-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R15Fdg9d+p0OLGGtEKN0TunB2FsJEf3Umo6pmSbIGIvWI7qaAwxXG2Jf4sXJ6d5j /ydGe/ENURA0rkYiycWd2w== 0000950129-01-001532.txt : 20010321 0000950129-01-001532.hdr.sgml : 20010321 ACCESSION NUMBER: 0000950129-01-001532 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 20010320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRL UNIVERSAL EQUIPMENT 2001 A L P CENTRAL INDEX KEY: 0001136994 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-57302 FILM NUMBER: 1572860 BUSINESS ADDRESS: STREET 1: 2911 TURTLE CREEK BLVD CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145227296 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL COMPRESSION INC CENTRAL INDEX KEY: 0001057233 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 741282680 STATE OF INCORPORATION: TX FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-57302-01 FILM NUMBER: 1572861 BUSINESS ADDRESS: STREET 1: 4440 BRITTMOORE RD CITY: HOUSTON STATE: TX ZIP: 77041 BUSINESS PHONE: 7134664103 MAIL ADDRESS: STREET 1: 4440 BRITTMOORE RD CITY: HOUSTON STATE: TX ZIP: 77041 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL COMPRESSION HOLDINGS INC CENTRAL INDEX KEY: 0001057234 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 133989167 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-57302-02 FILM NUMBER: 1572862 BUSINESS ADDRESS: STREET 1: 4440 BRITTMOORE RD CITY: HOUSTON STATE: TX ZIP: 77041 BUSINESS PHONE: 7134664103 MAIL ADDRESS: STREET 1: 4440 BRITTMOORE RD CITY: HOUSTON STATE: TX ZIP: 77041 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRL UNIVERSAL EQUIPMENT CORP CENTRAL INDEX KEY: 0001136995 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-57302-03 FILM NUMBER: 1572863 BUSINESS ADDRESS: STREET 1: 2911 TURTLE CREEK BLVD CITY: DALLAS STATE: TX ZIP: 75219 BUSINESS PHONE: 2145227296 S-4 1 h84315s-4.txt BRL UNIVERSAL EQUIPMENT 2001 A, L.P. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 2001 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- BRL UNIVERSAL EQUIPMENT 2001 A, L.P. BRL UNIVERSAL EQUIPMENT CORP. UNIVERSAL COMPRESSION HOLDINGS, INC. UNIVERSAL COMPRESSION, INC. (Exact names of registrants as specified in their charters) --------------------- DELAWARE 7359 75-2918461 DELAWARE 7359 75-2918448 DELAWARE 7359 13-3989167 TEXAS 7359 74-1282680 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Numbers) Identification Numbers)
C/O 2911 TURTLE CREEK BLVD., SUITE 1240 C/O 4440 BRITTMOORE ROAD DALLAS, TEXAS 75219 HOUSTON, TEXAS 77041 (214) 522-7296 (713) 335-7000 (Address, including zip code, and telephone number, (Address, including zip code, and telephone number, including area code, including area code, of principal executive offices of of principal executive offices of BRL Universal Equipment 2001 A, L.P. and BRL Universal Universal Compression Holdings, Inc. and Universal Equipment Corp.) Compression, Inc.)
GREGORY C. GREENE STEPHEN A. SNIDER PRESIDENT PRESIDENT AND CHIEF EXECUTIVE OFFICER BRL UNIVERSAL EQUIPMENT MANAGEMENT, INC. UNIVERSAL COMPRESSION HOLDINGS, INC. 2911 TURTLE CREEK BLVD., SUITE 1240 4440 BRITTMOORE ROAD DALLAS, TEXAS 75219 HOUSTON, TEXAS 77041 (214) 522-7296 (713) 335-7000 (Name, address, including zip code, and telephone number, (Name, address, including zip code, and telephone number, including area code, including area code, of agent for service of of agent for service of BRL Universal Equipment 2001 A, L.P. and BRL Universal Universal Compression Holdings, Inc. and Universal Equipment Corp.) Compression, Inc.)
--------------------- Copies to: ROBERT R. VEACH, JR. MARK L. CARLTON CHRISTINE B. LAFOLLETTE CAROL M. BURKE 2911 TURTLE CREEK BLVD. GENERAL COUNSEL KING & SPALDING GARDERE WYNNE SEWELL LLP SUITE 1240A UNIVERSAL COMPRESSION 1100 LOUISIANA 1000 LOUISIANA DALLAS, TEXAS 75219 HOLDINGS, INC. SUITE 3300 SUITE 3400 (214) 520-7544 4440 BRITTMOORE ROAD HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77041 (713) 751-3239 (713) 276-5500 (713) 335-7454
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable following the effectiveness of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) - ----------------------------------------------------------------------------------------------------------------- 8 7/8% Senior Secured Notes due 2008... $350,000,000 100% $350,000,000 - ----------------------------------------------------------------------------------------------------------------- Lease Obligations of Universal Compression, Inc. under an operating lease, which are intended to fund payments of principal and interest on the Notes........................ (2) (2) (2) - ----------------------------------------------------------------------------------------------------------------- Guarantee Obligations of Universal Compression Holdings, Inc. with respect to the Lease Obligations.................. (2) (2) (2) - ----------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------- - -------------------------------------------------- ---------------------- - -------------------------------------------------- ---------------------- AMOUNT OF REGISTRATION TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED FEE - -------------------------------------------------- ---------------------- 8 7/8% Senior Secured Notes due 2008... $87,500 - ------------------------------------------------------------------------------------------------- Lease Obligations of Universal Compression, Inc. under an operating lease, which are intended to fund payments of principal and interest on the Notes........................ (3) - ----------------------------------------------------------------------------------------------------------------- Guarantee Obligations of Universal Compression Holdings, Inc. with respect to the Lease Obligations.................. (4) - ----------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee under Rule 457 of the Securities Act. (2) The lease obligations and guarantee obligations are being registered solely in connection with the public offering of the new notes being registered hereunder. (3) No proceeds will be received in connection with the issuance of the lease obligations of Universal Compression, Inc. under the operating lease. Accordingly, no separate registration fee is required for the lease obligations. (4) Pursuant to Rule 457(n), no separate registration fee is required for the guarantee obligations. The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT OFFER OR SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MARCH , 2001 PROSPECTUS [UNIVERSAL COMPRESSION LOGO] OFFER TO EXCHANGE 8 7/8% SENIOR SECURED NOTES DUE 2008 THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ALL OUTSTANDING UNREGISTERED 8 7/8% SENIOR SECURED NOTES DUE 2008 ($350,000,000 PRINCIPAL AMOUNT OUTSTANDING) OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. AND BRL UNIVERSAL EQUIPMENT CORP. PAYABLE FROM LEASE OBLIGATIONS OF UNIVERSAL COMPRESSION, INC., WHICH LEASE OBLIGATIONS ARE GUARANTEED BY UNIVERSAL COMPRESSION HOLDINGS, INC. BRL Universal Equipment 2001 A, L.P. and BRL Universal Equipment Corp., the issuers, are offering to exchange $350,000,000 aggregate principal amount of their new 8 7/8% Senior Secured Notes due 2008 (which we refer to as the "new notes") that have been registered under the Securities Act of 1933 for the same aggregate principal amount of their outstanding 8 7/8% Senior Secured Notes due 2008 (which we refer to as the "old notes") that were issued and sold in February 2001 in a transaction exempt from registration under the Securities Act. The issuers used the proceeds from the sale of the old notes to finance in part the purchase of compression equipment from Universal Compression, Inc. and the former lessors of the equipment. The issuers then leased the equipment to Universal for a seven-year term under an operating lease. The issuers will repay the notes with lease payments that they receive from Universal under the operating lease. Universal's obligations under the operating lease are fully and unconditionally guaranteed by its parent company, Universal Compression Holdings, Inc. --------------------- PRINCIPAL TERMS OF THE EXCHANGE OFFER - Expires 5:00 p.m., New York City time, on , 2001, unless extended. - The issuers will accept for exchange all outstanding old notes that are validly tendered and not validly withdrawn. - You may withdraw the tender of your old notes at any time prior to the expiration of the exchange offer. - The exchange offer is not subject to any condition, other than that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission. - There will be no proceeds from the exchange offer. - The issuers believe that the exchange of new notes for outstanding old notes will not be a taxable exchange for U.S. federal income tax purposes. - The issuers do not intend to apply for listing of any of the new notes to be issued on any securities exchange or to arrange for them to be quoted on any quotation system. TERMS OF THE NEW NOTES TO BE ISSUED IN THE EXCHANGE - The terms of the new notes to be issued in the exchange are substantially identical to the terms of the old notes for which the offer to exchange is being made, except that the new notes to be issued in the exchange will be freely transferable under the Securities Act and will be issued free of any covenants regarding exchange and registration rights. - The new notes to be issued in the exchange and the old notes for which the offer to exchange is being made are redeemable at the option of the issuers at any time after February 15, 2005 at a redemption price determined as set forth in this prospectus. - Like the old notes, interest is payable on the new notes to be issued in the exchange semi-annually on February 15 and August 15 of each year, beginning August 15, 2001. --------------------- WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US A PROXY. YOU SHOULD READ THIS ENTIRE PROSPECTUS (AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND RELATED DOCUMENTS) AND ANY AMENDMENTS OR SUPPLEMENTS CAREFULLY BEFORE DECIDING WHETHER TO EXCHANGE YOUR OLD NOTES. SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF RISKS. --------------------- NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE ISSUERS' OFFER OF THE NEW NOTES TO BE ISSUED IN THE EXCHANGE OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is April , 2001. 3 ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that the registrants filed with the Securities and Exchange Commission. You should read this prospectus and any applicable prospectus supplement provided to you, together with the additional information described under the heading "Where You Can Find More Information" below. The registration statement that contains this prospectus (including the exhibits to the registration statement) contains additional information about the registrants and the securities offered by this prospectus. You can read that registration statement at the SEC's web site or at the SEC offices referred to under "Where You Can Find More Information." You should rely only on the information contained in this prospectus. The registrants have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The registrants are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. The registrants' business, financial condition, results of operations and prospects may have changed since that date. The term "UCI" when used in this prospectus refers to Universal Compression, Inc. and its subsidiaries. The terms "Universal," "UCH," "our company," "we," "our" and "us" when used in this prospectus refer to Universal Compression Holdings, Inc. and its subsidiaries, including UCI, and UCH's predecessors, including Tidewater Compression Service, Inc. The term "WGC" when used in this prospectus refers to Enterra Compression Company and its subsidiaries, including Weatherford Global Compression Services, L.P. and certain of its affiliates that were acquired by Universal in February 2001. The term "GCSI" when used in this prospectus refers to Gas Compression Services, Inc., which was acquired by Universal in September 2000, and "IEW" refers to IEW Compression, Inc., which was acquired by Universal in February 2001. The term "BRL" when used in this prospectus refers to BRL Universal Equipment 2001 A, L.P. The term "BRL Corp." when used in this prospectus refers to BRL Universal Equipment Corp. The term "issuers" when used in this prospectus refers to BRL and BRL Corp. The term "registrants" when used in this prospectus means the issuers (as registrants of the new notes), UCI (as registrant of the lease obligations, the payment of which will be used to repay the notes) and UCH (as registrant of the guarantee obligations with respect to the lease obligations). WHERE YOU CAN FIND MORE INFORMATION Neither the issuers nor UCI is currently subject to the periodic reporting and other information requirements of the Exchange Act (although UCI has been preparing and filing reports on a voluntary basis). In connection with the exchange offer, the issuers and UCI will become subject to the information requirements of the Securities Act of 1934, as amended, and will file reports and other information with the SEC. UCH files annual, quarterly and special reports, proxy statements and other information with the SEC. These SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document the registrants file with the SEC at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. UCH's SEC filings are also available at the office of the New York Stock Exchange, Inc., 11 Wall Street, New York, New York 10005. The SEC allows UCH to incorporate by reference into this prospectus the information that it files with the SEC, which means that the registrants disclose important information to you by referring to such documents. The information incorporated by reference is an important part of this prospectus. In addition, any information that the registrants file with the SEC after the date of this prospectus will automatically update and supersede this prospectus. UCH incorporates by reference the documents listed below and any i 4 filings that it makes with the SEC under sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the initial filing of the registration statement that contains this prospectus: - Universal's Annual Report on Form 10-K for the fiscal year ended March 31, 2000, as amended on November 3, 2000; - Universal's Quarterly Reports on Form 10-Q for the quarters ended June 30, September 30, and December 31, 2000; - Universal's Current Reports on Form 8-K filed on April 7, May 5, June 2, June 8, August 9, September 29, October 26, November 9, and December 1, 2000 and January 3, January 29, February 21, and March 1, 2001; - Universal's Definitive Proxy Statement dated December 27, 2000, as supplemented by its Proxy Statement Supplement dated January 26, 2001, in connection with a special meeting of shareholders held on February 6, 2001 and reconvened on February 9, 2001; and - The description of the common stock included in Universal's Registration Statement on Form 8-A dated April 20, 2000, as amended on May 15, 2000. You may request a copy of these filings (other than an exhibit to a filing unless that exhibit is specifically incorporated by reference into that filing) at no cost, by writing to or telephoning Universal at 4440 Brittmoore Road, Houston, Texas 77041, (713) 335-7000. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact contained in this prospectus are forward-looking statements, including, without limitation, statements regarding future financial position, business strategy, proposed acquisitions, budgets, litigation, projected costs and plans and objectives of management for future operations. You can identify many of these statements by looking for words such as "believes," "expects," "will," "intends," "projects," "anticipates," "estimates," "continues" or similar words or the negative thereof. Such forward-looking statements include, without limitation: - anticipated cost savings and other synergies resulting from the acquisition of WGC and other businesses; - the sufficiency of available cash flows to fund continuing operations; - anticipated synergies, future revenues and EBITDA resulting from the acquisition of GCSI, WGC and other businesses; - capital improvements; - the expected amount of capital expenditures; - future financial positions; - the future value of equipment; - growth strategy and projected costs; and - plans and objectives of management for future operations. Such forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this prospectus. The risks related to our business described under "Risk Factors" and elsewhere in this prospectus could cause actual results to differ from those described in, or otherwise projected or implied by, the forward-looking statements. ii 5 Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, no assurance can be given that these expectations will prove to be correct. Important factors that could cause actual results to differ materially from the expectations reflected in these forward-looking statements include, among other things: - Universal's inability to successfully integrate the business of WGC and other businesses it has acquired or may acquire in the future; - conditions in the oil and gas industry, including the demand for natural gas and the impact of the price of natural gas; - competition among the various providers of contract compression services; - changes in safety and environmental regulations pertaining to the production and transportation of natural gas; - changes in economic or political conditions in operating markets; - introduction of competing technologies by other companies; - the ability to retain and grow the customer base; - employment workforce factors, including loss of key employees; and - liability claims related to the use of the products and services. All subsequent written and oral forward-looking statements attributable to the registrants or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. The forward-looking statements included herein are only made as of the date of this prospectus and the registrants undertake no obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise. MARKET DATA The market data used throughout this prospectus was obtained from industry publications and our management's estimates. The industry publications generally indicate that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. The registrants have not independently verified such data, nor sought the consent of these organizations to refer in this prospectus to the information contained in their reports. iii 6 SUMMARY This summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements (including the notes thereto) appearing elsewhere in this prospectus. Please read "About this Prospectus" for a description of some of the terms used in this prospectus. Financial and operating information for WGC contained in this prospectus excludes, except as otherwise indicated with respect to historical financial information, certain assets and operations related to WGC's Singapore-based operations and $10 million in accounts receivable that were retained by Weatherford International, Inc. and were not included in our acquisition of WGC. Unless otherwise indicated, the pro forma financial data included in this prospectus does not give effect to our acquisition of GCSI in September 2000 other than the historical information from such date. OVERVIEW This prospectus relates to the offer by BRL Universal Equipment 2001 A, L.P. and its subsidiary, BRL Universal Equipment Corp., to exchange their registered 8 7/8% senior secured notes due 2008 (which we refer to as the "new notes") for all of their outstanding 8 7/8% senior secured notes due 2008 (which we refer to as the "old notes"). The new notes are substantially identical to the old notes except that the new notes are freely transferable under the Securities Act and do not have any exchange or registration rights. The old notes were issued by the issuers in February 2001 as part of an operating lease transaction with Universal Compression, Inc. The issuers used the proceeds from the old notes and various other sources to purchase compression equipment from UCI, WGC and their previous lessors, and then leased that equipment to UCI for a seven-year term. The notes will be repaid using the rent payments received from UCI under the operating lease. All of UCI's obligations under the operating lease are guaranteed by its parent company, UCH. UNIVERSAL We are the second largest natural gas compression services company in the world in terms of horsepower. Our fleet consists of over 7,400 compressor units comprising approximately 1.8 million horsepower. We provide a full range of rental, sales, service, operations, maintenance and fabrication services and products to the natural gas industry. These services and products are essential to the production, transportation and processing of natural gas by producers and gathering and pipeline companies. Our recent acquisition of WGC combined WGC's complementary compression business with ours, and created a company with a significantly larger equipment fleet, a broader customer base, an expanded global reach and greater resources. We believe that this acquisition provides us with numerous strategic and operational benefits, including increased size and geographic scope, an enhanced parts and services business, cost savings and synergies and increased financial strength. RECENT DEVELOPMENTS On February 9, 2001, we acquired WGC for 13,750,000 shares of our common stock and restructured approximately $323 million of WGC's obligations. WGC was the second largest natural gas compression services company in the world in terms of horsepower with a fleet consisting of over 950,000 horsepower as of December 31, 2000. For the year ended December 31, 2000, WGC had revenues of approximately $234.8 million and EBITDA of approximately $59.4 million. Concurrently with the WGC acquisition, we refinanced certain of our indebtedness and that of WGC and replaced our operating leases and WGC's with a new $427 million operating lease facility funded in part by the issuance of the old notes, a new $200 million asset-backed securitization operating lease facility and a new $125 million revolving credit facility. Upon completion of that acquisition, we utilized the $427 million operating lease facility in full, and drew approximately $80 million under the asset-backed 1 7 securitization facility and had no amounts outstanding under our new revolving credit facility. As a result of the acquisition, Weatherford International, Inc., the former parent company of WGC, owns approximately 48% of our outstanding common stock. Weatherford agreed, subject to certain conditions, to limit its voting rights to 33 1/3% of our total voting power for up to two years. On February 28, 2001, we acquired ISS Compression, Inc. and its operating subsidiary, IEW Compression, Inc., a natural gas compression services provider based in Lafayette, Louisiana, for approximately $15 million in cash, which includes the concurrent discharge of IEW's debt and operating leases. The IEW acquisition added approximately 26,000 horsepower to our fleet, most of which is located in the Gulf of Mexico. In addition to its rental fleet, IEW has an offshore sales and service business. THE OPERATING LEASE FACILITY The issuers were formed in January 2001 to, among other things, issue the old notes which are the subject of this exchange offer. BRL, one of the issuers, used the proceeds from the sale of the old notes to finance in part the purchase of domestic gas compression equipment with an appraised fair market value as of February 9, 2001 of approximately $427 million from us, WGC and former lessors of the equipment. BRL financed the balance of the purchase price of the equipment with approximately $64 million in borrowings under a term loan agreement and approximately $13 million in proceeds from an equity investment in BRL by its limited partners. BRL then leased the equipment to us for a seven-year term under the operating lease. Under the operating lease, we pay rent to BRL. Our rent payments under the operating lease are sufficient to enable BRL to pay all amounts due under the notes. At the end of its term, the operating lease requires UCI to pay BRL an amount sufficient to repay the notes in full. In addition, UCH fully and unconditionally guaranteed the payment and performance of the operating lease by UCI. Payment of the principal, premium, if any, and interest on the notes is secured by a perfected first priority security interest in the equipment covered by the operating lease, and an assignment of the operating lease and the UCH guaranty of the operating lease. The chart below illustrates the operating lease facility which includes the notes that are the subject of this exchange offer. [CHART] 2 8 BRL is a limited partnership formed under the laws of the State of Delaware. BRL Corp. is incorporated under the laws of the State of Delaware. Their principal executive offices are located at 2911 Turtle Creek Boulevard, Suite 1240, Dallas, Texas 75219, and their telephone number at that address is (214) 522-7296. UCH is incorporated under the laws of the State of Delaware, and UCI is incorporated under the laws of the State of Texas. Their principal executive offices are located at 4440 Brittmoore Road, Houston, Texas 77041, and their telephone number at that address is (713) 335-7000. --------------------- 3 9 THE EXCHANGE OFFER The Exchange Offer.................. The issuers are offering to exchange: - $1,000 principal amount of newly issued 8 7/8% senior secured notes due February 15, 2008, which we refer to as new notes, for - each $1,000 principal amount of their outstanding 8 7/8% senior secured notes due February 15, 2008, which we refer to as old notes. We sometimes refer to the new notes and the old notes together as the notes. Currently, $350,000,000 aggregate principal amount of old notes are outstanding. The terms of the old notes and the new notes are substantially identical, except that the new notes do not restrict transfer and do not include registration rights. Expiration date..................... The exchange offer will expire at 5:00 p.m., New York City time, on , 2001, unless we extend it. In that case, the phrase "expiration date" will mean the latest date and time to which we extend the exchange offer. The issuers will issue new notes as soon as practicable after that date. Conditions to the exchange offer.... The exchange offer is subject to customary conditions. The registrants may assert or waive these conditions in their sole discretion. If the registrants materially change the terms of the exchange offer, they will resolicit tenders of the old notes. Please read the section entitled "The Exchange Offer -- Conditions of the Exchange Offer" of this prospectus for more information regarding conditions to the exchange offer. Procedures for participating in the exchange offer............. If you wish to participate in the exchange offer, you must complete, sign and date an original or faxed letter of transmittal in accordance with the instructions contained in the letter of transmittal accompanying this prospectus. Then you must mail, fax or deliver the completed letter of transmittal, together with the old notes you wish to exchange and any other required documentation to The Bank of New York, which is acting as exchange agent for the exchange offer. Its address appears on the letter of transmittal. By signing the letter of transmittal, you will represent to and agree with the registrants that - you are acquiring the new notes in the ordinary course of your business, 4 10 - you have no arrangement or understanding with anyone to participate in a distribution of the new notes, and - you are not an "affiliate," as defined in Rule 405 under the Securities Act, of the issuers, UCH or UCI. If you are a broker-dealer that will receive new notes for your own account in exchange for old notes that you acquired as a result of your market-making or other trading activities, you will be required to acknowledge in the letter of transmittal that you will deliver a prospectus in connection with any resale of the new notes. Resale of new notes................. We believe that you can resell and transfer your new notes without registering the sale and transfer under the Securities Act and delivering a prospectus, if you can make the three representations that appear above under the heading "Procedures for participating in the exchange offer." Our belief is based on interpretations of the SEC for other exchange offers expressed in SEC no-action letters to other issuers in exchange offers like ours. We cannot guarantee that the SEC would make a similar decision about this exchange offer. If our belief is wrong, or if you cannot truthfully make the representations listed above, and you transfer any new note issued to you in the exchange offer without meeting the registration and prospectus delivery requirements of the Securities Act, or without an exemption from such requirements, you could incur liability under the Securities Act. We are not indemnifying you for any such liability. A broker-dealer can resell or transfer new notes only if it delivers a prospectus in connection with the resale or transfer. Special procedures for beneficial owners.............................. If your old notes are held through a broker, dealer, commercial bank, trust company or other nominee and you wish to surrender those notes, you should contact your intermediary promptly and instruct it to surrender your notes on your behalf. Guaranteed delivery procedures...... If you cannot meet the expiration date deadline, or you cannot deliver your old notes, the letter of transmittal or any other documentation on time, then you must surrender your old notes according to the guaranteed delivery procedures appearing in the section of this prospectus entitled "The Exchange Offer -- Guaranteed Delivery Procedures." 5 11 Acceptance of your old notes and delivery of the new notes.................. The registrants will accept for exchange any and all old notes that are surrendered in the exchange offer prior to the expiration date if you comply with the procedures of the offer. We will deliver the new notes as soon as practicable after the expiration date. Withdrawal rights................... You may withdraw the surrender of your old notes at any time prior to the expiration date. Certain federal income tax considerations...................... You will not have to pay federal income tax as a result of your participation in the exchange offer. Exchange agent...................... The Bank of New York is serving as the exchange agent for the exchange offer. The Bank of New York also serves as trustee under the indenture for the notes. Registration rights................. The issuers sold the old notes to the initial purchasers in a transaction exempt from the registration requirements of the Securities Act on February 9, 2001. At that time, the registrants entered into a registration rights agreement with the initial purchasers that grants the holders of the old notes certain exchange and registration rights. This exchange offer satisfies those rights, which terminate upon consummation of the exchange offer. You will not be entitled to any exchange or registration rights with respect to the new notes. Additionally, after completion of the exchange offer, we will no longer be required to register with the SEC any transfer of old notes that remain outstanding. Transfer restrictions............... Your purchase of the old notes was not registered under the Securities Act. Accordingly, the old notes are subject to restrictions on transfer and may be offered or sold only in transactions that comply with, or are exempt from or not subject to, the registration requirements of the Securities Act. Failure to exchange old notes will adversely affect you.............. If you are eligible to participate in this exchange offer and you do not surrender your old notes as described in this prospectus, you will not have any further registration or exchange rights. In that case your old notes will continue to be subject to restrictions on transfer. As a result of those restrictions and the availability of registered new notes, the old notes are likely to be much less liquid than before. Neither the Delaware General Corporation Law nor the indenture relating to the notes gives you any appraisal or dissenters' rights or any other right to seek monetary damages in court if you do not participate in the exchange offer. 6 12 THE NEW NOTES The new notes and the old notes each have the same financial terms and covenants, which are as follows: Issuers............................. BRL and BRL Corp. Securities offered.................. $350,000,000 principal amount of 8 7/8% senior secured notes due 2008. Maturity............................ February 15, 2008. Interest rate....................... 8 7/8% per year. Interest payment dates.............. February 15 and August 15, beginning on August 15, 2001. Interest began accruing on February 9, 2001, when the issuers first issued the old notes. Use of proceeds..................... There will be no cash proceeds from the issuance of the new notes under this exchange offer. BRL used the proceeds of the old notes, borrowings under its term loan and the proceeds of an equity investment to purchase the equipment covered by the operating lease from UCI, WGC and their previous lessors. UCI used the proceeds from the sale of the equipment covered by the operating lease to refinance certain of its and WGC's indebtedness, to replace its and WGC's operating leases and to pay related expenses. Operating lease..................... UCI leases the equipment from BRL under the operating lease. The operating lease term commenced on February 9, 2001, the issue date of the old notes, and ends on February 15, 2008. The operating lease is a "triple net lease." Security and sources of funds for payment............................. The notes are obligations of the issuers. The operating lease is an obligation of UCI. The operating lease provides for rent payments by UCI to BRL on each payment date. The lease payments will be sufficient to enable the issuers to pay the amounts scheduled to be paid under the notes, the BRL term loan and the equity investment on the date those payments are due. Payment of the notes is secured by a perfected first priority security interest in the equipment covered by the operating lease, and an assignment of the operating lease and the guarantee by UCH of the operating lease. The equipment covered by the operating lease had an appraised fair market value of approximately $427 million as of February 9, 2001. The equipment, the operating lease and the related lease guarantee also secure repayment of the BRL term loan. The notes are not guaranteed by, or secured by any of the assets or properties of, UCH or UCI. The collateral is held by a collateral agent designated and approved by the trustee, the administrative agent of the BRL term loan and BRL. 7 13 If UCI elects, or is deemed to have elected, to purchase the equipment covered by the operating lease at the end of the term of the operating lease, the principal amount of the notes, the BRL term loan and the equity investment will be repaid from the payment by UCI of the purchase price for the equipment or from the proceeds of a refinancing of the equipment. If UCI elects not to purchase the equipment covered by the operating lease at the end of the lease term, the operating lease requires UCI to pay BRL an amount sufficient to repay the notes in full. Lease guarantee..................... UCH has fully and unconditionally guaranteed, on a full recourse basis, all obligations of UCI under the operating lease, including all rent payments, and the related participation agreement (the agreement by which UCI is subject to numerous operating restrictions and conditions). The amount payable under the guarantee by UCH of the operating lease may not exceed the amount payable by UCI under the operating lease and the participation agreement, plus any reasonable costs of enforcing the guarantee provision. Ranking............................. The notes are obligations of the issuers, and neither UCH nor UCI guarantees the notes. The issuers' ability to make payments under the notes depends entirely upon timely receipt of payments from UCI under the operating lease. UCI's obligations under the operating lease are effectively subordinated to all secured indebtedness of UCI to the extent of the security. UCI's obligations under the operating lease rank equally with all of its other unsubordinated obligations, including its 9 7/8% senior discount notes. As of March 1, 2001, we had approximately $100.5 million outstanding under our asset-backed securitization operating lease facility and approximately $213 million of outstanding debt, all of which is secured. As of such date, we also had unused availability of $125 million under our new revolving credit facility and approximately $99.5 million under the asset-backed securitization facility. Both the revolving credit facility and the asset-backed securitization facility are secured. UCI's obligations under the operating lease also will be structurally subordinated to all indebtedness and other liabilities of UCI's subsidiaries. Optional redemption................. Except as described below, the issuers cannot redeem the notes until February 15, 2005. After February 15, 2005, the issuers may elect to redeem some or all of the notes at the redemption prices listed in the "Description of the Notes" section of this prospectus under the subheading "Optional Redemption." The 8 14 issuers will redeem the notes with funds received from UCI upon the purchase of equipment covered by the operating lease from BRL. Any such redemption will also result in prepayment of a corresponding percentage of the outstanding amount of the BRL term loan and the equity investment. Optional redemption after equity offerings........................... At any time before February 15, 2004, the issuers may elect to redeem up to 35% of the outstanding notes if the issuers receive funds from UCI's purchase from BRL of equipment covered by the operating lease with cash received in connection with one or more equity offerings by UCH or UCI, as long as: - the issuers pay 108.875% of the principal amount of the notes being redeemed, plus accrued and unpaid interest; - the issuers redeem the notes within 120 days of completion of an equity offering by UCH or UCI; and - at least 65% of the aggregate principal amount of the notes issued on the issue date remains outstanding after each redemption. In the event any of the notes are redeemed, the operating lease payments will be reduced and the security interest in the equipment covered by the operating lease will be released proportionally upon purchase and transfer of the equipment to UCI. Change of control offer............. If a change of control of UCH or UCI occurs, the issuers must give holders of the notes the opportunity to sell their notes to the issuers at 101% of their principal amount plus accrued and unpaid interest. Change of control optional redemption.......................... If a change of control of UCH or UCI occurs prior to February 15, 2005, and if UCI elects, the issuers must, with funds received from UCI's purchase of equipment under the operating lease, redeem all, but not less than all, of the notes at their principal amount plus a make whole premium using a discount rate equal to the yield on a U.S. Treasury security of a maturity as close as possible to February 15, 2005 plus 0.50%. Asset sale proceeds................. Under the operating lease, if UCI or one of its domestic restricted subsidiaries engages in certain asset sales, it may not freely use the proceeds of those sales. Generally, UCI must either invest the net cash proceeds from those sales in its business within a specified period of time or permanently pay down any amounts owed under its revolving credit facility. If any of the proceeds of asset sales are not so applied, UCI must make an offer to purchase 9 15 equipment covered by the operating lease from BRL sufficient for the issuers to make an offer to purchase the notes and to prepay a corresponding percentage of the outstanding amount of the BRL term loan and the equity investment (reduced by the amount, if any, which UCI elects to pay proportionate amount of indebtedness of UCI that is not subordinate to UCI's obligations under the operating lease) with the remaining portion of the net cash proceeds. The purchase price of the notes will be 100% of their principal amount plus accrued and unpaid interest. Certain covenants................... The indenture governing the notes contains covenants restricting the activities of the issuers. The participation agreement contains covenants limiting UCI's (and most or all of UCI's domestic restricted subsidiaries') ability to: - incur additional debt; - enter into certain types of operating leases; - pay dividends or distributions on its capital stock or repurchase its capital stock; - issue preferred stock of subsidiaries; - make certain investments; - create certain liens on its assets to secure debt; - enter into transactions with affiliates; - enter into certain agreements restricting its subsidiaries' ability to pay dividends or have other payment restrictions; - merge or consolidate with another company; and - transfer and sell assets. A default after any applicable notice and cure period under the operating lease will constitute a default under the indenture. These covenants are subject to a number of important limitations and exceptions. See "Description of the Notes -- Principal, Maturity and Interest" and "-- Certain Covenants of UCI under the Participation Agreement." 10 16 SUMMARY UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION OF UNIVERSAL COMPRESSION HOLDINGS, INC. The pro forma financial data set forth in the table below has been derived from the Unaudited Pro Forma Combined Condensed Financial Statements and the related notes included elsewhere in this prospectus. You should read those statements for a further description of the pro forma financial data summarized below. The selected unaudited pro forma statements of operations data for the year ended March 31, 2000 and the nine months ended December 31, 2000 give effect to the WGC acquisition and related financing transactions as if they had occurred on April 1, 1999 for the year ended March 31, 2000 and on April 1, 2000 for the nine months ended December 31, 2000. The unaudited pro forma balance sheet data as of December 31, 2000 give effect to the WGC acquisition and the related financing transactions as if they had occurred on December 31, 2000. Because the fiscal years of UCH and WGC differ, WGC's historical results of operations for the year ended March 31, 2000 include results for the first quarter of 2000, combined with its results for the nine months ended December 31, 1999. The pro forma financial data shown in the table below are not necessarily indicative of what our results of operations or financial position would have been had the WGC acquisition and related financing transactions been completed as of the dates reflected or that may be achieved in the future. Please see "Selected Historical and Pro Forma Financial Data -- Unaudited Pro Forma Combined Condensed Financial Information" for a description of the pro forma adjustments to the historical financial statements of UCH and WGC showing the effect of the WGC acquisition and the related financing transactions. You should also read the historical financial statements and accompanying disclosures contained in this prospectus.
YEAR NINE MONTHS ENDED ENDED MARCH 31, DECEMBER 31, 2000 2000 ----------- -------------- (IN THOUSANDS, EXCEPT RATIOS) STATEMENTS OF OPERATIONS DATA: Revenues.................................................... $374,212 $314,033 Gross margin................................................ 167,571 139,224 Selling, general and administrative......................... 43,869 35,518 Operating profit............................................ 123,702 103,706 Depreciation and amortization............................... 40,536 34,139 Operating lease expense..................................... 41,121 35,185 Interest expense............................................ 5,622 10,775 Income taxes................................................ 16,589 9,203 Income before extraordinary items........................... 22,212 14,600 OTHER DATA: EBITDA(1)................................................... $123,702 $103,706 Adjusted interest expense(2)................................ -- 50,927 Adjusted cash interest expense(3)........................... -- 38,689 Ratio of EBITDA to adjusted interest expense................ -- 2.0x Ratio of EBITDA to adjusted cash interest expense........... -- 2.7x Adjusted debt(4)............................................ -- 631,545 Ratio of adjusted debt to EBITDA............................ -- 6.1x Capital expenditures(5)..................................... 152,083 114,109 Ratio of earnings in fixed charges(6)....................... 1.7x 1.5x
11 17
AS OF DECEMBER 31, 2000 -------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and equivalents........................................ $ 26,095 Total current assets........................................ 224,220 Total current liabilities................................... 87,913 Total noncurrent liabilities................................ 329,603 Total debt including capital lease obligations(7)........... 213,405 Stockholders' equity........................................ 655,182
- --------------- (1) EBITDA is defined as net income plus income taxes, interest expense, leasing expense, management fees, depreciation and amortization, excluding non-recurring items and extraordinary gains or losses. EBITDA represents a measure upon which management assesses financial performance, and certain covenants in our current financing arrangements are tied to similar measures. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income as an indicator of our operating performance or to net cash provided by operating activities as a measure of our liquidity. Additionally, the EBITDA computation used herein may not be comparable to other similarly titled measures of other companies, including WGC. (2) Adjusted interest expense means total interest expense plus total operating lease expense adjusted for interest expense on GCSI financing and interest income. (3) Adjusted cash interest expense means adjusted interest expense less interest expense associated with the 9 7/8% senior discount notes. The 9 7/8% senior discount notes accrete interest through February 14, 2003, with the first semi-annual cash interest payment to be made August 15, 2003. (4) Adjusted debt means total balance sheet debt plus the estimated residual value guarantees of 85% of the amounts funded under the asset-backed securitization operating lease facility and 82% of the amounts funded under the operating lease facility. (5) Maintenance capital expenditures for UCH's operations represented $9.9 million and $11.0 million, and for WGC's domestic operations represented $12.8 million and $18.0 million, for the year ended March 31, 2000 and the nine months ended December 31, 2000, respectively. (6) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earning before income taxes, plus fixed charges. Fixed charges include interest expense on all indebtedness, amortization of deferred financing fees, operating lease expense related to the proposed new operating lease facilities, and one-third of rental expense on other operating leases representing that portion of rental expense deemed to be attributable to interest. (7) Includes the 9 7/8% senior discount notes. The 9 7/8% senior discount notes accrete interest through February 14, 2003. 12 18 RISK FACTORS You should carefully consider the following factors as well as other information and data included in this prospectus before deciding whether to tender your old notes in exchange for new notes pursuant to the exchange offer. These risks apply to both the old notes and the new notes. RISKS RELATING TO THE NOTES There could be adverse consequences of failure to exchange your old notes for new notes The issuance and sale of the old notes were not registered under the Securities Act or under the securities laws of any state and the old notes may not be resold, offered for resale or otherwise transferred without compliance with or unless they are subsequently registered or resold pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws. If you do not exchange your old notes for new notes pursuant to the exchange offer, you will not be able to resell, offer to resell or otherwise transfer your old notes without registration under the Securities Act or unless you resell them, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act. In addition, we will no longer be under an obligation to register your resale of the old notes under the Securities Act. To the extent that old notes are tendered for exchange and accepted in the exchange offer, the trading market for the untendered and tendered but unaccepted old notes could be adversely affected. Please refer to the risk factor captioned "You cannot be sure than an active trading market will develop for the notes, for which there has been no prior market" below. Our debt and operating lease obligations could adversely affect our financial health and prevent us from fulfilling our obligations under the operating lease We have debt and operating lease obligations, including the operating lease and the other financing arrangements described in this prospectus. As of March 1, 2001, we have approximately $527.5 million outstanding under the operating lease facility and our asset-backed securitization operating lease facility, approximately $213 million of existing indebtedness, and unused availability of approximately $224.5 million ($125 million under our new revolving credit facility and approximately $99.5 million under our new asset-backed securitization operating lease facility). Our debt and operating lease obligations could have important consequences to you. For example, they could: - make it more difficult for us to satisfy our obligations under the operating lease; - increase our vulnerability to general adverse economic and industry conditions; - limit our ability to obtain additional financing for future working capital, capital expenditures, acquisitions and other general corporate requirements; - increase our vulnerability to interest rate fluctuations because the interest payments on the debt under our new revolving credit facility and certain amounts under our operating lease facilities are at variable rates; - require us to dedicate a substantial portion of our cash flow from operations to payments on our debt and operating leases, thereby reducing the availability of our cash flow for operations, expansion of our fleet and other purposes; - limit our flexibility in planning for, or reacting to, changes in our business and our industry; and - place us at a competitive disadvantage compared to our competitors that have less debt or operating lease obligations. In addition, we may be able to incur substantial additional debt and increase the amounts under our operating lease facilities in the future. The covenants in the operating lease and the related participation 13 19 agreement permit us to incur additional secured indebtedness and to contribute additional collateral to other operating lease facilities (without the additional contribution being considered an "asset sale" under the participation agreement). As a result, our obligations to pay amounts under the operating lease would be effectively subordinated to any of those secured obligations. Our ability to make scheduled payments under the operating lease or to refinance our indebtedness will depend on our financial and operating performance which, in turn, is subject to prevailing industry-specific and general economic conditions and to many financial, business and other factors beyond our control. If our cash flow and capital resources are insufficient to pay our obligations under the operating lease and our other financing arrangements, we may be forced to reduce or delay scheduled expansion and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt and operating lease obligations. We cannot assure you that our operating performance, cash flow and capital resources will be sufficient for payment of our debt and operating lease obligations, including the operating lease, in the future. If we are required to dispose of material assets or operations or restructure our debt or operating leases to meet our debt service and other obligations, we cannot assure you as to the terms of any such transaction or how soon any such transaction could be completed. UCI may, no later than 365 days prior to the expiration of the term of the operating lease, elect to purchase all, but not less than all, of the equipment subject to the operating lease or to return the equipment. If UCI elects (or is deemed to elect) the purchase option at the end of the lease term, it will pay to BRL the purchase option price, which will be used to fully repay the notes and the BRL term loan. If UCI elects to return the equipment under the operating lease, it must pay BRL an amount in cash sufficient to fully repay the notes. We cannot assure you that UCI, or UCH under the lease guarantee provision in the participation agreement, will have sufficient funds to pay this amount, or the purchase option price. Its failure to do so would constitute an event of default under the operating lease and of the issuers under the indenture. Our financing arrangements contain covenants that limit our management's discretion in operating our business Our new revolving credit facility, operating lease facility and asset-backed securitization operating lease facility and our existing 9 7/8% senior discount notes contain provisions that limit our management's discretion by restricting our ability to: - incur additional debt; - enter into certain types of operating leases; - pay dividends or distributions on our capital stock or repurchase our capital stock; - issue preferred stock of subsidiaries; - make certain investments; - create certain liens on our assets to secure debt; - enter into transactions with affiliates; - enter into certain agreements restricting our subsidiaries' ability to pay dividends or have other payment restrictions; - merge or consolidate with another company; and - transfer and sell assets. In addition, our new revolving credit facility, operating lease facilities and our 9 7/8% senior discount notes require us to meet specified financial ratios. 14 20 If we fail to comply with the restrictions of our new revolving credit facility, new operating lease facility, new asset-backed securitization operating lease facility, our 9 7/8% senior discount notes or any other current or future financing agreements, the relevant agreements may permit the lenders or lessors to accelerate the related obligations as well as any other obligations that have cross-acceleration or cross-default provisions. In addition, the lenders or lessors may be able to terminate any commitments they had made to supply us with additional funds. Some of the defaults under the asset-backed securitization operating lease facility require us to contribute additional collateral to secure that facility (which will reduce our unsecured assets and not be an "asset sale" (as defined in the operative documents)). The value of the equipment securing the notes may not be sufficient to cover the obligations owed to you under the notes The notes are secured by collateral consisting of a perfected first priority security interest in the equipment, which had an appraised fair market value as of February 9, 2001 of approximately $427 million, and an assignment of the operating lease and the related lease guarantee provision. If there is a payment default under the operating lease and the related lease guarantee provision such that UCI and UCH do not have sufficient cash and capital resources available to pay their obligations, you will have to look to the value that can be realized from the equipment. We cannot assure you that the realizable value of the equipment would be equal to its appraised value. The equipment also secures the BRL term loan on a pro rata basis with the notes. American Appraisal Associates, Inc., an independent appraisal firm, prepared an appraisal of the equipment at the time of the offering of the old notes. A summary of this appraisal is attached to this prospectus as Annex A. You should not place undue reliance on the appraisal. The appraisal relies on certain assumptions and methodologies and may not accurately reflect the current or future market value of the equipment. Appraisals based on different assumptions or methodologies may result in materially different valuations from those in the appraisal summary. An appraisal is only an estimate of value. The proceeds realized upon a future sale of any of the equipment may be less than the appraised value of that equipment. If the remedies after a default are exercised under the operating lease, the value of the equipment will depend on a number of factors, including: - market and economic conditions at that time, - the supply of similar types of equipment, - the availability of buyers for the equipment, - the condition of the equipment and - other factors. We cannot assure you that the proceeds realized upon any exercise of remedies following a default would be sufficient to fully satisfy amounts owing on the notes. The issuers have no assets other than the equipment, and no source of revenue other than the payments under the operating lease and the lease guarantee The notes are obligations of the issuers and are secured only by a perfected first priority security interest in the equipment and an assignment of the operating lease and the related lease guarantee. The notes are not obligations of UCI or UCH. The issuers have no source of revenue other than the payments under the operating lease and the related lease guarantee. None of BRL's partners nor any of their respective affiliates, including BRL Corp., nor any of their incorporators, officers, directors, shareholders, managers or employees will guarantee the payment of the notes or have any obligation with respect to the notes. Therefore, the holders of the notes and the trustee under the indenture will have recourse only against the issuers and against the collateral for the benefit of the note holders. The notes will be payable 15 21 solely from the sources described under "Description of the Notes -- Security and Sources of Payment for the Notes." If UCI defaults under the operating lease and UCH defaults under the related lease guarantee provision in the participation agreement, the issuers may not be able to perform their obligations under the indenture. The operating lease may be rejected if UCI declares bankruptcy The operating lease is an executory contract. If UCI were to become a debtor in a bankruptcy or reorganization case under the federal bankruptcy laws, UCI (or its bankruptcy trustee) could reject the operating lease. Furthermore, the right to exercise virtually all remedies against UCI could be stayed, including the right to proceed against the equipment, or against UCI under the operating lease. If this happens, we cannot assure you that any distributions payable on any claim for damages under the operating lease (after giving effect to any limitation that may be imposed on a damage claim under bankruptcy law) in a bankruptcy case would be sufficient to cover the payments due under the operating lease and result in a repayment of the notes. However, the operating lease contains provisions that permit a bankruptcy court in a bankruptcy of UCI to consider the operating lease a senior secured financing of UCI. Rejection of the operating lease by UCI or its bankruptcy trustee would not deprive you of your security interest in the equipment. However, if the equipment is sold in a distressed sale, either individually or as a whole, upon foreclosure or other exercise of remedies, the sale proceeds may not be sufficient to satisfy the obligations under the notes. Further, any such sale could be restricted if BRL was also involved in a bankruptcy proceeding. UCH, the guarantor under the lease guarantee, is a holding company and may not have any assets other than the capital stock of UCI UCH, the guarantor under the lease guarantee, is a holding company that conducts its operations through its operating subsidiary, UCI, and UCI's subsidiaries. As a holding company, UCH has no significant assets other than the stock of its subsidiaries. As a result, UCH depends on funds received from UCI to meet its obligations under the lease guarantee. Various provisions governing the operative documents (and other financing documents to which UCI is a party or may become a party in the future) limit the ability of UCI to make payments to UCH. Accordingly, we cannot assure you that UCH will be able to make its payments under the lease guarantee. If UCH were to become a debtor in a bankruptcy case under the federal bankruptcy laws, the right to exercise all remedies against UCH under the lease guarantee would be stayed. There are some limitations on the right to accelerate payments under the operating lease and to foreclose on the equipment that is subject to the operating lease Events of default under the indenture are different in some ways from the events of default under the operating lease. Accordingly, even though the trustee under the indenture will be entitled to accelerate the notes if there is an event of default under the indenture, the lessor under the operating lease would not be entitled to accelerate the lease payments or exercise any of its other remedies under the operating lease unless there was an event of default under the operating lease. Further, unless there is an event of default under the operating lease, the lessor will have no recourse against UCH under the lease guarantee. Obligations under the operating lease are effectively subordinated to UCI's secured obligations and to all indebtedness and other liabilities of UCI's subsidiaries The notes are obligations of the issuers and are not guaranteed by UCH or UCI. The issuers' ability to make payments under the notes depends entirely on the timely receipt of payments from UCI under the operating lease. UCI's obligations under the operating lease are effectively subordinated to all secured indebtedness of UCI to the extent of that security. UCI's rental payment obligations under the operating lease rank equally with all of its other unsubordinated obligations, including its 9 7/8% senior discount notes. As of March 1, 2001, we had approximately $100.5 million outstanding under our asset-backed securitization operating lease facility, approximately $213 million of indebtedness outstanding and unused 16 22 availability of approximately $224.5 million ($125 million under our new revolving credit facility and approximately $99.5 million under our asset-backed securitization facility, both of which are secured). UCI's obligations under the operating lease are structurally subordinated to all indebtedness and other liabilities of its subsidiaries. The participation agreement permits us to incur additional indebtedness (including secured indebtedness) and other operating lease obligations that may be secured. In addition, the operative documents permit us to transfer assets to subsidiaries. If we become insolvent or are liquidated, or if payment of amounts outstanding under any of those obligations is accelerated, the obligees would have the remedies available to a secured party under applicable law and have a claim on those assets (and the proceeds from any sale of those assets) before you would. We cannot be sure that the liquidation value of the assets, if any, that are not pledged under our other financing or lease arrangements, together with the value of our equity in our subsidiaries and any remaining proceeds from the pledged assets (after the obligations to the applicable pledgees have been satisfied) will be sufficient for UCI to satisfy its obligations under the operating lease or for UCH to satisfy its obligations under the lease guarantee. In addition to the risks discussed above with respect to bankruptcy of UCI or UCH, if the issuers declare bankruptcy, your rights against the issuers may be limited If the issuers were involved in a bankruptcy proceeding, the right to exercise virtually all remedies against the issuers would be stayed. This would include the right to proceed against the collateral, in which a priority interest is held by the collateral agent in the equipment that is subject to the operating lease for your benefit and the benefit of the lenders under the BRL term loan. A bankruptcy court could recharacterize the operating lease facility as a secured financing of UCI. In addition, the bankruptcy court could permit the use of payments under the operating lease for purposes other than making payments on the notes, and could reduce the amount or modify the timing of payments due under the notes or the operating lease, including by rejecting the operating lease. The issuers cannot incur any indebtedness other than the notes and the BRL term loan. Nonetheless, UCI's obligations to pay rent under the operating lease would not be reduced as a result of a bankruptcy of the issuers so long as the operating lease and related documents are not affected by that bankruptcy. The collateral agent's claim to the collateral may not always have first priority In general, the priority of the liens on a particular item of collateral securing the operating lease is determined by the time that the security interest in that item of collateral is perfected. Creditors such as purchase money lenders may be entitled to a prior claim to someone, such as the collateral agent, even if that person has previously perfected a security interest in the collateral. Furthermore, liens such as landlords', warehousemen's and materialmen's liens and tax liens may by law have priority over the liens granted for your benefit in the collateral. We do not believe there are any material prior liens on the collateral securing claims of anyone that is not a party to the operating lease. However, additional prior claims may arise by law and a bankruptcy or other court may refuse, on equitable or other grounds, to enforce the terms of the operating lease and the participation agreement against the other creditors party to those agreements. If this were to happen, the claims of the other creditors against the collateral could be prior to yours. Federal and state statutes allow courts, under specific circumstances, to avoid obligations and guarantees Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, the operating lease and the related lease guarantee could be avoided, or claims under the operating lease or the lease guarantee could be subordinated to all other obligations of the obligor, if the obligor, at the time it incurred the obligations under the operating lease or the lease guarantee: - incurred the obligations with the intent to hinder, delay or defraud creditors; or - received less than reasonably equivalent value in exchange for incurring those obligations; and 17 23 - was insolvent or rendered insolvent by reason of that incurrence; or - was engaged in a business or transaction for which the obligor's remaining assets constituted unreasonably small capital; or - intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature. A legal challenge to the obligations under the operating lease or the related lease guarantee on fraudulent conveyance grounds could focus on any benefits received in exchange for the incurrence of those obligations. We believe that UCI and UCH received reasonably equivalent value for incurring the obligations under the operating lease and the lease guarantee, but there can be no assurance that a court would agree with our conclusion or what standard a court might apply in making its determination. The measures of insolvency for purposes of the fraudulent transfer laws vary depending on the law applied in the proceeding to determine whether a fraudulent transfer has occurred. Generally, however, an entity would be considered insolvent if: - the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets, - the present fair saleable value of its assets was less than the amount that would be required to pay its probable liabilities on its existing debts, including contingent liabilities, as they become absolute and mature, or - it could not pay its debts as they become due. Based on historical financial information, recent operating history and other factors, we believe that UCI and UCH are not insolvent, do not have unreasonably small capital for the business in which they are engaged and have not incurred debts beyond their ability to pay those debts as they mature. Because the question of whether a transaction is a fraudulent conveyance is fact-based and fact-specific, a court may not agree with us. Neither our counsel nor counsel for the issuers has expressed any opinion as to federal or state laws relating to fraudulent transfers. We may not have the funds necessary to purchase the equipment subject to the lease in order to provide the issuers with funds to repurchase your notes upon a change of control as required by the indenture and the operating lease If we undergo a "change of control," the issuers must offer to buy back your notes for a price equal to 101% of the principal amount plus accrued and unpaid interest as of the repurchase date. We cannot assure you that we will have sufficient funds available to purchase equipment from BRL to allow the issuers to make the required repurchases of the notes if a change of control occurs, or that we will have sufficient funds to pay our other debts. Our new revolving credit facility and asset-back securitization operating lease facility and our 9 7/8% senior discount notes also require us to repay or offer to repurchase those obligations upon a change of control. If we fail to purchase equipment to provide the issuers funds to repurchase the notes presented to them for repurchase upon a change of control, it will be a default by us under the operating lease, and a default by the issuers under the indenture. Any future obligations that we incur may also contain restrictions on repurchases in the event of a change of control or similar event, or on our ability to fund such any repurchase. These repurchase restrictions may delay or make it harder for others to obtain control of us. To the extent that holders of UCI's 9 7/8% senior discount notes require UCI to repurchase the notes as a result of our WGC acquisition, UCI must finance that repurchase Our completion of the WGC acquisition resulted in a change of control of UCI under the indenture for its 9 7/8% senior discount notes. As a result, each holder of the 9 7/8% notes has the right from March 9, 2001 to April 9, 2001 to require UCI to repurchase its 9 7/8% notes at a price equal to 101% of the accreted 18 24 value, plus any accrued and unpaid interest as of the date of repurchase. If holders of the 9 7/8% notes require UCI to repurchase such notes, UCI expects to finance such repurchase under its revolving credit facility or asset-backed securitization facility. We cannot assure you as to the terms and conditions that will be available to UCI for any such financing. You cannot be sure that an active trading market will develop for the notes for which there has been no prior market The new notes are new securities for which there is currently no trading market. We do not intend to list the new notes on any securities exchange. Although we expect the new notes to be eligible for trading in the PORTAL market, we cannot assure you that an active trading market for the new notes will develop. The liquidity of any market for the new notes will depend upon various factors, including: - the number of holders of the notes; - the interest of securities dealers in making a market for the notes; - the overall market for high-yield securities; - our financial performance and prospects; and - the prospects for companies in our industry generally. Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities like the new notes. We cannot assure you that the market for the new notes, if any, will not be subject to similar disruptions. Any such disruptions could adversely affect you as a holder of the new notes. In addition, to the extent that old notes are surrendered and accepted in the exchange offer, the trading market for unsurrendered old notes and for surrendered-but-unaccepted old notes could be adversely affected due to the limited amount of old notes that are expected to remain outstanding following the exchange offer. Generally, when there are fewer outstanding securities of a given issue, there is less demand to purchase that security. This results in a lower price for the security. Conversely, if many old notes are not surrendered, or are surrendered-but-unaccepted, the trading market for the new notes could be adversely affected. See "Plan of Distribution" and "The Exchange Offer" for further information regarding the distribution of the notes and the consequences of failure to participate in the exchange offer. RISKS SPECIFIC TO OUR COMPANY Most of our compressor leases have short initial terms, and we would not recoup the costs of our investment if we were unable to subsequently lease the compressors In most cases, the initial terms of our compressor leases, unless extended by the lessee, are too short to enable us to recoup the average cost of acquiring or fabricating compressors under currently prevailing lease rates. As a result, we assume substantial risk of not recovering our entire investment in the equipment we acquire or fabricate. Although we historically have been successful in subsequently leasing our compressors, there can be no assurance that we will continue to be able to do so or that a substantial number of our rental customers will not terminate their leases at approximately the same time. This would have an adverse effect on our revenues and cash flow and could affect our ability to make payments under the operating lease. We intend to continue to make substantial capital investments to implement our business strategy We anticipate that we will continue to make substantial capital investments to expand our compressor rental fleet. For the nine months ended December 31, 2000, net of asset sales (not including operating leases), we invested approximately $48.7 million in capital investments, excluding acquisitions. Historically, 19 25 we have financed these investments through internally generated funds, debt offerings and our credit facility and lease financings. These significant capital investments require cash that we could otherwise apply to other business needs. However, if we do not incur these expenditures while our competitors make substantial fleet investments, our market share may decline and our business may be adversely affected. In addition, if we are unable to generate sufficient cash internally or obtain alternative sources of capital, it could materially adversely affect our growth. We may not be successful in implementing our business strategy Our ability to implement our business strategy successfully depends upon a number of factors including competition, availability of working capital and general economic conditions. Significant elements of our business strategy include growth of our market share and broader participation in the international market for compression services. We cannot assure you that we will succeed in implementing our strategy or be able to obtain financing for this strategy on acceptable terms. The indenture governing our 9 7/8% senior discount notes and our new revolving credit facility and operating lease facilities, including the operating lease, substantially limit our ability to incur additional debt to finance our strategy. In addition, our failure to implement our business strategy successfully may adversely affect our ability in the future to service our debt or make payments under the operating lease. See "Business of UCH -- Business Strategy," "Description of the Notes" and "Description of Other Financings." We may not be able to successfully integrate WGC into our business Our recently completed WGC acquisition is significantly larger than any of our previous acquisitions and has doubled our size. Integrating WGC's business into ours involves a number of potential challenges and costs, including combining, reducing and relocating workforces, facilities and offices and combining systems, processes, administrative functions and corporate cultures. Management issues facing our company are likely to be more complex and challenging than those faced by us prior to our acquisition of WGC. In addition, WGC has significant foreign operations in areas where we have little or no prior operating experience. The integration process could cause operational difficulties, divert the attention of our management away from managing our business to the assimilation of the operations and personnel of WGC and have adverse effects on our operating results. Furthermore, if our integration of WGC is not successful, we may lose personnel, not be able to retain our customer base to the extent expected and experience increased costs and reduced revenues. We may not achieve the cost savings and other synergies we expect to result from our recent WGC acquisition We expect the integration of WGC into our business to result in significant cost savings. However, our success in realizing these cost savings, and the timing of this realization, depends on the quality and speed of the integration of our two companies. We may not realize the cost savings that we anticipate from integrating our operations as quickly or as fully as we expect, if at all, for a number of reasons, including: - the large size and broad geographic presence and the resulting complexity of our company following the acquisition; - our lack of operating experience in several international areas added in the WGC acquisition; - errors in our planning or integration; - loss of key personnel; - information technology systems failure; - unexpected events such as major changes in the markets in which we operate; and - costs associated with the WGC acquisition and the integration of WGC into our business may exceed our current expectations. 20 26 Further, our ability to realize cost savings could be affected by a number of factors beyond our control, such as general economic conditions and regulatory developments. We may not be successful in identifying potential acquisition candidates and if UCH's stock price decreases, it may be more difficult or expensive to complete future acquisitions using UCH's stock as currency In accordance with our business strategy, we intend to pursue the acquisition of other companies, assets and product lines that either complement or expand our existing business. We are unable to predict whether or when any prospective candidate will become available or the likelihood of a material acquisition being completed. Even if we are able to identify acceptable acquisition candidates, the acquisition of a business involves a number of potential risks, including the diversion of management's attention away from managing our business to the assimilation of the operations and personnel of the acquired business and possible short-term adverse effects on our operating results during the integration process. In addition, we may seek to finance any such acquisition through the issuance of new debt and/or equity securities. Alternatively, a substantial portion of our financial resources could be used to complete any large acquisition for cash, which would reduce our funds available for capital investment, operations or other activities. The shares of our common stock issued to Weatherford in the WGC acquisition and to Castle Harlan Partners III and some of our shareholders are subject to registration rights and may be resold at any time. The sale of a substantial number of our shares within a short period of time could cause our stock price to decrease, and make it more difficult for us to acquire businesses using our stock as consideration. Weatherford, the ultimate parent of WGC, will continue to compete with us We acquired most, but not all, of Weatherford's compression operations in the WGC acquisition. Weatherford retained certain foreign compression assets and is not contractually restricted from competing with us. We are dependent on our key personnel We depend on the continuing efforts of our executive officers and senior management, including Stephen A. Snider, our President and Chief Executive Officer. This dependence likely will be intensified now that we have completed the WGC acquisition. The departure of any of our key personnel, including WGC employees who joined us as a result of the WGC acquisition, could have a material adverse effect on our business, operating results and financial condition. In addition, we believe that our success depends on our ability to attract and retain additional qualified employees. If we fail to recruit other skilled personnel, we could be unable to compete effectively. We are vulnerable to interest rate increases As of March 1, 2001, approximately $77 million of our indebtedness and other obligations outstanding bears interest at floating rates. We have entered into in the past and may enter into in the future, interest rate swaps. Changes in economic conditions could result in higher interest and lease payment rates, thereby increasing our interest expense and lease payments and reducing our funds available for capital investment, operations or other purposes. In addition, a substantial portion of our cash flow must be used to service our debt and other obligations, which may affect our ability to make future acquisitions or capital expenditures. Although we may use interest rate protection agreements from time to time to minimize our exposure to interest rate fluctuations in some cases, we cannot assure you that we will implement hedges or, if we do implement them, that they will achieve the desired effect. We may experience economic losses and a negative impact on earnings or net assets as a result of interest rate fluctuations. 21 27 Our international operations, which increased significantly as a result of our WGC acquisition, subject us to risks that are difficult to predict For the nine months ended December 31, 2000, taking into account our WGC acquisition, we derived approximately 34.4% of our revenues from international operations. We have limited operating experience in certain of the international regions we acquired through WGC, including Canada and Thailand. We intend to continue to expand our business in Latin America and Southeast Asia and, ultimately, other international markets. Our international operations are affected by global economic and political conditions. Changes in economic or political conditions and in legal or regulatory requirements in any of the countries in which we operate could result in exchange rate movement, new currency or exchange controls or other restrictions being imposed on our operations or expropriation. In addition, the financial condition of foreign customers may not be as strong as that of our current domestic customers. Our operations may be adversely affected by significant fluctuations in the value of the U.S. dollar Our exposure to currency exchange rate fluctuations has increased as a result of our WGC acquisition because our revenues from international operations have increased. Although we attempt to match costs and revenues in terms of local currencies, we anticipate that as we continue our expansion on a global basis, there may be many instances in which costs and revenues will not be matched with respect to currency denomination. As a result, we expect that increasing portions of our revenues, costs, assets and liabilities will be subject to fluctuations in foreign currency valuations. Although we may use foreign currency forward contracts or other currency hedging mechanisms from time to time to minimize our exposure to currency exchange rate fluctuations, we cannot assure you that we will implement hedges or, if we do implement them, that they will achieve the desired effect. We may experience economic losses and a negative impact on earnings or net assets solely as a result of foreign currency exchange rate fluctuations. Further, the markets in which we operate could restrict the removal or conversion of the local or foreign currency, resulting in our inability to hedge against these risks. We are dependent on particular suppliers and are vulnerable to product shortages and price increases As a consequence of having a highly standardized fleet, some of the components used in our products are obtained from a single source or a limited group of suppliers. Our reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of required components in a timely manner. The partial or complete loss of certain of these sources could have at least a temporary material adverse effect on our results of operations and could damage our customer relationships. Further, a significant increase in the price of one or more of these components could have a material adverse effect on our results of operations. Weatherford and Castle Harlan have significant control over our company Currently, an affiliate of Weatherford beneficially owns approximately 48% of our outstanding common stock, and Castle Harlan Partners III beneficially owns approximately 20% of our outstanding common stock. Pursuant to the voting agreement entered into concurrently with the WGC acquisition, Weatherford has agreed to limit its voting power to 33 1/3% of our outstanding common stock until the earlier of two years from the closing of that acquisition or the date that Castle Harlan and its affiliates own less than 5% of our outstanding common stock. Also, Weatherford, like Castle Harlan and some of our other shareholders, has registration rights (demand and piggyback) with respect to its shares of our common stock. We have agreed that for so long as Weatherford and its affiliates own at least 20% of our outstanding common stock, they will be entitled to designate three persons to serve on our board of directors. If Weatherford's ownership falls below 20%, Weatherford may designate only two directors. If Weatherford's ownership falls below 10%, it will no longer have the right to designate directors to our board. Currently, Bernard J. Duroc-Danner, Curtis W. Huff and Uriel E. Dutton are serving as Weatherford's designees to 22 28 our board. Castle Harlan is also entitled to designate a total of three persons to our board of directors, so long as Castle Harlan and its affiliates beneficially own at least 15% of our outstanding common stock (including shares over which it has voting control pursuant to voting agreements and trusts). Currently, John K. Castle and William M. Pruellage are serving as Castle Harlan designees to our board, and Castle Harlan has not designated its third designee. This significant stock ownership and board representation give Weatherford and Castle Harlan the ability to exercise substantial influence over our ownership, policies, management and affairs and significant control over actions requiring approval of our shareholders. Their interests could conflict with yours. We may have to make payments relating to a prior acquisition if certain events occur Pursuant to a purchase price adjustment agreement that we entered into in connection with our acquisition of Tidewater Compression Service Inc. in 1998, we may have to pay an amount to Tidewater Inc., the former parent company of Tidewater Compression, based on a formula if any of the following liquidity events occurs: - Castle Harlan sells its shares of our common stock, - UCH sells all or substantially all of its assets or it or UCI merges with another entity or - We enter into some types of recapitalizations. If any of the liquidity events described above occurs and Castle Harlan receives an amount greater than its accreted investment, which is defined in the agreement as its initial investment increased at a compounded rate of 6.25% each quarter, (or approximately 27.4% annually), we must make a payment to Tidewater equal to 10% of the amount, if any, that Castle Harlan receives in excess of its accreted investment. Any payment is to be made in the same form of consideration as received by Castle Harlan. As of December 31, 2000, Castle Harlan's accreted investment was approximately $28.78 per share, which will continue to grow at a compounded rate of 6.25% per quarter. Consummation of the WGC acquisition and related financings did not constitute a liquidity event (as defined in the agreement) requiring a payment. If a payment event occurs, we may not have available funds sufficient to pay this obligation and, if we do have sufficient funds available, such payment will reduce our funds available for lease payments, capital investment, operations and other purposes. RISKS INHERENT IN OUR INDUSTRY We depend on strong demand for natural gas, and a prolonged, substantial reduction in this demand could adversely affect the demand for our services and products Gas compression operations are significantly dependent upon the demand for natural gas. Demand may be affected by, among other factors, natural gas prices, weather, demand for energy and availability of alternative energy sources. Any prolonged, substantial reduction in the demand for natural gas would, in all likelihood, depress the level of production, exploration and development activity and result in a decline in the demand for our compression services and products. This could materially adversely affect our results of operations. Our business subjects us to potential liabilities which may not be covered by insurance Natural gas service operations are subject to inherent risks, such as equipment defects, malfunction and failures and natural disasters which can result in uncontrollable flows of gas or well fluids, fires and explosions. These risks could expose us to substantial liability for personal injury, wrongful death, property damage, pollution and other environmental damages. Although we have obtained insurance against many of these risks, there can be no assurance that our insurance will be adequate to cover our liabilities. Further, there can be no assurance that insurance will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur liability at a time 23 29 when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected. We are subject to substantial environmental regulation, and changes in these regulations could increase our costs or liabilities We are subject to stringent and complex foreign, federal, state and local laws and regulatory standards, including laws and regulations regarding the discharge of materials into the environment, emission controls and other environmental protection and occupational health and safety concerns. See "Business -- Environmental and Other Regulations." Environmental laws and regulations may, in certain circumstances, impose strict liability for environmental contamination, rendering us liable for remediation costs, natural resource damages and other damages as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior owners or operators or other third parties. In addition, where contamination may be present it is not uncommon for the neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. Remediation costs and other damages arising as a result of environmental laws and regulations, and costs associated with new information, changes in existing environmental laws and regulations or the adoption of new laws and regulations could be substantial and could have a material adverse effect on our business, financial condition or results of operations. Moreover, failure to comply with these environmental laws and regulations may result in the imposition of administrative, civil and criminal penalties. We currently are engaged in remediation and monitoring activities with respect to some of our properties. We believe that former owners and operators of some of these properties are responsible under environmental laws and contractual agreements to pay for or perform some of these activities, or to indemnify us for some of our remediation costs. There can be no assurance that these other entities will fulfill their legal or contractual obligations, and their failure to do so could result in material costs to us. We routinely deal with natural gas, oil and other petroleum products. As a result of our engineered products and overhaul and field operations, we generate, manage and dispose of or otherwise recycle hazardous wastes and substances, such as solvents, thinner, waste paint, waste oil, washdown wastes and sandblast material. Although it is our policy to utilize generally accepted operating and disposal practices in accordance with applicable environmental laws and regulations, hydrocarbons or other hazardous substances or wastes may have been disposed or released on, under or from properties owned, leased, or operated by us or on or under other locations where such substances or wastes have been taken for disposal. These properties may be subject to investigatory, remediation and monitoring requirements under foreign, federal, state and local environmental laws and regulations. We believe that our operations are in substantial compliance with applicable environmental laws and regulations. Nevertheless, the modification or interpretation of existing environmental laws or regulations, the more vigorous enforcement of existing environmental laws or regulations, or the adoption of new environmental laws or regulations may also negatively impact oil and natural gas exploration and production companies, which in turn could have a material adverse effect on us and other similarly situated service companies. We operate in a highly competitive industry The natural gas compression service and engineered products business is highly competitive. Many of our competitors, like us, offer a wide range of compressors for sale or lease, and there are low barriers to entry for individual projects. If our competitors substantially increase the resources they devote to the development and marketing of competitive products and services, we may not be able to compete effectively. You should not place undue reliance on forward-looking statements This prospectus contains certain forward-looking statements about the registrants' operations, economic performances and financial condition. These statements are based on a number of assumptions 24 30 and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the registrants' control, and reflect future business decisions which are subject to change. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect the registrants' results of operations. Discussions containing forward-looking statements may be found throughout this document and specifically in the material under "Summary," "Risk Factors," "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations of UCH" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Enterra." Forward-looking statements represent the registrants' current expectations and are inherently uncertain. The registrants' actual results may differ significantly from these expectations, and thus from the results discussed in the forward-looking statements. Factors that may cause such differences include those described in "Disclosure Regarding Forward-Looking Statements," as well as "Risk Factors," "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations of UCH" and "Management's Discussion and Analysis of Financial Condition and Results of Operations of Enterra." USE OF PROCEEDS This exchange offer is intended to satisfy the obligations of the issuers and Universal under their registration rights agreement with the initial purchasers of the old notes concurrently with the issuance of those notes. Neither the issuers nor Universal will receive any cash proceeds from the exchange offer. You will receive, in exchange for old notes tendered by you in the exchange offer, new notes in like principal amount. The old notes surrendered in exchange for the new notes will be retired and cancelled and cannot be reissued. Accordingly, the issuance of the new notes will not result in any increase of the issuers' or Universal's outstanding debt. The issuers used the proceeds from the sale of the old notes, borrowings under a term loan and the proceeds of an equity investment to purchase domestic gas compression equipment covered by the operating lease from UCI, WGC and some of their previous lessors. UCI used the proceeds from the sale of the equipment covered by the operating lease to refinance certain of its and WGC's indebtedness, to replace its and WGC's operating leases and to pay related expenses. 25 31 CAPITALIZATION OF UCH The following table sets forth UCH's capitalization as of December 31, 2000, on an actual basis and as adjusted to give effect to our WGC acquisition and the related financing transactions, including our operating lease facility and asset-backed securitization operating lease facility, but excluding our IEW acquisition, which occurred in February 2001. You should read the following table in conjunction with "Selected Historical and Pro Forma Financial Data -- Unaudited Pro Forma Combined Condensed Financial Information" and related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations of UCH" and our consolidated financial statements and related notes appearing elsewhere in this prospectus.
AS OF DECEMBER 31, 2000 ------------------------ ACTUAL AS ADJUSTED --------- ------------ (IN THOUSANDS) Cash and cash equivalents................................... $ 7,442 $ 26,095 ======== ======== Long-term debt, including current portion: Previous revolving credit facility(1)..................... $ 3,000 -- New revolving credit facility(2).......................... -- -- 9 7/8% Senior Discount Notes(3)........................... 196,058 196,058 Other..................................................... 13,092 14,346 -------- -------- Total long-term debt(4)........................... 212,150 210,404 Stockholders' equity........................................ 265,393 655,182 -------- -------- Total capitalization.............................. $477,543 $865,586 ======== ========
- --------------- (1) As of December 31, 2000, WGC had $11.9 million outstanding and we had $3.0 million outstanding under our respective revolving credit facilities. These amounts were repaid, and these facilities were terminated, concurrently with the WGC acquisition and related financing transactions. (2) $125 million available for future borrowings. (3) Our 9 7/8% senior discount notes accrete interest through February 14, 2003, with the first semi-annual cash interest payment to be made August 15, 2003. (4) The table above excludes our previous operating lease facility (which was terminated concurrently with our acquisition of WGC), and our new operating lease facility and asset-backed securitization operating lease facility. These lease obligations are represented in the table below at the estimated residual value guarantee of 85% of the amount funded under our previous operating lease facility, 82% of the amount funded under our new operating lease facility and 85% of the amount funded under our new asset-backed securitization operating lease facility.
AS OF DECEMBER 31, 2000 ------------------------ ACTUAL AS ADJUSTED --------- ------------ (IN THOUSANDS) Previous operating lease facility........................... $155,000 $ -- Operating lease facility.................................... -- 427,000 Asset-backed securitization operating lease facility........ -- 80,000 -------- -------- Total............................................. $155,000 $507,000 ======== ========
26 32 CAPITALIZATION OF BRL The following table sets forth BRL's capitalization as of January 31, 2001, on an actual basis and as adjusted to give effect to the operating lease, the issuance of the old notes and the related transactions. You should read the following table in conjunction with "Selected Historical Consolidated Financial Data of BRL" and related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations of BRL" and its consolidated financial statements and related notes appearing elsewhere in this prospectus.
