorded approximately $8,627,000 additional deferred
income tax liability resulting from the CDI and CEO acquisitions. See Note 2
for a description of the transactions.
The Company has not recorded a deferred income tax liability for additional
income taxes that would result from the distribution of earnings of its
foreign subsidiaries if they were actually repatriated. The Company intends to
indefinitely reinvest the undistributed earnings of its foreign subsidiaries.
10. Mandatorily Redeemable Convertible Preferred Securities
In December 1999, the Company issued $86,250,000 of unsecured 7.25%
Manditorily Redeemable Convertible Preferred Securities (the "Convertible
Preferred Securities") through Hanover Compressor Capital Trust, a Delaware
business trust and subsidiary of the Company. The Convertible Preferred
Securities have a liquidation amount of $50 per unit. The Convertible
Preferred Securities mature in 30 years but the Company may redeem the
Convertible Preferred Securities partially or in total any time on or after
December 20, 2002. The Convertible Preferred Securities also provide for
annual cash distributions at the rate of 7.25%, payable quarterly in arrears,
however, payments may be deferred up 20 quarters subject to certain
restrictions. During 1999, the Company accrued financing costs of
approximately $288,000 related to Convertible Preferred Securities. Each
Convertible Preferred Security is convertible into 1.3986 shares of Hanover
common stock, subject to adjustment for certain events. The Company incurred
transaction costs of approximately $3,310,000 which are included in other
assets and will be amortized over the term of the Convertible Preferred
Securities.
11. Common Stockholders' Equity
Notes Receivable-Employee Stockholders
Under various stock purchase plans, the Company's employees are eligible to
purchase shares of Hanover stock at fair market value in exchange for cash
and/or notes receivable. The notes are collateralized by the common stock and
the general credit of the employee, bear interest at a prime rate, and are
generally payable on demand or at the end of a four-year period. The notes
have been recorded as a reduction of common stockholders' equity.
In addition and in connection with the Company's initial public offering,
the Company issued 264,785 shares of common stock to employees at the Offering
price of $19.50 in exchange for employee notes receivable.
Other
As of December 31, 1999, warrants to purchase approximately 344,000 shares
of common stock at $.01 per share were outstanding. The warrants expire in
August 2005.
During 1998, the Company initiated a stock buyback program authorized to
repurchase up to 450,000 of the Company's outstanding shares to assist with
future business acquisitions and for general corporate purposes. In 1998, the
Company repurchased 294,200 shares at an average price of $20.22.
In February 1997, Hanover issued 5,152 shares of common stock for cash to a
trust for the benefit of a member of the Company's outside legal counsel.
See Notes 1, 2, 5 and 12 for a description of other common stock
transactions.
12. Stock Options
The Company has employee stock option plans that provide for the granting of
options to purchase common shares. The options are generally issued at fair
market value on the date of grant and are exercisable over a ten-
F-16
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
year period. Vesting of stock options issued prior to June 1997 was
accelerated as a result of completion of the initial public offering.
Accordingly, during 1997 the Company recognized a charge of $269,000 related
to unamortized compensation expense on options issued at less than fair market
value on the date of grant. No compensation expense was recorded in 1999 and
1998.
Of the options granted in 1999 and 1998, 350,000 vest 100% on July 1, 2001
and 160,000 vested immediately. The remaining options granted to employees
vest over the following schedule, which may accelerate upon a change in the
Company's controlling ownership.
<TABLE>
<S> <C>
Year 1............................................................... 10%
Year 2............................................................... 30%
Year 3............................................................... 60%
Year 4............................................................... 100%
</TABLE>
The following is a summary of stock option activity for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted Average
Shares Price Per Share
--------- ----------------
<S> <C> <C>
Options outstanding, December 31, 1996........ 2,400,174 $ 5.11
Options granted............................. 1,015,323 19.50
Options canceled............................ (1,138) 10.55
Options exercised...........................
---------
Options outstanding, December 31, 1997........ 3,414,359 9.39
---------
Options granted............................. 1,047,683 20.26
Options canceled............................ (42,004) 21.22
Options exercised........................... (24,823) 4.80
---------
Options outstanding, December 31, 1998........ 4,395,215 11.90
---------
Options granted............................. 136,078 27.58
Options canceled............................ (34,115) 19.43
Options exercised........................... (98,676) 5.51
---------
Options outstanding, December 31, 1999........ 4,398,502 12.47
---------
</TABLE>
Options Outstanding December 31, 1999
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------------- ------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Prices Shares Life in Years Price Shares Price
------------------------ --------- ------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.01--$4.59............... 1,660,903 3.5 $ 4.45 1,660,903 $ 4.45
$4.60--$6.96............... 421,421 4.0 5.33 421,421 5.33
$6.97--$10.13.............. 128,343 5.8 9.54 128,343 9.54
$10.14--$13.92............. 69,940 6.7 11.87 69,940 11.87
$19.50--$25.00............. 2,002,229 8.2 20.36 504,297 19.64
$25.01--$29.00............. 115,666 9.9 29.00 0 0.00
--------- ---------
4,398,502 2,784,904
========= =========
</TABLE>
F-17
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The weighted average fair value at date of grant for options where the
exercise price equals the market price of the stock on the grant date was
$12.19, $8.31 and $8.58, per option during 1999, 1998 and 1997, respectively.
The fair value of options at date of grant was estimated using the Black-
Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Expected life.................................. 6 years 6 years 6 years
Interest rate.................................. 6.0% 4.8% 6.7%
Volatility..................................... 29.36% 32.6% 30%
Dividend yield................................. 0% 0% 0%
</TABLE>
Stock-based compensation costs computed in accordance with FAS 123, would
have reduced net income by $2,194,000, $825,000 and $842,000 in 1999, 1998 and
1997, respectively. The pro forma impact on net income would have reduced
basic and diluted earnings per share by $.07 in 1999 and $.03 per share in
1998 and 1997. The pro forma effect on net income for 1999, 1998 and 1997 is
not representative of the pro forma effect on net income in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1995.
13. Benefit Plans
The Company's 401(k) retirement plan provides for optional employee
contributions up to the IRS limitation and discretionary employer matching
contributions. The Company made matching contributions of $399,000 and
$273,000 during the years ended December 31, 1999 and 1998, respectively. The
Company did not make a matching contribution for the year ended December 31,
1997.
14. Related Party Transactions
Hanover and GKH Partners, L.P., a major stockholder of the Company, have
entered into an agreement whereby in exchange for investment banking and
financial advisory services rendered and to be rendered by the major
stockholder, the Company has agreed to pay a fee to GKH Partners, L.P. equal
to .75% of the equity value of the Company determined and payable at such time
as (1) a disposition of shares of the Company's common stock resulting in GKH
Partners, L.P. owning less than 25% of the outstanding common stock or (2) any
other transaction occurs resulting in the effective sale of the Company or its
business by the current owners.
In connection with stock offerings to management, the Company has received
notes from employees for shares purchased. The total amounts owed to the
Company at December 31, 1999 and 1998 are $3,387,000 and $10,146,000,
respectively. Total interest accrued on the loans is $203,000 and $548,000 as
of December 31, 1999 and 1998, respectively.
The Company had a credit agreement with Joint Energy Developments
Investments Limited Partnership ("JEDI"), a common stockholder, that was
repaid in 1997. Interest expense in 1997 was $1,388,000. The Company also
leases compressors to affiliates of Enron Capital and Trade Resources Corp.,
an affiliate of JEDI. Rentals of $8,776,000, $6,801,000 and $1,034,000 were
paid by affiliates of Enron in 1999, 1998 and 1997, respectively. In addition,
compression fabrication of $6,320,000 was paid by affiliates of Enron in 1999.
An affiliate of Enron also owns interests in Meter Acquisition Company LP,
LLLP and Hanover Measurement Services Company, L.P.
The Company leases compressors to other companies owned or controlled by or
affiliated with related parties. Rental revenues billed to these related
parties totaled $902,000, $859,000 and $1,035,000 during 1999, 1998 and 1997,
respectively.
F-18
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
See Note 5 for related party investments and Note 11 for a description of
common stock transactions with related parties.
15. Commitments and Contingencies
Rent expense excluding lease payments for the leasing transactions described
in Note 8 for 1999, 1998 and 1997 was approximately $1,320,000, $455,000 and
$376,000, respectively. Commitments for future minimum rental payments
exclusive of those disclosed in Note 8 are not significant at December 31,
1999.
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, operating results or cash flows.
The Company has no commitments or contingent liabilities which, in the
judgment of management, would result in losses that would materially affect
the Company's consolidated financial position, operating results or cash
flows.
16. Subsequent Event
In March 2000, the Company completed a sale and lease back of certain
compression equipment. The lease back of the equipment will be recorded as an
operating lease. Under the agreement, the Company received $100 million
proceeds from the sale of the compression equipment at closing and may sell an
additional $100 million of equipment to the Trust during the next twelve
months. The equipment sold will be leased back by the Company for a five-year
period and will continue to be deployed by the Company under its normal
operating procedures. Hanover has the option to repurchase the equipment from
the Trust at any time and has substantial residual value guarantees.
17. Industry Segments and Geographic Information
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 Rentals Segments provides natural gas
compression rental and maintenance services to meet specific customer
requirements. The Compressor Fabrication Segment involves the design,
fabrication and sale of natural gas compression units to meet unique customer
specifications. The Production Equipment Fabrication Segment designs,
fabricates and sells equipment utilized in the production of crude oil and
natural gas.
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,
distributions on company-obligated mandatorily redeemable preferred securities
and income taxes. Amounts defined as "Other" include sales of property, plant
and equipment, 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 segment or geographic region, or which are allocated when used
jointly. Capital expenditures include fixed asset purchases.
F-19
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
No single customer accounts for 10% or more of the Company's revenues for
all periods presented. One vendor accounted for approximately $32,900,000 of
the Company's purchases in 1998.
The following tables present sales and other financial information by
industry segment and geographic region for the years ended December 31, 1999,
1998 and 1997.
Industry Segments
<TABLE>
<CAPTION>
Production
Domestic International Compressor Equipment
Rentals Rentals Fabrication Fabrication Other Eliminations Consolidated
-------- ------------- ----------- ----------- ------- ------------ ------------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
1999:
Revenues from external
customers............ $136,430 $56,225 $52,531 $28,037 $43,805 $317,028
Intersegment sales.... 1,200 75,139 4,821 38,656 $(119,816) --
-------- ------- ------- ------- ------- --------- --------
Total revenues........ 136,430 57,425 127,670 32,858 82,461 (119,816) 317,028
Gross profit.......... 90,246 37,460 8,868 7,204 22,081 165,859
Identifiable assets... 529,667 149,968 47,608 23,511 5,756 756,510
Capital expenditures.. 180,593 99,535 1,469 1,343 282,940
Depreciation and
amortization......... 24,448 11,158 702 1,029 37,337
1998:
Revenues from external
customers............ $107,420 $40,189 $67,453 $37,466 $29,429 $281,957
Intersegment sales.... 1,200 54,369 2,902 10,735 $ (69,206) --
-------- ------- ------- ------- ------- --------- --------
Total revenues........ 107,420 41,389 121,822 40,368 40,164 (69,206) 281,957
Gross profit.......... 70,850 27,374 9,309 11,685 12,087 131,305
Identifiable assets... 422,026 129,628 33,578 17,855 11,503 614,590
Capital expenditures.. 111,289 54,830 2,524 855 169,498
Depreciation and
amortization......... 28,383 7,128 701 942 37,154
1997:
Revenues from external
customers............ $ 78,656 $22,029 $49,764 $37,052 $11,297 $198,798
Intersegment sales.... 1,200 48,072 462 7,775 $ (57,509) --
-------- ------- ------- ------- ------- --------- --------
Total revenues........ 78,656 23,229 97,836 37,514 19,072 (57,509) 198,798
Gross profit.......... 51,149 14,423 8,180 10,677 4,937 89,366
Identifiable assets... 360,362 98,421 30,088 13,020 4,561 506,452
Capital expenditures.. 109,540 36,545 993 3,917 150,995
Depreciation and
amortization......... 23,261 3,912 554 712 28,439
</TABLE>
F-20
<PAGE>
HANOVER COMPRESSOR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Geographic Data
<TABLE>
<CAPTION>
United
States International Consolidated
-------- ------------- ------------
(in thousands of dollars)
<S> <C> <C> <C>
1999:
Revenues from external customers.......... $256,890 $ 60,138 $317,028
Identifiable assets....................... $603,368 $153,142 $756,510
1998:
Revenues from external customers.......... $230,605 $ 51,352 $281,957
Identifiable assets....................... $484,269 $130,321 $614,590
1997:
Revenues from external customers.......... $176,045 $ 22,753 $198,798
Identifiable assets....................... $406,602 $ 99,850 $506,452
</TABLE>
F-21
<PAGE>
HANOVER COMPRESSOR COMPANY
Selected Quarterly Financial Data (unaudited)
The table below sets forth selected unaudited financial information for each
quarter of the last two years:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share
amounts)
<S> <C> <C> <C> <C>
1999
Revenue...................................... $64,444 $73,799 $84,462 $94,323
Gross profit................................. 36,947 38,681 43,373 46,858
Net income................................... 8,639 8,482 10,388 12,932
Earnings per common and common equivalent
share:
Basic...................................... $ 0.30 $ 0.30 $ 0.36 $ 0.45
Diluted.................................... $ 0.29 $ 0.28 $ 0.34 $ 0.42
1998
Revenue...................................... $61,449 $68,933 $71,796 $79,779
Gross profit................................. 28,411 31,963 34,841 36,090
Net income................................... 6,251 6,972 8,048 9,106
Earnings per common and common equivalent
share:
Basic...................................... $ 0.22 $ 0.24 $ 0.28 $ 0.32
Diluted.................................... $ 0.21 $ 0.23 $ 0.27 $ 0.30
</TABLE>
F-22
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HANOVER COMPRESSOR HOLDING CO.
FIRST: The name of the corporation (hereinafter the "corporation") is
Hanover Compressor Holding Co.
SECOND: The Registered Office of the corporation is to be located at 1209
Orange Street, in the City of Wilmington, in the County of New Castle, in the
State of Delaware, 19801. The name of its Registered Agent at that address is
The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue, itemized by class, series and par value, is:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE SHARES
CLASS SERIES PER SHARE AUTHORIZED
- --------------------------------------- -------------------- ----------------- -------------------
<S> <C> <C> <C>
Common................................. Undesignated $.001 100,000,000
Preferred.............................. Undesignated $ .01 3,000,000
</TABLE>
FIFTH: The Board of Directors is authorized to provide from time to time
for the issuance of shares of preferred stock of the corporation (the "Preferred
Stock") and to fix from time to time, before issuance, the designation,
preferences and privileges of the shares of Preferred Stock and the restrictions
or qualifications thereof, including, without limiting the generality of the
foregoing, the following:
(a) The serial designation and authorized number of shares;
(b) The dividend rate, the date or dates on which such dividends will be
payable and the extent to which such dividends may be cumulative;
(c) The amount or amounts to be received by the holders thereof in the event of
voluntary or involuntary dissolution or liquidation of the corporation;
(d) Whether such shares may be redeemed, and if so, the price or prices at
which the shares may be redeemed and any terms, conditions and limitations
upon such redemption;
(e) Any sinking fund provisions for redemption or purchase of such shares;
1
<PAGE>
(f) The terms and conditions, if any, on which shares may be converted, at the
election of the holders thereof, into shares of other capital stock or of
other series of Preferred Stock of the corporation; and
(g) The voting rights, if any.
The Board of Directors may also from time to time:
(h) Alter, without limitation or restriction, the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock; and
(i) Within the limits or restrictions stated in any resolution or resolutions
of the Board of Directors originally fixing the number of shares
constituting any series, increase or decrease (but not below the number of
shares then outstanding) the number of shares of any such series subsequent
to the issuance of shares of that series.
Each series of Preferred Stock may, in preference to the common stock of
the corporation, be entitled to dividends from funds or other assets legally
available therefor, at such rates, payable at such times and cumulative to such
extent as may be determined and fixed by the Board of Directors pursuant to the
authority herein conferred upon it.
Each series of Preferred Stock may be subject to redemption in whole or in
part at such price or prices and on such terms, conditions and limitations as
may be determined and fixed by the Board of Directors prior to the issuance of
such series. Unless otherwise determined by the Board of Directors by
authorizing resolution, if less than all of the shares of any series of the
Preferred Stock are to be redeemed, they will be redeemed pro rata in accordance
with the then holders interests in the Preferred Stock being redeemed. Nothing
herein contained is to limit any right of the corporation to purchase or
otherwise acquire any shares of any series of Preferred Stock. Any shares of
Preferred Stock redeemed or otherwise acquired by the corporation will have the
status of authorized and unissued shares, undesignated as to series, and may
thereafter, in the discretion of the Board of Directors and to the extent
permitted by law, be sold or reissued from time to time as part of another
series or (unless prohibited by the terms of such series as fixed by the Board
of Directors) of the same series, subject to the terms and conditions herein set
forth.
SIXTH: The Board of Directors and/or the stockholders of the corporation
are expressly empowered to make, alter, amend or repeal the By-Laws of the
corporation in the manner to be determined by the terms of the By-Laws then in
existence.
SEVENTH: The corporation shall have perpetual existence.
EIGHTH: The corporation shall indemnify all officers and directors of the
corporation, and advance expenses reasonably incurred by such officers and
directors in defending any civil, criminal, administrative or investigative
action, suit or proceeding, in accordance with and to the
2
<PAGE>
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time.
NINTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths (3/4) in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of the corporation, as the case may be,
and also on the corporation.
TENTH: To the fullest extent permitted by the General Corporation Law of
Delaware, as amended from time to time, a director of the corporation shall not
be liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
ELEVENTH: The name and mailing address of the incorporator is:
Janis I. Rohrer
Latham & Watkins
233 S. Wacker Drive, Suite 5800
Chicago, IL 60606
Dated: December 3, 1999.
/s/ JANIS I. ROHRER
----------------------------------------
Janis I. Rohrer, Incorporator
3
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF HANOVER COMPRESSOR HOLDING CO.
It is hereby certified that:
1. The name of the corporation is Hanover Compressor Holding Co. (the
"Corporation").
2. The amendment to the Certificate of Incorporation effected by this
Certificate is as follows:
The First Article of the Certificate of Incorporation of the
Corporation is hereby deleted in its entirety with the following substituted
therefor:
"FIRST: The name of the corporation (hereinafter the "Corporation")
is Hanover Compressor Company."
The aforesaid amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, this certificate has been duly executed on behalf
of Hanover Compressor Holding Co. by its duly authorized Chief Financial Officer
and Treasurer, Curtis Bedrich, and its duly authorized Secretary, Richard S.
Meller, this 8th day of December, 1999.
HANOVER COMPRESSOR HOLDING CO.,
a Delaware corporation
By: /s/ CURTIS BEDRICH
--------------------------------------
Curtis Bedrich
Chief Financial Officer and Treasurer
By: /s/ RICHARD S. MELLER
--------------------------------------
Richard S. Meller
Secretary
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
HANOVER COMPRESSOR COMPANY
A DELAWARE CORPORATION
ARTICLE I
Offices
SECTION 1.1 The corporation shall maintain a registered office in the
State of Delaware as required by law. The corporation may also have such other
offices, either within or without the State of Delaware, as the business of the
corporation may require.
ARTICLE II
Stockholders
SECTION 2.1 ANNUAL MEETING. An annual meeting of the stockholders shall be
held commencing in 2000 on the third Thursday of May of each year, if not a
legal holiday, and if a legal holiday, then on the next succeeding business day,
for the election of directors and for the transaction of such other business as
may come before the meeting.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the stockholders may be
called by the President, the board of directors, or by a request in writing from
the holders of not less than 10% of the issued and outstanding voting stock of
the corporation. Within ten days after the receipt of such a written request,
the President or another officer designated by the President must send a notice
of meeting in accordance with section 2.4 hereof.
SECTION 2.3 PLACE OF MEETING. The board of directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If a special meeting be called otherwise than by the board of
directors, the place of meeting must be in the county of New Castle, State of
Delaware.
SECTION 2.4 NOTICE OF MEETING. Written notice stating the place, date and
hour of the meeting, the place where the stockholder list may be examined prior
to the meeting, if different from the place of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called,
shall be given in person or sent by mail or overnight express service not less
than ten nor more than sixty days before the date of the meeting, or in the case
of a merger or consolidation of the corporation requiring stockholder approval
or a sale, lease or exchange of all or substantially all of the corporation's
assets, not less than twenty nor more than sixty days before the date of
meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, notice shall be deemed given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of
<PAGE>
the corporation. If notice is given by overnight express service, such notice
shall be deemed given one day after delivery to such express service. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken, unless the adjournment is for more than thirty
days, or unless, after adjournment, a new record date is fixed for the adjourned
meeting, in either of which cases notice of the adjourned meeting shall be given
to each stockholder of record entitled to vote at the meeting. Notice need not
be given to any stockholder who submits a written waiver of notice signed by
such stockholder either before or after any meeting. Attendance by a stockholder
at a meeting of stockholders shall constitute a waiver of notice of such
meeting, except when the stockholder attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
need be specified in any waiver of notice of such meeting.
SECTION 2.5 FIXING OF RECORD DATE. (a) In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board of directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the board of directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by the Delaware General Corporation Law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by the Delaware General Corporation Law, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the board of directors adopts the resolution taking such prior action.
2
<PAGE>
(c) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
SECTION 2.6 VOTING LISTS. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and number of shares registered in his name, which list, for a
period of ten days prior to such meeting, shall be kept on file either at a
place within the city where the meeting is to be held and which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held, and shall be open to the examination of any
stockholder, for any purpose germane to the meeting, at any time during ordinary
business hours. Such list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 2.7 STOCK LEDGER. The stock ledger shall be the only evidence as
to who are the stockholders entitled to examine the stock ledger or the books of
the corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 2.8 QUORUM. A majority of the outstanding shares of voting stock
of the corporation, represented in person or by proxy, shall constitute a quorum
at any meeting of stockholders; provided, however, that if less than a majority
of the outstanding shares of voting stock are represented at said meeting, a
majority of the shares of voting stock so represented may adjourn the meeting.
If a quorum is present, the affirmative vote of a majority of the shares of
voting stock represented at the meeting shall be the act of the stockholders in
all matters other than the election of directors, who shall be elected by a
plurality of the votes of the shares present in person or by proxy and entitled
to vote on the election of directors, unless the vote of a greater number or
voting by classes is required by the Delaware General Corporation Law, the
certificate of incorporation or these bylaws. At any adjourned meeting at which
a quorum shall be present, any business may be transacted which might have been
transacted at the original meeting. Requirements of notice at any adjourned
meeting are governed by Section 2.4 hereof. Withdrawal of stockholders from any
meeting shall not cause failure of a duly constituted quorum at that meeting.
SECTION 2.9 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. Every proxy must be signed
by the stockholder or his attorney-in-fact. A duly executed proxy shall be
irrevocable if it states that it is irrevocable, and if, and only as long as, it
is coupled with an interest sufficient in
3
<PAGE>
law to support an irrevocable power. A proxy may be made irrevocable regardless
of whether the interest with which it is coupled is an interest in the stock
itself or an interest in the corporation generally.
SECTION 2.10 VOTING OF STOCK. Subject to the provisions of the certificate
of incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote for each share of the voting stock held by such
stockholder.
SECTION 2.11 VOTING OF STOCK BY CERTAIN HOLDERS. Persons holding stock in
a fiduciary capacity shall be entitled to vote the shares so held. Persons whose
stock is pledged shall be entitled to vote, unless in the transfer by the
pledgor on the books of the corporation he has expressly empowered the pledgee
to vote thereon, in which case only the pledgee or his proxy may represent such
stock and vote thereon. Shares of its own stock belonging to the corporation or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the corporation, shall neither be entitled to vote nor counted for quorum
purposes, but shares of its stock held by the corporation in a fiduciary
capacity may be voted by it and counted for quorum purposes.
SECTION 2.12 CONSENT OF STOCKHOLDERS. (a) Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the corporation by
delivery to its principal place of business, or to an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
in Delaware shall be by hand or by certified or registered mail, return receipt
requested.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by this section to the
corporation, written consents signed by a sufficient number of holders to take
such action are delivered to the corporation by delivery to its registered
office in Delaware, its principal place of business, or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
in Delaware shall be by hand or by certified or registered mail, return receipt
requested.
(c) Prompt notice of the taking of any corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented thereto in writing.
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SECTION 2.13 VOTING BY BALLOT. Voting in any election of directors may, if
permitted by the certificate of incorporation, be by voice vote, and voting on
any other question shall be by voice vote unless, in each case, the presiding
officer shall order or any stockholder shall demand that voting be by ballot.
SECTION 2.14 INSPECTORS. The board of directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election to act at
the meeting or any adjournment thereof. If an inspector or inspectors are not
appointed, the person presiding at the meeting may, or upon the request of any
stockholder shall, appoint one or more inspectors. In case any person who may be
appointed as an inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at the meeting by
the person presiding thereat. Each inspector, if any, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting,
the inspector or inspectors, if any, shall make a report in writing of any
challenge, question or matter determined by him, her or them and execute a
certificate of any fact found by him, her or them.
ARTICLE III
Directors
Section 3.1 GENERAL POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors, except as otherwise
provided in the certificate of incorporation.
SECTION 3.2 NUMBER AND QUALIFICATIONS. The number of directors of the
corporation shall be seven or such other number as may be determined from time
to time by the board of directors of the corporation at a duly held meeting
thereof. Directors need not be stockholders of the corporation, citizens of the
United States or residents of the State of Delaware.
SECTION 3.3 ELECTION AND TERM. The board of directors shall be elected at
the annual meeting of the stockholders of the corporation and shall hold office
until their successors are elected and qualified or until their earlier death,
resignation or removal. Any director may resign at any time upon written notice
to the corporation. Thereafter, directors who are elected at an annual meeting
of stockholders, and directors who are elected in the interim to fill vacancies
and newly created directorships, shall hold office until the next annual meeting
of stockholders and until their successors are elected and qualified or until
their earlier death, resignation or removal. In the interim between annual
meetings of stockholders or of special meetings of
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stockholders called for the election of directors and/or for the removal of one
or more directors and for the filling of any vacancy in that connection, newly
created directorships and any vacancies in the board of directors, including
vacancies resulting from the removal of directors, may be filled by the vote of
a majority of the remaining directors then in office, although less than a
quorum, or by the sole remaining director.
SECTION 3.4 REGULAR MEETINGS. A regular meeting of the board of directors
shall be held without other notice than this bylaw, immediately after, and at
the same place as, the annual meeting of stockholders. Meetings of the board of
directors may be held either within or without the State of Delaware. The board
of directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the President or any director. The person
or persons calling such special meeting of the board of directors shall fix a
place, either within or without the State of Delaware, as the place for holding
such special meeting of the board of directors.
SECTION 3.6 NOTICE. Notice of any special meeting stating the time and
place of such meeting shall be given at least three days previous thereto by
written notice delivered personally or sent by mail or overnight express service
to each director at his business address. Such notice shall be deemed to be
delivered when deposited in the United States mail or given to such overnight
express service so addressed, with postage thereon prepaid. Notice need not be
given to any director who submits a written waiver of notice signed by him
either before or after any meeting. The attendance of a director at any meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the board of directors need be specified
in the notice or waiver of such meeting.
SECTION 3.7 QUORUM. A majority of the number of directors fixed by or
determined in accordance with these bylaws (or of the members of any committee
in the case of a meeting of a committee of the board of directors) shall
constitute a quorum for the transaction of business at any meeting of the board
of directors or of such committee, provided, however, that if less than a
majority of such number of directors are present at said meeting, a majority of
the directors present may adjourn the meeting from time to time without further
notice. Interested directors may be counted in determining the presence of a
quorum at a meeting of the board of directors or of a committee thereof
SECTION 3.8 MANNER OF ACTING. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors or of a committee of the board, as the case may be.
SECTION 3.9 ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting if all the members of the board or committee, as
the case may be, consent
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thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
SECTION 3.10 COMPENSATION. The board of directors shall have authority to
establish reasonable compensation of all directors for services to the
corporation as directors, officers or otherwise.
SECTION 3.11 LIABILITY FOR UNLAWFUL PAYMENT OF DIVIDEND. In case of any
willful or negligent violation of the provisions of sections 160 or 173 of the
Delaware General Corporation Law regarding the payment of dividends, any
director who may have been absent when the same was done, or who may have
dissented from the act or resolution by which the same was done, may exonerate
himself from such liability by causing his dissent to be entered on the books
containing the minutes of the proceedings of the directors at the time the same
was done, or immediately after he has notice of the same.
SECTION 3.12 TELEPHONE MEETINGS. Members of the board of directors or of
any committee thereof may participate in a meeting of the board by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at the meeting.
SECTION 3.13 REMOVAL. Any director or the entire board of directors may be
removed with or without cause by the holders of a majority of the shares then
entitled to vote at an election of directors.
SECTION 3.14 COMMITTEES. The board of directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. Any
such committee, to the extent provided in the resolution of the board of
directors, shall have and may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the corporation,
to the extent permitted under the Delaware General Corporation Law.
ARTICLE IV
Officers
SECTION 4.1 NUMBER. The officers of the corporation shall be a President,
a Treasurer, a Secretary, and such Vice Presidents, Assistant Treasurers,
Assistant Secretaries or other officers as may be elected by the board of
directors. Any two or more offices may be held by the same person.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of stockholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. New offices may be created and filled at
any meeting of the board of directors. Each officer shall hold office until his
successor is elected and has qualified or until his earlier death, resignation
or removal. Any
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officer may resign at any time upon written notice to the corporation. Election
of an officer shall not of itself create contract rights.
SECTION 4.3 REMOVAL. Any officer elected by the board of directors may be
removed by the board of directors whenever in its judgment the best interests of
the corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 4.4 VACANCIES. A vacancy in any office occurring because of death,
resignation, removal or otherwise, may be filled by the board of directors.
SECTION 4.5 THE PRESIDENT. The President shall be the chief executive
officer of the corporation and, subject only to the board of directors, shall
have general authority over, and general management and control of, the
property, business and affairs of the corporation. The President shall preside
at all meetings of the stockholders and of the board of directors. The President
shall have authority to vote all shares of stock of any other corporation
standing in the name of the corporation, at any meeting of the stockholders of
such other corporation or by written consent of the stockholders of such other
corporation, and may, on behalf of the corporation, waive any notice of the
calling of any such meeting, and may give a written proxy in the name of the
corporation to vote any or all shares of stock of such other corporation owned
by the corporation at any such meeting. The President shall perform such other
duties as may be prescribed by the board of directors from time to time.
SECTION 4.6 THE VICE PRESIDENTS. Each of the Vice Presidents, if any,
shall report to the President or such other officer as may be determined by the
board of directors. Each Vice President shall have such duties and
responsibilities as from time to time may be assigned to him by the President or
the board of directors.
SECTION 4.7 THE TREASURER. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the corporation;
receive and give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the corporation in
such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article V of these bylaws; (b) in general,
perform all the duties incident to the office of the treasurer and such other
duties as may from time to time be assigned to him by the President or the board
of directors. In the absence of the Treasurer, or in the event of his incapacity
or refusal to act, or at the direction of the Treasurer, any Assistant Treasurer
may perform the duties of the Treasurer.
SECTION 4.8 THE SECRETARY. The Secretary shall: (a) record all the
proceedings of the meetings of the stockholders and board of directors in one or
more books kept for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all certificates for shares of
stock, instruments and all other documents, the execution of which on behalf of
the corporation under its seal is duly authorized in accordance with the
provisions of these bylaws; (d) keep a register of the post office address of
each stockholder which shall be furnished to the Secretary by such
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stockholder; (e) have general charge of the stock transfer books of the
corporation and (f) in general, perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him by
the President or the board of directors. In the absence of the Secretary, or in
the event of his incapacity or refusal to act, or at the direction of the
Secretary, any Assistant Secretary may perform the duties of Secretary.
ARTICLE V
Contracts, Loans
Checks and Deposits
Section 5.1 CONTRACTS. Except as otherwise determined by the board of
directors or provided in these bylaws, all deeds and mortgages made by the
corporation and all other written contracts and agreements to which the
corporation shall be a party shall be executed in its name by the President or
any Vice President.
SECTION 5.2 LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
SECTION 5.3 CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation, shall be signed by such officer or officers, agent or agents of
the corporation and in such manner as shall from time to time be determined by
resolution of the board of directors.
SECTION 5.4 DEPOSITS. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board of directors may
select.
ARTICLE VI
Certificates for Shares of
Stock and Their Transfer
Section 6.1 CERTIFICATES FOR SHARES OF STOCK. Certificates representing
shares of stock of the corporation shall be in such form as may be determined by
the board of directors. Such certificates shall be signed by the President or
any Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary. If any such certificate is manually
countersigned by a transfer agent other than the corporation or its employee,
any other signature on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon such certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it my be issued by the
corporation with the same effect as if he or she were such officer, transfer
agent or registrar at the date of issue. The name of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on
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the books of the corporation. All certificates surrendered to the corporation
for transfer shall be canceled and no new certificates shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate, a
new certificate may be issued therefor upon such terms, indemnity and surety to
the corporation as the board of directors may prescribe.
SECTION 6.2 TRANSFER OF SHARES OF STOCK. Transfers of shares of stock of
the corporation shall be made on the books of the corporation by the holder of
record thereof or by his or her legal representative, who shall furnish proper
evidence of authority to transfer, or by his or her attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares of stock stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regards the
corporation.
SECTION 6.3 TRANSFER AGENTS AND REGISTRARS. The board of directors may
appoint one or more transfer agents or assistant transfer agents and one or more
registrars of transfers, and may require all certificates for shares of stock of
the corporation to bear the signature of a transfer agent or assistant transfer
agent and a registrar of transfers. The board of directors may at any time
terminate the appointment of any transfer agent or any assistant transfer agent
or any registrar of transfers.
ARTICLE VII
Indemnification
Section 7.1 DIRECTORS AND OFFICERS. (a) The corporation shall indemnify
any person who was or is a party or is threatened to be made party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director, manager or officer of another corporation,
partnership, joint venture, trust, limited liability company or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the
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corporation to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director, manager or officer of another
corporation, partnership, joint venture, trust, limited liability company or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
(c) To the extent that any person referred to in paragraphs (a) and (b) of
this Section 7.1 has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to therein or in defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this section 7.1
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in paragraphs (a) and (b) of this
Section 7.1. Such determination shall be made (i) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding or (ii) if such quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the corporation
as provided in this section 7.1.
(f) The indemnification and advancement of expenses provided by or granted
pursuant to this section 7.1 shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any statute, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
(g) The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, manager, officer, employee or agent of another corporation,
partnership, joint venture, trust, limited liability company or other
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enterprise, against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this section 7.1.
(h) For purposes of this section 7.1, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(i) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(j) Unless otherwise determined by the board of directors, references in
this section to "the corporation" shall include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
manager, officer, employee or agent of another corporation, partnership, joint
venture, trust, limited liability company or other enterprise, shall stand in
the same position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
SECTION 7.2 EMPLOYEES AND AGENTS. The board of directors may, by
resolution, extend the indemnification provisions of the foregoing section 7.1
to any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was an employee or agent of the corporation, or is or
was serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust, limited liability company or
other enterprise.
ARTICLE VIII
Fiscal Year
Section 8.1 The fiscal year of the corporation shall end on December 31 or
on such other date as the board of directors may from time to time determine by
resolution.
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ARTICLE IX
Dividends
Section 9.1 The board of directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares of stock in the manner
and upon the terms and conditions provided by law and its certificate of
incorporation.
ARTICLE X
Seal
SECTION 10.1 The corporate seal of the corporation shall be in the form of
a circle and shall have the name of the corporation and the words "Corporate
Seal, Delaware" written therein or inscribed thereon.
ARTICLE XI
WAIVER OF NOTICE
SECTION 11.1 Whenever any notice whatever is required to be given under
any provision of these bylaws or of the certificate of incorporation or of the
Delaware General Corporation Law, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transactions of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders or directors or of a committee of
the board of directors need be specified in any written waiver of notice.
ARTICLE XII
Amendments
SECTION 12.1 These bylaws may be altered, amended or repealed and new
bylaws may be adopted at any meeting of the board of directors of the
corporation by a majority of the whole board of directors then in office, or by
the stockholders.
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EXECUTION COPY
- -------------------------------------------------------------------------------
EXHIBIT 10.43
LEASE
between
HANOVER EQUIPMENT TRUST 2000A
as Lessor,
and
HANOVER COMPRESSION INC,
as Lessee
___________________________
Dated as of March 13, 2000
___________________________
- ------------------------------------------------------------------------------
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 MARCH 13,
2000 AMONG HANOVER EQUIPMENT TRUST 2000A, 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, WYOMING OR TEXAS), NO SECURITY INTEREST IN THIS LEASE MAY BE
CREATED THROUGH THE TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE
ORIGINAL COUNTERPART CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE AGENT ON
THE SIGNATURE PAGE HEREOF.
<PAGE>
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
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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
17.4 Additional Remedies................................................ 17
17.5 Proceeds of Sale; Deficiency....................................... 17
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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
SECTION 26. NO WAIVER
26.1 No Waiver......................................................... 23
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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
iv
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Exhibits
Exhibit A Lease Supplement
vi
<PAGE>
LEASE (this "Lease"), dated as of March 13, 2000, between HANOVER EQUIPMENT
TRUST 2000A, 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 COMPRESSION
INC., 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>
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
<PAGE>
4
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
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
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5
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 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 acknowledgments, 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.
<PAGE>
6
(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.
SECTION 8. CONDITION OF EQUIPMENT
<PAGE>
7
8.1 Disclaimer of Warranties. WITHOUT LIMITING ANY CLAIM LESSEE
MAY HAVE AGAINST ANY CONTRACTOR, SUBCONTRACTOR, SUPPLIER OR MANUFACTURER, LESSEE
EXPRESSLY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT WITHOUT ANY ASSISTANCE
FROM THE LESSOR, THE AGENT OR THE INVESTOR OR THEIR RESPECTIVE AGENTS OR
EMPLOYEES, AND LESSEE AGREES THAT (I) EACH PIECE OF EQUIPMENT IS OF A SIZE,
DESIGN, AND CAPACITY SELECTED BY AND ACCEPTABLE TO LESSEE, (II) LESSEE IS
SATISFIED THAT EACH ITEM OF EQUIPMENT IS SUITABLE FOR ITS PURPOSES, (III) THE
EQUIPMENT IS LEASED HEREUNDER SUBJECT TO ALL APPLICABLE LAWS AND GOVERNMENTAL
REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED, (IV) IT IS LEASING THE EQUIPMENT
FROM LESSOR IN AN "AS IS", "WHERE IS" AND "WITH ALL FAULTS" CONDITION AND (V)
NEITHER LESSOR NOR THE INVESTOR IS A MANUFACTURER OR DEALER IN EQUIPMENT OF SUCH
KIND. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THE OPERATIVE AGREEMENTS,
NEITHER LESSOR NOR THE INVESTOR SHALL BE DEEMED TO HAVE MADE, AND LESSEE HEREBY
EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED,
AS TO THE EQUIPMENT, ANY PART THEREOF, OR ANY RECORDS OR ANY OTHER MATTER
WHATSOEVER WITH RESPECT THERETO, INCLUDING, WITHOUT LIMITATION, THE DESIGN,
CONDITION OR CAPACITY OF THE EQUIPMENT, THEIR MERCHANTABILITY OR THEIR FITNESS
FOR ANY PARTICULAR PURPOSE, THE QUALITY OF THE MATERIALS OR WORKMANSHIP OF THE
EQUIPMENT, THEIR VALUE, TITLE OR SAFETY, THE ABSENCE OF ANY PATENT, TRADEMARK OR
COPYRIGHT INFRINGEMENT OR LATENT DEFECT (WHETHER OR NOT DISCOVERABLE BY LESSEE),
COMPLIANCE OF THE EQUIPMENT WITH THE REQUIREMENTS OF ANY APPLICABLE LAWS
(INCLUDING ENVIRONMENTAL LAWS) PERTAINING THERETO, OR THE CONFORMITY OF THE
EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY CONSTRUCTION OR PURCHASE
DOCUMENT RELATING THERETO OR ANY COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE, NOR SHALL LESSOR NOR THE INVESTOR BE LIABLE TO LESSEE, FOR ANY
DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT DISCOVERABLE BY LESSEE), IN THE
EQUIPMENT OR ANY PART THEREOF OR ANY DIRECT OR INDIRECT DAMAGE TO PERSONS OR
PROPERTY RESULTING THEREFROM OR FOR ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE LIABILITY IN TORT. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LESSEE HEREBY WAIVES, ANY CLAIM
(INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR
INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR, OR THE INVESTOR FOR ANY LOSS, DAMAGE
(INCLUDING, WITHOUT LIMITATION, DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT OR BY LESSEE'S LOSS OF
USE THEREOF FOR ANY REASON WHATSOEVER OTHER THAN WITH RESPECT TO THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF LESSOR OR INVESTOR. LESSEE AND ANYONE
CLAIMING BY, THROUGH OR UNDER LESSEE HEREBY FULLY AND IRREVOCABLY RELEASES
LESSOR, THE INVESTOR AND EACH OTHER PERSON PARTY TO THE OPERATIVE AGREEMENTS,
AND EACH
<PAGE>
8
OF THEIR EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES, AGENTS, SERVANTS,
ATTORNEYS, AFFILIATES, PARENT COMPANIES, SUBSIDIARIES, SUCCESSORS AND ASSIGNS,
AND ALL PERSONS ACTING ON THEIR BEHALF, FROM ANY AND ALL CLAIMS THAT IT MAY NOW
HAVE OR HEREAFTER ACQUIRE AGAINST THE INVESTOR, LESSOR OR ANY OTHER SUCH PERSON,
FOR ANY COSTS, LOSS, LIABILITY, DAMAGE, EXPENSES, DEMAND, ACTION OR CAUSE OF
ACTION ARISING FROM OR RELATED TO THE RELEASE OR DISCHARGE FROM THE EQUIPMENT AT
ANY TIME OF ANY HAZARDOUS MATERIALS OTHER THAN A RELEASE OR DISCHARGE OCCURRING
AFTER LESSEE IS NO LONGER IN POSSESSION OF THE EQUIPMENT AND RESULTING SOLELY
FROM ACTS OR OMISSIONS OF LESSOR, THE INVESTOR OR ANY OTHER SUCH PERSON. THIS
RELEASE INCLUDES CLAIMS OF WHICH LESSEE IS PRESENTLY UNAWARE OR WHICH LESSEE
DOES NOT PRESENTLY SUSPECT TO EXIST WHICH, IF KNOWN BY LESSEE, WOULD MATERIALLY
AFFECT LESSEE'S RELEASE OF LESSOR AND THE OTHER PERSONS RELEASED HEREBY.