AS OF JANUARY 31, 2001 ----------------------- ACTUAL AS ADJUSTED ------- ------------ (IN THOUSANDS) Cash and cash equivalents................................... $21 $ 20 === ======== Long-term debt, including current portion: BRL term loan............................................. -- 64,000 --- -------- 8 7/8% senior secured notes due 2008...................... -- 350,000 --- -------- Total long-term debt(4)........................... -- 414,000 Partners' Capital........................................... 21 13,020 --- -------- Total capitalization.............................. $21 $427,020 === ========
27 33 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The following unaudited pro forma combined condensed financial statements are based on the historical consolidated financial statements and the notes thereto of Universal and WGC (or "Enterra") and have been prepared to illustrate the effect of our recent WGC acquisition and the related financing transactions. The unaudited pro forma combined condensed financial statements should be read in conjunction with the historical financial statements and accompanying disclosures contained in this prospectus. The unaudited pro forma combined condensed balance sheet as of December 31, 2000 and the unaudited pro forma combined condensed statements of operations for the nine months ended December 31, 2000 and the fiscal year ended March 31, 2000 have been prepared to give effect to the transactions set forth below as if those transactions had occurred at the balance sheet date and at the beginning of each of the income statement periods. Because our fiscal year differs from WGC's, WGC's historical operating results for the fiscal year ended March 31, 2000 include its first quarter results of 2000, combined with its results for the nine months ended December 31, 1999. The unaudited pro forma combined condensed financial statements presented herein give effect to: - the initial public offering of our common stock and concurrent debt restructuring and operating lease facility, which occurred in May 2000, as well as our common stock split and conversion of our preferred stock and non-voting common stock that occurred concurrently with our initial public offering; - the transfer of GSI and related assets to Weatherford entities other than Enterra and its subsidiaries prior to the WGC acquisition; and - completion of the WGC acquisition and the related financing transactions, including the operating lease facility and asset-back securitization operating lease facility. The unaudited pro forma combined condensed financial statements do not give effect to (1) our acquisitions of IEW in February 2001 or GCSI in September 2000, other than the historical information since the GCSI acquisition, or related cost savings or (2) the cost savings and synergies that we expect to realize as a result of the WGC acquisition. The unaudited pro forma combined condensed financial statements presented below do not reflect future events that may occur after the WGC acquisition. We have accounted for the WGC acquisition using the purchase method of accounting. WGC's property, plant and equipment balances have been adjusted to their estimated fair values. In addition, WGC's reported current assets and current liabilities are assumed to be their estimated fair values included in the unaudited pro forma combined condensed financial statements. The final allocation of the purchase price of the merger will differ from the amounts represented in the unaudited pro forma combined condensed financial statements. The accompanying unaudited pro forma combined condensed financial statements should be read in conjunction with the historical financial statements of UCH and WGC and the notes thereto, which are included elsewhere in this prospectus. The unaudited pro forma combined condensed financial statements are provided for informational purposes only and do not purport to represent what our financial position or results of operations would actually have been had the WGC acquisition and related financing transactions occurred on such dates or to project our results of operations or financial position for any future period. References to Enterra in the pro forma combined condensed financial statements mean WGC as used in this prospectus. 28 34 UNIVERSAL COMPRESSION HOLDINGS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2000 ------------------------------------------------------ ENTERRA ADJUSTED MERGER PRO FORMA AS UCH ACTUAL ACTUAL(1) ADJUSTMENTS ADJUSTED ---------- --------- ----------- ------------ (IN THOUSANDS) ASSETS Current assets: Cash and equivalents...................... $ 7,442 $ 3,118 $ 15,535(2) $ 26,095 Accounts receivable, net.................. 30,931 52,650 -- 83,581 Current portion of notes receivable....... 3,190 -- -- 3,190 Inventories............................... 20,523 77,058 -- 97,581 Current deferred tax asset................ 227 4,397 -- 4,624 Other..................................... 1,451 7,698 -- 9,149 -------- -------- --------- ---------- Total current assets.............. 63,764 144,921 15,535 224,220 Property, plant and equipment Rental equipment.......................... 366,182 283,711 (100,750)(3) 549,143 Other..................................... 28,085 69,762 (44,762)(3) 53,085 Less: accumulated depreciation............ (50,610) (71,851) 79,407(3) (43,054) -------- -------- --------- ---------- Net property, plant, and equipment..... 343,657 281,622 (66,105) 559,174 Goodwill and intangibles, net of amortization........................... 130,464 233,038 (117,997)(4) 245,505 Notes receivable.......................... 5,048 -- -- 5,048 Other assets, net......................... 8,190 13,429 9,623(5) 31,242 Long-term deferred tax asset.............. 7,509 -- -- 7,509 -------- -------- --------- ---------- Total assets...................... $558,632 $673,010 $(158,944) $1,072,698 ======== ======== ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities............................ $ 33,551 $ 46,011 $ 4,000(6) $ 83,562 Current portion of long-term debt......... 3,097 13,154 (11,900)(7) 4,351 -------- -------- --------- ---------- Total current liabilities......... 36,648 59,165 (7,900)(7) 87,913 Capital lease obligation.................... 4,870 524 (524)(7) 4,870 Long-term deferred tax liabilities.......... 2,806 45,707 (4,912)(8) 43,601 Long-term debt.............................. 204,184 1,185 (1,185)(7) 204,184 Minority interest liability................. -- 197,513 (197,513)(6) -- Long-term payable due to Weatherford........ -- 78,780 (78,780)(9) -- Other....................................... 44,731 95,538 (63,321)(10) 76,948 -------- -------- --------- ---------- Total liabilities................. 293,239 478,412 (354,135)(11) 417,516 Total stockholders' equity........ 265,393 194,598 195,191 655,182 -------- -------- --------- ---------- Total liabilities and stockholders' equity............ $558,632 $673,010 $(158,944) $1,072,698 ======== ======== ========= ==========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 29 35 UNIVERSAL COMPRESSION HOLDINGS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 2000 ------------------------------------------------------------------ UCH IPO/DEBT ENTERRA ENTERRA UCH RESTRUCTURE ADJUSTED MERGER PRO FORMA ACTUAL ADJUSTMENTS ACTUAL(1) ADJUSTMENTS AS ADJUSTED -------- ----------- --------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues..................... $133,627 $ -- $180,406 $ -- $314,033 Rentals and cost of sales.... 67,492 -- 107,317 -- 174,809 -------- ------- -------- -------- -------- Gross margin....... 66,135 -- 73,089 -- 139,224 Selling, general and administrative............. 11,971 -- 23,547 -- 35,518 -------- ------- -------- -------- -------- Operating profit... 54,164 -- 49,542 -- 103,706 Depreciation and amortization............... 21,903 (382)(12) 28,568 (15,950)(17) 34,139 Operating lease.............. 6,223 924(13) 16,756 11,282(18) 35,185 Interest expense............. 18,597 (2,793)(14) 8,929 (13,958)(19) 10,775 Other, net................... 7,059 (7,059)(15) 6,105 (6,301)(20)-- (196) -------- ------- -------- -------- -------- Income (loss) before income taxes and minority interest......... 382 9,310 (10,816) 24,927 23,803 Income taxes (benefit)....... 163 3,491(16) (3,799) 9,348(16) 9,203 Minority interest expense, net of taxes............... -- -- (22) 22(21) -------- ------- -------- -------- -------- Income (loss) before extraordinary items............ $ 219 $ 5,819 $ (6,995) $ 15,557 $ 14,600 ======== ======= ======== ======== ======== Weighted average common and common equivalent shares outstanding: Basic...................... 12,342 2,166 -- 13,750 28,258(22) -------- ------- -------- -------- -------- Diluted.................... 12,714 2,331 -- 13,750 28,795(22) -------- ------- -------- -------- -------- Earnings per share:.......... -- Basic...................... $ 0.01 $ -- $ 0.52 ======== ======== ======== Diluted.................... $ 0.01 $ -- $ 0.51 ======== ======== ========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 30 36 UNIVERSAL COMPRESSION HOLDINGS, INC. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2000 -------------------------------------------------------------------- UCH IPO/DEBT ENTERRA ENTERRA UCH RESTRUCTURE ADJUSTED MERGER PRO FORMA ACTUAL ADJUSTMENTS ACTUAL(1) ADJUSTMENTS AS ADJUSTED -------- ----------- --------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues......................... $136,449 $ -- $237,763 $ -- $374,212 Rentals and cost of sales........ 67,295 -- 139,346 -- 206,641 -------- --------- -------- --------- -------- Gross margin........... 69,154 -- 98,417 -- 167,571 Selling, general and administrative................. 16,797 (3,200)(23) 30,272 -- 43,869 -------- --------- -------- --------- -------- Operating profit....... 52,357 3,200 68,145 -- 123,702 Depreciation and amortization.... 26,006 (3,559)(24) 34,739 (16,650)(26) 40,536 Operating lease.................. -- 5,702(13) 14,344 21,075(27) 41,121 Interest expense................. 34,327 (15,727)(25) 5,293 (18,271)(28) 5,622 Other, net....................... -- -- (2,378) -- (2,378) -------- --------- -------- --------- -------- Income (loss) before income taxes and minority interest.... (7,976) 16,784 16,147 13,846 38,801 Income taxes (benefit)........... (1,994) 6,378(16) 7,013 5,192(16) 16,589 Minority interest expense, net of taxes.......................... -- -- 4,194 (4,194)(21) -- -------- --------- -------- --------- -------- Income (loss) before extraordinary items................ $ (5,982) $ 10,406 $ 4,940 $ 12,848 $ 22,212 ======== ========= ======== ========= ======== Weighted average common and common equivalent shares outstanding: Basic.......................... 2,476 10,495 -- 13,750 26,721(29) -------- --------- -------- --------- -------- Diluted........................ 2,476 11,181 -- 13,750 27,407(29) -------- --------- -------- --------- -------- Earnings (loss) per share: Basic.......................... $ (2.42) $ -- $ 0.83 ======== ======== ======== Diluted........................ $ (2.42) $ -- $ 0.81 ======== ======== ========
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements. 31 37 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (1) Reflects Enterra's historical balances adjusted to exclude its Singapore-based operations (other than Australia and Thailand) and $10 million of accounts receivable, which were not included in the WGC acquisition. (2) Reflects borrowings under the asset-backed securitization facility of $15.5 million for working capital purposes from December 31, 2000 through February 9, 2001. (3) Reflects (a) the preliminary revaluation of Enterra's property, plant and equipment historical balances to estimated fair value ($52.6 million) and (b) the initial sale and leaseback of additional compression equipment ($118.7 million) pursuant to the new operating lease facilities consummated concurrently with the WGC acquisition. (4) Represents the elimination of Enterra Adjusted Actual goodwill ($233.0 million) offset by Universal's preliminary estimate of the excess of the total purchase price over the allocated fair value of the net assets of Enterra ($115.0 million). The purchase price includes advisory fees but not all acquisition related costs. The final allocation of the purchase price in the WGC acquisition will differ from the amounts represented in the unaudited pro forma combined condensed financial statements. (5) Represents adjustment for (a) the elimination of prepaid financing costs associated with UCI's prior operating lease facility and revolving credit facility ($4.7 million), which were refinanced concurrently with the WGC acquisition, and (b) the recording of prepaid finance costs associated with the new operating lease facilities and revolving credit facility ($14.3 million). (6) Reflects the elimination of Enterra's minority interest liability as a result of the purchase of GE Capital's interest by Enterra concurrently with the WGC acquisition. Reflects the recording of a $4.0 million estimated payable to Weatherford International for operating costs paid by Weatherford on behalf of WGC prior to February 9, 2001. (7) Represents the retirement of WGC's debt using proceeds from the new operating lease facilities ($13.6 million). (8) Represents the estimated deferred income taxes related to expense items associated with the elimination of prepaid financing costs associated with UCI's prior operating lease facility and revolving credit facility. (9) Reflects the elimination of Enterra's payable to Weatherford concurrently with the WGC acquisition. (10) Represents the elimination of the deferred gain associated with the retirement of the prior operating lease facilities of WGC ($94.6 million). Also reflects the estimated additional deferred gain ($31.3 million) associated with the sale of compression equipment pursuant to the new operating lease facilities. Additional deferred gain is assumed to equal approximately 40% of the proceeds from the sale of compression equipment pursuant to such new operating lease facilities. (11) Reflects the elimination of Enterra's stockholders' equity ($194.6 million) and the valuation of UCH's common stock issued to an affiliate of Weatherford in the WGC acquisition ($392.7 million). Valuation assumes 13,750,000 shares of UCH common stock valued at $28.56 per share, which is the five-day average closing price surrounding October 24, 2000, the announcement date of the WGC acquisition. Also reflects the write-off of prepaid finance costs ($2.9 million, net of taxes) associated with the restructuring of UCI's prior operating lease facility and revolving credit facility. (12) Reflects the elimination of depreciation expense associated with the sale of compression equipment pursuant to UCI's prior operating lease facility, with initial funding under that facility of $62.6 million. 32 38 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) (13) Reflects the expenses associated with UCI's prior operating lease facility, including the related commitment fee. (14) Reflects the adjustment of interest expense related to the redemption of certain indebtedness at the beginning of the period and incremental borrowing during the period with the proceeds of UCH's initial public offering and UCI's prior operating lease facility. Also includes the commitment fees associated with the new revolving credit facility. (15) Represents the non-recurring charges related to the elimination of a management agreement and a consulting agreement and other related fees in connection with UCH's initial public offering and concurrent financing transactions in May 2000. (16) An estimated statutory tax rate of 37.5% is assumed for pro forma adjustments. The effective tax rate may differ. (17) Reflects (a) an estimated adjustment to goodwill amortization resulting from the change in the goodwill balance resulting from the preliminary allocation of the purchase price in the WGC acquisition ($2.2 million), (b) the estimated reduction of depreciation expense resulting from the preliminary revaluation of the purchase price to rental equipment acquired in the WGC acquisition and the additional sale of compression equipment pursuant to the new operating lease facilities ($8.8 million), with an aggregate assumed funding under the new operating leases of $507.0 million by the end of the period, which funding includes the transfer of equipment from the prior operating lease facilities and the sale and leaseback of additional equipment under the new facilities and (c) the reduction of depreciation expense resulting from the preliminary revaluation of the purchase price to non-compression equipment acquired in the WGC acquisition ($5.0 million). Depreciation and amortization is calculated using an estimated useful life of 15 years with a 20% salvage value for rental equipment and an estimated useful life of seven years for non-compression equipment, while goodwill is amortized over 40 years. (18) Reflects the net rental payments associated with the new operating lease facilities ($33.7 million) and amortization of the lease structuring and arrangement fees ($1.4 million) estimated to be approximately $13.5 million on the closing of the facilities. Also reflects the elimination of the prior facilities ($23.9 million), including the related commitment fee, with assumed funding under the new of $507.0 million by the end of the period. The new operating lease facilities replaced Universal's and WGC's prior facilities. The rental payments under the new lease facilities are assumed to include an amount based on LIBOR plus a variable amount depending on UCI's operating and financial results, applied to the funded amount of the leases. The operating lease calculations assume an interest rate of 8.875% and a seven-year lease term. A fluctuation of .125% of actual rates related to the new operating lease facilities would result in an approximate change of $638,000 in rental payments on an annual basis. (19) Reflects the adjustment of interest expense related to the retirement of WGC's indebtedness at the beginning of the period. (20) Reflects the elimination of non-recurring charges of $3.8 million related to severance, taxes and transaction costs and a $2.5 million write-down of certain assets of WGC. (21) Reflects the elimination of Enterra's minority interest expense as a result of the purchase of GE Capital's interest by Enterra concurrently with the WGC acquisition. (22) Includes the effect of the 7,275,000 shares of common stock offered in, and the stock split and conversion that occurred concurrently with, UCH's initial public offering and the 13,750,000 shares of UCH's common stock to be issued to an affiliate of Weatherford in the WGC acquisition as if these transactions had occurred at April 1, 2000. Also includes the weighted average effect of the 1,400,726 shares of UCH's common stock issued as partial consideration for the GCSI acquisition that 33 39 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) occurred on September 15, 2000. Excludes options to purchase up to 318,000 shares of UCH's common stock that we were obligated to issue to certain WGC employees in connection with the WGC acquisition. (23) Represents elimination of Castle Harlan management fees ($3.0 million) and Mr. Urcis' consulting fees ($0.2 million) which were terminated at the time of UCH's initial public offering and related debt restructuring. (24) Reflects the elimination of depreciation expense associated with the sale of compression equipment pursuant to the prior operating lease facility, with initial funding under that facility of $61.3 million. (25) Reflects the adjustment of interest expense related to the redemption of certain indebtedness at the beginning of the period totaling $177.8 million and $12.8 million of incremental borrowing during the period from the proceeds of UCH's initial public offering and its prior operating lease facility. Also includes the commitment fees associated with Universal's prior revolving credit facility. (26) Reflects (a) an estimated adjustment to goodwill amortization resulting from the change in the goodwill balance resulting from the preliminary allocation of the purchase price in the WGC acquisition ($2.6 million), (b) the estimated reduction of depreciation expense resulting from the preliminary revaluation of the purchase price to rental equipment acquired in the WGC acquisition and the additional sale of compression equipment pursuant to the new operating lease facilities ($7.4 million), with an aggregate assumed funding under such facilities of $507.0 million by the end of the period, which funding includes the transfer of equipment from the prior operating lease facilities and the sale and leaseback of additional equipment under the new facilities and (c) the reduction of depreciation expense resulting from the preliminary revaluation of the purchase price to non-compression equipment acquired in the WGC acquisition ($6.7 million). Depreciation and amortization for rental equipment is calculated using an estimated useful life of 15 years with a 20% salvage value for rental equipment and an estimated useful life of seven years for non-compression equipment, while goodwill is amortized over 40 years. (27) Reflects the net rental payments associated with the new operating lease facilities ($39.2 million) and amortization ($1.9 million) of the lease structuring and arrangement fees, estimated to be approximately $13.5 million on the closing of the facilities. Also reflects the elimination of the prior operating lease facilities ($20.0 million), including the related commitment fees, with assumed aggregate funding under the operating lease facility and the asset-backed securitization operating lease facility of $507.0 million by the end of the period. The new operating lease facilities replaced Universal's and WGC's prior operating lease facilities. The rental payments under the lease facilities are assumed to include an amount based on LIBOR plus a variable amount depending on UCI's operating and financial results, applied to the funded amount of the leases. The operating lease calculations assume an interest rate of 8.875% and a seven-year lease term. A fluctuation of .125% of actual rates related to the proposed new operating lease facilities would result in an approximate change of $669,000 in rental payments on an annual basis. (28) Reflects the adjustment of interest expense ($18.4 million) related to the retirement of WGC's indebtedness at the beginning of the period. Also includes the net adjustment for the amortization of up-front financing costs and commitment fees associated with the new revolving credit facility ($0.1 million). (29) Includes the effect of the 7,275,000 shares offered in, and the outstanding stock split and conversion that occurred concurrently with, UCH's initial public offering and the 13,750,000 shares of UCH's common stock issued to an affiliate of Weatherford in the WGC acquisition as if these transactions had occurred at April 1, 1999. Excludes options to purchase up to 318,000 shares of UCH's common stock that we were obligated to issue to certain WGC employees in connection with the WGC acquisition. 34 40 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF UCH The following selected consolidated financial data of UCH should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations of UCH" and the consolidated financial statements and related notes included elsewhere in this prospectus. The summary historical financial and operating data for Tidewater Compression, UCI's predecessor, as of and for each of the years in the two-year period ended March 31, 1997 and for the period from April 1, 1997 through February 20, 1998 and the summary historical financial data for UCH as of and for the 39-day period ending March 31, 1998 and for the years ended March 31, 1999 and March 31, 2000 have been derived from the respective audited financial statements. Such historical consolidated financial statements, and the reports thereon, are included elsewhere in this prospectus. The financial information for the nine-month period ended December 31, 2000 presented below has been derived from our unaudited consolidated financial statements. The unaudited nine month data reflects, in our judgment, all appropriate adjustments, all of which are normally recurring adjustments unless otherwise noted, considered necessary for a fair presentation of the results for such interim periods. Results of operations for the unaudited nine-month period may not be indicative of results to be expected for an entire year of operations.
TIDEWATER COMPRESSION (PREDECESSOR COMPANY) UCH ------------------------------------ ----------------------------------------------------------------- PERIOD FROM PERIOD FROM DECEMBER 12, YEAR ENDED APRIL 1, 1997 1997 PRO FORMA NINE MONTHS MARCH 31, THROUGH THROUGH THROUGH YEAR ENDED YEAR ENDED ENDED ------------------- FEBRUARY 20, MARCH 31, MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1998 1998(7) 1998(8) 1999 2000 2000 -------- -------- -------------- ------------ --------- ---------- ---------- ------------ (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues.................. $110,464 $113,886 $ 95,686 $ 13,119 $ 108,805 $129,498 $136,449 $133,627 Gross margin(1)........... 51,685 48,332 47,752 6,891 58,443 61,887 68,961 66,033 Selling, general and administrative expenses................ 10,508 11,004 8,669 1,305 13,037 16,863 16,797 11,971 Depreciation and amortization............ 26,997 26,163 23,310 1,560 19,307 19,314 26,006 21,903 Operating income(2)....... 14,180 11,165 15,773 4,026 26,099 25,710 26,158 25,304 Interest expense.......... 3,706 -- -- 3,203 32,474 29,313 34,327 18,597 Income tax expense (benefit)............... 3,745 4,724 6,271 409 (1,888) (1,031) (1,994) 163 Income (loss) before extraordinary items..... 5,972 7,842 10,759 430 (3,214) (2,361) (5,982) 219 Net income (loss)......... 5,972 7,842 10,759 430 (3,214) (2,361) (5,982) (6,045) Ratio of earnings to fixed charges(3).............. 3.5x 88.9x 132.0x 1.3x N/A 0.9x 0.8x 1.0x OTHER FINANCIAL DATA: EBITDA(4)................. $ 40,420 $ 38,729 $ 40,340 $ 5,930 $ 49,742 $ 48,435 $ 55,557 $ 54,164 Acquisitions(5)(6)........ -- -- -- 351,872 -- -- -- 125,361 Capital expenditures: Expansion............... $ (2,423) $(12,464) $(11,902) $ (1,820) $ (13,722) $(63,408) $(49,871) $(34,676) Maintenance............. (3,971) (4,056) (5,698) (218) (9,716) (7,626) (9,920) (10,990) Other................... 5,124 7,684 3,803 (351,107) (347,304) 8,038 (1,312) 26,215 Cash flows from (used in): Operating activities.... $ 50,810 $ 41,923 $ 33,491 $ (1,005) $ 22,076 $ 22,793 $ 47,144 $ 13,745 Investing activities.... (1,270) (8,836) (13,797) (353,145) (370,742) (62,996) (61,103) (19,451) Financing activities.... 49,506 (33,121) (17,870) 356,532 352,872 40,748 12,435 11,745
TIDEWATER COMPRESSION (PREDECESSOR COMPANY) UCH ---------------------- --------------------------------------------- AS OF MARCH 31, AS OF MARCH 31, AS OF ---------------------- ------------------------------ DECEMBER 31, 1996 1997 1998 1999 2000 2000 -------- -------- -------- -------- -------- ------------ (IN THOUSANDS) BALANCE SHEET DATA: Working capital(9).......................... $ 16,192 $ 13,953 $ 13,882 $ 23,742 $ 7,209 $ 27,116 Total assets................................ 274,312 257,090 380,226 437,991 469,942 558,632 Total debt(10).............................. 229,657 194,371 286,862 344,677 377,485 212,151(11) Stockholders' equity........................ 49,705 57,547 81,680 80,774 74,677 265,393
35 41 - --------------- (1) Gross margin is defined as total revenue less (i) rental expense, (ii) cost of sales (exclusive of depreciation and amortization), (iii) gain on asset sales and (iv) interest income. (2) Operating income is defined as income before income taxes less gain on asset sales and interest income plus interest expense and operating lease expense. (3) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earning before income taxes, plus fixed charges. Fixed charges include interest expense on all indebtedness, amortization of deferred financing fees, operating lease expense related to the proposed new operating lease facilities, and one-third of rental expense on other operating leases representing that portion of rental expense deemed to be attributable to interest. (4) EBITDA is defined as net income plus income taxes, interest expense, leasing expense, management fees, depreciation and amortization excluding non-recurring items and extraordinary gains or losses. EBITDA represents a measure upon which management assesses financial performance, and certain covenants in our current borrowing arrangements are tied to similar measures. EBITDA is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered an alternative to operating income or net income as an indicator of our operating performance or to net cash provided by operating activities as a measure of our liquidity. Additionally, the EBITDA computation used herein may not be comparable to other similarly titled measures of other companies, including Enterra. (5) On February 20, 1998, we acquired 100% of the voting securities of Tidewater Compression for approximately $350.0 million. The results of Tidewater Compression's operations have been included in our operations from the date of the acquisition. (6) On September 15, 2000, we completed the acquisition of Gas Compression Services, Inc. for a combination of approximately $12 million in cash and 1,400,726 shares of UCH's common stock valued at approximately $39 million, the assumption and refinancing of approximately $57 million in debt and operating leases of GCSI, and $6 million of debt related to GCSI's customer equipment financing and associated customer notes receivable. The results of GCSI's operations have been included in our operations from the date of the acquisition. (7) Represents our historical consolidated financial statements for the period from December 12, 1997 (inception) through March 31, 1998. However, UCH had no operations until the acquisition of Tidewater Compression on February 20, 1998. (8) The pro forma selected financial data for the year ended March 31, 1998 were derived from the unaudited pro forma consolidated financial statements and give effect to the acquisition of Tidewater Compression as if it had occurred on April 1, 1997. The unaudited pro forma consolidated financial statements and other data have been prepared under the purchase method of accounting. Under this method of accounting, based on an allocation of the purchase price of Tidewater Compression, its identifiable assets and liabilities have been adjusted to their estimated fair values. The unaudited pro 36 42 forma consolidated financial statements and other data have been prepared based on the foregoing and on certain assumptions described in the notes below:
TIDEWATER ACQUISITION UCH COMPRESSION(A) UCH(B) ADJUSTMENTS PRO FORMA -------------- ------- ------------ --------- (IN THOUSANDS) Revenues: Rentals......................... $71,644 $ 9,060 $ -- $ 80,704 Sales........................... 19,924 4,037 -- 23,961 Other........................... 3,024 22 -- 3,046 Gain on asset sales............. 1,094 -- -- 1,094 ------- ------- -------- -------- Total revenues.................. 95,686 13,119 -- 108,805 Costs and expenses: Rentals......................... 31,924 2,804 (3,800)(c) 30,928 Cost of sales................... 14,753 3,408 -- 18,161 Depreciation and amortization... 23,310 1,560 (5,563)(d) 19,307 General and administrative...... 8,669 1,305 3,063(e) 13,037 Interest expense................ -- 3,203 29,271(f) 32,474 ------- ------- -------- -------- 78,656 12,280 22,971 113,907 Income (loss) before income taxes........................ 17,030 839 (22,971) (5,102) Income tax expense (benefit).... 6,271 409 (8,568)(g) (1,888) ------- ------- -------- -------- Net income (loss)............... $10,759 $ 430 $(14,403) $ (3,214) ======= ======= ======== ========
- --------------- (a) Represents the historical financial statements of Tidewater Compression, our predecessor, for the period from April 1, 1997 through February 20, 1998. (b) Represents our historical consolidated financial statements for the period from December 12, 1997 (inception) through March 31, 1998. However, we had no operations until the acquisition of Tidewater Compression on February 20, 1998. (c) Reflects the effect of a change in accounting policy for capitalization of major overhauls. (d) Reflects an adjustment to depreciation expense resulting from the allocation of purchase price and the change in accounting policy referred to in note (c). Depreciation and amortization expense for rental equipment is calculated using a 20% salvage value and an estimated useful life of 15 years. All remaining depreciation for property and equipment is calculated on the straight-line basis with estimated useful lives ranging from two to 25 years. Depreciation for capitalization of overhauls is calculated using a three-year estimated useful life. Goodwill amortization is calculated over an estimated 40-year life. (e) Reflects the management fee paid to Castle Harlan of $3.0 million and estimated incremental costs associated with being a stand-alone public company. Such stand-alone costs include legal, accounting and personnel costs. (f) Interest expense adjustments are as follows based on the assumptions described below:
FISCAL YEAR 1998 ---------------- (IN THOUSANDS) Revolving credit facility, $35.0 million at 9.75%.......... $ 3,427 Senior Discount Notes, $25.0 million at 11.375%, due 2009..................................................... 3,313 Senior Discount Notes, $152.0 million at 9.875%, due 2008..................................................... 16,886 Term loan credit facility, $75.0 million at 10%............ 7,481 Commitment fee, $48.0 million at 0.5%...................... 239 ------- 31,346 Amortization of deferred financing costs................... 1,128 ------- Total interest expense........................... $32,474 =======
37 43 Interest on the revolving credit facility and the term loan credit facility is based on LIBOR plus 2.25% and LIBOR plus 2.50%, respectively. The interest rates on the revolving credit facility and the term loan credit facility at March 31, 1998 under an available prime rate option were 9.75% and 10.0%, respectively. Interest on each of the Senior Discount Notes due 2009 (which we redeemed in May 2000) and the Senior Discount Notes due 2008 has been calculated based on the fixed rate of 11.375% and 9.875%, respectively, compounded semiannually on principal plus accumulated interest. A fluctuation of .125% of actual rates related to the revolving credit facility and the term loan credit facility would result in an approximate change of $137,000 in interest expense. (g) Reflects an adjustment to income tax expense to reflect a tax rate of 37%. (8) Working capital is defined as current assets minus current liabilities. (9) Includes capital lease obligations. (10) Excludes $155.0 million under our previous operating lease facility. 38 44 SELECTED HISTORICAL COMBINED AND CONSOLIDATED FINANCIAL DATA OF ENTERRA COMPRESSION COMPANY References in this section to Enterra mean WGC as defined in the Summary section of and used elsewhere in this prospectus. The following selected combined and consolidated financial data of Enterra should be read in conjunction with the combined and consolidated financial statements and related notes included elsewhere in this prospectus. Gas Services International Limited ("GSI") is included in the balance sheet data and results of operations from January 12, 2000, the date it was acquired. The following data also includes other assets that, like GSI, were excluded from the merger of Enterra into UCI. The selected historical combined financial information presented below as of and for the year ended December 31, 1998, and the selected historical consolidated financial information for, and as of the end of, each of the two years ended December 31, 2000, have been derived from the historical combined and consolidated financial statements of Enterra, which have been audited by Arthur Andersen LLP, independent public accountants. Such historical combined and consolidated financial statements, and the report thereon, are included elsewhere in this prospectus. The selected historical combined financial information for, and as of the end of, the year ended December 31, 1996 are unaudited. The historical financial statements for Weatherford's compression business prior to the formation of the joint venture are presented herein on a combined basis because the predecessor Weatherford business was operated as a single entity. The financial statements for, and as of the end of, each of the two years ended December 31, 2000 present the consolidated results of Enterra Compression Company.
WEATHERFORD COMPRESSION (PREDECESSOR COMPANY) ENTERRA ------------------------------ ----------------------- YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------------ ----------------------- 1996 1997 1998 1999(A) 2000 -------- -------- -------- ---------- ---------- (IN THOUSANDS) STATEMENT OF OPERATIONS DATA: Revenues................................ $154,503 $178,896 $181,326 $225,917 $272,641 Operating Income........................ 7,833 12,188 17,975 21,574 (10,260) Net Income (Loss)....................... (3,127) 752 1,584 4,539 (16,327) EBITDAR(b).............................. 31,387 33,854 41,231 66,141 50,113
WEATHERFORD COMPRESSION (PREDECESSOR COMPANY) ENTERRA ------------------------------ ------------------- AS OF DECEMBER 31, AS OF DECEMBER 31, ------------------------------ ------------------- 1996 1997 1998 1999(A) 2000 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Total Assets........................... $413,071 $441,027 $389,162(c) $666,030 $702,680 Long-Term Debt(d)...................... 5,061 2,216 1,831 2,157 1,832 Long-Term Payable due to Weatherford(e)....................... 180,091 208,594 105,765(c) 99,033 94,863 Minority Interest Liability(f)......... -- -- -- 197,111 197,513 Equity................................. 185,061 185,010 192,980 217,624 200,455
- --------------- (a) On February 2, 1999, Weatherford entered into a joint venture with GE Capital. The contribution of GE Capital's assets was accounted for under the purchase method of accounting, and therefore the results of operations are included from the date of formation. (b) EBITDAR is calculated by taking operating income and adding back depreciation, amortization and lease expenses from compressor leases that are subject to sale and leaseback arrangements. EBITDAR is included for informational purposes because this is a financial measure under which the investment community analyzes other publicly traded compression companies. Calculations of EBITDAR should not be viewed as a substitute for calculations under generally accepted accounting principles, in particular cash flows from operations, operating income, income from continuing 39 45 operations and net income. In addition, EBITDAR calculations by one company may not be comparable to those of another company, including Universal. (c) In December 1998, Enterra entered into a sale and leaseback arrangement in which it sold $119.6 million of compressor units and received cash of $100.0 million and a receivable of $19.6 million. The $100.0 million cash was used to pay down the Long-Term Payable due to Weatherford. (d) Excludes $119.6 million outstanding under operating lease facilities as of December 31, 1998, $239.8 million as of December 31, 1999 and $299.9 million as of December 31, 2000. (e) The Long-Term Payable due to Weatherford was eliminated in connection with the merger. (f) The Minority Interest Liability to GE Capital was eliminated as a result of the purchase of GE Capital's interest by Enterra in connection with the merger. 40 46 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF BRL INCOME STATEMENT DATA: No income statement data is presented for BRL as operations for BRL commenced on February 9, 2001. As a result, no results of operations are available for the periods presented. Pursuant to the terms of the operative documents, including the operating lease and the indenture, the expected ratio of earnings to fixed charges for future periods is 1.0x. BALANCE SHEET DATA:
AS OF JANUARY 31, 2001 -------------- (IN THOUSANDS) ASSETS Cash........................................................ $21 --- Total Assets...................................... $21 === LIABILITIES AND PARTNERS' CAPITAL General Partner: BRL Universal Equipment Management, Inc. ................. $20 Limited Partner............................................. 1 --- Total Liabilities and Partners' Capital........... $21 ===
41 47 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF BRL The following unaudited pro forma consolidated financial information is based on the historical consolidated financial statements and the notes thereto of BRL and has been prepared to illustrate the offering of the notes and other transactions. The unaudited pro forma consolidated financial information should be read in conjunction with the historical financial statements and accompanying disclosures contained in this prospectus. BRL, BRL's general partner and BRL Corp. are not affiliated with Universal and were organized on January 18, 2001 under the laws of the State of Delaware. BRL was organized for the limited purpose of (1) issuing the notes, (2) executing, delivering and performing the operative documents to which it is a party and (3) using the proceeds from the issuance of the notes and the other financing transactions to purchase the gas compression equipment under the operating lease. BRL Corp. was organized by BRL for the limited purpose of acting as co-issuer of the notes. The unaudited pro forma consolidated balance sheet as of January 31, 2001, has been prepared to give effect to the offering of the notes and other transactions as if those transactions had occurred at the balance sheet date. The unaudited pro forma consolidated financial statements are provided for informational purposes only and do not purport to represent what BRL's financial position or results of operations would actually be if the offering of the notes occurred on such date or to project BRL's results of operations or financial position for any future period. 42 48 BRL UNIVERSAL EQUIPMENT 2001 A, L.P. CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF JANUARY 31, 2001 ------------------------------------------- DEBT ISSUANCE PRO FORMA HISTORICAL ADJUSTMENTS AS ADJUSTED ---------- ------------- ----------- (IN THOUSANDS) ASSETS Cash.................................................... $21 $ (1)(a) $ 20 Equipment............................................... -- 427,000(b) 427,000 --- -------- -------- Total Assets.................................. $21 $426,999 $427,020 === ======== ======== LIABILITIES AND PARTNERS' CAPITAL Liabilities: BRL Term Loan......................................... $-- $ 64,000(c) $ 64,000 8 7/8% Senior Secured Notes due 2008.................. -- 350,000(d) 350,000 Partners' Capital: General Partner: BRL Universal Equipment Management, Inc............ 20 -- 20 Limited Partners...................................... 1 12,999(a)(e) 13,000 --- -------- -------- Total Liabilities and Partners' Capital....... $21 $426,999 $427,020 === ======== ========
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet. 43 49 BRL UNIVERSAL EQUIPMENT 2001 A, L.P. NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET (a) Represents the withdrawal of the initial limited partner of BRL and the return of the initial limited partner's investment of $1,000 in cash. (b) Represents the purchase of the equipment using the proceeds of the BRL term loan, the notes offering and the equity investment. (c) Reflects the borrowings under the BRL term loan. (d) Reflects the issuance of the old notes. (e) Reflects the equity investment of $13,000,000 from the new limited partners of BRL. 44 50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF UCH The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements of UCH, and the notes thereto, and the other financial information appearing elsewhere in this prospectus. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Disclosure Regarding Forward-Looking Statements" and "Risk Factors." GENERAL We were formed in December 1997 to acquire all of the outstanding stock of Tidewater Compression. Upon completion of the acquisition in February 1998, Tidewater Compression became our wholly-owned operating subsidiary and changed its name to Universal Compression, Inc. Through this subsidiary, our gas compression service operations date back to 1954. During the quarter ended June 30, 2000, we completed an initial public offering of 7,275,000 shares of our common stock (which includes 275,000 shares of common stock issued pursuant to an over-allotment option granted to the underwriters), which provided us with net proceeds (after deducting underwriting discounts and commissions) of approximately $149.2 million. Concurrently with our initial public offering, we implemented a recapitalization pursuant to which all then existing classes of our stock were converted into common stock. Also concurrently with the initial public offering, we entered into a $50 million revolving credit facility and $200 million operating lease facility. We used the proceeds of the offering and the $62.6 million in initial proceeds from the operating lease facility to repay $192.7 million of indebtedness, and the remaining proceeds for working capital and to pay expenses associated with the offering and concurrent financing transactions. Currently, we are the second largest provider of natural gas compressor rental, sales, operations, maintenance and fabrication services to the natural gas industry in terms of horsepower, with one of the largest gas compressor fleets in the United States, and a growing presence in key international markets. As of December 31, 2000, not including our WGC acquisition, we had a broad base of over 750 customers and maintained a fleet of over 3,400 compression rental units. In addition, as of such date, we owned approximately 841,000 horsepower and serviced under contract approximately 186,000 horsepower. As of March 1, 2001, we operated in every significant natural gas producing region in the United States through our 40 compression sales and service locations. As a complement to our rental operations, we design and fabricate compression units for our own fleet as well as for our global customer base. Three Months Ended December 31, 2000 Compared to Three Months Ended December 31, 1999 Revenues. Our total revenue for the three months ended December 31, 2000 increased $26.3 million, or 78%, to $60.0 million, compared to $33.7 million for the three months ended December 31, 1999. Rental revenue increased by $10.9 million, or 43%, to $36.2 million during the three months ended December 31, 2000 from $25.3 million during the three months ended December 31, 1999. Domestic rental revenue increased by $10.3 million, or 48%, to $31.7 million during the three months ended December 31, 2000 from $21.4 million during the three months ended December 31, 1999. Our international rental revenue increased by $0.5 million, or 14%, to $4.4 million during the three months ended December 31, 2000 from $3.9 million during the three months ended December 31, 1999. The increase in domestic rental revenue primarily resulted from expansion of our rental fleet through the acquisition of GCSI and core growth. The increase in international rental revenue primarily resulted from expansion of our international rental fleet and continued high utilization rates. During the quarter ended December 31, 2000, we started our first rental project in Mexico consisting of 10,000 horsepower. This project contributed approximately $4.7 million in one-time turn key installation revenue. Domestic average rented horsepower for the three months ended December 31, 2000 increased by 47% to approximately 676,000 horsepower from approximately 461,000 horsepower for the three months ended December 31, 1999. In addition, international average rented horsepower for the three months 45 51 ended December 31, 2000 increased by 20% to approximately 59,000 horsepower from approximately 49,000 horsepower for the three months ended December 31, 1999, primarily through additional service in South America. Our average horsepower utilization rate for the quarter ended December 31, 2000, was approximately 88.6%, up from 81.6% in the same quarter a year ago. At the end of the quarter, we had approximately 841,000 available horsepower with another 186,000 horsepower operated and maintained for customers. Our horsepower utilization rate at December 31, 2000 was approximately 90.0%. These horsepower and utilization amounts include GCSI for the entire quarter. Our revenue from fabrication and sales increased to $23.8 million from $8.3 million, an increase of 185%. The increase in sales revenue, consisting mostly of equipment fabrication and parts sales, for the third fiscal quarter was due primarily to our acquisition of GCSI. Our backlog of fabrication projects at the end of the third fiscal quarter was approximately $30.5 million, compared with a backlog of $11.0 million at the same time a year earlier. From September 30, 2000 to December 31, 2000, our backlog increased $3.7 million. Gross Margin. Our gross margin (defined as total revenue less rental expense, cost of sales (exclusive of depreciation and amortization), gain on asset sales and interest income) for the three months ended December 31, 2000 increased $8.7 million, or 49%, to $26.4 million from gross margin of $17.7 million for the three months ended December 31, 1999. Our rental gross margin for the three months ended December 31, 2000 increased $7.7 million, or 47%, to $23.9 million compared to gross margin of $16.3 million for the three months ended December 31, 1999. Gross margin increased primarily as the result of our rental revenue growth discussed above and operating cost improvements realized by rental operations. Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the three months ended December 31, 2000 increased $0.7 million compared to the three months ended December 31, 1999. Selling, general and administrative expenses represented 8% of revenue for the three months ended December 31, 2000 compared to 12% of revenue for the three months ended December 31, 1999. The percentage decrease is primarily due to the approximately $4.7 million in one-time turnkey installation revenues associated with a large rental project in Mexico, the elimination of management fees in connection with our initial public offering in May 2000, in addition to synergies achieved in our acquisition of GCSI. These reductions have been offset partially by increases in certain expenses related our operating as a publicly traded company. EBITDA for the three months ended December 31, 2000 increased 49% to $21.7 million from $14.6 million for the three months ended December 31, 1999, primarily due to increases in horsepower and utilization of the compression rental fleet, gross margin contribution from fabrication and sales, operating cost improvements realized by rental operations, and decreased selling, general and administrative expenses, as discussed above. EBITDA is defined as net income plus income taxes, interest expense, leasing expense, management fees, depreciation and amortization, excluding non-recurring items and extraordinary gains or losses. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income as an indicator of our operating performance or to net cash provided by operating activities as a measure of its liquidity. Additionally, the EBITDA computation used herein may not be comparable to other similarly titled measures of other companies. EBITDA represents a measure upon which management assesses financial performance, and certain covenants in our borrowing arrangements will be tied to similar measures. We believe that EBITDA is a standard measure of financial performance used for valuing companies in the compression industry. EBITDA is a useful common yardstick as it measures the capacity of companies to generate cash without reference to how they are capitalized, how they account for significant non-cash charges for depreciation and amortization associated with assets used in the business (the majority of which are long-lived assets in the compression industry), or what their tax attributes may be. Depreciation and Amortization. Depreciation and amortization increased by $0.7 million to $7.7 million during the three months ended December 31, 2000, compared to $7.0 million during the three 46 52 months ended December 31, 1999. The increase resulted primarily from the expansion of our rental fleet offset partially by the compressor equipment sold and leased back under our previous operating lease facility. Operating Lease. We incurred leasing expense of $3.5 million during the three months ended December 31, 2000 resulting from our operating lease facility entered into in May 2000. The outstanding balance under the operating lease facility at December 31, 2000 was $154.6 million. Interest Expense. Interest expense decreased $3.5 million to $5.4 million for the three months ended December 31, 2000 from $8.8 million for the three months ended December 31, 1999, primarily as a result of the reduction of debt resulting from our initial public offering and related debt restructuring. The decrease in interest expense was offset partially by increased accretion of Universal's 9 7/8% senior discount notes and the assumption of debt related to our GCSI acquisition. Net Income. We had net income of $3.1 million for the three months ended December 31, 2000 compared to a net loss of $1.3 million for the three months ended December 31, 1999, primarily as a result of an increase in our gross margins and interest expense decreasing from $8.8 million to $5.4 million, offset partially by increased depreciation and amortization related to the continued expansion of our assets, leasing expense of $3.5 million resulting from the operating lease facility and an increase of the income tax provision to $1.9 million from an income tax benefit of $0.8 million. Nine Months Ended December 31, 2000 Compared to Nine Months Ended December 31, 1999 Revenue. Our total revenue for the nine months ended December 31, 2000 increased $31.1 million, or 30%, to $133.6 million compared to $102.5 million for the nine months ended December 31, 1999. Our rental revenue increased by $19.0 million, or 26%, to $91.1 million during the nine months ended December 31, 2000 from $72.2 million during the nine months ended December 31, 1999. Domestic rental revenue increased by $16.8 million, or 27%, to $78.3 million during the nine months ended December 31, 2000 from $61.5 million during the nine months ended December 31, 1999. Our international rental revenue increased by $2.2 million, or 20%, to $12.8 million during the nine months ended December 31, 2000 from $10.6 million during the nine months ended December 31, 1999. The increase in domestic rental revenue primarily resulted from expansion of our rental fleet through our acquisition of GCSI. The increase in international rental revenue primarily resulted from the expansion of our international rental fleet and continued high utilization rates. Our domestic average rented horsepower for the nine months ended December 31, 2000 increased by 33% to approximately 575,000 horsepower from approximately 434,000 horsepower for the nine months ended December 31, 1999. In addition, international average rented horsepower for the nine months ended December 31, 2000 increased by 25% to approximately 55,000 horsepower from approximately 44,000 horsepower for the nine months ended December 31, 1999, primarily through additional service in South America. Our average horsepower utilization rate for the nine months ended December 31, 2000, was approximately 86.6%, up from 79.8% in the same period a year ago. At the end of the quarter, we had approximately 841,000 available horsepower with another 186,000 horsepower operated and maintained for customers. The horsepower utilization rate at December 31, 2000 was approximately 90.0%. The preceding horsepower and utilization amounts include GCSI for the 107 days from the date of the merger. Revenue from fabrication and sales increased to $42.2 million for the nine months ended December 31, 2000 from $30.2 million for the same period a year ago, an increase of 40%. The increase in sales revenue, consisting mostly of equipment fabrication and parts sales was due primarily to our acquisition of GCSI, partially offset by the impact in the prior-year period of an equipment purchase option exercised by a rental customer and the sale of a small air compression distributorship. Our backlog of fabrication projects at the end of the third fiscal quarter was approximately $30.5 million, compared with a backlog of $11.0 million at the same time a year earlier. From September 30, 2000 to December 31, 2000, backlog increased $3.7 million. 47 53 Gross Margin. Our gross margin (defined as total revenue less rental expense, cost of sales (exclusive of depreciation and amortization), gain on asset sales and interest income) for the nine months ended December 31, 2000 increased $15.1 million, or 30%, to $65.9 million from gross margin of $50.7 million for the nine months ended December 31, 1999. The rental gross margin for the nine months ended December 31, 2000 increased $14.0 million, or 30%, to $60.0 million compared to gross margin of $46.0 million for the nine months ended December 31, 1999. Gross margin increased primarily as the result of our rental revenue growth discussed above and operating cost improvements realized by rental operations. Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the nine months ended December 31, 2000 decreased $0.7 million compared to the nine months ended December 31, 1999. Selling, general and administrative expenses represented 9% of revenue for the nine months ended December 31, 2000 compared to 12% of revenue for the nine months ended December 31, 1999. The decrease is primarily due to the elimination of management fees in connection with our initial public offering in May 2000, in addition to synergies achieved in our acquisition of GCSI. These reductions have been offset partially by increases in certain expenses related to our operating as a publicly traded company. EBITDA for the nine months ended December 31, 2000 increased 34% to $54.2 million from $40.5 million for the nine months ended December 31, 1999, primarily due to increases in horsepower and utilization of the compression rental fleet in addition to operating cost improvements realized by rental operations and decreased selling, general and administrative expenses, as discussed above. EBITDA is defined as net income plus income taxes, interest expense, leasing expense, management fees, depreciation and amortization, excluding non-recurring items and extraordinary gains and losses. EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered an alternative to operating income or net income as an indicator of our operating performance or to net cash provided by operating activities as a measure of its liquidity. Additionally, the EBITDA computation used herein may not be comparable to other similarly titled measures of other companies. EBITDA represents a measure upon which management assesses financial performance, and certain covenants in our borrowing arrangements will be tied to similar measures. We believe that EBITDA is a standard measure of financial performance used for valuing companies in the compression industry. EBITDA is a useful common yardstick as it measures the capacity of companies to generate cash without reference to how they are capitalized, how they account for significant non-cash charges for depreciation and amortization associated with assets used in the business (the majority of which are long-lived assets in the compression industry), or what their tax attributes may be. Non-recurring Charges. During the quarter ended June 30, 2000, we incurred non-recurring charges of $4.4 million, net of income taxes of $2.7 million, related to the early termination of a management agreement and a consulting agreement and other related fees in connection with our initial public offering and concurrent financing transactions. Depreciation and Amortization. Depreciation and amortization increased by $3.2 million to $21.9 million during the nine months ended December 31, 2000, compared to $18.7 million during the nine months ended December 31, 1999. The increase resulted primarily from the expansion of our rental fleet offset partially by the compressor equipment sold and leased back under its operating lease facility. Operating Lease. We incurred leasing expense of $6.2 million during the nine months ended December 31, 2000 resulting from the operating lease facility entered into in May 2000. The outstanding balance under the operating lease facility at December 31, 2000 was $154.6 million. Interest Expense. Interest expense decreased $6.7 million to $18.6 million for the nine months ended December 31, 2000 from $25.3 million for the nine months ended December 31, 1999, primarily as a result of the reduction of debt resulting from our initial public offering and related debt restructuring. The decrease in interest expense was offset partially by increased accretion of Universal's 9 7/8% senior discount notes and the assumption of debt related to our GCSI acquisition. 48 54 Extraordinary Losses. During the quarter ended June 30, 2000, we incurred extraordinary losses of $6.3 million, net of income taxes of $3.7 million, related to our debt restructuring. Net Loss. We had a net loss of $6.0 million for the nine months ended December 31, 2000 compared to a net loss of $4.1 million for the nine months ended December 31, 1999, primarily as a result of extraordinary losses of $6.3 million, net of income taxes, non-recurring charges of $4.4 million, net of income taxes, increased depreciation and amortization related to the continued expansion of our assets, leasing expense of $6.2 million resulting from our operating lease facility and an increase of the income tax provision to $0.2 million from an income tax benefit of $1.8 million. The increase in the net loss was partially offset by increased gross margins, decreased selling, general and administrative expenses and decreased interest expense. Excluding the effect of the non-recurring and extraordinary after-tax charges, we had net income of $4.7 million for the nine months ended December 31, 2000. Fiscal Year Ended March 31, 2000 Compared to Fiscal Year Ended March 31, 1999 Revenues. Our total revenues for the fiscal year ended March 31, 2000 increased $6.9 million, or 5.3%, to $136.4 million compared to $129.5 million for the fiscal year ended March 31, 1999 due to an increase in rental revenues. Our rental revenues increased by $12.7 million, or 14.8%, to $98.3 million during the fiscal year ended March 31, 2000 from $85.6 million during the fiscal year ended March 31, 1999. Domestic rental revenues increased by $4.8 million, or 6.0%, to $83.6 million during the fiscal year ended March 31, 2000 from $78.8 million during the fiscal year ended March 31, 1999. Our international rental revenues increased by $7.9 million, or 116%, to $14.7 million during the fiscal year ended March 31, 2000 from $6.8 million during the fiscal year ended March 31, 1999. The increase in both domestic and international rental revenues primarily resulted from expansion of our rental fleet. Domestic average rented horsepower for the fiscal year ended March 31, 2000 increased by 11.3% to approximately 444,000 horsepower from approximately 399,000 horsepower for the fiscal year ended March 31, 1999. In addition, international average rented horsepower more than doubled to approximately 45,000 horsepower for the fiscal year ended March 31, 2000 from approximately 20,000 horsepower for the fiscal year ended March 31, 1999, primarily through additional service in Argentina and Colombia. Our revenues from fabrication and sales decreased to $38.1 million from $43.6 million, a decrease of 12.6%, due to a lower level of equipment and parts activity. Gross Margin. Gross margin before depreciation and amortization for the fiscal year ended March 31, 2000 increased $7.1 million, or 11.5%, to $69.0 million from gross margin of $61.9 million for the fiscal year ended March 31, 1999. The rental gross margin for the fiscal year ended March 31, 2000 increased $8.3 million, or 15.2%, to $62.9 million compared to gross margin of $54.6 million for the fiscal year ended March 31, 1999. Gross margin increased primarily as the result of the revenue growth discussed above while rental margins remained constant at 64% for the fiscal years ended March 31, 2000 and 1999. Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the fiscal year ended March 31, 2000 decreased $0.1 million, or 0.5%, to $16.8 million compared to $16.9 million for the fiscal year ended March 31, 1999. As a percentage of revenue, selling, general and administrative expenses represented 12.3% of revenues for the fiscal year ended March 31, 2000 compared to 13.0% of revenues for the fiscal year ended March 31, 1999. Interest Expense. Interest expense increased $5.0 million to $34.3 million for the fiscal year ended March 31, 2000 from $29.3 million for the fiscal year ended March 31, 1999, primarily as the result of increased borrowings under the revolving credit facility, increased accretion of discount notes, the financing lease and increased interest rates. Net Loss. We had a net loss of $6.0 million for the fiscal year ended March 31, 2000 compared to a net loss of $2.4 million for the fiscal year ended March 31, 1999. This increase in net loss was primarily due to interest expense increasing from $29.3 million to $34.3 million and depreciation and amortization related to the continued expansion of our assets increasing from $19.3 million to $26.0 million, which was offset by an increased income tax benefit and the factors discussed above. 49 55 Fiscal Year Ended March 31, 1999 Compared to Pro Forma Fiscal Year Ended March 31, 1998 Our acquisition of Tidewater Compression closed on February 20, 1998 and was accounted for under purchase accounting. To provide for a comparison of the two twelve-month periods, actual results for the twelve months ended March 31, 1999 are compared to pro forma results for the Tidewater Compression acquisition for the twelve months ended March 31, 1998. Revenues. Our revenues for fiscal year 1999 increased $20.7 million, or 19.0%, to $129.5 million compared to revenues of $108.8 million for pro forma fiscal 1998, due to increases in both rental revenues and revenues from fabrication and equipment sales. Rental revenues increased 6.1% to $85.6 million. The increase in rental revenues was principally due to a 10.6% expansion of our rental fleet, which was partially offset by a slight reduction in utilized horsepower and rental pricing. Additionally, we increased the amount of our horsepower rented in international markets by 15.0% through additional service in Latin America. Revenue from fabrication and other sales increased to $43.6 million from $24.0 million, an increase of 81.7%, due to a higher level of fabrication activity and the sale of equipment from the rental fleet to customers who exercised purchase options on equipment previously rented. Gross Margin. Our gross margin before depreciation and amortization for fiscal 1999 increased $3.5 million, or 6.0%, to $61.9 million from $58.4 million for pro forma fiscal 1998. The rental gross margin for fiscal 1999 increased $4.8 million, or 9.6%, to $54.6 million compared to gross margin of $49.8 million for fiscal 1998. Gross margin increased primarily as the result of revenue growth which was offset by reduced fabrication margins. Selling, General and Administrative Expenses. Our selling, general and administrative expenses for fiscal 1999 increased $3.8 million, or 29.3%, compared to selling, general and administrative expenses for pro forma fiscal 1998. As a percentage of revenues, selling, general and administrative expenses for fiscal 1999 represented 13.0% of revenues compared to 12.0% of revenues from pro forma fiscal 1998. The increase was primarily due to increased sales and engineering expense in fiscal 1999 as we added the additional personnel necessary to manage and rent a larger rental fleet, and the increase in expenses necessary to operate as a standalone company. Net Loss. Primarily as a result of interest expense of $29.3 million related to the indebtedness incurred in the Tidewater Compression acquisition, increased income taxes and the factors discussed above, we generated a net loss for fiscal 1999 of $2.4 million, as compared to net loss of $3.2 million for pro forma fiscal 1998. EFFECTS OF INFLATION In recent years, inflation has been modest and has not had a material impact upon the results of our operations. LIQUIDITY AND CAPITAL RESOURCES In May 2000, concurrently with our initial public offering, we entered into a $200 million, five-year operating lease facility arranged by Deutsche Bank Securities Inc. The transaction involved a sale and leaseback of compression equipment to a trust formed by Deutsche Bank AG. Under this operating lease facility, certain of our compression equipment was sold to the trust for approximately $155 million and leased back by us for a five-year period. In May 2000, we also repaid and terminated our term loan and revolving credit facility and entered into a $50.0 million secured revolving credit facility which had a five-year term. The revolver was secured by a lien on all of our personal property that was not subject to the old operating lease facility. This revolver and our previous operating lease facility were repaid and terminated in February 2001 in connection with our WGC acquisition, as described below. Our cash and cash equivalents balance at December 31, 2000 was $7.4 million, compared to $1.4 million at March 31, 2000. For the nine months ended December 31, 2000, we generated cash flow 50 56 from operations of $13.7 million, used $19.5 million of cash for investing activities and provided another $11.7 million of cash in financing activities. During the nine months ended December 31, 2000, we received $154.6 million from the sale of compression equipment under our previous operating lease facility and received $149.2 million from the initial public offering of our common stock. We used this cash as follows: $11.8 million to increase inventory in order to meet increased customer demand, increased accounts receivable partly attributable to new projects in Mexico which were billed in late December 2000, $48.7 million for capital expenditures, $125.4 million for acquisitions, and $189.9 million to make net principal payments on our then outstanding indebtedness, which included termination of our term loan and credit facility, redemption of all of our 11 3/8% senior discount notes and retirement of a finance lease arrangement. We expect to expend approximately $75 million on capital projects during fiscal 2001, excluding acquisitions and projects related to our WGC and IEW acquisitions. We have spent approximately $48.7 million during the nine months ended December 31, 2000. We continue to emphasize our investment in larger horsepower compression rental units and, to a lesser extent, the acquisition leaseback of customer owned equipment. Our other principal uses of cash will be to meet interest and lease payments as well as support changes in our working capital. In April 2000, we acquired all of the outstanding stock of Spectrum Rotary Compression Inc. from Energy Spectrum Partners LP in exchange for 287,723 shares of our common stock. Spectrum added approximately 10,700 horsepower to our fleet and provided an increased presence in the screw compressor market. On September 15, 2000, we completed the merger of GCSI, a supplier of natural gas compression equipment and services with fabrication and overhaul facilities in Michigan and Texas, into Universal for a combination of approximately $12 million in cash, 1,400,726 shares of our common stock, the assumption or refinancing of approximately $63 million of indebtedness. All of the assumed or refinanced indebtedness of GCSI, except for approximately $10 million, was paid off concurrently with the GCSI merger using proceeds received under the old operating lease facility. The acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $33 million in goodwill. The GCSI acquisition added approximately 138,000 aggregate horsepower to our fleet and provided us with an increased customer base, additional market segments and additional fabrication capabilities. Under current operating conditions, we expect to add $35 million to $38 million in revenue per year and approximately $15 million in EBITDA per year as a result of our GCSI acquisition. On February 9, 2001, we completed the acquisition of Weatherford Global Compression Services, L.P. and certain related entities, a supplier of natural gas compression equipment and services and a division of Weatherford International, Inc. Under the terms of the agreement, a subsidiary of Weatherford International was merged into Universal in exchange for 13.75 million restricted shares of our common stock, which represents approximately 48% of our outstanding shares, and the restructuring of approximately $323 million in debt and operating leases of WGC. The transaction was accounted for as a purchase. Prior to closing, Weatherford International acquired the interest of its minority partner in WGC. Also, Weatherford International retained certain assets and operations related to WGC's Singapore-based operations and approximately $10 million in accounts receivable. In addition, on February 9, 2001, we raised $427 million under a new operating lease facility funded primarily through the offering of the old notes by BRL. We also entered into a new $125 million secured revolving credit facility and a new $200 million asset-backed securitization operating lease facility. As of the closing of WGC acquisition, we had approximately $80 million outstanding under the asset-backed securitization operating lease facility and no amounts outstanding under our new revolving credit facility. We used the proceeds from the two new operating lease facilities to restructure existing operating lease obligations, including our previous operating lease facility, and refinance certain of our existing indebtedness and that of WGC. These new facilities, like our previous facilities, contain restrictions on our operations, including our ability to incur additional indebtedness, engage in acquisitions and pay dividends, 51 57 among other things. The deferred gain from our old operating lease facility was transferred to the new operating lease facilities and will be deferred until the end of these facilities. As of December 31 2000, we had $191.4 million aggregate principal amount outstanding under our 9 7/8% senior discount notes. In January 2001, UCI commenced an offer to repurchase all of these 9 7/8% senior discount notes, and solicited the consent of the holders of the notes to amend the indenture governing the notes to eliminate substantially all the restrictive covenants. The tender offer was conditioned upon UCI's receipt of the consent of requisite holders to approve the proposed amendments to the indenture. Because the requisite consents were not received prior to the deadline, UCI terminated the tender offer without purchasing any of the 9 7/8% senior discount notes. Pursuant to the indenture governing those notes, the holders of the notes have the right from March 9, 2001 to April 9, 2001 to require UCI to repurchase the notes as a result of the consummation of the WGC acquisition at a price equal to 101% of the accreted value, plus accrued and unpaid interest to date. We expect to finance any such repurchase of the 9 7/8% senior discount notes through our new revolving credit facility or our asset-backed securitization operating lease facility. As of the closing of our WGC acquisition and related financing transactions on February 9, 2001, we had approximately $198 million outstanding under our 9 7/8% senior discount notes due 2008 and approximately $13 million of other indebtedness. In addition, we had approximately $427 million under our new operating lease facility and approximately $80 million under our asset-backed securitization operating lease facility. On February 28, 2001, we funded an additional approximately $20 million under our asset-backed securitization operating lease facility primarily for the IEW acquisition. As of March 1, 2001, we had unused availability of approximately $224.5 million (approximately $99.5 million under our asset-backed securitization facility and $125 million under our revolving credit facility). Under the revolving credit facility, $110 million is currently committed and $15 million is obtainable upon payment of additional fees. Subject to certain covenant restrictions, the indenture permits BRL to issue up to an additional $300 million of senior secured notes at any time within one year of February 9, 2001 so long as there is a corresponding increase in the BRL term loan and equity investment. These proceeds, if any, would be used to purchase additional equipment to lease to Universal under the operating lease. If issued, these notes would constitute a single class for all purposes (and thus would rank pari passu) with the new notes and the old notes. We expect to realize approximately $20 million of annual savings from our WGC acquisition by the end of fiscal 2002 through consolidation and streamlining operations. The key drivers for the savings are the overlap of various domestic operations, including fabrication facilities, as well as duplicate selling, general and administrative activities. We expect to eliminate 17 field services and offices, as well as 250-300 personnel positions as a result of our WGC acquisition. However, we may not realize these cost savings as quickly or as fully as we expect, if at all. Based upon current levels of activity, we expect to generate approximately $460 million to $485 million in annual revenue going forward, and the corresponding EBITDA, including the full amount of our estimated $20 million of annual cost savings, is expected to be approximately $165 million to $185 million. We anticipate that the capital expenditures of the combined company during fiscal 2002 will be approximately $170 million to $220 million, including approximately $25 million of maintenance capital expenditures. We expect to achieve additional savings in purchasing activities and inventory management, as well as other components of working capital, that are not reflected in the $20 million cost savings. We expect these additional cost savings, which will impact operating and selling, general and administrative expenses, to be fully realized by the end of fiscal 2002. We believe that funds generated from our operations, together with our existing cash and the net proceeds from our new operating leases described herein and our other new financing arrangements, will be sufficient to finance our current operations, planned capital expenditures and internal growth for fiscal year 2001. If we were to make a significant acquisition for cash, we may need to obtain additional debt or equity financing. 52 58 RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows of a forecasted transaction, or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. We will adopt SFAS 133 and the corresponding amendments under SFAS 138 on April 1, 2001. This statement should have no impact on our consolidated results of operations, financial positions or cash flows. In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. On June 26, 2000, the SEC issued an amendment to SAB 101, effectively delaying its implementation until the fourth quarter of fiscal years beginning after December 15, 1999. After reviewing SAB 101 and its amendment, we believe that our revenue recognition policy is appropriate and that any possible effects of SAB 101 and its amendment will be immaterial to our results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We were and continue to be exposed to some market risk due to the floating or variable interest rates under our previous and new financing arrangements. These previous facilities had interest and lease payments based on a floating rate (a base rate or LIBOR, at our option, in the case of our old revolving credit facility, and LIBOR, in the case of the old operating lease facility) plus a variable amount based on our operating results. As of December 31, 2000, our old revolving credit facility and our old operating lease facility had outstanding principal balances of $3.0 and $154.6 million, respectively. The LIBOR rate at December 31, 2000 was 6.565%. A 1.0% increase in interest rates would result in a $1.6 million annual increase in interest and operating lease expense. As of March 1, 2001, approximately $77 million of our indebtedness and other obligations outstanding bears interest at floating rates. In order to minimize any significant foreign currency credit risk, we generally contractually require that payment by our customers be made in U.S. dollars. If payment is not made in U.S. dollars, we generally utilize the exchange rate into U.S. dollars on the payment date or balance payments in local currency against local expenses. 53 59 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ENTERRA References in this section to Enterra mean WGC as used in this prospectus. GENERAL Prior to February 1999, Weatherford conducted its compression services operations through Enterra Compression Company and several domestic and foreign entities. In February 1999, Weatherford and GE Capital formed a joint venture. In connection with the formation, Weatherford and GE Capital each contributed their respective gas compression services business to the joint venture, which is operated through Weatherford Global Compression Services, L.P., its direct and indirect subsidiaries, and two Canadian subsidiaries of Enterra (collectively the "WGC joint venture"). In exchange for the contributions to the WGC joint venture, Weatherford received a 64% ownership interest and GE Capital received a 36% ownership interest. Enterra Compression Company was a wholly owned subsidiary of WEUS Holding, Inc., which is a wholly owned subsidiary of Weatherford. Through the WGC joint venture, Enterra was engaged in the business of renting, selling and servicing natural gas compressor packages used in the oil and gas industry. Factors influencing Enterra's compressor rental operations included the number and age of gas-producing wells, the ownership of these properties and natural gas prices and demand. On February 9, 2001, Weatherford completed the merger of Enterra with and into a subsidiary of Universal in exchange for 13.75 million restricted shares of Universal common stock representing approximately 48% of Universal's total outstanding shares. Weatherford retained approximately $40 million of Enterra's assets, including Singapore-based Gas Services International Limited (including GSI's subsidiaries and their respective branches), Weatherford's Asia-Pacific compressor rentals operations (other than operations in Thailand and Australia, which were included in the WGC acquisition) and $10 million in accounts receivable, which assets are included in the following discussion and financial information. In connection with the WGC acquisition, Weatherford purchased GE Capital's 36% ownership interest, which was held by Global Compression Services, Inc., a subsidiary of GE Capital, in the WGC joint venture, as well as GE Capital's interests in related entities, for $206.5 million. RESULTS OF OPERATIONS The historical financial statements for Weatherford's compression businesses prior to the formation of the WGC joint venture are presented herein on a combined basis because the predecessor Weatherford business was operated as a single entity. The financial statements for, and as of the end of, the years ended December 31, 2000 and 1999 present the consolidated results of Enterra Compression Company. The contribution of GE Capital's assets were accounted for under the "purchase" method of accounting and accordingly, the results of operations were included since the date of the formation of the joint venture. The following is a discussion of Enterra's results of operations for the three years ended December 31, 2000, 1999, and 1998. This discussion should be read in conjunction with Enterra's financial statements and the financial statements of Global Compression Holdings, Inc. and subsidiaries (GE Capital's gas compression business, which became part of the WGC joint venture when it was formed in February 1999) for the period January 1, 1999 through February 2, 1999 and for the year ended December 31, 1998, that are included in this prospectus. Both this discussion and Enterra's financial statements include the results of operations of Gas Services International, as well as other assets that were not acquired by UCI in the WGC acquisition. GSI was acquired by Enterra in January 2000. The discussion of Enterra's results and financial condition includes various forward-looking statements based on certain assumptions that Enterra's management considers reasonable. 54 60 YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Enterra reported revenues of $272.6 million for 2000 compared to $225.9 million for 1999. Operating income declined from $21.6 million for 1999 to $6.0 million for 2000, excluding nonrecurring charges of $16.3 million. The decline in operating income was primarily attributable to lower margins on rentals, higher costs related to the reorganization in 2000, higher selling, general and administrative expenses and start-up costs associated with international expansion. During the latter part of the year, Enterra saw improvement reflecting the beginning of the recovery following the reorganization that began earlier this year. The following chart sets forth data regarding the results of Enterra for 2000 and 1999:
YEAR ENDED DECEMBER 31, -------------------- 2000 1999 -------- -------- (IN THOUSANDS) Revenues.................................................... $272,641 $225,917 Gross Profit................................................ 50,108 57,515 Gross Profit %.............................................. 18.4% 25.5% Selling, General and Administrative......................... $ 44,067 $ 35,941 Operating Income (Loss)..................................... (10,260)(a) 21,574 EBITDAR (b)................................................. 50,113(b) 66,141
- --------------- (a) Includes $16.3 million primarily related to the write-down of assets held for sale and other nonrecurring charges. (b) EBITDAR is calculated by taking operating income and adding back depreciation, amortization and lease expenses from compressor leases that are subject to sale and leaseback arrangements. EBITDAR is included for informational purposes because this is a financial measure under which the investment community analyzes other publicly traded compression companies. Calculations of EBITDAR should not be viewed as a substitute for calculations under generally accepted accounting principles, in particular cash flows from operations, operating income, income from continuing operations and net income. In addition, EBITDAR calculations by one company may not be comparable to those of another company, including Universal. The following charts contain selected financial data comparing Enterra's results from continuing operations for 2000 and 1999: Sales by Geographic Region
YEAR ENDED DECEMBER 31, ------------- 2000 1999 ----- ----- REGION:(a) U. S. ...................................................... 57% 75% Canada...................................................... 17 18 Latin America............................................... 8 7 Asia Pacific & Other........................................ 18 -- --- --- Total............................................. 100% 100% === ===
- --------------- (a) Sales are based on region of origination and do not reflect sales by ultimate destination. 55 61 Material items affecting the results of Enterra for 2000 compared to 1999 were as follows: - Revenues in 2000 were up 20.7% from 1999 levels reflecting $8.0 million in incremental revenues from its rental contracts with YPF and $36.7 million of incremental revenues from the January 2000 acquisition of GSI. 55.1 62 - Gross profit as a percentage of revenues decreased from 25.5% in 1999 to 18.4% in 2000 due to: - Lower margins on rental contracts due to pricing pressures primarily in the United States. - Higher lease expenses due to an increased number of compressors having been sold and subject to sale and leaseback arrangements. - Increased lower margin parts and service sales as a percentage of total sales. - Selling, general and administrative costs as a percentage of revenues increased to 16.2% in 2000 from 15.9% in 1999 primarily as a result of costs related to the reorganization and $1.3 million goodwill amortization associated with new foreign operations. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 The following chart sets forth data regarding the results of Enterra for 1999 and 1998 as follows:
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 --------- --------- (IN THOUSANDS) Revenues.................................................... $225,917 $181,326 Gross Profit................................................ 57,515 41,683 Gross Profit %.............................................. 25.5% 23.0% Selling, General and Administrative......................... $ 35,941 $ 22,208 Operating Income............................................ 21,574 17,975(a) EBITDAR..................................................... 66,141 41,231(a)
- --------------- (a) Includes nonrecurring charges of $1.5 million that relate primarily to the write-down of assets. Sales by Geographic Region
YEAR ENDED DECEMBER 31, -------------- 1999 1998 ---- ---- REGION:(a) U. S. ...................................................... 75% 73% Canada...................................................... 18 26 Latin America............................................... 7 1 --- --- Total............................................. 100% 100% === ===