8.2 Possession and Use of the Equipment. Each piece of Equipment
shall be used by Lessee in a manner consistent with its intended purpose and in
accordance with its specification. Subject to the terms of Section 13 relating
to permitted contests, Lessee shall pay, or cause to be paid, all charges and
costs required in connection with the use of the Equipment. Lessee shall not
commit or permit any waste of any Equipment or any part thereof.
SECTION 9. COMPLIANCE
9.1 Compliance with Legal Requirements and Insurance Requirements.
Subject to the terms of Section 13 relating to permitted contests, Lessee, at
its sole cost and expense, shall, in all material respects, (a) comply with all
Legal Requirements (including all Environmental Laws) and Insurance Requirements
relating to each piece of Equipment, including the use, construction, operation,
maintenance, repair and restoration thereof, whether or not compliance therewith
shall require extraordinary changes in the Equipment or interfere with the use
and enjoyment of the Equipment, and (b) procure, maintain and comply with all
licenses, permits, orders, approvals, consents and other authorizations required
for the construction, renovation, use, repair, maintenance and operation of each
piece of Equipment.
9.2 Environmental Matters. (a) Promptly upon Lessee's actual
knowledge of the presence of Hazardous Substances with respect to any piece of
Equipment in concentrations and conditions that constitute an Environmental
Violation, Lessee shall notify Lessor in writing of such condition. In the
event of such Environmental Violation, Lessee shall, not later than thirty (30)
days after Lessee has actual knowledge of such Environmental Violation, either
deliver to Lessor and the Agent an Officer's Certificate and 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
<PAGE>
9
Equipment pursuant to Section 16.1, Lessee shall, upon completion of remedial
action by Lessee, so inform Lessor in writing and upon Lessor's written request
therefor cause to be prepared by an environmental consultant reasonably
acceptable to Lessor a report describing the Environmental Violation and the
actions taken by Lessee (or its agents) in response to such Environmental
Violation, and a statement by the consultant that such Environmental Violation
has been remedied in full compliance with applicable Environmental Laws. The
foregoing provisions of this Section 9.2(a) notwithstanding, Lessee shall not be
required to deliver a Termination Notice if such Environmental Violation would
not reasonably be expected to have a material adverse affect on the Equipment.
(b) In addition, Lessee shall provide to Lessor, within five (5)
Business Days of receipt, copies of all significant written communications with
any Governmental Authority relating to any Environmental Claim in connection
with any piece of Equipment. Lessee shall also promptly provide such detailed
reports of any such Environmental Claims as reasonably may be requested by
Lessor and the Agent.
SECTION 10. MAINTENANCE, REPAIR AND RETURN REQUIREMENTS
10.1 Maintenance and Repair. (a) Lessee shall, at its sole cost
and expense, (i) take good care of the Equipment and keep the same and all parts
thereof in good and safe order and condition, with all mechanical devices,
electronic systems and component parts in good working order, normal wear and
tear excepted, consistent with maintenance practices used by Lessee with respect
to equipment similar in type owned or leased by Lessee and consistent with
customary industry standards, and (ii) promptly make all needed repairs,
restorations and replacements of parts in and to the Equipment or any part
thereof, including, without limitation, overhaul of any piece of Equipment
requiring overhaul in Lessee's commercially prudent judgment. All such repairs,
restorations and replacements of parts shall be of a standard and quality
consistent with customary industry standards and sufficient for the proper
maintenance and operation of the Equipment and shall be constructed and
installed in a good and workmanlike manner in compliance with Legal Requirements
and Insurance Requirements. In carrying out its obligations under this Section
10.1, Lessee shall not discriminate in any way in the maintenance of the
Equipment as compared with other similar equipment owned or leased by Lessee and
shall use the Equipment in a manner consistent with sound operating practices
thereof.
(b) Lessor shall under no circumstances be required to furnish any
services or facilities with respect to the Equipment or make any repairs,
replacements, alterations or renewals of any nature or description to any
Equipment, make any expenditure whatsoever in connection with this Lease or
maintain any Equipment in any way except as otherwise provided in the 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.
<PAGE>
10
10.2 Return Requirements. (a) Unless Lessee shall have exercised
its Purchase Option or Maturity Date Purchase Option, Lessee shall, upon the
expiration or earlier termination of the Term with respect to each piece of
Equipment, surrender and transfer such Equipment to Lessor, at Lessee's own
expense, free and clear of all Liens other than (A) the following items set
forth under the definition of Permitted Liens: (i), (ii), (viii) and (ix) and
(B) Lessor Liens, in as good condition as they were on the Equipment Closing
Date with respect to each piece of Equipment, ordinary wear and tear excepted,
and in compliance with all Legal Requirements and the other requirements of this
Lease, including, without limitation, Section 10.1 (and in any event without (x)
any asbestos installed or maintained in any part of such Equipment, (y) any
polychlorinated byphenyls (PCBs) in, on or used with respect to such Equipment,
and (z) any other Hazardous Substances). Unless Lessee has exercised the
Purchase Option or the Maturity Date Purchase Option, Lessee shall provide, or
cause to be provided or accomplished, at the sole cost and expense of Lessee, to
or for the benefit of Lessor or a purchaser, at least thirty Business Days prior
to the expiration or earlier termination of the Term with respect to each piece
of Equipment, each of the following: (i) a Lien search showing (A) no Liens
other than the type set forth as clauses (A) and (B) in the first sentence of
this Section 10.2(a) and (B) the Security Agreement as creating a valid and
perfected first security interest in the Equipment; (ii) an environmental
assessment for the Equipment satisfying the requirements set forth in Section
10.4 below; (iii) an assignment of all of the Lessee's right, title and interest
in and to each agreement executed by Lessee in connection with the renovation,
development, use, maintenance or operation of the Equipment (including all
warranty, performance, service and indemnity provisions); (iv) an assignment of
all permits, licenses, approvals and other authorizations from all Governmental
Authorities in connection with the operation and use of the Equipment; and (v)
copies of all books and records, with respect to the renovation, maintenance,
repair, operation or use of the Equipment. Lessee shall cooperate with any
independent purchaser of the Equipment in order to facilitate the ownership and
operation by such purchaser of the Equipment after such expiration or earlier
termination of the Term, including providing all books, reports and records
regarding the maintenance, repair and ownership of the Equipment and all data
and technical information relating thereto, granting or assigning all licenses
necessary for the operation and maintenance of the Equipment and cooperating in
seeking and obtaining all necessary licenses, permits and approvals of
Governmental Authorities. Lessee shall have also paid the total cost for the
completion of all Modifications commenced prior to such expiration or earlier
termination of the Term. The obligation of Lessee under this Section 10.2(a)
shall survive the expiration or termination of this Lease.
(b) Lessee, on the expiration or earlier termination of the Term, if
requested by Lessor, shall, at Lessee's sole cost and expense dismantle and
crate each piece of Equipment that Lessor shall designate and, at Lessee's sole
cost and expense transport such Equipment to a location designated by Lessor.
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
<PAGE>
11
which case the reasonable out-of-pocket costs and expenses of Lessor shall be
paid by Lessee), any piece of Equipment. Lessee may accompany Lessor on any such
inspections.
(b) Lessee shall furnish to Lessor not less than once every six months
during the Term, an Officer's Certificate, accurate in all material respects,
stating the location of each piece of Equipment, noting whether any Equipment
has been relocated and if so the correct address of the relocated Equipment.
Lessor shall have no duty to make any such inspection or inquiry and shall not
incur any liability or obligation by reason of not making any such inspection or
inquiry.
10.4 Environmental Inspection. Not less than six months prior to
the Maturity Date (unless Lessee has previously irrevocably exercised the
Maturity Date Purchase Option), and not more than thirty Business Days prior to
surrender of possession of a piece of Equipment, Lessor shall, at Lessee's sole
cost and expense, obtain a report by an environmental consultant selected by
Lessor certifying that each piece of Equipment (i) does not contain Hazardous
Substances under circumstances or in concentrations that would reasonably be
expected to result in a violation of or liability under any Environmental Law
and (ii) is in compliance with all Environmental Laws. If such is not the case
on either such date, then Lessee shall be deemed to have irrevocably exercised
the Maturity Date Purchase Option pursuant to Section 20.2.
SECTION 11. MODIFICATIONS
11.1 Modifications. (a) Lessee, at its sole cost and expense, may
at any time and from time to time make alterations, renovations, improvements
and additions to a piece of Equipment or any part thereof (collectively,
"Modifications"); provided, that: (i) except for any Modification required to be
made pursuant to a Legal Requirement or an Insurance Requirement, no
Modification, individually, or when aggregated with any other Modification shall
impair the value of such Equipment or the utility or useful life of such
Equipment from that which existed immediately prior to such Modification; (ii)
the Modification shall be performed in a timely manner and in a good and
workmanlike manner; (iii) Lessee shall comply with all Legal Requirements
(including all Environmental Laws) and Insurance Requirements applicable to the
Modification, including the obtaining of all permits, and the structural
integrity of such Equipment shall not be adversely affected; (iv) subject to the
terms of Section 13 relating to permitted contests, Lessee shall pay all costs
and expenses and discharge any Liens arising with respect to the Modification;
and (v) such Modifications shall comply with Section 10.1 and shall not change
the primary character of such Equipment or intended use of such Equipment. All
Modifications shall remain part of the Equipment and shall be subject to this
Lease, and title thereto shall immediately vest in Lessor.
(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
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12
such Modifications cannot, in the reasonable judgement of Lessee, be completed
on or prior to the date that is one month prior to the Expiration Date.
(d) Lessee, at its sole cost and expense, shall overhaul
substantially all of the Equipment during the Term, consistent with Lessee's
normal business practices.
SECTION 12. TITLE
12.1 Warranty of Title. (a) Lessee agrees that, except as
otherwise provided herein (i.e. with respect to Lessor Liens) and subject to the
terms of Section 13 relating to permitted contests, Lessee shall not directly or
indirectly create or allow to remain, and shall promptly discharge at its sole
cost and expense, any Lien, defect, attachment, levy, title retention agreement
or claim upon any piece of Equipment or any Modifications or any Lien,
attachment, levy or claim with respect to the Rent or with respect to any
amounts held by the Agent pursuant to the Credit Agreement, other than Permitted
Liens and/or Lessor Liens. Lessee shall promptly notify Lessor in the event it
has actual knowledge that a Lien (other than a Permitted Lien and/or a Lessor
Lien) exists with respect to the Equipment.
(b) Nothing contained in this Lease shall be construed as constituting
the consent or request of Lessor, expressed or implied, to or for the
performance by any contractor, mechanic, laborer, materialman, supplier or
vendor of any labor or services or for the furnishing of any materials for any
alteration, addition, repair or demolition of or to any piece of Equipment or
any part thereof. NOTICE IS HEREBY GIVEN THAT LESSOR IS NOT AND SHALL NOT BE
LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED OR TO BE FURNISHED TO
LESSEE, OR TO ANYONE HOLDING ANY EQUIPMENT OR ANY PART THEREOF THROUGH OR UNDER
LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR
MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF LESSOR IN AND TO ANY
EQUIPMENT.
12.2 Identification. Lessee shall not allow the name of any Person
to be placed upon any portion of any piece of Equipment as a designation that
might be interpreted as indicating a claim of ownership thereof or security
interest therein by any Person other than Lessee.
SECTION 13. PERMITTED CONTESTS
13.1 Permitted Contests Other Than in Respect of Impositions.
Except to the extent otherwise provided for in Section 12.2(g) of the
Participation Agreement, Lessee, 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
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13
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 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 Investors,
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 Investors and the Trust Company as an
additional insured with respect to liability insurance and showing the
endorsement required by Section 14.3(c). All such insurance shall be at the
cost and expense of Lessee. Such certificates shall include a provision in
which the insurer agrees to provide thirty (30) days' advance written notice by
the insurer to Lessor and the Agent in the event of cancellation or modification
of such insurance that would reasonably be expected
<PAGE>
14
to be adverse to the interests of Lessor, the Trust Company or the Agent. If a
Lease Event of Default has occurred and is continuing and Lessor so requests,
Lessee shall deliver to Lessor copies of all insurance policies required by this
Lease.
(b) Lessee agrees that the insurance policy or policies required by
this Lease shall include an appropriate clause pursuant to which such policy
shall provide that it will not be invalidated should Lessee waive, in writing,
prior to a loss, any or all rights of recovery against any party for losses
covered by such policy. Lessee hereby waives any and all such rights against
Lessor, the Trust Company, the Investor, the Agent and the Lenders to the extent
of payments made under such policies.
(c) All insurance policies required by Section 14.2 shall include a
loss payee endorsement in favor of the Agent.
(d) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Lessor may carry separate
liability insurance so long as (i) Lessee's insurance is designated as primary
and in no event excess or contributory to any insurance Lessor may have in force
which would apply to a loss covered under Lessee's policy and (ii) each such
insurance policy will not cause Lessee's insurance required under this Lease to
be subject to a coinsurance exception of any kind.
(e) Lessee shall pay as they become due all premiums for the insurance
required by this Lease, shall renew or replace each policy prior to the
expiration date thereof and shall promptly deliver to Lessor and the Agent
certificates for renewal and replacement policies.
SECTION 15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation. (a) Subject to the provisions of
this Section 15 and Section 16 (in the event Lessee delivers, or is obligated to
deliver, a Termination Notice), and prior to the occurrence and continuation of
a Lease Event of Default, Lessee shall be entitled to receive (and Lessor hereby
irrevocably assigns to Lessee all of Lessor's right, title and interest in) any
award, compensation or insurance proceeds to which Lessee or Lessor may become
entitled by reason of their respective interests in the Equipment (i) if all or
a portion of such Equipment is damaged or destroyed in whole or in part by a
Casualty or (ii) if the use, access, easement rights or title to such Equipment
or any part thereof is the subject of a Condemnation; provided, however, if a
Lease Event of 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
<PAGE>
15
sole cost and expense, Lessor and the Agent shall participate in any such
proceeding, action, negotiation, prosecution or adjustment. Lessor and Lessee
agree that this Lease shall control the rights of Lessor and Lessee in and to
any such award, compensation or insurance payment.
(c) If Lessor or Lessee shall receive notice of a Casualty or a
possible Condemnation of a piece of Equipment or any interest therein, Lessor or
Lessee, as the case may be, shall give notice thereof to the other and to the
Agent promptly after the receipt of such notice.
(d) In the event of a Casualty or receipt of notice by Lessee or
Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after
such occurrence, deliver to Lessor and the Agent an Officer's Certificate
stating that either (i) (x) such Casualty is not a Significant Casualty or (y)
such Condemnation is neither a Total Condemnation nor a Significant Condemnation
and that this Lease shall remain in full force and effect with respect to the
applicable piece of Equipment and, at Lessee's sole cost and expense, Lessee
shall promptly and diligently restore the applicable piece of Equipment in
accordance with the terms of Section 15.1(e) or (ii) this Lease shall terminate
with respect to the applicable Equipment in accordance with Section 16.1.
(e) If pursuant to this Section 15.1, this Lease shall continue in
full force and effect following a Casualty or Condemnation with respect to the
affected piece of Equipment, Lessee shall, at its sole cost and expense,
promptly and diligently repair any damage to the applicable piece of Equipment
caused by such Casualty or Condemnation in conformity with the requirements of
Sections 10.1 and 11.1 so as to restore the applicable piece of Equipment to the
same condition, operation, function and value as existed immediately prior to
such Casualty or Condemnation. In such event, title to the applicable piece of
Equipment shall remain with Lessor.
(f) In no event shall a Casualty or Condemnation with respect to which
this Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1.
(g) Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with respect to
a piece of Equipment or Lessee receives notice of a Condemnation with respect to
a piece of Equipment, and following such Casualty or Condemnation, such piece of
Equipment cannot reasonably be restored on or before the date which is six
months prior to the Maturity Date to substantially the same condition as existed
immediately prior to such Casualty or 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.
<PAGE>
16
SECTION 16. LEASE TERMINATION
16.1 Termination upon Certain Events. (a) If Lessor or Lessee
shall have received notice of a Total Condemnation, then Lessee shall be
obligated, within thirty (30) days after Lessee receives notice thereof, to
deliver a written notice in the form described in Section 16.2(a) (a
"Termination Notice") of the termination of this Lease with respect to the
applicable piece of Equipment.
(b) If either: (i) Lessee or Lessor shall have received notice of a
Condemnation, and Lessee shall have delivered to Lessor an Officer's Certificate
that such Condemnation is a Significant Condemnation; or (ii) a Casualty occurs,
and Lessee shall have delivered to Lessor an Officer's Certificate that such
Casualty is a Significant Casualty; or (iii) an Environmental Violation occurs
or is discovered and Lessee shall have delivered to Lessor an Officer's
Certificate stating that, in the reasonable, good-faith judgment of Lessee, the
cost to remediate the same will exceed 10% of the Equipment Cost of such piece
of Equipment; then, Lessee shall, simultaneously with the delivery of the
Officer's Certificate pursuant to the preceding clause (i), (ii) or (iii),
deliver a Termination Notice with respect to the affected piece of Equipment.
16.2 Procedures. (a) A Termination Notice shall contain: (i)
notice of termination of this Lease with respect to the affected piece of
Equipment on a date not more than thirty (30) days after Lessor's receipt of
such Termination Notice (the "Termination Date"); (ii) a binding and irrevocable
agreement of Lessee to pay the Termination Value and purchase such piece of
Equipment 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
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17
(c) Lessee shall fail to maintain insurance as required by Section 14;
or
(d) Guarantors shall default in the observance or performance of any
agreement contained in Sections 10 and 11 of the Guarantee; or
(e) Lessee or any Guarantor shall default in the observance or
performance of any term, covenant or condition of Lessee or of such
Guarantor, respectively, under this Lease, the Participation Agreement, the
Guarantee or any other Operative Agreement to which it is a party (other
than those set forth in Section 17.1(a), (b), (c) or (d) hereof) and such
default shall continue unremedied for a period of 30 days or any
representation or warranty by Lessee or any Guarantor, respectively, set
forth in this Lease, the Guarantee or in any other Operative Agreement or
in any document entered into in connection herewith or therewith or in any
document, certificate or financial or other statement delivered in
connection herewith or therewith shall be false or inaccurate in any
material respect; or
(f) a Credit Agreement Event of Default (other than those set forth in
Sections 6.1 (a), (b), (d), (f), (g), (h), (i) or (p) of the Credit
Agreement) shall have occurred and be continuing; or
(g) an event of default under the Corporate Credit Agreement or any
Equipment Lease (other than this Lease) 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.
<PAGE>
18
17.3 Remedies. If any Lease Event of Default shall have occurred
and be continuing, Lessor may exercise in any order one or more or all of the
remedies set forth in this Section 17.3 (it being understood that no remedy
herein conferred is intended to be exclusive of any other remedy or remedies,
but each and every remedy shall be cumulative and shall be in addition to every
other remedy given herein or now or hereafter existing at law or in equity or by
statute).
(a) Lessor may proceed by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of this Lease or to recover damages for the breach thereof;
(b) Lessor may by notice in writing to Lessee terminate this Lease but
Lessee shall remain liable as hereinafter provided; and Lessor may, at its
option, do any one or more of the following: (i) declare the Termination
Value, plus all other amounts owing in respect of Rent or Supplemental Rent
theretofore accruing under the Lease, all other amounts then payable by
Lessee under this Lease and the other Operative Agreements to be
immediately due and payable, and recover any other damages and expenses in
addition thereto which Lessor shall have sustained by reason of such Event
of Default; (ii) enforce the security interest given hereunder pursuant to
the Uniform Commercial Code as provided in Section 28 or any other law;
(iii) enter upon the premises where the Equipment is located and take
possession of it; and (iv) require Lessee to return the Equipment as
provided in Section 10.2; or
(c) Lessor may require Lessee immediately to purchase the Equipment
for a purchase price equal to the sum of the Termination Value, plus all
other amounts owing in respect of Rent or Supplemental Rent theretofore
accruing under the Lease and all other amounts then due and payable under
the Operative Agreements.