- --------------- (a) Sales are based on the region of origination and do not reflect sales by ultimate destination. Material items affecting the results of Enterra for 1999 compared to 1998 were: - Revenues in 1999 increased 24.6% from 1998 levels due to the February 1999 joint venture with GE Capital and a large compression contract with YPF in Argentina. - Gross profit as a percentage of revenues increased from 23.0% in 1998 to 25.5% in 1999. This increase reflected a more favorable product mix following the creation of the WGC joint venture. - Selling, general and administrative costs as a percentage of revenues increased to 15.9% in 1999 from 12.2% in 1998 primarily as a result of costs associated with the integration of the businesses acquired in the WGC joint venture and the costs associated with Enterra's international expansion. 56 63 - Operating income as a percentage of revenues remained flat year over year as improvements in operating margins were offset by higher administrative costs associated with the integration of the GE Capital businesses when the WGC joint venture was formed in February 1999. - The effective tax rate for 1999 was approximately 45.1%, as compared to 59.1% for 1998. The decrease in the 1999 effective tax rate as compared to 1998 is due in part to lower non-deductible goodwill as a percentage of earnings before tax. 57 64 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BRL The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements of BRL, and the notes thereto, and the other financial information appearing elsewhere in this prospectus. The following discussion includes forward-looking statements that involve certain risks and uncertainties. See "Disclosure Regarding Forward-Looking Statements" and "Risk Factors." GENERAL BRL, BRL Corp. and BRL Universal Equipment Management, Inc. were each organized on January 18, 2001 for the purpose of entering into the financing and lease transactions described in this prospectus. BRL Corp. has no business activities other than acting as a co-issuer with BRL of the old notes and the new notes. BRL has agreed to limit its business activities to those necessary or appropriate in connection with the financing, ownership and leasing of the equipment, as described in this prospectus. BRL Universal Equipment Management, Inc. has agreed that for so long as it serves as the general partner of BRL, it will limit its activities to the management of BRL's assets and the conduct of BRL's equipment leasing business, as described in this prospectus. RESULTS OF OPERATIONS Each of BRL, BRL Corp. and BRL Universal Equipment Management, Inc. are newly organized entities and had no business activities or operations prior to February 9, 2001, when they acquired the equipment as described in this prospectus. LIQUIDITY AND CAPITAL RESOURCES Under the triple net lease terms for the equipment owned by BRL, all of the costs of maintaining and financing the equipment are borne by UCI, as the lessee. BRL believes it has adequate capital resources for the nature of its business and that funds from its operations as described in this prospectus will be sufficient to provide for the operations of BRL and BRL Corp. Because BRL has agreed to limit its activities to the ownership, financing and leasing of the equipment as described in this prospectus, BRL does not believe it will have any need to obtain additional financing or equity. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK BRL is exposed to some market risk due to the floating or variable interest rates under the BRL term loan. As of March 1, 2001, BRL had $350.0 million outstanding principal amount under the notes, which bears interest at a fixed rate, and approximately $64.0 million outstanding under its term loan agreement, which bears interest at floating rates. Interest payments on the term loan are based on LIBOR plus a variable amount. The LIBOR rate at March 1, 2001 was 5.103. A 1.0% increase in interest rates would result in a $640,000 annual increase in BRL's interest expense. 58 65 INDUSTRY NATURAL GAS COMPRESSION OVERVIEW Natural gas compression is a mechanical process whereby a volume of gas at an existing pressure is compressed to a desired higher pressure. We offer both slow and high speed reciprocating compressors driven either by internal combustion engines or electric motors. We also offer screw compressors for applications involving low pressure natural gas. Most natural gas compression applications involve compressing gas for its delivery from one point to another. Low pressure or aging natural gas wells require compression for delivery of produced gas into higher pressured gas gathering systems. Compression is required because over the life of an oil or gas well, natural reservoir pressure typically declines as reserves are produced. As the natural reservoir pressure of the well declines below the line pressure of the gas gathering or pipeline system used to transport the gas to market, gas no longer naturally flows into the pipeline. It is at this time that compression equipment is applied in both field and gathering systems to boost the well's pressure levels and allow gas to be brought to market. Compression is also used to reinject natural gas down producing oil wells to help lift liquids to the surface, known as gas lift operations. In secondary oil recovery operations, natural gas compression is used to inject natural gas into wells to maintain reservoir pressure. Compression is also used in gas storage projects to inject gas into underground reservoirs during off-peak seasons for withdrawal later during periods of high demand. Natural gas compression services are also used for compressing feedstocks in refineries and for refrigeration applications in natural gas processing plants. COMPRESSION REQUIREMENTS OF AN AGING WELL [WELLHEAD PRESSURE LOGO] Natural gas compression that is used prior to the "main line transmission system," which transports gas from production to storage or the end user, is considered "field" compression. We are active in both segments of the field compression market, production and gas gathering. During the production phase, compression is used to boost the pressure of natural gas from the wellhead so that natural gas can flow into the gathering system or pipeline for transmission to an end-user. Typically, these applications require portable low to mid-range horsepower compression equipment located at or near the wellhead. The continually dropping pressure levels in natural gas fields require constant modification and variation of on-site compression equipment. In an effort to reduce costs for wellhead operators, operators of gathering systems tend to keep the pressure of the gathering systems low. As a result, more pressure is often needed to force the gas from the low pressure gathering systems into the higher pressure pipelines. These applications generally require larger horsepower compression equipment (600 horsepower and higher). Similarly, as gas is transported 59 66 through a pipeline, large compression units are applied all along the pipeline to allow the natural gas to continue to flow through the pipeline to its destination. Gas producers, transporters and processors have historically owned and maintained most of the compression equipment used in their operations. However, in recent years, there has been a growing trend toward outsourcing compression equipment. Customers that elect to outsource compression equipment may choose full maintenance or contract compression for maintaining and/or operating such equipment. Full maintenance calls for the service company to be responsible for the scheduled preventative maintenance, repair and general up-keep of the equipment, while the customer usually remains responsible for installing and handling the day-to-day operation of the equipment. Contract compression requires the service company to maintain and operate and, in many cases, to install the equipment. Often, a service company providing contract compression will inspect the equipment daily, provide consumables such as oil and antifreeze and, if necessary, be present at the site for several hours each day. Rental compression units are primarily employed in the field compression segment encompassing production and natural gas gathering. Renting compression equipment offers customers: - the ability to efficiently meet their changing compression needs over time while limiting their capital investments in compression equipment, - access to the compression service provider's specialized personnel and technical skills, including engineers, field service and maintenance employees, which generally leads to improved run-times and production rates and - overall reduction in their compression costs through the elimination of a spare parts inventory and other expenditures associated with owning and maintaining compressor units. Natural Gas Industry Conditions A significant factor in the growth of the gas compression equipment market is the increasing consumption of natural gas, both domestically and internationally. In other words, it is the demand for natural gas, rather than the more cyclical oil and gas exploration and drilling activities, that drives the demand for compression services. As a result, our historical financial performance has been affected less by the short-term market cycles and oil and gas price volatility than the performance of companies operating in other sectors of the energy industry. In the United States, natural gas is the second leading fuel in terms of total consumption and is the fuel of choice for power generation and industrial use. The closure of nuclear power plants and the current economic expansion have contributed to the increased consumption of natural gas. In recent years, natural gas has increased its market share of total domestic energy consumption. Domestic consumption of natural gas increased by 13% from 1990 through 1998 to approximately 22 trillion cubic feet, and industry sources forecast the domestic consumption of natural gas to increase approximately 25% to 27 to 30 trillion cubic feet by 2010. As of December 31, 2000, we believe there was approximately 16.3 million horsepower of domestic field compression equipment, of which approximately 35%, or 5.7 million horsepower, was outsourced. The compression rental industry has grown rapidly, increasing at an estimated compound annual growth rate of 16% per year in the United States in terms of horsepower, with the percentage of outsourced domestic field compression horsepower increasing from approximately 20% in 1993 to an estimated 35% in 2000. We believe the domestic gas compression market will continue to grow due to the following factors: - higher natural gas consumption, which has increased in the United States at an average rate of 2.0% to 2.5% per year over the past decade, - the aging of producing natural gas fields in the United States, which will require more compression to continue producing the same volume of natural gas, and 60 67 - increasing outsourcing by companies with compression needs in order to reduce operating costs, improve production and efficiency and reallocate capital to core business activities. The international gas compression services market is currently substantially smaller than the domestic market. However, we estimate significant growth opportunities for international demand for compressor products and services due to the following factors: - higher natural gas consumption, which has increased internationally at an average rate of 3.5% to 4.0% per year over the past decade, - implementation of international environmental and conservation laws preventing the practice of flaring natural gas and recognition of natural gas as a clean air fuel, - a desire by a number of oil exporting nations to replace oil with natural gas as a fuel source in local markets to allow greater export of oil, - increasing development of pipeline infrastructure, particularly in South America and Canada, necessary to transport gas to local markets, - growing demand for electrical power generation, for which the fuel of choice tends to be natural gas, and - privatization of state-owned energy producers, resulting in increased outsourcing due to the focus on reducing capital expenditures and enhancing cash flow and profitability. In contrast to the domestic rental compression market, the international compression market is comprised primarily of large horsepower compressors that are maintained and operated by compression service providers. A significant portion of this market involves comprehensive installation projects, which include the design, fabrication, delivery, installation, operation and maintenance of compressors and related gas treatment equipment by the rental company. In these projects, the customer's only responsibility is to provide fuel gas within specifications. As a result of the full service nature of these projects and the fact that these compressors generally remain on-site for three to seven years, we are able to achieve higher revenues and margins on these projects. 61 68 BUSINESS OF UCH OUR COMPANY We are the second largest natural gas compression services company in the world in terms of horsepower. Our fleet consists of over 7,400 compressor units comprising approximately 1.8 million horsepower, and we provide a full range of rental, sales, operations, maintenance and fabrication services and products to the natural gas industry. These services and products are essential to the production, transportation and processing of natural gas by producers and gathering and pipeline companies. Our recent WGC acquisition combined WGC's complementary compression business with ours, and created a company with a significantly larger equipment fleet, a broader customer base, an expanded global reach and greater resources. We believe that the WGC acquisition provides us with numerous strategic and operational benefits, including increased size and geographic scope, enhanced parts and services business, cost savings and synergies and increased financial strength. The compression rental industry has grown rapidly, driven by the steady increase in demand for natural gas, the aging of producing natural gas fields and the attractiveness of outsourcing compression needs. Demand for compression services is principally tied to consumption of natural gas rather than exploration or drilling activities. As a result, we have historically been less affected by oil and gas price volatility than companies operating in other sectors of the energy industry, resulting in relatively strong, stable cash flows. We operate our highly standardized compressor fleet in every significant producing natural gas region in the United States to serve this demand. In addition, we have a growing presence in select international markets, including existing operations in Argentina, Canada, Colombia, Thailand, Mexico, Australia and Venezuela. For the nine months ended December 31, 2000, after giving effect to the WGC acquisition, 34% of our revenues would have been attributable to international operations. Our financial performance has been generally less affected by the short-term market cycles and oil and gas price volatility than the financial performance of companies operating in other sectors of the energy industry because: - compression is an essential component of natural gas production, - our operations are tied primarily to natural gas consumption, which is generally less cyclical in nature than exploration activities, - compression equipment rental is often a lower cost alternative for natural gas production, gathering and transportation companies, - we have a broad customer base, - we operate in diverse geographic regions, and - our standardized compressor fleet is durable and reliable. Adding to this stability is the fact that while compressors often must be highly engineered or reconfigured to meet the unique demands of our customers, the fundamental technology of compression equipment has been stable and has not experienced rapid technological change. COMPETITIVE STRENGTHS We provide comprehensive, high quality natural gas compression services and products to over 1,000 rental customers involved in natural gas production, transportation and processing, from the wellhead through the gathering system and the pipeline. We believe our low cost structure and centralized operating approach allow us to offer these high quality services to our customers at competitive prices while maintaining high margins. 62 69 We believe that we have the following key competitive strengths: - Strong, stable cash flow. Our financial performance has been relatively unaffected by the short-term market cycles of the oil and gas industry. Our historical results reflect stable operating performance and margins that are primarily attributable to compression being an essential component of natural gas production, our operations being tied principally to natural gas consumption (as opposed to drilling, which generally is more cyclical in nature), compression equipment rental often being a lower cost alternative for our customers, our broad customer base, our presence in diverse geographic regions and the durability of our compression equipment. - Comprehensive range of high quality services. We provide a complete range of high quality compression services and products to meet the changing compression needs of our customers in the diverse geographic markets that we serve. We believe our services and products often allow our customers to achieve higher run-times than they would achieve with owned equipment, resulting in increased production and revenues for our customers. We continually expand, upgrade and reconfigure our rental fleet and provide our operations and maintenance personnel with extensive training. In recent years, Universal has increased the overall size and average horsepower of its fleet and has increased its fabrication of upper range units (generally over 600 horsepower) to better serve the needs of its customers at wellheads, gathering systems, processing plants and pipelines. Since March 31, 1998, the horsepower of Universal's fleet has increased by 63.4%, which includes the additional horsepower obtained through acquisitions other than the WGC and IEW acquisitions. In addition, we work closely with our customers to design and implement customized strategic solutions. We believe our strong safety record contributes to and enhances our customer loyalty and our ability to attract and retain quality employees. - Size and geographic scope. We are one of a few compression service companies with sufficient fleet size, personnel, logistical capabilities and geographic scope to meet the full service needs of customers worldwide on a timely and cost-effective basis. Our larger fleet, increased scope and resulting broader customer base will provide us with improved utilization opportunities for our fleet. We believe that this will enable us to better meet the changing compression needs of our customers, positioning us to participate in a disproportionately high share of the future growth in this industry. Companies in our industry can achieve significant advantages through increased size and geographic scope. As the number of rental units in our rental fleet increases, the number of sales, engineering, administrative and maintenance personnel required does not increase proportionately. As a result, we will have relatively lower operating costs and higher margins than companies with smaller fleets due to economies of scale. Our fleet consists of over 7,400 units and over 1.8 million horsepower, and we have operations in 28 states and nine foreign countries. We have several fabrication facilities, including a high bay, heavy capacity fabrication facility in Houston, Texas constructed in 1999 and a fabrication facility in Calgary, Alberta, Canada. - Large, well maintained fleet on three standardized platforms. We have standardized our fleet of rental compressors with three primary compressor platforms -- Gemini, Ajax and Ariel. Standardization enables us to develop extensive expertise in operating and maintaining our compressors, efficiently resize and reconfigure our compressors and reduce our operating costs by minimizing inventory costs. Natural gas compressors are long-lived assets with an expected economic life of 25-40 years. Our comprehensive preventive maintenance is designed to maximize the efficient operation of the units and maintain their economic useful life. - Centralized approach to our business. Our centralized operating approach enables us to provide more consistent service and pricing, and to deploy our fleet more efficiently. In addition, our computerized inventory system enables us to respond quickly and efficiently to our customers' compression requirements. Our sales and service personnel located in the field work closely with our customers to assist in the early identification of our customers' compression requirements. - Experienced and focused management team. Our management team has extensive experience in the compression services business. We believe our management team has successfully demonstrated 63 70 its ability to manage growth through its focus on the core compression services business, maintenance of high quality standards and commitment to customer service. In order to attract, motivate and retain our highly experienced sales force and operations personnel, we have implemented a profit sharing plan designed to link the compensation of our employees at all levels with their individual performance as well as ours. In addition, we have provided broad employee stock ownership opportunities. We awarded shares of our stock to employees following our Tidewater Compression acquisition, gave all of our employees the opportunity to purchase shares of stock and, as of December 31, 2000, had granted stock options to approximately 15.4% of our workforce. Our management team has a substantial financial interest in our continued success through direct stock ownership, and participation in our incentive stock option and bonus programs which are linked to our performance. BUSINESS STRATEGY Our objective is to maximize cash flow by leveraging our competitive strengths to meet the evolving needs and demands of our customers by providing consistent, superior services and dependable, high quality products. We believe that this approach strengthens our relationships with our existing customers, helps us attract new customers and diversifies our revenue base, resulting in increased market share, revenues and cash flow. We intend to continue to pursue the following business strategies: - Continue to meet customer demand in the growing domestic market. We have positioned highly-trained sales and field personnel in all of the major domestic gas producing regions in which our customers operate and, in some cases, on-site with our key customers. Our field service and sales personnel assist in identifying the needs of our customers and communicate those needs to our sales force and corporate headquarters, which allows us to participate in growth opportunities in the industry, wherever they may occur. This local presence, experience and in-depth knowledge of our customers' operating needs and growth plans provides us with significant competitive advantages and internally driven market share growth. - Selectively expand our rental fleet and customer base through sale-leaseback transactions. We have offered an increasing number of customers the opportunity to sell certain of their existing compression equipment to us in sale-leaseback transactions. We expect that our enhanced parts and services business will assist us in identifying additional opportunities to engage in such transactions. These transactions enable a customer to outsource its compression operations and reallocate capital to its core business activities while typically enjoying improved compression operating performance. Through sale-leaseback transactions, we can expand our rental fleet while promoting our operations and maintenance services to new customers and strengthening our relationships with existing customers. As of December 31, 2000, we have consummated 11 sale-leaseback transactions with our customers aggregating approximately 31,800 horsepower. - Pursue select international opportunities. As of December 31, 2000, we had approximately 61,500 horsepower (350,000 including WGC), in international locations. We have a strategic presence in the growing compression services markets of Argentina, Canada, Colombia, Thailand, Mexico, Australia and Venezuela. We intend to expand our presence and customer base in these markets, as well as other markets, including other South American and Southeast Asian countries, by leveraging our strong reputation for engineering and fabrication of high specification gas and air compressors, along with WGC's significant international expertise and parts and services business. For the nine months ended December 31, 2000, we generated 34% of our revenues from international operations. - Pursue select acquisition opportunities. We have completed nine acquisitions since 1993. We intend to pursue additional acquisitions of complementary businesses to continue to expand our fleet and our customer base. In determining whether to pursue an acquisition, we focus on, among other things, the quality and complementary nature of the potential target's compression equipment. We 64 71 believe that continuing industry consolidation will present us with opportunities to acquire suitable compression service companies and assets in the future. We consummated our most recent acquisition, that of ISS Compression, Inc. and its operating subsidiary, IEW Compression, Inc., on February 28, 2001 for approximately $15 million in cash, which included the concurrent discharge of IEW's debt and operating leases. ISS is a natural gas compression services provider based in Lafayette, Louisiana. This acquisition added approximately 26,000 horsepower to our fleet, most of which is located in the Gulf of Mexico. In addition to its rental fleet, ISS has an offshore sales and service business. OPERATIONS Rental Compressor Fleet Universal. We have standardized our rental fleet around three primary gas compressor platforms: Gemini for smaller horsepower applications (less than 150 horsepower), Ajax for mid-range applications (100-600 horsepower) and Ariel for larger horsepower applications (over 600 horsepower). These three compressor platforms represent over 90% of our horsepower. In recent years, there has been substantial growth in customer demand in the over 600 horsepower category. As a result, we have focused, and will continue to focus, future growth on this segment of the market. We have increased the overall size and average horsepower of our fleet and have increased our fabrication of upper range units (generally over 600 horsepower) to meet this demand and better serve the needs of our customers at wellheads, gathering systems, processing plants and pipelines. Since March 31, 1998, the total horsepower of our fleet has increased by 63.4%, without taking into account the WGC or IEW acquisitions. For the nine months ended December 31, 2000, the average horsepower utilization rate for our fleet was approximately 86.6%, which reflects average horsepower utilization based upon our total average fleet horsepower. For the quarter ended December 31, 2000, this average rate was approximately 88.6%. As of December 31, 2000, we owned over 3,400 natural gas compressors ranging in size up to 3,000 horsepower, with an average of 241 horsepower, as reflected in the following table:
NUMBER OF TOTAL % OF HORSEPOWER RANGE UNITS HORSEPOWER HORSEPOWER - ---------------- --------- ---------- ---------- 0-99............................................. 1,270 80,778 9.6% 100-299............................................. 1,396 235,976 28.1% 300-599............................................. 455 173,083 20.5% 600 and over........................................ 363 351,153 41.8% ----- ------- ------- Total..................................... 3,484 840,990 100.0% ===== ======= =======
Our high level of fleet standardization and durability: - enables us to minimize our fleet maintenance capital requirements, - enables us to minimize inventory costs, - facilitates low-cost compressor resizing, and - allows us to develop strong technical proficiency in our maintenance and overhaul operations, which enables us to achieve high run-time rates while maintaining low operating costs, a benefit to us and to our customers. In addition to being dependable, our smaller Gemini compressors are lightweight and highly portable. Our Ajax compressors are a strong choice for mid-range compression projects because of their high reliability and versatility. The Ajax design enables these compressors to burn the broadest variety of fuel gas, including sour gas, which is produced in a number of domestic and international regions. Our larger horsepower units are generally Ariel compressors powered by Caterpillar or Waukesha engines. These 65 72 compressors operate at higher speeds and, although larger than the lower horsepower compressors, are transportable. The combination of these larger horsepower units and the lower horsepower Ajax and Gemini units enable us to offer our customers gas compressors for use in most segments of the production, gathering and transportation process. We believe our rental fleet is in excellent condition as we provide full maintenance on virtually all of our operating units. WGC. As of December 31, 2000, WGC had a fleet of 3,953 compression units ranging in size up to 3,400 horsepower. As of that date, the average horsepower of WGC's compression fleet was approximately 245 horsepower. In addition, WGC's fleet is highly compatible with that of Universal. The following table sets forth a summary of WGC's compression fleet as of December 31, 2000, based on the manufacturers' rated horsepower:
NUMBER OF TOTAL % OF HORSEPOWER RANGE UNITS HORSEPOWER HORSEPOWER - ---------------- --------- ---------- ---------- 0-100........................................... 1,923 118,841 12.3% 101-200............................................ 829 121,172 12.5% 201-500............................................ 685 205,527 21.3% 501-800............................................ 188 120,770 12.5% 801-1,100........................................... 181 179,420 18.6% 1,101 and over...................................... 147 221,119 22.8% ----- ------- ----- Total..................................... 3,953 966,849 100.0% ===== ======= =====
WGC has grown primarily through acquisitions, including the acquisition of the Canadian compression parts and services business of Cooper Cameron Limited in July 2000. The compressors marketed by WGC were historically manufactured by WGC at its facility located in Corpus Christi, Texas or purchased from third parties. In December 1999, WGC sold its Gemini compressor manufacturing operations in Corpus Christi to GE Packaged Power. Under the terms of that sale, WGC agreed to purchase from GE Packaged Power $38.0 million of compressor components over five years and $3.0 million of parts over three years, and GE Packaged Power agreed to provide compressors to WGC during that time period at negotiated prices. Domestic Operations As of March 1, 2001, we own one of the largest domestic rental fleets of natural gas compressors, comprising over 1.8 million horsepower and over 7,400 units. As of such date, we have compressor services operations in 27 states and operate out of 40 sales and service locations. Our geographic diversity and nationwide operations enable us to: - provide responsive and cost effective service to our rental customers, as well as for units owned by others, - increase our revenues with relatively little incremental overhead expense, and - offer our customers the ability to deal with one nationwide provider for all of their compression equipment and service needs. Our marketing and client service functions are performed on a coordinated basis by our sales and field service personnel. Our salespersons regularly visit our customers to ensure customer satisfaction and determine customer needs as to services currently being provided and to ascertain potential future compressor requirements of these customers, which provides us with significant competitive advantages. Our salespersons also communicate regularly with our field service and sales employees who, in many cases, have day-to-day relationships with key customer personnel and may have advance notice of customer planning. This ongoing communication between our sales and field service personnel allows us to quickly identify and respond to customer requests in this relationship driven, service intensive industry. 66 73 When a salesperson is advised of a new compression service opportunity, that salesperson obtains relevant information concerning the project including gas flow, pressure and gas composition. The salesperson will then search a computerized data base to determine the availability of an appropriate compressor unit in our fleet for that project. If an appropriate compressor is available, it is immediately deployed. If a unit requires maintenance or reconfiguration, our maintenance personnel will service it as quickly as possible to meet the needs of the customer. If providing the appropriate unit would entail significant overhaul cost, the salesperson will communicate with the customer, engineering and field service personnel and a supervisor to determine the timing of the required maintenance or overhaul to develop a competitive rental proposal. Rental rates generally are determined by compressor category based on our standardized rental rates with variations as necessary to secure the service contract and assure profitability of each contract. Our service contracts usually are variations of a standard service contract associated with a master service agreement. The standard rental contract covers the technical specifications, equipment selection and performance, site location and pricing for the individual project. To ensure the proper pricing and service arrangements on larger horsepower installations and new compression opportunities, our engineers and financial personnel are highly involved in the early stages of the proposal process. The majority of our service agreements provide for full maintenance. Optional items such as oil, antifreeze, freight, insurance and other items may be either itemized or included in the basic monthly rental rate. Initial rental terms are usually six months, with some projects committed for as long as five years. At the end of the initial term, rentals continue at the option of the lessee on a month-to-month basis. After that time, the compressor may be returned or replaced with a different compressor. This constant need for varying the size and/or configuration of compressor packages in the same location over time is a significant advantage of outsourced compressors over owned compressors. Our standardized fleet and efficient operations allow us to provide different compressors and reconfigure our units to meet these changing needs quickly and profitably. International Operations Universal. In recent years, we have expanded our presence in select international markets, including Argentina, Colombia, Venezuela and Australia. Our presence in these international markets, which dates back over five years, usually generates higher margins and produces longer-term contracts than domestic business. As of December 31, 2000, we had 57 units aggregating approximately 61,435 horsepower operating under contract in these markets. In addition, we have been awarded significant contract compression service projects in Mexico and Argentina which will increase the amount of horsepower we operate internationally by at least 33% during the last three months of our current fiscal year. We are also pursuing opportunities in other strategic international areas, including other South American and Southeast Asian countries. For the nine months ended December 31, 2000, approximately 9.5% of our rental revenue was generated internationally. Our international operations are focused on large horsepower compressor markets and frequently involve long-term comprehensive service projects. These projects require us to provide complete engineering and design in the proposal process. Our extensive engineering and design capabilities and reputation of high quality fabrication give us a competitive advantage in these markets. In addition, our high bay fabrication facility positions us to be able to meet increasing demand for these services and products in the future. Commercial negotiations proceed only after the acceptance of proposed engineering designs and concepts. International service agreements differ significantly from domestic service agreements as individual contracts are negotiated for each project. WGC. WGC has a significant presence in Canada, Asia, Australia, Mexico and South America. This presence was further enhanced in July 2000 with WGC's acquisition of the Canadian parts and services business of Cooper Cameron Limited. For the years ended December 31, 1999 and 2000, approximately 25% and 43% of WGC's revenues were derived from international operations. 67 74 Operations, Maintenance and Overhaul Services We provide a comprehensive contract compression service, which includes rental, operation and maintenance services, for most of our larger horsepower units, including our international units, and also on units owned by our customers. When providing these full contract compression services, we work closely with a customer's field service personnel so that the compressor can be adjusted to efficiently match changing characteristics of the gas produced. We generally operate the large horsepower compressors, and include the operations fee as part of its rental rate. Large horsepower units are more complex, and by operating the equipment ourselves, we reduce its maintenance and overhaul expenses. While we do not require our customers to retain us to operate smaller horsepower units, we generally train our customers' personnel in fundamental compressor operations. We currently maintain major overhaul and repackaging facilities in Calgary, Alberta, Canada, Yukon, Oklahoma and Corpus Christi and Schulenberg, Texas, in addition to our fabrication and repackaging facility in Houston, Texas. Each of these overhaul facilities is equipped with in-house engine rebuild and test equipment, full machine shops, environmentally-approved painting facilities and high capacity cranes. In connection with our WGC acquisition, we expect to close a number of facilities, including Corpus Christi, Texas and combine some operating activities to achieve the cost savings and synergies referred to in this prospectus. We also maintain 40 sales and service locations. We provide maintenance services on substantially all of our rental fleet and contract compression for most of our larger horsepower units. Maintenance services include the scheduled preventative maintenance repair and general up-keep of compressor equipment. As a complement to our maintenance business, we offer, at additional cost, supplies and services such as antifreeze, lubricants, property damage insurance on the equipment, and prepaid freight to the job site. We also may provide for installation, which for our typical lower, mid-range and smaller horsepower units involves significantly less engineering and cost than the comprehensive service concept prevalent in the international markets. We also routinely repackage or reconfigure some of our existing fleet to adapt to our customers' needs. We currently have approximately 600 trained and equipped field service representatives and mechanics located throughout the United States and approximately 300 such representatives in international locations. The field service representatives are responsible for preventive maintenance, repair, preparation and installation of rental units and perform major overhauls of units in the field whenever it is economically feasible. Major overhaul and unit rework is also performed in the major overhaul facilities. On average, each of our units undergoes a major overhaul once every six to eight years. A major overhaul involves the rebuilding of the unit in order to materially extend its useful life or to enhance the unit's ability to fulfill broader or different rental applications. One of our overhaul facilities operates a unit test loop and also functions as a full-time training center for our personnel. Our field gas compressors are maintained in accordance with daily, weekly, monthly and annual maintenance schedules that have been developed and refined over our long history of maintaining and operating compressors. These procedures are updated as technology changes and our operations group develops new techniques and procedures. In addition, because our field technicians provide maintenance on virtually all of our installed compression equipment, they are familiar with the condition of our equipment and can readily identify potential problems. In our experience, these rigorous procedures maximize component life and unit availability and minimize avoidable downtime. We also have a technical service group that is involved in our comprehensive service proposals and monitors our larger horsepower units. This group uses technologically advanced diagnostic equipment that permits sophisticated field and remote diagnostic analyses of engines and compressors, as well as emission analyses to ensure compliance with regulatory requirements. Fabrication and Sales As a complement to our compressor rental service operations, we design, engineer, assemble and sell natural gas and air compressors for engineering and construction firms, as well as for exploration and production companies both domestically and internationally. We also fabricate compressors for our own 68 75 fleet. Our primary fabrication facilities are located in Houston and Schulenberg, Texas. In April 1999, we completed construction of a new 20,000 square foot heavy capacity fabrication shop and paint booth in Houston. This facility enhances our ability to expand our fleet of higher horsepower compressors. When servicing our equipment sales customers, we provide compressors that are built in accordance with specific criteria of the customer as well as prepacked compressors. We act as a distributor for Ariel gas compressors and as an original equipment manufacturer for Atlas Copco air compressors. Some of the compressors manufactured by these entities are used by us in our engineered products operations. For the nine months ended December 31, 2000, approximately 10% of our total revenues were generated from fabrication and sales operations. For the year ended December 31, 2000, 9% of WGC's total revenues were generated from fabrication and sales operations. FACILITIES Universal. The following table describes the material facilities owned or leased by Universal as of December 31, 2000:
SQUARE LOCATION FEET ACREAGE STATUS USES - -------- ------- ------- ------ ---- Houston, Texas.............. 114,000 30.0 Owned Corporate headquarters, rental, sales, service, repackaging and fabrication Mineral Wells, Texas*....... 83,000 37.0 Owned Repackaging, overhaul and service Traverse City, Michigan* (Aero Park)............... 43,000 5.9 Owned Rental, sales, service, repackaging, overhaul and fabrication Schulenberg, Texas.......... 23,000 13.3 Owned Repackaging, overhaul and fabrication Grand Junction, Colorado*... 11,000 2.8 Owned Repackaging, overhaul and service
- --------------- * Following the WGC acquisition, these facilities were closed. In addition to Universal's owned facilities, it leases 20 domestic field service offices, nine domestic sales offices and one international sales offices. 69 76 WGC. The following table describes the material facilities owned or leased by WGC as of December 31, 2000:
SQUARE LOCATION FEET ACREAGE STATUS USES - -------- ------ ------- ------ ---- Calgary, Alberta, Canada.... 105,760 9.22 Owned Rental, sales, service, repackaging, fabrication and overhaul Corpus Christi, Texas*...... 92,000 24.3 Owned Rental, sales, service, repackaging, fabrication and overhaul Yukon, Oklahoma............. 72,000 14.7 Owned Rental, sales, service and overhaul Broussard, Louisiana........ 24,700 10.0 Leased Rental, sales, service and overhaul Midland, Texas.............. 24,200 22.0 Owned Repackaging, overhaul and service
- --------------- * We expect to close this facility later this year. In addition, upon consummation of the WGC acquisition, we acquired five owned facilities, as well as 23 leased domestic sales offices and 13 leased international sales offices. CUSTOMERS Our current customer base consists of over 1,000 domestic and international companies engaged in all aspects of the oil and gas industry, including major integrated oil and gas companies, international state-owned oil and gas companies, large and small independent producers, natural gas processors, gatherers and pipelines. We have entered into strategic alliances with some of our key customers. These alliances are essentially preferred vendor arrangements and give us preferential consideration for the compression needs of these customers. In exchange, we provide these customers with enhanced product availability, product support and favorable pricing. In fiscal year 2000, no single customer accounted for as much as 10% of our total revenues. Our top 20 customers accounted for approximately 54% of our rental revenues in fiscal year 2000. During 2000, no single customer accounted for as much as 10% of WGC's total revenues. WGC's top 20 customers accounted for approximately 20% of its rental revenues in 2000. On a combined basis, no customer would have accounted for as much as 10% of our total revenues for the twelve months ended December 31, 2000. SUPPLIERS As a consequence of having a highly standardized fleet, some of the components used in our products are obtained from a single source or a limited group of suppliers. Although alternative sources are generally available, our reliance on these suppliers involves several risks, including price increases, inferior component quality and a potential inability to obtain an adequate supply of required components in a timely manner. However, we believe our size gives us negotiating leverage with some of these suppliers. We have not experienced any material supply problems to date, and we believe our relations with our suppliers are good. BACKLOG As of December 31, 2000, we had a compressor unit fabrication backlog for sale to third parties of approximately $30.5 million, compared to $11.0 million as of December 31, 1999. As of such date, WGC had a North American compressor unit fabrication backlog of units for sale and rental to third parties of approximately $13.8 million, compared to $14.4 million as of December 31, 1999. A majority of the 70 77 backlog is expected to be produced within a 180-day period. Generally, units to be sold to third parties are assembled according to each customer's specifications and sold on a turnkey basis. Universal purchases components for such compressor units from third party suppliers. INSURANCE We believe that our insurance coverage is customary for the industry and adequate for our business. As is customary in the natural gas service operations industry, we review our safety equipment and procedures and carries insurance against some, but not all, risks of our business. Losses and liabilities would reduce our revenues and increase our costs to the extent not covered by insurance. The natural gas service operations business can be hazardous, involving unforeseen circumstances such as uncontrollable flows of gas or well fluids, fires and explosions or environmental damage. To address the hazards inherent in our business, we maintain a comprehensive insurance program. This insurance coverage includes physical damage coverage, third party general liability insurance, employer's liability, including well control, environmental and pollution and other coverage, although coverage for environmental and pollution-related losses is subject to significant limitations. In addition, many of our service contracts shift certain risks to our customers. COMPETITION The natural gas compressor rental, maintenance, service and fabrication business is highly competitive. We face competition from large national and multinational companies with greater financial resources and, on a regional basis, from several smaller companies. Our main competitors are Hanover Compressor Company, Production Operators, Inc. (a subsidiary of Schlumberger Limited) and Compressor Systems, Inc. In addition, Weatherford and its subsidiaries may continue to compete with us, and they are not contractually restricted from doing so. Many of our customers outsource part of their compression activities. We believe these customers control approximately 65%-70% of the compressor services market. We believe that we compete effectively on the basis of customer service, including the availability of our personnel in remote locations, price, flexibility in meeting customer needs and quality and reliability of our compressors and related services. ENVIRONMENTAL AND OTHER REGULATIONS We are subject to stringent and complex federal, state and local laws and regulations regarding the environment, emission controls and other environmental protection as well as employee health and safety concerns. Compliance with these laws and regulations may affect the costs of our operations. Moreover, failure to comply with these environmental laws and regulations may result in the imposition of administrative, civil, and criminal penalties. Not all of our properties may be in full compliance with all applicable environmental requirements. However, as part of the regular evaluation of our operations, we are updating the environmental condition of our existing and acquired properties as necessary and, overall, we believe that we are in substantial compliance with applicable environmental laws and regulations and that the phasing in of more stringent 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 our business, financial condition or results of operations. Under the Comprehensive Environmental Response, Compensation, and Liability Act, referred to as "CERCLA," and comparable state laws and regulations, strict and, under certain circumstances, joint and several liability can be imposed without regard to fault or the legality of the original conduct on certain classes of persons that contributed to the release of a hazardous substance into the environment. These persons include the owner and operator of a contaminated site where a hazardous substance release occurred and any company that transported, disposed of, or arranged for the transport or disposal of hazardous substances released at the site. Under CERCLA, such persons (which may include us) may be liable for the costs of remediating the hazardous substances that have been released into the environment and for damages to natural resources. In addition, where contamination may be present it is not 71 78 uncommon for the neighboring land owners and other third parties to file claims for personal injury, property damage and recovery of response costs. As part of our operations, we generate wastes, including hazardous wastes such as used paints and solvents. The management and disposal of hazardous wastes are subject to the Resource Conservation and Recovery Act, referred to as "RCRA," and comparable state laws. These laws and the regulations implemented thereunder govern the generation, storage, treatment, transfer and disposal of hazardous and nonhazardous wastes. The U.S. Environmental Protection Agency and various state agencies have limited the approved methods of disposal for certain hazardous and nonhazardous wastes. We currently own or lease, and have in the past owned or leased, a number of properties that have been used, some for many years by third parties over whom we have no control, in support of natural gas compression services or other industrial operations. As with any owner or operator of property, we may be subject to remediation costs and liability under CERCLA, RCRA or other environmental laws for hazardous waste, asbestos or any other toxic or hazardous substance that may exist on or under any of our properties, including waste disposed or groundwater contaminated by prior owners or operators. We have performed in the past, and may perform in the future, certain remediation activities governed by environmental laws. The cost of this remediation has not been material to date. We are currently undertaking groundwater monitoring at certain of our facilities, which may further define remedial obligations. Certain of our acquired properties may also warrant groundwater monitoring and other remedial activities. We believe that former owners and operators of many of these properties, including Tidewater, are responsible under environmental laws and contractual agreements to pay for or perform remediation, or to indemnify us for our remedial costs. There can be no assurance that these other entities will fulfill their legal or contractual obligations, and their failure to do so could result in material costs to us. In most cases, our customers contractually assume all environmental compliance and permitting obligations and environmental risks related to compressor operations, even in cases where we operate and maintain the compressors on their behalf. Under most of our rental service agreements, our customers must indemnify us for certain losses or liabilities we may suffer as a result of the failure to comply with applicable environmental laws, including requirements pertaining to necessary permits such as air permits. Air pollutant emissions from natural gas compressor engines are a substantial environmental concern for the natural gas transportation industry. Proposed federal regulations, if promulgated in their current form, are expected to impose or increase obligations of operators to reduce emissions of nitrogen oxides from internal combustion engines in transmission service. In most cases, these obligations would be allocated to our customers under the above-mentioned contracts. Stricter standards in environmental legislation or regulations that may affect us may be imposed in the future, such as proposals to make hazardous wastes subject to more stringent and costly handling, disposal and remediation requirements. Accordingly, new laws or regulations or amendments to existing laws or regulations (including, but not limited to, regulations concerning ambient air quality standards, waste water and storm water discharge, and global climate change) could require us to undertake significant capital expenditures and could otherwise have a material adverse effect on our business, results of operations and financial condition. Our international operations are potentially subject to similar governmental controls and restrictions relating to the environment. We believe that we are in substantial compliance with any such foreign requirements pertaining to the environment. Since 1992, there have been various proposals to impose taxes with respect to the energy industry, none of which have been enacted and all of which have received significant scrutiny from various industry lobbyists. At the present time, given the uncertainties regarding the proposed taxes, including the uncertainties regarding the terms which the proposed taxes might ultimately contain and the industries and persons who may ultimately be the subject of such taxes, it is not possible to determine whether any such tax will have a material adverse effect on us. 72 79 EMPLOYEES AND LABOR RELATIONS As of March 1, 2001, we had approximately 1,300 employees, of which approximately 180 have been identified as transitional employees as a result of our WGC acquisition. We believe our relationship with our employees is good. Approximately 100 of our employees in Canada are covered by a collective bargaining agreement. LITIGATION AND OTHER LEGAL PROCEEDINGS From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this prospectus, we were not party to any legal proceedings which, if determined adversely to us, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position. 73 80 BUSINESS OF BRL AND BRL CORP. GENERAL BRL and BRL Corp. were organized in Delaware in January 2001 for the limited purpose of issuing the old notes and entering into the operating lease and related financing transactions in order to purchase the equipment and lease it to Universal as described in this prospectus. BRL Corp. was formed by BRL for the purpose of acting as a co-issuer with BRL of the old notes and the new notes. The governing documents of BRL limit the activities of BRL and its general partner, BRL Universal Equipment Management, Inc., so long as it serves as the general partner of BRL, to activities relating to the acquisition, financing and lease of the equipment as described in this prospectus. So long as the lease transaction with Universal as described herein is outstanding, BRL has covenanted to limit its activities to the conduct of business related solely to the financing and lease of the equipment as described in this prospectus. LEGAL PROCEEDINGS From time to time, BRL, BRL Corp. and BRL Universal Equipment Management, Inc. may be involved in litigation relating to claims arising out of their operations or in the normal course of their respective businesses. As of March 19, 2001, BRL, BRL Corp. and BRL Universal Equipment Management, Inc. were not subject to any legal proceedings which, if determined adversely, individually or in the aggregate, would have a material adverse effect on their respective results of operations or financial position. 74 81 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The issuers sold the old notes on February 9, 2001 to Deutsche Banc Alex. Brown, First Union Securities, Inc., Goldman, Sachs & Co., Banc One Capital Markets, Inc. and Scotia Capital pursuant to a purchase agreement. The initial purchasers subsequently sold the old notes to: - "qualified institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities Act, in reliance on Rule 144A, and - persons in offshore transactions in reliance on Regulation S under the Securities Act. As a condition to the initial sale of the old notes, the registrants and the initial purchasers entered into a registration rights agreement. Pursuant to the registration rights agreement, the registrants agreed to - file a registration statement under the Securities Act with respect to the new notes with the SEC by May 10, 2001; - use their reasonable best efforts to cause the registration statement to become effective under the Securities Act on or before August 8, 2001; and - use their reasonable best efforts to complete the exchange offer on or before September 7, 2001. The issuers agreed to issue and exchange the new notes for all old notes validly tendered and not validly withdrawn prior to the expiration of the exchange offer. A copy of the registration rights agreement has been filed as an exhibit to the registration statement which includes this prospectus. The registration statement is intended to satisfy our obligations under the registration rights agreement and the purchase agreement. The term "holder" with respect to the exchange offer means any person in whose name old notes are registered on the trustee's books or any other person who has obtained a properly completed bond power from the registered holder, or any person whose old notes are held of record by The Depository Trust Company (the "Depository" or "DTC") who desires to deliver such old note by book-entry transfer at DTC. RESALE OF THE NEW NOTES The registrants believe that you will be allowed to resell the new notes to the public without registration under the Securities Act, and without delivering a prospectus that satisfies the requirements of Section 10 of the Securities Act, if you can make the representations set forth under "Summary -- The Exchange Offer -- Procedures for participating in the exchange offer." However, if you intend to participate in a distribution of the new notes, or you are an "affiliate" of the registrants as defined under Rule 405 of the Securities Act, you must comply with the registration requirements of the Securities Act and deliver a prospectus, unless an exemption from registration is otherwise available. You must represent to the registrants in the letter of transmittal that accompanies this prospectus that you meet these conditions exempting you from the registration requirements. The registrants base their view on interpretations by the staff of the SEC in no-action letters issued to other issuers in exchange offers like this one. However, we have not asked the SEC to consider this particular exchange offer in the context of a no-action letter. Therefore, you cannot be sure that the SEC will treat it in the same way it has treated other exchange offers in the past. A broker-dealer that has bought old notes for market-making or other trading activities must deliver a prospectus in order to resell any old notes it has received for its own account in the exchange. This prospectus may be used by a broker-dealer to resell any of its old notes. The registrants agreed in the registration rights agreement to send this prospectus to any broker-dealer that requests copies in the letter 75 82 of transmittal for a period of up to 180 days after the SEC declares the registration statement relating to this exchange offer effective. See "Plan of Distribution" for more information regarding broker-dealers. The exchange offer is not being made to, nor will the issuers accept surrenders for exchange from, holders of old notes in any jurisdiction in which this exchange offer or the acceptance thereof would not be in compliance with the securities or blue sky laws. TERMS OF THE EXCHANGE OFFER General. Based on the terms and conditions set forth in this prospectus and in the letter of transmittal, we will accept any and all old notes validly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on the expiration date. Subject to the minimum denomination requirements of the new notes, the issuers will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding old notes validly tendered pursuant to the exchange offer and not validly withdrawn prior to the expiration date. Holders may tender some or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in amounts that are integral multiples of $1,000 principal amount. The form and terms of the new notes are the same as the form and terms of the old notes except that: - the issuance of the new notes will be registered under the Securities Act and, therefore, the new notes will not bear legends restricting the transfer of the new notes, - the new notes will not contain provisions for additional interest, and - holders of the new notes will not be entitled to any of the registration rights of holders of old notes under the registration rights agreement, which rights will terminate upon the consummation of this exchange offer. The new notes will evidence the same indebtedness as the old notes which they replace. The new notes will be issued under, and be entitled to the benefits of, the same indenture that authorized the issuance of the old notes. As a result, both the new notes and the old notes will be treated as a single class of debt securities under the indenture. The exchange offer does not depend upon any minimum aggregate principal amount of old notes being surrendered for exchange. As of the date of this prospectus, $350,000,000 in aggregate principal amount of the old notes is outstanding, all of which is registered in the name of Cede & Co., as nominee for DTC. Solely for reasons of administration, we have fixed the close of business on , 2001 as the record date for the exchange offer for purposes of determining the persons to whom this prospectus and the letter of transmittal will be initially mailed. There will be no fixed record date for determining holders of the old notes entitled to participate in this exchange offer. As a holder of old notes, you do not have any appraisal or dissenters' rights, or any other right to seek monetary damages in court under the Delaware General Corporation Law or the indenture governing the notes. We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement and the applicable requirements of the Exchange Act and the related rules and regulations of the SEC. Old notes that are not surrendered for exchange in the exchange offer will remain outstanding and interest thereon will continue to accrue. The registrants will be deemed to have accepted validly surrendered old notes if and when they give oral or written notice of their acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders of old notes for the purpose of receiving the new notes from the issuers. If you surrender old notes in the exchange offer, you will not be required to pay brokerage commissions or fees. In addition, subject to the instructions in the letter of transmittal, you will not have 76 83 to pay transfer taxes for the exchange of old notes. We will pay all charges and expenses in connection with the exchange offer, other than certain applicable taxes described under "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The expiration date is 5:00 p.m., New York City time, on , 2001, unless we extend the exchange offer, in which case the expiration date is the latest date and time to which we extend the exchange offer. In order to extend the exchange offer, we will: - notify the exchange agent of any extension by oral or written communication; and - issue a press release or other public announcement, which will report the approximate number of old notes deposited. Any such press release or announcement would be issued prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. During any extension of the exchange offer, all old notes previously surrendered and not withdrawn will remain surrendered under and subject to the exchange offer. The registrants reserve the right: - to delay accepting any old notes, - to amend the terms of the exchange offer in any manner, - to extend the exchange offer, or - if, in the opinion of counsel, the consummation of the exchange offer would violate any law or interpretation of the staff of the SEC, to terminate or amend the exchange offer by giving oral or written notice to the exchange agent. Any delay in acceptance, extension, termination or amendment will be followed as soon as practicable by a press release or other public announcement. If the registrants amend the exchange offer in a manner that they determine constitutes a material change, they will promptly disclose that amendment by means of a prospectus supplement that will be distributed to the holders, and they will extend the exchange offer for a period of time, depending upon the significance of the amendment and the manner of disclosure to the holders, if the exchange offer would otherwise expire during that period. We will have no obligation to publish, advertise or otherwise communicate any public announcement that we may choose to make, other than by making a timely release to an appropriate news agency. In all cases, issuance of the new notes for old notes that are accepted for exchange will be made only after timely receipt by the exchange agent of a properly completed and duly executed letter of transmittal and all other required documents. However, the issuers reserve the absolute right to waive any conditions of the exchange offer or any defects or irregularities in the surrender of old notes. If they do not accept any surrendered old notes for any reason set forth in the terms and conditions of the exchange offer or if you submit old notes for a greater principal amount than you want to exchange, the issuers will return certificates for the unaccepted or non-exchanged old notes, or substitute old notes evidencing the unaccepted portion, as appropriate, to you. See "-- Return of Old Notes." INTEREST ON THE NEW NOTES The new notes will accrue cash interest on the same terms as the old notes -- at the rate of 8 7/8% per year (using a 360-day year) from February 9, 2001, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2001. Old notes accepted for exchange will not receive accrued interest thereon at the time of exchange. However, each new note will bear interest from the most recent date to which interest has been paid on the old notes or new notes, or if no interest has been paid on the old notes or new notes, from February 9, 2001. 77 84 PROCEDURES FOR TENDERING OLD NOTES If you wish to surrender old notes you must: - complete and sign the letter of transmittal or a facsimile thereof, - have the signatures thereon guaranteed if required by the letter of transmittal, and - mail or deliver the letter of transmittal or facsimile, together with any corresponding certificate or certificates representing the old notes being surrendered -- or confirmation of a book-entry transfer of such old notes into the exchange agent's account at DTC pursuant to the book-entry procedures described below -- to the exchange agent at its address set forth in the letter of transmittal for receipt prior to the expiration date. If the certificate representing the old notes being tendered -- or the confirmation of a book-entry transfer, if applicable -- is not delivered to the exchange agent with the letter of transmittal, you must comply with the guaranteed delivery procedures described below. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. If you do not withdraw your surrender of old notes prior to the expiration date, it will indicate an agreement between you and the issuers that you have agreed to surrender the old notes, in accordance with the terms and conditions in the letter of transmittal. THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK. INSTEAD OF DELIVERY BY MAIL, YOU SHOULD USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. DO NOT SEND ANY LETTER OF TRANSMITTAL OR OLD NOTES TO ANY OF THE REGISTRANTS. YOU MAY REQUEST THAT YOUR BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR NOMINEE EFFECT THE ABOVE TRANSACTIONS FOR YOU. If you are a beneficial owner of the old notes and hold those notes through a broker, dealer, commercial bank, trust company or other nominee and you want to surrender your old notes, you should contact that intermediary promptly and instruct it to surrender the old notes on your behalf. Generally, an eligible institution must guarantee signatures on a letter of transmittal or a notice of withdrawal described below under "-- Withdrawal of Tenders of Old Notes" unless - you tender your old notes as the registered holder, which term includes any participant in DTC whose name appears on a security listing as the owner of old notes, - you sign the letter of transmittal, and the new notes issued in exchange for your old notes are to be issued in your name, or - you surrender your old notes for the account of an eligible institution. In any other case, the surrendered old notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to the issuers and duly executed by the registered holder. If the new notes or unexchanged old notes are to be delivered to an address other than that of the registered holder appearing on the security register for the old notes, an eligible institution must guarantee the signature in the letter of transmittal. In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, such guarantee must be made by: - a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., 78 85 - a commercial bank or trust company having an office or correspondent in the United States, or an "eligible guarantor institution" as defined by Rule 17Ad-15 under the Exchange Act that is a member of one of the recognized signature guarantee programs identified in the letter of transmittal. Your surrender will be deemed to have been received as of the date when: - the exchange agent receives a properly completed and signed letter of transmittal accompanied by the old notes, or a confirmation of book-entry transfer of such old notes into the exchange agent's account at DTC, or - the exchange agent receives a notice of guaranteed delivery from an eligible institution. Issuances of new notes in exchange for old notes surrendered pursuant to a notice of guaranteed delivery or letter, telegram or facsimile transmission to similar effect by an eligible institution will be made only against submission of a duly signed letter of transmittal, and any other required documents, and deposit of the surrendered old notes, or confirmation of a book-entry transfer of such old notes into the exchange agent's account at DTC pursuant to the book-entry procedures described below. The issuers will make the determination regarding all questions relating to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of surrendered old notes, and their determination will be final and binding on all parties. The issuers reserve the absolute right to reject any and all old notes improperly surrendered. They will not accept any old notes if their acceptance of them would, in the opinion of their counsel, be unlawful. They also reserve the absolute right to waive any defects, irregularities or conditions of surrender as to any particular old notes. Their interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, you must cure any defects or irregularities in connection with surrenders of old notes within the time they will determine. Although they intend to notify holders of defects or irregularities in connection with surrenders of old notes, neither the issuers, the exchange agent nor anyone else will incur any liability for failure to give such notice. Surrenders of old notes will not be deemed to have been made until any defects or irregularities have been cured or waived. The issuers have no current plan to acquire any old notes that are not surrendered in the exchange offer or to file a registration statement to permit resales of any old notes that are not surrendered pursuant to the exchange offer. The registrants reserve the right in their sole discretion to purchase or make offers for any old notes that remain outstanding after the expiration date. To the extent permitted by law, the registrants also reserve the right to purchase old notes in the open market, in privately negotiated transactions or otherwise. The terms of any future purchases or offers could differ from the terms of the exchange offer. Pursuant to the letter of transmittal, if you elect to surrender old notes in exchange for new notes, you must exchange, assign and transfer the old notes to the issuers and irrevocably constitute and appoint the exchange agent as your true and lawful agent and attorney-in-fact with respect to such surrendered old notes, with full power of substitution, among other things, to cause the old notes to be assigned, transferred and exchanged. By executing the letter of transmittal, you make the representations and warranties set forth under the heading "Summary -- The Exchange Offer -- Procedures for participating in the exchange offer" to the issuers. By executing the letter of transmittal you also promise to, upon request, execute and deliver any additional documents that we consider necessary to complete the transactions described in the letter of transmittal. By surrendering old notes in the exchange offer, you will be telling us that, among other things, that - you have full power and authority to tender, sell, assign and transfer the old notes surrendered, - the issuers will acquire good title to the old notes being surrendered, free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sale agreements or other obligations 79 86 relating to their sale or transfer, and not subject to any adverse claim when the issuers accept the old notes, - you are acquiring the new notes in the ordinary course of your business, - you are not engaging and do not intend to engage in a distribution of the new notes, - you have no arrangement or understanding with any person to participate in the distribution of the new notes, - you acknowledge and agree that if you are a broker-dealer registered under the Exchange Act or you are participating in the exchange offer for the purpose of distributing the new notes, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the new notes, and that you cannot rely on the position of the SEC's staff set forth in its no-action letters, - you understand that a secondary resale transaction described above and any resales of new notes obtained by you in exchange for old notes acquired by you directly from us should be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K of the SEC, and - you are not an "affiliate," as defined in Rule 405 under the Securities Act, of the registrants or, if you are an "affiliate," that you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If you are a broker-dealer and you will receive new notes for your own account in exchange for old notes that were acquired as a result of market-making activities or other trading activities, you will be required to acknowledge in the letter of transmittal that you will deliver a prospectus in connection with any resale of the new notes. Participation in the exchange offer is voluntary. You are urged to consult your financial and tax advisors in making your decision as to whether to participate in the exchange offer. RETURN OF OLD NOTES If any old notes are not accepted for any reason described here, or if old notes are withdrawn or are submitted for a greater principal amount than you want to exchange, the exchange agent will return those unaccepted or non-exchanged old notes to the surrendering holder, or, in the case of old notes surrendered by book-entry transfer, into the exchange agent's account at DTC, unless otherwise provided in the letter of transmittal. The old notes will be credited to an account maintained with DTC as promptly as practicable. BOOK ENTRY TRANSFER The exchange agent will make a request to establish an account with respect to the old notes at DTC for purposes of the exchange offer promptly after the date of this prospectus. Any financial institution that is a participant in DTC's system may make book-entry delivery of old notes by causing DTC to transfer such old notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. However, although delivery of old notes may be effected through book-entry transfer at DTC, you must deliver the letter of transmittal, or a facsimile thereof, with any required signature guarantees and any other required documents to the exchange agent at the address set forth in the letter of transmittal for its receipt on or prior to the expiration date or pursuant to the guaranteed delivery procedures described below in order to properly tender your old notes for exchange. GUARANTEED DELIVERY PROCEDURES If you wish to surrender your old notes and (i) your old notes are not immediately available so that you can meet the expiration date deadline, (ii) you cannot deliver your old notes or other required 80 87 documents to the exchange agent prior to the expiration date, or (iii) the procedure for book-entry transfer cannot be completed on a timely basis, you may nonetheless participate in the exchange offer if: - you surrender your notes through an eligible institution; - prior to the expiration date, the exchange agent receives from the eligible institution a properly completed and duly executed notice of guaranteed delivery substantially in the form provided by us, by telegram, telex, facsimile transmission, mail or hand delivery, showing the name and address of the holder, the name(s) in which the old notes are registered, the certificate number(s) of the old notes, if applicable, and the principal amount of old notes surrendered; the notice of guaranteed delivery must state that the surrender is being made by the notice of guaranteed delivery and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal, or facsimile thereof, together with the certificate(s) representing such old notes, in proper form for transfer or a book-entry confirmation, and any other required documents, will be delivered by such eligible institution to the exchange agent, and - the properly executed letter of transmittal, as well as the certificate(s) representing all surrendered old notes, in proper form for transfer, or a book-entry confirmation, as the case may be, and all other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the expiration date. Unless old notes are surrendered by the above-described method and deposited with the exchange agent within the time period set forth above, the issuers may, at their option, reject the surrender. The exchange agent will send you a notice of guaranteed delivery upon your request if you want to surrender your old notes according to the guaranteed delivery procedures described above. WITHDRAWAL OF TENDERS OF OLD NOTES Except as otherwise provided in this prospectus, you may withdraw your surrender of old notes at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a surrender of old notes in the exchange offer, the exchange agent must receive a written or facsimile transmission notice of withdrawal at its address set forth herein prior to 5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal must: - specify the name of the person having deposited the old notes to be withdrawn, - identify the old notes to be withdrawn, including the certificate number or numbers, if applicable, and the principal amount of the old notes, - contain a statement that you are withdrawing your election to have such old notes exchanged, - be signed by the holder in the same manner as the original signature on the letter of transmittal by which the old notes were surrendered, and - specify the name in which any old notes are to be registered, if different from that of the person depositing the old notes. If old notes have been surrendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC. The issuers in their sole discretion will make the final determination on all questions regarding the validity, form, eligibility and time of receipt of notices, and their determination shall bind all parties. Any old notes withdrawn will be deemed not to have been validly surrendered for purposes of the exchange offer, and no new notes will be issued, unless the old notes so withdrawn are validly resurrendered. Properly withdrawn old notes may be resurrendered by following one of the procedures described above under "-- Procedures for Tendering Old Notes" at any time prior to the expiration date. Any old notes that are not accepted for exchange will be returned at no cost to the holder or, in the case of old notes 81 88 surrendered by book-entry transfer, into the exchange agent's account at DTC pursuant to the book-entry transfer procedures described above, as soon as practicable after withdrawal, rejection of surrender or termination of the exchange offer. TERMINATION OF CERTAIN RIGHTS All registration rights under the registration rights agreement that benefit the holders of the old notes, including all rights to receive additional interest in the event of a registration default under the registration rights agreement, will terminate once the issuers consummate the exchange offer. In any event, the registrants are under a continuing obligation, for a period of up to 180 days after the SEC declares the registration statement effective, to keep the registration statement effective and to provide copies of the latest version of the prospectus to any broker-dealer that requests copies in the letter of transmittal for use in a resale. CONDITIONS OF THE EXCHANGE OFFER Notwithstanding any other term of the exchange offer, or any extension of the exchange offer, the issuers are not required to accept for exchange, or exchange new notes for, any old notes, and the issuers may terminate the exchange offer before acceptance of the old notes, if: (1) any statute, rule or regulation has been enacted, or any action has been taken by any court or governmental authority that, in their reasonable judgment, seeks to or would prohibit, restrict or otherwise render consummation of the exchange offer illegal; or (2) any change, or any development that would cause a change, in the registrants' business or financial affairs, has occurred that, in their sole judgment, might materially impair their ability to proceed with the exchange offer, or any change that would materially impair the contemplated benefits to them of the exchange offer has occurred; or (3) a change occurs in the current interpretations by the staff of the SEC that, in their reasonable judgment, might materially impair the issuers' ability to proceed with the exchange offer. If the issuers, in their sole discretion, determine that any of the above conditions is not satisfied, they may: - refuse to accept any old notes and return all surrendered old notes to the surrendering holders, - extend the exchange offer and retain all old notes surrendered prior to the expiration date, subject to the holders' right to withdraw the surrender of the old notes, or - waive any unsatisfied conditions regarding the exchange offer and accept all properly surrendered old notes that have not been withdrawn. If this waiver constitutes a material change to the exchange offer, the registrants will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the registered holders, and the registrants will extend the exchange offer for a period of time that they will determine, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during that period of time. 82 89 EXCHANGE AGENT The registrants have appointed The Bank of New York as exchange agent for the exchange offer. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent at the following address: By Hand or Overnight Courier: Facsimile Transmissions: By Registered or Certified The Bank of New York (Eligible Institutions Only) Mail: 101 Barclay Street Corporate Trust Services Window (212) 815-6339 The Bank of New York Ground Level 101 Barclay Street, 7E Attention: William Buckley To Confirm by Telephone New York, New York 10286 Reorganization Section or for Information Call: Attention: William Buckley Reorganization Section (212) 815-5788
FEES AND EXPENSES The registrants will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, additional solicitation may be made by telecopy, telephone or in person by our officers and regular employees or by officers and employees of our affiliates. No additional compensation will be paid to any such officers and employees who engage in soliciting tenders. The registrants have not retained any dealer-manager or other soliciting agent for the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptance of the exchange offer. They will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for related reasonable out-of-pocket expenses. The registrants may also reimburse brokerage houses and other custodians, nominees and fiduciaries for reasonable out-of-pocket expenses they incur in forwarding copies of this prospectus, the letter of transmittal and related documents. The registrants will pay any expenses incurred in connection with the exchange offer, including registration fees, fees and expenses of the exchange agent, the transfer agent and registrar, accounting and legal fees and printing costs, among others. The registrants will pay all transfer taxes, if any, applicable to the exchange of the old notes. If, however, new notes, or old notes for principal amounts not surrendered or accepted for exchange, are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the old notes surrendered, or if a transfer tax is imposed for any reason other than the exchange, then the amount of any transfer taxes will be payable by the person surrendering the notes. If you do not submit satisfactory evidence of payment of such taxes or exemption with the letter of transmittal, the amount of those transfer taxes will be billed directly to you. CONSEQUENCES OF FAILURE TO EXCHANGE Old notes that are not exchanged will remain "restricted securities" within the meaning of Rule 144(a)(3) of the Securities Act. Accordingly, they may not be offered, sold, pledged or otherwise transferred except: - to the issuers or to any of their subsidiaries, - inside the United States to a qualified institutional buyer in compliance with Rule 144A, - inside the United States to an institutional accredited investor that, prior to such transfer, furnishes to the trustee a signed letter containing certain representations and agreements relating to the restrictions on transfer of the old notes, the form of which you can obtain from the trustee and, if such transfer is in respect of an aggregate principal amount of old notes at the time of transfer of less than $100,000, an opinion of counsel acceptable to the issuers that the transfer complies with the Securities Act, 83 90 - outside the United States in compliance with Rule 904 under the Securities Act, - pursuant to the exemption from registration provided by Rule 144 under the Securities Act, if available, or - pursuant to an effective registration statement under the Securities Act. The liquidity of the old notes could be adversely affected by the exchange offer. ACCOUNTING TREATMENT For accounting purposes, the registrants will recognize no gain or loss as a result of the exchange offer. The registrants will amortize the expenses of the exchange offer and the unamortized expenses related to the issuance of the old notes over the remaining term of the notes. 84 91 MANAGEMENT OF UNIVERSAL DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the name, age and position of each of the directors and executive officers of UCH as of March 1, 2001. All executive officers listed below for UCH hold similar positions with UCI.
DIRECTOR TERM NAME AGE POSITION SINCE EXPIRES - ---- --- -------- -------- ------- Stephen A. Snider................ 53 President, Chief Executive 1998 2002 Officer and Director** Ernie L. Danner.................. 46 Executive Vice President and 1998 2002 Director** Richard W. FitzGerald............ 46 Senior Vice President and Chief * * Financial Officer Mark L. Carlton.................. 45 Senior Vice President and General * * Counsel Jack B. Hilburn, Jr. ............ 56 Senior Vice President of * * Operations of Universal Compression, Inc. Kirk E. Townsend................. 42 Senior Vice President of Sales of * * Universal Compression, Inc. Hanford P. Jones................. 49 Senior Vice President of * * Engineered Products of Universal Compression, Inc. Samuel Urcis..................... 66 Director and Chairman of the 1998 2003 Executive Committee of the Board Thomas C. Case................... 52 Director 1999 2001 John K. Castle................... 60 Director 1998 2003 Bernard J. Duroc-Danner.......... 47 Director 2001 2003 Uriel E. Dutton.................. 70 Director 2001 2001 Curtis W. Huff................... 43 Director 2001 2002 C. Kent May...................... 61 Director 1998 2001 William M. Pruellage............. 27 Director 2000 2003 Edmund P. Segner, III............ 47 Director 2000 2002
- --------------- * Not applicable. ** Also a director of Universal Compression, Inc. Stephen A. Snider. Mr. Snider has been President of UCH since consummation of the Tidewater Compression acquisition, and UCI since 1994. Mr. Snider serves on UCH's and UCI's boards of directors. Mr. Snider joined Tidewater in 1975 as General Manager of air compressor operations. In 1979, Mr. Snider established Tidewater Compression's operations in the Northeastern United States. In 1981, he assumed responsibility for the Western United States operations of Tidewater Compression. Mr. Snider left Tidewater in 1983 to own and operate businesses unrelated to the energy industry. He returned to Tidewater in 1991 as Senior Vice President of Compression. Mr. Snider has over 25 years of experience in senior management of operating companies, and also serves as a Director of Energen Corporation. Ernie L. Danner. Mr. Danner joined UCH as Chief Financial Officer and Executive Vice President upon consummation of the Tidewater Compression acquisition. Mr. Danner serves on UCH's and UCI's boards of directors. In April 1999, Mr. Danner's duties as Chief Financial Officer were assumed by Richard FitzGerald. Prior to joining us, Mr. Danner served as Chief Financial Officer and Senior Vice President of MidCon Corp., an interstate pipeline company and a wholly-owned subsidiary of Occidental Petroleum Corporation. From 1988 until May 1997, Mr. Danner served as Vice President, Chief Financial 85 92 Officer and Treasurer of INDSPEC Chemical Company and he also served as a Director of INDSPEC. From 1984 to December 1988, he was the Executive Vice President -- Finance, Administration and Planning of Adams and Porter, an international agency specializing in marine and energy insurance. Richard W. FitzGerald. Mr. FitzGerald has been UCH's Senior Vice President and Chief Financial Officer since April 1999. Mr. FitzGerald held the position of Vice President -- Financial Planning and Services of KN Energy from February 1998 to April 1999. Prior to that date, Mr. FitzGerald served as Vice President and Controller of MidCon Corp., a wholly-owned subsidiary of Occidental Petroleum Corporation, for a period in excess of five years. Mark L. Carlton. Mr. Carlton joined UCH as Senior Vice President and Co-General Counsel in October 2000 and, effective December 8, 2000, became UCH's Senior Vice President and General Counsel. From 1982 until April 2000, Mr. Carlton held various legal positions with Mobil Corporation and its affiliates, serving most recently as Senior Counsel for Mobil Business Resources Corporation. Jack B. Hilburn, Jr. Mr. Hilburn has been UCI's Senior Vice President of Operations since April 1999. Mr. Hilburn is responsible for all field operations, overhaul shops and warehouses. Mr. Hilburn joined UCI in 1994 to oversee domestic operations. In September 1996, Mr. Hilburn was promoted to Vice President of Operations and in April 1999, he was promoted to Senior Vice President of Operations. Prior to 1994, Mr. Hilburn was employed by Marathon Oil Corporation in various capacities, including Region Manager of southeast onshore and lower 48 offshore production operations, and later as Manager of Operations and Construction Services. Mr. Hilburn has over 26 years of management experience in the oil and gas industry. Kirk E. Townsend. Mr. Townsend has been UCI's Vice President of Sales since October 1999. Mr. Townsend is presently responsible for all sales activities both domestic and international. Mr. Townsend joined UCI in 1979 as a domestic sales representative. In 1986, he became an international sales representative for UCI. Mr. Townsend was promoted to Vice President of Business Development in April 1999, and Vice President of Sales in October 1999. Mr. Townsend has over 21 years of sales and management experience in the natural gas compression industry. Hanford P. Jones. Mr. Jones has been UCI's Vice President of Engineered Products since April 1999. Mr. Jones is responsible for all engineering and fabrication production of UCI's packaging division. Mr. Jones joined UCI in January 1999 as General Manager of Engineered Products. From May 1998 to January 1999, Mr. Jones performed engineering and pipeline operation consulting services for various companies. Prior to May 1998, Mr. Jones was employed by NorAm Energy Corporation for a period in excess of 18 years in various capacities, including Region Manager of NorAm's Western Region, and later as Chief Engineer and Engineering Manager. Mr. Jones has over 25 years of engineering and management experience in the oil and gas industry. In addition to Messrs. Snider and Danner, the following individuals serve on UCH's board of directors: Samuel Urcis. Mr. Urcis is a General Partner of Alpha Partners, a venture capital firm which he co-founded in 1982. From 1979 to 1982, and since 1997, Mr. Urcis has been an investor and advisor in the energy field, primarily in the oilfield services and equipment sector. From 1972 to 1979, Mr. Urcis was with Geosource Inc., a diversified services and equipment company, which he conceptualized and co-founded. Mr. Urcis served in the capacity of Chief Operating Officer and Vice President of Corporate Development. From 1955 to 1972, Mr. Urcis served in various technical and management capacities at Rockwell International, Hughes Aircraft, Aerolab Development Company and Sandberg-Serrell Corporation. Mr. Urcis has served as a Director of the Glaucoma Research Foundation, and as a Trustee of the Monterey Institute of International Studies. Mr. Urcis serves as a director of UCH pursuant to an agreement entered into in connection with the Tidewater Compression acquisition. Thomas C. Case. Mr. Case served as the President of Mobil Global Gas & Power, Inc. and was responsible for gas marketing and power development in North and South America from 1998 until December 1999. Mr. Case retired from Mobil on April 1, 2000. From 1996 to 1997, Mr. Case was the 86 93 Executive Vice President of Duke Energy (formerly Pan Energy) Trading and Market Services, a joint venture between Duke Energy and Mobil. From 1991 to 1996, he held various positions with Mobil serving at various times as President and Executive Vice President/Chief Operating Officer of Mobil Natural Gas Inc., Manager of Strategic Planning for Exploration and Production of Mobil and President of Mobil Russia. John K. Castle. Mr. Castle has been Chairman of Castle Harlan, Inc. since 1987. Mr. Castle is also Chairman of Castle Harlan Partners III G.P., Inc., which is the general partner of the general partner of Castle Harlan Partners, III, L.P., UCH's controlling stockholder, and of Castle Connolly Medical Ltd. and Castle Connolly Graduate Medical Publishing, LLC. He serves as Chairman and Chief Executive Officer of Branford Castle Holdings, Inc., an investment holding company. Immediately prior to forming Branford Castle Holdings, Inc. in 1986, Mr. Castle was President and Chief Executive Officer and a Director of Donaldson, Lufkin and Jenrette, Inc., one of the nation's leading investment banking firms. Mr. Castle is a Director of Sealed Air Corporation, Morton's Restaurant Group, Inc., Commemorative Brands, Inc., H&C Purchase Corporation, Wilshire Restaurant Group, Inc. and Statia Terminals Group, N.V., and is a Member of the Corporation of the Massachusetts Institute of Technology. Mr. Castle is also a Trustee of the New York Presbyterian Hospital Authority, the Whitehead Institute of Biomedical Research. Formerly, Mr. Castle was a Director of the Equitable Life Assurance Society of the United States and Trustee of the New York Medical College, where he served as Chairman of the Board for 11 years. Bernard J. Duroc-Danner. Mr. Duroc-Danner joined Weatherford International Inc. in May 1987 to initiate the start-up of Weatherford's oilfield service and equipment business through EVI, Inc. He was elected EVI's President in January 1990 and Chief Executive Officer in May 1990. In connection with the merger of EVI, Inc. with Weatherford Enterra Inc. in May 1998, Mr. Duroc-Danner was elected as Weatherford International Inc.'s Chairman of the Board, President and Chief Executive Officer. Mr. Duroc-Danner holds a Ph.D. in economics from Wharton (University of Pennsylvania). In prior years, Mr. Duroc-Danner held positions at Arthur D. Little and Mobil Oil Inc. Mr. Duroc-Danner is a director of Parker Drilling Company (an oil and gas drilling company) and Cal-Dive International, Inc. (a company engaged in subsea services in the Gulf of Mexico). Mr. Duroc-Danner is also a director of Grant Prideco, Inc. (a provider of drill pipe and other drill stem products). Grant Prideco was a wholly owned subsidiary of Weatherford until April 14, 2000, when Weatherford distributed all of the outstanding shares of Grant Prideco to its stockholders. Uriel E. Dutton. Mr. Dutton has been counsel to and a partner with the law firm of Fulbright & Jaworski L.L.P. for more than the past five years where his practice focuses on real estate and oil and gas matters. Curtis W. Huff. Mr. Huff was elected President, Chief Executive Officer and a Director of Grant Prideco, Inc. on February 5, 2001. Previously, he served as Executive Vice President and Chief Financial Officer of Weatherford International Inc. since January 2000, and served as its General Counsel and Secretary since May 1998. Prior to that time, Mr. Huff was a partner with the law firm of Fulbright & Jaworski L.L.P., Weatherford's counsel, and held that position for more than five years. Mr. Huff is a director of UTI Energy Corp. (an oil and gas drilling company). C. Kent May. Mr. May is a Senior Vice President, General Counsel, Secretary and a Director of Anchor Glass Container Corporation. He is General Counsel, Secretary and a Director of Consumers Packaging Inc., Canada's largest glass container manufacturer, and a Director of Fabrica de Envases de Vidrio, S.A. de C.V., a Mexican glass container manufacturer. He serves as General Counsel to Glenshaw Glass Company and G&G Investments, Inc., a privately-held investment company. He is also a manager and secretary of Main Street Capital Holdings, L.L.C., a merchant banking firm and a director of The Stiffel Company. He has been an associate, partner or member of the law firm of Eckert Seamans Cherin & Mellotte, L.L.C. since 1964 and was Managing Partner of the firm from 1991 to 1996. Mr. May is also a Director of the Mendelssohn Choir and the John Ghaznavi Foundation. William M. Pruellage. Mr. Pruellage became a Director of UCH in April 2000. Mr. Pruellage is an Associate with Castle Harlan, Inc. Prior to joining Castle Harlan in July 1997, Mr. Pruellage worked as an 87 94 investment banking analyst at Merrill Lynch since July 1995. Prior to that time, Mr. Pruellage was a student at Georgetown University, where he studied finance and international business. Mr. Pruellage is also a Director of Wilshire Restaurant Group, Inc. and Taylor Publishing Company. Edmund P. Segner, III. Mr. Segner has served as President and Chief of Staff of EOG Resources since August of 1999. He joined Enron Corporation in 1988 as Vice President of Public and Investor Relations. He later served as Executive Vice President and Chief of Staff until 1997 when he moved to Enron Oil & Gas Company as Vice Chairman and Chief of Staff. Mr. Segner is a Certified Public Account and a member of the Houston Society of Financial Analysts. He is also a Director of the Domestic Petroleum Council. No family relationship exists between any of Universal's executive officers or between any of them and any of UCI's or UCH's directors. EXECUTIVE COMPENSATION The following table sets forth the annual and long-term compensation for fiscal 2000, 1999 and 1998 for UCI's and UCH's Chief Executive Officer and other four highest paid officers. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ANNUAL COMPENSATION ------------ ------------------- SECURITIES ALL OTHER FISCAL SALARY BONUS UNDERLYING COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) ($) - --------------------------- ------ -------- -------- ------------ ------------ Stephen A. Snider........................ 2000 170,000 35,000 6,619 15,000(1) President & Chief Executive Officer 1999 170,000 43,890 6,619 41,965(1) 1998 170,000 172,500 6,619 1,128,976(1) Richard W. FitzGerald(2)................. 2000 146,049 20,000 2,206 34,132(3) Senior Vice President & 1999 -- -- -- -- Chief Financial Officer 1998 -- -- -- -- Newton H. Schnoor........................ 2000 100,000 15,000 2,206 8,191(5) Senior Vice President & 1999 95,000 26,058 2,206 6,851(5) Controller(4) 1998 78,354 48,600 2,206 106,245(5) Kirk E. Townsend......................... 2000 229,521(7) 15,000 1,550 21,878(8) Vice President of Sales of 1999 154,436(7) -- 400 9,331(8) Universal Compression, Inc.(6) 1998 235,041(7) -- 400 12,722(8) Jack B. Hilburn, Jr. .................... 2000 110,000 15,000 2,206 4,843(9) Senior Vice President of Operations of 1999 91,250 17,310 900 7,774(9) Universal Compression, Inc. 1998 85,000 34,500 900 91,985(9)
- --------------- (1) Includes (a) matching contributions made by UCI and Tidewater to Mr. Snider's 401(k) account of $5,100 during fiscal 2000 and fiscal 1999 and $2,069 during fiscal 1998, (b) $3,876 in health premiums paid by UCI and Tidewater on behalf of Mr. Snider under its executive medical plans during each of fiscal 1998, 1999 and 2000, (c) payments made by UCI and Tidewater on behalf of Mr. Snider pursuant to their Supplemental Savings Plans of $3,187 during fiscal 2000 and fiscal 1999 and $3,031 during fiscal 1998, (d) $29,800 paid by UCI to Mr. Snider for moving expenses during fiscal 1999 and (e) $1,120,000 paid to Mr. Snider in fiscal 1998 as incentive compensation pursuant to the completion of the Tidewater Compression acquisition. (2) Mr. FitzGerald joined UCH in April 1999. (3) Includes (a) matching contributions made to Mr. FitzGerald's 401(k) account of $3,750, (b) health care premiums paid on behalf of Mr. FitzGerald under Universal's Executive Medical Plan of $3,553, 88 95 (c) payment made on behalf of Mr. FitzGerald pursuant to Universal's Supplemental Savings Plan of $750 and (d) $25,886 paid to Mr. FitzGerald for moving expenses. (4) Since February 2001, Mr. Schnoor serves as Vice President of Financial Services. (5) Includes (a) matching contributions made to Mr. Schnoor's 401(k) account of $3,000 during fiscal 2000, $2,850 during fiscal 1999 and $2,350 during fiscal 1998, (b) $3,876 in health care premiums paid on behalf of Mr. Schnoor under Universal's Executive Medical Plan during each of fiscal 2000 and 1999, (c) payment made on behalf of Mr. Schnoor pursuant to Universal's Supplemental Savings Plan of $1,000 during fiscal 2000 and $125 during fiscal 1999 and (d) $103,500 paid to Mr. Schnoor during fiscal 1998 as incentive compensation pursuant to the completion of the Tidewater Compression acquisition. (6) Mr. Townsend currently services as Senior Vice President of Sales. (7) Includes sales commissions. (8) Includes (a) matching contributions made to Mr. Townsend's 401(k) account of $6,886 during fiscal 2000, $7,051 during fiscal 1999 and $4,449 during fiscal 1998, (b) $3,876 in health care premiums paid on behalf of Mr. Townsend under Universal's Executive Medical Plan during fiscal 2000, (c) payment made on behalf of Mr. Townsend to Universal's Supplemental Savings Plan of $2,543 during fiscal 2000, (d) an automobile allowance paid to Mr. Townsend of $4,281 during fiscal 2000, $4,068 during fiscal 1999 and $5,412 during fiscal 1998 and (e) $4,200 paid to Mr. Townsend for club dues during fiscal 2000. (9) Includes (a) matching contributions made to Mr. Hilburn's 401(k) account of $2,225 during fiscal 1999 and $1,381 during fiscal 1998, (b) health care premiums paid on behalf of Mr. Hilburn of $3,876 in each of fiscal 2000 and fiscal 1999 and $162 in fiscal 1998, (c) an automobile allowance paid to Mr. Hilburn of $720 in fiscal 2000, $1,341 in fiscal 1999 and $2,631 in fiscal 1998 and (d) $87,500 paid to Mr. Hilburn during fiscal 1998 as incentive compensation pursuant to the completion of the Tidewater Compression acquisition. DIRECTORS' COMPENSATION Directors who are not Universal's officers and are not designated by Castle Harlan or Weatherford receive an annual director fee of $20,000, $750 per board of directors or committee meeting attended and reasonable out-of-pocket expenses. Currently, four of UCH's directors are entitled to this compensation. Directors are not otherwise compensated for their services. BENEFIT PLANS We maintain a 401(k) employee retirement savings plan for the benefit of our employees. We pay all administrative costs of the plan and match employee contributions at a rate of 50% for the first 6% of salary contributed by the employee. There are also deferred compensation plans for certain key employees. In February 1998, we adopted an incentive stock option plan to advance our interests and to improve shareholder value by providing additional incentives to motivate and retain key employees. Under this incentive stock option plan, as amended, we can grant options totaling 3,012,421 shares of our common stock. That number will be adjusted automatically if there shall be any future change in our capitalization from a stock dividend or split and may be adjusted to reflect a change in our capitalization resulting from a merger, consolidation, acquisition, separation (including a spin-off or spin-out), reorganization or liquidation. Key employees, non-employee directors and consultants are eligible to receive options under this incentive stock option plan. EMPLOYMENT AGREEMENTS We entered into employment agreements with Stephen Snider, our president and chief executive officer, and with Ernie Danner, our executive vice president, on February 20, 1998. These agreements expired on February 20, 2001. We have entered into a change of control agreement, as described below, effective March 1, 2001 with Mr. Snider. 89 96 We also entered into an employment agreement with Richard FitzGerald, our senior vice president and chief financial officer, effective April 12, 1999 pursuant to which Mr. FitzGerald is entitled to a current annual base salary of $205,000, plus a target bonus of up to 60% of such base salary. Mr. FitzGerald's employment agreement has an initial term of three years. If during the stated duration or any extension of duration, a "change of control" of UCH occurs, the agreement automatically extends to a date that is the second anniversary of the change of control. In addition, the agreement provides that if Mr. FitzGerald is terminated without cause during the initial term, he will be paid for the remainder of the term, plus a bonus amount based on his previous bonuses. Pursuant to Mr. FitzGerald's employment agreement and our officers' incentive plan, bonuses are payable based on our safety record and financial performance, plus a discretionary component. This agreement also places restrictions on the ability of Mr. FitzGerald to disclose confidential information, to compete against us and to hire or solicit certain of our employees if his employment with us is terminated. Universal also had an employment agreement with Valerie Banner, who served as Universal's Senior Vice President and General Counsel, which provided for an annual base salary of $135,000, plus a target bonus of up to 50% of her base salary. Universal terminated this agreement without cause effective December 8, 2000. Pursuant to the terms of the agreement, Universal paid to Ms. Banner a lump sum severance payment equal to the sum of her annual base salary as of the time of termination of the agreement and the average of the annual bonuses she has received. Ms. Banner also will be entitled to receive a target bonus pro-rated rated through December 8, 2000. Ms. Banner will continue to assist Universal as needed with its new financing arrangements and other legal matters for a reasonable hourly fee. CHANGE OF CONTROL AGREEMENTS In addition to the change of control agreements referenced above, Universal has entered into change of control agreements with Messrs. Carlton, Hilburn, Townsend and Jones. Pursuant to those agreements, in the event that the executive's employment with Universal is terminated within one year after a "change in control" of Universal, then the executive is entitled to severance pay and other benefits. The severance payment is based upon the executive's annual base salary and bonus target amount at the time of termination. The agreements define a "change in control" to mean the beneficial ownership by any person or entity other than Castle Harlan of more than 50% of UCH's outstanding capital stock or, in specified circumstances, the failure to re-elect a majority of the members of UCH's board of directors. These agreements also restrict the ability of these individuals to compete against Universal. 90 97 MANAGEMENT OF BRL DIRECTORS AND EXECUTIVE OFFICERS BRL is a limited partnership, and as such is governed and managed by its general partner, BRL Universal Equipment Management, Inc. The following table sets forth the name, age and position of each of the directors and executive officers of BRL Universal Equipment Management since its inception in January 2001. All executive officers listed below for BRL Universal Equipment Management hold similar positions with BRL Corp.
DIRECTOR NAME AGE POSITION SINCE - ---- --- -------- -------- Gregory C. Greene................. 43 President and Sole Director** 2001 Daniel D. Boeckman................ 41 Executive Vice President and * Secretary Lucy Burgoon...................... 39 Vice President, Controller and * Assistant Secretary
- --------------- * Not applicable. ** Also sole director of BRL Corp. Gregory C. Greene. Mr. Greene has been President of Headwater Holdings, Inc. since 1992. Headwater Holdings, Inc. is the general partner of Headwater Investments, L.P., which is the general partner of Brazos River Leasing, L.P., which is the sole shareholder of BRL Management. Mr. Greene is a graduate of St. John's University and has an MBA from Vanderbilt University. Mr. Greene has been involved in structured financing transactions and real estate related activities for over 15 years. He has been actively involved with asset financing from many perspectives including as an investment banker structuring collateralized mortgage obligations and asset based securities; as a merchant banker for multi- property, multi-state conduit financings; as an investor in and structuror of multi-state, multi-property lease transactions; and as an owner and developer of commercial, multi-family and industrial properties. Daniel D. Boeckman. Mr. Boeckman is a graduate of the University of the South and Columbia University. Since 1993, Mr. Boeckman has been an officer of and since 1998, President of Turtle Creek Holdings, Inc., an investment company engaged in the acquisition and rehabilitation of distressed assets and the opportunistic acquisition and/or development of various types of real estate ranging from multifamily to commercial properties. Mr. Boeckman also manages private equity acquisitions for the Boeckman Family partnership. Lucy Burgoon. Ms. Burgoon has been associated with Messrs. Greene and Boeckman since November, 2000. From 1994 to 2000, Ms. Burgoon served as an accounting consultant with Jefferson Wells International, an international accounting consulting firm and accounting manager with Crow Holdings, an investment company holding assets for the Trammell Crow Family. Ms. Burgoon received her Accounting Degree from St. Mary's University and her MBA from the University of Texas at San Antonio. She is also a certified public accountant in Texas. Ms. Burgoon has experience practicing with a public accounting firm, serving as the controller of a regional office of a public company and responsibility for in-house accounting for private individuals and trusts. EXECUTIVE COMPENSATION Officers and directors of BRL Universal Equipment Management and BRL Corp. will not receive compensation for their services as such. 91 98 SECURITY OWNERSHIP OF UCH Set forth below is information as of March 1, 2001 regarding the beneficial ownership of the common stock of UCH and the percentage of outstanding shares beneficially owned by - any person known by us to own more than five percent of our voting securities, - all of our directors - each of our executive officers identified in the Summary Compensation Table and - all of our current directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC. Except as indicated in the footnotes to this table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite the stockholder's name. Except as otherwise set forth below, shares of common stock not outstanding but deemed beneficially owned by virtue of a person or group having the right to acquire them within 60 days, including outstanding stock options, are treated as outstanding only for purposes of determining the percentage owned by such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The address for each executive officer and director set forth below is c/o Universal Compression Holdings, Inc., 4440 Brittmoore Road, Houston, Texas 77041.
NUMBER OF PERCENTAGE SHARES OF BENEFICIALLY NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OWNED(1) - ------------------------------------ ------------ ------------ WEUS Holding, Inc. ......................................... 13,750,000(2) 48.4%(2) 515 Post Oak Park, Suite 600 Houston, Texas 77027-3415 Castle Harlan Partners III, L.P.(3)(4)...................... 5,594,009 19.6% 150 East 58th Street New York, New York 10155 Thomas C. Case.............................................. 334 * John K. Castle(4)(5)(6)..................................... 5,594,009 19.6% Samuel Urcis(7)............................................. 219,698 * C. Kent May................................................. 334 * William M. Pruellage........................................ 167 * Edmund P. Segner III(8)..................................... -- * Bernard J. Duroc-Danner(9).................................. -- * Curtis W. Huff(9)........................................... -- * Uriel E. Dutton(9).......................................... -- * Stephen A. Snider(10)....................................... 143,605 * Ernie L. Danner(11)......................................... 160,092 * Richard W. FitzGerald(12)................................... 38,049 * Newton Schnoor(13).......................................... 43,401 * Jack B. Hilburn, Jr.(14).................................... 36,778 * Kirk E. Townsend(15)........................................ 41,591 * All directors and executive officers as a group (16 persons)(3)(4)(5)(7)...................................... 6,024,739 21.2%
- --------------- * Indicates less than 1% of the outstanding stock. (1) Based upon 28,414,038 shares of common stock outstanding after the WGC acquisition and 13,242 treasury shares issued that are not counted as outstanding in calculating the beneficial ownership percentage. (2) Pursuant to a voting agreement, WEUS has agreed to limit its voting power to 33 1/3% of UCH's total outstanding common stock for a period of up to two years, subject to certain limitations. 92 99 (3) Includes 2,936,718 shares of common stock directly held by Castle Harlan Partners III, L.P., 2,174,529 shares of common stock held by certain entities for which Castle Harlan Partners III, L.P. may direct the voting pursuant to a voting agreement, 90,909 shares of common stock directly held by John K. Castle, and 391,853 shares of common stock held by certain other entities and individuals (which includes 99,153 shares subject to options held by Samuel Urcis which are fully vested) for which Mr. Castle may direct the voting pursuant to unrelated voting trust agreements under which Mr. Castle acts as voting trustee. All such shares may be deemed to be beneficially owned by Castle Harlan Partners III, L.P. Castle Harlan Partners III, L.P. disclaims beneficial ownership of the shares not directly held by it. (4) John K. Castle and Leonard M. Harlan are the controlling stockholders of Castle Harlan Partners III, G.P., Inc., the general partner of the general partner of Castle Harlan Partners III, L.P., and as such, each of them may be deemed to be a beneficial owner of the shares owned by Castle Harlan Partners III, L.P. Both Mr. Castle and Mr. Harlan disclaim beneficial ownership of the shares in excess of their respective pro rata partnership interests in Castle Harlan Partners III, L.P. and its affiliates. (5) Includes 90,909 shares of common stock directly held by John K. Castle, and 391,853 shares of common stock held by certain entities and individuals (which includes 99,153 shares subject to options held by Samuel Urcis which are fully vested) for which Mr. Castle may direct the voting pursuant to unrelated voting trust agreements under which Mr. Castle acts as voting trustee. All such shares may be deemed to be beneficially owned by Mr. Castle. Mr. Castle disclaims beneficial ownership of the shares subject to the voting trust agreements, other than 19,449 shares of common stock owned by Branford Castle Holdings, Inc. subject to the voting trust. (6) Includes 2,936,718 shares of common stock directly held by Castle Harlan Partners III, L.P. and 2,174,529 shares of common stock held by certain entities, the voting of which Castle Harlan Partners III, L.P. may control pursuant to a voting agreement. All such shares may be deemed to be beneficially owned by Mr. Castle. Mr. Castle disclaims beneficial ownership of these shares. (7) Includes 99,135 shares subject to options which are fully vested. Also includes 40,145 shares of common stock owned by Castle Harlan Partners, which shares Mr. Urcis has the option to purchase. All of Mr. Urcis's shares are subject to a voting trust agreement with Castle Harlan. (8) Mr. Segner joined UCH's board of directors effective October 1, 2000. (9) Messrs. Duroc-Danner, Huff and Dutton joined UCH's board of directors on February 9, 2001 in connection with its acquisition of WGC. (10) Includes 110,152 shares of common stock subject to options granted by UCH to Mr. Snider which are fully vested. (11) Includes 79,548 shares of common stock subject to options granted by UCH to Mr. Danner, all of which are fully vested. Also includes 33,455 shares of common stock owned by Castle Harlan Partners, which shares Mr. Danner has an option to purchase. (12) Includes 36,712 shares of common stock subject to options granted by UCH to Mr. FitzGerald which are fully vested. (13) Includes 36,712 shares of common stock subject to options granted by UCH to Mr. Schnoor which are fully vested. (14) Includes 36,712 shares of common stock subject to options granted by UCH to Mr. Hilburn which are fully vested. (15) Includes 25,794 shares of common stock subject to options granted by UCH to Mr. Townsend which are fully vested. 93 100 SECURITY OWNERSHIP OF BRL The general partner of BRL is BRL Universal Equipment Management, Inc., a Delaware corporation, and the limited partners of BRL are Deutsche Bank A.G., New York Branch and First Union National Bank, affiliates of two of the initial purchasers of the old notes. BRL owns all of the outstanding common stock of BRL Corp. Neither BRL nor BRL Corp. have any other class of equity securities or interests outstanding. BRL, BRL Corp. and BRL Universal Equipment Management, Inc. were formed under the laws of the State of Delaware on January 18, 2001. 94 101 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ARRANGEMENTS WITH WEATHERFORD Registration Rights Agreement. Concurrently with our acquisition of WGC, we entered into a registration rights agreement with WEUS Holding, Inc., an affiliate of Weatherford. Under this agreement, WEUS has the right, on up to three occasions, to cause us to register at our expense WEUS's shares of our common stock under the Securities Act at any time by providing a written demand to us, subject to certain minimum dollar values. The registration rights agreement also provides WEUS with certain "piggyback" registration rights, or rights to require us, subject to certain limitations, to include its shares of our common stock in other registration statements that we may file. Voting Agreement. We also entered into a voting agreement with WEUS concurrently with the acquisition that provides that until the earlier of (1) February 9, 2003 or (2) the date that Castle Harlan and its affiliates own less than 5% of our outstanding common stock, WEUS and its affiliates will vote any shares of our common stock that they own in excess of 33 1/3% of our total outstanding shares in the same proportion that shares of our stock owned by the public are voted. Shares owned by the public include all shares of our common stock other than shares owned by WEUS, Castle Harlan and their respective affiliates. Transitional Services Agreement. Concurrently with the closing of the WGC acquisition, Weatherford and WGC, as our subsidiary, entered into a transitional services agreement under which Weatherford will continue to provide certain administrative and support services, such as shared corporate office space and general communication and information services, to WGC for a period of up to 120 days following the closing of the WGC acquisition. WGC will pay Weatherford $125,000 for the first thirty days of these services. For the period subsequent to the initial thirty days until the end of the contract, WGC will pay Weatherford a fee based on a proportional amount of Weatherford's costs and expenses in providing the services plus a 10% management fee. Board Representation. WEUS has the right to designate three members to our board of directors for so long as it owns at least 20% of our outstanding common stock. One WEUS nominee is a Class A director with a term of office expiring in 2001, the second WEUS nominee is a Class B director with a term of office expiring in 2002, and the third WEUS nominee is a Class C director with a term of office expiring in 2003. If WEUS's ownership of our common stock falls below 20%, WEUS may designate only two directors, and if its ownership falls below 10%, it may no longer designate directors to our board. REGISTRATION RIGHTS AGREEMENTS In connection with our acquisition of Tidewater Compression, we entered into a registration rights agreement with Castle Harlan Partners and some of our other stockholders (including certain of our directors and officers and Energy Spectrum Partners, L.P.). Under the registration rights agreement, these stockholders generally have the right to require us to register any or all of their shares of our common stock under the Securities Act, at our expense, subject to certain minimum dollar values. In addition, these stockholders are generally entitled to include, at our expense, their shares of our common stock covered by the registration rights agreement in any registration statement that we propose to file with respect to registration of our common stock under the Securities Act. In addition, we entered into a registration agreement with the two former shareholders of GCSI concurrently with our GCSI acquisition. This agreement provides the former GCSI shareholders with two demands for shelf registrations, both of which have been filed. In connection with these agreements, we also have agreed to indemnify the stockholders against specified liabilities, including liabilities under the Securities Act. VOTING AGREEMENTS In connection with our Tidewater Compression acquisition, we entered into a voting agreement and two voting trust agreements. The voting agreement requires that some of our significant stockholders vote their shares of our common stock in the same manner as Castle Harlan. The voting trust agreements 95 102 provide that certain of our other stockholders, including some of our directors, assign their shares of our common stock to a voting trust which has John K. Castle as its trustee in exchange for interests in the trust. Prior to our initial public offering in May 2000, these voting agreements and trusts also covered Energy Spectrum and our employees, officers, and some of our directors. Currently, only two of our directors, Samuel Urcis and William Pruellage, and none of our employees or officers, are subject to a voting trust agreement. The voting agreement with some of our significant stockholders will terminate upon the earlier of certain changes of control or November 30, 2003. Shares transferred to third parties will not be subject to the voting agreement if the transfers of the shares by the significant stockholders do not exceed 1% of our issued and outstanding stock in any three-month period or are effected by exercise of a registration right under our registration rights agreement. As a result of the voting agreement and the voting trust agreements, Castle Harlan currently has voting control over approximately 20% of our common stock. TERMINATION OF MANAGEMENT AGREEMENT AND CONSULTING AGREEMENT In connection with our 1998 acquisition of Tidewater Compression, we entered into a management agreement with Castle Harlan, Inc. pursuant to which Castle Harlan agreed to provide us with business and organizational strategy, financial and investment management and merchant and investment banking services. We agreed to pay Castle Harlan a fee for these services of $3.0 million per year. The agreement was for a term of five years, renewable automatically from year to year unless Castle Harlan or its affiliates then beneficially owns less than 20% of our outstanding capital stock. We agreed to indemnify Castle Harlan against liabilities, costs, charges and expenses relating to the performance of its duties, other than those resulting from its gross negligence or willful misconduct. In addition, in consideration for certain finder services in connection with our Tidewater Compression acquisition, we entered into a finder's and consulting agreement with Samuel Urcis, one of our directors. Under that agreement, Mr. Urcis was entitled to a consulting fee of $150,000 per year in exchange for various consulting services, as well as a seat on our board and options to purchase shares of our common stock. This management agreement (other than the indemnification provisions) and consulting agreement were terminated upon the completion of our initial public offering in May 2000 in exchange for (1) our payment to Castle Harlan of $3.0 million in cash (one year's management fee) and our issuance to Castle Harlan of 136,364 shares of our common stock, which shares are subject to registration rights and (2) our payment to Mr. Urcis of $150,000 in cash (one year's consulting fee) and our issuance to Mr. Urcis of 6,818 shares of our common stock, which shares are also subject to registration rights. We also have agreed with Castle Harlan to nominate a total of three Castle Harlan designees for election to our board for so long as those designees are reasonably qualified and Castle Harlan and its affiliates beneficially own at least 15% of our outstanding stock (including shares over which it has voting control pursuant to voting agreements and trusts). Currently, Mr. Castle and Mr. Pruellage serve as Castle Harlan designees, and Castle Harlan has not designated its third member of our board. Also, Castle Harlan granted Mr. Urcis a ten-year option in 1998 to purchase from it 17,820 shares and 22,326 shares of our common stock at exercise prices of $6.73 and $21.50, respectively. TRANSACTIONS WITH ERNIE DANNER In consideration for consulting services rendered by Ernie Danner, one of our directors, in connection with the Tidewater Compression acquisition, Castle Harlan granted Mr. Danner a ten-year option to purchase from it 14,850 shares of our common stock at a price of $6.73 per share, and 18,605 shares of our common stock at a price of $21.50 per share. Also, Castle Harlan agreed that upon its sale of more than 75% of our outstanding common stock, Castle Harlan will pay Mr. Danner $500,000 if it realizes a return in excess of 100%, or $750,000 if it realizes a return in excess of 300%, of its initial investment in us. Upon completion of our Tidewater Compression acquisition, we granted 1,000 shares of our common stock and 4,000 shares of our Series A preferred stock (which converted into 16,727 shares of our common stock upon the closing of our initial public offering) to Mr. Danner, and paid him $100,000 in cash. Upon completion of our initial public offering in May 2000, we paid Mr. Danner for his services 96 103 13,636 shares of our common stock, which shares are subject to registration rights. As an officer of us, Mr. Danner also holds stock options awarded by us. In addition, Mr. Danner is a director and 45% stockholder, along with Robert Ryan, one of our former officers, in a company that purchased some standard air compressor equipment and related distributorship rights from us for $1.6 million in February 2000. We have agreed to provide this company with transition services for two years for a fee of approximately $340,000. PURCHASE PRICE ADJUSTMENT AGREEMENT In connection with our acquisition of Tidewater Compression, we entered into a Purchase Price Adjustment Agreement with Tidewater Inc. Pursuant to that agreement, upon the occurrence of a "liquidity event," we may have to make certain payments to Tidewater. A "liquidity event" is defined in the agreement to include: - sales by Castle Harlan of its shares of our common stock, - sales by us of all or substantially all of our assets or mergers by us or UCI with another entity or - some types of recapitalizations. If any of the liquidity events described above occurs and Castle Harlan receives an amount greater than its accreted investment, defined as its initial investment increased at a compounded rate of 6.25% each quarter, which equates to approximately 27.4% annually, Universal must make a payment to Tidewater equal to 10% of the amount, if any, that Castle Harlan receives in excess of its accreted investment. Any payment is to be made in the same form of consideration as received by Castle Harlan. Any payment pursuant to this agreement would result in an increase in goodwill in the year of payment and a corresponding increase in goodwill and amortization expense in subsequent years. As of December 31, 2000, Castle Harlan's accreted investment was approximately $28.78 per share, which will continue to grow at a compounded rate of 6.25% per quarter. As of December 31, 2000, no liquidity event (as defined in the agreement) that required a payment had occurred. Consummation of the WGC acquisition did not constitute a liquidity event requiring a payment. 97 104 DESCRIPTION OF OTHER FINANCINGS In addition to the notes, UCI and BRL currently have the following additional financings arrangements in place. OTHER FINANCINGS OF UNIVERSAL New Revolving Credit Facility GENERAL Concurrently with the closing of the WGC acquisition and the offering of the old notes, UCI entered into a new $125 million senior secured revolving credit facility (with commitments of $110 million) with a group of financial institutions arranged by First Union Securities, Inc., with First Union National Bank serving as administrative agent. This facility replaced UCI's previous revolving credit facility, as well as that of WGC. UCI expects to use the borrowings under the revolving credit facility for working capital and general corporate purposes. No amounts were drawn under this facility upon completion of our WGC acquisition. SECURITY; GUARANTEE The new revolving credit facility is secured by a first priority lien on certain of UCI's assets, including its accounts receivable and inventory. In addition, if UCI wishes to borrow amounts under the credit facility in excess of its eligible accounts receivable and inventory, these amounts are secured by a lien on some of its unpledged domestic gas compression equipment. The lenders under this facility do not have a security interest in the equipment that secures the notes or is leased by UCI under its operating leases. UCI has pledged all of the stock of its domestic subsidiaries and 65% of the capital stock of its first-tier foreign subsidiaries. In addition, UCH guarantees the facility. INTEREST; FEES Interest on the new revolving credit facility is payable at rates per annum equal to, at UCI's option: (1) a base rate equal to the higher of (a) First Union National Bank's prime rate or (b) the overnight federal funds rate plus 0.50%, plus, in each case, .25% to 1.50% depending on our leverage ratio; or (2) LIBOR plus 1.25% to 2.50%, depending on our leverage ratio. For the first six months of the facility, the interest rate margin is fixed at a level determined by UCI's credit rating. Base rate loans may be prepaid at any time without a premium or penalty. LIBOR loans may be prepaid prior to the end of the applicable interest period upon UCI's reimbursement of certain breakage costs. UCI may issue letters of credit under the new facility. In addition, UCI must pay customary fees to establish and maintain this facility. The facility provides for an annual administrative fee to be paid to the administrative agent, and an unused commitment fee payable to the lenders. CONDITIONS TO FUNDING UCI's borrowing under the facility is conditioned on customary closing conditions. COVENANTS AND EVENTS OF DEFAULT The new revolving credit facility contains affirmative and negative covenants customary for agreements of its type, including covenants restricting UCI's ability to: - incur additional indebtedness, - create liens on its assets, - make certain investments and loans, 98 105 - pay dividends and other distributions, - consolidate, merge or sell assets that secure the facility and - change the character of its business. UCI is also required to comply with financial tests and maintain various financial ratios under this facility. These financial tests and ratios include requirements that UCI maintain: - a maximum consolidated total leverage ratio, - a minimum interest coverage ratio, and - a minimum current ratio (in each case as defined in the new facility). The new revolving credit facility also includes customary events of default. If there is an event of default under the facility, the lenders may accelerate amounts due under the facility, which may result in one or more cross-defaults under UCI's other indebtedness, including the notes. Similarly, a default under the indenture governing the notes will constitute a default under the new revolving credit facility. ABS Operating Lease Facility GENERAL Concurrently with the closing of our WGC acquisition, UCI entered into a new $200 million asset-backed securitization operating lease facility arranged by First Union Securities, Inc., with one of First Union's affiliates funding the facility. As of March 1, 2001, UCI had $100.5 million drawn under this facility. UCI used the proceeds from this facility primarily to (1) refinance some of its operating lease obligations and those of WGC and (2) acquire IEW and concurrently discharge its indebtedness. STRUCTURE Once fully funded, approximately $200 million of UCI's compression equipment based on the current appraised fair market value will be sold to an unaffiliated bankruptcy remote entity, which serves as the lessor under the facility. Once fully funded, UCI will also have contributed, through its subsidiaries, approximately $86 million of gas compression equipment based on the current appraised fair market value to a newly created bankruptcy remote subsidiary that serves as the lessee under the facility. The lessee leases the $200 million of equipment from the lessor under a series of six leases with terms ranging from three to eight years. UCI entered into a management agreement pursuant to which it manages, leases and maintains the compression equipment that is subject to this facility. As consideration for UCI's maintaining, operating and leasing this compression equipment to its customers, the lessee under the facility pays UCI a management fee based on the horsepower of the equipment plus a fixed percentage of the gross rental revenues generated by the equipment. The lessor under the facility was not required to accept the full amount of the proceeds under the facility at closing and will have the ability to draw the remaining amounts under the facility for 12 months following the closing in order to acquire additional compression equipment to be leased to the lessee and managed by UCI. Upon the closing of our WGC acquisition, approximately $80 million was drawn under this facility. LEASE PAYMENTS The lease payments under this facility are payable monthly by the lessee and consist of a fixed amount plus a variable amount depending upon the length of time since lease inception and compliance with certain conditions. Initially, we expect these lease payments to equal approximately 7.75% of the outstanding balance under the facility per year. In addition, UCI paid customary fees to establish the facility and pays customary fees to maintain the facility. 99 106 At the end of each lease term, the lessee will have the option to (1) purchase the compression equipment that was subject to the lease for an amount equal to the price paid by the lessor for that compression equipment, or (2) request that the compression equipment subject to the lease be sold to a third party, with the proceeds of the sale going to the lessor to cover the facility. In addition, the lessee will have the option to purchase the compression equipment at any time during the term of the facility for a purchase price equal to the outstanding balance under the facility plus any hedge breakage costs incurred by the lessor. SECURITY The asset-backed securitization facility is secured by a first priority security interest in all of the assets owned by both the lessor and the lessee under the facility, including all of the compression equipment subject to the facility and the lease. The lessor has no recourse to us for repayment of any amounts due under this facility, and the lessor does not hold a security interest in the gas compression equipment that secures the notes. CONDITIONS TO FUNDING Future borrowings by UCI under this facility are conditioned upon the notes being rated BB-/Ba3 or higher, receipt of independent appraisals of the compression equipment, and other closing conditions customary for asset-backed securitization facilities. TRIGGERING EVENTS AND EVENTS OF DEFAULT Payment defaults by the lessor under the facility, defaults by the lessee under the leases, and defaults by UCI in its management obligations over the equipment constitute "triggering events" under the facility. If a triggering event occurs, all excess cash flow generated by the leased equipment and the excess collateral equipment will be used only to make payments under the facility and may not be distributed to UCI. Defaults by the lessor under this facility include the failure to make required interest and principal payments under the facility and other customary defaults. Defaults by the lessee under the leases include - the failure to meet net revenue requirements, - the failure to make timely lease payments, - the failure to satisfy conditions with respect to the collateral and - other customary defaults. Defaults by UCI as the manager of the equipment include - the failure to maintain and manage the asset-backed securitization equipment portfolio to certain quantifiable standards, - certain bankruptcy events, - defaults resulting in acceleration of indebtedness greater than $20 million, - certain changes of control of UCH and - the failure to comply with certain customary representations and warranties. 100 107 9 7/8% Senior Discount Notes due 2008 GENERAL On February 20, 1998, UCI issued $242,500,000 of its 9 7/8% senior discount notes due February 15, 2008 in a private placement. The 9 7/8% notes were offered at a substantial discount from their principal amount. UCI subsequently exchanged the notes for publicly tradable notes pursuant to a registered exchange offer under the Securities Act. INTEREST Prior to February 15, 2003, no cash interest will be paid on the 9 7/8% notes. Commencing February 15, 2003, cash interest will accrue on the 9 7/8% notes until maturity at the rate of 9 7/8% per year, and will be payable semi-annually on August 15 and February 15, beginning August 15, 2003. CHANGE IN CONTROL In the event of a change of control of UCH or UCI, each holder of the 9 7/8% notes will have the right to require UCI to repurchase its 9 7/8% notes at a price equal to 101% of their accreted value, plus any accrued and unpaid interest as of the date of purchase. Consummation of our WGC acquisition was a change of control under the indenture, and triggered the right of holders of 9 7/8% notes through April 9, 2001 to require UCI to repurchase those notes. REDEMPTION The 9 7/8% notes are redeemable, in whole or in part, at the option of UCI at any time on or after February 15, 2003 at a declining premium. In addition, if UCI sells certain of its assets, it may be obligated to offer to repurchase the 9 7/8% notes at 100% of their accreted value, plus any accrued and unpaid interest as of the date of purchase. COVENANTS The 9 7/8% notes are general unsecured obligations of UCI and are pari passu in right of payment to existing and future senior indebtedness and obligations of UCI, including the new revolving credit facility, operating lease and asset-backed securitization facility. The indenture governing the 9 7/8% notes contains covenants that limit the ability of UCI and its subsidiaries to, among other things, - incur additional indebtedness, - pay dividends or make investments, - make certain restricted payments, - consummate certain asset sales, - enter into certain transactions with affiliates, - incur liens, - cause or permit restrictions to be imposed on the ability of a subsidiary to pay dividends or make certain payments to UCI and its subsidiaries, - merge or consolidate with any other person, or - sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of UCI. In addition, the indenture for the 9 7/8% notes permits UCI and its restricted subsidiaries to pledge their assets as collateral under any operating lease to the extent that those assets are subject to that operating lease. All of these covenants are subject to significant qualifications and exceptions. 101 108 OTHER FINANCINGS OF BRL BRL Term Loan GENERAL Concurrently with its offering of the old notes, BRL entered into a new senior secured term loan under which it borrowed approximately $64 million from a group of financial institutions arranged by Deutsche Banc Alex. Brown Inc., with Bankers Trust Company serving as administrative agent and collateral agent. This facility was drawn in a single non-revolving advance on the issue date of the old notes and was used by BRL, together with the proceeds of the notes and the equity investment, to purchase the equipment subject to the operating lease. SECURITY The provisions of the participation agreement relating to the collateral securing the BRL term loan are described under "Description of the Notes -- Security and Sources of Payment for the Notes." INTEREST; PRINCIPAL; FEES Interest on the BRL term loan is payable at annual rates equal to, at UCI's option - one-, two-, three- or six-month LIBOR plus a margin of 3.25% or - a variable base rate equal to the higher of - Deutsche Bank AG, New York Branch's prime rate or - the overnight federal funds rate plus 3.75%. Interest accrued on the BRL term loan is payable at the end of the applicable LIBOR interest period (which may be one, two, three or six months at BRL's election); provided that a payment is required every three months with respect to a six-month LIBOR interest period. The principal of the BRL term loan is payable in full on February 15, 2008, and may be prepaid in whole or in part prior to maturity upon BRL's reimbursement of certain breakage costs. EVENTS OF DEFAULT The BRL term loan agreement includes customary events of default. An event of default under the BRL term loan or the operating lease permits the lenders under the BRL term loan to accelerate the maturity of the loan. A default under the indenture also constitutes an event of default under the BRL term loan agreement. Equity Investment In connection with BRL's acquisition of the equipment subject to the operating lease, the limited partners of BRL contributed approximately $13 million in cash to BRL. As described in "Description of the Notes," the limited partners of BRL, as participants in this equity investment, may receive payments upon certain repurchases or redemptions of the notes. 102 109 DESCRIPTION OF THE NOTES The form and terms of the new notes and the old notes are identical in all material respects, except that transfer restrictions and registration rights applicable to the old notes do not apply to the new notes. The old notes were, and the new notes will be, obligations of the issuers, issued under an indenture dated as of February 9, 2001, by and between the issuers and The Bank of New York, as trustee. The following description of the material provisions of the indenture is a summary only. It does not include all of the provisions of the indenture. We urge you to read the indenture because it defines your rights. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. The Trust Indenture Act will govern the indenture upon effectiveness of the registration statement that includes this prospectus. A copy of the indenture is filed as an exhibit to the registration statement that includes this prospectus, and may be obtained from Universal upon request. You can find definitions of certain capitalized terms used in this section under "-- Certain Definitions." References in this section to the "notes" are references to both the old notes and the new notes. The new notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the trustee will act as paying agent and registrar for the new notes. The new notes may be presented for registration of transfer and exchange at the offices of the registrar, which initially will be the trustee's principal corporate trust office. No service charge will be made for any registration of transfer or exchange or redemption of notes, but the issuers may require payment in certain circumstances of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. The issuers may change any paying agent and registrar without notice to holders of the notes. The issuers will pay principal, and premium, if any, on the notes at the trustee's corporate trust office in New York, New York. At the issuers' option, interest may be paid at the trustee's corporate trust office or by check mailed to the registered addresses of holders of the notes. Any old notes that remain outstanding after the completion of the exchange offer, together with the new notes issued in connection with the exchange offer, will be treated as a single class of securities under the indenture. PRINCIPAL, MATURITY AND INTEREST The new notes initially will be issued in an aggregate principal amount of up to $350 million (depending on the aggregate principal amount of old notes tendered for exchange) and will mature on February 15, 2008. Subject to compliance with the covenant described under "-- Certain Covenants of UCI under the Participation Agreement -- Limitation on Incurrence of Additional Indebtedness" and subject to the restrictions contained in UCI's other agreements governing its indebtedness and operating leases, up to $300 million of additional notes may be issued under the indenture in connection with a corresponding increase in the BRL term loan and the equity investment, the proceeds of which will be used to purchase additional equipment to lease to UCI under the operating lease; provided, however, that any such additional notes must be issued within one year of February 9, 2001, and the appraised fair market value of all equipment subject to the Operating Lease must cover the aggregate acquisition cost thereof. If issued, the additional notes will constitute a single class for all purposes with the new notes and the old notes. Interest on the notes accrues at the rate of 8 7/8% per annum and is payable semiannually in cash on each February 15 and August 15 commencing on August 15, 2001, to the persons who are registered holders of the notes at the close of business on the February 1 and August 1 immediately preceding the applicable interest payment date. Interest on the notes accrues from the most recent date to which interest has been paid or, if no interest has been paid, from and including February 9, 2001. RANKING The notes are obligations of the issuers, and neither UCH nor UCI guarantees the notes. The issuers' ability to make payments under the notes depends entirely upon timely receipt of payments from UCI under the Operating Lease. UCI's obligations under the Operating Lease are effectively subordinated to all 103 110 secured Indebtedness of UCI to the extent of the security. UCI's rental payment obligations under the Operating Lease rank equally with all of its other unsubordinated obligations, including the 9 7/8% senior discount notes. As of March 1, 2001, we had approximately $100.5 million outstanding under our asset- backed securitization operating lease facility and approximately $213 million of outstanding indebtedness, all of which is secured. In addition, all of UCI's 9 7/8% senior discount notes, which are unsecured, remain outstanding. As of such date, we also had unused availability of approximately $245 million under our new revolving credit facility and our asset-backed securitization operating lease facility, which facilities are secured. UCI's obligations under the Operating Lease will also be structurally subordinated to all Indebtedness and other liabilities of UCI's subsidiaries. REDEMPTION Optional Redemption. Except as described below, the notes are not redeemable prior to February 15, 2005. On and after February 15, 2005, the notes are redeemable by the issuers, in whole or in part, in the event of a permitted purchase of equipment covered by the Operating Lease from BRL by UCI with the net cash proceeds of such purchase, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as a percentage of the principal amount thereof) if redeemed during the twelve-month period commencing on February 15, of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE - ---- ---------- 2005..................................................... 104.438% 2006..................................................... 102.219% 2007..................................................... 100.000%
Optional Redemption upon Equity Offerings. On or before February 15, 2004, UCI may, at its option, apply the proceeds of any Equity Offering (which proceeds (at least to the extent such proceeds are used to purchase equipment covered by the Operating Lease from BRL to fund the payment of notes, BRL term loan and equity investment) if received by UCH, shall have been contributed as common equity to UCI) to purchase equipment covered by the Operating Lease from the issuers. The issuers will apply the proceeds from the sale of the equipment to, on a pro rata basis, (i) redeem the notes at a redemption price equal to 108.875% of the principal amount thereof plus accrued and unpaid interest, if any; provided that at least 65% of the aggregate principal amount of notes originally issued remains outstanding immediately after any such redemption, (ii) repay principal plus accrued and unpaid interest on the BRL term loan and (iii) repay equity contributions and accrued equity yield. The permitted purchase and such redemption must be completed not more than 120 days after the consummation of any such Equity Offering. As used in the preceding paragraph, "Equity Offering" means an underwritten public offering or private placement of Qualified Capital Stock of UCI or UCH, subsequent to February 9, 2001. Optional Redemption upon Change of Control. Upon the occurrence of a Change of Control prior to February 15, 2005, UCI may, at its option, purchase equipment covered by the Operating Lease from BRL, the proceeds of which shall be applied to fund the issuers' redemption of all, but not less than all, of the outstanding notes at a redemption price equal to 100% of the principal amount thereof plus the applicable Make-Whole Premium (a "Change of Control Redemption"). The issuers shall give not less than 30 nor more than 60 days' notice of such redemption within 30 days following a Change of Control. Each of the foregoing redemptions of notes will require the prepayment by BRL of a corresponding percentage of the then outstanding BRL term loan and equity investment. 104 111 Net Proceeds Offer Following Asset Sale. After any Net Proceeds Offer Trigger Date (as defined in "-- Certain Covenants of UCI under the Participation Agreement -- Limitation on Asset Sales"), the issuers will comply with the following: The issuers shall, with the proceeds of UCI's purchase of equipment covered by the Operating Lease from BRL as required by the Participation Agreement, make an offer (the "Net Proceeds Offer") to purchase from all holders of the notes, on a pro rata basis, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, that amount of notes equal to the Net Proceeds Offer Amount (as defined in "-- Certain Covenants of UCI under the Participation Agreement -- Limitation on Asset Sales") allocable to the notes. For purposes of any Net Proceeds Offer, the amount allocable to the notes shall be based on a pro rata application of such Net Cash Proceeds to the outstanding amount of notes, the BRL term loan and the equity investment; provided, the maximum amount of notes to be so purchased multiplied by approximately 1.22 shall not exceed such Net Cash Proceeds. Upon determination of the aggregate principal amount of Notes tendered pursuant to such Net Proceeds Offer, BRL shall redeem a corresponding portion of the BRL term loan and the equity investment with such Net Cash Proceeds. If the aggregate principal amount of notes validly tendered and not withdrawn by holders thereof exceeds the Net Proceeds Offer Amount allocable to the notes, the notes to be purchased will be selected on a pro rata basis (based on amounts tendered). Each Net Proceeds Offer will be mailed to the record holders of the notes as shown on the register of holders not less than 30 days nor more than 45 days following the Net Proceeds Offer Trigger Date, with a copy to the trustee, and shall comply with the procedures set forth in the indenture. Upon receiving notice of the Net Proceeds Offer, holders may elect to tender their notes in whole or in part in integral multiples of $1,000 principal amount in exchange for cash. A Net Proceeds Offer shall remain open for a period of 20 business days or such longer period as may be required by law, and the purchase of such notes shall be consummated within 60 days following the mailing of the Net Proceeds Offer. The issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Net Proceeds Offer Following Asset Sale" provisions of the indenture, the issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations under the "Net Proceeds Offer Following Asset Sale" provisions of the indenture by virtue of complying with applicable laws and regulations. Change of Control. Upon the occurrence of a Change of Control, each holder of notes will have the right to require that the issuers purchase all or a portion of such holder's notes pursuant to the offer described below (a "Change of Control Offer") with the proceeds of UCI's purchase of Equipment from BRL, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. UCI shall notify the issuers of a Change of Control within 20 days following a Change of Control. Within 30 days of a Change of Control, the issuers must send, by first class mail, a notice to each holder of notes at such holder's last registered address, with a copy to the trustee. The notice shall govern the terms of the Change of Control Offer. The notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have notes purchased pursuant to a Change of Control Offer will be required to surrender the notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the note completed, to the paying agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. 105 112 If a Change of Control Offer is made, there can be no assurance that UCI will have funds available to purchase a sufficient amount of equipment covered by the Operating Lease to enable the issuers to pay the Change of Control purchase price for all the notes that might be delivered by holders seeking to accept the Change of Control Offer and a pro rata amount of the BRL term loan and equity investment. BRL has no source of revenues other than payments received from UCI. The failure of the issuers to make or consummate the Change of Control Offer or pay the applicable Change of Control purchase price when due would give the trustee and the holders of the notes the rights described under "Events of Default." UCI's other indebtedness and operating leases contain provisions designating a change of control as described therein as an event of default, which would obligate UCI to repay amounts outstanding thereunder upon an acceleration of the indebtedness outstanding thereunder. The existence of a holder's right to require the issuers to purchase such holder's notes upon a Change of Control may deter a third party from acquiring UCI in a transaction that constitutes a Change of Control. The definition of "Change of Control" in the Participation Agreement is limited in scope. The provisions of the indenture and the Participation Agreement may not afford holders of notes the right to require the issuers to repurchase such notes in the event of a highly leveraged transaction or certain transactions with UCI's management or its affiliates (including a reorganization, restructuring, merger or similar transaction or in certain circumstances, an acquisition of UCI by management or its affiliates) that may adversely affect holders, if such transaction is not a transaction defined as a Change of Control. A transaction involving UCI's management or its affiliates, including WGC, or a transaction involving a recapitalization of UCI, would result in a Change of Control if it is the type of transaction specified in such definition. One of the events that constitutes a Change of Control under the Participation Agreement and the indenture is the disposition of "all or substantially all" of UCI's assets under certain circumstances. This term has not been interpreted under New York law (which is the governing law of the indenture) to represent a specific quantitative test. As a consequence, in the event holders of notes elect to require the issuers to purchase the notes and the issuers or UCI contest such election, there can be no assurance as to how a court interpreting New York law would interpret the phrase in many circumstances. The issuers must comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the indenture, the issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations under the "Change of Control" provisions of the indenture by virtue of complying with applicable law and regulations. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the notes are to be redeemed at any time, selection of such notes for redemption will be made by the trustee in compliance with the requirements of the principal national securities exchange, if any, on which such notes are listed or, if such notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the trustee shall deem fair and appropriate; provided, however, that no notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a purchase of equipment covered by the Operating Lease by UCI as a result of an Equity Offering, selection of the notes or portions of the notes for redemption shall be made by the trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless that method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder of notes to be redeemed at its registered address. If any note is to be redeemed in part only, the notice of redemption relating to that note shall state the portion of the principal amount of that note to be redeemed. A new note in a principal amount equal to the unredeemed 106 113 portion of that note will be issued in the name of the holder upon cancellation of the original note. On and after the redemption date, interest will cease to accrue on notes or portions of notes called for redemption as long as the issuers have deposited with the paying agent funds in satisfaction of the applicable redemption price pursuant to the indenture. SECURITY AND SOURCES OF PAYMENT FOR THE NOTES The notes are general secured obligations of the issuers, ranking senior in right of payment to all future obligations of the issuers that are, by their terms, expressly subordinated in right of payment to the notes and pari passu in right of payment with all existing and future unsecured obligations of the issuers that are not so subordinated. The notes are not obligations of UCI or UCH. The Operating Lease provides for rent payments by UCI to the issuers on each payment date. The lease payments are calculated to be in amounts at least equal to the amounts scheduled to be paid on the notes, the BRL term loan and the equity investment on the date those payments are due. Under the Participation Agreement, BRL has granted to the collateral agent for the ratable benefit of the trustee, for itself and the holders of the notes, and the BRL term loan lenders, a first lien on and security interest in the rights, title and interest of BRL now held or hereafter acquired in and to the following (collectively, the "Collateral"), except for certain excepted payments with respect thereto: (1) the equipment covered by the Operating Lease, (2) all rent and supplemental rent payable under the Operating Lease, together with certain rights of BRL and (3) the guarantee by UCH of UCI's payment and performance under the Participation Agreement and the Operating Lease. Upon the occurrence of an Event of Default under the indenture, the trustee shall be entitled to request that the collateral agent exercise rights and powers and pursue remedies against the Collateral. All payments received and all amounts held or realized by the collateral agent (including any amounts realized by the collateral agent from the exercise of any remedies) after the occurrence and during the continuance of an event of default under the indenture or the BRL term loan, and all payments or amounts then held or thereafter received by the collateral agent under the Operating Lease or under the Participation Agreement, shall, so long as such event of default under the indenture or the BRL term loan continues and shall not have been waived in writing by the (i) trustee in the event of an Event of Default under the indenture that is not also a BRL term loan event of default, (ii) trustee and the majority of the BRL term loan lenders for any event of default that is both an Event of Default under the Indenture and an event of default under the BRL term loan, or (iii) a majority of the BRL term loan lenders for any, event of default under the BRL term loan that is not also an Event of Default under the indenture be applied on the date received: First, so much of such payments or amounts held or realized by the collateral agent as shall be required to reimburse the collateral agent, administrative agent and trustee for any expenses not reimbursed by BRL in connection with the collection or distribution of such amounts held or realized by the collateral agent or in connection with the expenses incurred in enforcing its remedies hereunder and preserving the Collateral; Second, to the trustee for the benefit of the holders of notes and to each BRL term loan lender for all principal, interest, and additional payments, if any, due each such person, in each case on a pari passu basis; Third, to each BRL indemnified person on a pari passu basis, for all other amounts then due such person under the Operative Documents; Fourth, to BRL for all amounts then due BRL under Section 10 of the Participation Agreement; 107 114 Fifth, for the benefit of BRL, to each limited partner of BRL on a pari passu basis for all amounts then due to such limited partners; and Sixth, the balance, if any, of such payment remaining thereafter shall be distributed to UCI. Disposition of the Collateral upon foreclosure will be subject to the direction of a majority of the BRL term loan lenders, and will take place in good faith and in a commercially reasonable manner. Sale of equipment in connection with a foreclosure with a value in excess of $30 million in any one transaction or series of related transactions may only be made after notice is given to the holders of notes and holders of a majority in principal amount of notes do not object to such transaction. Under the Operating Lease and the Participation Agreement, the covenants relating to UCI's obligations concerning use (but not any change to maintenance obligations that would in any manner diminish the value of any item of equipment in any material respect) of the equipment covered by the Operating Lease may be amended or waived only with the consent of BRL and a majority of the BRL term loan lenders. UCI is required to deliver an independent appraisal to the collateral agent and the trustee when the aggregate value of substituted equipment covered by the Operating Lease exceeds $15 million. Under the Operating Lease and the Operative Documents, UCI is required to maintain under the Operating Lease equipment that is representative of its domestic gas compression equipment. CERTAIN COVENANTS UNDER THE INDENTURE The indenture contains, among others, the following covenants of the issuers: Application of Proceeds. The proceeds of the old notes and the BRL term loan were required to be used solely to finance BRL's acquisition of the equipment covered by the Operating Lease in accordance with the terms of the Participation Agreement and for costs related to such transactions. Compliance. The issuers shall comply in all material respects with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities of the United States of America, and any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of its business and the ownership of its property. The issuers shall promptly take, and maintain the effectiveness of, all action to effectuate the Participation Agreement, the indenture or the Operating Lease, as applicable, or otherwise that may, from time to time, be necessary or appropriate under applicable law in connection with the performance by the issuers of their obligations under the Participation Agreement, the indenture or the Operating Lease, as applicable, or the taking of any action hereby or thereby contemplated, or necessary for the legality, validity, binding effect or enforceability of the Participation Agreement, the indenture or the Operating Lease, as applicable, or for the making of any payment or the transfer or remittance of any funds by the issuers under the Participation Agreement, the indenture or the Operating Lease, as applicable. Liens. The issuers shall duly pay and discharge (i) in the case of BRL, immediately upon the attachment of all liens other than permitted liens (as described under "Description of the Lease Obligations and the Lease Guarantee -- The Operating Lease -- Liens") on any Collateral, (ii) as and when due, all of their indebtedness and other obligations before the time that any lien attaches, unless and only to the extent that any such amounts are not yet due and payable or the validity of such amounts is being contested in good faith by appropriate proceedings, so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of the items of equipment covered by the Operating Lease and the issuers maintain or cause UCI to maintain appropriate reserves with respect to such amounts or have made adequate provision for the payment of such amounts, in accordance with GAAP and approved by the administrative agent and (iii) all taxes imposed upon or against the issuers or their property or assets, or upon any property leased by them, prior to the date on which penalties attach. 108 115 Line of Business. BRL shall not (i) enter into any business other than its acquisition, leasing, financing and sale of the Equipment, (ii) create, incur, assume or permit to exist any indebtedness, except as expressly permitted by the Participation Agreement, (iii) enter into, or be a party to, any transaction with any person, except the transactions set forth in the Participation Agreement, the indenture or the Operating Lease, as applicable, and as expressly permitted by the Participation Agreement, the indenture or the Operating Lease, or (iv) make any investment in, guarantee the obligations of, or make or advance money to any person (other than BRL Corp.), through the direct or indirect lending of money, holding of securities or otherwise, except for the transactions set forth in the Operative Documents and as expressly permitted by the Operative Documents. BRL Corp. will conduct no business other than acting as a co-issuer of the notes, maintaining its corporate existence and taking such actions as are required to comply with the other covenants of the issuers under the indenture, the Purchase Agreement and the Registration Rights Agreement. Liquidation. The issuers shall not wind up, liquidate or dissolve their affairs or enter into any transaction of merger or consolidation, or convey, sell, lease (substantially as a whole), or otherwise dispose of (whether in one or in a series of transactions) their assets except as expressly permitted by the Operating Lease or the Participation Agreement. Reports. The issuers will deliver to the trustee within 15 days after the filing of the same with the SEC, copies of the quarterly and annual reports and of the information, documents and other reports, if any, that the issuers are required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Further, notwithstanding that the issuers may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the issuers will provide the trustee and holders of notes with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The issuers will also comply with the provisions of Section 314(a) of the Trust Indenture Act. CERTAIN COVENANTS OF UCI UNDER THE PARTICIPATION AGREEMENT In addition to the covenants under the indenture, the Participation Agreement contains, among others, the following covenants with respect to UCI, which may not be amended or waived without the prior written consent of the holders of a majority of the principal amount of the notes. A default under these covenants will constitute a default under the Operating Lease and, therefore, a default under the indenture. Limitation on Incurrence of Additional Indebtedness. UCI will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, UCI and its Restricted Subsidiaries may incur Indebtedness (including, without limitation, Acquired Indebtedness) if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of UCI is greater than 2.25 to 1.0. For purposes of determining compliance with this covenant, (i) in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness permitted by this covenant, UCI in its sole discretion will classify that item of Indebtedness and will only be required to include the amount and type of each class of Indebtedness in the test specified in the first paragraph of this covenant or in one of the clauses of the definition of the term "Permitted Indebtedness," (ii) the amount of Indebtedness (other than Indebtedness consisting of an operating lease facility) issued at a price less than the principal amount of the Indebtedness shall be equal to the amount of liability in respect of the Indebtedness as determined in accordance with GAAP, (iii) Indebtedness incurred in connection with, or in contemplation of, any transaction described in the definition of the term "Acquired Indebtedness" shall be deemed to have been incurred by UCI or one of its Restricted Subsidiaries, as the case may be, at the time an acquired Person becomes such a Restricted Subsidiary (or is merged into UCI or such a 109 116 Restricted Subsidiary) or at the time of the acquisition of assets, as the case may be, (iv) the maximum amount of Indebtedness that UCI and its Restricted Subsidiaries may incur pursuant to this covenant shall not be deemed to be exceeded, with respect to any outstanding Indebtedness, due solely to the result of fluctuations in the exchange rates of currencies, and (v) guarantees or Liens supporting Indebtedness permitted to be incurred under this covenant may be issued or granted if otherwise issued or granted in accordance with the terms of the Participation Agreement. Limitation on Restricted Payments. UCI will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (1) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of UCI or in options, warrants, or other rights to purchase such Qualified Capital Stock (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, such Qualified Capital Stock)) on or in respect of shares of UCI's Capital Stock to holders of such Capital Stock; (2) purchase, redeem or otherwise acquire or retire for value any Capital Stock of UCI or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock (in each case, other than in exchange for Qualified Capital Stock of UCI or options, warrants or other rights to purchase such Qualified Capital Stock (but excluding any debt security, or Disqualified Capital Stock convertible into, or exchangeable for, such Qualified Capital Stock)); (3) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of UCI that is subordinate or junior in right of payment to UCI's rental payment obligations under the Operating Lease; or (4) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to as a "Restricted Payment"); if at the time of such Restricted Payment or immediately after giving effect thereto, (a) a Default or an Event of Default shall have occurred and be continuing; or (b) UCI is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant; or (c) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to February 9, 2001 exceeds the sum of: (i) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of UCI earned subsequent to February 9, 2001 and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (ii) 100% of (A) the aggregate net cash proceeds and (B) the aggregate fair market value (as determined in good faith by the Board of Directors of UCI as evidenced by a Board Resolution) of property other than cash, received by UCI from any Person (other than a Subsidiary of UCI) from the issuance and sale subsequent to February 9, 2001 and on or prior to the Reference Date of Qualified Capital Stock of UCI or options, warrants or other rights to purchase such Qualified Capital Stock (but excluding any debt security or Disqualified Capital Stock convertible into, or exchangeable for, such Qualified Capital Stock); plus (iii) without duplication of any amounts included in clause (c)(ii) above, 100% of the aggregate net cash proceeds of any equity contribution received by UCI from a holder of UCI's Capital Stock (excluding, in the case of clauses (c)(iii) and (iv), any net cash 110 117 proceeds from an Equity Offering to the extent used to purchase equipment covered by the Operating Lease from BRL to redeem the notes, the BRL term loan and equity investment in compliance with the provisions set forth under "Description of the Notes -- Redemption -- Optional Redemption Upon Equity Offerings"); plus (iv) 100% of the aggregate net cash proceeds received by UCI from any Person (other than a Subsidiary of UCI) from the issuance and sale (subsequent to February 9, 2001) of debt securities or shares of Disqualified Capital Stock that have been converted into or exchanged for Qualified Capital Stock of UCI, together with the aggregate cash received by UCI at the time of such conversion or exchange; plus (v) without duplication, the sum of (A) the aggregate amount returned in cash to UCI or a Restricted Subsidiary of UCI on or with respect to Investments (other than Permitted Investments) made subsequent to February 9, 2001 whether through interest payments, principal payments, dividends or other distributions or payments, (B) the net cash proceeds received by UCI or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of UCI) and (C) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (A), (B) and (C) above shall not exceed the aggregate amount of all such Investments made subsequent to February 9, 2001; plus (vi) $15.0 million. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of such dividend if the dividend would have been permitted on the date of declaration; (2) the acquisition of any shares of Capital Stock of UCI, either (a) solely in exchange for shares of Qualified Capital Stock of UCI or options, warrants, or other rights to purchase such Qualified Capital Stock (other than any debt security or Disqualified Capital Stock convertible into, or exchangeable for, such Qualified Capital Stock) or (b) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of UCI) of shares of Qualified Capital Stock of UCI or options, warrants, or other rights to purchase such Qualified Capital Stock (other than any debt security or Disqualified Capital Stock convertible into, or exchangeable for, such Qualified Capital Stock); (3) the acquisition of any Indebtedness of UCI that is subordinate or junior in right of payment to UCI's rental payment obligations under the Operating Lease either (i) solely in exchange for shares of Qualified Capital Stock of UCI, or options, warrants, or other rights to purchase such qualified Capital Stock or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of UCI) of (A) shares of Qualified Capital Stock of UCI or (B) Refinancing Indebtedness; (4) dividends or payments to UCH of cash to be immediately applied to repurchases by UCH of Qualified Capital Stock of UCH or options to purchase such Qualified Capital Stock from directors or employees or former directors or former employees of UCH or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such persons or pursuant to the terms of any customary agreement under which such Qualified Capital Stock or options were issued, in an aggregate amount not to exceed $1.0 million plus any life insurance proceeds in any calendar year; (5) the repurchase of any Indebtedness which is subordinated to UCI's rental payment obligations under the Operating Lease at a purchase price not greater than 101% of the principal amount of such Indebtedness in the event of a change of control in accordance with provisions similar 111 118 to the "Change of Control" provisions in the Participation Agreement; provided that, prior to or simultaneously with such repurchase, the issuers have made the Change of Control Offer as provided in such covenant with respect to the notes and has repurchased all notes validly tendered for payment in connection with such Change of Control Offer; (6) payments or distributions to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of the Participation Agreement applicable to mergers, consolidating and transfers of all or substantially all of the property and assets of UCI; (7) any dividends or payments to UCH in respect of overhead expenses, legal, accounting, commissions reporting and other professional fees and expenses of UCH that are directly attributable to the operations of UCI and its restricted subsidiaries; (8) payments to holders of Qualified Capital Stock of UCI or UCH (a) in lieu of the issuance of fractional shares of Qualified Capital Stock of UCI or UCH or (b) to redeem or repurchase stock purchase or similar rights issued as a shareholder rights device; provided that the payments made pursuant to this clause (8) from February 9, 2001 through the final stated maturity of the notes may not exceed $2.0 million; and (9) repurchases, acquisitions or retirements of shares of Qualified Capital Stock of UCI or UCH deemed to occur upon the exercise of stock options or similar rights issued under employee benefits plans of UCI or UCH if such shares represent all or a portion of the exercise price or are surrendered in connection with satisfying any income tax obligation; provided that, except in the case of clauses (1) and (2), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. In determining the aggregate amount of Restricted Payments made subsequent to February 9, 2001 in accordance with clause (c) of the preceding paragraph, amounts expended, without duplication, pursuant to clauses (1), (2)(a), (4) through (6) and (8) shall be included in such calculation. Not later than 10 days after the date of making any Restricted Payment (but not including any transaction described in the preceding paragraph), UCI shall deliver to the Trustee an officers' certificate stating that such Restricted Payment complies with the Participation Agreement and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon UCI's latest available internal quarterly financial statements. Limitation on Asset Sales. UCI will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) UCI or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by UCI's Board of Directors); and (2) at least 75% of the consideration received by UCI or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents; provided that (a) the amount of any liabilities of UCI or any such Restricted Subsidiary (other than liabilities that are by their terms subordinated to UCI's rental payment obligations under the Operating Lease) that are assumed by the transferee of any such assets and (b) the fair market value of any marketable securities received by UCI or any such Restricted Subsidiary in exchange for any such assets that are promptly converted into cash shall be deemed to be cash for purposes of this provision; and provided, further, that in no event shall the aggregate fair market value at the time of receipt of consideration received by UCI in a form other than cash or Cash Equivalents exceed 15% of UCI's Consolidated Total Assets; and 112 119 (3) in the event of an Asset Sale, UCI shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 720 days of receipt thereof either (a) to repay or prepay any indebtedness under the Credit Agreement, and effect a permanent reduction in the availability under the Credit Agreement; (b) to make an investment in either (i) properties and assets that replace the properties and assets that were the subject of such Asset Sale or (ii) properties or assets that will be used in the business of UCI and its Restricted Subsidiaries as existing on February 9, 2001 or in businesses similar or reasonably related thereto or in the capital stock of any entity a majority of whose assets consists of the properties or assets described under (i) or (ii) ("Replacement Assets"); or (c) to a combination of prepayment and investment permitted by the immediately foregoing clauses (a) and (b). After the day on which the aggregate amount of Net Cash Proceeds which have not been applied as permitted in clauses 3(a), 3(b), and 3(c) of the preceding paragraph exceeds $15.0 million (the "Net Proceeds Offer Trigger Date"), UCI shall make an offer to apply the unapplied Net Cash Proceeds (the "Net Proceeds Offer Amount") to purchase equipment covered by the Operating Lease from BRL at the Acquisition Cost of that equipment; provided, UCI shall have the option of applying a portion of the Net Proceeds Offer Amount to the repurchase of any Indebtedness not subordinated to its rental payment obligations under the Operating Lease, pro rata based on the amount of notes, the BRL term loan and the equity investment outstanding on the one hand, and the amount of such other Indebtedness outstanding on the other hand. The purchase price for such other Indebtedness will not exceed 100% of the principal amount of that Indebtedness, plus accrued and unpaid interest on that Indebtedness. If UCI elects to so repay such other Indebtedness, the amount of equipment covered by the Operating Lease purchased by UCI will be reduced by the amount of the other Indebtedness so repurchased. Notwithstanding the two immediately preceding paragraphs, UCI and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (i) at least 80% of the consideration for such Asset Sale constitutes Replacement Assets and (ii) the Asset Sale is for fair market value; provided that any consideration not constituting Replacement Assets received by UCI or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the preceding paragraphs of this covenant. If at any time any non-cash consideration received by UCI or any Restricted Subsidiary of UCI, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale and the Net Cash Proceeds of that Asset Sale shall be applied in accordance with this covenant and the indenture. To the extent that the Net Proceeds Offer Amount allocable to the notes exceeds the aggregate principal amount of notes, the BRL term loan and the equity investment tendered pursuant to the Net Proceeds Offer, UCI and its Restricted Subsidiaries may use the excess for general corporate purposes. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. UCI will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of UCI to: (1) pay dividends or make any other distributions on or in respect of its Capital Stock; (2) make loans or advances or to pay any Indebtedness or other obligation owed to UCI or any other Restricted Subsidiary of UCI; or 113 120 (3) transfer any of its property or assets to UCI or any other Restricted Subsidiary of UCI, except for such encumbrances or restrictions existing under or by reason of: (a) applicable law; (b) a Securitized Operating Lease Facility; (c) the Credit Agreement; (d) any agreement or instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (e) agreements existing on February 9, 2001, to the extent and in the manner such encumbrances and restrictions are contemplated by those agreements; (f) in the case of clause (3) above: (i) agreements or instruments arising or agreed to in the ordinary course of business that restrict in a customary manner the subletting, assignment or transfer of any property or asset subject to a lease, license, conveyance or other contract and (ii) any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of UCI or any Restricted Subsidiary entered into in compliance with the Participation Agreement; (g) an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, any Restricted Subsidiary of UCI; (h) provisions in agreements or instruments which prohibit the payment of dividends or the making of other distributions with respect to any Capital Stock of a Person other than on a pro rata basis; or (i) an agreement governing Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred under an agreement referred to in clause (b), (c), (d) or (e) above; provided, however, that the provisions relating to such encumbrance or restriction contained in that Indebtedness are no less favorable to UCI or the relevant Restricted Subsidiary of UCI in any material respect as determined by the Board of Directors of UCI in its reasonable and good faith judgment than the provisions relating to such encumbrance or restriction contained in agreements referred to in clause (b), (c), (d) or (e). Nothing contained in clause (3) of this "Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries" covenant shall prevent UCI or any of its Restricted Subsidiaries from creating, incurring, assuming or suffering to exist any Lien created, incurred, assumed or suffered to exist in accordance with the other terms of the Participation Agreement. Limitation on Preferred Stock of Restricted Subsidiaries. UCI will not, and will not permit any of its Restricted Subsidiaries to, issue any Preferred Stock (other than to UCI or to a Wholly Owned Restricted Subsidiary of UCI) or permit any Person (other than UCI or a Wholly Owned Restricted Subsidiary of UCI) to own any Preferred Stock of any Restricted Subsidiary of UCI; provided that the foregoing shall not prohibit (i) the creation of a Lien in any such Preferred Stock under the Credit Agreement and otherwise created in accordance with the Participation Agreement or (ii) issuances or sales to directors of directors' qualifying shares or issuances or sales to foreign nationals of Preferred Stock, in each case to the extent required by applicable law. 114 121 Limitation on Liens. UCI will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of UCI or any of its Restricted Subsidiaries whether owned on, or acquired after, February 9, 2001, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom except for the following: (1) Liens existing as of February 9, 2001 (other than Liens securing Indebtedness under the Credit Agreement) to the extent and in the manner such Liens were in effect on February 9, 2001, and Liens to the extent contemplated by the Operative Documents; (2) Liens securing Indebtedness under the Credit Agreement incurred under the "Limitation on Incurrence of Additional Indebtedness" covenant in the Participation Agreement; (3) Liens securing an operating lease facility, including Liens securing or relating to any obligations with respect to that operating lease facility or with respect to guarantees provided to that operating lease facility; (4) Liens of UCI or a Wholly Owned Restricted Subsidiary of UCI on assets of any Restricted Subsidiary of UCI; (5) Liens securing Refinancing Indebtedness incurred to Refinance any Indebtedness that has been secured by a Lien permitted under the Participation Agreement and that has been incurred in accordance with the provisions of the Participation Agreement; provided, however, that such Liens (a) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (b) do not extend to or cover any property or assets of UCI or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (6) Permitted Liens. Merger, Consolidation and Sale of Assets. UCI will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of UCI to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of UCI's assets (determined on a consolidated basis for UCI and UCI's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (1) either (a) UCI shall be the surviving or continuing corporation; or (b) the Person (if other than UCI) formed by such consolidation or into which UCI is merged or the Person that acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of UCI and of UCI's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity"): (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume all obligations of UCI under the Operating Lease to be performed or observed by UCI; (2) immediately after giving effect to that transaction and the assumption contemplated by clause (1)(b)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred in connection with or in respect of such transaction), UCI or such Surviving Entity, as the case may be, (a) shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of UCI immediately prior to such transaction, and (b) shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Incurrence of Additional Indebtedness" covenant in the Participation Agreement; 115 122 (3) immediately after giving effect to such transaction and the assumption contemplated by clause (1)(b)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (4) UCI or the Surviving Entity shall have delivered to the trustee an officers' certificate and an opinion of counsel, each stating that the consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition complies with the Participation Agreement and that all conditions precedent in the Participation Agreement relating to that transaction have been satisfied. Limitations on Transactions with Affiliates. (a) UCI will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are no less favorable than those that might reasonably have been obtained in a comparable transaction at that time on an arm's-length basis from a Person that is not an Affiliate of UCI or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions that are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $5.0 million shall be approved by the unaffiliated members of the Board of Directors of UCI or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that the unaffiliated members of the Board of Directors have determined that the transaction complies with the foregoing provisions. If UCI or any Restricted Subsidiary of UCI enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, UCI or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of that transaction or series of related transactions to UCI or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from a nationally recognized firm qualified to do the business for which it is engaged and file the same with the Trustee. (b) The restrictions set forth in clause (a) above shall not apply to: (i) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or consultants of UCI or any Restricted Subsidiary of UCI as determined in good faith by UCI's Board of Directors or senior management; (ii) transactions exclusively between or among UCI and any of its Wholly Owned Restricted Subsidiaries or exclusively between or among such Wholly Owned Restricted Subsidiaries, provided those transactions are not otherwise prohibited by the Participation Agreement; (iii) any agreement as in effect as of February 9, 2001 (including, but not limited to, the Weatherford Transition Services Agreement) or any related amendments or transactions contemplated (including pursuant to any amendment thereto) in any related replacement agreement so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on February 9, 2001; (iv) Restricted Payments permitted by the covenant entitled "Limitation on Restricted Payments"; (v) the Tax Sharing Agreement; (vi) employment agreements with officers and employees of UCI and its Restricted Subsidiaries, in the ordinary course of business; 116 123 (vii) loans and advances to employees not to exceed $5.0 million outstanding at any one time, in the ordinary course of business; (viii) arrangements with directors of UCI existing on February 9, 2001 as disclosed in this prospectus; (ix) the acquisition of WGC's Southeast Asia based operations, if consummated within six months of February 9, 2001, and documents related to that acquisition; and (x) the provision of compression or related services to Weatherford or any other Affiliate in the ordinary course of business; provided, however, that if aggregate payments or property involved in any such transaction or series of related transactions exceeds $5.0 million, such transaction or transactions shall be approved by the unaffiliated members of the Board of Directors of UCI. Change of Control. Upon a Change of Control, UCI shall purchase equipment from BRL in an amount equal to the aggregate principal amount of notes tendered pursuant to a Change of Control Offer multiplied by approximately 1.22 (to provide funds for a purchase by BRL of a corresponding percentage of the outstanding BRL term loan and equity investment). Conduct of Business. UCI and its Restricted Subsidiaries will not engage in any businesses that are not the same, similar or reasonably related to the businesses in which UCI and its Restricted Subsidiaries were engaged on February 9, 2001. Reports to Holders. UCI will deliver to the trustee within 15 days after the filing of the same with the SEC, copies of the quarterly and annual reports and of the information, documents and other reports, if any, that UCI or the issuers are required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Further notwithstanding that UCI may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, UCI will provide the trustee and holders of the notes with annual reports and information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (1) the failure to pay interest on any notes when the same becomes due and payable and the default continues for a period of 30 days; (2) the failure to pay the principal of any notes, when the same becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer); (3) a default in the observance or performance of any other covenant or agreement of the issuers contained in the indenture, which default continues for a period of 30 days after the issuers receive written notice specifying the default (and demanding that such default be remedied and stating that such notice is a "Notice of Default") from the trustee or the holders of at least 25% of the outstanding principal amount of the notes; (4) the occurrence and continuation of a Lease Event of Default (other than as a result of a breach of a covenant made solely for the benefit of BRL or the BRL term loan lenders or caused solely by a Change of Control); (5) the acceleration of the final stated maturity or failure to pay at final maturity (giving effect to any applicable grace periods and any extensions thereof) any portion of the BRL term loan; (6) the Participation Agreement no longer creates a first priority lien on all of the Collateral for the benefit of the collateral agent (subject to permitted liens); 117 124 (7) a judgment is entered against BRL involving an aggregate liability of $15.0 million, which remains undischarged, unpaid or unstayed in such aggregate amount for a period of 60 consecutive days after such judgment becomes final and nonappealable; and (8) certain events of bankruptcy of the issuers. If an Event of Default (other than an Event of Default specified in clause (8) above) shall occur and be continuing, the trustee or the holders of at least 25% in principal amount of outstanding notes may declare the principal of and accrued and unpaid interest on all the notes to be due and payable by notice in writing to the issuers and the trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same shall become immediately due and payable. In the event of an acceleration because an Event of Default set forth in clause (5) above has occurred and is continuing, such acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (5) above shall be remedied or cured by the issuers or waived by the holders of the relevant Indebtedness within 20 days after the date of the Acceleration Notice with respect thereto. In the event of an acceleration because of an Event of Default set forth in clause (5) above due to an acceleration of the BRL term loan caused by a Change of Control has occurred and is continuing, then all unpaid principal of, premium, if any, and accrued and unpaid interest on all of the outstanding notes shall become immediately due and payable. If an Event of Default specified in clause (8) above occurs and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of the notes. Following an acceleration of the notes, UCI shall have the option, under the Operating Lease, to repurchase all equipment subject to the Operating Lease at the acquisition cost thereof, plus any other amounts owing under the Operating Lease, which exercise of the option will result in repayment of all of the outstanding notes in full. The indenture provides that, at any time after a declaration of acceleration with respect to the notes as described in the preceding paragraph, the holders of a majority in principal amount of the notes may rescind and cancel such declaration and its consequences: (1) if the rescission would not conflict with any judgment or decree; (2) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration; (3) to the extent the payment of such interest is lawful, if interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; (4) if the issuers have paid the trustee its reasonable compensation and reimbursed the trustee for its expenses, disbursements and advances; and (5) in the event of the cure or waiver of an Event of Default of the type described in clause (8) of the description above of Events of Default, the trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The holders of a majority in principal amount of the notes may waive any existing or past Default or Event of Default under the indenture, and its consequences, except a default in the payment of the principal of or interest on any notes. Holders of the notes may not enforce the indenture or the notes except as provided in the indenture and under the Trust Indenture Act. Subject to the provisions of the indenture relating to the duties of the trustee, the trustee is under no obligation to exercise any of its rights or powers under the indenture at the request, order or direction of any of the holders, unless such holders have offered to the trustee reasonable indemnity. Subject to all provisions of the indenture and applicable law, the holders of a majority in 118 125 aggregate principal amount of the then outstanding notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee. Under the indenture, the issuers are required to provide an officers' certificate to the trustee promptly upon obtaining knowledge of any Default or Event of Default (provided that the issuers shall provide such certification at least annually whether or not it knows of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The issuers may, at their option and at any time, elect to have its obligations discharged with respect to the outstanding notes ("Legal Defeasance"). Such Legal Defeasance means that the issuers shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding notes, except for: (1) the rights of holders of the notes to receive payments in respect of the principal of, premium, if any, and interest on the notes when such payments are due from the trust referred to below; (2) the issuers' obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payments; (3) the rights, powers, trust, duties and immunities of the trustee and the issuers' obligations in connection therewith; and (4) the Legal Defeasance provisions of the indenture. In addition, the issuers may, at their option and at any time, elect to have the obligations of the issuers released with respect to certain covenants (including the covenants in the Participation Agreement) and other provisions that are described in the indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute Events of Default with respect to the notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the issuers must irrevocably deposit with the trustee, in trust for the benefit of the holders of the notes, cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (2) in the case of Legal Defeasance, the issuers shall have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that: (a) the issuers have received from, or there has been published by, the Internal Revenue Service a ruling; or (b) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; 119 126 (3) in the case of Covenant Defeasance, the issuers shall have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that the holders of the notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default arising in connection with the substantially contemporaneous borrowing of funds to fund the deposit referenced in clause (1) above) or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (5) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the indenture or any other material agreement or instrument to which the issuers or any of their Subsidiaries is a party or by which the issuers or any of their Subsidiaries is bound; (6) the issuers shall have delivered to the trustee an officers' certificate stating that the deposit was not made by the issuers with the intent of preferring the holders of the notes over any other creditors of the issuers or with the intent of defeating, hindering, delaying or defrauding any other creditors of the issuers or others; (7) the issuers shall have delivered to the trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (8) the issuers shall have delivered to the trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. Notwithstanding the foregoing, the opinion of counsel required by clause (2) above with respect to a Legal Defeasance need not be delivered if all notes not theretofore delivered to the trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the trustee for the giving of notice of redemption by the trustee in the name, and at the expense, of the issuers. SATISFACTION AND DISCHARGE The indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the notes, as expressly provided for in the indenture) as to all outstanding notes when: (1) either (a) all the notes theretofore authenticated and delivered (except lost, stolen or destroyed notes which have been replaced or paid and notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the issuers and thereafter repaid to the issuers or discharged from such trust) have been delivered to the trustee for cancellation; or (b) all notes not theretofore delivered to the trustee for cancellation have become due and payable or, by their terms, are to become due and payable, or are to be called for redemption upon delivery of notice, within one year and the issuers have irrevocably deposited or caused to be deposited with the trustee funds in an amount sufficient to pay all principal of, premium, if any, and interest on the notes to the date of maturity or redemption, as the case may be, together with irrevocable instructions from the issuers directing the trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; 120 127 (2) the issuers have paid all other sums payable under the indenture by the issuers; and (3) the issuers have delivered to the trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the indenture relating to the satisfaction and discharge of the indenture have been complied with. MODIFICATION OF THE INDENTURE AND THE OPERATIVE DOCUMENTS From time to time, the issuers and the trustee, without the consent of the holders of the notes, may amend, waive or otherwise modify provisions of the indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the trustee, adversely affect the rights of any of the holders of the notes in any material respect. In formulating its opinion on such matters, the trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other amendments, waivers and other modifications of provisions of the indenture may be made with the consent of the holders of a majority in principal amount of the then outstanding notes issued under the indenture, except that, without the consent of each holder affected thereby, no such amendment, waiver or other modification may: (1) reduce the principal amount of notes whose holders must consent to an amendment; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any notes; (3) reduce the principal of or change or have the effect of changing the fixed maturity of any notes, or change the date on which any notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any notes payable in money other than that stated in the notes; (5) make any change in provisions of the indenture protecting the right of each holder to receive payment of principal of and interest on such holder's note or notes on or after the due date thereof or to bring suit to enforce such payment, or permitting holders of a majority in principal amount of notes to waive Defaults or Events of Default; and (6) amend, change or modify in any material respect the obligation of the issuers (or any of the provisions or definitions with respect thereto) to (a) make payments under the indenture, (b) make and consummate a Change of Control Offer in the event of a Change of Control or (c) make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated. Pursuant to the Participation Agreement, the material terms of the Operative Documents (including the Operating Lease and the Participation Agreement) may not be amended, supplemented, waived or modified without the written agreement and consent of, among others, the trustee acting on behalf of the holders of a majority of the then outstanding notes; provided, however, that without the consent of the trustee acting on behalf of the holders of a majority of the then outstanding notes, BRL, UCI and a majority of the BRL term loan lenders may amend, supplement, waive or modify provisions of the BRL term loan agreement, provisions of the Participation Agreement which contain covenants of UCI and UCH made specifically to the BRL term loan lenders and provisions of the Operating Lease which relate to, among other items, the return and redelivery of equipment covered by the Operating Lease at the expiration of the Operating Lease term, use of the equipment (but not with regard to any amendment, supplement, waiver or modification of maintenance obligations to the extent that would diminish the value of any item of equipment in any material respect), subleasing of the equipment and certain payments, if any, to be made under the Operating Lease for the BRL term loan. Notwithstanding the foregoing, such parties may not, without the consent of each holder of notes affected thereby, amend, change or modify in any material respect the obligations of UCI (or any of the material provisions or definitions with respect thereto) to (A) make payments of rent under the Operating Lease or (B) purchase equipment covered by 121 128 the Operating Lease yielding proceeds sufficient to enable the issuers to (1) make and consummate a Change of Control Offer or (2) make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated. In connection with the issuance of additional notes, however, the trustee, without the consent of the holders of notes, may consent to the amendment of the Operative Documents to reflect the increase in the notes and a corresponding increase in the BRL term loan and equity investment, as well as the increase in the equipment acquired by BRL and leased to UCI under the Operating Lease. GOVERNING LAW The indenture provides that it and the notes are governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required by New York law. THE TRUSTEE The indenture provides that, except during the continuance of an Event of Default, the trustee will perform only such duties as are specifically set forth in the indenture. During the existence of an Event of Default, the trustee will exercise such rights and powers vested in it by the indenture, and use the same degree of care and skill in its exercise as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. The indenture and the provisions of the Trust Indenture Act contain certain limitations on the rights of the trustee, should it become a creditor of the issuers, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the Trust Indenture Act, the trustee will be permitted to engage in other transactions; provided that if the trustee acquires any conflicting interest as described in the Trust Indenture Act, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the indenture, the Operating Lease and the Participation Agreement. Reference is made to the indenture, the Operating Lease and the Participation Agreement for the full definition of all such terms, as well as any other terms used in this prospectus for which no definition is provided. "ABS Operating Lease Facility" means the operating lease facility of UCI, dated February 9, 2001, arranged by First Union Securities Inc., which provides for funding of up to $200 million. "Acquired Indebtedness" means Indebtedness (including any operating lease facility) of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of UCI or at the time it merges or consolidates with UCI or any of UCI's Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of UCI or such acquisition, merger or consolidation. "Acquisition Cost" means with respect to any item of equipment covered by the Operating Lease the amount specified with respect to the acquisition cost paid for such item of equipment by BRL. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. 122 129 "Asset Acquisition" means (a) an Investment by UCI or any Restricted Subsidiary of UCI in any other Person pursuant to which such Person shall become a Restricted Subsidiary of UCI or any Restricted Subsidiary of UCI, or shall be merged with or into UCI or any Restricted Subsidiary of UCI, or (b) the acquisition by UCI or any Restricted Subsidiary of UCI of the assets of any Person (other than a Restricted Subsidiary of UCI) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into with customers in the ordinary course of business consistent with past practice or sales of equipment pursuant to purchase options entered into with customers by UCI or a Restricted Subsidiary of UCI in the ordinary course of business consistent with past practice), assignment or other transfer for value by UCI or any of its Restricted Subsidiaries (excluding any Lien granted in accordance with the "Limitation on Liens" covenant, but including any Sale and Leaseback Transaction) to any Person other than UCI or a Wholly Owned Restricted Subsidiary of UCI of (a) any Capital Stock of any Restricted Subsidiary of UCI; or (b) any other property or assets of UCI or any Restricted Subsidiary of UCI other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which UCI or its Restricted Subsidiaries receive aggregate consideration of less than $2.0 million, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of UCI as permitted under "Merger, Consolidation and Sale of Assets," (iii) the transfer of assets to the lessor under a Securitized Operating Lease Facility related to an under collateralization event thereunder and (iv) any Restricted Payment (other than, for the purpose of calculating the consolidated fixed charge coverage ratio only, any non-cash Restricted Payment) permitted under the covenant entitled "Limitation on Restricted Payments." "Board of Directors" means, as to any Person, the board of directors management committee or other body governing the management of such Person or the general partner of such Person any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and Preferred Stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Capitalized Lease" means a lease that is required to be classified and accounted for as a capitalized lease under GAAP. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a Capitalized Lease and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Cash Equivalents" means: (1) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (2) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Ratings Services, a division of McGraw Hill, Inc. ("S&P") or Moody's Investors Service, Inc. ("Moody's"); 123 130 (3) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (4) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250.0 million; (5) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (1) above entered into with any bank meeting the qualifications specified in clause (4) above; (6) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (1) through (5) above; and (7) investments made by Foreign Restricted Subsidiaries in local currencies in instruments issued by or with entities of such jurisdiction having correlative attributes to the foregoing. "Change of Control" means the occurrence of one or more of the following events: (1) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions, but other than by the granting of a Lien in accordance with the Participation Agreement or by way of consolidation or merger in accordance with the Participation Agreement) of all or substantially all of the assets of UCI and its Subsidiaries, or UCH and its subsidiaries, in each case taken as a whole, to any Person or "group" (as defined in Section 13(d)(3) of the Exchange Act) (whether or not otherwise in compliance with the provisions of the Participation Agreement) other than to the Permitted Holders; (2) the approval by the holders of Capital Stock of UCI or UCH of any plan or proposal for the liquidation or dissolution of UCI or UCH (whether or not otherwise in compliance with the provisions of the Participation Agreement); (3) any Person or "group" within the meaning of Section 13(d) of the Exchange Act (other than the Permitted Holders and UCH) shall become the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act, of shares representing more than 50% of the aggregate voting power represented by the Capital Stock of UCI or UCH; or (4) the replacement of a majority of the Board of Directors of UCI or UCH over a two-year period from the directors who constituted the Board of Directors of UCI or UCH, as the case may be, at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of UCI or UCH, as the case may be, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. "CHP" means Castle Harlan Partners III, L.P., a private investment fund managed by Castle Harlan, Inc., a Delaware corporation. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on or issued after February 9, 2001, and includes, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of: (1) Consolidated Net Income; and (2) to the extent Consolidated Net Income has been reduced thereby, 124 131 (a) all income taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business; (b) Consolidated Interest Expense; (c) Consolidated Rental Expense; (d) Consolidated Non-cash Charges less any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP; and (e) any expense of UCI or its Restricted Subsidiaries incurred in connection with the overhaul of equipment that can be reclassified as a capital expenditure in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to: (1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; and (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio": (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall 125 132 be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of: (1) Consolidated Interest Expense; (2) Consolidated Rental Expense; and (3) the product of (x) the amount of all dividend payments on any series of Preferred Stock of such Person (other than dividends paid in Qualified Capital Stock) paid, accrued or scheduled to be paid or accrued during such period times (y) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (1) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including without limitation, (a) any amortization of debt discount and amortization of deferred financing costs, (b) the net costs under Interest Swap Obligations and Currency Agreements, (c) all capitalized interest and (d) the interest portion of any deferred payment obligation; (2) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP; and (3) fees and charges related to letters of credit, bankers acceptances and similar transactions; excluding, however, (1) any amount of such interest expense of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Consolidated Net Income pursuant to clause (4) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Consolidated Net Income pursuant to clause (4) of the definition thereof); and (2) any non-cash amortization or write-off of fees and expenses incurred in connection with financing arrangements for the WGC acquisition. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (without duplication): (1) after-tax gains or losses from Asset Sales; (2) after-tax items classified as extraordinary or nonrecurring gains or losses; (3) the net income or loss of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person; (4) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, except for any dividends or distributions actually paid by such Restricted Subsidiary to the referent Person; 126 133 (5) the net income but not loss of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person; (6) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued); and (7) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges which require an accrual of or a reserve for cash charges for any future period). "Consolidated Rental Expense" means, with respect to any Person, for any period, the aggregate of the rental expense of such Person and Restricted Subsidiaries related to operating lease facilities of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis. "Consolidated Total Assets" of any Person means such Person's total consolidated assets calculated in accordance with GAAP. "Credit Agreement" means one or more credit agreements, including, without limitation, the Credit Agreement dated as of February 9, 2001, among UCI, the lenders party thereto in their capacities as lenders thereunder and First Union National Bank, as agent, and any Foreign Credit Facility together with the documents related thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Restricted Subsidiaries of UCI as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect UCI or any Restricted Subsidiary of UCI against fluctuations in currency values. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the notes, provided that any Capital Stock that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the stated maturity of the notes shall not constitute Disqualified Capital Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in "Limitation on Asset Sales" and "Change of Control" covenants and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such 127 134 provision prior to the issuers' repurchase of such notes as are required to be repurchased pursuant to such covenant. "Equity Investment" means the equity investment made in BRL pursuant to the BRL limited partnership agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Except as otherwise specifically provided for in the indenture, the Operating Lease or the Participation Agreement, fair market value shall be determined by the Board of Directors of UCI acting in good faith and shall be evidenced by a Board Resolution of the Board of Directors of UCI delivered to the trustee. "Foreign Credit Facility" means any credit facility of a Foreign Restricted Subsidiary. "Foreign Restricted Subsidiary" means any Restricted Subsidiary of UCI (i) whose jurisdiction of incorporation is other than the United States of America, any state thereof, the District of Columbia or any possession thereof and (ii) which derives substantially all of its income from jurisdictions other than the United States of America. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of February 9, 2001, provided, however, that all reports and other financial information provided by UCI to the Holders or the trustee shall be prepared in accordance with GAAP as in effect on the date of such report or other financial information. "Indebtedness" means with respect to any Person, without duplication: (1) all Obligations of such Person for borrowed money; (2) all Obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (3) all Capitalized Lease Obligations of such Person and all Obligations in respect of any operating lease facility; (4) all Obligations of such Person issued or assumed as the deferred purchase price of property (including any purchase price adjustment(s) related to the acquisition of Tidewater Compression), all conditional sale obligations and all Obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business that are not overdue by 120 days or more or are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted); (5) all Obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; (6) guarantees and other contingent obligations in respect of Indebtedness of other Persons of the type referred to in clauses (1) through (5) above and clause (8) below to the extent such Indebtedness is so guaranteed; (7) all Obligations of any other Person of the type referred to in clauses (1) through (6) above which are secured by any lien on any property or asset of such Person, the amount of such Obligation being deemed to be the lesser of the fair market value of such property or asset and the amount of the Obligation so secured; 128 135 (8) all Obligations of such Person under Currency Agreements and Interest Swap Obligations of such Person (other than effective hedging instruments designated as such by such Person); and (9) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that (A) the amount outstanding at any time of any Indebtedness issued with original issue discount is the original issue price of such indebtedness and (B) "Indebtedness" shall not include any money borrowed and set aside, at the time of the incurrence of related Indebtedness, to fund cash interest payments on such related Indebtedness. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude (i) extensions of trade credit by UCI and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of UCI or such Restricted Subsidiary, as the case may be, and (ii) the acquisition of Capital Stock, securities or other properties or assets by UCI or any of its Restricted Subsidiaries for, and to the extent of, consideration consisting of Capital Stock of UCI. For the purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall (A) include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and (B) exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by UCI or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If UCI or any Restricted Subsidiary of UCI sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of UCI such that, after giving effect to any such sale or disposition, UCI no longer owns, directly or indirectly, greater than 50% of the Common Stock of such Restricted Subsidiary, UCI shall be deemed to have made an investment on the date of such sale equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. 129 136 "Issue Date" means the date of original issuance of the notes. "Lease Default" means a Default (as defined in the Operating Lease). "Lease Event of Default" means an Event of Default (as defined in the Operating Lease). "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Make-Whole Premium" with respect to a note means an amount equal to the greater of (i) 1.0% of the outstanding principal amount of such note and (ii) the excess of (a) the present value of the remaining interest, premium and principal payments due on such note as if such note were redeemed on February 15, 2005, computed using a discount rate equal to the Treasury Rate on such date plus 0.50%, over (b) the outstanding principal amount of such note. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by UCI or any of its Restricted Subsidiaries from such Asset Sale net of: (1) reasonable out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales or brokerage commissions); (2) net taxes paid or payable as a result of such Asset Sale; (3) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale; (4) amounts required to be paid to any Person (other than UCI or any of its Restricted Subsidiaries) owning a beneficial interest in the assets which are subject to such Asset Sale; and (5) appropriate amounts to be provided by UCI or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by UCI or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Operating Lease" means the Equipment Lease Agreement dated as of February 9, 2001 between BRL Universal Equipment 2001 A, L.P. and Universal Compression, Inc., as lessee. "operating lease facility" means any operating lease transaction entered into by UCI or any of its Restricted Subsidiaries resulting in the off-balance sheet financing of any of UCI's or such Restricted Subsidiary's gas compression equipment. "Participation Agreement" means the Participation Agreement dated as of February 9, 2001 among Universal Compression, Inc., as lessee, Universal Compression Holdings, Inc., as guarantor, BRL Universal Equipment 2001 A, L.P. as lessor, Bankers Trust Company and the other financial institutions listed on the signature pages as Tranche B lenders, the Bank of New York, not in its individual capacity but as indenture trustee, paying agent, transfer agent and registrar for the Tranche A noteholders, BRL Universal Equipment Management, Inc., as lessor general partner, Bankers Trust Company as administrative agent and collateral agent for Tranche B lenders and indenture trustee on behalf of the Tranche A Noteholders, Deutsche Banc Alex. Brown Inc., as Arranger, The Bank of Nova Scotia, as syndicate agent for Tranche B lenders, Bank One, N.A., as documentation agent for Tranche B lenders, and First Union National Bank, as Managing Agent. 130 137 "Permitted Holder(s)" means (i) Weatherford and any Affiliate of Weatherford and (ii) each of CHP and Castle Harlan Inc. and employees, management, directors and Affiliates of the foregoing. "Permitted Indebtedness" means, without duplication, each of the following: (1) Indebtedness under the Operating Lease as in effect on February 9, 2001 (which Operating Lease relates to equipment with an appraised fair market value of at least $427 million); (2) Indebtedness incurred pursuant to Credit Agreements in an aggregate principal amount at any time outstanding not to exceed (A) $125 million in the aggregate with respect to Indebtedness under the Revolving Credit Loans reduced by any required permanent repayments (which are accompanied by a corresponding permanent commitment reduction) thereunder and (B) under one or more Foreign Credit Facilities, reduced by any required permanent repayments thereof as a result of any asset sales, but not to exceed $25 million outstanding at any one time; (3) other Indebtedness of UCI and its Restricted Subsidiaries outstanding on February 9, 2001 reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (4) Interest Swap Obligations of UCI covering Indebtedness of UCI or any of its Restricted Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary of UCI covering Indebtedness of such Restricted Subsidiary and its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect UCI and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (5) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of UCI and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (6) Indebtedness of a Restricted Subsidiary of UCI to UCI or to a Restricted Subsidiary of UCI for so long as such Indebtedness is held by UCI or a Restricted Subsidiary of UCI, in each case subject to no Lien held by a Person other than UCI or a Restricted Subsidiary of UCI; provided that if as of any date any Person other than UCI or a Restricted Subsidiary of UCI owns or holds any such Indebtedness or holds a Lien, other than a Permitted Lien, in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (7) Indebtedness of UCI to a Restricted Subsidiary of UCI for so long as such Indebtedness is held by a Restricted Subsidiary of UCI, in each case subject to no Lien, other than a Permitted Lien; provided that (a) any Indebtedness of UCI to any Restricted Subsidiary of UCI is unsecured and subordinated, pursuant to a written agreement, to UCI's obligations under the Operating Lease and (b) if as of any date any Person other than a Restricted Subsidiary of UCI owns or holds any such Indebtedness or any Person, other than pursuant to the Credit Agreement, holds a Lien in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by UCI; (8) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within three business days of incurrence; (9) Indebtedness of UCI or any of its Restricted Subsidiaries represented by letters of credit for the account of UCI or such Restricted Subsidiary, as the case may be, in order to provide security for 131 138 workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (10) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of UCI and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed $20.0 million at any one time outstanding; (11) Indebtedness (a) in respect of performance, surety or appeal bonds or letters of credit provided in the ordinary course of business, or (b) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any such obligations of UCI or any of its Restricted Subsidiaries, in any case incurred in connection with the disposition of any business, assets or Restricted Subsidiary of UCI (excluding herefrom any guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary of UCI for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by UCI or any of its Restricted Subsidiaries in connection with such disposition; (12) Indebtedness of UCI or any of its Restricted Subsidiaries, to the extent the net proceeds thereof are substantially contemporaneously used to purchase equipment from the issuers to (a) fund the repurchase of notes tendered in a Change of Control Offer or (b) to make a deposit to defease the notes as described above under "Legal Defeasance and Covenant Defeasance"; (13) guarantees of Indebtedness of UCI or any of its Restricted Subsidiaries by any Restricted Subsidiary; and guarantees of Indebtedness of any Restricted Subsidiary of UCI by UCI provided that such Indebtedness is permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant; (14) Indebtedness of UCI and its Restricted Subsidiaries under the asset-backed securitization operating lease facility to the extent of the initial draw thereunder on February 9, 2001 and, thereafter, additional draws to the extent that UCI or its Restricted Subsidiaries apply the proceeds of such draws to permanently repay Indebtedness of UCI or its Restricted Subsidiaries; (15) Refinancing Indebtedness; and (16) additional Indebtedness of UCI and its Restricted Subsidiaries in an aggregate principal amount not to exceed $20 million at any one time outstanding. "Permitted Investments" means: (1) Investments by UCI or any Restricted Subsidiary of UCI in any Person that is or will become immediately after such Investment a Restricted Subsidiary of UCI or that will merge or consolidate into UCI or a Restricted Subsidiary of UCI; (2) Investments in UCI by any Restricted Subsidiary of UCI; provided that any Indebtedness evidencing such Investment in UCI is unsecured and subordinated, pursuant to a written agreement, to UCI's obligations under the Operating Lease; (3) investments in cash and Cash Equivalents; (4) loans and advances to employees and officers of UCI and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $500,000 at any one time outstanding; (5) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of UCI's or its Restricted Subsidiaries' businesses and otherwise in compliance with the Participation Agreement; (6) Investments in Unrestricted Subsidiaries and joint ventures not to exceed $10.0 million at any one time outstanding; 132 139 (7) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (8) Investments made by UCI or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant; (9) other Investments not to exceed $10.0 million at any one time outstanding; and (10) Investments existing on the Issue Date. "Permitted Liens" means the following types of Liens: (1) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) being contested in good faith by appropriate proceedings and as to which UCI or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (2) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (3) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (4) Liens arising by reason of any judgment, decree or order of any court but not giving rise to a Lease Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (5) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of UCI or any of its Restricted Subsidiaries; (6) Liens representing the interest or title of a lessor under any Capitalized Lease; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease; (7) Liens upon specific items of inventory or other goods and proceeds of UCI or any of its Restricted Subsidiaries securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (8) Liens securing reimbursement obligations with respect to letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (9) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of UCI or any of its Restricted Subsidiaries, including rights of offset and set-off; (10) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Participation Agreement; (11) Liens securing Capitalized Lease Obligations and Purchase Money Indebtedness permitted pursuant to the "Limitation on Incurrence of Additional Indebtedness" covenant in the Participation 133 140 Agreement; provided, however, that in the case of Purchase Money Indebtedness (a) the Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of UCI or any Restricted Subsidiary of UCI other than the property and assets so acquired or constructed and (b) the Lien securing such Indebtedness shall be created within 180 days of such acquisition or construction or, in the case of a refinancing of any Purchase Money Indebtedness, within 180 days of such refinancing; (12) Liens securing Indebtedness under Currency Agreements; and (13) Liens securing Acquired Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant in the Participation Agreement; provided that (a) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by UCI or a Restricted Subsidiary of UCI and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by UCI or a Restricted Subsidiary of UCI and (b) such Liens do not extend to or cover any property or assets of UCI or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of UCI or a Restricted Subsidiary of UCI. "Person" means an individual, partnership, limited liability company, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Purchase Money Indebtedness" means Indebtedness of UCI and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by UCI or any Restricted Subsidiary of UCI of Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant in the Participation Agreement (other than pursuant to clause (2), (4), (5), (6), (7), (8), (9), (10), (11), (12), (13) or (16) of the definition of Permitted Indebtedness), in each case (other than Refinancing Indebtedness incurred to Refinance all of the Notes) that does not: (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus accrued interest and plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable fees, expenses and other amounts payable by UCI or any of its Restricted Subsidiaries in connection with such Refinancing); or (2) create Indebtedness with (a) a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced or (b) a final maturity earlier than the final maturity of the Indebtedness being Refinanced; provided that if such Indebtedness being Refinanced is subordinate or junior to UCI's rental payment obligations under the Operating Lease, then such Refinancing Indebtedness shall be subordinate to UCI's rental payment obligations under the Operating Lease at least to the same extent and in the same manner as the Indebtedness being Refinanced. 