17.4 Additional Remedies. In addition to the remedies set forth in
Sections 17.2 and 17.3, if any Lease Event of Default shall have occurred and be
continuing, Lessor may, but is not required to, sell the Equipment in one or
more sales, and Lessor may purchase all or any part of the Equipment at such
sale. Lessee acknowledges that sales for cash or on credit to a wholesaler,
retailer or user of such Equipment, at a public or private auction, are all
commercially reasonable. Any notice required by law of intended disposition by
Lessor shall be deemed reasonable and properly given if given at least ten (10)
Business Days before such disposition.
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.
<PAGE>
19
17.6 Waiver of Certain Rights. If this Lease shall be terminated
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by law,
(a) any notice of re-entry or the institution of legal proceedings to obtain re-
entry or possession; (b) any right of redemption, re-entry or repossession; (c)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt; and (d) any other rights which might otherwise
limit or modify any of Lessor's rights or remedies under this Section 17.
17.7 Assignment of Rights Under Contracts. If a Lease Event of
Default shall have occurred and be continuing, and whether or not this Lease
shall have been terminated pursuant to Section 17.1 and provided that Lessee
shall not have purchased the Equipment pursuant to Section 20, Lessee shall upon
Lessor's demand immediately assign, transfer and set over to Lessor, to the
extent transferable, all of Lessee's right, title and interest in and to each
agreement executed by Lessee in connection with the use or operation of the
Equipment (including all right, title and interest of Lessee with respect to all
warranty, performance, service and indemnity provisions), as and to the extent
that the same relate to the use, maintenance or operation of the Equipment.
SECTION 18. LESSOR'S RIGHT TO CURE
18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor,
without waiving or releasing any obligation or Lease Event of Default, may (but
shall be under no obligation to) remedy any Lease Event of Default for the
account and at the sole cost and expense of Lessee, including the failure by
Lessee to maintain any insurance required by Section 14, and may, to the fullest
extent permitted by law, and notwithstanding any right of quiet enjoyment in
favor of Lessee, enter upon the premises where the Equipment is located for such
purpose and take all such action thereon as may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All reasonable
out-of-pocket costs and expenses so incurred (including the reasonable fees and
expenses of counsel), together with interest thereon at the Overdue Rate from
the date on which such sums or expenses are paid by Lessor, shall be paid by
Lessee to Lessor on demand as Supplemental Rent.
SECTION 19. LEASE TERMINATION
19.1 Provisions Relating to Lessee's Termination of this Lease or
Exercise of Purchase Option. In connection with any termination of this Lease
with respect to any Equipment pursuant to the terms of Section 16.2, or in
connection with Lessee's exercise of its Purchase Option or Maturity Date
Purchase Option, upon the date on which this Lease is 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
<PAGE>
20
Equipment, in each case in recordable form and otherwise in conformity with
local custom and free and clear of the Lien of the Security Agreement and
any Lessor Liens; and
(b) The applicable Equipment shall be conveyed to Lessee "AS IS" and
in then present physical condition.
19.2 Aggregate Tranche A Percentage. Notwithstanding any other
provision of this Lease or the other Operative Agreements, the Lessee shall not
be permitted to terminate this Lease with respect to a piece of Equipment
pursuant to Section 16 or exercise its Purchase Option with respect to a piece
of Equipment pursuant to Section 20.1 if the Aggregate Tranche A Percentage,
after giving effect to the termination of this Lease with respect to such piece
of Equipment would be less than [85]%.
SECTION 20. PURCHASE OPTION
20.1 Purchase Option. Lessee shall have the option (exercisable by
giving Lessor irrevocable written notice (the "Purchase Notice") of Lessee's
election, to exercise such option not less than ten (10) days prior to the date
of purchase pursuant to such option) to purchase one or more of the pieces of
Equipment on the date specified in such Purchase Notice, which date must occur
prior to the date which is six months prior to the Maturity Date, at a price
equal to the Termination Value (the "Purchase Option Price") (which the parties
do not intend to be a "bargain" purchase price) of such piece of Equipment;
provided, however, that Lessee shall only have such option with respect to less
than all of the Equipment if no Lease Default or Lease Event of Default shall
have occurred and be continuing. If Lessee exercises its option to purchase one
or more of the pieces of Equipment pursuant to this Section 20.1 (the "Purchase
Option"), Lessor shall transfer to Lessee or Lessee's designee all of Lessor's
right, title and interest in and to such piece of Equipment as of the date
specified in the Purchase Notice upon receipt of the Purchase Option Price and
all Rent and other amounts then due and payable under this Lease and any other
Operative Agreement, in accordance with Section 19.1. Notwithstanding the
foregoing, (A) Lessee on not less than three (3) days prior notice may exercise
the Purchase Option to purchase one or more pieces of Equipment if the purchase
of such Equipment will cure an Event of Default and (B) if 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
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21
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).
(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.
<PAGE>
22
(c) On each date during the Marketing Period on which a piece of
Equipment is sold pursuant to Section 21.1(b), and on the Maturity Date with
respect to any Equipment remaining unsold, Lessee shall pay to Lessor the
Maximum Residual Guarantee Amount for such Equipment.
21.2 Application of Proceeds of Sale. Lessor shall apply the
proceeds of sale of each piece of Equipment in the following order of priority:
(i) FIRST, to pay or to reimburse Lessor and Lessee for the
payment of all reasonable costs and expenses incurred by Lessor and Lessee
in connection with the sale; and
(ii) SECOND, the balance shall be paid to the Agent to be applied
pursuant to the provisions of Section 8 of the Credit Agreement.
21.3 Indemnity for Excessive Wear. If the proceeds of the sale
described in Section 21.1(b) with respect to any piece of Equipment, less all
expenses incurred by Lessor or Lessee in connection with such sale, shall be
less than the Limited Deficiency Amount for such piece of Equipment at the time
of such sale and if it shall have been determined (pursuant to the Appraisal
Procedure) that the Fair Market Sales Value of such piece of Equipment shall
have been impaired by greater than expected wear and tear during the Term,
Lessee shall pay to Lessor within ten (10) days after receipt of Lessor's
written statement (i) the amount of such excess wear and tear determined by the
Appraisal Procedure or (ii) the amount of the Net Sale Proceeds Shortfall,
whichever amount is less; provided that such Wear and Tear Payments shall not
prevent Lessee from accounting for this Lease as an operating lease under SFAS
NO. 13.
21.4 Appraisal Procedure. For determining the Fair Market Sales
Value of a piece of Equipment or any other amount which may, pursuant to any
provision of any Operative Agreement, be determined by an appraisal procedure
but with respect to which no appraisal or valuation method is specified, Lessor
and Lessee shall use the following procedure (the "Appraisal Procedure").
Lessor and Lessee shall endeavor to reach a mutual agreement as to such amount
for a period of ten (10) days from commencement of the Appraisal Procedure, and
if they cannot agree within ten (10) days, then two qualified appraisers, one
chosen by Lessee and one chosen by Lessor, shall mutually agree thereupon, but
if either party shall fail to choose an appraiser within twenty (20) days after
notice from the other party of the selection of its appraiser, then the
appraisal by such appointed appraiser shall be binding on Lessee and Lessor. If
the two appraisers cannot agree within twenty (20) days after both shall have
been appointed, then a third appraiser from a nationally recognized independent
appraisal firm (with at least 15 years of experience appraising equipment
similar to and used in the same industry as the Equipment) shall be selected by
the two appraisers or, failing agreement as to such third appraiser within
thirty (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
<PAGE>
23
the third appraisal, the third appraisal shall be binding on Lessor and Lessee.
The fees and expenses of all of the appraisers shall be paid by the Lessee.
21.5 Certain Obligations Continue. During the Marketing Period,
the obligation of Lessee to pay Rent with respect to each piece of Equipment
(including the installment of Basic Rent due on the Maturity Date) shall
continue undiminished until payment in full to Lessor of the sale proceeds, the
Maximum Residual Guarantee Amount, if any, the amount due under Section 21.3, if
any, and all other amounts due to Lessor with respect to the piece of Equipment.
Lessor shall have the right, but shall be under no duty, to solicit bids, to
inquire into the efforts of Lessee to obtain bids or otherwise to take action in
connection with any such sale, other than as expressly provided in this Section
21.
SECTION 22. HOLDING OVER
22.1 Holding Over. If Lessee shall for any reason remain in
possession of a piece of Equipment after the expiration or earlier termination
of this Lease (unless the piece of Equipment is conveyed to Lessee), such
possession shall be as a tenancy at sufferance during which time Lessee shall
continue to pay Supplemental Rent that would be payable by Lessee hereunder were
the Lease then in full force and effect with respect to such piece of Equipment
and Lessee shall continue to pay Basic Rent at an annual rate equal to the rate
payable hereunder immediately preceding such expiration or earlier termination;
provided, however, that from and after the sixtieth (60th) day Lessee shall
remain in possession of such piece of Equipment after such expiration or earlier
termination, Lessee shall pay Basic Rent at an annual rate equal to two hundred
percent (200%) of the Basic Rent payable hereunder immediately preceding such
expiration or earlier termination. Such Basic Rent shall be payable from time
to time upon demand by Lessor. During any period of tenancy at sufferance,
Lessee shall, subject to the second preceding sentence, be obligated to perform
and observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
tenants at sufferance, to continue its occupancy and use of the piece of
Equipment. Nothing contained in this Section 22 shall constitute the consent,
express or implied, of Lessor to the holding over of Lessee after the expiration
or earlier termination of this Lease as to any piece of Equipment and nothing
contained herein shall be read or construed as preventing Lessor from
maintaining a suit for possession of any piece of Equipment or exercising any
other remedy available to Lessor at law or in equity.
SECTION 23. RISK OF LOSS
23.1 Risk of Loss. The risk of loss of or decrease in the
enjoyment and beneficial use of the Equipment as a result of the damage or
destruction thereof by fire, the 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).
<PAGE>
24
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
effect as modified and setting forth the modifications); the dates to which the
Basic Rent and Supplemental Rent have been paid; to the best knowledge of the
signer of such certificate, whether or not the Lessor is in default under any of
its obligations hereunder (and, if so, the nature of such alleged default); and
such other matters under this Lease as the Lessor may reasonably request. Any
such certificate furnished pursuant to this Section 25 may be relied upon by the
Lessor, and any existing or prospective purchaser or lender, and any accountant
or auditor, of, from or to the Lessor (or any Affiliate thereof).
SECTION 26. NO WAIVER
26.1 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default, shall constitute a waiver of any
such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
<PAGE>
25
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 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
<PAGE>
Lessee has failed to sign any such instrument within 10 Business Days after
written request therefor by Lessor.
28.2 UCC Remedies. If a Lease Event of Default shall occur and be
continuing, Lessor may exercise, in addition to all other rights and remedies
granted to it in this Lease and in any other Operative Agreement, all rights and
remedies of a secured party under the UCC. Without limiting the generality of
the foregoing, Lessor, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon Lessee or any other Person (all
and each of which demands, defenses, advertisements and notices are hereby
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Equipment, or any part thereof, and/or may forthwith sell,
lease, assign, give option or options to purchase, or otherwise dispose of and
deliver the Equipment or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any
exchange, broker's board or office of Lessor or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lessor shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Equipment so sold, free of any right or equity of
redemption in which right or equity is hereby waived or released. Lessee
further agrees, at Lessor's request, to assemble the Equipment and make it
available to the Lessor at places which the Lessor shall reasonably select,
whether at Lessee's premises or elsewhere. Lessor shall apply the net proceeds
of any action taken by it pursuant to this subsection, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Equipment or in any way
relating to the Equipment or the rights of Lessor, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Lease Secured Obligations, in such order as Lessor may
elect, and only after such application and after the payment by Lessor of any
other amount required by any provision of law, including, without limitation,
Section 9-504(1)(c) of the UCC, need Lessor account for the surplus, if any, to
Lessee. If any notice of a proposed sale or other disposition of the Equipment
shall be required by law, such notice shall be deemed reasonable and proper if
given at lease 10 Business Days before such sale or other disposition.
28.3 Waiver; Deficiency. Lessee waives and agrees not to assert
any rights or privileges which it may acquire under Section 9-112 of the UCC.
Lessee shall remain liable for any deficiency if the proceeds of any sale or
other disposition of the Equipment are insufficient to pay the Lease Secured
Obligations and the reasonable fees and disbursements of any attorneys employed
by Lessor to collect such deficiency.
28.4 Agent's Appointment as Attorney-in-Fact; Agent's Performance of
Lessee's Obligations. Lessee hereby irrevocable constitutes and appoints the
Agent and any officer or agent thereof, as assignee of all of Lessor right under
this Lease pursuant to the Assignment of Lease, with full power of substitution,
as its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Lessee and in the name 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
<PAGE>
27
this Lease, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Lease, and, without limiting the generality of the foregoing,
Lessee hereby gives the Agent the power and right, on behalf of Lessee, without
notice to or assent by Lessee, to do any or all of the following:
(a) in the name of Lessee or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under or
with respect to the Equipment and file any claim or take any other action
or proceeding in any court of law or equity or otherwise deemed appropriate
by the Agent for the purpose of collecting any and all such moneys due
under or with respect to the Equipment whenever payable;
(b) pay or discharge taxes and Liens levied or placed on or threatened
against the Equipment, effect any repairs or any insurance called for by
the terms of this Lease and to pay all or any part of the premiums therefor
and the costs thereof;
(c) execute, in connection with the sale provided for in Section 28.2
hereof, any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Equipment; and
(d) (1) direct any party liable for any payment under any of the
Equipment to make payment of any and all moneys due or to become due
thereunder directly to the Agent or as the Agent shall direct; (2) ask or
demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Equipment; (3) sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices and
other documents in connection with any of the Equipment; (4) commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to enforce any other right in respect of
any Equipment; (5) defend any suit, action or proceeding brought against
Lessee with respect to any Equipment; (6) settle, compromise or adjust any
such suit, action or proceeding and, in connection therewith, to give such
discharges or releases as the Agent may deem appropriate; and (7)
generally, sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Equipment as fully and completely as thought
the Agent were the absolute owner thereof for all purposes, and do, at the
Agent's option and the Lessee's expense, at any time, or from time to time,
all acts and things which the Agent reasonably deems necessary to protect,
preserve or realize upon the Equipment and the Agent's security interests
therein and to effect the intent of this Lease, all as fully and
effectively as the Lease might do.
Anything in this subsection to the contrary notwithstanding, the Agent
agrees that it will not exercise any rights under the power of attorney provided
for in this subsection unless a Lease Event of Default shall have occurred and
be continuing.
<PAGE>
28
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 Compression Inc.
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 2000A
C/O Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Administration
Telecopy: (302) 651-8882
with a copy to the Agent:
The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza
New York, New York 10081
Attention: Agency Services
Telecopy: (212) 552-5777
and
Credit and Lending
The Chase Manhattan Bank
<PAGE>
29
270 Park Avenue
32nd Floor
New York, NY 10017
Attention: Peter Ling
Telecopy: (212) 270-4676
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;
(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
<PAGE>
30
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 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 COMPRESSION INC.
By: ____________________________________
Name:
Title:
HANOVER EQUIPMENT TRUST 2000A
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
13th day of March, 2000.
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 [HANOVER EQUIPMENT TRUST 2000A], a Delaware business
trust, as lessor (the "Lessor"), and HANOVER COMPRESSION INC., 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 [ ], 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. __ 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. __ be duly
executed and delivered as of the date first above written.
HANOVER COMPRESSION INC.
By: ___________________________________
Name:
Title:
HANOVER EQUIPMENT TRUST 2000A
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 ___ day of ______, _____.
THE CHASE MANHATTAN BANK, as the Agent for the
Lenders
By: ___________________________________
Name:
Title:
<PAGE>
EXECUTION COPY
Exhibit 10.44
================================================================================
GUARANTEE
made by
HANOVER COMPRESSOR COMPANY
HANOVER COMPRESSION INC.
and certain of their Subsidiaries
Dated as of March 13, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
1. Defined Terms........................................................... 1
2. Guaranty................................................................ 2
Right of Set-off........................................................ 3
4. No Subrogation.......................................................... 3
5. Amendments, etc. with respect to the Guaranteed Obligations; Waiver
of Rights............................................................... 4
6. Guarantee Absolute and Unconditional.................................... 4
7. Reinstatement........................................................... 5
8. Payments................................................................ 5
9. Representations, Warranties............................................. 5
9.1 Financial Condition............................................... 5
9.2 No Change......................................................... 6
9.3 Corporate Existence; Compliance with Law.......................... 6
9.4 Corporate Power; Authorization; Enforceable Obligations........... 7
9.5 No Legal Bar...................................................... 7
No Material Litigation............................................ 7
9.7 No Default........................................................ 7
9.8 Ownership of Property; Liens; Leases of Equipment................. 7
9.9 Intellectual Property............................................. 8
9.10 Taxes............................................................. 8
9.11 Federal Regulations............................................... 8
9.12 ERISA............................................................. 8
9.13 Investment Company Act; Other Regulations......................... 9
9.14 Subsidiaries...................................................... 9
9.15 Environmental Matters............................................. 9
9.16 Accuracy and Completeness of Information.......................... 10
9.17 Year 2000......................................................... 10
9.18 Senior Indebtedness............................................... 10
9.19 Representations and Warranties in Existing Guarantee.............. 11
10. Affirmative Covenants of the Guarantor.................................. 11
10.1 Financial Statements.............................................. 11
10.2 Certificates; Other Information................................... 12
10.3 Payment of Obligations............................................ 13
10.4 Conduct of Business and Maintenance of Existence.................. 13
10.5 Maintenance of Property; Insurance................................ 13
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10.6 Inspection of Property; Books and Records; Discussions............ 13
10.7 Notices........................................................... 13
10.8 Environmental Laws................................................ 14
10.9 Subsequent Guarantees............................................. 15
11. Negative Covenants...................................................... 15
11.1 Financial Condition Covenants..................................... 15
11.2 Limitation on Indebtedness........................................ 16
11.3 Limitation on Liens............................................... 17
11.4 Limitation on Guarantee Obligations............................... 19
11.5 Limitations on Fundamental Changes................................ 19
11.6 Limitation on Sale or Lease of Assets............................. 20
11.7 Limitation on Leases.............................................. 21
11.8 Limitation on Dividends........................................... 21
11.9 Limitation on Derivatives......................................... 22
11.10 Limitation on Investments, Loans and Advances..................... 22
11.11 Limitation on Optional Payments and Modifications of Debt
Instruments....................................................... 23
11.12 Transactions with Affiliates...................................... 23
11.13 Sale and Leaseback................................................ 23
11.14 Corporate Documents............................................... 24
11.15 Fiscal Year....................................................... 24
11.16 Nature of Business................................................ 24
11.17 Unqualified Subsidiaries.......................................... 24
12. Notices................................................................. 24
13. Severability............................................................ 25
14. Integration............................................................. 25
Amendments in Writing; No Waiver; Cumulative Remedies................... 25
16. Section Headings........................................................ 25
17. Successors and Assigns.................................................. 25
18. SUBMISSION TO JURISDICTION; WAIVERS..................................... 25
19. GOVERNING LAW........................................................... 26
20. Survival of Representations, Warranties, etc............................ 26
21. Authority of Agent...................................................... 26
22. Third Party Beneficiaries............................................... 27
23. Right of Contribution................................................... 27
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24. WAIVER OF JURY TRIAL.................................................... 27
Schedules
Schedule 9.2 Material Changes
Schedule 9.4 Required Consents
Schedule 9.14 Subsidiaries
Schedule 9.15 Environmental
Schedule 11.2(c) Existing Indebtedness
Schedule 11.3(l) Existing Liens
Schedule 11.3(n) Additional Existing Liens
Schedule 11.3(t) Additional Liens
Schedule 11.6(i) Lease of Assets
Schedule 11.12 Affiliate Transactions
Schedule 11.13 Sale and Leaseback Transactions
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EXECUTION COPY
GUARANTEE
GUARANTEE dated as of March 13, 2000, made by HANOVER COMPRESSOR COMPANY, a
Delaware corporation, HANOVER COMPRESSION INC., a Delaware corporation, and each
of their Subsidiaries that are signatories hereto (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 2000A (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) First Union National
Bank and ScotiaBanc Inc. (the "Investors") to enter into the Participation
Agreement (as hereinafter defined) and the other Operative Agreements to which
they are 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 Compression Inc. ("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:
"Agreement" means this Guarantee, as the same may be amended,
supplemented or otherwise modified from time to time.
"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.
<PAGE>
"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 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.
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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 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
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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, 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
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<PAGE>
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.
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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, Holdings and HCC hereby jointly and severally
represent and warrant 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 unaudited pro forma consolidated
balance sheet of HCC and its consolidated Subsidiaries as at September 30, 1999
(including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which
have heretofore been furnished to each Lender, has been prepared giving effect
(as if such events had occurred on such date) to the consummation of the TIDES
issuance. The Pro Forma Balance Sheet has been prepared based on the best
information available to Holdings and HCC as of the date of delivery thereof,
and presents fairly in all material respects on a pro forma basis the estimated
financial position of HCC and its consolidated Subsidiaries as at September 30,
1999, assuming that the events specified in the preceding sentence had actually
occurred at such date.
(b) The audited consolidated balance sheets of HCC as at December 31,
1997 and December 31, 1998, and the related consolidated statements of income
and of cash flows for the fiscal years ended on such dates, reported on by and
accompanied by an unqualified report from PricewaterhouseCoopers LLP, present
fairly in all material respects the consolidated financial condition of HCC as
at such date, and the consolidated results of its operations and its
consolidated cash flows for the respective fiscal years then ended. The
unaudited consolidated balance sheet of HCC as at March 31, 1999 and June 30,
1999, and the related unaudited consolidated statements of income and cash flows
for the three and six-month periods ended on such date, present fairly in all
material respects the consolidated financial condition of HCC as at such date,
and the consolidated results of its operations and its consolidated cash flows
for the three and six-month periods then ended (subject to normal year-end audit
adjustments). 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 the aforementioned firm
of accountants and disclosed therein). Holdings, HCC and its Subsidiaries do not
have any material Guarantee Obligations, contingent liabilities and liabilities
for taxes, or any long-term leases or unusual forward or long-term commitments,
including any interest rate or foreign currency swap or exchange transaction or
other obligation in respect of derivatives, that are not reflected in the most
recent financial statements referred to in this paragraph. During the period
from September 30, 1999 to and including the date hereof there has been no
Disposition by Holdings or any of its Subsidiaries, as applicable, of any
material part of their business or property (other than to Holdings or any of
its Subsidiaries).
9.2 No Change. Since September 30, 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 Agreement, as of the date of this Agreement,
no dividends or other distributions have been declared, paid or made upon the
Capital Stock of Holdings or HCC nor has any of the Capital Stock of Holdings or
HCC (other than in connection with the Restructuring) been redeemed, retired,
purchased or otherwise acquired for value by Holdings or any of its respective
Subsidiaries.
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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, except consents, authorizations, filings and notices described in
Schedule 9.4, which consents, authorizations, filings and notices have been
obtained or made and are in full force and effect. This Guarantee has been duly
executed and delivered on behalf of the Guarantors party hereto. This Guarantee
constitutes, each Operative Agreement when executed and delivered will
constitute, a legal, valid and binding obligation of the Guarantors party
thereto enforceable against such Guarantors in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
9.5 No Legal Bar. The execution, delivery and performance of this
Guarantee and the other Operative Agreements, the Loans and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of any Guarantor party thereto and will not result in, or require,
the creation or imposition of any Lien on any of their respective properties or
revenues pursuant to any such Requirement of Law or Contractual Obligation,
except as contemplated hereby or thereby and except to the extent any such
violation or creation or imposition of a Lien would not reasonably be expected
to have a Material Adverse Effect.
9.6 No Material Litigation. Except as set forth in HCC's Form 10-Q,
filed with respect to the period ending September 30, 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.
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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 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.
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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 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, Holdings 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.
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(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 which have not been
resolved, 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 in concentrations that
violate Environmental Laws, nor have any Hazardous Substances been
transferred to any other location, in violation of any Environmental Laws
from the Properties or as a result of the sale or lease of any equipment or
inventory of any Guarantor.
(e) There are no governmental, administrative actions or judicial
proceedings pending or contemplated under any Environmental Laws to which
any Guarantor is or to HCC's knowledge will be named as a party with
respect to the Properties, nor to HCC's knowledge are there any consent
decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under
any Environmental Law with respect to any of the Properties.
9.16 Accuracy and Completeness of Information. The factual statements
contained in the Operative Agreements and each other agreement, instrument,
certificate and document related thereto and any other certificates or documents
furnished or to be furnished to the 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. The Year 2000 date change has not resulted in
disruption of Holdings' and its Subsidiaries' computer hardware, software,
databases, systems and other equipment containing embedded microchips (including
systems and equipment supplied by others or with which Holdings' or its
Subsidiaries' systems interface), or to Holdings' or its Subsidiaries'
operations or business systems, or to the best of Holdings' and its
Subsidiaries' knowledge, to the operations or business systems of Holdings'
major vendors, customers, suppliers and counterparties. Holdings has no reason
to believe that liabilities and expenditures related to the Year 2000 date-
change (including, without limitation, costs caused by reprogramming errors, the
failure of others' systems or equipment, and the potential liability, if any, of
Holdings or its Subsidiaries for Year 2000 related costs incurred or disruption
experienced by others) will result in a Default or a Material Adverse Effect.
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9.18 Senior Indebtedness. The Guaranteed Obligations constitute
"Senior Indebtedness" of HCC under and as defined in the Shareholder
Subordinated Loan Agreement. The obligations of the Guarantors under the
Agreement constitute "Senior Indebtedness" of such applicable Guarantors under
and as defined in the Shareholder Subordinated Loan Agreement.
9.19 Representations and Warranties in Existing Guarantee. The
representations and warranties contained in Section 9 of the Existing Guarantee
and in any amendment, consent or waiver thereto were true and correct in all
material respects on and as of the dates when made pursuant to the Existing
Guarantee.
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 Holdings, a copy of the consolidated balance sheet of Holdings 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 PricewaterhouseCoopers LLP 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 Holdings, a copy of the unaudited consolidated balance sheet of
Holdings 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 Holdings
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 Holdings, the unaudited consolidated balance sheet of Holdings 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 Holdings 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 Holdings 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;
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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, Holdings 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
Holdings, a copy of the projections by Holdings of the operating budget and
cash flow budget of Holdings and its Subsidiaries for the succeeding fiscal
year, such projections to be accompanied by a certificate of a Responsible
Officer to the effect that such projections have been prepared on the basis
of reasonable assumptions and that such Officer has no reason to believe
they are incorrect or misleading in any material respect;
(d)(i) within five days after the same are sent, copies of all financial
statements and reports which Holdings, if at such time any class of
Holding'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
Holdings 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 Holdings 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
Holdings, a certificate of the principal financial officer of Holdings
showing both the Applicable Margin for the next quarter and the detailed
computations necessary to calculate the Applicable Margin (an "Applicable
Margin Certificate"); and
(g) promptly, such additional financial and other information as any
Lender or
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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
Holdings or any Subsidiary of Holdings, 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. (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 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 Holdings and Subsidiaries of Holdings with officers and employees of Holdings
and Subsidiaries of Holdings 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
Holdings or any of its Subsidiaries and any such representatives of such
Investor, Agent and the Lenders shall be accompanied by a Responsible Officer of
Holdings. 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 Holdings 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 any
Guarantor has actual knowledge;
(b) any (i) default or event of default by any Guarantor 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 Guarantor'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 any Guarantor 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
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any Guarantor has actual knowledge which may exist at any time between any
Guarantor or any Subsidiary of such Guarantor 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 any Guarantor or any
Subsidiary of such Guarantor of which such Guarantor 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 any Guarantor 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 such Guarantor, any
Commonly Controlled Entity with respect to the termination of any Single
Employer Plan; and
(e) a development or event which has had or would reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the applicable Guarantor 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
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Environmental Laws applicable to the real property owned or operated by any
Guarantor or any Subsidiary of such Guarantor, 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 any Guarantor or any of its
Qualified Subsidiaries.
10.9 Subsequent Guarantees. Each Guarantor shall cause each Qualified
Subsidiary (other than the TIDES Trust, HMS, MAC and Collicut) of such Guarantor
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 such Guarantor 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.
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
Holdings as at the end of any of Holdings' fiscal quarters to be greater than
.65 to 1.0; provided that for purposes of calculating the numerator of the
foregoing ratio, Consolidated Indebtedness shall exclude seventy percent (70%)
of the Indebtedness in respect of the TIDES Debentures.
(b) Current Ratio. Permit the Current Ratio of Holdings at the end
of any of Holdings' fiscal quarters to be less than 1.0 to 1.0.
(c) Consolidated Indebtedness to Consolidated Adjusted EBITDA. Permit
the ratio of Consolidated Indebtedness of Holdings to Consolidated Adjusted
EBITDA for the four consecutive fiscal quarters of Holdings most recently ended
to be greater than 5.25 to 1.0; provided that for purposes of calculating the
numerator of the foregoing ratio, Consolidated Indebtedness of Holdings shall
exclude seventy percent (70%) of the Indebtedness in respect of the TIDES
Debentures.
(d) Consolidated Indebtedness to Consolidated EBITDA. Permit the
ratio of Consolidated Indebtedness to Consolidated EBITDA of Holdings for the
four consecutive fiscal quarters of Holdings most recently ended ("Consolidated
Indebtedness Ratio") to be greater than 4.0 to 1.0; provided that for purposes
of calculating the numerator of the foregoing ratio, Consolidated Indebtedness
of Holdings shall exclude seventy percent (70%) of the Indebtedness in respect
of the TIDES Debentures.
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(e) Interest Coverage Ratio. Permit the ratio of Consolidated EBITDA
to Consolidated Interest Expense of Holdings for the period of four consecutive
fiscal quarters of Holdings most recently ended to be less than 2.5 to 1.0.;
provided that for purposes of calculating the foregoing ratio, Consolidated
Interest Expense of Holdings shall exclude any accrued but unpaid interest to
the TIDES or TIDES Debentures.
11.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness in respect of the loans, 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 Holdings and 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, subsection 11.7 is not contravened;
(f) Indebtedness in respect of Subordinated Debt, the terms and
conditions of which have been approved in writing by the Required Lenders
and Investors and all extensions, renewals, replacements, refinancings and
modifications thereof permitted hereunder;
(g) Indebtedness of Unqualified Subsidiaries of Holdings; 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 Holdings and
its Subsidiaries $10,000,000 at any time outstanding, provided that (i)
such indebtedness existed at the time such Person became a Subsidiary and
was not created in anticipation thereof and (ii) immediately after giving
effect to the acquisition of such Person by Holdings or any of its
Subsidiaries no Default or Event of Default shall have occurred and be
continuing;
(i) Indebtedness in respect of 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
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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 Holdings or any Subsidiary
of Holdings, 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 Holdings
or any of its Subsidiaries;
(f) leases or subleases granted to third Persons not interfering in any
material respect with the business of Holdings or any of its Subsidiaries;
(g) Liens arising from UCC financing statements regarding leases
permitted by this Agreement or the Equipment Leases;
(h) any interest or title of a lessor or sublessor under any lease
permitted by the Corporate Credit Agreement or the 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 Holdings 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 subsection 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;
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(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 subsection 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 Holdings 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 Holdings
securing Indebtedness of such Unqualified Subsidiaries permitted under
Section 11.2(g);
(p) Liens securing Derivatives entered into by Holdings and its
Subsidiaries which are permitted hereunder;
(q) Liens securing Indebtedness of Holdings or any Subsidiary
permitted under subsection 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 after the date hereof securing Indebtedness permitted by
subsection 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 Equipment Lease
Transactions;
(t) Liens listed on Schedule 11.3(t); 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 Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) the Corporate Guarantees and the Equipment Lease Guarantees;
(b) up to $5,000,000 in the aggregate of Guarantee Obligations of HCC
or any of its Subsidiaries in connection with indebtedness incurred by
customers of HCC or any of its Subsidiaries; provided, that the proceeds of
any such indebtedness shall be used by such customers to purchase natural
gas compressors or oil and gas production equipment
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from HCC or any of its Subsidiaries;
(c) Guarantee Obligations (in respect of obligations not constituting
Indebtedness) arising under agreements entered into by HCC or any of its
Subsidiaries in the ordinary course of business;
(d) guarantees in respect of Indebtedness (other than Subordinated
Debt) permitted under the Corporate Credit Agreement;
(f) Guarantee Obligations of Holdings and any of its Subsidiaries
arising pursuant to the Equipment Lease Transactions;
(g) the Guarantee Obligations of HCC in the nature of a guarantee or
in demnification for, in each case, performance obligations (and not
Indebtedness) as contemplated by the HMS Transactions; and
(h) the Subordinated Guarantee Obligations of Holdings arising under
the TIDES Guarantees.
11.5 Limitations on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Qualified Subsidiary may be merged or consolidated with or
into any other Qualified Subsidiary; provided, that a Qualified Subsidiary
shall be the continuing or surviving corporation;
(b) Holdings 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 Holdings 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 Holdings 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;
(e) pursuant to the Equipment Lease Transactions;
(f) the TIDES Trust may wind up or dissolve itself (or suffer a
liquidation or dissolution), or convey, assign, transfer or otherwise
dispose of, all or substantially all of
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its property, business or assets, as contemplated by the TIDES Declaration
of Trust;
(g) any of the HMS Entities may wind up, dissolve (or suffer a
liquidation or dissolution), or convey, assign, transfer or otherwise
dispose of, all or substantially all of its property, business or assets;
and
(h) HCC may merge with another Subsidiary of Holdings in connection
with the Restructuring.
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 Holdings;
(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);
(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 of this Agreement
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 the Real Estate Subsidiary 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;
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(h) the sale of natural gas compressors to the Lessor in connection
with the Equipment Lease Transactions; and
(i) the lease of assets as listed on Schedule 11.6(i).
11.7 Limitation on Leases. Permit Consolidated Lease Expense for any
fiscal year of Holdings 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 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 Holdings or any Subsidiary of Holdings,
except that if no Default or Event of Default exists or would reasonably be
expected to be caused thereby (i) Subsidiaries of Holdings may declare and pay
dividends to Holdings (to the extent necessary to pay interest on, or redeem,
the TIDES Debentures or to cover operating expenses of Holdings) and other
shareholders of such Subsidiaries and the TIDES Trust may redeem the TIDES as
contemplated by the TIDES Declaration of Trust, (ii) Holdings may repurchase or
redeem shares of Holdings common stock from its employees and former employees
so long as the aggregate amount of all such repurchases since the Closing Date
does not exceed $7,500,000, (iii) Holdings may make open market repurchases of
shares of Holdings common stock so long as the aggregate amount of all such
repurchases since the Closing Date does not exceed $25,000,000, (iv) Holdings
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) Holdings may declare or pay dividends on shares of
Holdings 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 Holdings for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
Closing Date to the end of Holdings' 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 Holdings or any
of its Subsidiaries in reducing the interest rate risk exposure or foreign
currency risk exposure of Holdings and its Subsidiaries which have been provided
by a lender under the Corporate Credit Agreement or the Equipment Lease
Transactions; provided, that the aggregate notional amounts of such Derivatives
shall not exceed the aggregate amount of loans outstanding under the Corporate
Credit Agreement and the Equipment Lease Transactions.
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;
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(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 Holdings and its Subsidiaries not to
exceed $250,000 at any one time outstanding;
(d) Investments by Holdings in its Subsidiaries which are or become
Guarantors and investments by such Subsidiaries which are or become
Guarantors in Holdings and in other Subsidiaries of Holdings which are or
become Guarantors;
(e) Investments by Holdings in the Real Estate Subsidiary 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
the Real Estate Subsidiary;
(f) Investments in Unqualified Subsidiaries of Holdings not to exceed
$20,000,000 in the aggregate;
(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 Holdings 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
under the Equipment Lease Participation Agreements in effect at such time
and (B) the Aggregate Outstanding Extensions of Credit under the Corporate
Credit Agreement, the Available Commitments and the Available Investor
Commitments under the Equipment Lease Participation Agreements at such
time, equals at least $20,000,000;
(h) Investments or acquisitions by Holdings or its Subsidiaries in
(i) 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), or (ii) loans or
advances to a Person (other than a Subsidiary), provided that the aggregate
amount of all such loans, advances, investments or acquisitions does not
exceed $25,000,000 in any fiscal year;
(i) Loans to employees, officers and directors of Holdings and its
Subsidiaries to acquire shares of capital stock of Holdings not to exceed
$20,000,000; and
(j) the purchase by the TIDES Trust of the TIDES Debentures, as
contemplated under the TIDES Declaration of Trust.
11.11 Limitation on Optional Payments and Modifications of Debt
Instruments.
(i) Make any optional payment or prepayment on or redemption, purchase or
defeasance of any portion of the Shareholder Subordinated Debt, (ii) make any
optional payment or prepayment in excess of $10,000,000 during any calendar year
on or redemption of any Indebtedness other than (a) redemptions of any portion
of the TIDES Debentures pursuant to the TIDES Indenture or redemptions of any
portion of the TIDES pursuant to the TIDES Declaration of Trust or (b) any
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optional payment, prepayment or redemption of any Indebtedness pursuant to the
Corporate Credit Agreement, the Equipment Lease Credit Agreements or (iii)
amend, modify or change, or consent or agree to any amendment, modification or
change to any of the terms of any Indebtedness other than (a) any Indebtedness
pursuant to the Corporate Credit Agreement, the Equipment Lease Credit
Agreements or (b) any 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 Holdings' or such
Subsidiary's business and is upon fair and reasonable terms no less favorable to
Holdings 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 of a type set
forth on Schedule 11.13, enter into any arrangement with any Person where
Holdings or any of the Subsidiaries of Holdings is the lessee of real or
personal property which has been or is to be sold or transferred by Holdings 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 Holdings or such Subsidiary (any of such arrangements, a "Sale
and Leaseback Transaction"), except that (i) HCC and its Subsidiaries may enter
into Financing Leases as lessee for natural gas compressors and oil and gas
production equipment if after giving effect thereto subsection 11.2 is not
contravened and (ii) HCC may enter into Sale and Leaseback Transactions as
lessee for natural gas compressors in connection with the Equipment Lease
Transactions.
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 Holdings 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, (e) the provision of gas metering services as
contemplated under the HMS Transactions, and (f) 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
23
<PAGE>
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.
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
24
<PAGE>
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 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,
25
<PAGE>
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.
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.
26
<PAGE>
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 COMPRESSION INC.
By:
------------------------------------
Name:
Title:
27
<PAGE>
HANOVER COMPRESSOR LIMITED
HOLDINGS, LLC
by Hanover General Holdings, Inc.,
as sole member
By:
------------------------------------
Name:
Title:
<PAGE>
HANOVER MAINTECH LIMITED
PARTNERSHIP
by Hanover General Holdings, Inc.,
as sole member
By:
------------------------------------
Name:
Title:
<PAGE>
HANOVER/SMITH LIMITED
PARTNERSHIP
by Hanover General Holdings, Inc.,
as general partner
By:
------------------------------------
Name:
Title:
<PAGE>
HANOVER LAND LIMITED PARTNERSHIP
by Hanover General Holdings, Inc.,
general partner
By:
------------------------------------
Name:
Title:
Address for Notices for all Guarantors:
12001 North Houston Rosslyn
Houston, Texas 77806
Attention: Chief Financial Officer
Telecopy: 281-477-0821
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
<PAGE>
EXECUTION COPY
Exhibit 10.45
================================================================================
PARTICIPATION AGREEMENT
among
HANOVER COMPRESSION INC.,
as Lessee,
HANOVER EQUIPMENT TRUST 2000A,
a Delaware business trust,
as Lessor,
FIRST UNION NATIONAL BANK and SCOTIABANC INC.,
as Investors,
THE INDUSTRIAL BANK OF JAPAN, LTD.,
as Syndication Agent,
THE BANK OF NOVA SCOTIA,
as Documentation Agent,
THE CHASE MANHATTAN BANK,
as Agent
and
THE LENDERS PARTIES HERETO
______________________________
Dated as of March 13, 2000
______________________________
==============================================================================
<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.............. 2
SECTION 4. THE CLOSINGS..................................................... 3
4.1 Initial Closing Date.............................................. 3
4.2 Subsequent Closing Dates.......................................... 3
4.3 Trust Company Authorization....................................... 3
SECTION 5. FUNDING OF ADVANCES.............................................. 3
5.1 General........................................................... 3
5.2 Procedures for Funding............................................ 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
SECTION 8. PAYMENT OF CERTAIN EXPENSES...................................... 18
-i-
<PAGE>
8.1 Transaction Expenses.............................................. 18
8.2 Brokers' Fees and Stamp Taxes..................................... 18
8.3 Certain Fees and Expenses......................................... 19
8.4 Credit Agreement and Related Obligations.......................... 19
8.5 Commitment Fees................................................... 19
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.................................... 22
9.4 Proceeds of Casualty.............................................. 23
SECTION 10. CREDIT AGREEMENT................................................ 23
10.1 Lessee's Credit Agreement Rights.................................. 23
SECTION 11. TRANSFER OF INTEREST............................................ 25
11.1 Restrictions on Transfer.......................................... 25
11.2 Effect of Transfer................................................ 25
SECTION 12. INDEMNIFICATION................................................. 25
12.1 General Indemnity................................................. 25
12.2 General Tax Indemnity............................................. 26
SECTION 13. MISCELLANEOUS................................................... 30
13.1 Survival of Agreements............................................ 30
13.2 No Broker, etc.................................................... 31
13.3 Notices........................................................... 31
13.4 Counterparts...................................................... 32
13.5 Amendments and Termination........................................ 32
13.6 Headings, etc..................................................... 33
13.7 Parties in Interest............................................... 33
13.8 GOVERNING LAW..................................................... 33
13.9 Severability...................................................... 33
13.10 Liability Limited................................................. 33
13.11 Rights of Lessee.................................................. 33
13.12 Further Assurances................................................ 33
13.13 Successors and Assigns............................................ 34
13.14 No Representation or Warranty..................................... 34
13.15 Highest Lawful Rate............................................... 34
13.16 Waiver............................................................ 35
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<PAGE>
Page
----
-iii-
<PAGE>
Page
----
Annex A Rules of Usage and Definitions
Annex B Pricing Grid
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 Equipment Closing Certificate
-iv-
<PAGE>
EXECUTION COPY
PARTICIPATION AGREEMENT dated as of March 13, 2000 (this "Agreement"),
among HANOVER COMPRESSION INC., a Delaware corporation (the "Lessee"); HANOVER
EQUIPMENT TRUST 2000A, 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"); THE INDUSTRIAL BANK OF JAPAN, LTD., New York branch, as
syndication agent (the "Syndication Agent"); THE BANK OF NOVA SCOTIA, a Canadian
chartered bank, as documentation agent (the "Document Agent"); FIRST UNION
NATIONAL BANK and SCOTIABANC INC., a Delaware 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.