134 141 "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Revolving Credit Loans" means one or more revolving credit facilities under the Credit Agreement. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to UCI or a Restricted Subsidiary of UCI of any property, whether owned by UCI or any Restricted Subsidiary of UCI on February 9, 2001, or later acquired, which has been or is to be sold or transferred by UCI or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such property. "Securitized Operating Lease Facility" means an operating lease facility pursuant to which the lessor thereunder receives, directly or indirectly, the benefit of Liens on property or assets of UCI or its Restricted Subsidiaries other than the property subject to such leases, any property or rights (including rights under subleases) relating to such leased property and the equity interest of the lessee in any such lease. "Significant Subsidiary," with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary," with respect to any Person, means: (1) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person; or (2) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Tax Sharing Agreement" means the tax sharing agreement between UCI and UCH as in effect on February 9, 2001, and as thereafter modified in any way not adverse to UCI or the Holders. "Treasury Rate" for any date, means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the date the redemption is effected pursuant to "Optional Redemption -- Redemption upon Change of Control" (the "Change of Control Redemption Date") (or, if such Statistical Release is no longer published, any publicly available source or similar market date) most nearly equal to the period from the Change of Control Redemption Date to February 15, 2005; provided, however, that if the period from the Change of Control Redemption Date to February 15, 2005 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given except that if the period from the Change of Control Redemption Date to February 15, 2005 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "UCH" means Universal Compression Holdings, Inc., a Delaware corporation and UCI's sole stockholder. "Unrestricted Subsidiary" of UCI means: (1) any Subsidiary of UCI that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of UCI in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. 135 142 The Board of Directors of UCI may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, UCI or any other Subsidiary of UCI that is not a Subsidiary of the Subsidiary to be so designated; provided that: (1) UCI certifies to the Trustee that such designation complies with the "Limitation on Restricted Payments" covenant in the Participation Agreement; and (2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of UCI or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if: (1) immediately after giving effect to such designation, UCI is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant in the Participation Agreement; and (2) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "Weatherford Transition Services Agreement" means the agreement dated as of February 9, 2001, between Weatherford International Inc. and Weatherford Global Compression Services, L.P. related to the provision of transition services by Weatherford to UCI. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons, in each case pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. 136 143 DESCRIPTION OF THE LEASE OBLIGATIONS AND THE LEASE GUARANTEE The operating lease obligations of UCI arise under the operating lease and are the source of payments for the notes. The guarantee obligations of UCH with respect to UCI's obligations under the operating lease are contained in the participation agreement. The following is a summary of the principal operative documents (together with any ancillary documents, the "Operative Documents"), including the operating lease and the participation agreement, relating to the financing of the equipment. This summary should not be considered a full statement of the terms and provisions thereof. This summary is qualified by reference to each agreement described, and is subject to the full text of each agreement. Copies of the agreements have been filed as exhibits to the registration statement that includes this prospectus. OPERATING LEASE Parties BRL, as lessor, and UCI, as lessee. Term The term of the operating lease commenced on the date that the old notes were issued and will end on February 15, 2008, unless terminated earlier pursuant to its terms. Rent UCI will make a rent payment to BRL on or before each February 15 and August 15, beginning August 15, 2001, in an amount equal to the interest accrued on the notes. In addition, UCI will make a rent payment at the end of the applicable LIBOR interest period (which may be one, two, three or six months at UCI's election; provided, that a payment is required every three months with respect to a six-month LIBOR interest period) equal to the sum of the interest accrued on the BRL term loan, the yield on the equity investment in BRL and other fees. Supplemental Rent UCI will pay supplemental rent to cover all amounts that UCI is obligated to pay to BRL, other than rent, under the operating lease and participation agreement, including, for example, costs, taxes and indemnities. Net Lease The operating lease is "a triple net lease." End of Term Options Upon expiration of the operating lease, UCI may: (1) elect to purchase all, but not less than all, of the equipment; (2) at least 365 days prior to the termination date of the operating lease, elect to return all, but not less than all, of the equipment to BRL on such termination date; or (3) give notice to BRL within 365 days of the end of the operating lease term that it wishes to renew the lease with respect to all, but not less than all, of the equipment. In this case, BRL will determine, in its sole discretion, whether to renew the operating lease on terms mutually acceptable to BRL and UCI. As a condition to any renewal of the operating lease, all of the outstanding notes must be paid in full. 137 144 End of Term Purchase Option If UCI elects to purchase the equipment at the end of the term of the operating lease term: - it must pay to BRL the amount BRL paid to purchase the equipment at the beginning of the operating lease, plus all rent and supplemental rent due on the termination date of the operating lease, and - BRL will transfer title in the equipment to UCI and the collateral agent's security interest in the equipment will be released. Return Option; Sale of Equipment to Third Party Buyer If UCI elects to return the equipment at the end of the operating lease term: - UCI will solicit bids for the equipment from prospective bona fide third party purchasers, and - BRL will sell the equipment on the termination date of the operating lease to the highest bidder and UCI will deliver the equipment to that purchaser. However, BRL will not be required to sell the equipment if the net proceeds of that sale would not be at least approximately 18% of the price paid by BRL for the equipment at the beginning of the operating lease, in which case UCI will redeliver the equipment to BRL. If the net proceeds of the sale are less than the price paid by BRL for the equipment or if there is no sale, UCI will, subject to the next sentence, make a rent payment to BRL (in addition to any other rent and any supplemental rent due at the end of the operating lease) in the amount of that deficiency. So long as no default under the operating lease has occurred and is continuing, the amount of the deficiency payable by UCI (and, if applicable, by UCH under the lease guarantee) will be limited to approximately 82% of the aggregate price paid by BRL for the equipment. The proceeds of the sale of the equipment, plus the deficiency payment from UCI (or if there is no sale, the deficiency payment alone) will be at least equal to the principal amount of the notes and will be used to pay the notes in full. Any remaining funds will be used to repay the BRL term loan and return on the equity investment. Early Purchase Options UCI has the right to purchase equipment in connection with a redemption of notes under a Change of Control Offer, Change of Control Redemption, Net Proceeds Offer, optional redemption, optional redemption upon equity offerings or in connection with the defeasance of the notes, in each case as set forth in "Description of the Notes." Quiet Enjoyment Under the operating lease, BRL has agreed that so long as no event of default under the operating lease has occurred and is continuing, it will not take, cause to be taken or authorize any person to take any action, to interfere with UCI's right to peaceful possession, use and quiet enjoyment of the equipment, subject to BRL's right to inspect the equipment. Maintenance UCI, at its sole cost and expense, has agreed to maintain all equipment (1) in a manner consistent with UCI's maintenance practices applicable to its other equipment of the same or similar type so as to keep each item in good condition, (2) in all material respects in compliance with applicable law and (3) in all respects in compliance with the insurance applicable to the equipment. UCI will not change its lease maintenance practices in any manner that would diminish the value of the equipment in any material respect. UCI has agreed to comply in all material respects with environmental laws and maintain adequate liability insurance. 138 145 Warranties All manufacturer's warranties with respect to the equipment held by BRL will be made available to UCI during the term of the operating lease unless an event of default under the operating lease occurs and is continuing, in which case those warranties will automatically revert to BRL. UCI must notify BRL and the administrative agent of any material claim or group of claims against those warranties. Use Under the operating lease, UCI has agreed that each item of equipment will be used and operated in compliance with all insurance policy terms, conditions and provisions to be referenced in the operative documents and in all material respects with all applicable law pertaining to the use and operation of the equipment (including, environmental, noise and pollution laws). UCI has also agreed that each item of equipment will be used and operated solely in the conduct of UCI's or a permitted sublessee's business in the manner for which it was intended and in accordance with any license or certificate provided by the manufacturer of the equipment. UCI has further agreed that no item of equipment will be used or located outside of the United States. However, the equipment may be used or located in a United States territory if subject to a perfected first priority security interest. UCI may not allow the equipment to be subjected to any excess wear and tear. Modifications In case any equipment is required to be altered or modified in order to comply with any insurance policies required under the operating lease or applicable law, UCI is required to make such alteration at its own expense and the same will automatically become the property of BRL free and clear of all liens (other than liens caused by BRL and permitted liens) subject to the terms of the operating lease. UCI may make any optional alteration to any item of equipment so long as that such optional alteration does not impair the value, use or remaining useful life of that equipment. If an optional alteration is readily removable without impairing the value, use or remaining useful life of the equipment, any such optional alteration shall be and remain the property of UCI. To the extent such optional alteration is not readily removable without impairing the value, use or remaining useful life of an item of equipment, the alteration shall immediately and automatically be and become the property of BRL, free and clear of all liens (other than liens caused by BRL and permitted liens), and shall be subject to the terms of the operating lease. Except as set forth above, UCI may not modify any equipment without the prior written authority and approval of BRL. Substitution of Equipment UCI may at any time, so long as no event of default has occurred and is continuing under the operating lease, substitute equipment of the type owned by UCI that is the type rented to third parties by UCI in the ordinary course of its business. The substituted equipment must have (individually or in the aggregate) both a fair market value and a residual value equal to or greater than the price paid by BRL for the equipment being replaced. If for any reason BRL reasonably challenges the fair market value or estimated residual value of the replacement equipment as not being equal to or greater than the price paid by BRL for the equipment being replaced, UCI must either (1) replace the proposed replacement equipment with other replacement equipment that BRL reasonably believes has a fair market value and residual value equal to or greater than the price paid by BRL for the equipment being replaced, or (2) provide BRL with an appraisal confirming that each of the fair market value and residual value of the replacement equipment is equal to or greater than the price paid by BRL for the replaced equipment. All replacement equipment shall be subject to the appraisal requirements described below. 139 146 Appraisals For any replacement equipment during the term of the operating lease, UCI shall, at its own expense, cause an appraisal of each item of equipment for which no appraisal has been previously delivered upon the earliest of: (1) eighteen months after the last appraisal date (or if no appraisal date has occurred, after the first date on which replacement equipment becomes subject to the operating lease) and (2) the first date on which replacement equipment with an aggregate acquisition cost in excess of $15 million becomes subject to the operating lease and for which no appraisal has been previously delivered. Subleasing UCI will have the right during the term of the operating lease to sublease one or more items of equipment to any other person. However, those items of equipment must be maintained in the United States and any sublease entered into must satisfy certain conditions, including the following: (1) the sublease must expire before, or automatically expire upon, the expiration of the operating lease term; provided that if UCI has elected to exercise its purchase option for the equipment at the end of the operating lease term and no default has occurred under the operating lease, the sublease may extend beyond the operating lease term; (2) the sublease must be in writing and must expressly prohibit any further assignment or subleasing; (3) the sublease may contain a purchase option in favor of the sublessee, provided that UCI substitutes the equipment with replacement equipment prior to the date that the option is exercised; and (4) the sublease must require UCI or the sublessee to maintain the equipment in accordance with the provisions of the operating lease. No sublease will affect or reduce UCI's obligations under the operating lease, and UCI will remain directly and primarily liable for those obligations. If an event of default has occurred and is continuing under the operating lease, UCI may not agree to sublease or extend any sublease of equipment without the consent of BRL (and this right to consent of BRL has been assigned to the collateral agent). However, if the event of default is solely the result of a breach of a covenant or of covenants to deliver financial or other information to BRL or the administrative agent or to use, maintain or repair the equipment in accordance with the operating lease, UCI may agree to sublease any item of equipment in accordance with the requirements set forth above so long as such sublease is expressly subject and subordinate to BRL's and the collateral agent's interests in that equipment. Liens UCI will keep the equipment free and clear of all liens except permitted liens and liens caused by BRL. Permitted liens include, among others: - the respective rights and interests of the parties under the operating lease and participation agreement (including any lien created pursuant to or expressly permitted by the terms of the Participation Agreement), - liens for taxes that either are not yet due and payable or are being contested in good faith, - any permitted sublease, - liens arising by operation of law, materialmen's, mechanics', workers', repairmen's, employees', carriers', warehousemen's and other like liens in connection with any alterations, modifications or replacements to the extent permitted under the operating lease for amounts that are not more than 140 147 60 days past due or are being diligently contested in good faith by appropriate proceedings, so long as such proceedings satisfy customary conditions for contest proceedings, - liens arising out of judgments or awards with respect to which appeals or other proceedings for review are being prosecuted in good faith and for the payment of which adequate reserves have been provided as required by GAAP or other appropriate provisions have been made, and - liens created by UCI with the written consent of BRL and each assignee of BRL's interest in the equipment. Insurance UCI will maintain casualty insurance in full force and effect at its own expense at all times during the term of the operating lease in the amount of the aggregate acquisition cost of the equipment, and liability insurance in the amount of $50,000,000 per occurrence with casualty insurance deductibles of $2,500,000 per year. Provided that no event of default under the operating lease has occurred, all casualty proceeds in excess of $1,000,000 will be paid directly to the collateral agent and will be used to repair the equipment, or in the case of a total loss, will be held as collateral for UCI's obligation to substitute the lost equipment with replacement equipment. Casualty If any damage or casualty occurs with respect to an item of equipment (or any part of that equipment) that does not constitute an event of loss (described below), UCI will apply all payments (including insurance proceeds) received by BRL or UCI from any insurer, governmental entity or other party directly in payment of repairs or for replacement of property. An "event of loss" with respect to any item of equipment means (1) the loss of such item of equipment or any substantial part of that item of equipment, (2) the loss of the use of such item of equipment due to theft or disappearance for a period in excess of 45 days during the term of the operating lease, or existing at the expiration or earlier termination of the lease term, (3) the destruction, damage beyond repair, or rendition of such item of equipment or any substantial part of that item of equipment permanently unfit for normal use for any reason whatsoever, or (4) the condemnation, confiscation, seizure, or requisition of use or title to such item of equipment or any substantial part of that item of equipment by any governmental entity under the power of eminent domain or otherwise beyond the earlier of 15 days and the end of the term of the operating lease. If an event of loss occurs with respect to an item of equipment during the term of the operating lease, UCI will give BRL and the collateral agent prompt written notice of the loss, and will replace the item within 60 days of the date of the loss in accordance with the requirements for substitution of equipment with replacement equipment. Events of Default The following events, among others, are events of default under the operating lease: - semi-annual payment date payment default continues unremedied for a period of 25 days or more, or any other payment defaults continue unremedied for a period of three business days or more; - representations by UCI or UCH in any of the operative documents are untrue in any material respect at the time of making; 141 148 - failure to maintain required insurance, and such failure continues unremedied for 10 or more business days after notice; - failure to perform any covenants within the applicable notice and cure periods; - UCI or UCH insolvency or bankruptcy (voluntary or involuntary) which is not dismissed within 60 days of commencement; - the UCH lease guarantee is not in full force and effect; - acceleration (or default permitting acceleration) of any facility of UCI with respect to outstanding indebtedness or obligations aggregating $20,000,000 or more; - a non-appealable judgment or judgments exceeding $20,000,000 is entered against UCI and remains unstayed or unvacated for 30 consecutive days; - either the operating lease or the participation agreement ceases to be in full force and effect, or ceases to give the collateral agent (for the benefit of BRL and the lenders) the liens purported to be created by the agreement on any material collateral; and - a "change of control" (as defined under "Description of the Notes -- Certain Definitions") occurs. If UCI has not satisfied the obligations and conditions set forth above with respect to the redelivery or purchase of each and every item of equipment on or before the termination date of the operating lease, then UCI shall be deemed to have exercised its option to purchase the equipment at the end of the operating lease term. PARTICIPATION AGREEMENT Parties UCI, UCH, BRL, the lenders under the BRL term loan and Bankers Trust Company, as administrative agent and the collateral agent, The Bank of New York, as trustee under the indenture, BRL Universal Equipment Management, Inc., the general partner of BRL, Deutsche Bank Alex Brown Inc., as arranger, and other various other parties thereto as syndicate agent, documentation agent and managing agent. General The participation agreement sets forth customary representations, warranties, covenants of the parties, conditions precedent to the entering into of the operating lease and funding of the notes and the BRL term loan. Some of the significant provisions of the participation agreement are summarized below. General Indemnity UCI has agreed to indemnify BRL and its respective shareholders, members, directors, managers, officers, employees and agents on an after-tax basis from and against liabilities, losses or expenses that may be asserted against any of them arising out of (1) the purchase, use, lease, ownership, maintenance, operation or sale of the equipment; (2) any liabilities arising under any federal, state, or local law, rule or regulations (environmental or otherwise); and (3) any breach by UCI under any operative document or any other contract, agreement or law by which UCI is bound. The indemnity excludes, among other items, claims that are (1) attributable to acts or events occurring after the expiration of the operating lease or (2) with respect to any indemnitee, attributable to the gross negligence or willful misconduct of that indemnitee. General Tax Indemnity UCI has agreed to indemnify each indemnitee against, and agreed to pay, any and all taxes payable as a result of the purchase, use, lease, ownership, maintenance, operation or sale of the equipment, including 142 149 rental, withholding, sales, use, gross receipts, real estate, personal property, income (other than state taxes assessed against BRL), franchise, excise, value added or other taxes, subject to customary exceptions including United States federal and certain state taxes based upon or measured by net income of persons. Any reimbursement by UCI to any indemnitee will be on an after-tax basis so as to be sufficient to cover any taxes which might be imposed as a result of that indemnity payment. Indemnification by UCI will not be affected by a termination of the operating lease. Security The provisions of the participation agreement relating to the collateral securing the notes is described under "Description of the Notes -- Security and Sources of Payment for the Notes." LEASE GUARANTEE Under the lease guarantee provision contained in the participation agreement, UCH has irrevocably and unconditionally guaranteed, on a full recourse basis for the benefit of BRL, all obligations of UCI under the operating lease and the participation agreement (including all rent and indemnity payments). The amount payable by UCH under the lease guarantee provision may not exceed the amount payable by UCI under the operative documents and the participation agreement, assuming that such documents were enforced in accordance with their terms (without giving effect to any discharge or limitation thereof under bankruptcy or other insolvency laws), plus any reasonable costs of enforcing the lease guarantee provision. THE EQUIPMENT The equipment subject to the operating lease is a representative sample of UCI's natural gas compression equipment fleet. The equipment has an appraised value of not less than $427 million, as determined by American Appraisal Associates, Inc., as of the date of the operating lease. Attached hereto as Annex A is a summarization letter prepared by American Appraisal Associates which describes the appraisal report in limited detail. American Appraisal Associates was selected on the basis of its expertise in equipment valuations in leasing transactions. American Appraisal Associates is a large independent valuation firm and has been in business for over 100 years. American Appraisal Associates has provided in the past and may provide in the future appraisal and valuation services to the registrants, for which it received customary fees and expenses. None of the registrants placed any limitations on the scope of analysis, procedures or methodologies employed by American Appraisal Associates in the preparation of its appraisal report. 143 150 REGISTRATION RIGHTS As part of the sale of the old notes to the initial purchasers, the holders of the old notes became entitled to the benefits of the registration rights agreement, dated as of February 9, 2001 by and among registrants and the initial purchasers. Under the registration rights agreement the registrants have agreed to: - file a registration statement with the SEC with respect to a registered offer to exchange the old notes for new 8 7/8% senior secured notes due 2008, having terms substantially identical in all material respects to the old notes, except that the new notes will not contain transfer restrictions, by May 10, 2001; - use their reasonable best efforts to cause the registration statement to become effective under the Securities Act by August 8, 2001; - offer the new notes in exchange for surrender of the old notes following the effective date of the registration statement; and - use their reasonable best efforts to keep the exchange offer open for at least 30 days, or longer if required by applicable law, after the date that the notice of the exchange offer is mailed to the holders of the old notes. The exchange offer being made hereby, if consummated within the required time periods, will satisfy the registrants' obligations under the registration rights agreement. For each old note validly surrendered pursuant to the exchange offer and not validly withdrawn, the holder will receive a new note having a principal amount equal to that of the surrendered old note. Interest on each old note will accrue (i) from the later of (A) the last interest payment date on which interest was paid on the old note surrendered in exchange for the new note or, (B) if the old note is surrendered for exchange on a date in a period that includes the record date for an interest payment date to occur on or after the date of the exchange and as to which interest will be paid, the date of such interest payment date, or (ii) if no interest has been paid on the old notes, from February 9, 2001. Under existing interpretations of the SEC contained in several no-action letters to third parties, the registrants' believe that the new notes will be freely transferable by the holders, other than affiliates of the registrants, after the exchange offer without further registration under the Securities Act; provided, however, that if you want to exchange your old notes for new notes, you will be required to represent that: (1) you are acquiring the new notes in the ordinary course of your business; (2) you have no arrangement or understanding with any person to participate in the distribution of the new notes; (3) you are not an "affiliate," as defined in Rule 405 under the Securities Act, of the registrants, or, if you are an "affiliate," that you will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable; (4) if you are not a broker-dealer, you are not engaging and do not intend to engage in a distribution of the new notes; and (5) you acknowledge and agree that if you are a broker-dealer registered under the Exchange Act that is receiving the new notes for your own account in exchange for old notes acquired as a result of market-making or other trading activities, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale of the new notes, and that you cannot rely on the position of the SEC's staff set forth in its no-action letters. The registrants agree to make available, during the period required by the Securities Act, a prospectus meeting the requirements of the Securities Act for use by participating broker-dealers and other persons, if any, with similar prospectus delivery requirements for use in connection with any resale of new notes. 144 151 If (1) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the registrants are not permitted to effect an exchange offer, (2) the registrants do not complete the exchange offer by September 7, 2001, (3) under certain circumstances, some holders of unregistered new notes so request, or (4) in the case of any holder that participates in the exchange offer, that holder does not receive new notes on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of that holder as an affiliate of the registrants or within the meaning of the Securities Act) then in each case, the registrants will - promptly deliver to the holders and the trustee written notice of any of these changes; - at their sole expense, file a shelf registration statement covering resales of the old notes as promptly as practicable; and - use their reasonable best efforts to keep the shelf registration statement effective until the earlier of February 9, 2003 and such time as all of the applicable old notes have been sold under the shelf registration statement. In the event that the registrants file a shelf registration statement, the registrants will provide each holder with copies of the prospectus that is a part of the shelf registration statement, notify each holder when the shelf registration statement for the notes has become effective, and take some other actions that are required to permit unrestricted resales of the notes. A holder that sells notes pursuant to the shelf registration statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under Securities Act in connection with such sales and will be bound by the provisions of the registration rights agreement that are applicable to that kind of holder, including certain indemnification rights and obligations. If the registrants fail to comply with the above provisions or if the exchange offer registration statement or the shelf registration statement fails to become effective, then the registrants will pay "additional interest" on the notes as follows: (1) if (A) neither the exchange offer registration statement nor the shelf registration statement is filed with the SEC on or prior to the applicable filing date or (B) despite the fact that we have consummated or will consummate an exchange offer, the registrants are required to file a shelf registration statement and the registrants do not file the shelf registration statement on or prior to the date required by the registration rights agreement, then commencing on the day after either such required filing date, additional interest will accrue on the principal amount of the notes at a yearly rate of 0.25% for the first 90 days immediately following each such filing date; the additional interest rate will increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (2) if (A) neither the exchange offer registration statement nor a shelf registration statement is declared effective by the SEC on or prior to August 8, 2001 or (B) despite the fact that the registrants have consummated or will consummate an exchange offer, the registrants are required to file a shelf registration statement and the SEC does not declare the shelf registration statement effective on or prior to the 90th day following the date the shelf registration statement was filed, then, commencing on the day after either required effective date, additional interest will accrue on the principal amount of the note at a yearly rate of 0.25% for the first 90 days immediately following that required effective date; the additional interest rate will increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; or (3) if (A) the issuers have not exchanged new notes for all old notes validly surrendered in accordance with the terms of the exchange offer on or prior to September 7, 2001 or (B) if applicable, the shelf registration statement has been declared effective and the shelf registration statement ceases to be effective at any time prior to February 9, 2003, other than after such time as all notes have been disposed of under the shelf registration statement, then additional interest will 145 152 accrue on the principal amount of the notes at a yearly rate of 0.25% for the first 90 days commencing on (x) September 8, 2001, in the case of (A) above, or (y) the day the shelf registration statement ceases to be effective, in the case of (B) above, the additional interest rate will increase by an additional 0.25% per annum at the beginning of each subsequent 90-day period; provided, however, that the additional interest rate on the notes may not accrue under more than one of the foregoing clauses (1)-(3) at any one time and at no time shall the aggregate amount of additional interest accruing exceed in the aggregate 1.00% per year; provided, further, however, that (A) upon the filing of the exchange offer registration statement or a shelf registration statement, in the case of clause (1) above, (B) upon the effectiveness of the exchange offer registration statement or a shelf registration statement, in the case of clause (2) above, or (C) upon the exchange of new notes for all old notes surrendered, in the case of clause (3)(A) above, or upon the effectiveness of the shelf registration statement that had ceased to remain effective, in the case of clause (3)(B) above, additional interest on the notes as a result of such clause, or the relevant subclause of that clause, as the case may be, shall cease to accrue. Any amounts of additional interest due pursuant to clause (1), (2) or (3) above will be payable in cash on the same original interest payment dates as the notes. BOOK-ENTRY; DELIVERY AND FORM The certificates representing the new notes will be issued in fully registered form without interest coupons. The new notes initially will be represented by one or more permanent global certificates in definitive, fully registered form without interest coupons (the "Global notes"). The Global notes will be deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of a nominee of such depositary. The Global notes will be subject to certain restrictions on transfer set forth therein and in the indenture. Subject to such restrictions, QIBs or non-U.S. purchasers may take physical delivery of their certificates instead of holding their interests through the Global notes (and which are then ineligible to trade through DTC). Upon the transfer to a QIB of any certificated security initially issued to a purchaser, that certificate will, unless the transferee requests otherwise or the Global notes have previously been exchanged in whole for securities evidenced by physical certificates, be exchanged for an interest in the Global notes. THE GLOBAL NOTES The issuers expect that pursuant to procedures established by DTC (1) upon the issuance of the Global notes, DTC or its custodian will credit, on its internal system, the principal amount of the individual beneficial interests represented by such Global notes to the respective accounts of persons who have accounts with such depositary and (2) ownership of beneficial interests in the Global notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Ownership of beneficial interests in the Global notes will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. Holders may hold their interests in the Global notes directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. So long as DTC, or its nominee, is the registered owner or holder of the new notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the new notes represented by such Global notes for all purposes under the indenture. No beneficial owner of an interest in the Global notes will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture with respect to the new notes. 146 153 Payments of the principal of, premium, if any, and interest (including additional interest) on, the Global notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the issuers, the trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The issuers expect that DTC or its nominee, upon receipt of any payment of principal, premium, if any, and interest (including additional interest) on the Global notes, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global notes as shown on the records of DTC or its nominee. The issuers also expect that payments by participants to owners of beneficial interests in the Global notes held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. The issuers expect that transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same-day funds. If a holder requires physical delivery of a certificated security for any reason, including to sell new notes to persons in states which require physical delivery of the new notes, or to pledge such securities, such holder must transfer its interest in a Global note, in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture. DTC has advised the issuers that it will take any action permitted to be taken by a holder of new notes (including the presentation of notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the Global notes are credited and only in respect of such portion of the aggregate principal amount of new notes as to which such participant or participants has or have given such direction. However, if there is an event of default under the indenture, DTC will exchange the Global notes for certificated securities, which it will distribute to its participants. DTC has advised the issuers as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. The rules applicable to DTC and its direct and indirect participants are on file with the SEC. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global notes among participants of DTC, they are under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the issuers nor the trustee will have any responsibility for the performance by DTC or its respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES Certificated securities shall be issued in exchange for beneficial interests in the Global notes (1) if requested by a holder of such interests, (2) the issuers, at their option, notify the trustee in writing that they elect to cause the issuance of certificated notes under the indenture or (3) if DTC at any time is unwilling or unable to continue as depositary for the Global notes and a successor depositary is not appointed by the issuers within 90 days. Neither the issuers nor the trustee shall be liable for any delay by DTC or any Participant or indirect participant in identifying the owners of security entitlements in the 147 154 related new notes and the issuers and the trustee may conclusively rely on, and shall rely on, and shall be protected in relying on, instructions from DTC for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the new notes to be issued). TRANSFER AGENT, REGISTRAR, PAYING AGENT AND EXCHANGE AGENT The trustee will act as the transfer agent, registrar, paying agent and exchange agent for the new notes. The trustee, in its capacity as the paying agent, may appoint co-paying agents, which must be acceptable to the issuers, as appropriate, any tax or other governmental charges that may be imposed in connection with that transfer or exchange. The issuers will not be required to register or cause to be registered the transfer of any note after it has been called for redemption. 148 155 PLAN OF DISTRIBUTION We are not using any underwriters for this exchange offer. We are bearing the expenses of the exchange. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of any new notes received in exchange for old notes acquired by such broker-dealer as a result of market-making or other trading activities. Each such broker-dealer that receives new notes for its own account in exchange for old notes pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. We have agreed that for a period of up to 180 days after the registration statement is declared effective, we will make this prospectus, as amended or supplemented, available to any such broker-dealer that requests copies of this prospectus in the letter of transmittal for use in connection with any such resale. We will not receive any proceeds from any sale of new notes by broker-dealers or any other persons. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions or through the writing of options on the exchange notes, or a combination of such methods of resale, at market prices prevailing at the time of resale or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer in exchange for old notes acquired by such broker-dealer as a result of market-making or other trading activities and any broker-dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act. Any profit on these resales of new notes and any commissions or concessions received by any persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed to pay all expenses relating to our performance of, or compliance with, the registration rights agreement and will indemnify the holders of old notes, including any broker-dealers, and certain parties related to these holders, against various liabilities, including liabilities under the Securities Act. 149 156 CERTAIN U.S. FEDERAL TAX CONSEQUENCES THIS SUMMARY IS OF A GENERAL NATURE AND IS INCLUDED HEREIN SOLELY FOR INFORMATIONAL PURPOSES. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED AS BEING, LEGAL OR TAX ADVICE. WE MAKE NO REPRESENTATION WITH RESPECT TO THE CONSEQUENCES TO ANY HOLDER OF THE NOTES. YOU SHOULD CONSULT YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES. The following discussion is a summary of certain United States federal income tax considerations relevant to the exchange of old notes for new notes pursuant to the exchange offer as well as to the ownership and disposition of the new notes. The summary is based upon current provisions of the Internal Revenue Code of 1986, as amended, judicial decisions, and administrative interpretations, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the notes. There can be no complete assurance that the Internal Revenue Service will not challenge the conclusions stated below, and no ruling from the Internal Revenue Service has been or will be sought on any of the matters discussed below. The following discussion does not purport to be a complete analysis of all the potential federal income tax consequences of exchanging old notes for new notes or of owning and disposing of the new notes, and, without limiting the generality of the foregoing, this summary does not address the effect of any special rules applicable to certain types of holders, including dealers in securities, insurance companies, financial institutions, tax-exempt entities, persons owning notes through partnerships or other pass-through entities, former citizens or residents of the United States and persons who hold notes as part of a straddle, hedge, or conversion transaction. In addition, this discussion is limited to holders who acquire the new notes by exchanging the old notes pursuant to the exchange offer and who hold the notes as capital assets within the meaning of Section 1221 of the Internal Revenue Code. This discussion does not address the effect of any state, local, or foreign tax laws. TAX CONSEQUENCES OF THE EXCHANGE The exchange of old notes for new notes pursuant to the exchange offer will not be treated as an "exchange" for federal income tax purposes because the new notes do not differ materially in kind or extent from the old notes. Accordingly: (1) holders will not recognize taxable gain or loss upon the receipt of new notes in exchange for old notes in the exchange offer, (2) the holding period for a new note received in the exchange offer will include the holding period of the old note surrendered in exchange for the new note, and (3) the adjusted tax basis of a new note immediately after the exchange will be the same as the adjusted tax basis of the old note surrendered in exchange for the new note. We recommend that you consult your own tax advisor as to the particular consequences of exchanging your old notes for new notes, including the applicability and effect of any state, local or foreign tax laws. CERTAIN TAX CONSEQUENCES RELATED TO OWNING AND DISPOSING OF THE NEW NOTES United States Holders If you are a "United States holder," as defined below, this section applies to you. You are a United States holder if you hold the notes and you are: (1) a citizen or resident of the United States, (2) treated as a domestic corporation, 150 157 (3) an estate the income of which is subject to United States federal income taxation regardless of its source; or (4) a trust (i) that is subject to the supervision of a court within the United States and the control of one or more United States persons as defined in section 7701(a)(30) of the Code or (ii) that has a valid election in effect under applicable Treasury regulations to be treated as a United States person. If the notes are held by a partnership, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. Partners of partnerships holding notes should consult their tax advisors. PAYMENT OF INTEREST You must generally include interest on a note as ordinary income at the time the interest is received, if you use the cash method of accounting for U.S. federal income tax purposes, or when the interest is accrued, if you use the accrual method of accounting for U.S. federal income tax purposes. SALE, EXCHANGE OR REDEMPTION OF THE NOTES You must recognize taxable gain or loss on the sale, exchange or redemption of a note. The amount of your gain or loss equals the difference between: (1) the amount of cash proceeds and the fair market value of any property you receive on the sale, exchange or redemption (except to the extent this amount is attributable to accrued interest income, which is taxable as ordinary income) and (2) your tax basis in the note. Your tax basis in a note generally will equal the amount you paid for the old note, subject to certain adjustments. The tax rate applicable to this capital gain will depend, among other things, upon your holding period for the notes that are sold, exchanged or redeemed. The deductibility of capital losses is subject to certain limitations. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX In general, information reporting requirements will apply to certain non-corporate United States Holders with respect to payments of principal and interest on a note and to the proceeds of the sale of a note, and a 31% backup withholding tax may apply to these payments if: (1) the United States Holder fails to furnish or certify his correct taxpayer identification number to the issuers in the manner required, (2) the issuers are notified by the Internal Revenue Service that the United States Holder has failed to report payments of interest or dividends properly or that the taxpayer identification number furnished to the issuers is incorrect or (3) under certain circumstances, the United States Holder fails to certify that he has not been notified by the Internal Revenue Service that he is subject to backup withholding for failure to report interest or dividend payments. Any amounts withheld from a payment to a United States Holder under the backup withholding rules will be allowed as a credit against the holder's United States federal income tax liability and may entitle the United States Holder to a refund, provided that the required information is furnished to the Internal Revenue Service. 151 158 Non-United States Holders If you are a "non-United States holder," as defined below, this section applies to you. A non-United States Holder means any beneficial owner of a note that is not a United States Holder. The rules governing the United States federal income and estate taxation of a non-United States Holder are complex, and no attempt will be made herein to provide more than a summary of those rules. Special rules may apply to a non-United States Holder if such holder is a controlled foreign corporation, passive foreign investment company or foreign personal holding company and therefore subject to special treatment under the Internal Revenue Code. IF YOU ARE A NON-UNITED STATES HOLDER, YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS TO DETERMINE THE EFFECT ON YOU OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS WITH REGARD TO AN INVESTMENT IN THE NOTES, INCLUDING ANY REPORTING REQUIREMENTS. PAYMENT OF INTEREST Under the "portfolio interest exemption," you will generally not have to pay U.S. federal income tax on interest paid on the new notes, provided you are not receiving the interest in connection with a United State trade or business and provided you: (1) do not actually or constructively own 10% or more of the capital or profits interest in BRL or 10% or more of the combined voting power of all classes of BRL Corp. stock entitled to vote, (2) are not, for United States federal income tax purposes, a controlled foreign corporation related to the issuers within the meaning of section 881(c)(3)(C), (3) are not a bank receiving interest on a loan entered into in the ordinary course of business within the meaning of Internal Revenue Code section 881(c)(3)(A), and (4) either: (a) provide a Form W-8BEN or W-8IMY, as appropriate (or a suitable substitute form), signed under penalties of perjury that includes your name and address and certifies as to your non-United States Holder status in compliance with applicable law and regulations or (b) hold the notes through a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business and that provides a statement signed under penalties of perjury in which it certifies to the issuers or the issuers' agent that a Form W-8BEN or W-8IMY, as appropriate (or suitable substitute), has been received by it from you or a qualifying intermediary and furnishes the issuers or the issuers' agent with a copy thereof. Recently adopted United States Treasury Regulations provide alternative methods for satisfying the certification requirements described in clause (4) above and are generally effective for payments made after December 31, 2000, subject to certain transition rules. For example, in the case of notes held by a foreign partnership, the new regulations require that the certification described above be provided by the partners rather than by the partnership and that the partnership provide certain information, including a U.S. taxpayer identification number. A look-through rule would apply in the case of tiered partnerships. You are urged to consult your own tax advisors regarding the new regulations. Except to the extent that an applicable treaty otherwise provides, you generally will be taxed in the same manner as a United States Holder with respect to interest if the interest income is effectively connected with a United States trade or business conducted by you. Effectively connected interest received by a corporate non-United States Holder may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate). Even though this effectively connected interest is subject to income tax, and may be subject to the branch profits tax, it is 152 159 not subject to withholding tax if the non-United States Holder delivers IRS Form W-8ECI (or successor form) annually to the payor. Interest income of a non-United States Holder that is not effectively connected with a United States trade or business and that does not qualify for the portfolio interest exemption described above will generally be subject to a withholding tax at a 30% rate (or, if applicable, a lower treaty rate). SALE, EXCHANGE OR REDEMPTION OF THE NOTES You will generally not be subject to United States federal income tax or withholding tax on any gain realized on the sale, exchange or redemption or other disposition of a note unless: (1) the gain is effectively connected with a United States trade or business conducted by you; (2) in the case of a non-United States Holder who is an individual, the holder is present in the United States for a period or periods aggregating 183 days or more during the taxable year of the disposition, and either the holder has a "tax home" in the United States or the disposition is attributable to an office or other fixed place of business maintained by that holder in the United States; or (3) you are subject to tax pursuant to the provisions of the Internal Revenue Code applicable to certain United States expatriates. CERTAIN U.S. FEDERAL ESTATE TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS A note held by an individual who is not a citizen or resident of the United States at the time of death will generally not be includable in the decedent's gross estate for United States federal estate tax purposes, provided that the holder or beneficial owner did not at the time of death actually or constructively own 10% or more of the capital or profits interest in BRL or 10% or more of the combined voting power of all classes of BRL Corp. stock entitled to vote, and provided that, at the time of the holder's death, payments with respect to that note would not have been effectively connected with the holder's conduct of a trade or business within the United States. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX United States information reporting requirements and backup withholding tax will not apply to payments of interest and principal on a note to a non-United States Holder if the statement described in "Non-United States Holders -- Payment of Interest" is duly provided by the holder or the holder otherwise establishes an exemption, provided that the issuers do not have actual knowledge that the holder is a United States person. Information reporting requirements and backup withholding tax will not apply to any payment of the proceeds of the sale of a note effected outside the United States by a foreign office of a "broker" (as defined in applicable United States Treasury Regulations), unless the broker: (1) is a United States person, (2) derives 50% or more of its gross income from all sources for certain periods from the conduct of a United States trade or business, (3) is a controlled foreign corporation as to the United States or (4) is, for taxable years beginning after December 31, 2000, a foreign partnership in which one or more United States persons, in the aggregate, own more than 50% of the income or capital interests in the partnership or a foreign partnership which is engaged in a trade or business in the United States. Payment of the proceeds of any sale effected outside the United States by a foreign office of any broker that is described in (1), (2), (3) or (4) of the preceding sentence will not be subject to backup 153 160 withholding tax absent actual knowledge that the payee is a United States person, but will be subject to information reporting requirements unless the broker has documentary evidence in its records that the beneficial owner is a non-United States Holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. Payment of the proceeds of any sale to or through the United States office of a broker, whether foreign or United States, is subject to information reporting and backup withholding requirements, unless the beneficial owner of the note provides the statement described in "Non-United States Holders -- Payment of Interest" or otherwise establishes an exemption and the broker does not have actual knowledge that the payee is a United States person or that the exemption conditions are not satisfied. Any amounts withheld from a payment to a non-United States Holder under the backup withholding rules will be allowed as a credit against the Holder's United States federal income tax liability and may entitle the non-United States Holder to a refund, provided that the required information is provided to the IRS. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. LEGAL MATTERS Certain legal matters relating to the exchange offer will be passed upon for Universal by Gardere Wynne Sewell LLP, Houston, Texas and by King & Spalding, Houston, Texas. Certain legal matters relating to the exchange offer will be passed upon for the issuers by Robert R. Veach, Jr., Dallas, Texas. EXPERTS The consolidated financial statements for each of Universal Compression Holdings, Inc. and Universal Compression, Inc. as of March 31, 1999 and 2000, and the results of their operations and their cash flows for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the registration statement, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The financial statements of Tidewater Compression Service, Inc. for the period from April 1, 1997 through February 20, 1998 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and elsewhere in the registration statement, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of Enterra Compression Company and subsidiaries as of December 31, 1999 and 2000, and for the years then ended included in this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. The combined financial statements of Weatherford Compression as of December 31, 1998, and for the year then ended included in this prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. 154 161 The consolidated financial statements of Global Compression Holdings, Inc. and subsidiaries as of February 2, 1999, and December 31, 1998 and 1997 and for the period January 1, 1999 through February 2, 1999 and the years ended December 31, 1998 and 1997, have been included herein in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated balance sheet of BRL included in this prospectus has been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and elsewhere in the registration statement, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 155 162 INDEX TO FINANCIAL STATEMENTS
PAGE ----- UNIVERSAL COMPRESSION HOLDINGS, INC. Independent Auditors' Report of Deloitte & Touche LLP....... F-3 Consolidated Financial Statements: Consolidated Balance Sheets at March 31, 1999 and March 31, 2000............................................... F-4 Consolidated Statements of Operations for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000........ F-5 Consolidated Statements of Stockholders' Equity for the period December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000... F-6 Consolidated Statements of Cash Flows for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000........ F-7 Notes to Consolidated Financial Statements................ F-8 UNIVERSAL COMPRESSION, INC. Independent Auditors' Report of Deloitte & Touche LLP....... F-21 Consolidated Financial Statements: Consolidated Balance Sheets at March 31, 1999 and March 31, 2000............................................... F-22 Consolidated Statements of Operations for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000........ F-23 Consolidated Statements of Stockholders' Equity for the period December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000... F-24 Consolidated Statements of Cash Flows for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000........ F-25 Notes to Consolidated Financial Statements................ F-26 TIDEWATER COMPRESSION SERVICE, INC. Independent Auditors' Report of Deloitte & Touche LLP....... F-36 Financial Statements: Statement of Operations for the period from April 1, 1997 through February 20, 1998.............................. F-37 Statement of Stockholder's Equity for the period from April 1, 1997 through February 20, 1998................ F-38 Statement of Cash Flows for the period from April 1, 1997 through February 20, 1998.............................. F-39 Notes to Financial Statements............................. F-40 UNIVERSAL COMPRESSION HOLDINGS, INC. Consolidated Balance Sheets at March 31, 2000 and at December 31, 2000 (unaudited)............................. F-43 Unaudited Consolidated Statements of Operations for the three and nine months ended December 31, 1999 and 2000.... F-44 Unaudited Consolidated Statements of Cash Flows for the nine months ended December 31, 1999 and 2000................... F-45 Notes to Unaudited Consolidated Financial Statements........ F-46 UNIVERSAL COMPRESSION, INC. Consolidated Balance Sheets at March 31, 2000 and at December 31, 2000 (unaudited)............................. F-52 Unaudited Consolidated Statements of Operations for the three and nine months ended December 31, 1999 and 2000.... F-53 Unaudited Consolidated Statements of Cash Flows for the nine months ended December 31, 1999 and 2000................... F-54 Notes to Unaudited Consolidated Financial Statements........ F-55
F-1 163
PAGE ----- ENTERRA COMPRESSION COMPANY Report of Independent Public Accountants -- Arthur Andersen LLP....................................................... F-60 Consolidated Financial Statements: Consolidated Balance Sheet at December 31, 2000........... F-61 Consolidated Statement of Operations for the year ended December 31, 2000...................................... F-62 Consolidated Statement of Stockholders' Equity for the year ended December 31, 2000........................... F-63 Consolidated Statement of Cash Flows for the year ended December 31, 2000...................................... F-64 Notes to Consolidated Financial Statements................ F-65 ENTERRA COMPRESSION COMPANY Report of Independent Public Accountants -- Arthur Andersen LLP....................................................... F-75 Consolidated Financial Statements: Consolidated Balance Sheet at December 31, 1999........... F-76 Consolidated Statement of Operations for the year ended December 31, 1999...................................... F-77 Consolidated Statement of Stockholders' Equity for the year ended December 31, 1999........................... F-78 Consolidated Statement of Cash Flows for the year ended December 31, 1999...................................... F-79 Notes to Consolidated Financial Statements................ F-80 WEATHERFORD COMPRESSION Report of Independent Public Accountants -- Arthur Andersen LLP....................................................... F-91 Combined Financial Statements: Combined Balance Sheet at December 31, 1998............... F-92 Combined Statement of Operations for the year ended December 31, 1998...................................... F-93 Combined Statement of Equity for the year ended December 31, 1998............................................... F-94 Combined Statement of Cash Flows for the year ended December 31, 1998...................................... F-95 Notes to Combined Financial Statements.................... F-96 GLOBAL COMPRESSION HOLDINGS, INC. Independent Auditors' Report of KPMG LLP.................... F-105 Consolidated Financial Statements: Consolidated Balance Sheets at February 2, 1999 and at December 31, 1998 and 1997............................. F-106 Consolidated Statements of Operations for the period from January 1, 1999 through February 2, 1999 and for the years ended December 31, 1998 and 1997................. F-107 Consolidated Statements of Stockholder's Equity for the years ended December 31, 1998 and 1997 and for the period from January 1, 1999 through February 2, 1999... F-108 Consolidated Statements of Cash Flows for the period from January 1, 1999 through February 2, 1999 and for the years ended December 31, 1998 and 1997................. F-109 Notes to Consolidated Financial Statements................ F-110 BRL UNIVERSAL EQUIPMENT 2001 A, L.P. Independent Auditors' Report of Deloitte & Touche LLP....... F-116 Consolidated Financial Statement: Consolidated Balance Sheet as of January 31, 2001......... F-117 Notes to Consolidated Balance Sheet....................... F-118
F-2 164 INDEPENDENT AUDITORS' REPORT To the Board of Directors Universal Compression Holdings, Inc. We have audited the accompanying consolidated balance sheets of Universal Compression Holdings, Inc. and subsidiary (the "Company") as of March 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 1999 and 2000, and the results of its operations and its cash flows for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Houston, Texas April 28, 2000 (October 24, 2000 as to Notes 1, 7 and 9 and February 28, 2001 as to Note 13) F-3 165 UNIVERSAL COMPRESSION HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, MARCH 31, 1999 2000 --------- --------- (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) ASSETS Current assets: Cash and cash equivalents................................. $ 2,927 $ 1,403 Receivables, net of allowance for bad debts of $123 and $227 as of March 31, 1999 and 2000, respectively........ 22,469 17,267 Inventories............................................... 10,272 8,727 Current deferred tax asset................................ 426 227 Other..................................................... 938 1,571 -------- -------- Total current assets............................... 37,032 29,195 -------- -------- Property and equipment: Rental equipment.......................................... 296,049 349,198 Other..................................................... 17,122 19,617 Accumulated depreciation.................................. (17,647) (38,466) -------- -------- Total property and equipment....................... 295,524 330,349 -------- -------- Goodwill, net of accumulated amortization of $2,564 and $5,202 as of March 31, 1999, and 2000, respectively....... 96,345 99,250 Other assets, net........................................... 8,632 7,570 Long-term deferred tax asset................................ 458 3,578 -------- -------- Total assets....................................... $437,991 $469,942 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of capital lease obligation............... $ -- $ 3,456 Current portion of long-term debt......................... 750 750 Accounts payable.......................................... 8,591 10,911 Accrued expenses.......................................... 3,949 6,869 -------- -------- Total current liabilities.......................... 13,290 21,986 Capital lease obligation.................................... -- 10,243 Long-term debt.............................................. 343,927 363,036 -------- -------- Total liabilities.................................. 357,217 395,265 -------- -------- Commitments and contingencies (Note 10) Stockholders' equity: Series A preferred stock, $.01 par value, 5,000,000 shares authorized, 1,320,144 and 1,320,128 shares issued, 1,320,144 and 1,318,896 shares outstanding at March 31, 1999 and 2000, respectively, $50 per share liquidation value (which were converted as described in note 7)..... 13 13 Common stock, $.01 par value, 200,000,000 shares authorized, 5,551,318 and 5,550,956 shares issued, 5,550,353 and 5,539,344 shares outstanding at March 31, 1999 and 2000, respectively............................. 3 3 Class A non-voting common stock, $.01 par value, 6,000 shares authorized, 4,120 shares issued, 4,080 and 3,210 shares outstanding at March 31, 1999 and 2000, respectively (which were converted as described in note 7)...................................................... -- -- Additional paid-in capital................................ 82,698 82,697 Retained deficit.......................................... (1,931) (7,913) Treasury stock, 170 and 4,429 shares at cost at March 31, 1999 and 2000, respectively............................. (9) (123) -------- -------- Total stockholders' equity......................... 80,774 74,677 -------- -------- Total liabilities and stockholders' equity......... $437,991 $469,942 ======== ========
See accompanying notes to consolidated financial statements. F-4 166 UNIVERSAL COMPRESSION HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 12, 1997 FOR THE FOR THE (INCEPTION) THROUGH YEAR ENDED YEAR ENDED MARCH 31, 1998 MARCH 31, 1999 MARCH 31, 2000 -------------------- --------------- --------------- (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) Revenues: Rentals.......................................... $ 9,060 $ 85,599 $ 98,295 Sales............................................ 4,037 43,588 38,000 Other............................................ 22 311 154 ---------- ---------- ---------- Total revenues........................... 13,119 129,498 136,449 ---------- ---------- ---------- Costs and expenses: Rentals, exclusive of depreciation and amortization.................................. 2,804 31,010 35,352 Cost of sales, exclusive of depreciation and amortization.................................. 3,408 36,390 31,943 Depreciation and amortization.................... 1,560 19,314 26,006 Selling, general and administrative.............. 1,305 16,863 16,797 Interest expense................................. 3,203 29,313 34,327 ---------- ---------- ---------- Total costs and expenses................. 12,280 132,890 144,425 ---------- ---------- ---------- Income (loss) before income taxes.................. 839 (3,392) (7,976) Income taxes (benefit)............................. 409 (1,031) (1,994) ---------- ---------- ---------- Net income (loss)........................ $ 430 $ (2,361) $ (5,982) ========== ========== ========== Earnings per share: Basic............................................ $ 0.18 $ (0.97) $ (2.42) ========== ========== ========== Diluted.......................................... $ 0.18 $ (0.97) $ (2.42) ========== ========== ========== Weighted average shares outstanding (See note 7): Shares of common stock........................... 2,413,127 2,446,487 2,476,386 Dilutive potential shares of common stock........ -- -- -- ---------- ---------- ---------- Total weighted average shares of common stock outstanding...................... 2,413,127 2,446,487 2,476,386 ========== ========== ==========
See accompanying notes to consolidated financial statements. F-5 167 UNIVERSAL COMPRESSION HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIOD DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 AND FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
ADDITIONAL RETAINED COMMON PREFERRED PAID-IN EARNINGS TREASURY STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL ------ --------- ---------- --------- -------- ------- (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) BALANCE, DECEMBER 12, 1997 (INCEPTION) Common stock issuance (2,413,127 shares, at $.01 per share par value)........................... $3 $ $16,247 $ -- $ -- $16,250 Series A Preferred stock issuance (1,300,000 shares, at $.01 per share par value)................. -- 13 64,987 -- -- 65,000 Net income for period from December 12, 1997 (inception) through March 31, 1998................... -- -- -- 430 -- 430 -- --- ------- ------- ----- ------- BALANCE, MARCH 31, 1998............... $3 $13 $81,234 $ 430 $ -- $81,680 Common stock issuance (68,048 shares, at $.01 per share par value)........................... -- -- 458 -- -- 458 Series A Preferred stock issuance (20,144 shares, at $.01 per share par value)....................... -- -- 1,006 -- -- 1,006 Treasury stock purchase (4,970 shares at $50 per share)......... -- -- -- -- (249) (249) Sale of treasury stock (4,800 shares at $50 per share)................ -- -- -- -- 240 240 Net loss for the year ended March 31, 1999......................... -- -- -- (2,361) -- (2,361) -- --- ------- ------- ----- ------- BALANCE, MARCH 31, 1999............... $3 $13 $82,698 $(1,931) $ (9) $80,774 Common stock cancellation (30 shares, at $.01 per share par value)........................... -- -- -- -- -- -- Series A Preferred stock cancellation (16 shares, at $.01 per share par value)............. -- -- (1) -- -- (1) Treasury stock purchase (5,630 shares at $50 per share)......... -- -- -- -- (144) (144) Sale of treasury stock (1,371 shares at $50 per share)................ -- -- -- -- 30 30 Net loss for the year ended March 31, 2000......................... -- -- -- (5,982) -- (5,982) -- --- ------- ------- ----- ------- BALANCE, MARCH 31, 2000............... $3 $13 $82,697 $(7,913) $(123) $74,677 == === ======= ======= ===== =======
See accompanying notes to consolidated financial statements. F-6 168 UNIVERSAL COMPRESSION HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 12, 1997 FOR THE FOR THE (INCEPTION) THROUGH YEAR ENDED YEAR ENDED MARCH 31, 1998 MARCH 31, 1999 MARCH 31, 2000 ------------------- -------------- -------------- (IN THOUSANDS) Cash flows from operating activities: Net income (loss)............................. $ 430 $ (2,361) $ (5,982) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.............. 1,560 19,314 26,006 Gain on asset sales........................ (13) (192) (124) Deferred income taxes...................... 339 (1,223) (2,921) Amortization of debt issuance costs........ 121 1,162 1,162 (Increase) Decrease in receivables......... (1,263) (10,807) 5,202 (Increase) Decrease in inventories......... (223) (2,594) 1,545 (Increase) Decrease in other current assets................................... (2,951) 2,183 (633) Increase (Decrease) in accounts payable.... (1,472) 2,537 2,320 Increase (Decrease) in accrued expenses.... 587 (3,569) 411 Deferred interest on notes payable......... 1,880 18,316 20,258 (Increase) Decrease in non-current assets................................... -- 27 (100) --------- -------- -------- Net cash provided by (used in) operating activities................ (1,005) 22,793 47,144 --------- -------- -------- Cash flows from investing activities: Proceeds from asset sales..................... 765 8,038 4,442 Additions to property and equipment........... (2,038) (68,081) (60,002) Acquisition of Tidewater Compression Service, Inc........................................ (351,872) -- -- Other acquisitions............................ -- (2,953) (5,543) --------- -------- -------- Net cash used in investing activities.... (353,145) (62,996) (61,103) --------- -------- -------- Cash flows from financing activities: Net borrowings (repayments) under revolving line of credit............................. 285,018 40,249 (400) Repayments of long-term debt.................. (36) (750) (750) Common stock issuance......................... 16,200 252 -- Preferred stock issuance (cancellation)....... 64,800 1,006 (1) Debt issuance costs........................... (9,450) -- -- Net proceeds from sale-leaseback of vehicles................................... -- -- 3,119 Net proceeds from financing lease............. -- -- 10,581 Purchase of treasury stock.................... -- (249) (144) Sale of treasury stock........................ -- 240 30 --------- -------- -------- Net cash provided by financing activities.......................... 356,532 40,748 12,435 --------- -------- -------- Net increase (decrease) in cash and cash equivalents................................... 2,382 545 (1,524) --------- -------- -------- Cash and cash equivalents at beginning of period..................................... -- 2,382 2,927 --------- -------- -------- Cash and cash equivalents at end of period.... $ 2,382 $ 2,927 $ 1,403 ========= ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest........................ $ 1,202 $ 9,653 $ 10,471 ========= ======== ======== Cash paid for income taxes.................... $ -- $ 697 $ 772 ========= ======== ======== Supplemental schedule of non-cash investing and financing activities: Class A non-voting common stock (4,120 shares, given to employees)........................ $ -- $ 206 $ -- ========= ======== ========
See accompanying notes to consolidated financial statements. F-7 169 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 AND FOR THE YEARS ENDED MARCH 31, 1999 AND 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Universal Compression Holdings Inc. (the "Company") was formed on December 12, 1997 for the purpose of acquiring Tidewater Compression Service, Inc. ("TCS") from Tidewater Inc. ("Tidewater"). The Company formed an acquisition subsidiary, TW Acquisition Corporation ("Acquisition Corp.") which acquired 100% of the voting securities of TCS (the "Acquisition"). See Note 2. Immediately following the Acquisition, Acquisition Corp. was merged with and into TCS, which changed its name to Universal Compression, Inc. ("Universal"). The Company is a holding company which conducts its operations through its wholly owned subsidiary, Universal. Accordingly, the Company is dependent upon the distribution of earnings from Universal whether in the form of dividends, advances or payments on account of intercompany obligations, to service its debt obligations. Nature of Operations The Company operates one of the largest rental fleets of natural gas compressors in the United States and provides related maintenance services on such compressors. The compressors are rented to oil and gas producers and processors and pipeline companies and are used primarily to boost the pressure of natural gas from the wellhead into gas-gathering systems, gas-processing plants or into and through high-pressure pipelines. The Company also designs and fabricates compressor packages for its own fleet as well as for sale to customers. Principles of Consolidation The accompanying consolidated financial statements include the Company and its wholly owned subsidiary, Universal. All significant intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Certain reclassifications have been made to the prior year amounts to conform to the current year classification. Use of Estimates In preparing the Company's financial statements, management makes estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Actual results may differ from these estimates. 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 several years. Parts and service revenue is recorded as products are delivered or services are performed for the customer. F-8 170 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Compressor fabrication revenue is recognized using the completed-contract method which recognizes revenue upon completion of the contract. This method is used because the typical contract is completed within two to three months and financial position and results of operations do not vary significantly from those which would result from use of the percentage-of-completion method. Concentration of Credit Risk Trade accounts receivable are due from companies of varying size engaged principally in oil and gas activities in the United States and in certain international locations such as South America, Southeast Asia, Europe and Canada. The Company reviews the financial condition of customers prior to extending credit and periodically updates customer credit information. Payment terms are on a short-term basis and in accordance with industry standards. No single customer accounts for 10% or more of the Company's revenues. For the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 the Company wrote off bad debts totaling $80,000, $330,000 and $116,000, respectively. Inventories Inventories are recorded at the lower of cost (first in first out FIFO method) or market (net realizable value). Some items of compression equipment are acquired and placed in inventories for subsequent sale or rental to others. Acquisitions of these assets are considered operating activities in the statement of cash flows. Properties and Equipment Properties and equipment are carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis beginning with the first rental, with salvage values of 20% for compression equipment, using estimated useful lives of: Compression equipment................................... 15 years Other properties and equipment.......................... 2-25 years
Maintenance and repairs are charged to expenses as incurred. Overhauls and major improvements that benefit future periods are capitalized and depreciated over the estimated period of benefits, generally three years. Depreciation expense for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 was $1,366,226, $16,942,554 and $23,368,262, respectively. Goodwill and Other Assets Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis primarily over 40 years. At the balance sheet date, the Company evaluated the recoverability of goodwill based on expectations of undiscounted cash flows from operations and determined that no impairment had occurred. Included in other assets are debt issuance costs, net of accumulated amortization, totaling approximately $8,287,000 and $7,125,000 at March 31, 1999 and 2000, respectively. Such costs are amortized over the period of the respective debt agreements on a straight-line method which approximates the effective interest method. Stock-Based Compensation Under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company elected to measure compensation cost using the intrinsic value-based method as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to F-9 171 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Employees." As such, the Company is required to make pro forma disclosures of net income and, if presented, earnings per share as if the fair value based method of accounting defined by SFAS No. 123 had been applied. See Note 7. Income Taxes The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, all expected future events are considered other than enactments of changes in the tax law or rates. Foreign Currency Transactions Activities outside the United States are measured using the local currency as the functional currency. Assets 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 resultant translation adjustments for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 were not significant. Fair Value of Financial Instruments The Company's financial instruments consist of trade receivables and payables (which have carrying values that approximate fair value) and long-term debt. The fair values of the Company's term loan and revolving credit facility (see Note 4) are representative of their carrying values based upon variable rate terms. The fair value of the senior discount notes was approximately $172.0 million and $181.6 million, as compared to a carrying amount of $195.2 million and $215.5 million at March 31, 1999 and 2000, respectively. The estimated fair value amounts have been determined by the Company using appropriate valuation methodologies and information available to management as of March 31, 2000 based on the quoted market price from brokers of these notes. Environmental Liabilities The costs to remediate and monitor environmental matters are accrued when such liabilities are considered probable and a reasonable estimate of such costs is determinable. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows of a forecasted transaction, or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative F-10 172 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) depends on the intended use of the derivative and the resulting designation. The Company will adopt SFAS 133 and the corresponding amendments under SFAS 138 on April 1, 2001. This statement should have no impact on our consolidated results of operations, financial position or cash flows. Earnings per Share The Company has disclosed earnings per share data; however, such amounts are not meaningful because the Company is beneficially owned by a single stockholder under the terms of voting agreements. 2. TCS ACQUISITION On February 20, 1998, Acquisition Corp. acquired 100% of the voting securities of TCS for approximately $350 million. The Acquisition was recorded using the purchase method of accounting and the purchase price was allocated to the assets and liabilities acquired based on their fair values. The excess cost of the Acquisition was recorded as goodwill which is being amortized on a straight-line basis over its 40 year useful life. The operations of TCS are included in the financial statements presented herein beginning February 20, 1998. The following table presents the unaudited pro forma revenue, gross profit and net income amounts as if the Acquisition occurred on December 12, 1997 (inception) (in thousands):
PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 ------------------- (UNAUDITED) Revenues............................................ $32,630 ------- Gross profit........................................ $15,992 ------- Net loss.................................. $(1,427)
3. INVENTORIES Inventories at March 31 consisted of the following (in thousands):
1999 2000 ------- ------ Finished goods..................................... $ 5,279 $5,551 Work-in-progress................................... 4,993 3,176 ------- ------ Total.................................... $10,272 $8,727 ======= ======
F-11 173 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. LONG-TERM DEBT The Company's debt at March 31 consisted of the following (in thousands):
1999 2000 -------- -------- Term loan, bearing interest of LIBOR + 2.5%, due February 2005 and collateralized by property of Universal.......... $ 74,063 $ 73,313 Revolving credit facility, bearing interest of LIBOR + 2.25%, due February 2003 and collateralized by property of Universal................................................. 75,400 75,000 Senior discount notes, bearing interest of 9 7/8% per annum, due 2008, net of discount of $75,615 and $58,680 at March 31, 1999 and 2000, respectively, unsecured................ 166,885 183,820 Senior discount notes, bearing interest of 11 3/8% per annum, due 2009, net of discount of $15,171 and $11,847 at March 31, 1999 and 2000, respectively, unsecured.......... 28,329 31,653 -------- -------- Total debt........................................ 344,677 363,786 Less current maturities..................................... 750 750 -------- -------- Total long-term debt.............................. $343,927 $363,036 ======== ========
The Company's senior secured credit agreement ("Credit Agreement") provides for $75 million under the term loan and $85 million under the revolving credit facility, which includes a sublimit for letters of credit. The available capacity on the revolving credit facility at March 31, 1999 and 2000 was approximately $8,143,000 and $7,701,000, respectively, after giving effect to outstanding letters of credit. The interest rates on the term loan and the revolving credit facility at March 31, 1999 were 7.44% and 7.19%, respectively. The interest rates on the term loan and the revolving credit facility at March 31, 2000 were 8.69% and 8.36%, respectively. Under the revolving credit facility, a commitment fee of 0.50% per annum on the average available commitment is payable quarterly. The Credit Agreement contains certain financial covenants and limitations on, among other things, acquisitions, sales, indebtedness and liens. The Credit Agreement also limits the payment of cash dividends related to Universal paying up to $1 million to the Company in any given fiscal year. In addition, the Company has substantial dividend payment restrictions under the indenture related to the senior discount notes. The Company was in compliance with all such covenants and limitations at March 31, 2000. As defined by the Credit Agreement, any "change of control" would result in an "Event of Default" and all amounts outstanding under the Credit Agreement would become due and payable. All principal amounts and accrued interest would become due without further notice. Interest related to both the 9 7/8% senior discount notes and the 11 3/8% senior discount notes is payable semi-annually on August 15 and February 15, commencing August 15, 2003. Maturities of long-term debt as of March 31, 2000, in thousands, are 2001 -- $750; 2002 -- $750; 2003 -- $82,125; 2004 -- $30,938; 2005 -- $33,750; and $215,473 thereafter. 5. CAPITAL LEASES On July 21, 1999, a wholly owned subsidiary of the Company entered into a financing lease with Societe Generale Financial Corporation regarding certain compression equipment. The financing lease has a term of 5 years and bears interest at a rate of LIBOR plus 4.25%. The financing lease is related to the Colombian operations of the Company's subsidiary. F-12 174 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On June 17, 1999, Universal signed a master lease agreement with GE Capital Fleet Services completing a sale and lease back of the majority of its service vehicle fleet. Under the agreement, the vehicles were sold and leased back by Universal at lease terms ranging from 20 months to 56 months and will continue to be deployed by Universal under its normal operating procedures. Principal amortization associated with both leases is recorded in the Consolidated Statements of Cash Flows. Property and equipment at March 31, 2000 include the following amounts for capitalized leases (in thousands): Compression equipment...................................... $11,925 Service vehicles........................................... 4,363 ------- 16,288 Less accumulated depreciation.............................. (2,365) ------- Net assets under capital leases.................. $13,923 =======
Future minimum lease payments under non-cancelable capital leases as of March 31, 2000 are as follows (in thousands): 2001....................................................... $ 3,456 2002....................................................... 3,302 2003....................................................... 3,171 2004....................................................... 2,774 2005....................................................... 996 Thereafter................................................. ------- Total............................................ $13,699 =======
6. INCOME TAXES For the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, substantially all of the Company's income and losses before income taxes were derived from its U.S. operations. Income tax expense (benefit) for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 consisted of the following (in thousands):
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 1999 2000 ------------------- ------- ------- Current: Foreign........................................ $ 71 $ 145 $ 889 Deferred: Federal........................................ 303 (1,055) (2,655) State.......................................... 35 (121) (228) ---- ------- ------- Total.................................. $409 $(1,031) $(1,994) ==== ======= =======
F-13 175 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate to income before taxes for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 is as follows (in thousands):
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 1999 2000 ------------------- ------- ------- Benefit for income taxes at statutory rate....... $294 $(1,187) $(2,791) State taxes...................................... 30 (121) (228) Foreign taxes.................................... 71 145 889 Non-deductible expenses and other................ 14 132 136 ---- ------- ------- Total.................................. $409 $(1,031) $(1,994) ==== ======= =======
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at March 31 are (in thousands):
1999 2000 -------- ------- Deferred tax assets: Net operating loss carryforwards.......................... $ 24,235 $35,217 Other..................................................... 630 1,172 -------- ------- Total............................................. 24,865 36,389 Valuation allowance......................................... (145) (889) -------- ------- Total............................................. 24,720 35,500 -------- ------- Deferred tax liabilities: Depreciation differences on property and equipment........ (21,905) (28,319) Other..................................................... (1,931) (3,376) -------- ------- Total............................................. (23,836) (31,695) -------- ------- Net deferred tax asset............................ $ 884 $ 3,805 ======== =======
A valuation allowance has been established against the Company's deferred tax assets related to foreign tax credits. The Company believes that it is probable that all other deferred tax assets will be realized on future tax returns, primarily from the generation of future taxable income through both profitable operations and future reversals of existing taxable temporary differences. As a result of the activity for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, the Company has net operating loss ("NOL") carryforwards available to offset future taxable income. The Company has NOL carryforwards of approximately $91,752,000 at March 31, 2000 which will expire, if not utilized, as follows: 2018 -- $4,185,000; 2019 -- $30,939,000 and 2020 -- $56,628,000. Utilization of the carryforwards could be limited by Section 382 of the Internal Revenue Code of 1986, as amended, depending on future changes in ownership. See Note 13 for further information. F-14 176 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY Common Stock During March 1999, under the Employee Stock Purchase Plan, 46 employees of the Company purchased a total of 14,820 shares of common stock and 7,984 shares of Series A preferred stock (which preferred stock was subsequently split and converted into 18,567 shares of common stock at $21.50 per share on May 30, 2000 in connection with the Company's initial public offering). The Company received the cash proceeds from the stock purchase during April 1999. At March 31, 1999, a receivable of $499,000 has been recorded related to the employee stock purchases. Redeemable Preferred Stock At March 31, 2000, the Company had issued 1,320,128 shares of Series A preferred stock ("Preferred Stock"), which were converted into 3,070,174 shares of common stock issued and 3,067,309 shares outstanding. At March 31, 1999 the Company had issued 1,320,144 shares of Preferred Stock which were converted into 3,070,210 shares of common stock issued and 3,070,210 shares outstanding. These conversions were effective May 30, 2000, in connection with the Company's initial public offering. Class A non-voting Stock At March 31, 2000 the Company had issued 4,120 shares of Class A non-voting common stock ("Class A Stock"), which were converted into 30,590 shares of common stock issued and 23,833 outstanding. At March 31, 1999 the Company had issued 4,120 shares of Class A Stock were converted to 30,590 shares of common stock issued and 30,293 shares outstanding. These conversions were effective May 30, 2000, in connection with the Company's initial public offering. Stock Options In order to motivate and retain key employees, the Company established an incentive stock option plan. The Company measures compensation cost for this plan using the intrinsic value method of accounting prescribed by APB No. 25 "Accounting for Stock Issued to Employees." Given the terms of the plan, no compensation cost has been recognized for stock options granted under the plan. The incentive stock plan became effective on February 20, 1998, and on that date certain key employees were granted stock options. The options are exercisable over a ten-year period and generally vest over the following time period: Year 1...................................................... 33 1/3% Year 2...................................................... 33 1/3% Year 3...................................................... 33 1/3%
F-15 177 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following is a summary of stock option activity for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000:
WEIGHTED AVERAGE PRICE SHARES PER SHARE ------- ------------- Options outstanding, December 12, 1997 (inception).......... -- -- Options granted........................................... 223,821 $6.73 ------- ----- Options outstanding, March 31, 1998......................... 223,821 6.73 ======= ===== Options granted........................................... 86,238 6.73 Options cancelled......................................... (46,697) 6.73 ------- ----- Options outstanding, March 31, 1999......................... 263,362 6.73 ======= ===== Options granted........................................... 53,097 6.73 Options cancelled......................................... (43,252) 6.73 ------- ----- Options outstanding, March 31, 2000......................... 273,207 6.73 ======= =====
As of March 31, 2000, under the incentive stock option plan the Company had 44,084 stock options available for grant. The fair value of options at the date of grant was estimated using the Black-Scholes model with the following weighted-average assumptions: Expected life.............................................. 3 years Interest rate.............................................. 6.4% Dividend yield............................................. 0% Expected volatility of the Company's stock price........... 0%
On a pro forma basis after giving effect to the fair value based method of accounting for employee stock compensation required by SFAS 123, compensation expense would have been approximately $8,000, $76,000 and $109,000 for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. 8. EMPLOYEE BENEFITS The Company has a defined contribution 401(k) plan covering substantially all employees. The Company makes matching contributions under this plan equal to 50% of each participant's contribution of up to 6% of the participant's compensation. Company contributions to the plan were approximately $159,000, $493,000 and $473,000 for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. F-16 178 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. RELATED-PARTY TRANSACTIONS Management Agreement Castle Harlan Inc., an affiliate of a major stockholder of the Company, entered into an agreement whereby, in exchange for certain management services rendered, the Company agreed to pay a fee to Castle Harlan Inc. totaling $3 million per year. The amount was paid in advance for the first year and quarterly in advance thereafter. The agreement is for a term of five years, renewable automatically from year to year thereafter unless Castle Harlan Inc. or its affiliates beneficially own less than 20% of the then outstanding stock of the Company. The Company paid Castle Harlan Inc. $3,000,000, $750,000 and $3,000,000 during the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. The fee is recorded at the rate of $750,000 per quarter in selling, general and administrative expenses. As of March 31, 2000, 33,560 shares of common stock and 18,080 shares of preferred stock (which shares of preferred stock were subsequently split and converted to 42,046 shares of common stock on May 30, 2000 in connection with the Company's initial public offering) held by certain officers of the Company were subject to certain repurchase requirements by the Company in the event of termination of the officer by the Company without "cause," disability or death as specified in the Stock Repurchase Agreement. The Company maintains an insurance policy to fund substantially all of its obligations in the event of disability or death. Finder's Fee/Consulting Arrangement The Company paid a member of its Board of Directors (the "Director") $1,750,000 (a "finders fee") related to services provided by the Director for the Acquisition. Upon consummation of the Acquisition, $1,100,000 of the finders fee was issued to the Director as capital stock of the Company at $50 per share par value. The Company paid the remaining $650,000 of the finders fee in cash to the Director on March 4, 1998. In addition, the Company will pay the Director an annual consulting fee of $150,000 for consulting services for a stated term of five years. The agreement will automatically extend for one-year periods unless the parties elect to terminate the agreement. The Company paid the Director $12,500, $165,523 and $140,264 during the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. The Company also paid a closing bonus to an officer of the Company consisting of 7,424 shares of the Company's common stock, 4,000 shares of the Company's preferred stock, (which shares of preferred stock were subsequently split and converted into 9,302 shares of common stock on May 30, 2000 in connection with the Company's initial public offering) both valued at $21.50 per share, and $100,000 cash for services performed in conjunction with the Acquisition prior to his employment. 10. COMMITMENTS AND CONTINGENCIES Rent expense for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 was approximately $43,000, $427,000 and $415,000, respectively. Commitments for future lease payments were not significant at March 31, 2000. In the ordinary course of business, the Company is involved in various pending or threatened legal actions. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the Company's financial position, operating results, or cash flows. An environmental assessment (the "Assessment") of the operations, physical premises and assets of the Company was completed in connection with the Acquisition. In the event that remediation is F-17 179 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) undertaken by the Company, then pursuant to the stock purchase agreement, costs of such remediation shall be paid as follows: Tidewater, Inc. shall pay 75% of the first $4 million, 83.33% of the next $6 million, and 100% of the costs in excess of $10 million, although not to exceed the upper limit of the range in the Assessment. Tidewater, Inc. has disputed certain aspects of the Assessment, but has not disputed its obligation to reimburse the Company for actual costs incurred in remediating environmental conditions identified in the Assessment. The Company has recorded a provision of approximately $1,100,000 at March 31, 2000 for environmental remediation costs. The Company continues to further evaluate the Company's remediation requirements under existing laws, rules and regulations. Considering Tidewater's obligations pursuant to the stock purchase agreement, the Company continues to believe that any unrecorded remediation obligations will not have a material impact on its financial condition, results of operations and cash flows. Should the Company incur remediation costs, a receivable from Tidewater, Inc. for the expected reimbursement based on the terms of the stock purchase agreement will be recorded. The unreimbursed portion of any such remediation costs will be charged against the Company's environmental remediation liability. At the time of the Acquisition, the Company entered into a Purchase Price Adjustment Agreement with Tidewater, Inc. The agreement provides for potential additional amounts to be paid to Tidewater, Inc. upon a liquidity event, as defined in the agreement. The potential amount is based upon a formula related to accreted growth on Castle Harlan's initial investment above a certain growth rate which is compounded quarterly. The Company has no other commitments or contingent liabilities which, in the judgment of management, would result in losses that would materially affect the Company's consolidated financial position or operating results. 11. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION The Company has three principal industry segments: Domestic Rental and Maintenance, International Rental and Maintenance and Engineered Products. The two Rental and Maintenance Segments provide natural gas compression rental and maintenance services to meet specific customer requirements. The Engineered Products Segment involves the design, fabrication and sale of natural gas and air compression packages to meet customer specifications. The International Rental and Maintenance Segment represents substantially all of the Company's foreign based operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before interest expense and income taxes. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately since each business requires different marketing strategies due to customer specifications. The business was acquired as a unit (see Note 1 -- Organization). The following table presents sales and other financial information by industry segment for the year ended March 31, 2000 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL ----------- ------------- ---------- --------- -------- Revenues...................... $ 83,577 $14,718 $25,258 $12,896 $136,449 Operating income (loss)....... 22,262 3,974 971 (1,049) 26,158 Depreciation and amortization................ 19,104 3,947 196 2,759 26,006 Capital expenditures.......... 50,980 8,079 899 44 60,002 Identifiable assets........... 310,563 49,204 10,205 99,970 469,942
F-18 180 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents sales and other financial information by industry segment for the year ended March 31, 1999 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL ----------- ------------- ---------- --------- -------- Revenues...................... $ 78,821 $ 6,778 $22,429 $21,470 $129,498 Operating income (loss)....... 22,394 2,483 949 (116) 25,710 Depreciation and amortization................ 15,626 1,020 161 2,507 19,314 Capital expenditures.......... 48,428 17,293 2,123 237 68,081 Identifiable assets........... 311,490 16,093 11,421 98,987 437,991
The following table presents sales and other financial information by industry segment for the period from December 12, 1997 (inception) through March 31, 1998 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL ----------- ------------- ---------- --------- -------- Revenues...................... $ 8,407 $ 652 $3,165 $ 895 $ 13,119 Operating income.............. 3,373 298 189 166 4,026 Depreciation and amortization................ 1,461 83 10 6 1,560 Capital expenditures.......... 1,465 529 -- 44 2,038 Identifiable assets........... 262,218 14,752 7,865 95,391 380,226
- --------------- (a) Corporate and Other segment represents primarily corporate activities, part sales and services and all other items that could not be allocated to an identifiable segment. The segment principally serves the oil and gas market, including sales of parts and equipment utilized in the extraction of natural gas and the service that the Company provides to customers' natural gas compression units. Revenues include sales to unaffiliated customers. Operating income is defined as income before income taxes less gain on asset sales and interest income plus interest expense. Identifiable assets are those tangible and intangible assets that are identified with the operations of a particular industry segment. Capital expenditures include fixed asset purchases. 12. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the year ended March 31, 2000 is as follows (in thousands):
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 ------- ------------ ----------- -------- Revenues................................. $33,808 $34,988 $33,729 $33,924 Operating income......................... 5,966 6,632 6,697 6,863 Net loss................................. (1,238) (1,578) (1,276) (1,890)
13. SUBSEQUENT EVENT During the quarter ended June 30, 2000, the Company completed an initial public offering of 7,275,000 shares of its common stock (which includes 275,000 shares of common stock issued pursuant to an over-allotment option granted to the underwriters), which provided the Company with net proceeds (after deducting underwriting discounts and commissions) of approximately $149.2 million. Concurrently with the initial public offering, the Company implemented a recapitalization pursuant to which all existing classes of the Company's preferred and common stock were converted and split into common stock. Accordingly, all of the Company's common stock other than Class A non-voting have been restated in the F-19 181 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) historical financial statements to give effect to such split. Also concurrently with the initial public offering, the Company entered into a new $50 million revolving credit facility and $200 million operating lease facility. The proceeds of the offering and the $62.6 million in initial proceeds from the new operating lease facility were used to repay $192.7 million of indebtedness, and the remaining proceeds were used for working capital and to pay expenses associated with the offering and concurrent financing transactions. On September 15, 2000, the Company completed the merger of Gas Compression Services, Inc. ("GCSI"), a supplier of natural gas compression equipment and services with fabrication and overhaul facilities in Michigan and Texas, into Universal for a combination of approximately $12 million in cash, 1,400,726 shares of the Company's common stock, the assumption of approximately $57 million in debt and operating leases of GCSI, and $6 million of debt related to GCSI customer equipment financing and associated customer notes receivable. All of the assumed debt and operating leases, except for approximately $10 million, were paid off concurrent with the merger using proceeds received under the operating lease facility. The acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $33 million in goodwill. Results of operations for GCSI are included in the accompanying consolidated financial statements for the 15 days from the date of the merger. On February 9, 2001, the Company and Universal completed the acquisition of Weatherford Global Compression Services, L.P. and related entities ("Weatherford Global") through a merger (the "Merger") of Enterra Compression Company, a Delaware corporation ("Enterra"), with and into Universal. Pursuant to the Merger Agreement, the Company acquired Enterra and its subsidiaries, which engage in gas compression service operations in the United States and abroad, from WEUS in exchange for 13,750,000 shares of the Company's common stock and the restructuring of approximately $323 million of indebtedness and operating lease obligations of WGC. Weatherford retained its recently acquired Singapore-based operations and $10 million in accounts receivable. Immediately prior to the Merger, Enterra acquired the interest of General Electric Capital Corporation ("GE Capital") in Weatherford Global. On February 28, 2001, the Company and Universal completed the acquisition of ISS Compression, Inc. ("ISS") and its operating subsidiary IEW Compression, Inc., a Lafayette, Louisiana based provider of natural gas compression services through a merger of ISS, with and into Universal. Universal paid approximately $15 million in cash for ISS, which amount includes the concurrent discharge of ISS's indebtedness and operating lease financing. F-20 182 INDEPENDENT AUDITORS' REPORT To the Board of Directors Universal Compression, Inc. We have audited the accompanying consolidated balance sheets of Universal Compression, Inc. and Subsidiaries (the "Company") as of March 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 1999 and 2000, and the results of its operations and its cash flows for the period from December 12, 1997 (inception) through March 31, 1998 and for the years ended March 31, 1999 and 2000, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Houston, Texas April 28, 2000 (February 28, 2001 as to note 12) F-21 183 UNIVERSAL COMPRESSION, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, MARCH 31, 1999 2000 ----------- ----------- (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) ASSETS Current assets: Cash and cash equivalents................................. $ 2,927 $ 1,403 Receivables, net of allowance for bad debts of $123 and $227 as of March 31, 1999 and 2000, respectively...... 22,469 17,267 Inventories............................................... 10,272 8,727 Current deferred tax asset................................ 426 227 Other..................................................... 916 1,519 -------- -------- Total current assets.............................. 37,010 29,143 -------- -------- Property and equipment: Rental equipment.......................................... 296,049 349,198 Other..................................................... 17,122 19,617 Accumulated depreciation.................................. (17,647) (38,466) -------- -------- Total property and equipment...................... 295,524 330,349 -------- -------- Goodwill, net of accumulated amortization of $2,558 and $5,189 as of March 31, 1999 and 2000, respectively........ 96,101 99,013 Other assets, net........................................... 7,852 6,878 Long-term deferred tax asset................................ -- 962 -------- -------- Total assets...................................... $436,487 $466,345 -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current portion of capital lease obligation............... $ -- $ 3,456 Current portion of long-term debt......................... 750 750 Accounts payable.......................................... 8,591 10,911 Accrued expenses.......................................... 3,947 6,869 Payable to parent......................................... 1,434 1,288 -------- -------- Total current liabilities......................... 14,722 23,274 Long-term deferred tax liability............................ 859 -- Capital lease obligation.................................... -- 10,243 Long-term debt.............................................. 315,598 331,383 -------- -------- Total liabilities................................. 331,179 364,900 -------- -------- Commitments and contingencies (Note 9) Stockholder's equity: Common stock, $10 par value, 5,000 shares authorized and 4,910 shares issued and outstanding at March 31, 1999 and 2000............................................... 49 49 Additional paid-in capital................................ 105,131 105,131 Retained earnings (deficit)............................... 128 (3,735) -------- -------- Total stockholder's equity........................ 105,308 101,445 -------- -------- Total liabilities and stockholder's equity........ $436,487 $466,345 ======== ========
See accompanying notes to consolidated financial statements. F-22 184 UNIVERSAL COMPRESSION, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 12, 1997 FOR THE FOR THE (INCEPTION) YEAR ENDED YEAR ENDED THROUGH MARCH 31, MARCH 31, MARCH 31, 1998 1999 2000 -------------- ---------- ---------- (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) Revenues: Rentals................................................ $ 9,060 $ 85,599 $ 98,295 Sales.................................................. 4,037 43,588 38,000 Other.................................................. 22 311 154 ------- -------- -------- Total revenues................................. 13,119 129,498 136,449 ------- -------- -------- Costs and expenses: Rentals, exclusive of depreciation and amortization.... 2,804 31,010 35,352 Cost of sales, exclusive of depreciation and amortization........................................ 3,408 36,390 31,943 Depreciation and amortization.......................... 1,560 19,308 26,000 Selling, general and administrative.................... 1,305 16,862 16,797 Interest expense....................................... 2,896 26,251 30,916 ------- -------- -------- Total costs and expenses....................... 11,973 129,821 141,008 ------- -------- -------- Income (loss) before income taxes........................ 1,146 (323) (4,559) Income taxes (benefit)................................... 529 166 (696) ------- -------- -------- Net income (loss)................................. $ 617 $ (489) $ (3,863) ======= ======== ========
See accompanying notes to consolidated financial statements. F-23 185 UNIVERSAL COMPRESSION, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 AND FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL ------- ----------- ---------- --------- (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) BALANCE, DECEMBER 12, 1997 (INCEPTION) Common stock issuance (4,910 shares at $10 per share par value)........................ $49 $105,131 -- $105,180 Net income for period from December 12, 1997 (inception) through March 31, 1998................. -- -- $ 617 617 --- -------- ------- -------- BALANCE, MARCH 31, 1998.............................. $49 $105,131 $ 617 $105,797 Net loss for the year ended March 31, 1999......... -- -- (489) (489) BALANCE, MARCH 31, 1999.............................. $49 $105,131 $ 128 $105,308 === ======== ======= ======== Net loss for the year ended March 31, 2000......... -- -- (3,863) (3,863) BALANCE, MARCH 31, 2000.............................. $49 $105,131 $(3,735) $101,445 === ======== ======= ========
See accompanying notes to consolidated financial statements. F-24 186 UNIVERSAL COMPRESSION, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) FOR THE FOR THE THROUGH MARCH 31, YEAR ENDED YEAR ENDED 1998 MARCH 31, 1999 MARCH 31, 2000 ------------------- -------------- -------------- (IN THOUSANDS) Cash flows from operating activities: Net income (loss).............................. $ 617 $ (489) $ (3,863) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization............... 1,560 19,308 26,000 Gain on asset sales......................... (13) (192) (124) Deferred income taxes....................... 458 (25) (1,622) Amortization of debt issuance costs......... 121 1,074 1,074 (Increase) Decrease in receivables.......... (1,263) (10,807) 5,202 (Increase) Decrease in inventories.......... (223) (2,594) 1,545 (Increase) Decrease in other current assets.................................... (2,951) 2,205 (602) Increase (Decrease) in accounts payable..... (1,472) 2,537 2,320 Increase (Decrease) in accrued expenses..... 587 (3,777) 411 Increase (Decrease) in payable to parent.... -- 1,434 (146) Deferred interest on notes payable.......... 1,880 15,341 16,934 (Increase) Decrease in non-current assets... -- 27 (100) --------- -------- -------- Net cash provided by (used in) operating activities................. (699) 24,042 47,029 --------- -------- -------- Cash flows from investing activities: Proceeds from asset sales...................... 765 8,038 4,442 Additions to property and equipment............ (2,038) (68,081) (60,002) Acquisition of Tidewater Compression Service, Inc. ....................................... (351,872) -- -- Other acquisitions............................. -- (2,953) (5,543) --------- -------- -------- Net cash used in investing activities........................... (353,145) (62,996) (61,103) --------- -------- -------- Cash flows from financing activities: Net borrowings (repayments) under revolving line of credit.............................. 259,664 40,249 (400) Repayments of long-term debt................... (36) (750) (750) Net proceeds from sale-leaseback of vehicles... -- -- 3,119 Net proceeds from financing lease.............. -- -- 10,581 Common stock issuance.......................... 105,180 -- -- Debt issuance costs............................ (8,582) -- -- --------- -------- -------- Net cash provided by financing activities........................... 356,226 39,499 12,550 --------- -------- -------- Net increase (decrease) in cash and cash equivalents.................................... 2,382 545 (1,524) --------- -------- -------- Cash and cash equivalents at beginning of period......................................... -- 2,382 2,927 --------- -------- -------- Cash and cash equivalents at end of period....... $ 2,382 $ 2,927 $ 1,403 ========= ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest................. $ 1,202 $ 9,653 $ 10,471 ========= ======== ======== Cash paid for income taxes............. $ -- $ 697 $ 772 ========= ======== ========