1.2 Credit Agreement. The Loans shall be made 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.
<PAGE>
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).
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 the first
Equipment Closing Date, the Investors shall make an investment in the Lessor (an
"Investor Contribution") in an amount equal to 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 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 to the execution and
delivery of a Lease Supplement if the Aggregate Tranche
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3
A Percentage after giving effect to the acquisition and lease pursuant to the
execution and delivery of a Lease Supplement of such Equipment would be less
than 85%.
(b) Notwithstanding any other provision of this Agreement or the other
Operative Agreements, the Lessee agrees that in no event shall the Lessee
specify a piece of Equipment for the Lessor to acquire and lease pursuant to
the execution and delivery of a Lease Supplement if the Tranche A Percentage
with respect to such Equipment would be less than 85%.
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 Trustee 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
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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 Equipment
Closing Date (i) the Lenders shall make Loans to the Lessor in an aggregate
amount not to exceed 97% of the aggregate funds specified in any Requisition, up
to an aggregate principal amount equal to the Available Commitments; (ii) with
respect to the first Equipment Closing Date, the Investors shall have made an
Investor Contribution in an amount equal to the Investor Commitment; and (iii)
the total amount of such Loans made on such date and Investor Contribution made
on the first Equipment Closing Date shall be used to fully cover the aggregate
Equipment Cost (after giving effect to amounts to be paid in connection with the
Equipment Acquisition Cost for such Equipment Closing Date).
(d) Notwithstanding anything to the contrary in this Agreement, (i)
the Lenders shall not be required to make Loans in an aggregate amount with
respect to all the Equipment in excess of 97% of the amount allocated to all
such Equipment (after giving effect to the Equipment purchased in connection
with 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);
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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;
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6
(h) [Reserved]
(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;
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7
(m) Fees. The Agent and the Arranger shall have received the fees to
be paid on the Initial Closing Date pursuant to the Fee Letter which fees
shall not be paid using the proceeds of the Loans or Investor
Contributions;
(n) Legal Opinions. (i) On the Initial closing Date, the Agent and
the Investors shall have received the executed legal opinion of Latham &
Watkins, in form and substance reasonably acceptable to the Agent;
(ii) On the Initial Closing Date, the Agent, the Lessee and the
Investors shall have received the executed legal opinion of Morris, James,
Hitchens & Williams LLP, counsel to the Lessor and the Trust Company, in
form and substance reasonably acceptable to the Agent; and
(iii) By the First Equipment Closing Date Agent, the Lessee,
and the Investors shall have received the executed legal opinions of (a)
Jackson Walker L.L.P. and (b) Holland & Hart, local counsel to the Lessee
and the Guarantors in (a) Texas and Louisiana and (b) Wyoming,
respectively, in form and substance reasonably acceptable to the Agent;
(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. By the First Equipment Closing Date the Agent and
the Investors shall have received the results of 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);
<PAGE>
8
(r) Performance of Operative Agreements. The parties hereto (other
than the Investors or the Lenders) shall have performed in all material
respects their respective agreements contained herein and in the other
Operative Agreements on or prior to each such Closing Date; and
(s) Default. There shall not have occurred and be continuing any
Default or Event of Default and no Default or Event of Default will have
occurred after giving effect to the Advance requested by such Requisition.
6.2 Conditions to the Investors' and the Lenders' Obligations to Make
Advances to pay Equipment Acquisition Costs.
The obligations of the Investors to make the Investor Contribution, on
the first Equipment Closing Date, 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
<PAGE>
9
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;
(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, in form and substance reasonably
acceptable to the Agent;
(ii) the Agent, the Lessee and the Investors shall have received
the executed legal opinion of counsel to Lessor and the Trust Company, in
form and substance reasonably acceptable to the Agent; and
(iii) the Agent and the Investors shall have received the
executed legal opinion of counsel to Lessee and the Guarantors,
substantially in form and substance reasonably acceptable to the Agent.
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:
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10
(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 (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
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11
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 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).
<PAGE>
12
(d) Litigation. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending or threatened by
or against the Lessor (a) with respect to any of the Operative Agreements
or any of the transactions contemplated hereby or thereby, or (b) which
would reasonably be expected to have a material adverse effect on the
assets, liabilities, operations, business or financial condition of the
Lessor.
(e) Assignment. Lessor has not assigned or transferred any of its
right, title or interest in or under the Lease, any other Operative
Agreement or any Equipment, except in accordance with the other Operative
Agreements.
(f) No Default. The Lessor is not in default under or with respect to
any of its Contractual Obligations in any respect which would reasonably
be expected to have a material adverse effect on the assets, liabilities,
operations, business or financial condition of the Lessor. No Default or
Event of Default attributable to it has occurred and is continuing.
(g) Use of Proceeds. The proceeds of the Loans and the Investor
Contribution shall be applied by the Lessor solely in accordance with the
provisions of the Operative Agreements.
(h) Chief Place of Business. The Lessor's chief place of business,
chief executive office and office where the documents, accounts and records
relating to the transactions contemplated by this Agreement and each other
Operative Agreement are kept are located at 1100 North Market Street,
Wilmington, Delaware 19890-0001.
(i) Federal Reserve Regulations. The Lessor is not engaged
principally in, and does not have as one of its most important activities,
the business of extending credit for the purpose of purchasing or carrying
any margin stock (within the meaning of Regulation U of the Board), and no
part of the proceeds of the Loans will be used by it, directly or
indirectly, to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any such margin stock or
for any purpose that 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.
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13
(k) Securities Act. Neither the Lessor nor any Person authorized by
the Lessor to act on its behalf has offered or sold any interest in the
Equipment or the Notes, or in any similar security or interest relating to
the Equipment, or in any security the offering of which for the purposes of
the Securities Act would be deemed to be part of the same offering as the
offering of the aforementioned securities to, or solicited any offer to
acquire any of the same from, any Person other than, in the case of the
Notes, the Agent, and neither the Lessor nor any Person authorized by the
Lessor to act on its behalf will take any action which would subject the
issuance or sale of any interest in the Equipment or the Notes to the
provisions of Section 5 of the Securities Act or require the qualification
of any Operative Agreement under the Trust Indenture Act of 1939, as
amended.
(l) ERISA. The Lessor is making the Lessor Contribution contemplated
to be made by it hereunder in the ordinary course of its business, and no
part of such amount constitutes (i) "plan assets" under 29 CFR 2510.3-101
or (ii) assets of a "governmental plan" as defined under Section 3(32) of
ERISA.
(m) Lessor Liens. The Equipment is free and clear of all Lessor
Liens.
7.3 Representations and Warranties of the Lessee on the Initial
Closing Date. Each of the representations and warranties of the Lessee 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
<PAGE>
14
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 of the State of Delaware
or the United States governing its banking or trust powers.
(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 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.
<PAGE>
15
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 Guarantors set forth herein and in each of the
other Operative Agreements are true and correct in all material respects on and
as of such Equipment Closing Date as if made on and as of such Equipment Closing
Date (unless such representations and warranties specifically refer to another
date). The Lessee and each Guarantor are in compliance in all material respects
with their respective obligations under the Operative Agreements and there
exists no Lease Default or Lease Event of Default.
(b) No Default. No Default or Event of Default attributable to Lessee
will occur as a result of, or after giving effect to, the Advance requested by
the Requisition on such Equipment Closing Date.
(c) Authorization by the Lessee. The execution and delivery of each
Lease Supplement and other Operative Agreement delivered by the Lessee on such
Equipment Closing Date and the performance of the obligations of the Lessee
under each such Lease Supplement and other Operative Agreements have been duly
authorized by all requisite corporate action of the Lessee.
(d) Execution and Delivery by the Lessee. Each Lease Supplement and
other Operative Agreement delivered on such Equipment Closing Date by the Lessee
have been duly executed and delivered by the Lessee.
(e) Valid and Binding Obligations. Each Lease Supplement and other
Operative Agreement delivered by the Lessee on such Equipment Closing Date is a
legal, valid and binding obligation of the Lessee, enforceable against the
Lessee in accordance with its respective terms except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
(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.
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16
(g) Insurance Coverage. The Lessee maintains insurance coverage for
each piece of Equipment being acquired by the Lessor on such Equipment Closing
Date which meets the requirements of Section 14.1 of the Lease and all of such
coverage is in full force and effect.
(h) Legal Requirements. Each piece of Equipment being acquired by the
Lessor on such Equipment Closing Date complies in all material respects with all
Legal Requirements (including all zoning and land use laws and Environmental
Laws).
(i) Consents, etc. All material consents, licenses and permits
required by all Legal Requirements for operation of each piece of Equipment
being acquired on such Equipment Closing Date have been obtained and are in full
force and effect.
(j) Environmental Matters.
(1) The Equipment being acquired on such Equipment Closing Date
does not contain any Hazardous Substances in amounts or concentrations
which (i) constitute a material violation of, or (ii) would reasonably
be expected to give rise to material liability under, any
Environmental Law.
(2) The Equipment being acquired on such Equipment Closing Date
is in compliance in all material respects with all applicable
Environmental Laws.
(3) Neither the Lessee nor any of its Subsidiaries has received
any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding any material non-compliance with
Environmental Laws with regard to the Equipment being acquired on such
Equipment Closing Date, nor does the Lessee have knowledge that any
such notice will be received or is being threatened.
(4) Hazardous Substances have not been transported or
discharged from the Equipment being acquired on such Equipment Closing
Date so as to create a material violation of any Environmental Law,
nor have any Hazardous Substances 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
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17
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.
' ' 1331, et seq. (1986).
(l) Conditions Precedent in Operative Agreements. All conditions
precedent contained in this Agreement and in the other Operative Agreements
required to be satisfied by Lessee relating to the acquisition of a piece of
Equipment by the Lessor have been satisfied in full or waived by the Agent and
the Lessee.
(m) Hart-Scott-Rodino. The acquisition of the Equipment being acquired
on such Equipment Closing Date does not conflict with, violate or require the
consent of, any Governmental Authority under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
7.6 Representations and Warranties of the Lessor on Equipment Closing
Dates. The Lessor hereby represents and warrants as of each Equipment Closing
Date as follows:
(a) Representations and Warranties; No Default. The representations
and warranties of the Lessor set forth herein and in each of the other Operative
Agreements are true 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.
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18
(b) Authorization by the Lessor. The execution and delivery of each
Lease Supplement, Security Agreement, Supplement to Assignment of Lease and
other Operative Agreement delivered by the Lessor on such Equipment Closing Date
and the performance of the obligations of the Lessor under each such Lease
Supplement, Security Agreement Supplement to the Assignment of Lease and other
Operative Agreement have been duly authorized by all requisite action of the
Lessor.
(c) Execution and Delivery by the Lessor. Each Lease Supplement,
Security Agreement, Supplement to the Assignment of Lease and other Operative
Agreement delivered by the Lessor on such Equipment Closing Date have been duly
executed and delivered by the Lessor.
(d) Valid and Binding Obligations. Each Lease Supplement, Security
Agreement, Supplement to the Assignment of Lease and other Operative Agreement
delivered by the Lessor on such Equipment Closing Date is a legal, valid and
binding obligation of the Lessor, enforceable against the Lessor in accordance
with its terms except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(e) Conditions Precedent in Operative Agreements. All conditions
precedent contained in this Agreement and in the other Operative Agreements to
be satisfied by the 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
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19
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
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).
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20
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 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, by May 15, 2000 (or
within 90 days of the date any Oklahoma Sublease is subsequently entered into),
undertake to file, in accordance with 60 Okla. Stat. 1991 ' 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
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21
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 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.
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22
(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.
(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
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23
(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
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.
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24
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;
(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;
<PAGE>
25
(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.
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
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26
11, the transferor shall be entitled to all benefits accrued and all
rights vested prior to such transfer including rights to indemnification under
any such document.
SECTION 12. INDEMNIFICATION
12.1 General Indemnity . The Lessee, hereby assumes liability for
and agrees to defend, indemnify and hold harmless each Indemnified Person on an
After Tax Basis from and against any Claims which may be imposed on, incurred by
or asserted against an Indemnified Person in any way relating to or arising out
of (a) the financing, refinancing, purchase, acceptance, rejection, ownership,
design, delivery, acceptance, nondelivery, leasing, subleasing, possession, use,
operation, repair, modification, transportation, condition, sale, return,
repossession (whether by summary proceedings or otherwise), or any other
disposition of the Equipment or any part thereof; (b) any latent or other
defects in any piece of Equipment whether or not discoverable by an Indemnified
Person or the Lessee; (c) a violation of Environmental Laws, Environmental
Claims or other loss of or damage relating to the Equipment; (d) the Operative
Agreements, or any transaction contemplated thereby; (e) any breach by the
Lessee of any of its representations or warranties under the Operative
Agreements or failure by the Lessee to perform or observe any covenant or
agreement to be performed by it under any of the Operative Agreements; and (f)
personal injury, death or property damage relating to the Equipment, including
Claims based on strict liability in tort; but in any event excluding (v) Claims
to the extent such Claims arise solely out of the gross negligence or willful
misconduct of such Indemnified Person, (w) Claims to the extent such Claims
arise solely out of events occurring after Lessee's discharge of all its
obligations under the Lease or (x) any Taxes including any Claim (or any portion
of a Claim) made upon an Indemnified Person by a third party that at its origin
is based upon a Tax (other than amounts necessary to make any payments hereunder
on an After Tax Basis, where the Lessee is otherwise specifically required to
make such payments on an After Tax Basis), (y) legal proceedings commenced
against an Indemnified Person by any security holder or creditor solely in its
capacity as such, or (z) legal proceedings commenced against an Indemnified
Person by any other Indemnified Person or by any transferee of an Indemnified
Person. The Lessee shall be entitled to control, and shall assume full
responsibility for the defense of any Claim; provided, however, that the Trust,
the Trust Company, the Agent and the 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
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27
subrogated to any right of such Indemnified Person with respect to such Claim.
None of the Indemnified Persons shall settle a Claim without the prior written
consent of the Lessee, which consent shall not be unreasonably withheld or
delayed.
12.2 General Tax Indemnity. (a) The Lessee shall pay and assume
liability for, and does hereby agree to indemnify, protect and defend the
Equipment and all Tax Indemnitees, and hold them harmless against, all
Impositions on an After Tax Basis.
(b) Provided that no Default or Event of Default has occurred and is
continuing, if any Tax Indemnitee obtains a refund or a reduction in a liability
(but only if such reduction relates to a Tax not otherwise indemnifiable
hereunder and has not been taken into account in determining the amount of a
payment on an After Tax Basis) as a result of any Imposition paid or reimbursed
by the Lessee (in whole or in part), such Tax Indemnitee shall promptly pay to
the Lessee the lesser of (x) the amount of such refund or reduction in liability
and (y) the amount previously so paid or advanced by the Lessee, in each case
net of reasonable expenses not already paid or reimbursed by the Lessee.
(c)(i) Subject to the terms of Section 12.2(g), the Lessee shall pay
or cause to be paid all Impositions directly to the taxing authorities where
feasible and otherwise to the Tax Indemnitee, as appropriate, and the Lessee
shall at its own expense, upon such Tax Indemnitee's reasonable request, furnish
to such Tax Indemnitee copies of official receipts or other satisfactory proof
evidencing such payment.
(ii) In the case of Impositions for which no contest is conducted
pursuant to Section 12.2(g) and which the Lessee pays directly to the taxing
authorities, the Lessee shall pay such Impositions prior to the latest time
permitted by the relevant taxing authority for timely payment. In the case of
Impositions for which the Lessee reimburses a Tax Indemnitee, the Lessee shall
do so within twenty (20) days after receipt by the Lessee of demand by such Tax
Indemnitee describing in reasonable detail the nature of the Imposition and the
basis for the demand (including the computation of the amount payable), but in
no event shall the Lessee be required to pay such reimbursement prior to 15 days
before the latest time permitted by the relevant taxing authority for timely
payment. In the case of Impositions for which a contest is conducted pursuant
to Section 12.2(g), the Lessee shall pay such Impositions or reimburse such Tax
Indemnitee for such Impositions, to the extent not previously paid or reimbursed
pursuant 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
<PAGE>
28
exercised the Purchase Option with respect to the Equipment) shall be adjusted
and prorated on a daily basis between the Lessee and the Lessor, whether or not
such Imposition is imposed before or after such expiration or termination and
each party shall pay or reimburse the other for each party's pro rata share
thereof.
(iv) At the Lessee's request, the amount of any indemnification
payment by the Lessee pursuant to subsection (a) shall be verified and certified
by an independent public accounting firm mutually acceptable to the Lessee and
the Tax Indemnitee. The fees and expenses of such independent public accounting
firm shall be paid by the Lessee unless such verification shall result in an
adjustment in the Lessee's favor of 10% or more of the payment as computed by
such Tax Indemnitee, in which case such fee shall be paid by such Tax
Indemnitee.
(d)(i) The Lessee shall be responsible for preparing and filing any
real and personal property or ad valorem tax returns in respect of the
Equipment. In case any other report or tax return shall be required to be made
with respect to any obligations of the Lessee under or arising out of subsection
(a) and of which the Lessee has knowledge, the Lessee, at its sole cost and
expense, shall notify the relevant Tax Indemnitee of such requirement and
(except if such Tax Indemnitee notifies the Lessee that such Person intends to
file such report or return) (A) to the extent required or permitted by and
consistent with Legal Requirements, make and file in its own name such return,
statement or report; and (B) in the case of any other such return, statement or
report required to be made in the name of such Tax Indemnitee, advise such Tax
Indemnitee of such fact and prepare such return, statement or report for filing
by such Tax Indemnitee or, where such return, statement or report shall be
required to reflect items in addition to any obligations of the Lessee under or
arising out of subsection (a), provide such Tax Indemnitee at the Lessee's
expense with information sufficient to permit such return, statement or report
to be properly made with respect to any obligations of the Lessee under or
arising out of subsection (a). Such Tax Indemnitee shall, upon the Lessee's
request and at the Lessee's expense, provide any data maintained by such Tax
Indemnitee (and not otherwise within the control of the Lessee) with respect to
the Equipment which the Lessee may reasonably require to prepare any required
tax returns or reports;
(e) If as a result of the payment or reimbursement by the Lessee of
any expenses of a Tax Indemnitee or the payment of any Transaction Expenses
incurred in connection with the transactions contemplated by the Operative
Agreements, any Tax 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;
<PAGE>
29
(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)
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.
<PAGE>
30
(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 (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
<PAGE>
31
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, 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 Compression Inc.
<PAGE>
32
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 60606
Attention: Richard S. Meller and
Michael A. Pucker
Telecopy No.: 312-993-9767
If to the Trust, to it at: Hanover Equipment Trust 2000A
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:
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
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: Agency Service
Telecopy No.: 212-552-5777
<PAGE>
33
and
Credit and Lending
The Chase Manhattan Bank
270 Park Avenue
21st Floor
New York, NY 10017
Attention: Peter Ling
Telecopy No.: 212-270-4676
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.
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.
<PAGE>
34
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, the Agent, the Lenders 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>
35
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>
36
(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>
37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
HANOVER COMPRESSION INC., as Lessee
By: ____________________________________
Name:
Title:
HANOVER EQUIPMENT TRUST 2000A
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>
38
FIRST UNION NATIONAL BANK, as an Investor
By: ____________________________________
Name:
Title:
<PAGE>
39
SCOTIABANC INC., as an Investor
By: ____________________________________
Name:
Title:
<PAGE>
40
THE BANK OF NOVA SCOTIA, as Documentation
Agent and as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
41
BANK ONE, N.A., as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
42
CREDIT SUISSE FIRST BOSTON, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
43
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK AG, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
44
FIRST UNION NATIONAL BANK, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
45
THE INDUSTRIAL BANK OF JAPAN, LTD., as
Syndication Agent and as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
46
NATEXIS BANQUE BFCE, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
47
NATIONAL CITY BANK, as a Lender
By: ____________________________________
Name:
Title:
<PAGE>
48
PARIBAS, as a Lender
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE>
49
SUNTRUST BANK, ATLANTA, as a Lender
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE>
50
ANNEX B
PRICING GRID
Participation Agreement
Consolidated Applicable Margin- Applicable Margin- Applicable
Indebtedness Ratio Eurocurrency Loans Base Rate Loans Commitment
- ------------------ ------------------ ------------------ Fee Rate
--------
*4.0 to 1.0 1.75% .750% .375%
***4.0 to 1.0 and 1.75% .750% .375%
*3.0 to 1.0
***3.0 to 1.0 and 1.50% .500% .300%
*2.0 to 1.0
***2.0 to 1.0 and 1.25% .500% .300%
*1.0 to 1.0
***1.0 to 1.0 1.00% 0% .250%
- ------------------
* greater than
** greater than or equal to
*** less than of equal to
Changes in the Applicable Margin or in the Applicable Commitment Fee Rate
resulting from changes in the Consolidated Indebtedness Ratio shall become
effective on each date which is the start of the succeeding fiscal quarter
(each, an "Adjustment Date") for which an Applicable Margin Certificate of
Holdings is delivered to the Lenders pursuant to Section 10.2(f) of the
Guarantee (but in any event not later than the 45th day after the end of each of
each quarter of each fiscal year) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any Applicable Margin
Certificate referred to above is not delivered within the time periods specified
above, then the Consolidated Indebtedness Ratio as at the end of the fiscal
period that would have been covered thereby shall for the purposes of this
definition be deemed to be greater than 4.0 to 1.0. In addition, at all times
while an Event of Default shall have occurred and be continuing, the highest
rate set forth in each column of the Pricing Grid shall apply. Each
determination of the Consolidated Indebtedness Ratio pursuant to this Pricing
Grid shall be made for the periods and in the manner contemplated by Section
11.1(d) of the Guarantee.
<PAGE>
51
EXHIBIT D TO THE
PARTICIPATION AGREEMENT
FORM
REQUISITION
HANOVER COMPRESSION INC. (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 March 13, 2000, 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
March 13, 2000 , 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 $[ $[ ] (not to exceed 97% of the aggregate
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.
(c) With respect to aggregate Equipment Cost, the aggregate amount of
the Loans outstanding represent [___]% of such Equipment Cost and the
aggregate amount of the Investment Contribution represents [__]% of such
Equipment Cost.
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.
<PAGE>
52
6. Representations and Warranties. The Lessee hereby represents and
warrants as follows in each case as of the date hereof:
(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 COMPRESSION INC.
By:
------------------------------
Name:
Title:
<PAGE>
53
EXHIBIT E TO
PARTICIPATION AGREEMENT
FORM OF EQUIPMENT CLOSING CERTIFICATE
Pursuant to that certain Participation Agreement, dated as of March 13, 2000,
among Hanover Compression Inc., as Lessee (the "Lessee"), Hanover Equipment
Trust 2000A, 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 ________,
2000.
HANOVER COMPRESSION INC.
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT 10.46
EXECUTION COPY
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of March 13, 2000, made by HANOVER EQUIPMENT
TRUST 2000A, 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.
<PAGE>
"Code": the Uniform Commercial Code as from time to time in effect in
the State of New York.
"Collateral": as defined in Section 2.
"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
<PAGE>
3
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 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
<PAGE>
4
available to the Agent at places which the Agent shall reasonably select. The
Agent shall apply the net proceeds of any action taken by it pursuant to this
subsection, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of the
Agent and the Lenders hereunder, including, without limitation, reasonable
attorneys' fees and disbursements, to the payment in whole or in part of the
Obligations, in accordance with Section 8.2 of the Credit Agreement, and only
after such application and after the payment by the Agent of any other amount
required by any provision of law, including, without limitation, Section 9-
504(1)(c) of the Code, need the Agent account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against the Agent or any Lender
arising out of the exercise by them of any rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition. The Agent agrees that if it shall proceed to
foreclose the Lien of this Agreement, it shall, to the extent that it is
entitled to do so hereunder and under the other Operative Agreements, and is not
then stayed or prevented from doing so by law or otherwise, proceed (to the
extent it has not already done so) to exercise one or more of the significant
possessory remedies referred to in the Lease (as it shall determine in its sole
good faith discretion).
6. Agent's Appointment as Attorney-in-Fact; Agent's Performance of
Obligations.
6.1 Powers. The Borrower hereby irrevocably constitutes and appoints the
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Borrower and in the name of the Borrower or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, the
Borrower hereby gives the Agent the power and right, on behalf of the Borrower,
without notice to or assent by the Borrower, to do any or all of the following:
(a) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of the Lease and pay all or any part of the
premiums therefor and the costs thereof;
(b) execute, in connection with any sale provided for in Section 5.1,
any indorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(c) (1) sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with
any of the Collateral; (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
<PAGE>
5
Borrower with respect to any Collateral; (4) settle, compromise or adjust
any such suit, action or proceeding and, in connection therewith, to give
such discharges or releases as the Agent may deem appropriate; and (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
<PAGE>
6
respect to the Collateral without the signature of the Borrower in such form and
in such filing offices as the Agent reasonably determines appropriate to perfect
the security interests of the Agent under this Agreement. A carbon, photographic
or other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
9. Authority of Agent. The Borrower acknowledges that the rights and
responsibilities of the Agent under this Agreement with respect to any action
taken by the Agent or the exercise or non-exercise by the Agent of any request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Agent and the Lenders, be governed
by the Credit Agreement and by such other agreements with respect thereto as may
exist from time to time among them, but, as between the Agent and the Borrower,
the Agent shall be conclusively presumed to be acting as agent for the Lenders
with full and valid authority so to act or refrain from acting, and the Borrower
shall not be under any obligation, or entitlement, to make any inquiry
respecting such authority.
10. Notices. Unless otherwise specifically provided herein, all notices,
requests and demands required or permitted by the terms hereof to be given to
any person shall be given pursuant to and in accordance with Section 13.3 of the
Participation Agreement.
11. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
12. Amendments in Writing; Cumulative Remedies.
12.1 Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Borrower and the Agent, provided that any
provision of this Agreement imposing obligations on the Borrower may be waived
by the Agent in a written instrument executed by the Agent.
12.2 Remedies Cumulative. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
<PAGE>
7
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.
<PAGE>
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 2000A
By: Wilmington Trust Company, not individually but
solely as Trustee
By: __________________________________
Name:
Title:
<PAGE>
Schedule 1
EQUIPMENT
<PAGE>
JOINDER OF LESSEE
HANOVER COMPRESSION INC., a Delaware corporation ("Lessee") hereby
joins in the Security Agreement dated as of March 13, 2000 made by HANOVER
EQUIPMENT TRUST 2000A, 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 March 13, 2000.
HANOVER COMPRESSION INC.
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT 10.47
ASSIGNMENT OF LEASES, RENTS AND GUARANTEE
from
HANOVER EQUIPMENT TRUST 2000A
to
THE CHASE MANHATTAN BANK, as Agent, Assignee
March 13, 2000
<PAGE>
ASSIGNMENT OF LEASES, RENTS AND GUARANTEE
THIS ASSIGNMENT OF LEASES, RENTS AND GUARANTEE dated as of March 13,
2000 (this "Assignment"), made by HANOVER EQUIPMENT TRUST 2000A, a Delaware
business trust (the "Assignor"), to THE CHASE MANHATTAN BANK, a New York banking
corporation, in its capacity as Agent (in such capacity, the "Assignee"), 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 Assignee and the financial institutions from time to time parties
thereto (the "Lenders").
Preliminary Statement
A. On date hereof, the Assignor and Hanover Compression Inc. (the
"Lessee") entered in a Lease whereby the Assignor agreed to lease certain
Equipment to the Lessee. Pursuant to the Lease, on the date that any Equipment
is acquired by the Assignor, the Assignor and the Lessee shall execute and
deliver a Lease Supplement to subject such Equipment to the Lease.
Simultaneously with the execution of the Lease, the Guarantor entered into a
Guarantee which, among other obligations, guarantees all of the Lessee's
obligations under the Lease.
B. Pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Assignor in an aggregate amount not to exceed
$[194,000,000] upon the terms and subject to the conditions set forth therein,
to be evidenced by the Notes issued by the Assignor under the Credit Agreement.
C. It is a condition, among others, to the obligation of the Lenders
to make their respective Loans to the Assignor under the Credit Agreement that
the Assignor shall have executed and delivered, and the Lessee and the Guarantor
shall have consented to, this Assignment to the Assignee for the ratable benefit
of the Lenders and the Investors, as provided for in the Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. Defined Terms. Capitalized terms used but not otherwise defined
in this Assignment shall have the respective meanings specified in Annex A to
the Participation Agreement dated as of the date hereof among the Lessor, the
Lessee, the Investors, the Trust Company, the Agent and the Lenders named
therein, as such Participation Agreement may be amended, supplemented or
otherwise modified from time to time. A copy of the Participation Agreement or
of the other agreements referenced herein or therein may be obtained from any of
the parties hereto at the addresses set forth herein.
<PAGE>
2
2. Assignment. The Assignor hereby irrevocably assigns, transfers,
sets over and conveys to the Assignee, all the following-described property
relating to or arising in connection with the Equipment, whether now owned or
held or hereafter acquired, exclusively and without any reservation thereof unto
the Assignor:
(a) All of the estate, right, title, interest, benefits, powers and
privileges of the Assignor, as lessor, under the Lease, as the Lease is
supplemented from time to time pursuant to one or more Lease Supplements,
including, without limitation, (i) the immediate and continuing right to
make claim for, receive, collect and receipt for all rents, income,
revenues, issues, profits, insurance proceeds, sales proceeds and other
sums payable to or receivable by the Assignor under the Lease, or pursuant
to any provisions thereof, whether as rent or as the purchase price or
termination payment for any interest in the Equipment or otherwise
(including, without limitation, the Maximum Residual Guarantee Amount, the
Purchase Option Price, Termination Value, Basic Rent, Supplemental Rent,
Investor Yield and any sales proceeds payable to the Assignor pursuant to
the Lease) (collectively, the "Lease Rents"), including all cash,
securities or letters of credit, if any, delivered or deposited pursuant
thereto to secure performance by the Lessee of its obligations thereunder,
(ii) the right and power (which right and power are coupled with an
interest) upon the purchase by the Lessee of the interest of the Assignor
in the Equipment in accordance with the Lease to execute and deliver as
irrevocable agent and attorney-in-fact of the Assignor an appropriate
instrument necessary to convey the interest of the Assignor therein, or to
pay over or assign to the Assignee those sums to which it is entitled if
the Lessee becomes obligated to purchase the interest of the Assignor in
the Equipment and to perform all other necessary or appropriate acts as
said agent and attorney-in-fact with respect to any such purchase and
conveyance, (iii) the right to perform all other necessary or appropriate
acts as said agent and attorney-in-fact with respect to any purchase or
conveyance referred to in clause (ii) above, (iv) the right to declare the
Lease to be in default under Section 17.1 thereof, (v) the right to
exercise remedies under or with respect to the Lease, (vi) the right to
make all waivers and agreements on behalf of the Assignor under the Lease
provided for or permitted under the Lease, (vii) the right to give all
notices, consents, releases and other instruments provided under the Lease,
(viii) the right to give all notices of default and to take all action upon
the happening of a Lease Default or a Lease Event of Default, including the
commencement, conduct and consummation of proceedings as shall be permitted
under any provision of the Lease, or by law or in equity, (ix) the right to
receive all notices sent to the Assignor under the Lease, (x) the
Assignor's interest under the Lease in the Lessee's tangible and intangible
property used or arising in connection with the Equipment, including, but
not limited to, permits, licenses, contract rights and prepaid expenses,
(xi) the grant of lien and security interest by the Lessee pursuant to the
Lease; and (xii) the right to do any and all other things whatsoever which
the Assignor is or any lessor or mortgagor or secured party is, or may be
entitled to do under the Lease; provided that the Assignor shall retain,
and the Lease Rents shall not include, the Excepted Payments and the Lessor
shall retain, and the rights and powers assigned herein shall in no event
include, the Excepted Rights and shall be subject to the Shared Rights.
(b) All of the estate, right, title, interest, benefits, powers and
privileges of the Assignor, to and under all other leases, subleases or
licenses of the Equipment, any license, concession, management or other
agreements of a similar kind that permit the use
<PAGE>
3
or occupancy of the Equipment or any part thereof for any purpose in return
for any payment, now or hereafter entered into by the Assignor
(collectively, the "Other Leases" and, together with the Lease, the
"Leases"), together with all estate, rights, title, interest, benefits,
powers and privileges of the Assignor, as lessor, under the Other Leases
including the immediate and continuing right to make claim for, receive,
collect and receipt for all charges, fees, income, issues, profits,
receipts, rents, revenues or royalties payable under any of the Other
Leases (collectively, the "Other Lease Rents") and all estate, right, title
and interest of the Assignor thereunder, including all cash, securities or
letters of credit, if any, delivered or deposited thereunder to secure
performance by the lessees under Other Leases of their obligations
thereunder; provided that the Assignor shall retain, and the Lease Rents
shall not include, the Excepted Payments and the Lessor shall retain and
the rights and powers assigned herein shall in no event include the
Excepted Rights and shall be subject to the Shared Rights.
(c) All of the estate, right, title, interest, benefits, powers and
privileges of the Assignor, to and under all agreements or contracts for
the sale or other disposition of all or any part of the Equipment, now or
hereafter entered into by the Assignor (collectively, the "Contracts"),
together with all estate, rights, title, interest, benefits, powers and
privileges of the Assignor under the Contracts including, without
limitation, the immediate and continuing right to make claim for, receive,
collect and receipt for all charges, fees, income, issues, profits,
receipts, rents, revenues or royalties payable under any of the Contracts
(collectively, the "Contract Rents" and, together with the Lease Rents and
the Other Lease Rents, the "Rents") and all right, title and interest of
the Assignor thereunder, including all cash, securities or letters of
credit, if any, deposited thereunder to secure performance by the obligors
of their obligations thereunder; provided that the Assignor shall retain,
and the Lease Rents shall not include, the Excepted Payments and the Lessor
shall retain and the rights and powers assigned herein shall in no event
include the Excepted Rights and shall be subject to the Shared Rights.
(d) All of the estate, right, title, interest, benefits, powers and
privileges of the Assignor under the Guarantee including, without
limitation, (i) the immediate and continuing right to make claim for,
receive, collect and receipt for all Guaranteed Obligations and other sums
payable to or receivable by the Assignor under the Guarantee, or pursuant
to any provisions thereof, (ii) the right to exercise remedies under or
with respect to the Guarantee, (iii) the right to make all waivers and
agreements on behalf of the Assignor under the Guarantee provided for or
permitted under the Guarantee, (iv) the right to give all notices,
consents, releases and other instruments provided under the Guarantee, and
(v) the right to give all notices of default and to take all action as
shall be permitted under any provision of the Guarantee or by law or in
equity; provided that the Assignor shall retain the Excepted Payments and
the Lessor shall retain, and the rights and powers assigned herein shall in
no event include, the Excepted Rights and shall be subject to the Shared
Rights.
(e) All of the right, title and interest of the Assignor in and to all
claims and rights to the payment of money at any time arising in connection
with any repudiation, rejection or breach of the Lease by the Lessee or a
trustee or receiver of the Lessee (whether pursuant to the Lease, the
Guarantee or any Other Lease by any lessee thereunder, trustee or receiver
of any such lessee) under any insolvency statute, law or
<PAGE>
4
regulation, including all rights to recover damages arising out of such
breach or rejection, all rights to charges payable by the Lessee or such
trustee or receiver (or by such lessee, trustee or receiver) in respect of
the Equipment or any portions thereof following rejection, repudiation or
disaffirmance of the Lease or following the entry of an order for relief
under any insolvency statute, law or regulation in respect of the Lessee
(or such lessee) and all rentals and other charges outstanding under the
Lease (or Other Lease) as of the date of entry of such order for relief;
provided that the Assignor shall retain and the Lease Rents shall not
include, the Excepted Payments and the Lessor shall retain and the rights
and powers assigned herein shall in no event include, the Excepted Rights
and shall be subject to the Shared Rights.
The Assignor hereby agrees that any action taken by Assignee (or its designee)
pursuant to this Assignment shall be exclusive, and no party relying on such
action of the Assignee (or such designee) pursuant hereto shall be required to
obtain the concurrence or consent of the Assignor to such action or to a request
for such action. The Assignor further agrees that this Agreement shall not
relieve Assignor from any obligations it may have as lessor under the Lease.
3. Receipt of Payments. The Assignor hereby irrevocably designates
the Assignee (or its designee) to receive all payments of (i) the Lease Rents,
the Other Lease Rents and the Contract Rents and any other sums payable to the
Assignor under the Lease, any Other Lease or any Contract and (ii) all
Guaranteed Obligations and any other sums payable to the Assignor under the
Guarantee. The Assignor agrees to direct (and hereby directs) the Lessee, any
other lessees and any contracting parties to deliver to the Assignee (or its
designee), at its address provided herein or at such other address or to such
other Person as the Assignee shall designate, all such payments and sums on
account of the Rents, and no delivery thereof by the Lessee, such other lessee
or such contracting party shall be of any force or effect unless made to the
Assignee (or its designee), as herein provided. The Rents shall for all
purposes be considered the property of the Assignee and not of the Assignor,
whether before or after the occurrence of an Event of Default.
4. Receipt of Notices. The Assignor hereby designates the Assignee
(or its designee) to receive (in addition to, and not to the exclusion of, the
Assignor) duplicate originals or copies of all notices, undertakings, demands,
statements, documents, financial statements and other communications which the
Lessee, the Guarantor, any other lessee or any contracting party is required or
permitted to give, make, deliver to or serve pursuant to the Lease, the
Guarantee, any Other Lease or any Contract. The Assignor agrees to direct (and
hereby directs) the Lessee, the Guarantor, and such other lessees and
contracting parties to deliver to the Assignee (or its designee), at its address
provided herein or at such other address or to such other Person as the Assignee
shall designate, duplicate originals or copies of all such notices,
undertakings, demands, statements, documents, financial statements and other
communications, and no delivery thereof by the Lessee, the Guarantor, such other
lessee or such contracting party shall be of any force or effect unless made to
the Assignor and also made to the Assignee (or its designee), as herein
provided. The Assignor further agrees that upon receipt by the Assignor of any
such notices, undertakings, demands, statements, documents, financial statements
and other communications, the Assignor shall promptly deliver copies thereof to
the Assignee unless the Assignor shall reasonably believe that the Assignee has
already received such copies.
<PAGE>
5
5. Irrevocability; Supplemental Instruments. The Assignor agrees
that this Assignment and the designation and direction to the Lessee set forth
in Sections 3 and 4 of this Assignment are irrevocable and that it will not take
any action as lessor under the Lease, or under the Guarantee, or otherwise which
is inconsistent with this Assignment and that any action, assignment,
designation or direction inconsistent herewith shall be void. The Assignor will
from time to time execute and deliver all instruments of further assurance and
do such further acts as may be necessary or proper to carry out more effectively
the purpose of this Assignment.
6. Validity. The Assignor represents and warrants and covenants to
the Assignee that (i) the Assignor has not assigned or executed any assignment
of, and will not assign or execute any assignment of its interest in the Lease,
of the Guarantee, of any Other Lease, of any Contract or of any Rents or of any
other subject matter of this Assignment to anyone other than the Assignee and
any assignment, designation or direction by the Assignor inconsistent herewith
shall be void, (ii) no Lease Event of Default has occurred and is continuing and
(iii) the Assignor has not done any act or executed any document that impairs
the rights of the Assignee to the Lease or the Lease Rents or to the Guarantee
under this Assignment.
7. The Assignor Remains Liable. While the assignment made hereby is
present, direct, absolute and continuing, it has been made for the purpose of
providing the Assignee with security for the performance of the Assignor's
obligations under the Credit Agreement and the Notes and the execution and
delivery hereof shall not impair or diminish in any way the obligations of the
Assignor under the Lease or impose any of such obligations on the Assignee.