See accompanying notes to consolidated financial statements. F-25 187 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 AND FOR THE YEARS ENDED MARCH 31, 1999 AND 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization Universal Compression, Inc., formerly the TW Acquisition Corporation ("Acquisition Corp."), was formed on December 12, 1997. On February 20, 1998, Acquisition Corp. acquired 100% of the voting securities of Tidewater Compression Service, Inc. ("TCS") (the "Acquisition"). See Note 2. Immediately following the Acquisition, Acquisition Corp. was merged with and into TCS, which changed its name to Universal Compression, Inc. (the "Company"). The Company is a wholly owned subsidiary of Universal Compression Holdings, Inc. ("Holdings"). Nature of Operations The Company operates one of the largest rental fleets of natural gas compressors in the United States and provides related maintenance services on such compressors. The compressors are rented to oil and gas producers and processors and pipeline companies and are used primarily to boost the pressure of natural gas from the wellhead into gas-gathering systems, gas-processing plants or into and through high-pressure pipelines. The Company also designs and fabricates compressor packages for its own fleet as well as for sale to customers. Principles of Consolidation The accompanying consolidated financial statements include the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Certain reclassifications have been made to the prior year amounts to conform to the current year classification. Use of Estimates In preparing the Company's financial statements, management makes estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Actual results may differ from these estimates. 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 several years. Parts and service revenue is recorded as products are delivered or services are performed for the customer. Compressor fabrication revenue is recognized using the completed-contract method. This method is used because the typical contract is completed within two to three months and financial position and results of operations do not vary significantly from those which would result from use of the percentage-of- completion method. F-26 188 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Concentration of Credit Risk Trade accounts receivable are due from companies of varying size engaged principally in oil and gas activities in the United States and in certain international locations such as South America, Southeast Asia, Europe and Canada. The Company reviews the financial condition of customers prior to extending credit and periodically updates customer credit information. Payment terms are on a short-term basis and in accordance with industry standards. No single customer accounts for 10% or more of the Company's revenues. For the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 the Company wrote off bad debts totaling $80,000, $330,000 and $116,000, respectively. Inventories Inventories are recorded at the lower of cost (first in first out FIFO method) or market (net realizable value). Some items of compression equipment are acquired and placed in inventories for subsequent sale or rental to others. Acquisitions of these assets are considered operating activities in the statement of cash flows. Properties and Equipment Properties and equipment are carried at cost. Depreciation for financial reporting purposes is computed on the straight-line basis beginning with the first rental, with salvage values of 20% for compression equipment, using estimated useful lives of: Compression equipment.................................... 15 years Other properties and equipment........................... 2-25 years
Maintenance and repairs are charged to expense as incurred. Overhauls and major improvements that benefit future periods are capitalized and depreciated over the estimated period of benefits, generally three years. Depreciation expense for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 was $1,366,226, $16,942,554 and $23,368,262, respectively. Goodwill and Other Assets Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis primarily over 40 years. At the balance sheet date, the Company evaluated the recoverability of goodwill based on expectations of undiscounted cash flows from operations and determined that no impairment had occurred. Included in other assets are debt issuance costs, net of accumulated amortization, totaling approximately $7,507,000 and $6,432,000 at March 31, 1999 and 2000, respectively. Such costs are amortized over the period of the respective debt agreements on a straight-line method which approximates the effective interest method. Income Taxes The Company's operations are included in the consolidated U.S. federal income tax returns of Holdings. The tax provisions presented in these financial statements have been determined as if the Company were filing a separate income tax return on a stand-alone business. The deferred asset and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. F-27 189 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Foreign Currency Transactions Activities outside the United States are measured using the local currency as the functional currency. Assets 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 resultant translation adjustments for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 were not significant. Fair Value of Financial Instruments The Company's financial instruments consist of trade receivables and payables (which have carrying values that approximate fair value) and long-term debt. The fair values of the Company's term loan and revolving credit facility (see Note 4) are representative of their carrying values based upon variable rate terms. The fair value of the Senior Discount Notes was approximately $145.5 million and $151.6 million, as compared to a carrying amount of $166.9 million and $183.8 million at March 31, 1999 and 2000, respectively. The estimated fair value amounts have been determined by the Company using appropriate valuation methodologies and information available to management as of March 31, 2000 based on the quoted market price from brokers of these notes. Environmental Liabilities The costs to remediate and monitor environmental matters are accrued when such liabilities are considered probable and a reasonable estimate of such costs is determinable. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued SFAS 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows of a forecasted transaction, or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Company will adopt SFAS 133 and the corresponding amendments under SFAS 138 on April 1, 2001. This statement should have no impact on our consolidated results of operations, financial position or cash flows. 2. TCS ACQUISITION On February 20, 1998, Acquisition Corp. acquired 100% of the voting securities of TCS for approximately $350 million. The Acquisition was recorded using the purchase method of accounting and the purchase price was allocated to the assets and liabilities acquired based on their fair values. The excess cost of the Acquisition was recorded as goodwill which is being amortized on a straight-line basis over its 40 year useful life. The operations of TCS are included in the financial statements presented herein beginning February 20, 1998. F-28 190 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents the (unaudited) pro forma revenue, gross profit and net income amounts as if the Acquisition occurred on December 12, 1997 (inception) (in thousands):
PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 ------------------- (UNAUDITED) Revenues............................................ $32,630 ------- Gross profit........................................ $15,992 ------- Net loss............................................ $ (476) -------
3. INVENTORIES Inventories at March 31 consisted of the following (in thousands):
1999 2000 ------- ------ Finished goods..................................... $ 5,279 $5,551 Work-in-progress................................... 4,993 3,176 ------- ------ Total.................................... $10,272 $8,727 ======= ======
4. LONG-TERM DEBT The Company's debt at March 31 consisted of the following (in thousands):
1999 2000 -------- -------- Term loan, bearing interest of LIBOR + 2.5%, due February 2005 and collateralized by property of the Company........ $ 74,063 $ 73,313 Revolving credit facility, bearing interest of LIBOR + 2.25%, due February 2003 and collateralized by property of the Company............................................... 75,400 75,000 Senior discount notes, bearing interest of 9 7/8% per annum, due 2008, net of discount of $75,615 and $58,680 at March 31, 1999 and 2000, respectively, unsecured................ 166,885 183,820 -------- -------- Total debt........................................ 316,348 332,133 Less current maturities..................................... 750 750 -------- -------- Total long-term debt.............................. $315,598 $331,383 ======== ========
The Company's senior secured credit agreement ("Credit Agreement") provides for $75 million under the term loan and $85 million under the revolving credit facility, which includes a sublimit for letters of credit. The available capacity on the revolving credit facility at March 31, 1999 and 2000 was approximately $8,143,000 and $7,701,000, respectively, after giving effect to outstanding letters of credit. The interest rates on the term loan and the revolving credit facility at March 31, 1999 were 7.44% and 7.19%, respectively. The interest rates on the term loan and the revolving credit facility at March 31, 2000 were 8.69% and 8.36%, respectively. Under the revolving credit facility, a commitment fee of 0.50% per annum on the average available commitment is payable quarterly. The Credit Agreement contains certain financial covenants and limitations on, among other things, acquisitions, sales, indebtedness and liens. The Credit Agreement also limits the payment of cash dividends related to the Company paying up to $1 million to Holdings in any given fiscal year. In addition, the Company has substantial dividend payment restrictions under the indenture related to the Senior Discount Notes. The Company was in compliance with all such covenants and limitations at March 31, 2000. As F-29 191 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) defined by the Credit Agreement, any "change of control" would result in an "Event of Default" and all amounts outstanding under the Credit Agreement would become due and payable. All principal amounts and accrued interest would become due without further notice. Interest related to the 9 7/8% Senior Discount Notes is payable semi-annually on August 15 and February 15, commencing August 15, 2003. Maturities of long-term debt as of March 31, 2000, in thousands, are 2001 -- $750; 2002 -- $750; 2003 -- $82,125; 2004 -- $30,938; 2005 -- $33,750; and $183,820 thereafter. 5. CAPITAL LEASES On July 21, 1999, a wholly owned subsidiary of the Company entered into a financing lease with Societe Generale Financial Corporation regarding certain compression equipment. The financing lease has a term of 5 years and bears interest at a rate of LIBOR plus 4.25%. The financing lease is related to the Colombian operations of the Company's subsidiary. On June 17, 1999, the Company signed a master lease agreement with GE Capital Fleet Services completing a sale and lease back of the majority of its service vehicle fleet. Under the agreement, the vehicles were sold and leased back by the Company at lease terms ranging from 20 months to 56 months and will continue to be deployed by the Company under its normal operating procedures. Principal amortization associated with both leases is recorded in the Consolidated Statements of Cash Flows. Property and equipment at March 31, 2000 include the following amounts for capitalized leases (in thousands): Compression equipment...................................... $11,925 Service vehicles........................................... 4,363 ------- 16,288 Less accumulated depreciation.............................. (2,365) ------- Net assets under capital leases............................ $13,923
Future minimum lease payments under non-cancelable capital leases as of March 31, 2000 are as follows (in thousands): 2001....................................................... $ 3,456 2002....................................................... 3,302 2003....................................................... 3,171 2004....................................................... 2,774 2005....................................................... 996 Thereafter................................................. -- ------- Total............................................ $13,699
6. INCOME TAXES For the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, substantially all of the Company's income and losses before income taxes were derived from its U.S. operations. F-30 192 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense (benefit) for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 consisted of the following (in thousands):
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 1999 2000 ------------------- ---- ------- Current: Foreign.......................................... $ 71 $145 $ 889 Deferred: Federal.......................................... 411 19 (1,460) State............................................ 47 2 (125) ---- ---- ------- Total.................................... $529 $166 $ (696) ==== ==== =======
A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the federal statutory income tax rate to income before taxes for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 is as follows (in thousands):
FOR THE PERIOD FROM DECEMBER 12, 1997 (INCEPTION) THROUGH MARCH 31, 1998 1999 2000 ------------------- ----- ------- Provision (benefit) for income taxes at statutory rate............................................ $401 $(113) $(1,595) State taxes (benefit)............................. 47 2 (125) Foreign taxes..................................... 71 145 889 Non deductible expenses and other................. 10 132 135 ---- ----- ------- Total................................... $529 $ 166 $ (696) ==== ===== =======
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities at March 31 are (in thousands):
1999 2000 -------- -------- Deferred tax assets: Net operating loss carryforwards.......................... $ 22,913 $ 32,592 Other..................................................... 630 1,172 -------- -------- Total............................................. 23,543 33,764 Valuation allowance......................................... (145) (889) -------- -------- Total............................................. 23,398 32,875 -------- -------- Deferred tax liabilities: Depreciation differences on property and equipment........ (21,905) (28,319) Other..................................................... (1,926) (3,367) -------- -------- Total............................................. (23,831) (31,686) -------- -------- Net deferred tax asset (liability)................ $ (433) $ 1,189 ======== ========
A valuation allowance has been established against the Company's deferred tax assets related to foreign tax credits. The Company believes that it is probable that all other deferred tax assets will be F-31 193 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) realized on future tax returns, primarily from the generation of future taxable income through both profitable operations and future reversals of existing taxable temporary differences. As a result of the activity for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, the Company has net operating loss ("NOL") carryforwards available to offset future taxable income. The Company has NOL carryforwards of approximately $84,935,000 at March 31, 2000 which will expire, if not utilized, as follows: 2018 -- $3,875,000; 2019 -- $27,859,000 and 2020 -- $53,201,000. Utilization of the carryforwards could be limited by Section 382 depending on future changes in ownership. 7. EMPLOYEE BENEFITS The Company has a defined contribution 401(k) plan covering substantially all employees. The Company makes matching contributions under this plan equal to 50% of each participant's contribution of up to 6% of the participant's compensation. Company contributions to the plan were approximately $159,000; $493,000 and $473,000 for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. 8. RELATED-PARTY TRANSACTIONS Management Agreement Castle Harlan Inc., an affiliate of a major shareholder of Holdings, entered into an agreement whereby, in exchange for certain management services rendered, the Company agreed to pay a fee to Castle Harlan Inc. totaling $3 million per year. The amount was paid in advance for the first year and quarterly in advance thereafter. The agreement is for a term of five years, renewable automatically from year to year thereafter unless Castle Harlan Inc. or its affiliates beneficially own at this time less than 20% of the then outstanding stock of Holdings. The Company paid Castle Harlan Inc. $3,000,000, $750,000 and $3,000,000 during the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. The fee is recorded at the rate of $750,000 per quarter in selling, general and administrative expenses. Finder's Fee/Consulting Arrangement The Company paid a member of Holdings' Board of Directors (the "Director") $1,750,000 (a "finder's fee") related to services provided by the Director for the Acquisition. Upon consummation of the Acquisition, $1,100,000 of the finder's fee was issued to the Director as capital stock of Holdings at $50 per share par value. The Company paid the remaining $650,000 of the finder's fee in cash to the Director on March 4, 1998. In addition, the Company will pay the Director an annual consulting fee of $150,000 for consulting services for a stated term of five years. The agreement will automatically extend for one-year periods unless the parties elect to terminate the agreement. The Company paid the Director $12,500, $165,523 and $140,264 during the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000, respectively. Payable to Parent Amounts due to Holdings include primarily cash collected from employees on behalf of Holdings for purchases of capital stock. Amounts due to Holdings do not bear interest. The net changes in amounts due to Holdings are included in cash flows from operating activities. F-32 194 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. COMMITMENTS AND CONTINGENCIES Rent expense for the period from December 12, 1997 (inception) through March 31, 1998 and the years ended March 31, 1999 and 2000 was approximately $43,000, $427,000 and $415,000, respectively. Commitments for future lease payments were not significant at March 31, 1999. In the ordinary course of business, the Company is involved in various pending or threatened legal actions. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the Company's financial position, operating results or cash flows. An environmental assessment (the "Assessment") of the operations, physical premises and assets of the Company was completed in connection with the Acquisition. In the event that remediation is undertaken by the Company, then pursuant to the stock purchase agreement, costs of such remediation shall be paid as follows: Tidewater, Inc. shall pay 75% of the first $4 million, 83.33% of the next $6 million, and 100% of the costs in excess of $10 million, although not to exceed the upper limit of the range in the Assessment. Tidewater, Inc. has disputed certain aspects of the Assessment, but has not disputed its obligation to reimburse the Company for actual costs incurred in remediating environmental conditions identified in the Assessment. The Company has recorded a provision of approximately $1,100,000 at March 31, 2000 for environmental remediation costs. The Company continues to further evaluate the Company's remediation requirements under existing laws, rules and regulations. Considering Tidewater's obligations pursuant to the stock purchase agreement, the Company continues to believe that any unrecorded remediation obligations will not have a material impact on its financial condition, results of operations and cash flows. Should the Company incur remediation costs, a receivable from Tidewater, Inc. for the expected reimbursement based on the terms of the stock purchase agreement will be recorded. The unreimbursed portion of any such remediation costs will be charged against the Company's environmental remediation liability. The Company has no other commitments or contingent liabilities which, in the judgment of management, would result in losses that would materially affect the Company's consolidated financial position or operating results. 10. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION The Company has three principal industry segments: Domestic Rental and Maintenance, International Rental and Maintenance and Engineered Products. The two Rental and Maintenance Segments provide natural gas compression rental and maintenance services to meet specific customer requirements. The Engineered Products Segment involves the design, fabrication and sale of natural gas and air compression packages to meet customer specifications. The International Rental and Maintenance Segment represents substantially all of the Company's foreign based operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from operations before interest expense and income taxes. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately since each business requires different marketing strategies due to customer specifications. The business was acquired as a unit (see Note 1 -- Organization). F-33 195 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents sales and other financial information by industry segment for the year ended March 31, 2000 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL ----------- ------------- ---------- --------- -------- Revenues...................... $ 83,577 $14,718 $25,258 $12,896 $136,449 Operating income (loss)....... $ 22,262 $ 3,974 $ 971 $(1,043) $ 26,164 Depreciation and amortization................ $ 19,104 $ 3,947 $ 196 $ 2,753 $ 26,000 Capital expenditures.......... $ 50,980 $ 8,079 $ 899 $ 44 $ 60,002 Identifiable assets........... $310,563 $49,204 $10,205 $96,373 $466,345
The following table presents sales and other financial information by industry segment for the year ended March 31, 1999 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL ----------- ------------- ---------- --------- -------- Revenues...................... $ 78,821 $ 6,778 $22,429 $21,470 $129,498 Operating income (loss)....... $ 22,394 $ 2,483 $ 949 $ (109) $ 25,717 Depreciation and amortization................ $ 15,626 $ 1,020 $ 161 $ 2,501 $ 19,308 Capital expenditures.......... $ 48,428 $17,293 $ 2,123 $ 237 $ 68,081 Identifiable assets........... $311,490 $16,093 $11,421 $97,483 $436,487
The following table presents sales and other financial information by industry segment for the period from December 12, 1997 (inception) through March 31, 1998 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER(A) TOTAL ----------- ------------- ---------- --------- -------- Revenues...................... $ 8,407 $ 652 $3,165 $ 895 $ 13,119 Operating income.............. $ 3,373 $ 298 $ 189 $ 166 $ 4,026 Depreciation and amortization................ $ 1,461 $ 83 $ 10 $ 6 $ 1,560 Capital expenditures.......... $ 1,465 $ 529 $ -- $ 44 $ 2,038 Identifiable assets........... $262,218 $14,752 $7,865 $94,273 $379,108
- --------------- (a) Corporate and Other segment represents primarily corporate activities, part sales and services and all other items that could not be allocated to an identifiable segment. The segment principally serves the oil and gas market, including sales of parts and equipment utilized in the extraction of natural gas and the service that the Company provides to customers' natural gas compression units. Revenues include sales to unaffiliated customers. Operating income is defined as income before income taxes less gain on asset sales and interest income plus interest expense. Identifiable assets are those tangible and intangible assets that are identified with the operations of a particular industry segment. Capital expenditures include fixed asset purchases. F-34 196 UNIVERSAL COMPRESSION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for the year ended March 31, 2000 is as follows (in thousands):
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 ------- ------------ ----------- -------- Revenues................................. $33,808 $34,988 $33,729 $33,924 Operating income......................... $ 5,968 $ 6,633 $ 6,699 $ 6,864 Net loss................................. $ (732) $(1,052) $ (738) $(1,341)
12. SUBSEQUENT EVENTS During the quarter ended June 30, 2000, Holdings completed an initial public offering of 7,275,000 shares of its common stock (which includes 275,000 shares of common stock issued pursuant to an over-allotment option granted to the underwriters), which provided Holdings with net proceeds (after deducting underwriting discounts and commissions) of approximately $149.2 million. Concurrently with the initial public offering, Holdings implemented a recapitalization pursuant to which all existing classes of Holdings' preferred and common stock were converted and split into common stock. Accordingly, all of Holdings' common stock other than Class A non-voting have been restated in the historical financial statements to give effect to such split. Also concurrently with the initial public offering, Holdings entered into a new $50 million revolving credit facility and $200 million operating lease facility. The proceeds of the offering and the $62.6 million in initial proceeds from the new operating lease facility were used to repay $192.7 million of indebtedness, and the remaining proceeds were used for working capital and to pay expenses associated with the offering and concurrent financing transactions. On September 15, 2000, Holdings completed the merger of Gas Compression Services, Inc. ("GCSI"), a supplier of natural gas compression equipment and services with fabrication and overhaul facilities in Michigan and Texas, into Universal for a combination of approximately $12 million in cash, 1,400,726 shares of the Company's common stock, the assumption of approximately $57 million in debt and operating leases of GCSI, and $6 million of debt related to GCSI customer equipment financing and associated customer notes receivable. All of the assumed debt and operating leases, except for approximately $10 million, were paid off concurrent with the merger using proceeds received under the operating lease facility. The acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $33 million in goodwill. Results of operations for GCSI are included in the accompanying consolidated financial statements for the 15 days from the date of the merger. On February 9, 2001, the Company and Holdings completed the acquisition of Weatherford Global Compression Services, L.P. and related entities ("Weatherford Global") through a merger (the "Merger") of Enterra Compression Company, a Delaware corporation ("Enterra"), with and into Universal. Pursuant to the Merger Agreement, the Company acquired Enterra and its subsidiaries, which engage in gas compression service operations in the United States and abroad, from WEUS in exchange for 13,750,000 shares of Holdings' common stock and the restructuring of approximately 323 million of indebtedness and operating lease obligations of WGC. Weatherford retained its recently acquired Singapore-based operations and $10 million in accounts receivable. Immediately prior to the Merger, Enterra acquired the interest of General Electric Capital Corporation ("GE Capital") in Weatherford Global. On February 28, 2001, the Company and Holdings completed the acquisition of ISS Compression, Inc. ("ISS") and its operating subsidiary IEW Compression, Inc., a Lafayette, Louisiana based provider of natural gas compression services through a merger of ISS, with and into Universal. Universal paid approximately $15 million in cash for ISS, which amount includes the concurrent discharge of ISS's indebtedness and operating lease financing. F-35 197 INDEPENDENT AUDITORS' REPORT To the Board of Directors Universal Compression, Inc. We have audited the accompanying statements of income, stockholder's equity and cash flows of Tidewater Compression Service, Inc. (the "Company") for the period from April 1, 1997 through February 20, 1998. 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 audit. We conducted our audit in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of Tidewater Compression Service, Inc. for the period from April 1, 1997 through February 20, 1998, in conformity with generally accepted accounting principles in the United States of America. DELOITTE & TOUCHE LLP Houston, Texas June 1, 1998 F-36 198 TIDEWATER COMPRESSION SERVICE, INC. STATEMENT OF OPERATIONS
PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 ----------------- (IN THOUSANDS) Revenues: Rentals................................................... $71,644 Sales..................................................... 19,924 Other..................................................... 3,024 Gain on asset sales....................................... 1,094 ------- Total revenues.................................... 95,686 ------- Costs and expenses: Rentals................................................... 31,924 Cost of sales............................................. 14,753 Depreciation and amortization............................. 23,310 General and administrative................................ 8,669 Interest expense.......................................... -- ------- Total costs and expenses.......................... 78,656 ------- Income before income taxes.................................. 17,030 Income taxes................................................ 6,271 ------- Net income........................................ $10,759 =======
See accompanying notes to financial statements. F-37 199 TIDEWATER COMPRESSION SERVICE, INC. STATEMENT OF STOCKHOLDER'S EQUITY FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998
ADDITIONAL COMMON PAID-IN RETAINED STOCK CAPITAL EARNINGS TOTAL ------ ---------- -------- ------- (IN THOUSANDS) BALANCE, APRIL 1, 1997................................ $49 $25,627 $31,871 $57,547 Net income............................................ -- -- 10,759 10,759 --- ------- ------- ------- BALANCE, FEBRUARY 20, 1998............................ $49 $25,627 $42,630 $68,306 === ======= ======= =======
See accompanying notes to financial statements. F-38 200 TIDEWATER COMPRESSION SERVICE, INC. STATEMENT OF CASH FLOWS
PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 ----------------- (IN THOUSANDS) Cash flows from operating activities: Net income................................................ $10,759 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................... 23,310 Gain on asset sales.................................... (1,094) Deferred income tax benefit............................ (1,825) Decrease in receivables................................ 700 Increase in inventories................................ (610) Decrease in other current assets....................... 11 Increase in accounts payable........................... 2,716 Decrease in accrued expenses........................... (476) ------- Net cash provided by operating activities......... 33,491 ------- Cash flows from investing activities: Proceeds from asset sales................................. 3,803 Additions to properties and equipment..................... (17,600) ------- Net cash used in investing activities............. (13,797) ------- Cash flows from financing activities: Net change in amount due to Tidewater Inc. ............... (17,870) Repayments of long-term debt.............................. -- ------- Net cash used in financing activities............. (17,870) ------- Net increase in cash........................................ 1,824 Cash at beginning of period................................. -- ------- Cash at end of period....................................... $ 1,824 ======= Supplemental cash flow information -- cash paid for interest.................................................. --
See accompanying notes to financial statements. F-39 201 TIDEWATER COMPRESSION SERVICE, INC. NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Tidewater Compression Service, Inc. ("TCS" or the "Company") is, and has been for all periods presented, a wholly owned subsidiary of Tidewater Inc. ("Tidewater"). The accompanying financial statements are presented as if TCS had been an entity separate from its parent during the periods presented and include the revenues and expenses that are directly related to TCS' operations. As a subsidiary of Tidewater, TCS was a participating employer in certain employee benefit plans and also received certain administrative services such as data processing, legal, insurance placement and claims handling from its parent. The costs associated with providing TCS with such employee benefit programs and administrative services, where significant, have been allocated to TCS based on management's estimate of the time involved in providing such services and are included in the accounts of TCS. Management believes the method used to allocate the cost of these services is reasonable. Nature of Operations TCS operates one of the largest rental fleets of natural gas compressors in the United States. The compressors are rented to oil and gas producers and processors and are used primarily to boost the pressure of natural gas from the wellhead into gas-gathering systems, into nearby gas-processing plants or into high-pressure pipelines. TCS also designs and fabricates compression packages for its own fleet as well as for sale to customers. Use of Estimates In preparing TCS' financial statements, management makes estimates and assumptions that affect the amounts reported in the financial statements and related disclosures. Actual results may differ from these estimates. Revenue Recognition Revenue from equipment rentals and parts sales is recognized when earned. Compressor fabrication revenue is recognized using the completed-contract method. This method is used because the typical contract is completed within two months and financial position and results of operations do not vary significantly from those which would result from use of the percentage-of-completion method. Income Taxes TCS' operations are included in the consolidated U.S. federal income tax returns of Tidewater Inc. The tax provisions presented in these financial statements have been determined as if TCS' operations were a stand-alone business filing a separate income tax return with the amount of current tax owed (refundable) charged or credited to the amounts due to Tidewater Inc. Deferred tax assets and liabilities which are also included in the amounts due to Tidewater Inc. are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. Environmental Liabilities The costs to remediate and monitor environmental matters are accrued when such liabilities are considered probable and a reasonable estimate of such costs is determinable. F-40 202 TIDEWATER COMPRESSION SERVICE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Pension, Postretirement and Other Benefit Plans TCS employees participate in Tidewater pension and other postretirement plans. TCS has accounted for its participation in the Tidewater plans as a participation in multiemployer plans. Accordingly, the statement of operations includes an allocation from Tidewater for the costs associated with the TCS employees who participate in these plans that is comparable to TCS' required contribution to the plans for the periods presented. Additionally, no assets and liabilities have been reflected in the balance sheet related to the overall Tidewater pension and other postretirement benefit plans since it is not practicable to segregate the amounts applicable to TCS. TCS employees also participate in the medical, dental, life and workers' compensation insurance plans sponsored by Tidewater. The costs of these plans are allocated to TCS based on the number of TCS employees participating in the plans. Foreign Currency Transactions Activities outside the United States, except those located in highly inflationary economies, are measured using the local currency as the functional currency. Assets 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 resultant translation adjustments for the period from April 1, 1997 through February 20, 1998 were not significant. Foreign Operations and Export Sales Foreign operations were not deemed significant for the period from April 1, 1997 through February 20, 1998. Export sales for the period from April 1, 1997 through February 20, 1998 were $15,528,000. 2. INCOME TAXES For the period from April 1, 1997 through February 20, 1998, substantially all of TCS' income before income taxes was derived from its U.S. operations. Income tax expense (benefit) consisted of the following (in thousands):
PERIOD FROM APRIL 1, 1997 THROUGH FEBRUARY 20, 1998 ----------------- Current: U.S. Federal...................................... $ 7,220 State and foreign................................. 876 Deferred............................................ (1,825) ------- Total..................................... $ 6,271 =======
The actual income tax expense for each of the periods shown above differs from the amount computed by applying the U.S. federal tax rate of 35% to income before income taxes principally because of state income taxes. F-41 203 TIDEWATER COMPRESSION SERVICE, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. EMPLOYEE BENEFITS Defined Benefit Pension Plans and Defined Contribution Retirement Plan Until January 1, 1996, substantially all of the TCS personnel participated in a defined benefit pension plan sponsored by Tidewater. Tidewater's pension benefits are based principally on years of service and employee compensation. Beginning April 1996, TCS field service personnel, along with all new employees of TCS eligible for pension plan membership, were enrolled in a new, defined contribution retirement plan. Tidewater allocated pension expense to TCS of approximately $282,000 for the period from April 1, 1997 through February 20, 1998. Postretirement Benefits Other Than Pension Tidewater sponsors a program which provides limited health care and life insurance benefits to qualified retired employees. Costs of the program are based on actuarially determined amounts and are accrued over the period from the date of hire to the full eligibility date of employees who are expected to qualify for these benefits. Tidewater has allocated postretirement health care and life insurance expense to TCS of approximately $274,000 for the period from April 1, 1997 through February 20, 1998. 4. COMMITMENTS AND CONTINGENCIES Rent expense for the period from April 1, 1997 through February 20, 1998 was approximately $390,000. Commitments for future minimum lease payments were not significant at February 20, 1998. 5. SUBSEQUENT EVENTS On February 20, 1998, pursuant to the Stock Purchase Agreement, dated December 18, 1997, between Tidewater and TW Acquisition Corporation ("Acquisition Corp."), the Acquisition Corp. acquired 100% of the voting securities of TCS for a purchase price of approximately $350 million (the "Acquisition"). Immediately following the Acquisition, Acquisition Corp. was merged with and into TCS, which changed its name to Universal Compression, Inc. F-42 204 UNIVERSAL COMPRESSION HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2000 2000 --------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 1,403 $ 7,442 Accounts receivable, net.................................. 14,615 30,931 Current portion of notes receivable....................... 1,535 3,190 Inventories............................................... 8,727 20,523 Current deferred tax asset................................ 227 227 Other..................................................... 1,571 1,451 -------- -------- Total current assets............................... 28,078 63,764 Property, plant and equipment Rental equipment.......................................... 349,198 366,182 Other..................................................... 19,617 28,085 Accumulated depreciation.................................. (38,466) (50,610) -------- -------- Net property, plant and equipment.................. 330,349 343,657 Goodwill, net of accumulated amortization................... 99,250 130,464 Notes receivable............................................ 1,117 5,048 Other non-current assets, net............................... 7,570 8,190 Non-current deferred tax asset.............................. 3,578 7,509 -------- -------- Total assets....................................... $469,942 $558,632 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade................................... $ 10,911 $ 20,371 Accrued liabilities....................................... 6,869 13,180 Current portion of long-term debt and capital lease obligation.............................................. 4,206 3,097 -------- -------- Total current liabilities.......................... 21,986 36,648 Capital lease obligations................................... 10,243 4,870 Long-term debt.............................................. 363,036 204,184 Non-current deferred tax liability.......................... -- 2,806 Other liabilities........................................... -- 44,731 -------- -------- Total liabilities.................................. 395,265 293,239 Commitments and Contingencies (see note 10) Stockholders' equity: Series A preferred stock, $.01 par value, 5,000,000 and 50,000,000 shares authorized, 1,320,128 and 0 shares issued, and 1,318,896 and 0 shares outstanding at March 31, 2000 and December 31, 2000, respectively............ 13 -- Common stock, $.01 par value, 994,000 and 200,000,000 shares authorized, 330,032 and 14,736,397 shares issued, and 329,724 and 14,723,155 shares outstanding at March 31, 2000 and December 31, 2000, respectively.................. 3 147 Class A non-voting common stock, $.01 par value, 6,000 and 0 shares authorized, 4,120 and 0 shares issued, and 3,210 and 0 shares outstanding at March 31, 2000 and December 31, 2000, respectively......................... -- -- Treasury stock, 2,450 and 13,242 shares at cost at March 31, 2000 and December 31, 2000, respectively............ (123) (135) Additional paid-in capital................................ 82,697 279,339 Retained deficit.......................................... (7,913) (13,958) -------- -------- Total stockholders' equity......................... 74,677 265,393 -------- -------- Total liabilities and stockholders' equity......... $469,942 $558,632 ======== ========
See accompanying notes to unaudited consolidated financial statements. F-43 205 UNIVERSAL COMPRESSION HOLDINGS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------- ------------------- 1999 2000 1999 2000 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues: Rentals............................................ $25,311 $36,172 $ 72,174 $ 91,127 Sales.............................................. 8,349 23,800 30,223 42,201 Other.............................................. 69 42 128 299 ------- ------- -------- -------- Total revenues............................. 33,729 60,014 102,525 133,627 Costs and expenses: Rentals, exclusive of depreciation and amortization.................................... 9,049 12,259 26,153 31,132 Cost of sales, exclusive of depreciation and amortization.................................... 6,900 21,332 25,650 36,360 Depreciation and amortization...................... 7,001 7,726 18,679 21,903 Selling, general and administrative................ 4,004 4,747 12,658 11,971 Operating lease.................................... -- 3,539 -- 6,223 Interest expense................................... 8,832 5,372 25,278 18,597 Non-recurring charges.............................. -- -- -- 7,059 ------- ------- -------- -------- Total costs and expenses................... 35,786 54,975 108,418 133,245 ------- ------- -------- -------- Income (loss) before income taxes and extraordinary items.............................................. (2,057) 5,039 (5,893) 382 Income taxes (benefit)............................... (781) 1,909 (1,801) 163 ------- ------- -------- -------- Income (loss) before extraordinary items........... $(1,276) $ 3,130 $ (4,092) $ 219 ======= ======= ======== ======== Extraordinary loss, net of $3,759 income tax benefit......................................... -- -- -- (6,264) ------- ------- -------- -------- Net income (loss).................................. $(1,276) $ 3,130 $ (4,092) $ (6,045) ======= ======= ======== ======== Weighted average common and common equivalent shares outstanding: Basic.............................................. -- 14,666 -- 12,342 ------- ------- -------- -------- Diluted............................................ -- 15,052 -- 12,714 ------- ------- -------- -------- Earnings per share -- basic: Income before extraordinary items.................. $ -- $ 0.21 $ -- $ 0.02 Extraordinary loss................................. -- -- -- (0.51) ------- ------- -------- -------- Net income (loss).................................. $ -- $ 0.21 $ -- $ (0.49) ======= ======= ======== ======== Earnings per share -- diluted: Income before extraordinary items.................. $ -- $ 0.21 $ -- $ 0.02 Extraordinary loss................................. -- -- -- (0.49) ------- ------- -------- -------- Net income (loss).................................. $ -- $ 0.21 $ -- $ (0.47) ======= ======= ======== ========
See accompanying notes to unaudited consolidated financial statements. F-44 206 UNIVERSAL COMPRESSION HOLDINGS, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, --------------------- 1999 2000 -------- --------- (IN THOUSANDS) Cash flows from operating activities: Net loss.................................................. $ (4,092) $ (6,045) Adjustments to reconcile net loss to cash provided by operating activities, net of effect of acquisitions: Depreciation and amortization.......................... 18,679 21,903 Gain on asset sales.................................... (83) (102) Amortization of debt issuance costs.................... 872 1,136 Accretion of discount notes............................ 15,035 14,362 Deferred income taxes.................................. -- (1,125) Change in operating assets and liabilities, net (Increase) decrease in receivables.................... 6,965 (21,902) Increase in inventories.............................. (3) (11,796) Increase in accounts payable......................... 426 9,460 Increase (decrease) in accrued expenses.............. (2,902) 4,170 Other................................................ (1,781) 3,684 -------- --------- Net cash provided by operating activities......... 33,116 13,745 Cash flows from investing activities: Additions to property, plant and equipment, net........... (42,505) (47,425) Capital leaseback of vehicles............................. (4,354) (1,276) Acquisitions.............................................. -- (125,361) Proceeds from sale of fixed assets........................ -- 154,611 -------- --------- Net cash used in investing activities............. (46,859) (19,451) Cash flows from financing activities: Principal repayments of long-term debt.................... (376) (107,368) Net repayment under revolving line of credit.............. (400) (72,000) Net proceeds (repayment) on sale-leaseback of vehicles.... 3,491 (442) Net proceeds (repayment) of financing lease............... 10,754 (10,580) Common stock issuance..................................... -- 196,773 Debt issuance costs....................................... -- (5,320) Treasury stock............................................ (26) (12) Debt assumed in acquisitions.............................. -- 10,694 -------- --------- Net cash provided by financing activities......... 13,443 11,745 Net increase (decrease) in cash and cash equivalents........ (300) 6,039 Cash and cash equivalents at beginning of period............ 2,927 1,403 -------- --------- Cash and cash equivalents at end of period.................. $ 2,627 $ 7,442 ======== =========
See accompanying notes to unaudited consolidated financial statements. F-45 207 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. BASIS OF PRESENTATION Universal Compression Holdings, Inc. (the "Company") was formed on December 12, 1997 for the purpose of acquiring Tidewater Compression Service, Inc. ("TCS") from Tidewater Inc. ("Tidewater"). Upon completion of the acquisition on February 20, 1998 (the "Tidewater Acquisition"), TCS became the Company's wholly-owned subsidiary and changed its name to Universal Compression, Inc. ("Universal"). Through this subsidiary, the Company's gas compression service operations date back to 1954. The Company is a holding company which conducts its operations through its wholly-owned subsidiary, Universal. Accordingly, the Company is dependent upon the distribution of earnings from Universal, whether in the form of dividends, advances or payments on account of intercompany obligations, to service its debt obligations. These consolidated financial statements should be read in conjunction with the consolidated financial statements presented in the Company's Annual Report on Form 10-K for the year ended March 31, 2000. That report contains a more comprehensive summary of the Company's major accounting policies. In the opinion of management, the accompanying unaudited consolidated financial statements contain all appropriate adjustments, all of which are normally recurring adjustments unless otherwise noted, considered necessary to present fairly the financial position of the Company and its consolidated subsidiaries and the results of operations and cash flows for the respective periods. Operating results for the three and nine-month periods ended December 31, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2001. The Company is a leading provider of natural gas compressor rental, sales, operations, maintenance and fabrication services to the natural gas industry, with one of the largest gas compressor fleets in the United States, and has a growing presence in key international markets. As of December 31, 2000, the Company had a broad base of over 750 customers and maintained a fleet of over 3,400 compression rental units. In addition, as of such date, the Company owned approximately 841,000 horsepower and serviced under contract approximately 186,000 horsepower. The Company operates in every significant natural gas producing region in the United States through its 38 compression sales and service locations. As a complement to its rental operations, the Company designs and fabricates compression units for its own fleet as well as for its global customer base. During the quarter ended June 30, 2000, the Company completed an initial public offering of 7,275,000 shares of its common stock (which includes 275,000 shares of common stock issued pursuant to an over-allotment option granted to the underwriters), which provided the Company with net proceeds (after deducting underwriting discounts and commissions) of approximately $149.2 million. Concurrently with the initial public offering, the Company implemented a recapitalization pursuant to which all existing classes of the Company's stock were converted into common stock. Also concurrently with the initial public offering, the Company entered into a $50 million revolving credit facility and $200 million operating lease facility. The proceeds of the offering and the $62.6 million in initial proceeds from the new operating lease facility were used to repay $192.7 million of indebtedness, and the remaining proceeds were used for working capital and to pay expenses associated with the offering and concurrent financing transactions. The Company completed the merger of Gas Compression Services, Inc. ("GCSI") into Universal on September 15, 2000. In the merger, the GCSI shareholders received approximately $12 million in cash, 1,400,726 shares of the Company's common stock and the Company assumed or refinanced approximately $63 million of indebtedness of GCSI. The Company also completed its acquisition of Weatherford Global Compression Services, L.P. and certain related entities on February 9, 2001 and its acquisition of ISS Compression, Inc. and its operating subsidiary, IEW Compression, Inc., on February 28, 2001. See Note 11. F-46 208 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Earnings Per Share Basic earnings per share is computed using the weighted average number of shares outstanding for the period. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. Included in diluted shares for the three and nine-month periods ended December 31, 2000 are common stock equivalents relating to options of 386,000 and 372,000, respectively. Common stock equivalents are calculated using the treasury stock method. Earnings per share information is not presented for the three and nine-month periods ended December 31, 1999 as such information would not be meaningful because the Company was beneficially owned by a single stockholder under the terms of voting agreements during such periods. Reclassifications Certain reclassifications have been made to the prior year amounts to conform to the current year classification. Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis primarily over 40 years. Accumulated amortization was $5.2 million and $7.5 million at March 31, 2000 and December 31, 2000, respectively. At the balance sheet date, the Company evaluated the recoverability of goodwill based on expectations of undiscounted cash flows from operations and determined that no impairment had occurred. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." In June 2000, the FASB issued SFAS 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (1) hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows of a forecasted transaction, or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. We will adopt SFAS 133 and the corresponding amendments under SFAS 138 on April 1, 2001. This statement should have no impact on our consolidated results of operations, financial position or cash flows. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. On June 26, 2000, the SEC issued an amendment to SAB 101, effectively delaying its implementation until the fourth quarter of fiscal years beginning after December 15, 1999. After reviewing SAB 101 and its amendment, management believes that its revenue recognition policy is appropriate and F-47 209 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) that any possible effects of SAB 101 and its amendment will be immaterial to the Company's results of operations. 3. BUSINESS COMBINATION On September 15, 2000, the Company completed the merger of GCSI, a supplier of natural gas compression equipment and services with fabrication and overhaul facilities in Michigan and Texas, into Universal for a combination of approximately $12 million in cash, 1,400,726 shares of the Company's common stock valued at approximately $39 million and the assumption or refinancing of approximately $63 million of indebtedness. All of the assumed or refinanced indebtedness, except for approximately $10 million, were paid off concurrent with the merger using proceeds received under the Company's operating lease facility. The acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $33 million in goodwill. Results of operations for GCSI are included in the accompanying consolidated financial statements for the entire three-months ended December 31, 2000 and for 107 days of the nine-months ended December 31, 2000. 4. INVENTORIES Inventories consisted of (in thousands):
MARCH 31, DECEMBER 31, 2000 2000 --------- ------------ Finished goods.............................................. $5,551 $11,346 Work-in-progress............................................ 3,176 9,177 ------ ------- Total............................................. $8,727 $20,523 ====== =======
5. OPERATING LEASE FACILITY In May 2000, the Company and Universal entered into a $200 million operating lease facility pursuant to which the Company may sell and lease back certain compression equipment from a Delaware business trust for a five-year term. The rental payments under the lease facility include an amount based on LIBOR plus a variable amount depending on the Company's operating and financial results, applied to the funded amount of the lease. Under the lease facility, the Company received an aggregate of approximately $155 million in proceeds from the sale of compression equipment in May, November and December 2000 and in connection with the GCSI acquisition, in September 2000. The equipment was sold and leased back by the Company for a five-year period from May 2000 and deployed by the Company under its normal operating procedures. The equipment sold had a book value of approximately $106 million and the equipment sale resulted in a gain of approximately $49 million that was deferred until the end of the lease. The Company had residual value guarantees on the equipment under the operating lease facility of approximately 85% of the funded amount that were due upon termination of the lease and which could be satisfied by a cash payment or the exercise of the purchase option. The facility contained certain covenants restricting the Company's operations, including its ability to enter into acquisition and sales transactions, incur additional indebtedness, permit additional liens on its assets and pay dividends. The Company's obligations under this facility were secured by liens on its compression equipment subject to the lease and certain related rights. Under the operating lease facility, Universal was the lessee and the Company guaranteed certain of Universal's obligations thereunder. The Company has replaced this facility with new operating lease facilities with similar terms (See Note 11). F-48 210 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. EXTRAORDINARY LOSSES During the quarter ended June 30, 2000, the Company incurred extraordinary losses of $6.3 million, net of income taxes of $3.7 million, related to its debt restructuring that occurred concurrently with the Company's initial public offering of its common stock. 7. NON-RECURRING CHARGES During the quarter ended June 30, 2000, the Company incurred non-recurring charges of $4.4 million, net of income taxes of $2.7 million, related to the early termination of a management agreement and a consulting agreement and other related fees in connection with the Company's initial public offering and concurrent financing transactions. 8. RELATED PARTY TRANSACTIONS In connection with the initial public offering in the quarter ended June 30, 2000, the Company terminated its Management Agreement with Castle Harlan, Inc. and its Finders and Consulting Agreement with Samuel Urcis, a director of the Company. In exchange for such terminations, the Company paid $3 million in cash and issued 136,364 shares of its common stock to Castle Harlan, and paid $150,000 in cash and issued 6,818 shares of common stock to Mr. Urcis. 9. INDUSTRY SEGMENTS The Company has three principal industry segments: Domestic Rental and Maintenance, International Rental and Maintenance and Engineered Products. The two Rental and Maintenance segments provide natural gas compression rental and maintenance services to meet specific customer requirements. The Engineered Products segment involves the design, fabrication and sale of natural gas and air compression packages to meet customer and the Company's own specifications. The International Rental and Maintenance segment represents substantially all of the Company's foreign based operations. The Company evaluates performance based on profit or loss from operations, which is defined as income before income taxes less gain on asset sales and interest income plus interest expense and operating lease expense. Revenue include sales to unaffiliated customers. Gross margin is defined as total revenue less rental expenses, cost of sales (exclusive of depreciation and amortization), gain on asset sales and interest income. The Corporate and Other segment, which represents primarily part sales and services, corporate activities, and all other items that could not be allocated to an identifiable segment, principally serves the oil and gas market, including sales of parts and equipment utilized in the extraction of natural gas and the services that the Company provides to customers' natural gas compression units. The following table presents sales and other financial information by industry segment for the three months ended December 31, 1999 and 2000 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL ----------- ------------- ---------- --------- ------- December 31, 1999: Revenues..................... $21,416 $3,896 $ 4,977 $3,440 $33,729 Gross margin................. $13,735 $2,528 $ 725 $ 713 $17,701 Operating income............. $ 5,385 $ 723 $ 158 $ 430 $ 6,696 December 31, 2000: Revenues..................... $31,747 $4,425 $17,329 $6,513 $60,014 Gross margin................. $20,526 $3,387 $ 1,705 $ 755 $26,373 Operating income............. $10,836 $1,354 $ 1,015 $ 695 $13,900
F-49 211 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents sales and other financial information by industry segment for the nine months ended December 31, 1999 and 2000 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL ----------- ------------- ---------- --------- -------- December 31, 1999: Revenues.................... $61,528 $10,647 $19,874 $10,476 $102,525 Gross margin................ $38,569 $ 7,454 $ 2,458 $ 2,089 $ 50,570 Operating income............ $14,711 $ 2,727 $ 622 $ 1,173 $ 19,233 December 31, 2000: Revenues.................... $78,318 $12,810 $33,308 $ 9,191 $133,627 Gross margin................ $50,296 $ 9,700 $ 4,590 $ 1,268 $ 65,854 Operating income............ $24,217 $ 3,952 $ 2,732 $ 1,079 $ 31,980
10. COMMITMENTS AND CONTINGENCIES In February 1998, in connection with the Tidewater Acquisition, the Company entered into a Purchase Price Adjustment Agreement with Tidewater. The agreement provides for potential additional amounts to be paid to Tidewater upon a liquidity event, as defined in the agreement. If a liquidity event occurs and Castle Harlan Partners III and its affiliates receive an amount greater than its accreted investment (defined as its initial investment increased at a compounded rate of 6.25% each quarter, which equates to approximately 27.4% annually), the Company must make a payment to Tidewater equal to 10% of the amount, if any, that Castle Harlan receives in excess of its accreted investment. Any payment pursuant to this agreement would result in an increase in goodwill in the year of payment and a corresponding increase in goodwill and amortization expense in subsequent years. As of December 31, 2000, Castle Harlan's accreted investment was approximately $28.78 per share, which will continue to grow at a compounded rate of 6.25% per quarter. As of December 31, 2000, no liquidity event, as defined in the agreement, that required a payment had occurred. In the ordinary course of business, the Company is involved in various pending or threatened legal actions. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on the Company's financial position, operating results or cash flows. 11. SUBSEQUENT EVENTS On February 9, 2001, the Company completed its acquisition of Weatherford Global Compression Services and certain related entities ("WGC"), a supplier of natural gas compression equipment and services and a division of Weatherford International, Inc. Under the terms of the agreement, a subsidiary of Weatherford International was merged into Universal in exchange for 13.75 million restricted shares of the Company's common stock, which represents approximately 48% of the outstanding shares of the combined company. In connection with the acquisition, Weatherford has agreed, subject to certain conditions, to limit its voting rights to 33 1/3% of the Company's voting power for up to two years. In addition, the Company restructured approximately $323 million in debt and operating leases of WGC. The transaction was accounted for as a purchase. Prior to closing, Weatherford International acquired the interest of its minority partner in WGC. Also, Weatherford International retained certain assets and operations related to WGC's Singapore-based operations and approximately $10 million in accounts receivable. In connection with the acquisition, on February 9, 2001, the Company raised $427 million under a new operating lease facility funded primarily through an offering of $350 million 8 7/8% senior secured notes F-50 212 UNIVERSAL COMPRESSION HOLDINGS, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) due 2008 by an unaffiliated entity (the "SSN Operating Lease Facility"). The Company also entered into a new $125 million secured revolving credit facility and a new $200 million asset-backed securitization operating lease facility (the "ABS Operating Lease Facility"). At the closing, the Company funded approximately $80 million under the ABS Operating Lease Facility and had no amounts outstanding under the new revolving credit facility. The proceeds from the two new operating lease facilities were used to restructure existing operating lease obligations and refinance certain existing indebtedness of the Company (including the previous operating lease facility described in Note 5) and WGC. Subsequent to the WGC acquisition and related financing transactions, the Company had approximately $198 million outstanding under its 9 7/8% Senior Discount Notes due 2008 and approximately $13 million of other indebtedness. In addition, the Company funded approximately $427 million under the SSN Operating Lease Facility and approximately $80 million under the ABS Operating Lease Facility. The Company has unused commitments of approximately $245 million (approximately $120 million under the ABS Operating Lease Facility and $125 million under the new revolving credit facility). These facilities contain restrictions similar to the Company's previous operating lease facility and revolving credit facility. On February 28, 2001, the Company acquired ISS Compression, Inc. and its operating subsidiary, IEW Compression, Inc. ("IEW"), a natural gas compression services provider based in Lafayette, Louisiana, for approximately $15 million in cash, which included the concurrent discharge of IEW's debt and operating leases. F-51 213 UNIVERSAL COMPRESSION, INC. CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2000 2000 --------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 1,403 $ 7,442 Accounts receivable, net.................................. 14,615 30,931 Current portion of notes receivable....................... 1,535 3,190 Inventories............................................... 8,727 20,523 Current deferred tax asset................................ 227 227 Other..................................................... 1,519 1,375 -------- -------- Total current assets.............................. 28,026 63,688 Property, plant and equipment Rental equipment.......................................... 349,198 366,182 Other..................................................... 19,617 28,085 Accumulated depreciation.................................. (38,466) (50,610) -------- -------- Net property, plant and equipment................. 330,349 343,657 Goodwill, net of accumulated amortization................... 99,013 129,684 Notes receivable............................................ 1,117 5,048 Other non-current assets, net............................... 6,878 8,190 Non-current deferred tax asset.............................. 962 3,171 -------- -------- Total assets...................................... $466,345 $553,438 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable, trade................................... $ 10,911 $ 20,597 Accrued liabilities....................................... 6,869 13,180 Current portion of long-term debt and capital lease obligation............................................. 4,206 3,097 -------- -------- Total current liabilities......................... 21,986 36,874 Capital lease obligations................................... 10,243 4,870 Long-term debt.............................................. 331,383 204,184 Payable to parent........................................... 1,288 155,139 Non-current deferred tax liability.......................... -- 2,806 Other liabilities........................................... -- 44,731 -------- -------- Total liabilities................................. 364,900 448,604 Commitments and Contingencies (see note 10) Stockholder's equity: Common stock, $10 par value, 5,000 shares authorized and 4,910 shares issued and outstanding.................... 49 49 Additional paid-in capital................................ 105,131 111,316 Retained deficit.......................................... (3,735) (6,531) -------- -------- Total stockholder's equity........................ 101,445 104,834 -------- -------- Total liabilities and stockholder's equity........ $466,345 $553,438 ======== ========
See accompanying notes to unaudited consolidated financial statements. F-52 214 UNIVERSAL COMPRESSION, INC. UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------- ------------------- 1999 2000 1999 2000 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNT) Revenues: Rentals............................................ $25,311 $36,172 $ 72,174 $ 91,127 Sales.............................................. 8,349 23,800 30,223 42,201 Other.............................................. 69 42 128 299 ------- ------- -------- -------- Total revenues............................. 33,729 60,014 102,525 133,627 Costs and expenses: Rentals, exclusive of depreciation and Amortization.................................... 9,049 12,259 26,153 31,132 Cost of sales, exclusive of depreciation and Amortization.................................... 6,900 21,332 25,650 36,360 Depreciation and amortization...................... 6,999 7,725 18,674 21,897 Selling, general and administrative................ 4,004 4,747 12,658 11,971 Operating lease.................................... -- 3,539 -- 6,223 Interest expense................................... 7,965 5,372 22,750 17,999 Non-recurring charges.............................. -- -- -- 7,059 ------- ------- -------- -------- Total costs and expenses................... 34,917 54,974 105,885 132,641 ------- ------- -------- -------- Income (loss) before income taxes and extraordinary items.............................................. (1,188) 5,040 (3,360) 986 Income taxes (benefit)............................... (450) 1,909 (838) 389 ------- ------- -------- -------- Income (loss) before extraordinary items.................................... $ (738) $ 3,131 $ (2,522) $ 597 ======= ======= ======== ======== Extraordinary loss, net of $2,037 income tax Benefit......................................... -- -- -- (3,393) ------- ------- -------- -------- Net income (loss).......................... $ (738) $ 3,131 $ (2,522) $ (2,796) ======= ======= ======== ========
See accompanying notes to unaudited consolidated financial statements. F-53 215 UNIVERSAL COMPRESSION, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 31, -------------------- 1999 2000 -------- --------- (IN THOUSANDS) Cash flows from operating activities: Net loss.................................................. $ (2,522) $ (2,797) Adjustments to reconcile net loss to cash provided from operating activities, net of effect of acquisitions: Depreciation and amortization.......................... 18,674 21,898 Gain on asset sales.................................... (83) (102) Amortization of debt issuance costs.................... 806 1,121 Accretion of discount notes............................ 12,573 13,779 Increase (decrease) in payable to parent............... (48) 153,851 Deferred income taxes.................................. -- 597 Change in operating assets and liabilities, net (Increase) decrease in receivables..................... 6,965 (21,902) Increase in inventories................................ (3) (11,796) Increase in accounts payable........................... 426 9,460 Increase (decrease) in accrued expenses................ (2,902) 4,170 Other.................................................. (796) 3,806 -------- --------- Net cash provided by operating activities......... 33,090 172,085 Cash flows from investing activities: Additions to property, plant and equipment, net........... (42,505) (47,425) Capital leaseback of vehicles............................. (4,354) (1,276) Acquisitions.............................................. -- (125,361) Proceeds from sale of fixed assets........................ -- 154,611 -------- --------- Net cash used in investing activities............. (46,859) (19,451) Cash flows from financing activities: Principal repayments of long-term debt.................... (376) (75,132) Net repayment under revolving line of credit.............. (400) (72,000) Net proceeds (repayment) on sale-leaseback of vehicles.... 3,491 (442) Net proceeds (repayment) of financing lease............... 10,754 (10,580) Acquisition............................................... -- 6,185 Debt issuance costs....................................... -- (5,320) Debt assumed in acquisitions.............................. -- 10,694 -------- --------- Net cash provided by (used in) financing activities...................................... 13,469 (146,595) Net increase (decrease) in cash and cash equivalents........ (300) 6,039 Cash and cash equivalents at beginning of period............ 2,927 1,403 -------- --------- Cash and cash equivalents at end of period........ $ 2,627 $ 7,442 ======== =========
See accompanying notes to unaudited consolidated financial statements. F-54 216 UNIVERSAL COMPRESSION, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. BASIS OF PRESENTATION Universal Compression Holdings, Inc. (the "Company") was formed on December 12, 1997 for the purpose of acquiring TCS, which was formed in 1954, from Tidewater. Upon completion of the Tidewater Acquisition on February 20, 1998, TCS became the Company's wholly-owned subsidiary and changed its name to Universal Compression, Inc. ("Universal"). Universal is a wholly-owned subsidiary of the Company. These consolidated financial statements should be read in conjunction with the consolidated financial statements presented in Universal's Annual Report on Form 10-K for the year ended March 31, 2000. That report contains a more comprehensive summary of Universal's major accounting policies. In the opinion of management, the accompanying unaudited consolidated financial statements contain all appropriate adjustments, all of which are normally recurring adjustments unless otherwise noted, considered necessary to present fairly the financial position of Universal and its consolidated subsidiaries and the results of operations and cash flows for the respective periods. Operating results for the three and nine-month periods ended December 31, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2001. Universal is a leading provider of natural gas compressor rental, sales, operations, maintenance and fabrication services to the natural gas industry, with one of the largest compressor fleets in the United States, and has a growing presence in key international markets. As of December 31, 2000, Universal had a broad base of over 750 customers and maintained a fleet of over 3,400 compression rental units. In addition, as of such date, Universal owned approximately 841,000 horsepower and serviced under contract approximately 186,000 horsepower. Universal operates in every significant natural gas producing region in the United States through its 38 compression sales and service locations. As a complement to its rental operations, Universal designs and fabricates compression units for its own fleet as well as for its global customer base. Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis primarily over 40 years. Accumulated amortization was $5.2 million and $7.5 million at March 31, 2000 and at December 31, 2000, respectively. At the balance sheet date, the Company evaluated the recoverability of goodwill based on expectations of undiscounted cash flows from operations and determined that no impairment had occurred. 2. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." In June 2000, the FASB issued SFAS 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. SFAS 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (1) hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (2) a hedge of the exposure to variable cash flows of a forecasted transaction, or (3) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative F-55 217 UNIVERSAL COMPRESSION, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) depends on the intended use of the derivative and the resulting designation. We will adopt SFAS 133 and the corresponding amendments under SFAS 138 on April 1, 2001. This statement should have no impact on our consolidated results of operations, financial position or cash flows. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. On June 26, 2000, the SEC issued an amendment to SAB 101, effectively delaying its implementation until the fourth quarter of fiscal years beginning after December 15, 1999. After careful study of SAB 101 and its amendment, management believes that its revenue recognition policy is appropriate and that any possible effects of SAB 101 and its amendment will be immaterial to Universal's results of operations. 3. BUSINESS COMBINATION On September 15, 2000, the Company completed the merger of Gas Compression Services, Inc. ("GCSI"), a supplier of natural gas compression equipment and services with fabrication and overhaul facilities in Michigan and Texas, into Universal for a combination of approximately $12 million in cash, 1,400,726 shares of the Company's common stock valued at approximately $39 million and the assumption or refinancing of approximately $63 million in indebtedness of GCSI. All of the assumed or refinanced indebtedness, except for approximately $10 million, was paid off concurrent with the merger using proceeds received under Universal's operating lease facility. The acquisition was accounted for under the purchase method of accounting and resulted in the recognition of approximately $33 million in goodwill. Results of operations for GCSI are included in the accompanying consolidated financial statements for the entire three-month period ended December 31, 2000 and 107 days from the date of the merger for the nine-month period ended December 31, 2000. 4. INVENTORIES Inventories consisted of (in thousands):
MARCH 31, DECEMBER 31, 2000 2000 --------- ------------ Finished goods.............................................. $5,551 $11,346 Work-in-progress............................................ 3,176 9,177 ------ ------- Total............................................. $8,727 $20,523 ====== =======
5. OPERATING LEASE FACILITY In May 2000 the Company and Universal entered into a $200 million operating lease facility pursuant to which Universal may sell and lease back certain compression equipment from a Delaware business trust for a five-year term. The rental payments under the lease facility include an amount based on LIBOR plus a variable amount depending on Universal's operating results, applied to the funded amount of the lease. Under the lease facility, Universal received an aggregate of approximately $155 million in proceeds from the sale of compression equipment in May, November and December 2000 and in connection with the GCSI acquisition, in September 2000. The equipment was sold and leased back by Universal for a five-year period and deployed by Universal under its normal operating procedures. The equipment sold had a book value of approximately $106 million and the equipment sale resulted in a gain of approximately $49 million that was deferred until the end of the lease. F-56 218 UNIVERSAL COMPRESSION, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Universal had residual value guarantees on the equipment under the operating lease facility of approximately 85% of the funded amount that were due upon termination of the lease and which could be satisfied by a cash payment or the exercise of the purchase option. The facility contained certain covenants restricting Universal's operations, including its ability to enter into acquisition and sales transactions, incur additional indebtedness, permit additional liens on its assets and pay dividends. Universal's obligations under this facility were secured by liens on its compression equipment that was subject to the lease and certain related rights. Under the operating lease facility, Universal was the lessee and the Company guaranteed certain of Universal's obligations thereunder. Universal has replaced this facility with new operating lease facilities with similar terms (see Note 11). 6. EXTRAORDINARY LOSSES During the quarter ended June 30, 2000, Universal incurred extraordinary losses of $3.4 million, net of income taxes of $2.0 million, related to its debt restructuring that occurred concurrently with the Company's initial public offering of its common stock. 7. NON-RECURRING CHARGES During the quarter ended June 30, 2000, Universal incurred non-recurring charges of $4.4 million, net of income taxes of $2.7 million, related to the early termination of a management agreement and a consulting agreement and other related fees in connection with the Company's initial public offering and the concurrent financing transactions. 8. RELATED PARTY TRANSACTIONS In connection with the initial public offering in the quarter ended June 30, 2000, Universal terminated its Management Agreement with Castle Harlan, Inc. and the Finders and Consulting Agreement with Samuel Urcis, a director of the Company. In exchange for such terminations, the Company paid $3 million in cash and issued 136,364 shares of the Company's common stock to Castle Harlan, and paid $150,000 in cash and issued 6,818 shares of common stock to Mr. Urcis. 9. INDUSTRY SEGMENTS Universal has three principal industry segments: Domestic Rental and Maintenance, International Rental and Maintenance and Engineered Products. The two Rental and Maintenance segments provide natural gas compression rental and maintenance services to meet specific customer requirements. The Engineered Products segment involves the design, fabrication and sale of natural gas and air compression packages to meet customer and Universal's own specifications. The International Rental and Maintenance segment represents substantially all of Universal's foreign based operations. Universal evaluates performance based on profit or loss from operations, which is defined as income before income taxes less gain on asset sales and interest income plus interest expense and operating lease expense. Revenue include sales to unaffiliated customers. Gross margin is defined as total revenue less rental expenses, cost of sales (exclusive of depreciation and amortization), gain on asset sales and interest income. The Corporate and Other segment, which represents primarily part sales and services, corporate activities, and all other items that could not be allocated to an identifiable segment, principally serves the oil and gas market, including sales of parts and equipment utilized in the extraction of natural gas and the service that Universal provides to customers' natural gas compression units. F-57 219 UNIVERSAL COMPRESSION, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table presents sales and other financial information by industry segment for the three months ended December 31, 1999 and 2000 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL ----------- ------------- ---------- --------- ------- December 31, 1999: Revenues..................... $21,416 $3,896 $ 4,977 $3,440 $33,729 Gross margin................. $13,735 $2,528 $ 725 $ 713 $17,701 Operating income............. $ 5,385 $ 723 $ 158 $ 432 $ 6,698 December 31, 2000: Revenues..................... $31,747 $4,425 $17,329 $6,513 $60,014 Gross margin................. $20,526 $3,387 $ 1,705 $ 755 $26,373 Operating income............. $10,836 $1,354 $ 1,015 $ 696 $13,901
The following table presents sales and other financial information by industry segment for the nine months ended December 31, 1999 and 2000 (in thousands):
DOMESTIC INTERNATIONAL CORPORATE RENTAL AND RENTAL AND ENGINEERED AND MAINTENANCE MAINTENANCE PRODUCTS OTHER TOTAL ----------- ------------- ---------- --------- -------- December 31, 1999: Revenues.................... $61,528 $10,647 $19,874 $10,476 $102,525 Gross margin................ $38,569 $ 7,454 $ 2,458 $ 2,089 $ 50,570 Operating income............ $14,711 $ 2,727 $ 622 $ 1,178 $ 19,238 December 31, 2000: Revenues.................... $78,318 $12,810 $33,308 $ 9,191 $133,627 Gross margin................ $50,296 $ 9,700 $ 4,590 $ 1,268 $ 65,854 Operating income............ $24,217 $ 3,952 $ 2,732 $ 1,084 $ 31,985
10. COMMITMENTS AND CONTINGENCIES In the ordinary course of business, Universal is involved in various pending or threatened legal actions. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a materially adverse effect on Universal's financial position, operating results or cash flows. 11. SUBSEQUENT EVENTS On February 9, 2001, the Company completed its acquisition of Weatherford Global Compression Services, L.P. and certain related entities ("WGC"), a supplier of natural gas compression equipment and services and a division of Weatherford International, Inc. Under the terms of the agreement, a subsidiary of Weatherford International was merged into Universal in exchange for 13.75 million shares of the Company's common stock, which represents approximately 48% of the outstanding shares of the combined company. In connection with the acquisition, Weatherford has agreed, subject to certain conditions, to limit its voting rights to 33 1/3% of the Company's voting power for up to two years. In addition, Universal restructured approximately $323 million in debt and operating leases of WGC. The transaction was accounted for as a purchase. Prior to closing, Weatherford International acquired the interest of its minority partner in WGC. Also, Weatherford International retained certain assets and operations relating to WGC's Singapore-based operations and approximately $10 million in accounts receivable. In connection with the acquisition, on February 9, 2001, Universal raised $427 million under a new operating lease facility funded primarily through an offering of $350 million 8 7/8% senior secured notes due F-58 220 UNIVERSAL COMPRESSION, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2008 by an unaffiliated entity (the "SSN Operating Lease Facility"). Universal also entered into a new $125 million secured revolving credit facility and a new $200 million asset-backed securitization operating lease facility (the "ABS Operating Lease Facility"). At the closing, Universal funded approximately $80 million under the ABS Operating Lease Facility and had no amounts outstanding under the new revolving credit facility. The proceeds from the two new operating lease facilities were used to restructure existing operating lease obligations and refinance certain existing indebtedness of Universal (including the previous operating lease facility described in Note 5) and WGC. Subsequent to the WGC acquisition and related financing transactions, Universal had approximately $198 million outstanding under its 9 7/8% Senior Discount Notes due 2008 and approximately $13 million of other indebtedness. In addition, Universal funded approximately $427 million under the SSN Operating Lease Facility and approximately $80 million under the ABS Operating Lease Facility. Universal has unused commitments of approximately $245 million (approximately $120 million under the ABS Operating Lease Facility and $125 million under the new revolving credit facility). On February 28, 2001, Universal acquired ISS Compression, Inc. and its operating subsidiary, IEW Compression, Inc. ("IEW"), a natural gas compression services provider based in Lafayette, Louisiana, for approximately $15 million in cash, which included the concurrent discharge of IEW's debt and operating leases. F-59 221 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Weatherford International, Inc.: We have audited the accompanying consolidated balance sheet of Enterra Compression Company (a Delaware corporation and indirect wholly-owned subsidiary of Weatherford International, Inc.) and subsidiaries as of December 31, 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Enterra Compression Company and subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas March 16, 2001 F-60 222 ENTERRA COMPRESSION COMPANY CONSOLIDATED BALANCE SHEET (IN THOUSANDS EXCEPT SHARE DATA AND PAR VALUE)
DECEMBER 31, 2000 ------------ ASSETS CURRENT ASSETS: Cash and Cash Equivalents................................. $ 4,820 Accounts Receivable, Net of Allowance for Uncollectible Accounts of $1,120..................................... 70,267 Inventories............................................... 78,855 Current Deferred Tax Asset................................ 4,397 Other Current Assets...................................... 9,962 -------- 168,301 -------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Land...................................................... 2,313 Buildings and Leasehold Improvements...................... 17,148 Rental and Service Equipment.............................. 289,785 Machinery and Other Equipment............................. 52,168 -------- 361,414 Less: Accumulated Depreciation............................ (72,416) -------- 288,998 -------- GOODWILL, NET............................................... 231,571 OTHER ASSETS................................................ 13,810 -------- $702,680 ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-Term Borrowings and Current Portion of Long-Term Debt................................................... $ 13,178 Accounts Payable.......................................... 28,843 Accrued Liabilities....................................... 24,751 -------- 66,772 -------- LONG-TERM DEBT.............................................. 1,832 UNEARNED INCOME............................................. 94,640 DEFERRED INCOME TAXES....................................... 45,707 MINORITY INTEREST LIABILITY................................. 197,513 OTHER LIABILITIES........................................... 898 LONG-TERM PAYABLE DUE TO WEATHERFORD........................ 94,863 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common Stock, $1 par Value, 2,000 Shares Authorized, Issued and Outstanding................................. 2 Capital in Excess of Par Value............................ 199,821 Retained Earnings......................................... 3,450 Accumulated Other Comprehensive Loss...................... (2,818) -------- 200,455 -------- $702,680 ========
The accompanying notes are an integral part of these consolidated financial statements. F-61 223 ENTERRA COMPRESSION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2000 ------------ REVENUES: Products.................................................. $ 80,070 Services and Rentals...................................... 192,571 -------- 272,641 -------- COSTS AND EXPENSES: Cost of Products.......................................... 74,683 Cost of Services and Rentals.............................. 147,850 Selling, General and Administrative....................... 44,067 Impairment of Assets and Other Charges.................... 16,301 -------- 282,901 -------- OPERATING LOSS.............................................. (10,260) OTHER INCOME (EXPENSE): Interest Income........................................... 959 Interest Expense.......................................... (938) Interest Expense from Weatherford......................... (8,045) Other, Net................................................ (288) -------- LOSS BEFORE TAXES AND MINORITY INTEREST..................... (18,572) INCOME TAX BENEFIT.......................................... 2,765 -------- NET LOSS BEFORE MINORITY INTEREST........................... (15,807) MINORITY INTEREST EXPENSE, NET OF TAX....................... (520) -------- NET LOSS.................................................... $(16,327) ========
The accompanying notes are an integral part of these consolidated financial statements. F-62 224 ENTERRA COMPRESSION COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARES)
COMMON STOCK -------------- CAPITAL IN ACCUMULATED TOTAL PAR EXCESS OF RETAINED COMPREHENSIVE STOCKHOLDERS' SHARES VALUE PAR VALUE EARNINGS LOSS EQUITY ------ ----- ---------- -------- ------------- ------------- Balance at December 31, 1999......... 2,000 $ 2 $198,221 $ 19,777 $ (376) $217,624 Comprehensive Loss................... -- -- -- (16,327) (2,442) (18,769) Contribution from Weatherford........ -- -- 1,600 -- -- 1,600 ----- ---- -------- -------- ------- -------- Balance at December 31, 2000......... 2,000 $ 2 $199,821 $ 3,450 $(2,818) $200,455 ===== ==== ======== ======== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-63 225 ENTERRA COMPRESSION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2000 -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss.................................................. $(16,327) Adjustments to Reconcile Net Loss to Net Cash Provided by Operating Activities: Depreciation and Amortization.......................... 39,120 Non-Cash Portion of Impairment of Assets and Other Charges............................................... 16,301 Deferred Income Tax Provision.......................... 5,598 Minority Interest Expense, Net of Tax.................. 520 Gain on Sale of Property, Plant and Equipment.......... (1,809) Provision for Uncollectible Accounts Receivable........ 457 Change in Assets and Liabilities: Accounts Receivable.................................. (26,020) Inventories.......................................... 7,223 Other Current Assets................................. 7,146 Accounts Payable..................................... 2,578 Other Current Liabilities............................ (7,465) Other................................................ 941 -------- Net Cash Provided by Operating Activities............ 28,263 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of Businesses, Net of Cash Acquired.......... (39,056) Capital Expenditures for Property, Plant and Equipment.... (85,093) Proceeds from Sales of Property, Plant and Equipment...... 6,149 Proceeds from Sale and Leaseback of Equipment............. 60,069 -------- Net Cash Used in Investing Activities............. (57,931) -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on Debt, Net................................... 10,457 Repayments to Weatherford, Net............................ (5,158) -------- Net Cash Provided by Financing Activities......... 5,299 -------- NET DECREASE IN CASH AND CASH EQUIVALENTS................... (24,369) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 29,189 -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 4,820 ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest Paid.......................................... $ 888 Taxes Paid............................................. $ 2,484
The accompanying notes are an integral part of these consolidated financial statements. F-64 226 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION GENERAL Prior to the merger discussed in Note 13, Enterra Compression Company was an indirect wholly owned subsidiary of Weatherford International, Inc. ("Weatherford") and incorporated in the state of Delaware. These consolidated financial statements of Enterra Compression Company include the accounts of Enterra Compression Company and all its majority-owned subsidiaries and joint venture (the "Company"). Weatherford contributed its predecessor compression businesses to the Company and in February 1999 formed a joint venture with GE Capital Corporation ("GE"). JOINT VENTURE Prior to the acquisition of GE's minority interest discussed in Note 13, the Company primarily operated a joint venture with GE where the Company owned 64% and GE owned 36%. The joint venture, which combined Weatherford's Compression Services division and GE's Global Compression Services operations, was the world's second largest provider of natural gas contract compression services and owned and managed approximately 4,000 compressor units worldwide having nearly one million horsepower. During the formation of the joint venture Weatherford contributed all of its compression businesses, including those investments held in the legal entities of Weatherford Canada Ltd., Weatherford Venezuela S.A., Weatherford Australia Pty Ltd., Weatherford de Peru S.R.L., Weatherford Industria e Comercio Ltda. and Weatherford Enterra S.A., to the joint venture. The compression businesses of these entities became indirect wholly-owned subsidiaries of the Company, with the exception of the Canadian operations. The Canadian operations are a majority-owned subsidiary of the Company. In connection with the formation of the joint venture, Weatherford contributed non-cash capital through the forgiveness of certain long-term payables due to Weatherford. NATURE OF OPERATIONS The Company is engaged in the business of renting, selling and servicing natural gas compressor packages used in the oil and gas industry. Factors influencing compressor rental operations include the number and age of gas producing wells, the ownership of these properties and natural gas prices. The Company is headquartered in Houston, Texas, and has service and rental operations throughout the United States. The Company also has service and rental operations in Canada and rental contract management and service operations in Argentina, Venezuela, Brazil, Peru, the Middle East, Thailand, Singapore, Indonesia, Australia and the Netherlands. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. F-65 227 CASH FLOW INFORMATION The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. During the year ended December 31, 2000, the Company had non-cash investing activities of $1.3 million, relating to the assumption of certain capital leases. The following summarizes investing activities relating to acquisitions integrated into the Company's operations (in thousands):
YEAR ENDED DECEMBER 31, 2000 ----------------- Fair value of assets, net of cash acquired.................. $ 37,025 Goodwill.................................................... 22,716 Total liabilities........................................... (20,685) -------- Cash consideration, net of cash acquired.......... $ 39,056 ========
INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined using the moving average cost method for parts inventories or by using standards which approximate moving average cost. Inventories by category are summarized as follows (in thousands):
DECEMBER 31, 2000 ------------ Raw materials............................................... $46,676 Work in process............................................. 18,791 Finished goods.............................................. 13,388 ------- $78,855 =======
Work in process includes the costs of materials, labor and overhead. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost. Maintenance and repairs are expensed as incurred. The costs of refurbishment (i.e. renewals, replacements and betterments) are capitalized. Depreciation on fixed assets is computed using the straight-line method over the estimated useful lives for the respective categories. The useful lives of the major classes of property, plant and equipment are as follows:
USEFUL LIVES ------------- Buildings and leasehold improvements.................... 10-40 years Rental and service equipment............................ 5-15 years Machinery and other equipment........................... 3-7 years
Depreciation expense for the year ended December 31, 2000 was $31.3 million. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the related accounts. Any resulting gain or loss is included in the consolidated statement of operations with the exception of deferred gains related to the sale and leaseback arrangements (See Note 10). GOODWILL The Company's goodwill represents the excess of the aggregate price paid by the Company in acquisitions accounted for as purchases over the fair market value of the net assets acquired. Goodwill is being amortized on a straight-line basis over the lesser of the estimated useful life or 40 years. The F-66 228 Company periodically evaluates goodwill, net of accumulated amortization, for impairment based on the undiscounted cash flows associated with the asset compared to the carrying amounts of that asset. In 2000, complying with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", the Company wrote-down the goodwill related to Gas Services International Limited ("GSI") by $10 million due to an impairment resulting from Weatherford's decision to dispose of GSI's assets (See Note 4). Management believes that there have been no other events or circumstances which warrant revision to the remaining useful life or which affect the recoverability of goodwill. Amortization expense for goodwill for the year ended December 31, 2000 was $7.4 million. Accumulated amortization related to goodwill was $33.5 million as of December 31, 2000. EQUIPMENT HELD FOR LEASE The Company leases certain equipment to customers under agreements that contain an option to purchase the equipment at any time. The option amount is computed based on the original purchase price, less payments received, plus interest and insurance covering the period from the inception of the lease to the date the option is exercised. The lease payments are generally computed to payout the original purchase price plus interest over approximately 36 months. Leases with noncancelable lease terms greater than 18 months are considered sales-type leases because the option price is expected to be lower than the equipment's fair market value by the end of the original lease term. EQUIPMENT UNDER OPERATING LEASES Equipment leased to third parties under agreements with noncancelable lease terms of less than 18 months and those which do not include a purchase option are accounted for as operating leases and included in property, plant and equipment. This equipment had a net book value of $248.3 million at December 31, 2000. Rental fleet depreciation expense totaled approximately $26.1 million for the year ended December 31, 2000. ACCOUNTING FOR INCOME TAXES Under SFAS No. 109, "Accounting for Income Taxes", deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. FOREIGN CURRENCY TRANSLATION The functional currency for most of the Company's international operations is the applicable local currency. Results of operations for foreign subsidiaries for which the functional currencies are the applicable foreign currencies are translated using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet date, and the resulting translation adjustments are included as accumulated other comprehensive loss, a separate component of stockholders' equity. Currency transaction gains and losses are reflected in income for the period. CONCENTRATION OF CREDIT RISK The Company sells, leases and rents gas compression to customers in the oil and gas industry. The Company generally does not require collateral. However, cash prepayments and security deposits are required for accounts with indicated credit risks. The Company maintains reserves for potential losses, and credit losses have historically been within management's expectations. REVENUE RECOGNITION Revenues are recognized as rental equipment is provided, as services are performed, or as parts or equipment deliveries are made. Most rental contracts have an initial contract term of six to twelve months F-67 229 and then continue on a month-to-month basis. The Company provides a limited warranty on certain equipment and services. The warranty period varies depending on the equipment sold or service performed. A liability for performance under warranty obligations is accrued based upon the nature of the warranty and historical experience. The warranty expense for the year ended December 31, 2000 was $1.2 million. The Company provides management services under various gas compressor system fleet rental agency agreements with four limited partnerships and four Subchapter S corporations. During the year ended December 31, 2000, management fee income of $0.5 million was recognized under the agency agreements. MINORITY INTEREST The Company records minority interest expense that reflects the portion of earnings of majority-owned operations that are applicable to the minority interest partner of the joint venture (See Note 1). NEW REPORTING REQUIREMENTS In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial Statements", to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. In March 2000, the SEC issued SAB No. 101A, which delayed the implementation date of SAB No. 101 until the second quarter after December 15, 1999 for companies with fiscal years beginning between December 16, 1999 and March 15, 2000. The SEC staff issuance of SAB No. 101B on June 26, 2000 further extended the compliance requirement until the fourth quarter of fiscal years beginning after December 15, 1999, with an effective date of January 1, 2000. The Company has reviewed its revenue recognition policies and has concluded that it is in compliance with GAAP and the related interpretive guidance set forth in SAB No. 101. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133", amending the effective date of SFAS No. 133 to years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities", amending accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. The Company has adopted SFAS No. 133 and SFAS No. 138. The application of these statements did not have an impact on its financial position or results of operations. 3. ACQUISITIONS On July 17, 2000, the Company acquired the Canadian compression parts and services division of Cooper Cameron Limited ("Cooper") for approximately $10.8 million cash. The acquisition expands the Company's range of capabilities to provide field gas production solutions to the Canadian marketplace. Cooper's aftermarket services division is dedicated to providing customers with maximum equipment availability at the lowest possible operating cost, along with being a single source for genuine replacement parts. The Company acquired GSI on January 12, 2000 for a total of approximately $20.2 million cash. The acquisition is intended to expand this division's platform of full service capabilities in the Asia Pacific and Middle Eastern markets. GSI's main business units include compressor package rental, maintenance and service, and floating production storage and offloading platforms. GSI has service locations in Singapore, Indonesia and the United Arab Emirates. The Company also effected various other smaller acquisitions during the year ended December 31, 2000 for total consideration of approximately $7.4 million. F-68 230 The acquisitions discussed above were accounted for using the purchase method of accounting. Results of operations for acquisitions accounted for as purchases are included in the accompanying consolidated financial statements since the date of acquisition. The purchase price was allocated to the net assets acquired based upon their estimated fair market values at the date of acquisition. The balances included in the Consolidated Balance Sheet related to the current year acquisitions are based upon preliminary information and are subject to change when final asset liability valuations are obtained. With the exception of the impairment charge incurred in connection with the planned disposal of GSI as discussed in Note 4, material changes in the preliminary allocations are not anticipated by management. 4. IMPAIRMENT OF ASSETS AND OTHER CHARGES During the fourth quarter of 2000, Weatherford entered into an agreement to sell the stock of the Company (See Note 13). The Company will retain approximately $40 million of assets of the Company including GSI and $10 million in accounts receivable. Due to Weatherford's sale of the Company's stock, Weatherford determined that the GSI assets no longer remain a strategic component of the core businesses provided by Weatherford to its customers. In the fourth quarter of 2000, Weatherford decided to divest of these assets. Accordingly, the assets of GSI are held for sale as of December 31, 2000, and disposition of the assets is expected to be completed during 2001. Based on undiscounted cash flow projections for the GSI assets through the date of sale and anticipated proceeds from the sale, Weatherford has determined that the fair market value, less costs to sell GSI, is less than the net book value of the GSI assets by $10.0 million. As a result, the Company has recorded an impairment charge in accordance with SFAS No. 121 for that amount. Also included in this charge is $3.8 million related to severance, taxes and transaction costs and a $2.5 million write-down of certain assets of the Company. The severance costs related to an executive of the Company who was terminated in connection with the anticipated merger with Universal Compression Holdings, Inc. ("Universal") (See Note 13). All amounts related to severance were paid as of December 31, 2000. 5. ACCRUED LIABILITIES Accrued liabilities are summarized as follows (in thousands):
DECEMBER 31, 2000 ------------ Other taxes................................................. $ 1,850 Customer deposits........................................... 4,309 Wages and benefits.......................................... 8,397 Lease obligations........................................... 2,450 Accrued warranty............................................ 405 Other....................................................... 7,340 ------- $24,751 =======
6. SHORT-TERM DEBT In July 2000, the Company put into place a $25.0 million uncommitted line of credit. Interest rates are at LIBOR plus 1.75% or the "Quoted Rate," defined as any rate of interest mutually agreed upon by the two parties. As of December 31, 2000, $13.1 million was available under this line of credit. The Company's weighted average cost of borrowings under this facility for 2000 was 8.18%. F-69 231 7. LONG-TERM DEBT The Company had long-term debt obligations at December 31, 2000 as follows (in thousands): Capital lease obligations under various agreements......... $ 1,920 Bonds...................................................... 1,185 ------- 3,105 Less: amounts due in one year.............................. (1,273) ------- Long-term debt............................................. $ 1,832 =======
The Industrial Development Corporation of Port of Corpus Christi Variable/Fixed Rate Demand Industrial Development Revenue Refunding Bonds, Series 2002 (Lantana Corporation Project) ("Bonds") require annual payment of principal and interest with the final payment due in July 2002. The Bonds are secured by letters of credit outstanding of $1.2 million as of December 31, 2000. Interest is variable and determined to be the lowest rate which will permit the Bonds to be sold at par. The rate at December 31, 2000 was 4.85%. Accordingly, the estimated fair value of the Bonds approximates book value. Maturities of the Company's long-term debt at December 31, 2000 are as follows (in thousands): 2001........................................................ $1,273 2002........................................................ 1,272 2003........................................................ 428 2004........................................................ 132 2005........................................................ -- ------ $3,105 ======
8. STOCKHOLDERS' EQUITY COMMON STOCK The Company has authorized and issued 2,000 shares of common stock, $1.00 par value as of December 31, 2000 to WEUS Holding, Inc., which is a wholly owned subsidiary of Weatherford. CAPITAL IN EXCESS OF PAR VALUE In December 2000, Weatherford acquired a compression business for $1.6 million and contributed it to the Company. ACCUMULATED COMPREHENSIVE LOSS Accumulated Comprehensive Loss is composed of cumulative foreign currency translation adjustments. 9. INCOME TAXES The domestic and foreign components of Loss before Taxes and Minority Interest for the year ended December 31, 2000, consisted of the following (in thousands): Domestic.................................................. $(25,909) Foreign................................................... 7,337 -------- $(18,572) ========
F-70 232 The Company's Income Tax Benefit for the year ended December 31, 2000, consisted of the following (in thousands): Current U.S. Federal and State.................................. $(12,324) Foreign................................................. 3,961 -------- $ (8,363) -------- Deferred U.S. Federal and State.................................. $ 6,488 Foreign................................................. (890) -------- 5,598 -------- $ (2,765) ========
The difference between the tax benefit at the statutory federal income tax rate and the tax benefit attributable to loss before taxes and minority interest, for the year ended December 31, 2000, is analyzed below (in thousands): Tax provision at statutory rate............................ $(6,500) Increase in taxes resulting from: Domestic Nondeductible Expenses.......................... 712 Incremental Effect of Foreign Operations................. 509 Non-Deductible Write-Down of Assets...................... 3,500 Other.................................................... (986) ------- $(2,765) =======
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which the Company has operations. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. The components of the net deferred tax asset (liability) were as follows (in thousands):
DECEMBER 31, 2000 ------------ Net deferred tax assets: Receivables........................................... $ 696 Inventory............................................. 2,056 Other accrued expenses................................ 1,942 Foreign operating losses.............................. 579 Valuation allowance................................... (297) -------- $ 4,976 -------- Net deferred tax liabilities: Property, plant and equipment......................... $(42,542) Goodwill.............................................. (3,165) -------- $(45,707) -------- Net deferred tax liability.............................. $(40,731) ========
The valuation allowance in 2000 primarily relates to tax assets associated with acquisitions made during the year. Management's assessment is that the character and nature of future taxable income may F-71 233 not allow the Company to realize certain tax benefits of net operating losses and tax credits within the prescribed carryforward period. Accordingly, an appropriate valuation allowance has been made. 10. COMMITMENTS AND CONTINGENCIES SALES-TYPE LEASE RECEIVABLES The Company provides a capital lease financing option to its customers. Future minimum lease payments receivable resulting from the sale of compression packages under sales-type leases are due as follows (in thousands):
DECEMBER 31, 2000 ------------ 2001........................................................ $3,460 2002........................................................ 1,286 2003........................................................ 507 ------ $5,253 ======
SALE AND LEASEBACK OF EQUIPMENT The Company has entered into various sale and leaseback arrangements where it has sold $299.9 million of compression units as of December 31, 2000 and has a right to sell up to another $50.1 million of compression units. Under these arrangements, legal title to the compression units is sold to third-parties and leased back to the Company under a five-year operating lease with a market-based purchase option. During the year ended December 31, 2000, the Company sold compressors for which it received cash equal to the appraised value of $60.1 million. The sales resulted in a pretax deferred gain of approximately $17.3 million, classified as Unearned Income on the accompanying Consolidated Balance Sheet, which may be deferred until the end of the lease. Total lease expense incurred under these arrangements was approximately $21.3 million for the year ended December 31, 2000. Of the proceeds received by the Company from the sale and leaseback of the compressor units $65.4 million was distributed to GE as part of the joint venture in 1999. The remaining proceeds of these sale and leaseback agreements were utilized by the Company for internal corporate purposes and growth. Weatherford has guaranteed certain of the obligations of the Company with respect to the sale of $200.0 million of the compression units, completed by Weatherford prior to the formation of the joint venture. Weatherford has guaranteed a minimum residual value of the leased equipment at the end of the lease. The Company has similarly agreed to guarantee a portion of the residual value of all of the leased equipment under these leases. Subsequent to December 31, 2000, and in connection with the transaction discussed in Note 13, the sale and leaseback arrangements were terminated. F-72 234 OPERATING LEASES PAYABLE The Company leases certain buildings and service equipment under noncancelable operating leases. Aggregate minimum rental commitments under non-cancelable operating leases with lease terms in excess of one year are as follows (in thousands):
DECEMBER 31, 2000 ------------ 2001........................................................ 3,665 2002........................................................ 2,103 2003........................................................ 1,604 2004........................................................ 1,229 2005........................................................ 948 Thereafter.................................................. 3,353 ------- $12,902 =======
Total rent expense incurred under operating leases was approximately $4.6 million for the year ended December 31, 2000. OTHER COMMITMENTS The compressors marketed by the Company were historically manufactured by the Company at its facility located in Corpus Christi, Texas or purchased from third parties. In 1999, the Company sold its manufacturing facility in Corpus Christi to GE Power Systems. Under terms of the sale, the Company has agreed to make purchases from GE Power Systems for approximately $38.0 million for products over a five-year period and $3.0 million for parts over a three-year period. As of December 31, 2000, the Company had purchased $14.4 million in parts and products from the facility. CLAIMS AND LITIGATION The Company defends various claims and litigation arising in the normal course of business. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse effect on the Company's results of operations or financial position. 11. RELATED PARTY TRANSACTIONS OVERHEAD ALLOCATION Weatherford provides certain administrative services for the Company, primarily including 1) management information systems services, 2) payroll services and 3) certain regional accounting services. The Company expensed approximately $1.3 million in overhead charges related to these services for the year ended December 31, 2000. Transactions with Weatherford are based on time devoted to and direct costs associated with services provided to the Company. INSURANCE The Company participates with Weatherford for the partial self-insurance of its general, product, property, and workers' compensation liabilities. The Company expensed approximately $1.8 million related to such self-insurance during the year ended December 31, 2000. BENEFIT PLANS The Company participates in Weatherford's 401(k) plan. The Company expensed $0.7 million related to the 401(k) plan during the year ended December 31, 2000. F-73 235 LONG-TERM PAYABLE DUE TO WEATHERFORD Weatherford regularly transacts with and provides funding for certain activities of the Company. In accordance with a shared service agreement, certain current expenses are paid by the Company to Weatherford. Payment of the remaining liability historically occurs when surplus cash is available. Amounts due to Weatherford are payable on demand and accrue interest, based on average balances, at a rate of 10.0% as of, and for the year ended, December 31, 2000. 12. SEGMENT INFORMATION FOREIGN OPERATIONS Financial information by geographic segment for the year ended December 31, 2000 is summarized below. Revenues are attributable to countries based on the location of the entity selling the products or performing the services. Long-lived assets are long-term assets, excluding deferred tax assets of $0.6 million.
UNITED LATIN ASIA STATES CANADA EUROPE AMERICA PACIFIC TOTAL -------- ------- ------ ------- ------- -------- Revenues from unaffiliated customers........................ $155,262 $47,380 $4,576 $22,969 $42,454 $272,641 Long-lived assets.................. 368,896 41,702 1,448 73,660 48,094 533,800
13. SUBSEQUENT EVENT On February 9, 2001, Weatherford completed the merger of the Company with and into a subsidiary of Universal in exchange for 13.75 million restricted shares of Universal common stock representing approximately 48% of Universal's total outstanding shares. Weatherford retained approximately $40 million of the assets of the Company, including GSI and $10 million of accounts receivable. Concurrent with the transaction, Weatherford paid GE $206.5 million for its 36% ownership in the joint venture through which the Company operated. In connection with the merger, Weatherford entered into a Transitional Services Agreement to provide certain corporate and administrative services to the Company for a fee and reimbursement of costs and expenses for up to 120 days following the merger. Upon the closing of the transaction, Universal repaid and terminated the Company's sale and leaseback arrangements and the Company's credit facility. Additionally, Weatherford eliminated the long-term payable balance outstanding as of the date of the transaction through a contribution of capital. F-74 236 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Weatherford International, Inc.: We have audited the accompanying consolidated balance sheet of Enterra Compression Company (a Delaware corporation and indirect wholly-owned subsidiary of Weatherford International, Inc.) and subsidiaries as of December 31, 1999, and the related consolidated statement of operations, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Enterra Compression Company and subsidiaries as of December 31, 1999, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas November 17, 2000 F-75 237 ENTERRA COMPRESSION COMPANY CONSOLIDATED BALANCE SHEET (IN THOUSANDS EXCEPT SHARE DATA AND PAR VALUE)
DECEMBER 31, 1999 ------------ ASSETS CURRENT ASSETS: Cash and Cash Equivalents................................. $ 29,189 Accounts Receivable, Net of Allowance for Uncollectible Accounts of $979....................................... 31,276 Inventories............................................... 78,803 Current Deferred Tax Asset................................ 2,414 Other Current Assets...................................... 9,669 -------- 151,351 -------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Land...................................................... 3,323 Buildings and Leasehold Improvements...................... 14,927 Rental and Service Equipment.............................. 275,107 Machinery and Other Equipment............................. 43,651 -------- 337,008 Less: Accumulated Depreciation.................... (57,537) -------- 279,471 -------- GOODWILL, NET............................................... 224,941 OTHER ASSETS................................................ 10,267 -------- $666,030 ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Short-Term Borrowings and Current Portion of Long-Term Debt................................................... $ 982 Accounts Payable.......................................... 18,837 Accrued Liabilities....................................... 20,718 -------- 40,537 -------- LONG-TERM DEBT.............................................. 2,157 UNEARNED INCOME............................................. 77,350 DEFERRED INCOME TAXES AND OTHER............................. 32,218 MINORITY INTEREST LIABILITY................................. 197,111 LONG-TERM PAYABLE DUE TO WEATHERFORD........................ 99,033 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common Stock, $1 Par Value, 2,000 Shares Authorized, Issued and Outstanding................................. 2 Capital in Excess of Par Value............................ 198,221 Retained Earnings......................................... 19,777 Accumulated Other Comprehensive Loss...................... (376) -------- 217,624 -------- $666,030 ========
The accompanying notes are an integral part of these consolidated financial statements. F-76 238 ENTERRA COMPRESSION COMPANY CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999 ----------------- REVENUES: Products.................................................. $ 73,183 Services and Rentals...................................... 152,734 -------- 225,917 -------- COSTS AND EXPENSES: Cost of Products.......................................... 70,439 Cost of Services and Rentals.............................. 97,963 Selling, General and Administrative....................... 35,941 -------- 204,343 -------- OPERATING INCOME............................................ 21,574 -------- OTHER INCOME (EXPENSE): Interest Income........................................... 882 Interest Expense.......................................... (304) Interest Expense from Weatherford......................... (6,757) Other, Net................................................ 1,306 -------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST............ 16,701 INCOME TAX PROVISION........................................ (7,539) -------- INCOME BEFORE MINORITY INTEREST............................. 9,162 MINORITY INTEREST EXPENSE, NET OF TAX....................... (4,623) -------- NET INCOME.................................................. $ 4,539 ========
The accompanying notes are an integral part of these consolidated financial statements. F-77 239 ENTERRA COMPRESSION COMPANY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS EXCEPT SHARES)
COMMON STOCK CAPITAL IN ACCUMULATED TOTAL ------------------ EXCESS OF RETAINED COMPREHENSIVE STOCKHOLDERS' SHARES PAR VALUE PAR VALUE EARNINGS INCOME (LOSS) EQUITY ------ --------- ---------- -------- ------------- ------------- Balance at January 1, 1999.......... 2,000 $2 $173,609 $15,238 $(1,767) $187,082 ----- -- -------- ------- ------- -------- Comprehensive Income................ -- -- -- 4,539 1,391 5,930 ----- -- -------- ------- ------- -------- Contribution from Weatherford....... -- -- 24,612 -- -- 24,612 ----- -- -------- ------- ------- -------- Balance at December 31, 1999........ 2,000 2 198,221 19,777 (376) 217,624 ===== == ======== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-78 240 ENTERRA COMPRESSION COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999 ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................ $ 4,539 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization.......................... 33,125 Deferred Income Tax Provision.......................... 6,819 Minority Interest Expense, Net of Tax.................. 4,623 Gain on Sale of Property, Plant and Equipment.......... (4,474) Provision for Uncollectible Accounts Receivable........ 772 Change in Assets and Liabilities: Accounts Receivable.................................. 186 Inventories.......................................... (18,241) Other Current Assets................................. (4,342) Accounts Payable..................................... (561) Other Current Liabilities............................ (769) Other................................................ (15,098) -------- Net Cash Provided by Operating Activities......... 6,579 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of Businesses, Net of Cash Acquired.......... 1,354 Capital Expenditures for Property, Plant and Equipment.... (94,755) Proceeds from Sales of Property, Plant and Equipment...... 8,898 Proceeds from Sale and Leaseback of Equipment............. 139,815 Proceeds from Sale of Business............................ 14,620 -------- Net Cash Provided by Investing Activities......... 69,932 -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments on Debt, Net................................... (910) Borrowings from Weatherford, Net.......................... 18,908 Repayments to GE Capital.................................. (65,350) -------- Net Cash Used in Financing Activities............. (47,352) -------- NET INCREASE IN CASH AND CASH EQUIVALENTS................... 29,159 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 30 -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 29,189 ======== SUPPLEMENTAL CASH FLOW INFORMATION: Interest Paid............................................. $ 303 Taxes Refunded............................................ $ (307)
The accompanying notes are an integral part of these consolidated financial statements. F-79 241 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION General Enterra Compression Company is an indirect wholly-owned subsidiary of Weatherford International, Inc. ("Weatherford") and is incorporated in the state of Delaware. These financial statements of Enterra Compression Company include the accounts of Enterra Compression Company and all its majority-owned subsidiaries (the "Company"). Weatherford contributed its predecessor compression businesses to the Company and in February 1999 formed a joint venture with GE Capital Corporation ("GE"). Joint Venture The Company primarily is held and operates in a joint venture with GE where the Company owns 64% and GE owns 36% (See Note 4). The joint venture, which combined Weatherford's Compression Services division and GE's Global Compression Services operations, is the world's second largest provider of natural gas contract compression services and owns and manages over 4,000 compressor units worldwide having more than one million horsepower. During the formation of the joint venture Weatherford contributed all of its compression businesses, including those investments held in the legal entities of Weatherford Canada Ltd., Weatherford Venezuela S.A., Weatherford Australia Pty Ltd., Weatherford de Peru S.R.L., Weatherford Industria e Comercio Ltda. and Weatherford Enterra S.A., to the joint venture. The compression businesses of these entities became indirect wholly-owned subsidiaries of the Company, with the exception of the Canadian operations. The Canadian operations are a majority-owned subsidiary of the Company. In connection with the formation of the joint venture, Weatherford contributed non-cash capital through the forgiveness of certain long-term payables due to Weatherford. Nature of Operations The Company is engaged in the business of renting, selling and servicing natural gas compressor packages used in the oil and gas industry. Factors influencing compressor rental operations include the number and age of gas producing wells, the ownership of these properties and natural gas prices. The Company is headquartered in Houston, Texas. The Company also has service and rental operations in Canada, and rental contract management and service operations in Argentina, Venezuela, Brazil, Peru, Thailand, Singapore and Australia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include all accounts of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash Flow Information The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. F-80 242 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the year ended December 31, 1999, the Company had noncash investing activities of $1.5 million relating to the assumption of certain capital leases. The following summarizes investing activities relating to acquisitions integrated into the Company's operations:
YEAR ENDED DECEMBER 31, 1999 ------------ Fair value of assets, net of cash acquired.................. $ 224,662 Goodwill.................................................... 52,197 Total liabilities........................................... (278,213) --------- Cash consideration, net of cash acquired.......... $ (1,354) =========
Inventories Inventories are valued at the lower of cost or market. Cost is determined using the moving average cost method for parts inventories or by using standards which approximate moving average cost. Inventories by category are summarized as follows (in thousands):
DECEMBER 31, 1999 ------------ Raw materials............................................... $51,493 Work in process............................................. 15,897 Finished goods.............................................. 11,413 ------- $78,803 =======
Work in process includes the costs of materials, labor and overhead. Property, Plant and Equipment Property, plant and equipment is carried at cost. Maintenance and repairs are expensed as incurred. The costs of refurbishment (i.e. renewals, replacements and betterments) are capitalized. Depreciation on fixed assets is computed using the straight-line method over the estimated useful lives for the respective categories. The useful lives of the major classes of property, plant and equipment are as follows:
USEFUL LIVES ------------ Buildings and leasehold improvements................... 10-40 years Rental and service equipment........................... 5-15 years Machinery and other equipment.......................... 3-7 years
Depreciation expense for the year ended December 31, 1999 was $27.0 million. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the related accounts and any resulting gain or loss is included in the statements of operations with the exception of gains related to the sale and leaseback arrangements (See Note 8). Goodwill The Company's goodwill represents the excess of the aggregate price paid by the Company in acquisitions accounted for as purchases over the fair market value of the net assets acquired. Goodwill is F-81 243 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) being amortized on a straight-line basis over the lesser of the estimated useful life or 40 years. The Company periodically evaluates goodwill, net of accumulated amortization, for impairment based on the undiscounted cash flows associated with the asset compared to the carrying amounts of that asset. Management believes that there have been no events or circumstances which warrant revision to the remaining useful life or which affect the recoverability of goodwill. Amortization expense for goodwill for the year ended December 31, 1999 was $6.2 million. Accumulated amortization related to goodwill was $26.1 million as of December 31, 1999. Equipment Held for Lease The Company leases certain equipment to customers under agreements that contain an option to purchase the equipment at any time. The option amount is computed based on the original purchase price, less payments received, plus interest and insurance covering the period from the inception of the lease to the date the option is exercised. The lease payments are generally computed to payout the original purchase price plus interest over approximately 36 months. Leases with noncancelable lease terms greater than 18 months are considered sales-type leases, because by the end of the original lease term, the option price is expected to be lower than the equipment's fair market value. Equipment Under Operating Leases Equipment leased under agreements with noncancelable lease terms of less than 18 months and those which do not include a purchase option are accounted for as operating leases and included in property, plant and equipment. This equipment had a net book value of $221.8 million at December 31, 1999. Rental fleet depreciation expense totaled approximately $23.0 million for the year ended December 31, 1999. Accounting for Income Taxes Under Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Foreign Currency Translation The functional currency for most of the Company's international operations is the applicable local currency. Results of operations for foreign subsidiaries for which the functional currencies are the applicable foreign currencies are translated using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet date, and the resulting translation adjustments are included as accumulated other comprehensive income (loss), a separate component of stockholders' equity. Currency transaction gains and losses are reflected in income for the period. Concentration of Credit Risk The Company sells, leases and rents gas compressors to customers in the oil and gas industry. The Company generally does not require collateral. However, cash prepayments and security deposits are required for accounts with indicated credit risks. The Company maintains reserves for potential losses, and credit losses have historically been within management's expectations. F-82 244 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition Revenues are recognized as rental equipment is provided, as services are performed, or as parts or equipment deliveries are made. Most rental contracts have an initial contract term of six to twelve months and then continue on a month-to-month basis. The Company provides a limited warranty on certain equipment and services. The warranty period varies depending on the equipment sold or service performed. A liability for performance under warranty obligations is accrued based upon the nature of the warranty and historical experience. The warranty expense for the year ended December 31, 1999 was $1.3 million. The Company provides management services under various gas compressor system fleet rental agency agreements with four limited partnerships and four Subchapter S corporations. During the year ended December 31, 1999, management fee income of $0.7 million was recognized under the agency agreements. Minority Interest The Company records minority interest expense which reflects the portion of earnings of majority-owned operations which are applicable to the minority interest partner. New Reporting Requirements In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements," to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. In March 2000, the SEC issued SAB 101A, which delayed the implementation date of SAB 101 until the second quarter after December 15, 1999 for companies with fiscal years beginning between December 16, 1999 and March 15, 2000. The SEC staff issuance of SAB 101B on June 26, 2000 further extends the compliance requirement until the fourth quarter of fiscal years beginning after December 15, 1999, with an effective date of January 1, 2000. The Company has reviewed its revenue recognition policies and believes that they are in compliance with GAAP and the related interpretive guidance set forth in SAB 101 with the exception of its classification in the Consolidated Statements of Operations of certain pass-through costs. The application of this bulletin is not expected to have a material impact on its financial position or results of operations. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133, amending the effective date of SFAS No. 133 to years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, amending accounting and reporting standards of SFAS No. 133 for certain derivative instruments and certain hedging activities. The Company is evaluating the impact of SFAS No. 133 and SFAS No. 138 on its consolidated financial statements and does not anticipate that application of these statements will have a material impact on its financial position or results of operations. 3. ACQUISITIONS AND SALE OF BUSINESS On February 2, 1999, the Company completed a joint venture with GE in which the Company's operations were combined with GE's Global Compression Services operations. The joint venture is known as Weatherford Global Compression Services. The Company owns 64% of the joint venture and GE owns 36%. The Company has the right to acquire GE's interest at anytime at a price equal to a third party market-determined value that is not less than book value. GE also has the right to require the Company to F-83 245 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) purchase its interest at anytime after February 2001 at a market-determined third party valuation as well as request a public offering of its interest after that date, if the Company has not purchased its interest by that time. There were no acquisitions, other than the formation of the joint venture with GE, during the twelve months ended December 31, 1999. The acquisitions discussed above were accounted for using the purchase method of accounting. Results of operations for acquisitions accounted for as purchases are included in the accompanying consolidated financial statements since the date of acquisition. The purchase price was allocated to the net assets acquired based upon their estimated fair market values at the date of acquisition. The balances included in the Consolidated Balance Sheets related to the current year acquisitions are based upon preliminary information and are subject to change when final asset and liability valuations are obtained. Material changes in the preliminary allocations are not anticipated by management. The following presents the consolidated financial information for the Company on a pro forma basis assuming the joint venture with GE had occurred on January 1, 1999. All 2000 acquisitions are not material individually nor in the aggregate, therefore, pro forma information is not presented. The pro forma information set forth below is not necessarily indicative of the results that actually would have been achieved had such transactions been consummated as of January 1, 1998, or that may be achieved in the future.
YEAR ENDED YEAR ENDED DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- (UNAUDITED) Revenues............................................ $232,014 $254,824 Net income (loss)................................... 3,357 (4,528)
The compressors marketed by the Company were historically manufactured by the Company at its facility located in Corpus Christi, Texas or purchased from third parties. In the fourth quarter of 1999, the Company sold its manufacturing facility in Corpus Christi to GE Power Systems for a total of $14.6 million and recorded a gain of $0.8 million. Under terms of the sale, the Company has agreed to make purchases from that facility for approximately $38.0 million for products over a five-year period and $3.0 million for parts over a three-year period. 4. ACCRUED LIABILITIES Accrued liabilities are summarized as follows (in thousands):
DECEMBER 31, 1999 ------------ Other taxes................................................. $ 944 Customer deposits........................................... 2,215 Wages and benefits.......................................... 5,559 Lease obligations........................................... 2,843 Accrued warranty............................................ 2,388 Other....................................................... 6,769 ------- $20,718 =======
F-84 246 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT The Company had long-term debt obligations at December 31, 1999 as follows (in thousands): Capital lease obligations under various agreements.......... $1,454 Bonds....................................................... 1,685 ------ 3,139 Less: amounts due in one year............................... (982) ------ Long-term debt.............................................. $2,157 ======
The Industrial Development Corporation of Port of Corpus Christi Variable/Fixed Rate Demand Industrial Development Revenue Refunding Bonds, Series 2002 (Lantana Corporation Project) (the "Bonds") require annual payment of principal and interest with the final payment due on July, 2002. The Bonds are secured by letters of credit outstanding of $1.7 million as of December 31, 1999. Interest is variable and determined to be the lowest rate which will permit the Bonds to be sold at par. The rate at December 31, 1999 was 3.5%. Accordingly, the estimated fair value of the Bonds approximates book value. Maturities of the Company's long-term debt at December 31, 1999 are as follows (in thousands): 2000........................................................ $ 982 2001........................................................ 885 2002........................................................ 920 2003........................................................ 310 2004........................................................ 42 ------ $3,139 ======
6. STOCKHOLDERS' EQUITY Common Stock The Company has authorized and issued 2,000 shares of common stock, $1.00 par value as of December 31, 1999 to WEUS Holding Inc., which is a wholly-owned subsidiary of Weatherford. 7. INCOME TAXES The domestic and foreign components of Income before Taxes and Minority Interest consisted of the following for the year ended December 31, 1999 (in thousands): Domestic.................................................. $ 5,858 Foreign................................................... 10,843 ------- $16,701 =======
F-85 247 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's provision (benefit) for income taxes for the year ended December 31, 1999, consisted of the following (in thousands): Current U.S. Federal and State.................................. $(2,728) Foreign................................................. 3,448 ------- $ 720 ======= Deferred U.S. Federal and State.................................. $ 6,057 Foreign................................................. 762 ------- 6,819 ------- $ 7,539 =======
The difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to income before income taxes for the year ended December 31, 1999 is analyzed below (in thousands). Tax provision at statutory rate............................ $5,845 Increase in taxes resulting from: Nondeductible goodwill................................... 1,174 Foreign tax rates greater than statutory rate............ 415 Other.................................................... 105 ------ $7,539 ======
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which the Company has operations. Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. The components of the net deferred tax liability were as follows (in thousands):
DECEMBER 31, 1999 ------------ Net Current Deferred Tax Asset: Receivables........................................... $ 640 Inventory............................................. 1,248 Other accrued expenses................................ 526 -------- 2,414 -------- Net Noncurrent Deferred Tax Liability: Property, plant and equipment......................... (29,172) Goodwill.............................................. (3,046) -------- (32,218) -------- Net Deferred Tax Liability.............................. $(29,804) ========
F-86 248 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES Sales-Type Lease Receivables The Company provides a capital lease financing option to its customers. Future minimum lease payments receivable resulting from the sale of compression packages under sales-type leases are due as follows (in thousands):
DECEMBER 31, 1999 ------------ 2000.................................................... $ 839 2001.................................................... 756 2002.................................................... 811 2003.................................................... 309 ------ $2,715 ======
Sale and Leaseback of Equipment The Company has entered into various sale and leaseback arrangements where it has sold $239.8 million of compression units through December 31, 1999 and has a right to sell up to another $110.2 million of compression units. Under these arrangements, legal title to the compression units are sold to third-parties and leased back to the Company under a five-year operating lease with a market-based purchase option. During the twelve months ended December 31, 1999, the Company sold compressors having an appraised value of $120.2 million and received cash of $139.8 million, of which $19.6 million related to 1998 sales. The sale and leaseback arrangements resulted in a pretax deferred gain of approximately $34.6 million, classified as Unearned Income on the accompanying Consolidated Balance Sheets, which may be deferred until the end of the lease. As of December 31, 1998 the Company had sold compressors under these arrangements having an appraised value of $119.6 million, and received cash of $100.0 million and a receivable of $19.6 million. The net book value of the equipment sold was approximately $77.4 million, resulting in a pre-tax gain of $42.8 million. Weatherford has provided for a residual value guarantee at the end of the term of the lease for the assets sold prior to the formation of the joint venture. Of the proceeds received by the Company from the sale and leaseback of the compressor units $65.4 million was distributed to GE as part of the joint venture. The remaining proceeds from these sale and leaseback agreements were utilized by the Company for internal corporate purposes and growth. Weatherford has guaranteed certain of the obligations of the Company with respect to the sale of $200.0 million of the compression units, completed by Weatherford prior to the formation of the Company. Weatherford has guaranteed a minimum residual value of the leased equipment at the end of the lease. The Company has similarly agreed to guarantee a portion of the residual value of all of the leased equipment under these leases. The remaining sales by the Company were done on a non-recourse basis to Weatherford and the recourse is limited solely to the assets of the Company. F-87 249 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The lease agreement calls for quarterly rental payments. The following table provides future minimum lease payments (in thousands) under the aforementioned lease exclusive of any guarantee payments:
DECEMBER 31, 1999 ------------ 2000........................................................ $16,856 2001........................................................ 16,856 2002........................................................ 16,856 2003........................................................ 16,156 2004........................................................ 4,193 Thereafter.................................................. -- ------- $70,917 =======
Operating Leases Payable The Company leases certain buildings and service equipment under noncancelable operating leases. Aggregate minimum rental commitments under noncancelable operating leases with lease terms in excess of one year are as follows (in thousands):
DECEMBER 31, 1999 ------------ 2000........................................................ $1,719 2001........................................................ 1,632 2002........................................................ 1,227 2003........................................................ 1,082 2004........................................................ 710 Thereafter.................................................. 3,182 ------ $9,552 ======
Total rent expense incurred under operating leases was approximately $2.3 million for the year ended December 31, 1999. Claims and Litigation The Company is defending various claims and litigation arising in the normal course of business. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse effect on the Company's results of operations, financial position or liquidity. 9. RELATED PARTY TRANSACTIONS Overhead Allocation Weatherford provides certain administrative services for the Company, primarily including 1) management information systems services, 2) payroll services and 3) certain regional accounting services. The Company expensed approximately $0.6 million in overhead charges related to these services for the year ended December 31, 1999. Transactions with Weatherford are based on time devoted to and direct costs associated with services provided to the Company. F-88 250 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Insurance The Company participates with Weatherford for the partial self-insurance of its general, product, property, and workers' compensation liabilities. The Company expensed approximately $1.8 million related to such self-insurance during the year ended December 31, 1999. Benefit Plans The Company participates in Weatherford's 401(k) plan. The Company expensed $0.5 million related to the 401(k) plan in the year ended December 31, 1999. Long-term Payable Due to Weatherford Weatherford regularly transacts with and provides funding of certain activities of the Company. In accordance with a shared service agreement, certain current expenses are paid by the Company to Weatherford. Payment of the remaining liability occurs only when surplus cash is available. Amounts due to Weatherford are payable on demand and accrue interest, based on average balances, at a rate of 8.0% as of December 31, 1999. 10. SEGMENT INFORMATION Foreign Operations Financial information by geographic segment for the year ended December 31, 1999 is summarized below. Revenues are attributable to countries based on the location of the entity selling the products or performing the services. Long-lived assets are long-term assets.
UNITED LATIN ASIA- STATES CANADA AMERICA PACIFIC TOTAL -------- ------- ------- ------- -------- Revenues from unaffiliated customers......................... $169,554 $41,001 $14,539 $ 823 $225,917 Long-lived assets................... 423,759 28,643 60,209 2,068 514,679
11. QUARTERLY FINANCIAL DATA (UNAUDITED) The following sets forth unaudited quarterly financial data for 1999.
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- Revenues.................... $42,583 $55,950 $67,931 $59,453 $225,917 Gross profit................ 12,750 13,294 17,454 14,017 57,515 Net income.................. 832 813 1,425 1,469 4,539
12. SUBSEQUENT EVENT (UNAUDITED) On October 24, 2000, Weatherford announced the proposed acquisition of 13.75 million shares of common stock (a 48% interest) of Universal Compression Holdings, Inc. ("Universal") in exchange for the contribution of substantially all of the assets of the Company into a subsidiary of Universal. Weatherford will retain approximately $40 million of the assets of the Company, including Singapore-based GSI and the Company's Asia Pacific compressor rental operations, other than those in Thailand and Australia. Weatherford will, however, continue to operate compressor rentals in those regions either alone or in conjunction with Universal. Weatherford will value the transaction based on the stock price of Universal as of the closing date of the transaction. Closing of the transaction is conditioned upon the average closing price of Universal's common stock during the 20 consecutive trading days prior to the transaction being not less than $25 per share. F-89 251 ENTERRA COMPRESSION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In connection with this investment Weatherford has entered into an agreement to purchase GE Capital's 36% interest in the joint venture in which its Compression Division is operated for $206.5 million, subject to the concurrent closing of our investment in Universal. The transactions are subject to various conditions, including governmental approvals, approval of Universal's stockholders, and the refinancing of its joint venture's and Universal's debt and compressor sale leaseback arrangements. Although there can be no assurance the merger and purchase will close, Weatherford anticipates that the transactions will be consummated early in the first quarter of 2001. F-90 252 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Weatherford International, Inc.: We have audited the accompanying combined balance sheet of Weatherford Compression as of December 31, 1998, and the related combined statements of operations, equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Weatherford Compression as of December 31, 1998, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas November 17, 2000 F-91 253 WEATHERFORD COMPRESSION COMBINED BALANCE SHEET (IN THOUSANDS)
DECEMBER 31, 1998 ------------ ASSETS CURRENT ASSETS: Cash...................................................... $ 36 Accounts Receivable, Net of Allowance for Uncollectible Accounts of $207....................................... 22,514 Inventories, Net.......................................... 56,054 Lease Receivable.......................................... 19,608 Deferred Tax Asset........................................ 1,361 Other Current Assets...................................... 4,319 -------- 103,892 -------- PROPERTY, PLANT AND EQUIPMENT, AT COST: Land...................................................... 2,284 Buildings and Leasehold Improvements...................... 11,245 Rental and Service Equipment.............................. 85,606 Machinery and Other Equipment............................. 46,178 -------- 145,313 Less: Accumulated Depreciation.................... 39,539 -------- 105,774 -------- GOODWILL, NET............................................... 178,553 OTHER ASSETS................................................ 943 -------- $389,162 ======== LIABILITIES AND COMBINED EQUITY CURRENT LIABILITIES: Current Portion of Long-Term Debt......................... $ 764 Accounts Payable.......................................... 11,525 Accrued Liabilities....................................... 6,591 -------- 18,880 -------- LONG-TERM DEBT.............................................. 1,831 UNEARNED INCOME............................................. 42,249 DEFERRED INCOME TAXES....................................... 27,457 LONG-TERM PAYABLE DUE TO PARENT COMPANY..................... 105,765 COMMITMENTS AND CONTINGENCIES COMBINED EQUITY, Includes Accumulated Other Comprehensive Loss of $3,337............................................ 192,980 -------- $389,162 ========
The accompanying notes are an integral part of these combined financial statements. F-92 254 WEATHERFORD COMPRESSION COMBINED STATEMENT OF OPERATIONS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1998 ------------ REVENUES: Products.................................................. $ 86,982 Services and Rentals...................................... 94,344 -------- 181,326 -------- COSTS AND EXPENSES: Cost of Products.......................................... 83,305 Cost of Services and Rentals.............................. 56,338 Selling, General and Administrative....................... 22,208 Non-Recurring Charge...................................... 1,500 -------- 163,351 -------- OPERATING INCOME............................................ 17,975 -------- OTHER INCOME (EXPENSE): Interest Expense from Parent Company...................... (13,276) Interest Expense.......................................... (76) Other, Net................................................ (750) -------- INCOME BEFORE INCOME TAXES.................................. 3,873 INCOME TAX PROVISION........................................ 2,289 -------- NET INCOME........................................ $ 1,584 ========
The accompanying notes are an integral part of these combined financial statements. F-93 255 WEATHERFORD COMPRESSION COMBINED STATEMENT OF EQUITY (IN THOUSANDS) Balance at December 31, 1997................................ $185,010 Comprehensive Income (Loss): Net Income................................................ 1,584 Cumulative Translation Adjustment......................... (1,468) -------- Total Comprehensive Income................................ 116 Contribution From Parent Company (see Note 3)............... 7,854 -------- Balance at December 31, 1998................................ $192,980 ========
The accompanying notes are an integral part of these combined financial statements. F-94 256 WEATHERFORD COMPRESSION COMBINED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1998 ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................ $ 1,584 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization.......................... 23,256 Deferred Income Tax Provision.......................... 3,403 Gain on Sale of Property, Plant and Equipment.......... (478) Provision for Uncollectible Accounts Receivable........ 11 Change in Assets and Liabilities: Accounts Receivable.................................. 6,244 Inventories.......................................... 3,275 Other Current Assets................................. (2,596) Accounts Payable..................................... (2,558) Other Current Liabilities............................ (4,298) Other Assets......................................... (2,780) -------- Net Cash Provided by Operating Activities......... 25,063 -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures for Property, Plant and Equipment.... (30,780) Proceeds from Sales of Property, Plant and Equipment...... 2,019 Proceeds from Sale and Leaseback of Equipment............. 100,000 -------- Net Cash Provided by Investing Activities......... 71,239 -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments on Debt........................................ (1,054) Repayments to Parent Company, Net......................... (95,212) -------- Net Cash Used by Financing Activities............. (96,266) -------- NET INCREASE IN CASH AND CASH EQUIVALENTS................... 36 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. -- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 36 ======== INTEREST PAID............................................... $ 150 INCOME TAXES PAID........................................... $ 1,348
The accompanying notes are an integral part of these combined financial statements. F-95 257 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION The accompanying combined financial statements of Weatherford Compression (the "Company") include the accounts of Enterra Compression Company, Weatherford Compression Canada Ltd., as well as accounts related to compression product lines of Weatherford Canada Ltd., EVI Oil Tools Canada, Weatherford Venezuela S.A., Weatherford Australia Pty Ltd. and Weatherford Enterra S.A. These seven companies are wholly owned subsidiaries of Weatherford International, Inc. (the "Parent Company"). The Company is engaged in the business of renting, fabricating, selling and servicing natural gas compressor packages used in the oil and gas industry. The Company is headquartered in Corpus Christi, Texas, and maintains approximately 15 service and sales offices in the surrounding four-state area. U.S. manufacturing is completed primarily in Texas. The Company also has fabrication, service, and rental operations in Canada, and rental operations in Argentina, Australia, and Venezuela. Compression equipment is utilized in the production and transportation of natural gas. Factors influencing compressor rental operations include the number and age of producing gas wells, the ownership of these properties and natural gas prices. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Combination The financial statements are presented on a combined basis because their business activities are performed as one entity. All significant intercompany accounts and transactions have been eliminated in combination. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Inventories Inventories are valued at the lower of cost or market. Cost is determined using the moving average method for parts inventories or by using standards which approximates moving average. Inventories at December 31, 1998, are summarized as follows (in thousands): Raw materials.............................................. $20,332 Work in process............................................ 10,497 Finished goods............................................. 25,225 ------- $56,054 =======
Work in process includes the costs of materials, labor and overhead. Property, Plant and Equipment Property, plant and equipment is carried at cost. Maintenance and repairs are expensed as incurred. The costs of refurbishment (i.e. renewals, replacements and betterments) are capitalized. Depreciation on F-96 258 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) fixed assets is computed using the straight-line method over the estimated useful lives for the respective categories. The useful lives of the major classes of property, plant and equipment are as follows:
USEFUL LIVES ------------ Buildings and leasehold improvements.................... 10-40 years Rental and service equipment............................ 5-15 years Machinery and other equipment........................... 3-7 years
When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the related accounts and any resulting gain or loss is included in the combined statement of operations, with the exception of gains related to the sale and leaseback arrangements (see Note 8). The depreciation expense for the year ended December 31, 1998 was $17.9 million. Goodwill The Company's goodwill represents the excess of the aggregate price paid by the Company in acquisitions accounted for as purchases over the fair market value of the net assets acquired. Goodwill is being amortized on a straight-line basis over the lesser of the estimated useful life or 40 years. The Company periodically evaluates goodwill and other intangible assets, net of accumulated amortization, for impairment based on the undiscounted cash flows associated with the asset compared to the carrying amount of that asset. Management believes that there have been no events or circumstances which warrant revision to the remaining useful life or which affect the recoverability of goodwill. Amortization expense for goodwill for the twelve months ended December 31, 1998 was $5.3 million. Accumulated amortization related to goodwill was $20.2 million at December 31, 1998. Equipment Held for Lease The Company leases certain equipment to customers under agreements that contain an option to purchase the equipment at any time. The option amount is computed based on the original purchase price, less payments received, plus interest and insurance covering the period from the inception of the lease to the date the option is exercised. The lease payments are generally computed to payout the original purchase price plus interest over approximately 36 months. Leases with noncancelable lease terms greater than 18 months are considered sales-type leases because, by the end of the original lease term, the option price is expected to be lower than the equipment's fair market value. Equipment Under Operating Leases The Company also leases equipment under agreements with noncancelable lease terms of less than 18 months and those which do not include a purchase option. These types of leases are accounted for as operating leases and included in property, plant and equipment. This equipment has a net book value of $81.7 million at December 31, 1998. Rental fleet depreciation expense totaled $15.0 million in 1998. Accounting for Income Taxes Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The Parent Company filed consolidated federal tax returns for the years through December 31, 1998 and separate and consolidated state returns depending on the state in question for the Parent Company and each of its subsidiaries. The accompanying financial statements have been prepared in accordance with F-97 259 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) the separate return methods of SFAS No. 109, whereby the allocation of tax expense is based on what the Company's current and deferred tax expense would have been had the Company filed a federal income tax return outside its consolidated group. Foreign Currency Translation The functional currency for most of the Company's international operations is the applicable local currency. Results of operations for foreign subsidiaries for which functional currencies are the applicable foreign currency are translated using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet date and the resulting translation adjustments are included in accumulated other comprehensive income (loss), a separate component of combined equity. Currency transaction gains and losses are reflected in income for the period. Concentration of Credit Risk The Company sells, leases and rents gas compressors to customers in the oil and gas industry. The Company generally does not require collateral. However, cash prepayments and security deposits are required for accounts with indicated credit risks. The Company also bills for progress payments from time to time on large dollar, long-term construction projects. The Company maintains reserves for potential losses, and credit losses have been within management's expectations. Revenue Recognition Revenues are recognized as rental equipment is provided, as services are performed, or as parts or equipment deliveries are made. Most rental contracts have an initial contract term of six to twelve months and then continue on a month-to-month basis. The Company provides a limited warranty on certain equipment and services. The warranty period varies depending on the equipment sold or service performed. A liability for performance under warranty obligations is accrued based upon the nature of the warranty and historical experience. The Company provides management services under various gas compressor system fleet rental agency agreements with four limited partnerships and two Subchapter S corporations. During the year ended December 31, 1998, management fee income of $0.6 million was recognized under the agency agreements. New Reporting Requirements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income. SFAS No. 130 establishes standards for the reporting of comprehensive income and its components in a full set of general-purpose financial statements and is effective for years beginning after December 15, 1997. The Company presents total comprehensive income in the accompanying Combined Statement of Stockholder's Equity. Comprehensive income as defined by SFAS No. 130 is net income plus direct adjustments to stockholder's equity. The cumulative translation adjustment of certain foreign entities is the only such direct adjustment applicable to the Company. 3. ACQUISITIONS In January 1998, the Parent Company acquired Taro Industries Limited ("Taro"). Taro was a Canadian provider of well automation, gas compression, and drilling equipment distribution. The compression division of Taro was contributed to the Company and the results of operations included in the accompanying Combined Statement of Operations from the date of acquisition. F-98 260 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition discussed above was accounted for using the purchase method of accounting. Results of operations for acquisitions accounted for as purchases are included in the accompanying combined financial statements since the date of acquisition. The purchase price was allocated to the net assets acquired based upon their estimated fair market values at the date of acquisition. 4. ACCRUED LIABILITIES Accrued liabilities as of December 31, 1998 are summarized as follows (in thousands): Other taxes................................................. $1,127 Customer deposits........................................... 1,262 Wages and benefits.......................................... 2,043 Accrued warranty............................................ 580 Other....................................................... 1,579 ------ $6,591 ======
5. DEBT The components of debt as of December 31, 1998 are summarized as follows (in thousands): Bonds....................................................... $2,595 ------ 2,595 Less: amounts due in one year............................... (764) ------ Long-term debt.................................... $1,831 ======
The Industrial Development Corporation of Port of Corpus Christi Variable/Fixed Rate Demand Industrial Development Revenue Refunding Bonds, Series 2002 (Lantana Corporation Project) (the "Bonds") require annual payment of principal and interest with the final payment due on July, 2002. The Bonds are secured by a letter of credit. Interest is variable and determined to be the lowest rate which will permit the Bonds to be sold at par. The rate was 4.1% at December 31, 1998. Accordingly, the estimated fair value of the Bonds approximates book value. Maturities of the Company's long-term debt at December 31, 1998 are as follows (in thousands): 1999........................................................ $ 764 2000........................................................ 646 2001........................................................ 575 2002........................................................ 610 ------ $2,595 ======
6. COMBINED EQUITY Combined equity caption on the accompanying financial statements represents the Parent Company's interest in the Company. Changes represent net income (loss) of the Company, net contributions from/to the Parent Company and accumulated other comprehensive income (loss). During 1998, the Parent Company contributed the compression division of Taro (see Note 3). F-99 261 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) 7. INCOME TAXES The domestic and foreign components of Income before Income Taxes consisted of the following for the year ended December 31, 1998 (in thousands): Domestic.................................................... $ 890 Foreign..................................................... 2,983 ------ $3,873 ======
The Company's provision (benefit) for income taxes for the year ended December 31, 1998, consisted of (in thousands): Current U.S. Federal and State................................... $(1,814) Foreign.................................................. 700 ------- (1,114) ------- Deferred U.S. Federal and State................................... 2,831 Foreign.................................................. 572 ------- 3,403 ------- $ 2,289 =======
The actual income tax provision for the year ended December 31, 1998, differed from the income tax provision calculated using the statutory federal income rate of 35%, as follows (in thousands): Tax provision at statutory rate............................. $1,356 Increase (reduction) in taxes resulting from: Nondeductible goodwill.................................... 1,188 Other..................................................... (255) ------ $2,289 ======
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which the Company has operations. F-100 262 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Generally, deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. The components of the net deferred tax (asset) liability were as follows as of December 31, 1998 (in thousands): Net Current Deferred Tax Asset: Inventories.............................................. $ (801) Other.................................................... (560) ------- $(1,361) ======= Net Noncurrent Deferred Tax Liability (Asset): Property, plant and equipment............................ $21,842 Goodwill................................................. 5,627 Other.................................................... (12) ------- $27,457 =======
8. COMMITMENTS AND CONTINGENCIES Sales-Type Lease Receivables The Company provides a capital lease financing option to its customers. Future minimum lease payments receivable resulting from the sale of compression packages under sales-type leases are due as follows (in thousands): 1999........................................................ $302 2000........................................................ 165 ---- $467 ====
Sale and Leaseback of Equipment The Company entered into a sale and leaseback arrangement in December 1998 where it was provided with the right to sell up to $200.0 million of compression units through December 1999 and lease them back over a five year period under an operating lease. Payments under the lease are calculated based on a rate of return on the purchase price and an agreed valuation of the leased compressors. Under the terms of the lease, the Company may repurchase the equipment for fair market value at any time. The Parent Company has provided for a residual value guarantee at the end of the term of the lease equal to approximately 85.5% of the appraised value of the compression units under lease. As of December 31, 1998, the Company had sold compressors under this arrangement, having an appraised value of $119.6 million, and received cash of $100.0 million and a receivable of $19.6 million, which is due on demand. The net book value of the equipment sold was approximately $77.4 million, resulting in a pre-tax gain of $42.2 million, which may be deferred until the end of the lease. This arrangement calls for quarterly rental payments. The following table provides future minimum lease payments (in thousands) under the aforementioned lease exclusive of any guarantee payments: 1999....................................................... $ 7,491 2000....................................................... 7,491 2001....................................................... 7,491 2002....................................................... 7,491 2003....................................................... 6,867 ------- $36,831 =======
F-101 263 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Operating Leases Payable The Company leases certain buildings and service equipment under noncancelable operating leases. Aggregate minimum rental commitments under noncancelable operating leases with lease terms in excess of one year as of December 31, 1998 are as follows (in thousands): 1999........................................................ $277 2000........................................................ 252 2001........................................................ 193 2002........................................................ 151 2003........................................................ 92 ---- $965 ====
Rental expenses for operating leases were $0.4 million for the year ended December 31, 1998. Savings and Retirement Plan Weatherford Enterra Compression Company, L.P. Savings and Retirement Plan is a defined contribution benefit plan. Effective October 16, 1995, the plan was frozen and no additional contributions were made. When the plan was frozen participants had the option to cash out their accounts and receive payment over five years. As of December 31, 1998 all payments had been made. Claims and Litigation The Company is defending various claims and litigation arising in the normal course of business. In the opinion of management, uninsured losses, if any, resulting from these matters will not have a material adverse effect on the Company's results of operations, financial position or liquidity. 9. RELATED PARTY TRANSACTIONS Overhead Allocation The Parent Company provides certain administrative services for the Company, primarily including 1) state, federal and property tax preparation and management, 2) legal services, 3) administration of employee benefit plans and risk management programs and 4) marketing services. The Parent Company determines the overhead allocation by multiplying the consolidated direct and indirect costs of providing these services to its subsidiaries by each subsidiary's percentage of consolidated revenues. For the year ended December 31, 1998, the Company expensed approximately $0.7 million related to these overhead charges. Insurance The Company participates with the Parent Company for the partial self-insurance of its general, product, property, and workers' compensation liabilities. During the year ended December 31, 1998, the Company expensed approximately $1.5 million related to such self-insurance. Benefit Plans The Company participates in the Parent Company's 401(k) and partial self-insured health and welfare plan. The Company expensed $0.5 million and $2.2 million related to the 401(k) and health and welfare plans, respectively, in 1998. F-102 264 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Due to Parent Company The Parent Company provides funding of certain activities of the Company. Payment of the resulting liability occurs only when surplus cash is available. The balance accrues interest, based on average balances, at a variable rate based on prime, approximately 6% at December 31, 1998. 10. NON-RECURRING CHARGE The 1998 non-recurring charge of $1.5 million, caused by a downturn in market conditions, relates to the write-down of specific assets which are held for sale. 11. SEGMENT INFORMATION Foreign Operations Financial information by geographic segment for the year ended December 31, 1998 is summarized below. Revenues are attributable to countries based on the location of the entity selling the products or performing the services. Long-lived assets are long-term assets.
UNITED LATIN ASIA STATES CANADA AMERICA PACIFIC TOTAL -------- ------- ------- ------- -------- Revenues from Unaffiliated Customers.......................... $132,897 $46,225 $2,141 $ 63 $181,326 Long-lived Assets.................... 251,358 23,125 7,531 3,256 285,270
12. QUARTERLY FINANCIAL DATA (UNAUDITED) The following sets forth unaudited quarterly financial data for 1998.
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER TOTAL ------- ------- ------- ------- -------- Revenues............................ $45,894 $47,948 $42,641 $44,843 $181,326 Gross Profit........................ 11,577 10,280 10,232 9,594 41,683 Net Income (Loss)................... 1,148 378 307 (249) 1,584
13. SUBSEQUENT EVENTS (UNAUDITED) In February 1999, the Parent Company formed a joint venture with GE Capital Corporation ("GE Capital") in which the Company's compression services operations were combined with GE Capital's Global Compression's Services operations. The joint venture is known as Weatherford Global Compression. The Parent Company owns 64% of the joint venture and GE Capital owns 36%. The Company has the right to acquire GE Capital's interest at anytime at a price equal to the greater of a market determined third party valuation or book value. GE Capital also has the right to require the Company to purchase its interest anytime after February 2001 at a market determined third party valuation as well as request a public offering of its interest after that date, if the Parent Company has not purchased its interest by that date. On October 24, 2000, the Parent Company announced the proposed acquisition of 13.75 million shares of common stock (a 48% interest) of Universal Compression Holdings, Inc. ("Universal") in exchange for the contribution of substantially all of the Company into a subsidiary of Universal. The Parent Company will retain approximately $40 million of the assets of the Company, including Singapore-based GSI and its Asia-Pacific compressor rental operations, other than those in Thailand and Australia. The Parent Company will, however, continue to operate compressor rentals in those regions either alone or in conjunction with Universal. The Parent Company will value the transaction based on the stock price of Universal as of the closing date of the transaction. Closing of the transaction is conditioned upon the F-103 265 WEATHERFORD COMPRESSION NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED) average closing price of Universal's common stock during the 20 consecutive trading days prior to the transaction being not less than $25 per share. In connection with this investment the Parent Company has entered into an agreement to purchase GE Capital's 36% interest in the joint venture in which the Company operates for $206.5 million, subject to the concurrent closing of our investment in Universal. The transactions are subject to various conditions, including governmental approvals, approval of Universal's stockholders, and the refinancing of its joint venture's and Universal's debt and compressor sale leaseback arrangements. Although there can be no assurance the merger and purchase will close, the Parent Company anticipates that the transactions will be consummated early in the first quarter of 2001. F-104 266 INDEPENDENT AUDITORS' REPORT The Board of Directors Global Compression Holdings, Inc. We have audited the accompanying consolidated balance sheets of Global Compression Holdings, Inc. and subsidiaries as of February 2, 1999, and December 31, 1998 and 1997 and the related consolidated statements of operations, stockholder's equity and cash flows for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Global Compression Holdings, Inc. and subsidiaries as of February 2, 1999, and December 31, 1998 and 1997 and the results of their operations and their cash flows for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Dallas, Texas April 2, 1999 F-105 267 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS FEBRUARY 2, 1999, AND DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 1997 -------- -------- -------- ASSETS Current assets: Cash...................................................... $ 1,538 $ 578 $ 256 Trade accounts receivable, net of allowance of $3,810 in 1999, $4,194 in 1998 and $2,526 in 1997................ 12,363 16,581 11,732 Other current assets...................................... 1,261 1,161 1,323 -------- -------- -------- Total current assets.............................. 15,162 18,320 13,311 Property, plant and equipment, net (note 5)................. 228,787 227,417 219,156 Goodwill and other intangibles, net......................... 30,426 30,581 33,459 Other assets................................................ 3,608 3,604 2,093 -------- -------- -------- $277,983 $279,922 $268,019 ======== ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Trade accounts payable.................................... $ 4,262 $ 3,565 $ 9,555 Accrued liabilities....................................... 6,025 5,109 5,624 Deferred revenue.......................................... 4,866 4,907 4,059 -------- -------- -------- Total current liabilities......................... 15,153 13,581 19,238 Due to Parent (note 6)...................................... 201,525 204,309 191,362 Deferred income taxes (note 7).............................. 25,797 25,444 20,647 -------- -------- -------- Total liabilities................................. 242,475 243,334 231,247 -------- -------- -------- Stockholder's equity: Common stock: $.01 par value. Authorized, issued and outstanding, 1,000 shares.............................. -- -- -- Additional paid-in capital................................ 70,518 69,871 62,020 Accumulated other comprehensive income.................... 286 299 -- Accumulated deficit....................................... (35,296) (33,582) (25,248) -------- -------- -------- Total stockholder's equity........................ 35,508 36,588 36,772 Commitments (note 8)........................................ -------- -------- -------- $277,983 $279,922 $268,019 ======== ======== ========
See accompanying notes to consolidated financial statements. F-106 268 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
YEARS ENDED PERIOD JANUARY 1, DECEMBER 31, 1999 THROUGH ------------------- FEBRUARY 2, 1999 1998 1997 ----------------- -------- -------- Revenues: Equipment rentals and services......................... $ 4,491 $ 61,008 $ 46,168 Unit sales............................................. 1,606 12,490 10,531 ------- -------- -------- Total revenues................................. 6,097 73,498 56,699 ------- -------- -------- Costs and expenses: Cost of equipment rentals and services................. 2,060 27,378 21,813 Cost of unit sales..................................... 1,220 10,909 11,005 Depreciation and amortization.......................... 1,686 19,916 15,910 Selling, general and administrative expenses (note 10)................................................. 2,852 16,058 15,292 ------- -------- -------- Total costs and expenses....................... 7,818 74,261 64,020 ------- -------- -------- Loss from operations........................... (1,721) (763) (7,321) Interest expense (note 6)................................ (1,072) (12,424) (10,817) ------- -------- -------- Loss before income taxes....................... (2,793) (13,187) (18,138) Income tax benefit (note 7).............................. 1,079 4,853 6,737 ------- -------- -------- Net loss....................................... $(1,714) $ (8,334) $(11,401) ======= ======== ========
See accompanying notes to consolidated financial statements. F-107 269 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 1997 AND 1998 AND PERIOD FROM JANUARY 1, 1999 THROUGH FEBRUARY 2, 1999 (IN THOUSANDS, EXCEPT SHARE DATA)
ACCUMULATED OTHER COMMON STOCK ADDITIONAL COMPREHENSIVE --------------- PAID-IN INCOME ACCUMULATED COMPREHENSIVE SHARES AMOUNT CAPITAL (LOSS) DEFICIT TOTAL INCOME (LOSS) ------ ------ ---------- ------------- ------------- -------- ------------- BALANCE, JANUARY 1, 1997... 1,000 $-- $55,494 $ -- $(13,847) $ 41,647 $ -- Capital contribution -- forgiveness of accrued interest, net of tax benefit ($4,291)(note 6)....................... -- -- 6,526 -- -- 6,526 -- Net loss................... -- -- -- -- (11,401) (11,401) (11,401) ----- --- ------- ---- -------- -------- -------- BALANCE, DECEMBER 31, 1997..................... 1,000 -- 62,020 -- (25,248) 36,772 (11,401) Capital contribution -- forgiveness of accrued interest, net of tax benefit ($4,989)(note 6)....................... -- -- 7,435 -- -- 7,435 -- Capital contribution -- GECC payment of certain employee severance costs, net of tax benefit ($273)(note 9)........... -- -- 416 -- -- 416 -- Net loss................... -- -- -- -- (8,334) (8,334) (8,334) Foreign currency translation adjustment... -- -- -- 299 -- 299 299 ----- --- ------- ---- -------- -------- -------- BALANCE, DECEMBER 31, 1998..................... 1,000 -- 69,871 299 (33,582) 36,588 (8,035) Capital contribution -- forgiveness of accrued interest, net of tax benefit ($425)(note 6)... -- -- 647 -- -- 647 -- Net loss................... -- -- -- -- (1,714) (1,714) (1,714) Foreign currency translation adjustment... -- -- -- (13) -- (13) (13) ----- --- ------- ---- -------- -------- -------- BALANCE, FEBRUARY 2, 1999..................... 1,000 $-- $70,518 $286 $(35,296) $ 35,508 $ (1,727) ===== === ======= ==== ======== ======== ========
See accompanying notes to consolidated financial statements. F-108 270 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD JANUARY 1, YEARS ENDED 1999 THROUGH DECEMBER 31, FEBRUARY 2, ------------------- 1999 1998 1997 ----------------- -------- -------- Cash flows from operating activities: Net loss............................................... $(1,714) $ (8,334) $(11,401) Adjustments to reconcile net loss to cash provided by operating activities: Depreciation and amortization....................... 1,686 19,916 15,910 Deferred income taxes............................... 353 4,797 9,857 Change in operating assets and liabilities: (Increase) decrease in accounts receivable........ 4,218 (4,849) (2,882) (Increase) decrease in other assets............... (104) (1,349) (2,267) Increase (decrease) in accounts payable and accrued liabilities............................ 1,613 (6,505) 5,676 Increase (decrease) in deferred revenue........... (41) 848 430 ------- -------- -------- Net cash provided by operating activities...... 6,011 4,524 15,323 Cash flows from investing activities -- net additions to property, plant and equipment.......................... (2,901) (25,299) (84,410) Cash flows from financing activities -- net change in due to parent.............................................. (2,150) 21,097 69,094 ------- -------- -------- Net increase in cash..................................... 960 322 7 Cash at beginning of period.............................. 578 256 249 ------- -------- -------- Cash at end of period.................................... $ 1,538 $ 578 $ 256 ======= ======== ======== Supplemental disclosure of noncash activities: Forgiveness of accrued interest (net of tax benefit) reflected as capital contribution................... $ 647 $ 7,435 $ 6,526 ======= ======== ======== Payment of severance costs (net of tax benefit) reflected as capital contribution................... $ -- $ 416 $ -- ======= ======== ========
See accompanying notes to consolidated financial statements. F-109 271 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 2, 1999, AND DECEMBER 31, 1998 AND 1997 (ALL DOLLAR AMOUNTS IN THOUSANDS) (1) GENERAL INFORMATION Global Compression Holdings, Inc. (the "Company") is a wholly owned subsidiary of General Electric Capital Corporation ("GECC" or "Parent"). The Company's primary business is the purchase, fabrication, sale, lease and maintenance of natural gas compressor units and related oil field equipment. Natural gas compressor units are leased at fixed monthly rentals over varying periods (see notes 5 and 8). The Company is headquartered in Dallas, Texas and primarily operates in North America, Argentina and Thailand. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The consolidated financial statements include the accounts of Global Compression Holdings, Inc., its wholly-owned subsidiaries and the related compression business of GE Capital Thailand Ltd., a wholly-owned subsidiary of GECC. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At February 2, 1999, and December 31, 1998 and 1997, the Company had no cash equivalents. (c) Property, Plant, and Equipment Property, plant, and equipment is depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
ESTIMATED USEFUL LIVES ------------ Buildings and improvements................................ 5-40 Rental equipment.......................................... 5-15 Machinery and equipment................................... 3-10 Office equipment.......................................... 3-10 Vehicles.................................................. 3
Expenditures for major additions and improvements are capitalized while minor replacements, maintenance and repairs are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the related accounts and any resulting gain or loss is included in operations. (d) Goodwill and Other Intangibles Goodwill represents the excess of the aggregate price paid by the Company for acquisitions accounted for as purchases over the fair value of the net assets acquired. Goodwill is amortized on a straight-line basis over a period of 20 years. Amortization of goodwill and other intangible assets totaled $155, $2,877 and $2,541 for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997, respectively. F-110 272 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Accumulated amortization was $9,390, $9,235, and $6,358 at February 2, 1999, and December 31, 1998, and December 31, 1997, respectively. (e) Impairment of Long-Lived Assets The Company evaluates potential impairment of property, plant and equipment and goodwill on an ongoing basis as necessary whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying amount of the assets to future net cash flows expected to be generated by the assets or acquired business. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. In April 1998, the Company closed a manufacturing and warehouse facility in Houston, Texas. The facility ($1,900 carrying value at February 2, 1999) is for sale and is currently being used for storage of certain inventory items. Based on a recent appraisal of the facility, the Company does not consider the facility to be impaired. (f) Income Taxes The Company is included in the consolidated federal income tax return of GECC. Under the tax sharing arrangement, GECC pays the Company for net operating losses utilized by GECC. The benefit is computed using enacted tax rates and is reflected as a reduction in due to Parent. The Company applies the asset and liability method of accounting for income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. (g) Revenue Recognition Lease billings in advance of services are recorded as deferred revenue in the accompanying consolidated balance sheets. Unit sales are recognized when the compressor is shipped to the customer. (h) Comprehensive Income On January 1, 1998, the Company adopted the provisions of SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net loss and foreign currency translation adjustments and is presented in the consolidated statements of stockholder's equity. (i) Foreign Currency Translation The functional currency for the Company's international operations in Argentina and Thailand is the applicable local currency. Results of these foreign operations are translated from the functional currency to the U.S. Dollar using average exchange rates during the period. Assets and liabilities of these foreign subsidiaries are translated using the exchange rates in effect at the balance sheet dates, and the resulting translation adjustments are included in accumulated other comprehensive income (loss), a component of stockholder's equity. F-111 273 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (j) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. (3) CONCENTRATION OF CREDIT RISK The Company grants credit to its customers, which are primarily in the oil and gas industry. Credit risk with respect to trade accounts receivable is generally diversified due to the large number of entities comprising the Company's customer base. During the period January 1, 1999 through February 2, 1999, one customer accounted for approximately 25% of total revenues. During 1998, two customers in the aggregate accounted for approximately 11% of total revenues, and during 1997 three customers in the aggregate accounted for approximately 14% of total revenues. At February 2, 1999, four customers in the aggregate accounted for approximately 18% of gross trade receivables. At both December 31, 1998 and 1997, four customers in the aggregate accounted for approximately 31% of gross trade receivables. The accompanying consolidated statements of operations include $-0-, $1,785, and $1,945 for bad debt expenses for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997, respectively. (4) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of due to Parent cannot be determined without incurring excessive costs due to the related party nature of the instrument. (5) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 31, FEBRUARY 2, ------------------- 1999 1998 1997 ----------- -------- -------- Land................................................. $ 425 $ 425 $ 425 Buildings and improvements........................... 4,837 4,837 4,650 Rental equipment..................................... 224,446 223,171 195,285 Machinery and equipment.............................. 775 775 1,190 Office equipment..................................... 6,024 6,028 5,679 Vehicles............................................. 524 549 946 Equipment and parts inventory........................ 41,475 39,260 43,138 Reserve for obsolescence............................. (4,738) (4,319) (3,802) -------- -------- -------- 273,768 270,726 247,511 Accumulated depreciation............................. (44,981) (43,309) (28,355) -------- -------- -------- $228,787 $227,417 $219,156 ======== ======== ========
Rental equipment consists of natural gas compressor units which are generally leased under short-term operating leases ranging over periods from 6 to 60 months (see note 8). Equipment and parts inventory is primarily used in the construction and refurbishment of rental equipment. F-112 274 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) DUE TO PARENT Due to Parent represents advances from GECC. Advances bear interest at varying rates based on current market rates and GECC's cost of capital (5.24%, 5.41%, and 5.88% at February 2, 1999, and December 31, 1998 and December 31, 1997, respectively). Repayments are made only to the extent of excess operating cash flows (as defined) and no payments are required through February 2, 2000. Accordingly, amounts Due to Parent are reflected as a noncurrent liability in the accompanying consolidated balance sheets. Interest expense related to advances from GECC totaled $1,072, $12,424 and $10,817 for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997, respectively. Accrued interest resulting from this liability is forgiven on an annual basis by GECC and reflected as capital contributions, net of related tax benefits, in the accompanying consolidated statements of stockholder's equity. (7) INCOME TAXES Income tax expense (benefit) consists of the following for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997:
CURRENT DEFERRED TOTAL -------- -------- ------- 1999 U.S. federal............................................ $ (1,263) $ 311 $ (952) State and local......................................... (169) 42 (127) -------- ------ ------- $ (1,432) $ 353 $(1,079) ======== ====== ======= 1998 U.S. federal............................................ $ (8,514) $4,232 $(4,282) State and local......................................... (1,136) 565 (571) -------- ------ ------- $ (9,650) $4,797 $(4,853) ======== ====== ======= 1997 U.S. federal............................................ $(14,641) $8,697 $(5,944) State and local......................................... (1,953) 1,160 (793) -------- ------ ------- $(16,594) $9,857 $(6,737) ======== ====== =======
Income tax benefit differed from the amount computed by applying the U.S. federal income tax rate of 35 percent to loss before income taxes as a result of the following:
PERIOD JANUARY 1, YEARS ENDED 1999 THROUGH DECEMBER 31, FEBRUARY 2, ----------------- 1999 1998 1997 ------------ ------- ------- Computed "expected" tax benefit....................... $ (977) $(4,615) $(6,348) State tax benefit..................................... (82) (371) (515) Other................................................. (20) 133 126 ------- ------- ------- $(1,079) $(4,853) $(6,737) ======= ======= =======
F-113 275 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:
DECEMBER 31, FEBRUARY 2, ----------------- 1999 1998 1997 ----------- ------- ------- Deferred tax assets: Allowance for doubtful accounts...................... $ 1,824 $ 1,976 $ 1,002 Noncompete agreement................................. 813 799 619 Other................................................ 1,026 859 492 ------- ------- ------- Gross deferred tax assets.................... 3,663 3,634 2,113 ------- ------- ------- Deferred tax liabilities: Property, plant and equipment........................ 27,832 27,461 22,338 Other................................................ 1,628 1,617 422 ------- ------- ------- Gross deferred tax liabilities............... 29,460 29,078 22,760 ------- ------- ------- Net deferred tax liability................... $25,797 $25,444 $20,647 ======= ======= =======
(8) RENTAL COMMITMENTS As Lessee: The Company has noncancelable operating leases, primarily for warehouse and office space, that expire over the next 5 years. These leases generally contain renewal options for periods ranging from one to five years. Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of February 2, 1999 are as follows: Period from February 3, 1999 through December 31, 1999...... $1,275 Year ending December 31: 2000...................................................... 1,027 2001...................................................... 459 2002...................................................... 30 ------ $2,791 ======
Operating lease expense for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997 was $328, $2,080 and $1,773, respectively. F-114 276 GLOBAL COMPRESSION HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) As Lessor: The Company leases compressor units to customers under agreements with varying terms. Typically, such leases are accounted for as operating leases. The lessee pays taxes, licenses, and insurance on such equipment. Future minimum lease rentals under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of February 2, 1999 are as follows: Period from February 3, 1999 through December 31, 1999..... $26,457 Year ending December 31: 2000..................................................... 12,249 2001..................................................... 8,152 2002..................................................... 5,558 2003..................................................... 1,236 2004 and thereafter...................................... 1,053 ------- $54,705 =======
(9) RELATED PARTY TRANSACTIONS Certain administrative services are provided to the Company by GECC. The accompanying consolidated statements of operations include $231, $2,169 and $1,452 for administrative services provided by GECC for the period January 1, 1999 through February 2, 1999 and years ended December 31, 1998 and 1997, respectively. The Company closed its Houston facility in April 1998. The accompanying 1998 consolidated statement of operations includes $1,195 for closing costs that were charged to operations and paid during 1998. Of this amount, GECC paid $416 (increase to additional paid in capital, net of tax benefit) on behalf of the Company related to severance costs associated with termination of 48 employees at the Houston facility. (10) JOINT VENTURE AGREEMENT On February 2, 1999, GECC and the Company formed a joint venture with Weatherford International, Inc., in which the Company's compression services operations were combined with Weatherford's International Inc.'s compression services operations. The joint venture is known as Weatherford Global Compression. GECC owns 36% of the joint venture and Weatherford International, Inc. owns 64%. Weatherford International, Inc. has the right to acquire GECC's interest at any time at a price equal to the greater of a market value determined by a third party valuation or book value. GECC also has the right to require Weatherford International, Inc. to purchase its interest at any time after February 2001 based on a third party valuation or can request a public offering of its interest after that date, if Weatherford International, Inc. has not purchased the Company's interest by that date. Accrued liabilities on the accompanying consolidated balance sheet at February 2, 1999 includes a provision of $2,414 for transaction costs including investment banking fees, legal, accounting and other costs related to formation of the joint venture. The Company charged $1,750 and $880 of transaction costs to selling, general and administrative expenses for the period January 1, 1999 through February 2, 1999 and the year ended December 31, 1998, respectively. F-115 277 INDEPENDENT AUDITORS' REPORT To the Partners of BRL Universal Equipment 2001 A, L.P.: We have audited the accompanying consolidated balance sheet of BRL Universal Equipment 2001 A, L.P. (the "Partnership") and subsidiary as of January 31, 2001. This financial statement is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, such consolidated balance sheet presents fairly, in all material respects, the financial position of the Partnership and subsidiary as of January 31, 2001, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Dallas, Texas February 5, 2001 (February 28, 2001 as to note 2) F-116 278 BRL UNIVERSAL EQUIPMENT 2001 A, L.P. CONSOLIDATED BALANCE SHEET JANUARY 31, 2001 ASSETS Cash........................................................ $21,000 Total............................................. $21,000 ======= LIABILITIES AND PARTNERS' CAPITAL General Partner -- BRL Universal Equipment Management, Inc....................................................... $20,000 Limited Partner............................................. 1,000 ------- Total............................................. $21,000 =======
See notes to consolidated balance sheet. F-117 279 BRL UNIVERSAL EQUIPMENT 2001 A, L.P. NOTE TO CONSOLIDATED BALANCE SHEET JANUARY 31, 2001 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization -- BRL Universal Equipment 2001 A, L.P. (the "Partnership") was formed on January 18, 2001. The Partnership and its wholly owned subsidiary, BRL Universal Equipment Corp., were formed to purchase $427 million of gas compression equipment. The purchase will be financed by the issuance of $350 million of Senior Secured Notes due 2008, coupled with bank borrowings and additional equity funding. The Partnership will then lease the domestic gas compression equipment to Universal Compression, Inc. for a seven-year term under an operating lease. The lease payments will be an amount at least equal to the interest accrued on the Senior Secured Notes, interest accrued on the bank borrowings and a return on partnership equity. In addition, Universal Compression, Inc. is obligated to pay supplemental rent, costs, taxes and indemnities and other amounts owing to the Partnership under the lease. At the end of the lease term, Universal Compression, Inc. may (a) elect to purchase the equipment, (b) return the equipment to the Partnership subject to certain conditions or (c) subject to certain provisions, renew the lease. Net income or loss is to be allocated to the partners in accordance with the terms of the partnership agreement. The Partnership has had no operations during the period from January 18, 2001 (date of inception) through January 31, 2001. It is anticipated that affiliates of the Partnership will provide various general and administrative services to the Partnership. Principles of Consolidation -- The consolidated balance sheet includes the accounts of the Partnership and BRL Universal Equipment Corp., its wholly owned subsidiary. All material intercompany transactions and account balances have been eliminated in consolidation. 2. SUBSEQUENT EVENT (UNAUDITED) On February 9, 2001, the Partnership purchased equipment for $427 million from Universal Compression, Inc. ("UCI"), Enterra Compression Holdings, Inc. and their previous lessors, and then leased that equipment to UCI for a seven-year term under an operating lease. The purchase was financed with the proceeds from $350 million 8 7/8% senior secured notes due 2008, a $64 million term loan and approximately $13 million in equity. F-118 280 ANNEX A American Appraisal Associates 411 East Wisconsin Avenue Suite 1900 Milwaukee, Wisconsin 53201 February 6, 2001 BRL Universal Equipment 2001 A, L.P. 2911 Turtle Creek Boulevard Suite 1240 Dallas, Texas 75219 In accordance with your recent request, on behalf of you and your co-clients, this summarization letter is being provided regarding a valuation made by American Appraisal Associates, Inc. ("AAA") under AAA's contract number 045370, of certain natural gas compressors (the "Equipment"), which upon execution of the lease referred to below and the consummation of related transactions will be owned by BRL Universal Equipment 2001 A, L.P. ("BRL") and leased to Universal Compression, Inc. ("Universal"). The equipment is currently in service within the fleets of Universal and Weatherford Global Compression Services, L.P. ("WGC"), installed along natural gas gathering pipelines, as well as wellhead locations, located throughout various states or located at one of Universal's or WGC's facilities, ready to be installed. This type of equipment serves to increase the pressure of the natural gas to move the product farther along the pipeline to distribution points for customer use. You and your co-clients have confirmed to AAA that BRL intends to include this summarization letter as an attachment to the Offering Memorandum dated February 6, 2001, relating to a seven-year synthetic lease which is expected to commence on February 9, 2001 and terminate on February 15, 2008. The Equipment was not inspected by AAA for the appraisal; however, certain units owned by Universal were inspected by AAA during the past calendar year. The Equipment consists of 2,412 natural gas compressors, with horsepower ("hp") ratings ranging from 10 hp. to 3,400 hp., with an average of 274 hp. A detailed listing of the Equipment was supplied by Universal. For purposes of the valuation, fair market value has been defined as the estimated amount at which a property might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts. When fair market value is established on the premise of continued use, it is assumed the buyer and the seller would be contemplating retention of the property at its present location for continuation as part of the current operations. An estimate of fair market value arrived at on the premise of continued use does not represent the amount that might be realized from piecemeal disposition of the property in the open market or from an alternative use of the property. Further, Economic useful life is defined as the estimated period of time over which it is anticipated an asset may be profitably used for the purpose for which it was intended. This time span may be limited by changing economic conditions, factors of obsolescence, or physical life. And, Residual value is defined as the estimated fair market value in continued use as of a future date with consideration given to the effects of inflation or deflation as measured from the appraisal date; assuming the property is in good condition and will continue to be maintained in good operating condition with normal preventive maintenance; and assuming the market for used equipment of this nature at the future date will not reflect unusual conditions of supply and demand. A-1 281 The appraisal report states that it is AAA's opinion, as of February 9, 2001, that, based on the investigation and analyses outlined in the report and on the appraisal techniques employed, the conclusions reached are as follows: The economic useful life of the Equipment is estimated to be at least the normal life of 20 to 25 years, which is greater than 134% of the Lease Term. As of the Lease Commencement Date, the fair market value in continued use of the Equipment is reasonably represented by the amount of $427,000,000. As of the Lease Termination Date, the residual value installed of the Equipment, taking into account the effects of inflation at the rate of 2.0% per year, is reasonably represented by the amount of $429,200,000, or approximately 100.52% of the fair market value installed of the Equipment as of the Lease Commencement Date. At the end of the Lease Term, the Equipment will not be limited-use property as that term is defined in the relevant Revenue Procedures. The extensive predictive/preventive maintenance policy employed by Universal greatly increases the economic useful life such that a properly maintained unit is expected to have a useful life of 40 years of more. The Equipment included in this appraisal is a fair representative sample of the domestic fleet of Universal, after giving effect to the acquisition of WGC. FOR PURPOSES OF THIS SUMMARIZATION LETTER, IT IS IMPORTANT TO NOTE THAT TO FULLY UNDERSTAND THE OPINION REACHED BY AAA, A READER MUST READ THE ACTUAL APPRAISAL REPORT. All terms and conditions, definitions, assumptions, and limitations as contained in the appraisal report shall apply to the value conclusions disclosed in this letter. Further, the reader is advised that this summarization letter has no standing as an appraisal (as defined by the Uniform Standards of Professional Appraisal Practice) and only the actual appraisal report represents the opinion of AAA. Very truly yours, AMERICAN APPRAISAL ASSOCIATES, INC. A-2 282 - ------------------------------------------------------ - ------------------------------------------------------ UNTIL , 2001, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION OR REPRESENT ANYTHING TO YOU OTHER THAN THE INFORMATION CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS DOES NOT OFFER TO SELL OR ASK FOR OFFERS TO BUY ANY OF THE SECURITIES IN ANY JURISDICTION WHERE IT IS UNLAWFUL, WHERE THE PERSON MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON WHO CANNOT LEGALLY BE OFFERED THE SECURITIES. THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE ON ITS COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER DATE OF THIS PROSPECTUS, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE SAME AS DESCRIBED OR THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT -- NOR DO WE IMPLY THOSE THINGS BY DELIVERING THIS PROSPECTUS OR SELLING SECURITIES TO YOU. --------------------- TABLE OF CONTENTS
PAGE ---- About This Prospectus...................... i Where You Can Find More Information........ i Disclosure Regarding Forward-Looking Statements............................... ii Market Data................................ iii Summary.................................... 1 Risk Factors............................... 13 Use of Proceeds............................ 25 Capitalization of UCH...................... 26 Capitalization of BRL...................... 27 Selected Historical and Pro Forma Financial Data..................................... 28 Management's Discussion and Analysis of Financial Condition and Results of Operations of UCH........................ 45 Management's Discussion and Analysis of Financial Condition and Results of Operations of Enterra.................... 54 Management's Discussion and Analysis of Financial Condition and Results of Operations of BRL........................ 58 Industry................................... 59 Business of UCH............................ 62 Business of BRL and BRL Corp............... 74 The Exchange Offer......................... 75 Management of Universal.................... 85 Management of BRL.......................... 91 Security Ownership of UCH.................. 92 Security Ownership of BRL.................. 94 Certain Relationships and Related Party Transactions............................. 95 Description of Other Financings............ 98 Description of the Notes................... 103 Description of the Lease Obligations and the Lease Guarantee...................... 137 The Equipment.............................. 143 Registration Rights........................ 144 Book-Entry; Delivery and Form.............. 146 Plan of Distribution....................... 149 Certain U.S. Federal Tax Consequences...... 150 Legal Matters.............................. 154 Experts.................................... 154 Index to Financial Statements.............. F-1 Equipment Appraisal Summary................ A-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ OFFER TO EXCHANGE 8 7/8% SENIOR SECURED NOTES DUE 2008 OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. AND BRL UNIVERSAL EQUIPMENT CORP. THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ALL OUTSTANDING UNREGISTERED 8 7/8% SENIOR SECURED NOTES DUE 2008 PAYABLE FROM LEASE OBLIGATIONS OF UNIVERSAL COMPRESSION, INC., WHICH LEASE OBLIGATIONS ARE GUARANTEED BY UNIVERSAL COMPRESSION HOLDINGS, INC. [UNIVERSAL COMPRESSION LOGO] --------------------- PROSPECTUS --------------------- April , 2001 - ------------------------------------------------------ - ------------------------------------------------------ 283 PART II INFORMATION NOT REQUIRED IN PROSPECTUS; UNDERTAKINGS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL") permits a corporation, in its certificate of incorporation, to limit or eliminate, subject to some statutory limitations, the liability of directors to a corporation or its shareholders for monetary damages for breaches of fiduciary duty, except for liability (a) for any breach of the director's duty of loyalty to the corporation or its shareholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any transaction from which the director derived an improper personal benefit. BRL Corp. is a Delaware corporation. BRL Corp.'s certificate of incorporation and bylaws provide that BRL Corp. shall indemnify, to the fullest extent of the DGCL, any and all of its directors and officers, or former directors and officers or any person who may have served at BRL Corp.'s request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise and shall, to the fullest extent of the DGCL, pay in advance all expenses (including attorneys' fees) incurred by any such indemnified director, officer or person in defending any civil, criminal, administrative or investigative action, suit or proceeding, subject to repayment of such amounts by such director, officer or person in the event it is ultimately determined that such director, officer or person is not entitled to indemnification by BRL Corp. In addition, BRL Corp.'s certificate of incorporation provides that a director or former director shall not, to the fullest extent of the DGCL, be personally liable to BRL Corp. or its stockholders for monetary damages for breach of fiduciary duty as a director. UCH is a Delaware corporation. UCH's restated certificate of incorporation provides that the personal liability of directors of UCH is eliminated to the fullest extent permitted by Section 102(b)(7) of the DGCL. Under Section 145 of the DGCL, a corporation has the power to indemnify directors and officers under certain prescribed circumstances and, subject to certain limitations, against certain costs and expenses, including attorneys' fees actually and reasonably incurred in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, to which any of them is a party by reason of being a director or officer of the corporation if it is determined that the director or officer acted in accordance with the applicable standard of conduct set forth in such statutory provision. UCH's bylaws provide that UCH will indemnify 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 is or was a director or officer of UCH, or is or was serving at the request of UCH as a director, officer, employee or agent of another entity, against certain liabilities, costs and expenses. The bylaws further permit UCH to maintain insurance on behalf of any person who is or was a director, officer, employee or agent of UCH, or is or was serving at the request of UCH as a director, officer, employee or agent of another entity, against any liability asserted against such person and incurred by such person in any such capacity or arising out of his status as such, whether or not UCH would have the power to indemnify such person against such liability under the DGCL. UCH currently maintains directors' and officers' liability insurance. In addition, UCH has entered into indemnification agreements with each of its officers and directors, as well as officers of UCI. The form of these indemnification agreements is incorporated by reference to Exhibit 10.33 to UCH's Registration Statement on Form S-1, File No. 333-34090. UCI is a Texas corporation. UCI is empowered by Art. 2.02-1 of the Texas Business Corporation Act, subject to the procedures and limitations stated therein, to indemnify any person who was, is or is threatened to be made a named defendant or respondent in a proceeding because the person is or was a director or officer against judgments, penalties (including excise and similar taxes), fines, settlements and reasonable expenses (including court costs and attorneys' fees) actually incurred by the person in II-1 284 connection with the proceeding. UCI is required by Art. 2.02-1 to indemnify a director or officer against reasonable expenses (including court costs and attorneys' fees) incurred by him in connection with a proceeding in which he is a named defendant or respondent because he is or was a director or officer if he has been wholly successful, on the merits or otherwise, in the defense of the proceeding. The statute provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise. The articles and bylaws of UCI do not provide for indemnification by UCI of its directors and officers. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following Exhibits are filed as part of this Registration Statement:
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger dated as of October 23, 2000 by and among Universal Compression Holdings, Inc., Universal Compression, Inc., Weatherford International, Inc., WEUS Holding, Inc. and Enterra Compression Company (incorporated by reference to Exhibit 10.1 of Universal Compression Holdings, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 28, 2000). 3.1* -- Certificate of Limited Partnership of BRL Universal Equipment 2001 A, L.P. 3.2* -- Certificate of Incorporation of BRL Universal Equipment Corp. 3.3* -- First Amended and Restated Agreement of Limited Partnership of BRL Universal Equipment 2001 A, L.P. 3.4* -- Bylaws of BRL Universal Equipment Corp. 4.1 -- Indenture, dated as of February 20, 1998, between Universal Compression, Inc. and the United States Trust Company of New York, as Trustee, with respect to the 9 7/8% Senior Discount Notes (incorporated by reference to Exhibit 4.3 to Universal Compression, Inc.'s Registration Statement on Form S-4 dated March 19, 1998 (File No. 333-48279). 4.2 -- First Supplemental Indenture, dated May 9, 2000, between Universal Compression, Inc. and United States Trust Company of New York, as Trustee, with respect to the 9 7/8% Senior Discount Notes (incorporated by reference to Exhibit 4.7 of Amendment No. 2 dated May 22, 2000 to Universal Compression Holdings, Inc.'s Registration Statement on Form S-1 (File No. 333-34090)). 4.3 -- Second Supplemental Indenture, dated as of May 30, 2000, by and among Universal Compression, Inc., Universal Compression Holdings, Inc. and United States Trust Company of New York, as trustee (incorporated by reference to Exhibit 4.3 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.4 -- Third Supplemental Indenture, dated as of October 15, 2000, by and among Universal Compression, Inc., Gas Compression Finance Corporation, G.C.S. Distributing L.L.C., Gas Compression Realty L.L.C. and United States Trust Company of New York, as trustee (incorporated by reference to Exhibit 4.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.5 -- Specimen of Universal Compression, Inc.'s 9 7/8% Senior Discount Notes due 2008 (incorporated by reference to Exhibit 4.2 to Universal Compression, Inc.'s Registration Statement on Form S-4 dated March 19, 1998 (File No. 333-48279).