Neither the Assignee nor its designee shall be responsible or liable for
performing any of the obligations of the Assignor under the Lease, any Other
Lease or any Contract, for any waste by the Lessee or others, for any dangerous
or defective conditions of the Equipment, for negligence in the management,
upkeep, repair or control of the Equipment or any other act or omission by any
other Person. Nothing contained herein shall operate or be construed to (i)
obligate the Assignee (or its designee) to assume the obligations of the
Assignor under the Lease, any Other Lease or any Contract, to perform any of the
terms and conditions contained in the Lease, any Other Lease or any Contract or
otherwise to impose any obligation upon the Assignee with respect to the Lease,
any Other Lease or any Contract or (ii) place upon the Assignee (or its
designee) any responsibility for the operation, control, care, management or
repair of any of the Equipment or any part thereof. Subject at all times to the
terms and conditions of this Assignment, the Assignor will at all times promptly
and faithfully perform in all respects, or cause to be performed in all
respects, all of its covenants, conditions and agreements contained in the
Lease, any Other Lease or any Contract now or hereafter existing on the part of
the Assignor to be kept and performed.
8. Amendments; Lessee's Consent. The Assignor will not enter into
any agreement subordinating, amending, extending or terminating the Lease or the
Guarantee without the prior written consent thereto of the Assignee, which
consent may be withheld in Assignee's sole discretion, and any such attempted
subordination, amendment, modification, extension or termination without such
consent shall be void. If the Lease, the Guarantee, any Other Lease or any
Contract shall be amended, it shall continue to be subject to the provisions
hereof without the necessity of any further act by any of the parties hereto.
The Assignor and the Assignee hereby consent to the provisions of Lessee's and
Guarantor's Consent attached to this Assignment and agree to be bound thereby.
<PAGE>
6
9. Absolute Assignment. The Assignor has, subject to and in
accordance with the terms and conditions of this Assignment, assigned and
transferred unto the Assignee all of the Assignor's right, title and interest in
and to Rents now or hereafter arising from (i) the Lease, any Other Lease or any
Contract heretofore or hereafter made or agreed to by the Assignor and (ii) the
Guarantee, it being intended to establish an absolute transfer and assignment,
subject to and in accordance with the terms and conditions of this Assignment,
of all such Rents, Guaranteed Obligations, the Lease, the Guarantee, the Other
Leases and the Contracts to the Assignee and not merely to grant a security
interest therein. Subject to the terms of the Lease and Lessee's rights
thereunder, the Assignee (or its designee) may in the Assignor's name and stead
operate the Equipment and rent, lease or let all or any portion of the Equipment
to any party or parties at such rental and upon such terms as the Assignee (or
its designee) shall, in its discretion, determine.
10. Ongoing Right to Collect Rents; Receivers. If notwithstanding
the terms of this Assignment, a petition or order for sequestration of rents, or
the appointment of a receiver or some similar judicial action or order is deemed
required under applicable state law to allow the Assignee to continue to collect
the moneys described in paragraphs 2 (a), (b), (c), (d) and (e) of this
Assignment, then it is agreed by the Assignor that any proof of claim or similar
document filed by the Assignee in connection with the breach or rejection of the
Lease by the Lessee thereunder or the trustee of any lessee under any federal or
state insolvency statute shall for the purpose of perfecting the Assignee's
rights conferred in said paragraph 2(e) and to the extent permitted under
applicable law be deemed to constitute action required under such state law.
Upon the occurrence and during the continuance of an Event of Default, the
Assignor hereby consents to the appointment of a receiver for any or all of the
Equipment as a matter of right and without any requirement for notice to the
Assignor and without regard to the solvency of the Assignor or to the collateral
that may be available for the satisfaction of the Notes and all other
obligations under the Credit Agreement and the other Operative Agreements.
11. Amendment. This Assignment may not be amended or otherwise
modified except by a writing signed by the Assignor and the Assignee in
accordance with the terms of the Credit Agreement.
12. Notices. All notices, demands, requests, consents, approvals and
other instruments under this Assignment shall be made in accordance with the
notice provisions of the Participation Agreement.
13. Successors and Assigns. All covenants, agreements,
representations and warranties in this Assignment by the Assignor and the
Assignee shall bind, and shall inure to the benefit of and be enforceable by,
their respective successors and permitted assigns.
14. Severability. If any provision or provisions, or if any portion
of any provision or provisions, in this Assignment 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 parties hereto 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 Assignment shall be construed as if such
illegal, invalid, unlawful, void or unenforceable portion, provision or
<PAGE>
7
provisions were not contained therein, and that the obligations of the Assignor
under the remainder of this Assignment shall continue in full force and effect.
15. Governing Law. THIS ASSIGNMENT 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.
16. Obligations Are Without Recourse. Anything to the contrary
herein notwithstanding, the Assignor's liability for any sums due hereunder
shall be limited in accordance with Section 9.17 of the Credit Agreement.
17. Counterparts. This Assignment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed as of the day and year first above written.
HANOVER EQUIPMENT TRUST 2000A
By: Wilmington Trust Company,
not in its individual capacity but
solely as Trustee
By: ___________________________
Name:
Title:
By execution of this Assignment the Investors hereby irrevocably assign,
transfer, set over and convey to the Assignee all of the estate, right, title,
interest, benefits, powers and privileges of the Investors under the Guarantee
which transfer shall be in accordance with all of the terms and provisions of
this Assignment.
FIRST UNION NATIONAL BANK, as an Investor
By: ___________________________
Name:
Title:
SCOTIABANC INC., as an Investor
By: ___________________________
Name:
Title:
<PAGE>
LESSEE'S AND GUARANTOR'S CONSENT
As of this 13th day of March, 2000, HANOVER COMPRESSOR COMPANY, a
Delaware corporation, HANOVER COMPRESSION INC., a Delaware corporation
("Lessee"), and certain of their Subsidiaries listed on the signature pages
hereto (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 2000A, a Delaware business trust ("Assignor"), and joined in by
First Union National Bank and ScotiaBanc Inc., a Delaware corporation, in favor
of The Chase Manhattan Bank, as Agent under the Credit Agreement dated as of the
date hereof (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement") among the Assignor, the Agent and the financial
institutions from time to time parties thereto (the "Lenders"), and further
agree as follows:
1. Definitions. Each capitalized term used herein and not otherwise
defined herein shall have the respective meanings ascribed thereto in the
Assignment, as such Assignment may be amended, supplemented or otherwise
modified from time to time.
2. Acknowledgments, Confirmations and Agreements. (a) The Lessee
acknowledges, confirms and agrees that: (i) the Lessee has the right, power and
authority to enter into this consent (this "Consent"); (ii) the Lease is in full
force and effect and enforceable in accordance with its terms; (iii) neither the
Lessee nor, to the Lessee's knowledge, the Assignor is in default in the
observance or performance of any condition or agreement to be observed or
performed by the Lessee or the Assignor, respectively, thereunder; (iv) no Lease
Rents have been paid by the Lessee except as provided in the Lease; (v) no Rent
has been waived, released, reduced, discounted or otherwise discharged or
compromised by the Assignor; and (vi) the Lessee has not received notice of any
other assignment of the Lessor's interest in the Lease.
(b) The Guarantors acknowledge, confirm and agree that: (i) the
Guarantors have the right, power and authority to enter into this Consent; and
(ii) the Guarantee is in full force and effect and enforceable in accordance
with its terms.
3. Consent. (a) The Lessee, as lessee under the Lease, consents to
the Assignment and each of the terms thereof, and agrees to pay and deliver to
the Assignee (or its designee) all Lease Rents and other sums payable under the
Lease without any offset, deduction, defense, abatement, deferment, diminution
or counterclaim, and the Lessee will not assert any offset, deduction, defense
(other than the defense of payment to the Assignee (or its designee)),
abatement, deferment, diminution or counterclaim in any proceeding brought under
the Assignment or with respect to the transactions contemplated therein or
herein. The Lessee will not, for any reason whatsoever, seek to recover from
the Assignee (or its designee) any moneys paid to the Assignee (or its designee)
by virtue of the Assignment. Lessee agrees (i) to deliver to the Assignee (or
its designee) and the Assignor, at their addresses provided in the Participation
Agreement or at such other addresses as the Assignee or the Assignor, as the
case may be, may designate, duplicate original or copies of all notices,
undertakings, demands, statements, documents and other communications which the
Lessee is required or permitted to deliver pursuant to the Lease or the
Assignment; (ii) that, subject to the Excepted Rights, any notice delivered or
declaration made to the Lessee by the Assignee (or its designee) pursuant to the
<PAGE>
Lease shall be effective as a notice given or declaration made to the Lessee by
the Assignor as lessor under the Lease; (iii) that the Assignee (and its
designee) shall not by reason of the Assignment be subject to any liability or
obligation under the Lease; and (iv) that, subject to the Excepted Rights, any
waiver, consent or approval by the Assignor under the Lease shall not be valid
unless approved in writing by the Assignee (or its designee).
(b) The Guarantors consent to the Assignment and each of the terms
thereof, and agrees to pay and deliver to the Assignee (or its designee) the
Guaranteed Obligations, subject to the Excepted Rights, and other sums payable
under the Guarantee without any offset, deduction, defense, abatement,
deferment, diminution or counterclaim, and the Guarantors will not assert any
offset, deduction, defense (other than the defense of payment to the Assignee
(or its designee)), abatement, deferment, diminution or counterclaim in any
proceeding brought under the Assignment or with respect to the transactions
contemplated therein or herein. The Guarantors will not, for any reason
whatsoever, seek to recover from the Assignee (or its designee) any moneys paid
to the Assignee (or its designee) by virtue of the Assignment.
(c) Subject to the Excepted Rights, the Lessee shall cause the Lease
Rents and other sums payable to the Assignor under the Lease to be delivered to
the Assignee (or its designee), as agent under the Credit Agreement, as an
absolute net sum, in such manner that the Assignee (or its designee) shall have
"collected funds" on the date and at the time payments are due under the Lease.
(d) The Guarantors shall cause the Guaranteed Obligations, subject to
the Excepted Rights, and other sums payable to the Assignor under the Guarantee
to be delivered to the Assignee (or its designee), as agent under the Credit
Agreement, at its address set forth in Section 13.3 of the Participation
Agreement.
(e) The Lessee hereby agrees to remain obligated under the Lease and
this Consent in accordance with their respective terms, and to take no action to
terminate (except in accordance with the express terms of the Lease), annul,
rescind or avoid the Lease or this Consent or to abate, reduce, offset, suspend
or defer or make any counterclaim or raise any defense (other than the defense
of payment to the Assignee (or its designee)) with respect to the Lease Rents
payable thereunder or to cease paying such Lease Rents to the Assignee (or its
designee) as provided herein.
(f) The Guarantors hereby agree to remain obligated under the
Guarantee and this Consent in accordance with their respective terms, and to
take no action to terminate (except in accordance with the express terms of the
Guarantee), annul, rescind or avoid the Guarantee or this Consent or to abate,
reduce, offset, suspend or defer or make any counterclaim or raise any defense
(other than the defense of payment to the Assignee (or its designee)) with
respect to the Guaranteed Obligations payable thereunder.
(g) The Lessee and the Guarantors hereby agree that upon the
occurrence of a Default or an Event of Default, the Assignee (or its designee)
shall have the right to deliver a notice of such default and make demand for
payment under the Guarantee, which shall be effective for all purposes as if
sent by the Assignor.
(h) The Lessee shall notify the Assignee (or its designee) at its
address specified in the Participation Agreement, or such other address as the
Assignee may designate, of
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
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 a
Guarantor
By: ______________________________
Name:
Title:
HANOVER COMPRESSION INC., as Lessee and Guarantor
By: ______________________________
Name:
Title:
HANOVER COMPRESSOR LIMITED HOLDINGS, LLC, as a
Guarantor
by Hanover General Holdings, Inc.,
as sole member
By: ___________________________
Name:
Title:
HANOVER MAINTECH LIMITED PARTNERSHIP, as a
Guarantor
by Hanover General Holdings, Inc.,
as general partner
By: ___________________________
Name:
Title:
<PAGE>
HANOVER/SMITH LIMITED PARTNERSHIP,
as a Guarantor
by Hanover General Holdings, Inc.,
as general partner
By:____________________________
Name:
Title:
<PAGE>
HANOVER LAND LIMITED PARTNERSHIP,
as a Guarantor
by Hanover General Holdings, Inc.,
general partner
By:________________________________
Name:
Title:
For purposes of Section 5 hereof:
HANOVER EQUIPMENT TRUST 2000A
By: Wilmington Trust Company, not in
its individual capacity but solely
as Trustee
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
Hanover Compressor Company
Computation of Ratio of Earnings to Fixed Charges
(Amounts in thousands of dollars)
Year Ended December 31,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from continuing operations..................... $63,586 $49,636 $29,417 $17,225 $9,112 $6,978
Add:
Interest on indebtedness and amortization of debt
expense and discount........................................ 30,876 17,889 10,728 6,594 4,560 2,027
Interest component of rent expense........................... 396 137 113 132 100 60
Equity in losses of joint ventures........................... - 137 342 - - -
-------------------------------------------------------------
Earnings as adjusted....................................... 94,858 67,799 40,600 23,951 13,772 9,065
-------------------------------------------------------------
Fixed charges:
Interest on indebtedness and amortization of debt expense
and discount................................................ 30,876 17,889 10,728 6,594 4,560 2,027
Interest component of rent expense........................... 396 137 113 132 100 60
-------------------------------------------------------------
Fixed charges............................................... 31,272 18,026 10,841 6,726 4,660 2,087
-------------------------------------------------------------
Ratio of earnings to fixed charges........................... 3.03 3.76 3.75 3.56 2.96 4.34
=============================================================
</TABLE>
<TABLE>
<CAPTION>
Hanover Compressor Company
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
(Amounts in thousands of dollars)
Year Ended December 31,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from continuing operations..................... $63,586 $49,636 $29,417 $17,225 $9,112 $6,978
Add:
Interest on indebtedness and amortization of debt
expense and discount........................................ 30,876 17,889 10,728 6,594 4,560 2,027
Interest component of rent expense........................... 396 137 113 132 100 60
Equity in losses of joint ventures........................... - 137 342 - - -
-------------------------------------------------------------
Earnings as adjusted....................................... 94,858 67,799 40,600 23,951 13,772 9,065
-------------------------------------------------------------
Fixed charges:
Interest on indebtedness and amortization of debt expense
and discount................................................ 30,876 17,889 10,728 6,594 4,560 2,027
Interest component of rent expense........................... 396 137 113 132 100 60
Preferred dividend requirements.............................. - - - 11,560 2,167 _
-------------------------------------------------------------
Fixed charges and preferred dividends....................... 31,272 18,026 10,841 18,286 6,827 2,087
-------------------------------------------------------------
Ratio of earnings to fixed charges........................... 3.03 3.76 3.75 1.31 2.02 4.34
=============================================================
</TABLE>
<PAGE>
EXHIBIT 21.1
NEW PARENT: HANOVER COMPRESSOR COMPANY A DELAWARE CORPORATION
NEW NAME FOR OPERATING CO.: HANOVER COMPRESSION INC. ("HCI") (F/K/A HCC)
1. Hanover Acquisition Limited Partnership, owned 1% by Hanover General
Holdings, Inc. and 99% by Hanover Compressor Limited Holdings, LLC.
2. Hanover Compressor Columbia, Inc., a Delaware corporation and a wholly-owned
Subsidiary of HCI.
3. Hanover Land Limited Partnership, a Delaware Limited Partnership, owned 1%
by Hanover General Holdings, Inc. and 99% by Hanover Compressor Limited
Holdings, LLC.
4. Hanover Maintech, Limited Partnership ("HMLP"), a Delaware Limited
Partnership, owned 1% by Hanover General Holdings, Inc. and 99% by Hanover
Compressor Limited Holdings, LLC.
5. Hanover/Smith, Limited Partnership, a Delaware Ltd. Partnership, owned 1% by
Hanover General Holdings, Inc. and 99% by Hanover Compressor Limited
Holdings, LLC.
6. H.C.C. Compressor de Venezuela, C.A., a Venezuelan corporation ("H.C.C.
Venezuela") and a wholly-owned Subsidiary of HCI.
7. Proyecto Gas Natural, PGN, C.A., a Venezuelan corporation and a wholly-owned
Subsidiary of H.C.C. Venezuela.
8. HCI owns 99.992% of the issued and outstanding stock of Contract Compression
International Argentina, S.A., an Argentinean corporation ("CCIA"). HMLP
owns the remaining 0.008% of CCIA stock.
9. Hanover Compressor Holding Company NL B.V., a Dutch company ("Hanover
Holding") and a wholly-owned Subsidiary of HCI.
10. Hanover Cayman Limited, a Cayman Islands company ("Hanover Cayman") and a
wholly-owned Subsidiary of HCI.
11. HCC owns Hanover Compressor Company Bolivia, Ltd., a Bolivian company
("Hanover Bolivia"), of which it owns 99.99% of the issued and outstanding
stock. Hanover Cayman owns the remaining 0.01%.
12. Hanover Cayman owns 60% of the issued and outstanding stock of Hanover/Enron
Venezuela, Ltd., a Cayman Islands company.
13. HCI owns 99.99% of the membership interests of Hanover Compressor Mexico
SRL, a Mexican limited liability company ("Hanover Mexico"). Hanover Cayman
owns the remaining 0.01% of said membership interests. Inactive.
14. Hanover Compressor Sucursal Mexico, a Mexican branch and a wholly-owned
Subsidiary of HCI.
<PAGE>
15. HCI owns 35% of Hanover/Cosacol Consortium, a Columbian consortium.
16. HCI owns 51% of Hanover Compressor Colombia Ltd., a Colombian limitada.
17. HCI owns 99% of the membership interests of 3013442 Nova Scotia Co., a Nova
Scotia unlimited liability company. Renamed Collicutt Hanover Compression
Co. HMLP owns the remaining 1% of said membership interests.
18. HCI owns 35% of Collicutt Hanover Services Ltd. and Coll-Tech Ignition
System, Ltd., Canadian corporations.
19. Hanover International Trade Corporation a West Indies (Barbados)
corporation. Inactive.
20. Hanover Trade Corporation a West Indies (Barbados) corporation.
21. Proyecto Gas Natural, PGN, C.A. owns 100% of Servi Compressores, C.A. a
Venezuela corporation.
22. Hanover Asia, Inc., a Delaware Corporation is 100% owned by HCI.
23. Hanover MAC, LLC is owned 100% by HCI and it owns .001% of Meter
Acquisition Co. LP ( A Delaware LLP).
24. Hanover Measurement LLC, a Delaware LLC is owned 100% by HCI and it owns
.001% of Hanover Measurement Service Co. LP, a Delaware LP.
25. HCC Holdings Inc., a Delaware Corporation, is 100% owned by HCI and it owns
52.499% of Hanover Measurement Service Company LP, a Delaware LP and 19.999%
of Meter Acquisition Co. LP (Delaware LLP).
26. CDI Holdings, Inc., a Delaware Corporation, is 100% owned by HCI.
27. Compressor Dynamics, Inc., a Delaware Corporation, is 100% owned by CDI
Holding, Inc.
28. Contract Engineering and Operating, a Texas Corporation, is 100% owned by
HCI.
29. Unit Partners Inc., a Texas Corporation, is 100% owned by HCI.
30. Victoria Compression Services, Inc., a Texas Corporation, is 100% owned by
HCI.
31. Hanover General Holdings, Inc., is a Delaware Corporation, 100% owned by
HCI.
32. Hanover Compressor Limited Holdings, LLC, is a Delaware LLC, 100% owned by
Hanover General Holdings, Inc.
33. Eureka Energy Limited Partnership, a Delaware Limited Partnership, is owned
1% by Hanover General Holdings, inc. and 99% by Hanover Compressor Limited
Holdings, LLC.
2
<PAGE>
34. Hanover Measurement Services Company, L.P. , general partner is Hanover
Measurement, LLC, which owns .001%, while HCC Holding, Inc. owns 52.499%.
35. HC Cayman LLC, is a Delaware Corporation, 100% owned by HCI.
36. Meter Acquisition Company LP, LLLP, a Delaware LLLP is owned .001% by
Hanover MAC, LLC and 19.999% by HCC Holding, Inc.
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-65923) of Hanover Compressor Company of our
report dated March 8, 2000, relating to the consolidated financial statements,
which appear in this Form 10-K.
/s/ PRICWATERHOUSECOOPERS LLP
Houston, Texas
March 29, 2000
<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
TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,756
<SECURITIES> 0
<RECEIVABLES> 95,445
<ALLOWANCES> 1,730
<INVENTORY> 66,562
<CURRENT-ASSETS> 192,532
<PP&E> 577,048
<DEPRECIATION> 79,583
<TOTAL-ASSETS> 756,510
<CURRENT-LIABILITIES> 84,566
<BONDS> 0
0
0
<COMMON> 273,002
<OTHER-SE> 96,155
<TOTAL-LIABILITY-AND-EQUITY> 756,510
<SALES> 80,568
<TOTAL-REVENUES> 317,028
<CGS> 64,496
<TOTAL-COSTS> 244,656
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,786
<INCOME-PRETAX> 63,586
<INCOME-TAX> 23,145
<INCOME-CONTINUING> 40,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,441
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.32
</TABLE>