II-2 285
EXHIBIT NO. DESCRIPTION ------- ----------- 4.6 -- Voting Agreement dated as of February 9, 2001 by and among Weatherford International, Inc., WEUS Holdings, Inc. and Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 4.1 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 4.7 -- Registration Rights Agreement with respect to the 8 7/8% Senior Secured Notes due 2008, dated as of February 9, 2001, among BRL Universal Equipment 2001 A, L.P., BRL Universal Equipment Corp., Universal Compression Holdings, Inc., Universal Compression, Inc., Deutsche Banc Alex. Brown Inc., First Union Securities, Inc., Goldman Sachs & Co., Banc One Capital Markets, Inc. and Scotia Capital (USA), Inc. (incorporated by reference to Exhibit 4.2 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 4.8 -- Registration Rights Agreement dated as of February 9, 2001 by and among WEUS Holding, Inc. and Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 4.3 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 4.9 -- Indenture with respect to the 8 7/8% Senior Secured Notes due 2008, dated as of February 9, 2001, among BRL Universal Equipment 2001 A, L.P. and BRL Universal Equipment Corp., as Issuers, and The Bank of New York, as Indenture Trustee (incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 4.10* -- Indenture, dated as of February 9, 2001, between BRL Universal Compression Funding I, L.P., Issuer, and Wells Fargo Bank Minnesota, National Association, Indenture Trustee, with respect to the ABS operating lease facility. 4.11* -- Series 2001-1 Supplement, dated as of February 9, 2001, to Indenture dated as of February 9, 2001, between BRL Universal Compression Funding I, L.P., Issuer, and Wells Fargo Bank Minnesota, National Association, Indenture Trustee, with respect to the ABS operating lease facility, including the Form of Note as an exhibit thereto. 5.1* -- Opinion of Robert R. Veach, Jr. 5.2** -- Opinion of Gardere Wynne Sewell LLP. 10.1 -- Transitional Services Agreement dated as of February 9, 2001 by and among Weatherford International, Inc. and Weatherford Global Compression Services, L.P. (incorporated by reference to Exhibit 10.1 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.2* -- Equipment Lease Agreement with respect to the senior secured notes operating lease facility, dated as of February 9, 2001, between BRL Universal Equipment 2001 A, L.P., as Lessor, and Universal Compression, Inc., as Lessee.
II-3 286
EXHIBIT NO. DESCRIPTION ------- ----------- 10.3 -- Form of Participation Agreement, dated as of February 9, 2001, among Universal Compression, Inc., as Lessee, Universal Compression Holdings, Inc., as Guarantor, BRL Universal Compression Equipment 2001 A, L.P., as Lessor, Bankers Trust Company and the other financial institutions listed on the signature pages thereto as Tranche B Lenders, The Bank of New York, not in its individual capacity but as Indenture Trustee, Paying Agent, Transfer Agent and Registrar for the Tranche A Noteholders, BRL Universal Equipment Management, Inc., as Lessor General Partner, Bankers Trust Company, as Administrative Agent and Collateral Agent for Tranche B Lenders and Indenture Trustee on behalf of the Tranche A Noteholders, Deutsche Banc Alex. Brown Inc., as Arranger, The Bank of Nova Scotia, as Syndicate Agent for Tranche B Lenders, Bank One, N.A., as Documentation Agent for Tranche B Lenders, and First Union National Bank, as Managing Agent (incorporated by reference to Exhibit 10.3 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.4* -- Tranche B Loan Agreement, dated as of February 9, 2001, among BRL Universal Equipment 2001 A, L.P., as Borrower, Bankers Trust Company, as Administrative Agent and Collateral Agent, and The Tranche B Lenders. 10.5* -- Master Equipment Lease Agreement, with respect to the ABS operating lease facility, dated as of February 9, 2001, between BRL Universal Compression Funding I, L.P., as Head Lessor and UCO Compression LLC, as Head Lessee. 10.6* -- Senior Secured Revolving Credit Agreement, dated as of February 9, 2001, among Universal Compression, Inc., as Borrower, First Union National Bank, as Administrative Agent, Bank One, N.A., as Syndication Agent, and the lenders signatory thereto. 10.7 -- Guaranty and Collateral Agreement made by Universal Compression Holdings, Inc. and Universal Compression, Inc. and in favor of First Union National Bank, as Administrative Agent, dated as of February 9, 2001 (incorporated by reference to Exhibit 10.8 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.8 -- Security Agreement (Pledge and Assignment), dated as of February 9, 2001, between Universal Compression International, Inc. and First Union National Bank, as Administrative Agent (incorporated by reference to Exhibit 10.9 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.9 -- Engagement and Indemnity Letter, dated February 9, 2001, among Universal Compression, Inc., Universal Compression Holdings, Inc., Deutsche Banc Alex. Brown Inc., First Union Securities, Inc., Goldman Sachs & Co., Banc One Capital Markets, Inc., Scotia Capital (USA), Inc., BRL Universal Equipment 2001 A, L.P., and BRL Universal Equipment Corp (incorporated by reference to Exhibit 10.12 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.10* -- Management Agreement dated February 9, 2001, among Universal Compression, Inc., UCO Compression LLC and BRL Universal Compression Funding I, L.P. 10.11* -- Guaranty made by Universal Compression Holdings, Inc. for the benefit of UCO Compression LLC, BRL Universal Compression Funding I, L.P. and Wells Fargo Bank National Association, dated as of February 9, 2001.
II-4 287
EXHIBIT NO. DESCRIPTION ------- ----------- 12.1* -- Computation of Ratio of Earnings to Fixed Charges for UCH. 21.1* -- List of Subsidiaries of BRL Universal Equipment 2001 A, L.P. and BRL Universal Equipment Corp. 23.1* -- Consent of Robert R. Veach, Jr. (included as part of his opinion filed as Exhibit 5.1). 23.2** -- Consent of Gardere Wynne Sewell LLP (included as part of its opinion filed as Exhibit 5.2). 23.3* -- Consent of Arthur Andersen LLP. 23.4* -- Consent of Deloitte & Touche LLP (as to BRL and BRL Corp.) 23.5* -- Consent of Deloitte & Touche LLP (as to UCH, UCI and Tidewater). 23.6* -- Consent of KPMG LLP. 23.7* -- Consent of American Appraisal Associates, Inc. 25.1* -- Statement of Eligibility of Trustee on Form T-1. 99.1* -- Form of Letter of Transmittal for 8 7/8% Senior Secured Notes due 2008. 99.2* -- Form of Notice of Guaranteed Delivery of 8 7/8% Senior Secured Notes due 2008. 99.3* -- Guidelines for Certification of Taxpayer Identification Number on Form W-9.
- --------------- * Filed herewith. ** To be filed by amendment. ITEM 22. UNDERTAKINGS. (1) The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrants' annual reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (2) The undersigned registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed after the effective date of the registration statement through the date of responding to the request. (3) The undersigned registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired therein, that was not the subject of and included in the registration statement when it became effective. (4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of their counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-5 288 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Dallas, Texas, on March 19, 2001. BRL UNIVERSAL EQUIPMENT 2001 A, L.P. By: BRL Universal Equipment Management, Inc., Its General Partner By: /s/ GREGORY C. GREENE ------------------------------------- Gregory C. Greene President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gregory C. Greene and Robert R. Veach, Jr., or either one of them, and any agent for service named in this Registration Statement and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, their, or his or her, substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on March 19, 2001.
NAME TITLE ---- ----- /s/ GREGORY C. GREENE President and Sole Director (Principal - ----------------------------------------------------- Executive Officer) Gregory C. Greene /s/ LUCY BURGOON Vice President, Controller and Assistant - ----------------------------------------------------- Secretary (Principal Financial and Lucy Burgoon Accounting Officer)
II-6 289 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Dallas, Texas, on March 19, 2001. BRL UNIVERSAL EQUIPMENT CORP. By: /s/ GREGORY C. GREENE ---------------------------------- Gregory C. Greene President POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gregory C. Greene and Robert R. Veach, Jr., or either one of them, and any agent for service named in this Registration Statement and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, their, or his or her, substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on March 19, 2001.
NAME TITLE - ---- ----- /s/ GREGORY C. GREENE President and Sole Director (Principal - --------------------------------------------- Executive Officer) Gregory C. Greene /s/ LUCY BURGOON Vice President, Controller and Assistant - --------------------------------------------- Secretary (Principal Financial and Lucy Burgoon Accounting Officer)
II-7 290 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Houston, Texas, on March 19, 2001. UNIVERSAL COMPRESSION, INC. By: /s/ STEPHEN A. SNIDER ---------------------------------- Stephen A. Snider President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen A. Snider, Ernie L. Danner, Richard W. FitzGerald and Mark L. Carlton, or any one of them, and any agent for service named in this Registration Statement and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, their, or his or her, substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on March 19, 2001.
NAME TITLE ---- ----- /s/ STEPHEN A. SNIDER President and Director (Principal Executive - ----------------------------------------------------- Officer) Stephen A. Snider /s/ RICHARD W. FITZGERALD Senior Vice President and Chief Financial - ----------------------------------------------------- Officer (Principal Financial and Richard W. FitzGerald Accounting Officer) /s/ ERNIE L. DANNER Executive Vice President and Director - ----------------------------------------------------- Ernie L. Danner
II-8 291 SIGNATURES Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Houston, Texas, on March 19, 2001. UNIVERSAL COMPRESSION HOLDINGS, INC. By: /s/ STEPHEN A. SNIDER ---------------------------------- Stephen A. Snider President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen A. Snider, Ernie L. Danner, Richard W. FitzGerald and Mark L. Carlton, or any one of them, and any agent for service named in this Registration Statement and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents or any of them, their, or his or her, substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on March 19, 2001.
NAME TITLE ---- ----- /s/ STEPHEN A. SNIDER President, Chief Executive Officer and - ----------------------------------------------------- Director (Principal Executive Officer) Stephen A. Snider /s/ RICHARD W. FITZGERALD Senior Vice President and Chief Financial - ----------------------------------------------------- Officer (Principal Financial and Accounting Richard W. FitzGerald Officer) /s/ THOMAS C. CASE Director - ----------------------------------------------------- Thomas C. Case /s/ JOHN K. CASTLE Director - ----------------------------------------------------- John K. Castle /s/ ERNIE L. DANNER Executive Vice President and Director - ----------------------------------------------------- Ernie L. Danner
II-9 292
NAME TITLE ---- ----- /s/ BERNARD J. DUROC-DANNER Director - ----------------------------------------------------- Bernard J. Duroc-Danner /s/ URIEL E. DUTTON Director - ----------------------------------------------------- Uriel E. Dutton /s/ CURTIS W. HUFF Director - ----------------------------------------------------- Curtis W. Huff /s/ C. KENT MAY Director - ----------------------------------------------------- C. Kent May /s/ WILLIAM M. PRUELLAGE Director - ----------------------------------------------------- William M. Pruellage Director - ----------------------------------------------------- Edmund P. Segner /s/ SAMUEL URCIS Director - ----------------------------------------------------- Samuel Urcis
II-10 293 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ------- ----------- 2.1 -- Agreement and Plan of Merger dated as of October 23, 2000 by and among Universal Compression Holdings, Inc., Universal Compression, Inc., Weatherford International, Inc., WEUS Holding, Inc. and Enterra Compression Company (incorporated by reference to Exhibit 10.1 to Universal Compression Holdings, Inc.'s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 28, 2000). 3.1* -- Certificate of Limited Partnership of BRL Universal Equipment 2001 A, L.P. 3.2* -- Certificate of Incorporation of BRL Universal Equipment Corp. 3.3* -- First Amended and Restated Agreement of Limited Partnership of BRL Universal Equipment 2001 A, L.P. 3.4* -- Bylaws of BRL Universal Equipment Corp. 4.1 -- Indenture, dated as of February 20, 1998, between Universal Compression, Inc. and the United States Trust Company of New York, as Trustee, with respect to the 9 7/8% Senior Discount Notes (incorporated by reference to Exhibit 4.3 to Universal Compression, Inc.'s Registration Statement on Form S-4 dated March 19, 1998 (File No. 333-48279). 4.2 -- First Supplemental Indenture, dated May 9, 2000, between Universal Compression, Inc. and United States Trust Company of New York, as Trustee, with respect to the 9 7/8% Senior Discount Notes (incorporated by reference to Exhibit 4.7 of Amendment No. 2 dated May 22, 2000 to Universal Compression Holdings, Inc.'s Registration Statement on Form S-1 (File No. 333-34090)). 4.3 -- Second Supplemental Indenture, dated as of May 30, 2000, by and among Universal Compression, Inc., Universal Compression Holdings, Inc. and United States Trust Company of New York, as trustee (incorporated by reference to Exhibit 4.3 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.4 -- Third Supplemental Indenture, dated as of October 15, 2000, by and among Universal Compression, Inc., Gas Compression Finance Corporation, G.C.S. Distributing L.L.C., Gas Compression Realty L.L.C. and United States Trust Company of New York, as trustee (incorporated by reference to Exhibit 4.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). 4.5 -- Specimen of Universal Compression, Inc.'s 9 7/8% Senior Discount Notes due 2008 (incorporated by reference to Exhibit 4.2 to Universal Compression, Inc.'s Registration Statement on Form S-4 dated March 19, 1998 (File No. 333-48279). 4.6 -- Voting Agreement dated as of February 9, 2001 by and among Weatherford International, Inc., WEUS Holdings, Inc. and Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 4.1 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000).
294
EXHIBIT NO. DESCRIPTION ------- ----------- 4.7 -- Registration Rights Agreement with respect to the 8 7/8% Senior Secured Notes due 2008, dated as of February 9, 2001, among BRL Universal Equipment 2001 A, L.P., BRL Universal Equipment Corp., Universal Compression Holdings, Inc., Universal Compression, Inc., Deutsche Banc Alex. Brown Inc., First Union Securities, Inc., Goldman Sachs & Co., Banc One Capital Markets, Inc. and Scotia Capital (USA), Inc. (incorporated by reference to Exhibit 4.2 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 4.8 -- Registration Rights Agreement dated as of February 9, 2001 by and among WEUS Holding, Inc. and Universal Compression Holdings, Inc. (incorporated by reference to Exhibit 4.3 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 4.9 -- Indenture with respect to the 8 7/8% Senior Secured Notes due 2008, dated as of February 9, 2001, among BRL Universal Equipment 2001 A, L.P. and BRL Universal Equipment Corp., as Issuers, and The Bank of New York, as Indenture Trustee (incorporated by reference to Exhibit 10.4 of Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 4.10* -- Indenture, dated as of February 9, 2001, between BRL Universal Compression Funding I, L.P., Issuer, and Wells Fargo Bank Minnesota, National Association, Indenture Trustee, with respect to the ABS operating lease facility. 4.11* -- Series 2001-1 Supplement, dated as of February 9, 2001, to Indenture dated as of February 9, 2001, between BRL Universal Compression Funding I, L.P., Issuer, and Wells Fargo Bank Minnesota, National Association, Indenture Trustee, with respect to the ABS operating lease facility, including the Form of Note as an exhibit thereto. 5.1* -- Opinion of Robert R. Veach, Jr. 5.2** -- Opinion of Gardere Wynne Sewell LLP. 10.1 -- Transitional Services Agreement dated as of February 9, 2001 by and among Weatherford International, Inc. and Weatherford Global Compression Services, L.P. (incorporated by reference to Exhibit 10.1 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.2* -- Equipment Lease Agreement with respect to the senior secured notes operating lease facility, dated as of February 9, 2001, between BRL Universal Equipment 2001 A, L.P., as Lessor, and Universal Compression, Inc., as Lessee.
295
EXHIBIT NO. DESCRIPTION ------- ----------- 10.3 -- Form of Participation Agreement, dated as of February 9, 2001, among Universal Compression, Inc., as Lessee, Universal Compression Holdings, Inc., as Guarantor, BRL Universal Compression Equipment 2001 A, L.P., as Lessor, Bankers Trust Company and the other financial institutions listed on the signature pages thereto as Tranche B Lenders, The Bank of New York, not in its individual capacity but as Indenture Trustee, Paying Agent, Transfer Agent and Registrar for the Tranche A Noteholders, BRL Universal Equipment Management, Inc., as Lessor General Partner, Bankers Trust Company, as Administrative Agent and Collateral Agent for Tranche B Lenders and Indenture Trustee on behalf of the Tranche A Noteholders, Deutsche Banc Alex. Brown Inc., as Arranger, The Bank of Nova Scotia, as Syndicate Agent for Tranche B Lenders, Bank One, N.A., as Documentation Agent for Tranche B Lenders, and First Union National Bank, as Managing Agent (incorporated by reference to Exhibit 10.3 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.4* -- Tranche B Loan Agreement, dated as of February 9, 2001, among BRL Universal Equipment 2001 A, L.P., as Borrower, Bankers Trust Company, as Administrative Agent and Collateral Agent, and The Tranche B Lenders. 10.5* -- Master Equipment Lease Agreement, with respect to the ABS operating lease facility, dated as of February 9, 2001, between BRL Universal Compression Funding I, L.P., as Head Lessor and UCO Compression LLC, as Head Lessee. 10.6* -- Senior Secured Revolving Credit Agreement, dated as of February 9, 2001, among Universal Compression, Inc., as Borrower, First Union National Bank, as Administrative Agent, Bank One, N.A., as Syndication Agent, and the lenders signatory hereto. 10.7 -- Guaranty and Collateral Agreement made by Universal Compression Holdings, Inc. and Universal Compression, Inc. and in favor of First Union National Bank, as Administrative Agent, dated as of February 9, 2001 (incorporated by reference to Exhibit 10.8 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.8 -- Security Agreement (Pledge and Assignment), dated as of February 9, 2001, between Universal Compression International, Inc. and First Union National Bank, as Administrative Agent (incorporated by reference to Exhibit 10.9 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.9 -- Engagement and Indemnity Letter, dated February 9, 2001, among Universal Compression, Inc., Universal Compression Holdings, Inc., Deutsche Banc Alex. Brown Inc., First Union Securities, Inc., Goldman Sachs & Co., Banc One Capital Markets, Inc., Scotia Capital (USA), Inc., BRL Universal Equipment 2001 A, L.P., and BRL Universal Equipment Corp (incorporated by reference to Exhibit 10.12 to Universal Compression Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000). 10.10* -- Management Agreement dated February 9, 2001, among Universal Compression, Inc., UCO Compression LLC and BRL Universal Compression Funding I, L.P. 10.11* -- Guaranty made by Universal Compression Holdings, Inc. for the benefit of UCO Compression LLC, BRL Universal Compression Funding I, L.P. and Wells Fargo Bank, National Association, dated as of February 9, 2001.
296
EXHIBIT NO. DESCRIPTION ------- ----------- 12.1* -- Computation of Ratio of Earnings to Fixed Charges for UCH. 21.1* -- List of Subsidiaries of BRL Universal Equipment 2001 A, L.P. and BRL Universal Equipment Corp. 23.1* -- Consent of Robert R. Veach, Jr. (included as part of his opinion filed as Exhibit 5.1). 23.2** -- Consent of Gardere Wynne Sewell LLP (included as part of its opinion filed as Exhibit 5.2). 23.3* -- Consent of Arthur Andersen LLP. 23.4* -- Consent of Deloitte & Touche LLP (as to BRL and BRL Corp.). 23.5* -- Consent of Deloitte & Touche LLP (as to UCH, UCI and Tidewater). 23.6* -- Consent of KPMG LLP. 23.7* -- Consent of American Appraisal Associates, Inc. 25.1* -- Statement of Eligibility of Trustee on Form T-1. 99.1* -- Form of Letter of Transmittal for 8 7/8% Senior Secured Notes due 2008. 99.2* -- Form of Notice of Guaranteed Delivery of 8 7/8% Senior Secured Notes due 2008. 99.3* -- Guidelines for Certification of Taxpayer Identification Number on Form W-9.
- --------------- * Filed herewith. ** To be filed by amendment. EX-3.1 2 h84315ex3-1.txt CERTIFICATE OF LIMITED PARTNERSHIP 1 EXHIBIT 3.1 CERTIFICATE OF LIMITED PARTNERSHIP OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. This Certificate of Limited Partnership of BRL Universal Equipment 2001 A, L.P. (the "Partnership"), dated as of January 18, 2001, is being duly executed and filed by the incorporator and attorney for BRL Universal Equipment Management, Inc., in its capacity as general partner of the Partnership, to form a limited partnership under the Delaware Revised Uniform Limited Partnership Act (6 Del.C. Section 17-101, et seq.). 1. Name. The name of the limited partnership formed hereby is BRL Universal Equipment 2001 A, L.P. 2. Registered Office. The address of the registered office of the Partnership in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware 19801. The name of the Partnership's registered agent at such address is The Corporation Trust Company. 3. Registered Agent. The name and address of the registered agent for service of process on the Partnership in the State of Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware 19801. 4. General Partner. The name and the business address of the sole general partner of the Partnership is BRL Universal Equipment Management, Inc., 2911 Turtle Creek Blvd., Suite 1240, Dallas, Texas 75219. IN WITNESS WHEREOF, the undersigned has executed this Certificate of Limited Partnership of BRL Universal Equipment 2001 A, L.P. as of the date first above written. GENERAL PARTNER: BRL UNIVERSAL EQUIPMENT MANAGEMENT, INC. a Delaware corporation By: /s/ ROBERT R. VEACH, JR. -------------------------------------------- Robert R. Veach, Jr., Incorporator EX-3.2 3 h84315ex3-2.txt CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.2 CERTIFICATE OF INCORPORATION OF BRL UNIVERSAL EQUIPMENT CORP. ARTICLE ONE NAME The name of the corporation is BRL Universal Equipment Corp. ARTICLE TWO REGISTERED AGENT The address of the corporation's registered office in Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware 19801. The name of the corporation's registered agent at such address is The Corporation Trust Company. ARTICLE THREE PURPOSE The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE FOUR CAPITAL STOCK The aggregate number of shares of stock that the corporation shall have authority to issue is Ten Thousand (10,000) shares. All of such shares shall be of the par value of one dollar ($1.00) per share, shall be of the same class and shall be designated as "Common Stock." 2 ARTICLE FIVE INCORPORATOR The name and mailing address of the sole incorporator is as follows: Name Mailing Address ---- --------------- Robert R. Veach, Jr. 2911 Turtle Creek Boulevard Suite 1240A Dallas, Texas 75219 ARTICLE SIX INITIAL DIRECTOR The number of directors constituting the initial Board of Directors is one. Thereafter, the number of directors constituting the Board of Directors shall be fixed by or in accordance with the bylaws of the corporation. The following person shall serve as the director of the corporation until the first annual meeting of stockholders of the corporation or until his successor is duly elected and qualified: Name Address ---- -------- Gregory C. Greene 2911 Turtle Creek Boulevard Suite 1240 Dallas, Texas 75219 ARTICLE SEVEN CUMULATIVE VOTING PROHIBITED Cumulative voting in the election of directors or otherwise is hereby expressly prohibited. ARTICLE EIGHT PREEMPTIVE RIGHTS DENIED No stockholder shall have, as a stockholder of the corporation, any preemptive right to acquire, purchase or subscribe for the purchase of any or all additional issues of stock of the corporation or any or all classes or series thereof, or for any securities convertible into such stock, whether now or hereafter authorized. -2- 3 ARTICLE NINE BYLAWS The initial bylaws of the corporation shall be adopted by the Board of Directors. The power to alter, amend or repeal the bylaws or adopt new bylaws, subject to the right of the stockholders to adopt, amend or repeal the bylaws, is vested in the Board of Directors. ARTICLE TEN INDEMNIFICATION To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, the corporation shall indemnify any and all of its directors and officers, or former directors and officers, or any person who may have served at the corporation's request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. ARTICLE ELEVEN DIRECTOR LIABILITY To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director or former director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. No repeal, amendment or modification of this Article, whether direct or indirect, shall eliminate or reduce its effect with respect to any act or omission of a director or former director of the corporation prior to such repeal, amendment or modification. ARTICLE TWELVE AMENDMENTS The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of January 2001. /s/ ROBERT R. VEACH, JR. ---------------------------------- Robert R. Veach, Jr., Incorporator -3- EX-3.3 4 h84315ex3-3.txt 1ST AMENDED AGREEMENT OF LIMITED PARTNERSHIP 1 EXHIBIT 3.3 ================================================================================ FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. ------------------------------- DATED AS OF FEBRUARY 9, 2001 ================================================================================ THE INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY JURISDICTION. NO INTEREST MAY BE SOLD OR OFFERED FOR SALE (WITHIN THE MEANING OF ANY SECURITIES LAW) UNLESS A REGISTRATION STATEMENT UNDER ALL APPLICABLE SECURITIES LAWS WITH RESPECT TO THE INTEREST IS THEN IN EFFECT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS IS THEN APPLICABLE TO THE INTEREST. THIS AGREEMENT PROVIDES THAT A LIMITED PARTNER MAY "TRANSFER" ITS INTEREST IN COMPLIANCE WITH THE PROVISIONS OF THIS AGREEMENT, AND ANY ATTEMPTED TRANSFER IN VIOLATION OF THE PROVISIONS OF THIS AGREEMENT SHALL BE NULL AND VOID AND OF NO FORCE OR EFFECT. First Amended and Restated Agreement of Limited Partnership - page 1 2 FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. Dated as of February 9, 2001 This First Amended and Restated Agreement of Limited Partnership dated as of the above date is entered into by and between BRL Universal Equipment Management, Inc., a Delaware corporation, as the General Partner, and the parties designated as the Limited Partners herein. WHEREAS, BRL Universal Equipment Management, Inc. and Gregory C. Greene executed the Agreement of Limited Partnership of BRL Universal Equipment 2001 A, L.P. dated as of January 18, 2001 (the "ORIGINAL AGREEMENT"); WHEREAS, the parties hereto have executed this Agreement to amend and restate the Original Agreement to reflect, among other things, (i) the admission of Deutsche Bank A.G., New York Branch and First Union Bank to the Partnership as Limited Partners, and (ii) the withdrawal of Gregory C. Greene from the Partnership. NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the parties, intending to be legally bound, hereby agree as follows: ARTICLE 1. DEFINITIONS Definitions: Unless the context otherwise requires, capitalized terms used herein and not otherwise defined herein shall have the meanings set forth or referred to in Appendix A to the Participation Agreement dated as of February 9, 2001 among BRL Universal Equipment 2001 A, L.P., BRL Universal Equipment Management, Inc., Universal Compression, Inc., Universal Compression Holdings, Inc., The Bank of New York and the Tranche B Lenders, Administrative Agent and Collateral Agent, each as defined therein, which Appendix A also contains the rules of usage that shall apply hereto. As used in this Agreement, unless otherwise specified, the following terms (in addition to the terms defined elsewhere herein), and the singular or plural thereof, shall have the following meanings when used herein with initial capital letters: 1.1 ACT: "Act" means the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. " 17-101, et seq., as amended from time to time. 1.2 AGREEMENT: "Agreement" means this First Amended and Restated Agreement of Limited Partnership, as amended or restated from time to time. 1.3 BOOK VALUE: "Book Value" means with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: First Amended and Restated Agreement of Limited Partnership - page 2 3 1.3.1 the initial Book Value of any asset contributed (or deemed contributed) to the Partnership shall be the asset's gross Fair Market Value at the time of such contribution; 1.3.2 the Book Value of all Partnership assets shall be adjusted to equal their respective gross Fair Market Values at the times specified in Treasury Regulations under Section 704(b) of the Code if the Partnership so elects; and 1.3.3 if the Book Value of an asset has been determined pursuant to CLAUSE 1.3.1 or 1.3.2, such Book Value shall thereafter be adjusted in the same manner as would the asset's adjusted basis for federal income tax purposes, except that depreciation deductions shall be computed in accordance with SECTION 1.31.4. 1.4 CAPITAL ACCOUNT: Capital Account has the meaning assigned to it in SECTION 4.3. 1.5 CAPITAL CONTRIBUTION: "Capital Contribution" means the aggregate capital contribution theretofore made or deemed made by a Partner pursuant to ARTICLE 4 hereof. 1.6 CASH FROM A CAPITAL TRANSACTION: "Cash From a Capital Transaction" means the net cash realized by the Partnership from the disposition of any Partnership Property after retirement of applicable debt on or directly related to such Partnership Property, satisfaction of all liabilities and expenses of or related thereto, and any other expenditures related to such disposition. Cash From a Capital Transaction shall not include Cash From Operations. 1.7 CASH FROM OPERATIONS: "Cash From Operations" means for the period in question, the excess, if any, of the total gross revenues of the Partnership from the operation of the Partnership Property over the sum of all disbursements from the Partnership, including without limitation, disbursements for debt service (including a reserve for the payment of the accrued and unpaid interest) and expenses of the Partnership described in SECTIONS 6.1 hereof; provided, however, that Cash From Operations shall not include those items included in determining Cash From a Capital Transaction. 1.8 CODE: "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute. Any reference herein to a particular provision of the Code shall mean, where appropriate, the corresponding provision in any successor statute. 1.9 CREDIT AGREEMENT: "Credit Agreement" means each Operative Document to which the Partnership is a party, as amended or restated. 1.10 DISTRIBUTION: "Distribution" means any cash or other asset or interest therein distributed to the Limited Partner and the General Partner arising from their Interests in the Partnership, but does not include any other payments or reimbursements to the General Partner pursuant to this Agreement. 1.101 EQUITY ADMINISTRATIVE AGENT: "Equity Administrative Agent" means Deutsche Bank AG, New York Branch as agent for the Limited Partners. 1.11 FAIR MARKET VALUE: "Fair Market Value" means with respect to Partnership Property the fair market value of a Partnership asset as determined by the General Partner and the Limited Partner, or if the General Partner and the Limited Partner are unable to agree on First Amended and Restated Agreement of Limited Partnership - page 3 4 the fair market value of a item of Partnership Property, the fair market value as determined by an appraiser selected by the General Partner and the Limited Partner. If the General Partner and the Limited Partner are unable to agree on an appraiser, each of the General Partner and the Limited Partner shall select an appraiser, and the designated appraisers shall select one appraiser to determine the fair market value of the asset. The conclusions of such appraiser shall be conclusive and binding on the General Partner and the Limited Partner. 1.12 GENERAL PARTNER: "General Partner" means BRL Universal Equipment Management, Inc., a Delaware corporation, and any substitute therefor and any additions thereto approved as provided in ARTICLE 10 hereof. 1.13 GROSS INCOME: "Gross Income" means, for each taxable year or other period, an amount equal to the Partnership's gross income as determined for federal income tax purposes for such taxable year or other period, but computed with the adjustments specified in SECTIONS 1.30.1 and 1.30.3. 1.14 INITIAL CAPITAL CONTRIBUTION: "Initial Capital Contribution" means the cash or property contributed to the capital of the Partnership by a Partner on the formation of, or admission to, the Partnership pursuant to SECTION 4.1 hereof. 1.15 INDEBTEDNESS: "Indebtedness" means an obligation in respect of borrowed money or a purchase money obligation. 1.16 INTEREST: "Interest" means an interest in the Partnership that entitles the owner thereof to an interest in the Profit or Loss and Distributions. 1.17 LIMITED PARTNER: "Limited Partner" means each of Deutsche Bank A.G., New York Branch and First Union National Bank, and any substitutes therefor and any additions thereto approved as provided in ARTICLE 9 hereof. 1.171 LIMITED PARTNER EQUITY COMMITMENT: "Limited Partner Equity Commitment" means for each Limited Partner the "Equity Commitment" amount identified therefor on Exhibit B. 1.18 LIMITED PARTNER PREFERRED RETURN: "Limited Partner Preferred Return" means, with respect to each calculation period, an amount equal to the Equity Yield calculated in accordance with Sections 5.6, 5.7 and 5.8. The Limited Partner Preferred Return shall only be payable from Cash From Operations and Cash From a Capital Transaction, to the extent that there is either Cash From Operations or Cash From a Capital Transaction. 1.19 LIMITED PARTNER REDEMPTION AMOUNT: "Limited Partner Redemption Amount" means an amount equal to the sum of (i) aggregate Capital Contributions of the Limited Partner reduced by the aggregate Distributions to the Limited Partner pursuant to SECTION 5.2.3(i), plus (ii) any unpaid Limited Partner Preferred Return, plus (iii) any other costs, expenses or payments owing to the Limited Partner pursuant to Article 6 hereof. 1.191 MAJORITY LIMITED PARTNERS: "Majority Limited Partners" means Limited Partners with Capital Accounts in the aggregate in excess of fifty percent (50%) of all Capital Accounts. First Amended and Restated Agreement of Limited Partnership - page 4 5 1.20 NET PROFIT OR NET LOSS: "Net Profit or Net Loss" means Profit or Loss for any fiscal year or other period determined after taking into account allocations, if any, of Gross Income pursuant to SECTION 5.1.1 and special allocations of depreciation and certain expenses and fees pursuant to SECTION 5.1.2. 1.21 ORGANIZATION EXPENSES: "Organization Expenses" means any and all expenses incurred by the Partnership and the General Partner in connection with organizing the Partnership, including, without limitation, (i) all filing expenses incurred in connection with the execution and delivery of this Agreement, (ii) fees and disbursements of legal counsel, accountants and other advisors, escrow agents and other persons or entities retained in connection with the formation of the Partnership, and (iii) all third-party out-of-pocket expenses incurred by any or the foregoing or the General Partner and any reimbursable expenses incurred by any employee thereof in connection with the organization of the Partnership. 1.22 PARTNER: "Partner" means the General Partner or the Limited Partner, and reference to "Partners" shall be to all of the Partners. 1.23 PARTNER NONRECOURSE DEBT: "Partner Nonrecourse Debt" means any nonrecourse debt of the Partnership which meets the requirements set forth in Treasury Regulations Section 1.704-2(b)(4). 1.24 PARTNER NONRECOURSE DEBT MINIMUM GAIN: "Partner Nonrecourse Debt Minimum Gain" means the minimum gain attributable to Partner Nonrecourse Debt as determined under Treasury Regulations Section 1.704-2(i)(3). 1.25 PARTNER NONRECOURSE DEDUCTIONS: "Partner Nonrecourse Deductions" means any loss, deduction, or Code Section 705(a)(2)(B) expenditure, or item thereof, that is attributable to a Partner Nonrecourse Debt, as determined under Treasury Regulations Section 1.704-2(i)(2). 1.26 PARTNERSHIP: "Partnership" means the limited partnership created for the purpose and upon the terms and conditions set forth in this Agreement. 1.27 PARTNERSHIP MINIMUM GAIN: "Partnership Minimum Gain" means the amount computed under Treasury Regulations Section 1.704-2(d)(1) with respect to the Partnership's nonrecourse liabilities as determined under Treasury Regulations Section 1.752-1(a)(2). 1.28 PARTNERSHIP NONRECOURSE DEDUCTIONS: "Partnership Nonrecourse Deductions" means any loss, deduction or Code Section 705(a)(2)(B) expenditure, or item thereof, that is attributable to nonrecourse liabilities of the Partnership as defined in Treasury Regulations Section 1.752-1(a)(2). 1.29 PARTNERSHIP PROPERTY: "Partnership Property" means any real or personal property or any direct or indirect interest therein owned or acquired by the Partnership, including the Equipment. 1.30 PROFIT OR LOSS: "Profit" or "Loss" for any Partnership fiscal period means an amount equal to the Partnership's taxable income or loss for such period, determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss or First Amended and Restated Agreement of Limited Partnership - page 5 6 deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments: 1.30.1 Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Profit or Loss will be added to taxable income or loss; 1.30.2 Any expenditures of the Partnership described in Code Section 705(a)(2)(B) or treated as Section 705(a)(2)(B) expenditures under Code Section 704(b), and not otherwise taken into account in computing Profit or Loss, will be subtracted from taxable income or loss; 1.30.3 Gain or loss resulting from any disposition of Partnership property with respect to which gain or loss is recognized for federal income tax purposes will be computed by reference to the Book Value of the property, notwithstanding that the adjusted tax basis of the property differs from its Book Value; 1.30.4 In lieu of depreciation, amortization and other cost recovery deductions taken into account in computing taxable income or loss, there will be taken into account depreciation on the assets' respective Book Values for such taxable year or other period determined in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g); 1.30.5 The amount of any Gross Income allocated to the Partners pursuant to SECTIONS 5.1.1, 5.1.5(i), 5.1.5(ii), 5.1.5(iii) and 5.1.6 shall not be included as income or revenue; and 1.30.6 Any amount allocated to the Partners pursuant to SECTIONS 5.1.5(iv), 5.1.5(v) or 5.1.6 shall not be included as a loss, deductions or Code Section 705(a)(2)(B) expenditure. 1.31 TRANSFER: "Transfer" means any hypothecation, assignment, transfer or other disposition, whether voluntary, by operation of law or otherwise. ARTICLE 2. FORMATION, NAME AND PLACE OF BUSINESS 2.1 Continuation. The parties hereto hereby continue the Partnership as a limited partnership pursuant to the Act. 2.2 Name. The name of the Partnership shall be BRL UNIVERSAL EQUIPMENT 2001 A, L.P. The General Partner may change the name of the Partnership only with the written consent of the Limited Partners. 2.3 Place of Business. The principal place of business of the Partnership shall be 2911 Turtle Creek Boulevard, Suite 1240, Dallas, Texas 75219. The General Partner may change the principal place of business of the Partnership at any time and from time to time by notice to the Limited Partner. The Partnership may also establish such additional places of business as the General Partner may in its sole discretion determine to be appropriate. First Amended and Restated Agreement of Limited Partnership - page 6 7 2.4 Registered Office. The Partnership shall maintain in the State of Delaware in compliance with the Act a registered office, and a registered agent for service of process on the Partnership. The initial registered office of the Partnership shall be Corporation Trust Center, 1209 Orange Street, The City of Wilmington, County of Newcastle, Delaware, and its initial registered agent at such registered office is The Corporation Trust Company. The General Partner may change the Partnership's registered office or registered agent, or both, in accordance with the Act, and in the event of any such change, the Limited Partners shall be notified in writing at least ten (10) days prior to any such change in the registered agent of the Partnership. 2.5 Qualification in Other Jurisdictions. The General Partner is authorized to qualify or register the Partnership to do business in each state where the Partnership conducts business. In connection therewith, the General Partner is authorized to designate a registered office and registered agent in each such jurisdiction, and to file such certificates or other documents as may be reasonably necessary in such jurisdictions. The General Partner is also authorized to designate a registered agent in New York for service of process under the Operative Documents. Upon request by any Limited Partner or as otherwise required by any of the Operative Documents, General Partner will cause the Partnership to be qualified in the State of Texas. ARTICLE 3. PURPOSE AND TERM 3.1 Purpose. The business of the Partnership shall be to acquire, own, hold title to, and lease the Partnership Property, together with such other activities (including sale or other disposition of the Partnership Property) as may be necessary, advisable or convenient to the promotion or conduct of the business of the Partnership, including, without limitation, the incurring of indebtedness and the granting of liens and security interests on the Partnership Property pursuant to the Credit Agreement to secure the repayment of such indebtedness, to the extent permitted under this Agreement; provided that the parties hereto intend that with respect to the acquisition of the Partnership Property and the transactions contemplated under the Credit Agreement, (i) for financial accounting purposes, the Partnership will be treated as the owner and the lessor of the Partnership Property leased to Lessee and (ii) for all federal, state and local income tax purposes, state sales and use tax purposes and other transaction purposes, the Partnership will not be treated as the owner or lessor of the Partnership Property leased to Lessee, but rather, will be treated as a lender making loans to any lessee of the Partnership Property.. The General Partner shall assure that the Partnership does not enter into or conduct any business or assume any obligation or debt other than the business and obligations contemplated by the Operative Documents so long as the Operative Documents are binding upon the Partnership. 3.2 Term. The term of the Partnership commenced upon the issuance of the Partnership's Certificate of Limited Partnership by the Delaware Secretary of State on January 18, 2001 and shall continue until terminated as provided in ARTICLE 11 hereof. First Amended and Restated Agreement of Limited Partnership - page 7 8 ARTICLE 4. CAPITAL CONTRIBUTIONS 4.1 Initial Capital Contributions. 4.1.1 General Partner. Upon the formation of the Partnership, the General Partner contributed Twenty Thousand and No/100 Dollars ($20,000.00) cash to the capital of the Partnership. 4.1.2 New Limited Partners. Upon execution of this Agreement and admission to the Partnership, the Limited Partners agree to contribute the amount set forth in SECTION 4.2 below, subject to the terms and conditions set forth in such Section, in cash to the capital of the Partnership. 4.1.3 Initial Limited Partner. The initial Limited Partner of the Partnership, Gregory C. Greene, contributed One Thousand and No/100 Dollars ($1,000.00) cash to the capital of the Partnership, which such amount shall be repaid to him upon his withdrawal from the Partnership. 4.2 Additional Capital Contributions. 4.2.1 General Partner. Except as provided in SECTION 7.4.2(b) below, the General Partner shall not be obligated to make any additional contributions to the capital of the Partnership for any reason, including, without limitation, to fund any Distribution or Limited Partner Preferred Return. 4.2.2 Limited Partner. (i) Each Limited Partner shall be required to make cash contributions to the capital of the Partnership, not to exceed the amount of each Limited Partner's Equity Commitment, to acquire Partnership Property only until the Commitment Termination Date; provided the conditions set forth in Article 15 are fully satisfied. (ii) If there is a default under either the Credit Agreement or the Lease Agreement pertaining to the Partnership Property, then each Limited Partner may, but shall be under no obligation to, make additional contributions to the capital of the Partnership to pursue the Partnership's legal and equitable remedies, if any, under any of the Operative Documents. (iii) Except as required by SECTION 4.2.2(i) above, no Limited Partner shall be obligated to make any additional contributions to the capital of the Partnership. 4.3 Capital Accounts. 4.3.1 Establishment and Maintenance. A separate capital account ("CAPITAL ACCOUNT") will be maintained for each Partner. The Capital Account of each Partner will be determined and adjusted as follows: First Amended and Restated Agreement of Limited Partnership - page 8 9 (i) Each Partner's Capital Account will be credited with the amount of cash actually contributed by such Partner to the capital of the Partnership (or deemed contributed pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(c)), the Fair Market Value of any property contributed by such Partner to the capital of the Partnership (net of any liabilities secured by such property that the Partnership is considered to assume or take subject to under Code Section 752) and such Partner's share of Gross Income or Profit (and all items thereof) of the Partnership. (ii) Each Partner's Capital Account will be debited with the amount of cash distributed to such Partner by the Partnership (or deemed distributed pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(c)), the Fair Market Value of any property distributed to the Partner by the Partnership (net of any liability secured by such property that the Partner is considered to assume or take subject to under Code Section 752) and the Partner's share of Loss (and all items thereof) of the Partnership. (iii) If the Partnership at any time distributes any of its assets in-kind to any Partner, the Capital Account of each Partner shall be adjusted to account for that Partner's allocable share (as determined under ARTICLE 5 below) of the Profit or Loss that would have been realized by the Partnership had it sold the assets that were distributed at their respective Fair Market Values immediately prior to their distribution. (iv) Any adjustments to the tax basis (or Book Value) of Partnership property under Code Sections 732, 734 or 743 will be reflected as adjustments to the Capital Accounts of the Partners only in the manner and to the extent provided in Treasury Regulations Section 1.704-1(b)(2)(iv)(m). (v) The Capital Accounts of the Partners shall be adjusted to reflect a revaluation of Partnership Property to its Fair Market Value on the date of adjustment upon the occurrence of any of the following events: (a) An increase in any new or existing Partner's Interest resulting from the contribution of money or property (other than a de minimis amount) by the Partner to the Partnership, (b) Any reduction in a Partner's Interest resulting from a distribution to such Partner (other than a de minimis amount) in redemption of all or part of its Interest, unless such Distribution is pro rata to all Partners in accordance with their respective Interests, and (c) Whenever otherwise allowed under Treasury Regulation Section 1.704-1(b)(2)(iv)(f). The adjustments to Capital Accounts shall reflect the manner in which unrealized Profit or Loss inherent in the property would be allocated if there were a disposition of the Partnership's property at its Fair Market Value on the date of adjustment. First Amended and Restated Agreement of Limited Partnership - page 9 10 (vi) For purposes of SECTION 5.1.5 below, a Partner's Capital Account shall be reduced by the net adjustments, allocations and Distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6) which, as of the end of the Partnership's taxable year are reasonably expected to be made to such Partner, and shall be increased by the sum of (a) any amount that the Partner is required to restore to the Partnership upon liquidation of its Interest in the Partnership (or which is so treated pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(c)) pursuant to the terms of this Agreement or under state law, (b) the Partner's share (as determined under Treasury Regulations Section 1.704-2(g)(1)) of the Partnership Minimum Gain and (c) the Partner's share (as determined under Treasury Regulations Section 1.704-2(i)(5)) of Partner Nonrecourse Debt Minimum Gain, and (d) the Partner's share (as determined under Section 752 of the Code) of any recourse indebtedness of the Partnership to the extent that such indebtedness could not be repaid out of the Partnership's assets if all the Partnership's assets were sold at their respective Book Values as of the end of the taxable year or other period and the proceeds from the sales were used to pay the Partnership's liabilities. For purposes of CLAUSE (d) above, the amounts computed pursuant to CLAUSE (a) above for each Partner shall be considered to be proceeds from the sale of the assets of the Partnership to the extent such amounts would be available to satisfy (directly or indirectly) the indebtedness specified in CLAUSE (d) above. (vii) It is the intention of the Partners that the Capital Accounts of the Partnership be maintained strictly in accordance with the Capital Account maintenance requirements of Treasury Regulations Section 1.704-1(b). The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Treasury Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such regulations and any amendment or successor provision thereto. 4.3.2 Transfer of Partnership Interest. If any Interest in the Partnership is transferred in accordance with the terms of this Agreement, the transferee will succeed to the Capital Account of the transferor to the extent it relates to the transferred Interest. 4.3.3 Modifications by General Partner. The terms of this SECTION 4.3 and the other terms of this Agreement relating to the maintenance of Capital Accounts have been included in this Agreement to comply with Section 704(b) of the Code and Treasury Regulations Section 1.704-1(b) and will be interpreted and applied in a manner consistent with those provisions. The General Partner may modify the manner in which the Capital Accounts are maintained under this SECTION 4.3 in order to comply with those provisions, as well as upon the occurrence of events that might otherwise cause this Agreement not to comply with those provisions; provided that no such modification shall be made without the prior written consent of each Partner whose rights under this Agreement would suffer a material adverse economic impact as a result of such modification. 4.4 Interest on Capital. Except as expressly provided in this Agreement, no Partner will be entitled to any interest on its Capital Account or on its contributions to the capital of the Partnership. First Amended and Restated Agreement of Limited Partnership - page 10 11 4.5 Deficit Capital Accounts. Except to the extent of payments required of the General Partner pursuant to SECTION 7.4.2(b), if, upon Distribution of liquidation proceeds, any Partner has a deficit in its Capital Account, such Partner shall not be required to restore such deficit to the Partnership. ARTICLE 5. ALLOCATION OF PROFIT, LOSS AND DISTRIBUTIONS 5.1 Allocation of Gross Income, Depreciation, Profit, Loss, etc. 5.1.1 Gross Income. For each fiscal year or other period, Gross Income from Partnership Property shall be allocated to the Limited Partner in an amount such that the Limited Partner has been allocated a cumulative amount of Gross Income pursuant to this SECTION 5.1.1 equal to the cumulative amount of Limited Partner Preferred Return through such fiscal year or other period. 5.1.2 Special Allocations. For each fiscal year or other period, any deduction with respect to expenses funded by the Limited Partner pursuant to SECTION 4.2.2(ii) shall be allocated to the Limited Partner. For each fiscal year or other period, any deduction with respect to any fees paid to the General Partner pursuant to SECTION 6.3 shall be allocated to the General Partner. 5.1.3 Net Profit. Except as provided in SECTIONS 5.1.5 and 5.1.6, Net Profit for any fiscal year shall be allocated to the Limited Partner in an amount equal to the sum of (x) the excess of the sum of the cumulative Limited Partner Preferred Return over the cumulative Gross Income allocated to the Limited Partner pursuant to SECTION 5.1.1 plus (y) the excess of the sum of the cumulative Net Losses allocated to the Limited Partner pursuant to SECTION 5.1.4 and the cumulative deductions allocated to the Limited Partner pursuant to Section 5.1.2 over the cumulative Net Profits previously allocated to the Limited Partner pursuant to this SECTION 5.1.3(y), and then to the General Partner. 5.1.4 Net Loss. Except as provided in SECTION 5.1.5 and 5.1.6, Net Loss for any fiscal year shall be allocated to the Limited Partner. 5.1.5 Special Regulatory Allocations. Except as otherwise provided in this Agreement, the following special regulatory allocations will be made in the following order and priority: (i) Qualified Income Offset. After application of SECTIONS 5.1.5(ii) and (iii), if in any taxable year or other period, a Partner unexpectedly receives any adjustment, allocation or distribution described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Gross Income shall first be allocated to the Partners with negative Capital Account balances (adjusted in accordance with SECTION 4.3.1(vi) hereof), in proportion to such negative balances, until such balances are increased to zero. This SECTION 5.1.5(i) is intended to constitute a "qualified income offset" and will be interpreted consistent with Treasury Regulations Section 1.704-1(b)(2). First Amended and Restated Agreement of Limited Partnership - page 11 12 (ii) Minimum Gain Chargeback. Notwithstanding any other provision of this Agreement to the contrary, and except as provided in Treasury Regulations Section 1.704-2(f), if in any taxable year or other period, there is a net decrease in Partnership Minimum Gain, then each Partner shall first be allocated items of Gross Income for such year (and, if necessary, subsequent years) in an amount equal to such Partner's share of the net decrease in Partnership Minimum Gain, determined in accordance with Treasury Regulations Section 1.704-2(g)(2); provided, however, if there is insufficient Gross Income in a year to make the allocation specified above, as applicable, for all Partners for such year, the Gross Income shall be allocated among the Partners in proportion to the respective amounts they would have been allocated above had there been an unlimited amount of Gross Income for such year. This SECTION 5.1.5(ii) is intended to constitute a "minimum gain chargeback" and will be interpreted consistent with Treasury Regulations Section 1.704-2(f). (iii) Minimum Gain Chargeback for Partner Nonrecourse Debt. Notwithstanding any other provision of this Agreement to the contrary other than SECTION 5.1.5(ii), and except as provided in Treasury Regulations Section 1.704-2(i)(4), if in any taxable year there is a net decrease in Partner Nonrecourse Debt Minimum Gain, then each partner shall first be allocated items of Gross Income for such year (and, if necessary, subsequent years) in an amount equal to such Partner's share of the net decrease in such minimum gain during such year (as determined in accordance with Treasury Regulations Section 1.704-2(i)(4)); provided, however, if there is insufficient Gross Income in a year to make the allocation specified above, as applicable, for all Partners for such year, the Gross Income shall be allocated among the Partners in proportion to the respective amounts they would have been allocated above had there been an unlimited amount of Gross Income for such year. This SECTION 5.1.5(iii) is intended to constitute a "minimum gain chargeback" with respect to Partner Nonrecourse Debt and will be interpreted consistent with Treasury Regulations Section 1.704-2(i)(4). (iv) Partnership Nonrecourse Deductions. Partnership Nonrecourse Deductions for any taxable year or other period with respect to Partnership Property shall be allocated to the Limited Partner. (v) Partner Nonrecourse Deductions. Notwithstanding anything to the contrary in this Agreement, any Partner Nonrecourse Deductions for any taxable year or other period shall be allocated to the Partner who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable. In the event that Partner Nonrecourse Deductions are allocated to a Partner in a taxable year or other period pursuant to the preceding sentence, compensating allocations of items of Partnership loss, deduction or Code Section 705(a)(2)(B) expenditure shall be made to the other Partners in such taxable year or other period to the maximum extent possible so that the aggregate items of Partnership loss, deduction or Code Section 705(a)(2)(B) expenditure allocated to the Partners pursuant to this Section with respect to Partnership Property shall be allocated to the Limited Partner. First Amended and Restated Agreement of Limited Partnership - page 12 13 (vi) Limit on Loss Allocations. Notwithstanding the provisions of SECTION 5.1.4, Loss (or items thereof) shall not be allocated to any Partner if such allocation would cause or increase a negative balance in such partner's Capital Account (adjusted in accordance with SECTION 4.3.1(vi)) hereof) and shall be proportionately reallocated to the other Partners, subject to the limitations of this SECTION 5.1.5(vi). 5.1.6 Curative Allocations. In the event that any Gross Income, Loss (or items thereof) or deductions are allocated pursuant to SECTION 5.1.5, subsequent Gross Income, Profit, or Loss (or items thereof) will first be allocated (subject to SECTION 5.1.5) to the Partners in a manner that will result in each partner having a Capital Account balance equal to that which would have resulted if the original allocation of Gross Income, Loss (or items thereof) or deductions pursuant to SECTION 5.1.5 had not occurred; provided, however, no allocations pursuant to this SECTION 5.1.6 that are intended to offset allocations pursuant to SECTIONS 5.1.5(ii) or 5.1.5(iii) shall be made prior to the taxable year during which there is a net decrease in Partner Nonrecourse Debt Minimum Gain or Partnership Minimum Gain, and then only to the extent necessary to avoid any potential economic distortions caused by such net decrease in Partner Nonrecourse Debt Minimum Gain or Partnership Minimum Gain, and no such allocation pursuant to this SECTION 5.1.6 shall be made to the extent that the General Partner reasonably determines that it is likely to duplicate a subsequent mandatory allocation pursuant to SECTION 5.1.5(ii) or (iii). 5.1.7 Tax Allocations -- Code Section 704(c). In accordance with Code Section 704(c) and the related Treasury Regulations, income, gain, loss and deduction with respect to any property contributed to the capital of the Partnership, solely for tax purposes, will be allocated among the Partners so as to take account of any variation between the adjusted basis to the Partnership of the property for federal income tax purposes and the Book Value of the property by utilizing the "remedial method" as described in Treasury Regulations Section 1.704-3(d) under the Code. Except as provided above, any elections or other decisions relating to allocations under this SECTION 5.1.7 will be made in any manner that the General Partner determines reasonably reflects the purpose and intention of this Agreement; provided, that no such election or other decisions relating to allocations shall be made pursuant to this sentence without the consent of the affected Limited Partner or Limited Partners, which consent shall not be unreasonably withheld. Allocations under this SECTION 5.1.7 are solely for purposes of federal, state and local taxes and will not affect, or in any way be taken into account in computing, any Partner's Capital Account or share of Profits, Losses or other items or Distributions under any provision of this Agreement. 5.1.8 Other Allocation Rules. The following rule will apply to the calculation and allocation of Profit, Loss and other items: For purposes of determining the Profit, Loss or any other item allocable to any period, Profit, Loss and other items will be determined on a daily, monthly or other basis, as determined by the General Partner using any permissible method (based on the advice of the Partnership's independent accountants) under Code Section 706 and the related Treasury Regulations. 5.2 Distributions: Except as otherwise provided in SECTION 5.3, all Distributions to the Partners shall be made as follows: First Amended and Restated Agreement of Limited Partnership - page 13 14 5.2.1 Limited Partner Preferred Return: Except as otherwise agreed to by the General Partner and the Limited Partner, no later than the next business day after the receipt by the Partnership of Cash From Operations, the Limited Partner shall receive a Distribution of Cash From Operations in an amount equal to the accrued and unpaid Limited Partner Preferred Return due as of the date of such Distribution. 5.2.2 Distributions of Cash From Operations: Except as otherwise agreed to by the General Partner, Cash From Operations remaining after the Distribution of the Limited Partner Preferred Return to the Limited Partner pursuant to SECTION 5.2.1 shall be distributed to the General Partner at the same time as the Limited Partner Preferred Return. 5.2.3 Distributions of Cash From a Capital Transaction: As soon as practicable after the consummation of the transaction to which it relates (but not later than the next business day after the receipt of funds pursuant to the consummation of such transaction), Cash From a Capital Transaction shall be distributed first to the Limited Partner until the Limited Partner has received such Distributions of Cash From a Capital Transactions equal to the sum of (i) the aggregate Capital Contributions of the Limited Partner reduced by the aggregate Distributions previously made to the Limited Partner pursuant to this SECTION 5.2.3(i) and (ii) any unpaid Limited Partner Preferred Return, and then to the General Partner. If a Partner incorrectly receives a Distribution, such Partner shall repay to the Partnership the incorrect portion of such Distribution promptly upon the earlier of discovery of such incorrect Distribution by such Partner or notice from another Partner. 5.3 Distributions Upon Liquidation: Distributions upon liquidation of the Partnership shall be made, after all allocations to all Partners pursuant to this ARTICLE 5 have been made, in accordance with the provisions of Section 5.2.3. 5.4 Distributions in Kind: For purposes of this ARTICLE 5, if there is a Distribution in kind, the Partnership shall be treated as having sold the distributed property at its Fair Market Value, and any gain or loss from such deemed sale shall be included in Profit or Loss for the fiscal period. Further, the Distribution shall be treated as a Distribution of the cash proceeds received from such deemed sale. 5.5 Effect of Transfers: All Profit or Loss or items thereof for each fiscal year allocable to the Interests or any fraction thereof which may have been Transferred during such year shall be allocated between the transferor and the transferee based upon the results of Partnership operations during the calendar months of such fiscal year that each was recognized under SECTION 9.2 hereof as the owner of the Interest for purposes of this SECTION 5.5, without regard to whether Distributions were made to the transferor or the transferee. Subject to applicable regulations of the United States Treasury Department, a transferee of the Interest during a calendar month will be recognized by the Partnership as the owner of the Interest on the first day of the following calendar month. 5.6 Calculation of Limited Partner Preferred Return. The Equity Yield to each Limited Partner shall be paid to each Limited Partner on each Floating Payment Date under the Lease Agreement or the date on which such Limited Partner's Capital Contribution (together with accrued and unpaid Limited Partner Preferred Return thereon) is repaid in full (whether First Amended and Restated Agreement of Limited Partnership - page 14 15 on the Maturity Date, by acceleration or otherwise) at the Applicable Equity Rate calculated for each day elapsed since the immediately preceding Floating Payment Date, or in the case of the first Floating Payment Date, since the Closing Date as follows: AR x P x 1/D where, AR = the Applicable Equity Rate for such day; P = the unpaid Capital Account of such Limited Partner on such day; and D = 360 or, to the extent the Applicable Equity Rate is based on the Alternate Rate, 365 or 366 days, as applicable. 5.7 Period Selection. Provided no Lease Event of Default shall have occurred and is continuing, the Partnership shall at least three (3) LIBOR Banking Days prior to each Floating Payment Date deliver to the Equity Administrative Agent written notice of its election to have the Applicable Equity Rate be based on one-month, two-month, three-month, or six-month LIBOR or on the Alternate Rate (which election shall be the same as the corresponding election by Lessee under Section 5 of the Participation Agreement). The Floating Payment Period based on one-month, two-month, three-month or six-month LIBOR shall commence on such Floating Payment Date and shall end on the calendar date corresponding to the first day of such Floating Payment Period in the first, second, third or six month, respectively; provided however, if such day is not a LIBOR Banking Day, then the last day of such Floating Payment Period shall be the next LIBOR Banking Day, provided further, if such next LIBOR Banking Day would be in the next calendar month, then the last day of such Floating Payment Period shall be the immediately preceding LIBOR Banking Day. The Floating Payment Period for an election of the Alternate Rate shall commence on such Floating Payment Date and shall end on the date specified for such in the Partnership's notice of election, provided such date shall not be more than ninety (90) days from such Floating Payment Date. The Partnership shall not make an election that would cause the new Floating Payment Date resulting from such election to be later than the Maturity Date. If the Partnership fails to provide such notice of election at least three (3) LIBOR Banking Days before any Floating Payment Date, the Partnership shall be deemed to have elected a one-month LIBOR based Applicable Equity Rate. At any time while a Lease Event of Default exists, the Applicable Equity Rate after each Floating Payment Date shall be based on one-month LIBOR. 5.8 Overdue Rate. The Partnership shall pay to each Limited Partner interest on any part of the principal amount of such Limited Partner's Capital Contribution and Equity Yield thereon, if any, and any other amount payable by the Partnership hereunder or by the Lessee to the Limited Partners under the Participation Agreement which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) on demand for the period commencing on the due date thereof until the same is paid in full at the Overdue Rate. ARTICLE 6. COMPENSATION OF THE GENERAL PARTNER: EXPENSES First Amended and Restated Agreement of Limited Partnership - page 15 16 6.1 Partnership Expenses: Except as otherwise provided in this Agreement, the Partnership shall be responsible for paying all direct costs and expenses related to the business of the Partnership and of holding, owning, and operating the Partnership Property, including, without limitation, debt service; insurance premiums; taxes; fees and disbursements of attorneys, financial advisors, accountants, appraisers, and brokers; travel expenses; and all other fees, costs and expenses directly attributable to the business of the Partnership. If any such costs and expenses are or have been paid by the General Partner, then except as expressly provided herein to the contrary, the General Partner shall be entitled to be reimbursed for such payment so long as such payment is reasonably necessary for Partnership business. Without limiting the generality of the foregoing, the Partnership shall reimburse the General Partner for the Organization Expenses to the extent such Organization Expenses are (i) not reimbursed by the Lessee, (ii) previously approved by the Limited Partner, and (iii) not paid until after the payment of the Limited Partner Preferred Return accrued to the same date. 6.2 Partnership Reimbursement Obligation: Except as provided in SECTION 6.1, the reimbursement for expenses provided for in SECTION 6.1 hereof shall be made to the General Partner regardless of whether any Distributions are made to the Limited Partner under ARTICLES 5 and 11 hereof. 6.3 Fees Relating to Partnership Property: The General Partner or an affiliate of the General Partner may be paid a fee with regard to the Partnership Property; provided that (i) the amount of such fee does not exceed the amount payable by the Lessee to the Lessor pursuant to the Lessor Margin Letter and (ii) such fee is not paid until after the payment of the Limited Partner Preferred Return accrued to the same date upon which the amount payable by Lessee to Lessor under the Lessor Margin Letter is calculated. 6.4 Other Expenses: Partnership agrees to pay within ten (10) Business Days of written notice thereof the reasonable fees and expenses (initial and ongoing) of Deutsche Bank, New York Branch as a Limited Partner and Equity Administrative Agent for all of their respective reasonable costs and expenses (including, without limitation, reasonable counsel fees and disbursements) in connection with the negotiation, preparation, execution and delivery of the Operative Documents and the issuance of the Partnership Certificates and the consummation of the transactions contemplated thereby. Partnership agrees to pay the reasonable fees and disbursements of special counsel to each Limited Partner and Equity Administrative Agent in connection with any amendments, waivers or consents requested by Partnership, under any Operative Document. Upon the occurrence and during the continuance of any Loan Event of Default, Partnership agrees to pay or reimburse each Limited Partner and Equity Administrative Agent for reasonable costs and expenses of counsel and of financial advisors as shall have been selected by such Person to assist them in connection with such Loan Event of Default. 6.5 Increased Costs, Illegality, Other Costs: (a) In the event that any Limited Partner shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by Equity Administrative Agent): (i) that by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable LIBOR-based Equity Yield on the basis provided for in the definition of LIBOR Rate; or First Amended and Restated Agreement of Limited Partnership - page 16 17 (ii) at any time, that such Limited Partner shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Equity Contribution because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Limited Partner of Equity Yield or repayment of Equity Contribution, any payments due on the Equity Certificates or any other amounts payable to any Limited Partner hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Limited Partner pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein) or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the LIBOR Rate and/or (y) other circumstances since the date of this Agreement affecting such Limited Partner or the interbank Eurodollar market or the position of such Limited Partner in such market; or (iii) at any time, that the continuance of any Equity Contribution has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Limited Partner in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Limited Partner (or Equity Administrative Agent, in the case of clause (i) above) shall promptly give notice (by telephone promptly confirmed in writing) to Partnership and, except in the case of clause (i) above, to Equity Administrative Agent of such determination (which notice Equity Administrative Agent shall promptly transmit to each of the other Limited Partner). Thereafter (x) in the case of clause (i) or clause (iii) above, upon at least three LIBOR Banking Days' written notice to Equity Administrative Agent, the affected Limited Partner shall convert the Applicable Equity Yield to the sum of the Alternative Rate plus the Applicable Equity Margin, (y) in the case of clause (ii) above, Partnership shall pay to such Limited Partner, within fifteen (15) days of such Limited Partner's written request therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Limited Partner reasonably shall determine) as shall be required to compensate such Limited Partner for such increased costs or reductions in amounts received or receivable hereunder as set forth in such written request as to the additional amounts owed to such Limited Partner, showing in reasonable detail the basis for the calculation thereof, submitted to Partnership by such Limited Partner shall, absent manifest error, be final and conclusive and binding on all the parties hereto. (b) If any Limited Partner incurs any Breakage Costs, including, but not limited to, as a result of any distribution of Cash from a Capital Transaction or the occurrence of any of the events set forth in clause (x) of the last sentence of Section 6.5(a), or if at any time after the date of this Agreement any Limited Partner determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or First Amended and Restated Agreement of Limited Partnership - page 17 18 comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Limited Partner or any corporation controlling such Limited Partner based on its obligations hereunder, then Partnership shall pay to such Limited Partner, upon its written demand therefor, such Breakage Costs or additional amounts as shall be required to compensate such Limited Partner or such other corporation for the increased cost to such Limited Partner or such other corporation or the reduction in the rate of return to such Limited Partner or such other corporation as a result of such increase of capital. In determining such additional amounts, each Limited Partner will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Limited Partner's determination of Breakage Costs or compensation owing under this Section 6.5(b) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Limited Partner, upon determining that any Breakage Costs or additional amounts will be payable pursuant to this Section 6.5(b), will give prompt written notice thereof to Partnership, which notice shall show in reasonable detail the basis for calculation of such additional amounts. 6.6 Indemnity Payments and Other Payments: The Limited Partners may receive directly or through the Equity Administrative Agent any indemnity payments or other payments intended for the benefit of any such Limited Partner under any of the Operative Documents. In the event the Partnership or the General Partner receives any indemnity payments or other payments intended for the benefit of a particular Limited Partner, the General Partner shall remit such payments to the Limited Partner within two Business Days of the receipt of such payment. ARTICLE 7. RIGHTS, POWERS AND OBLIGATIONS OF THE GENERAL PARTNER 7.1 Powers: Except as expressly limited herein, the management and control of the Partnership and its business and affairs shall rest exclusively with the General Partner. If BRL Universal Equipment Management, Inc. ceases to be General Partner, the Limited Partners may designate a successor General Partner. Except as expressly limited herein, the General Partner shall have all the rights and powers that may be possessed by general partners pursuant to the Act and such rights and powers as are otherwise conferred by law or are necessary, desirable or appropriate to the discharge of its duties under this Agreement and to the management of the business and affairs of the Partnership, provided that such rights and powers shall be exercised solely for the purposes specified in SECTION 3.1. By way of illustration and without limiting the generality of the foregoing, the General Partner shall have the following rights and powers, subject to the limitations expressly set forth herein, which it may exercise at the sole cost, expense and risk of the Partnership: 7.1.1 To acquire, hold and dispose of real property, personal property or mixed property interests therein or rights or appurtenances thereto, including the purchase, lease, development, improvement, maintenance, exchange, trade, sale or other disposition of such properties at such price, rental or amount, for cash, securities or other property, and upon terms, as the General Partner, in its sole discretion, deems to be in the best interests of the Partnership, provided that so long as the Operative Documents are binding upon the Partnership, the power set forth in this Section shall be exercised solely with respect to the Equipment and the actions to be taken by the Partnership under the Operative Documents; First Amended and Restated Agreement of Limited Partnership - page 18 19 7.1.2 To place record title to, or the right to use, Partnership assets in the name or names of a nominee or nominees, trustee or trustees for any purpose convenient or beneficial to the Partnership and as required under the Operative Documents; 7.1.3 To purchase contracts of liability, casualty, title, errors and omissions and other insurance which the General Partner in its sole discretion deems necessary or advisable for the protection of the assets and affairs of the Partnership or for any purpose convenient or beneficial to the Partnership provided that, so long as the Operative Documents are binding on the Partnership, it shall not make any such purchase unless the cost thereof is paid or reimbursed by the Lessee; 7.1.4 To employ and dismiss from employment any and all employees, agents, independent contractors, financial advisors, attorneys, accountants, appraisers, engineers, analysts, supervisory managing agents, building management agents, insurance brokers, real estate brokers and loan brokers, on such terms and for such compensation as the General Partner shall in its sole discretion determine, subject only to the limitations with respect to payment or reimbursement from Partnership funds as are expressly set forth in ARTICLE 6 hereof and provided further that so long as the Operative Documents are binding on the Partnership, it shall not incur any liability or expense under this Section 7.1.4 unless the cost thereof is paid or reimbursed by Lessee; 7.1.5 To prepare or cause to be prepared reports, statements and other relevant information for distribution to the Limited Partner and provided further that so long as the Operative Documents are binding on the Partnership, it shall not incur any liability or expense under this Section 7.1.5 unless the cost thereof is paid or reimbursed by Lessee; 7.1.6 To open accounts and deposit and maintain funds in the name of the Partnership in banks, savings and loan associations, brokerage firms or other financial institutions; provided, however, that Partnership funds shall not be commingled with the funds of the General Partner; 7.1.7 To collect all revenues accruing to the Partnership and to pay any Indebtedness and other obligations of the Partnership and costs of operation and maintenance of the assets of the Partnership, including without limitation the compensation and expenses referred to in ARTICLE 6 hereof; 7.1.8 To prepare, or have prepared, and file all tax returns for the Partnership (but not the tax returns or other reporting of the individual Partners, or of their respective heirs, representatives, executors or assigns, in their individual capacities) and, except as otherwise provided in SECTIONS 5.1.7 and 12.4, to make or revoke any tax elections permitted to partnerships under the Code, including, without limitation, those provided in Sections 108, 195, 709, 1017 and 1033 of the Code or any similar provisions enacted in lieu thereof; provided, however, that any Partner benefiting from any election made at the request of such Partner shall reimburse the Partnership for any additional costs incurred by the Partnership in making the election for and on behalf and in the name of the Partnership; provided, further, that no elections shall be made pursuant to this Section 7.1.8 without the consent of the affected Limited Partner or Limited Partners, which consent shall not be unreasonably withheld; and provided First Amended and Restated Agreement of Limited Partnership - page 19 20 further that so long as the Operative Documents are binding on the Partnership, it shall not incur any liability or expense under this Section 7.18 unless the cost thereof is paid or reimbursed by Lessee; 7.1.9 To pay all taxes, assessments, rents and other impositions applicable to the assets of the Partnership and to undertake when appropriate any action or proceeding seeking to reduce such taxes, assessments, rents or other impositions and provided further that so long as the Operative Documents are binding on the Partnership, it shall not incur any liability or expense under this Section 7.1.9 unless the cost thereof is paid or reimbursed by Lessee; 7.1.10 To execute, acknowledge and deliver any and all instruments to effectuate the provisions of this SECTION 7.1, including the granting of powers of attorney, and to take all such action in connection therewith as the General Partner in its sole discretion shall deem necessary or appropriate; 7.1.11 To perform other obligations provided elsewhere in this Agreement to be performed by the General Partner and to perform on behalf of and in the Partnership's name the obligations of the Partnership in the Operative Documents and to exercise all rights of the Partnership hereunder and under the Operative Documents; and 7.1.12 To take or cause the Partnership to take all such other actions as may in the sole discretion of the General Partner be necessary, desirable or appropriate to conduct the business of the Partnership, consistent with the purpose of the Partnership and the other terms hereof and provided further that so long as the Operative Documents are binding on the Partnership, it shall not incur any liability or expense under this Section 7.1.12 unless the cost thereof is paid or reimbursed by Lessee. 7.2 Actions Requiring Approval: Except as otherwise provided below, without the prior written approval of all of the Limited Partners, the General Partner shall not have any authority to: 7.2.1 Undertake any act in contravention of this Agreement or which would make it impossible to carry on the business of the Partnership; 7.2.2 Confess a judgment against the Partnership or any Partner in connection with any threatened or pending legal action, provided however, the General Partner may do so with the consent of the Majority Limited Partners; 7.2.3 Possess any Partnership assets or assign the rights of the Partnership in specific Partnership assets for other than a Partnership purpose; 7.2.4 Other than pursuant to the Credit Agreement, borrow money or guarantee Indebtedness or obligations of the Partnership; 7.2.5 Perform any act which would, at the time such act occurred, subject any Limited Partner to liability as a general partner in any jurisdiction; 7.2.6 Perform any act which would, at the time such act occurred, cause any Limited Partner to be in violation of any applicable law or permissible activity; provided, First Amended and Restated Agreement of Limited Partnership - page 20 21 however, upon obtaining knowledge that any such violation has occurred, the General Partner shall immediately take all action possible to cure such violation; 7.2.7 Admit a person or entity as a General Partner or Limited Partner except as provided in this Agreement; 7.2.8 Dissolve or liquidate the Partnership, consolidate or merge with or into any other entity or convey, sell or transfer all or any portion of the Partnership Property subject to any Lease Document (as defined in the Credit Agreement) except as required by the Credit Agreement or any such Lease Document, provided however, the General Partner may do so with the consent of the Majority Limited Partners; 7.2.9 On behalf of the Partnership, file a voluntary petition or otherwise initiate or consent to proceedings to be adjudicated insolvent or seeking an order as relief as a debtor under the United States Bankruptcy Code, as amended, or file or consent to the filing of any petition seeking any composition, reorganization, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy laws or any other present or future applicable federal, state or other statute or law relative to bankruptcy, insolvency or other relief for debtors; or seek or consent to the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of the Partnership, or make or consent to any general assignment for the benefit of creditors, or admit in writing its inability to pay its debts generally as they become due, or declare or effect a moratorium on its debt or take any partnership action in furtherance of any such action, provided however, the General Partner may do so with the consent of the Majority Limited Partners; 7.2.10 Undertake any act that would (i) create a default under the Credit Agreement or (ii) create a loss from the sale of Partnership Property; 7.2.11 Make any in-kind Distribution of Partnership Assets; or 7.2.12 Institute, prosecute, defend or settle any legal, arbitration or administrative action, provided however, the General Partner may do so with the consent of the Majority Limited Partners. 7.3 Independent Activities: Any Partner, including the General Partner, and any partner, shareholder, officer, director, employee, affiliate or other person holding a legal or beneficial interest in any entity that is a Partner may engage in or possess an interest in other business ventures of every nature and description, independently or with others, whether such ventures are competitive with the Partnership or otherwise, including, without limitation, the acquisition, ownership, financing, leasing, operation, management, syndication, brokerage, sale, construction and development of real property that may be located in the market area or vicinity of any of the Partnership's properties or assets and neither the Partnership nor the Partners shall have any right by virtue of this Agreement in or to such independent ventures or to the income or profits derived therefrom. 7.4 Miscellaneous Duties and Obligations: 7.4.1 General Obligations: First Amended and Restated Agreement of Limited Partnership - page 21 22 (a) The General Partner shall have the responsibility for providing continuing administrative and executive support, advice, consultation, analysis and supervision with respect to the functions of the Partnership. (b) The General Partner shall devote to the Partnership such time as may be appropriate for the performance of its duties hereunder, but the partners, officers and/or directors of the General Partner shall not be required to devote their full time to the performance of such duties. (c) The General Partner shall endeavor to take such action as may be necessary in order to qualify the Partnership under the laws of any jurisdiction in which such qualification is necessary to protect the limited liability of the Limited Partners or to continue in effect such qualification. The General Partner shall file or cause to be filed for recordation in the office of the appropriate authorities of the State of Delaware, and in the proper office or offices in each other jurisdiction in which the Partnership is qualified, such certificates (including limited partnership and fictitious name certificates) and other documents as are required by the applicable statutes, rules or regulations of any such jurisdiction or as are required to reflect the identity of the Partners and the amounts of their respective Capital Contributions. (d) The General Partner shall provide to all Limited Partners copies of all notices received by the General Partner under the Operative Documents which are not required to be provided to the Limited Partners by the Equity Administrative Agent or under the terms of the Operative Documents. 7.4.2 No Personal Liability: The General Partner shall have no personal liability for the repayment of the Capital Contributions of the Limited Partner. With respect to the liabilities of the Partnership, whether for the purchase of Partnership Properties, professional and other services rendered to it, loans made to it by Partners or others, injuries to persons or property, indemnity to Partners, contractual, obligations, guaranties, endorsements or for other reasons similar or dissimilar to any of the foregoing, and without regard to the manner in which any liability of any nature may be incurred or the person to whom it may be owed, all such liabilities: (a) shall be liabilities of the Partnership as an entity, and shall be paid or otherwise satisfied from Partnership assets (and the Partnership shall sell or liquidate all assets necessary to satisfy such liabilities); (b) to the extent and only to the extent that Partnership assets are insufficient to satisfy any liability and except as provided below, shall be payable by the General Partner to the extent of its assets; and (c) shall not in any event be payable in whole or in part by any Limited Partner, or by any partner, director, officer, employee, agent or shareholder of the General Partner. Nothing in this SECTION 7.4.2 shall be construed so as to impose upon the General Partner, the partners, directors, officers, employees, agents or shareholders of the General Partner any liability in circumstances in which the liability arises from a written document if the written document expressly limits liability thereon to the First Amended and Restated Agreement of Limited Partnership - page 22 23 Partnership or expressly disclaims any liability thereunder on the part of any such person or entity. Notwithstanding any other provision of this Agreement, if there is a default under either the Credit Agreement or the Lease Agreement pertaining to of the Partnership Property, the General Partner shall be under no obligation to undertake any action to pursue the Partnership's legal and equitable remedies unless such action is funded by a Capital Contribution by the Limited Partners pursuant to SECTION 4.2.2(ii), which such funding shall include provision for out of pocket expenses (such as, without limitation, attorneys' fees and court costs) and a reasonable fee for the time and efforts of the General Partner in which case, the Limited Partner may choose legal counsel to represent the Partnership. 7.4.3 Tax Matters Partner: The General Partner shall perform all duties imposed by and take all actions in respect of the Partnership contemplated by Sections 6221 through 6231 of the Code as "tax matters partner" of the Partnership. As "tax matters partner", the General Partner shall fully and timely inform each Partner of any administrative proceedings relating to the Partnership, including without limitation, providing every Partner with the time and place of all phases of administrative proceedings as well as copies of all correspondence from and to any tax authority within ten (10) business days of receipt or dispatch. As tax matters partner, the General Partner shall not settle or otherwise compromise any tax matter or any tax filing position without the prior consent of the affected Limited Partner or Limited Partners, which consent shall not be unreasonably withheld. Further, the General Partner, as "tax matters partner," shall refuse to extend the statute of limitations with respect to tax items of the Partnership without the unanimous written consent of the other Partners. Without limiting the generality of any other provision hereof, all costs incurred by the General Partner as "tax matters partner" (including, without limitation, the fees and disbursements of attorneys, accountants and other advisors) shall be reimbursed to it by the Partnership. Nothing in this section shall limit the ability of any Partner to take any action in its individual capacity relating to the administrative proceedings of Partnership matters that is left to the determination of any individual Partner under the Code or any similar state or local provision. 7.5 Redemption of the Limited Partner: Upon thirty (30) days written notice to the Limited Partner, the General Partner may cause the Partnership to redeem the Interest of all but not less than all Limited Partners in consideration of an aggregate cash payment from the Partnership to each Limited Partner equal to the Limited Partner Redemption Amount. The General Partner may cause this redemption of the Limited Partners in its sole discretion. Upon receipt of such redemption notice, each Limited Partner shall be obligated to tender its entire Interest in the Partnership to the Partnership free and clear of any liens or other encumbrances at the time specified in the redemption notice. Prior to or contemporaneously with each Limited Partner's tender to the Partnership of its entire Interest in the Partnership, the General Partner shall cause one or more additional Limited Partners to be admitted to the Partnership. 7.6 Separateness Covenant: The General Partner covenants to (i) be a Delaware corporation, the sole purpose of which is to act as the General Partner of the Partnership and (ii) conduct its affairs so that neither the Partnership nor the General Partner violates the separateness provisions of EXHIBIT .A. attached hereto. First Amended and Restated Agreement of Limited Partnership - page 23 24 ARTICLE 8. LIMITED PARTNER 8.1 No Personal Liability: In accordance with the Act, the Limited Partner shall not be bound by, nor shall be personally liable for, the expenses, liabilities, contracts or obligations of the Partnership or the General Partner, and the liability of the Limited Partner shall be limited solely to the amount of its Capital Contribution and the additional amounts it has agreed to contribute. If the Limited Partner receives a Distribution in violation of the Act, the Limited Partner shall be liable to return the Distribution if the Limited Partner knew that the Distribution violated the Act. 8.2 No Control of Business or Right to Act for the Partnership: Except for the rights specifically granted herein, the Limited Partner shall not have the right or power to participate in or have any control over the Partnership business or have any right or authority to act for or to bind the Partnership. 8.3 Actions by Limited Partner: The Limited Partner shall have the right to approve only those matters requiring its approval as described herein. 8.4 Representations of the Limited Partner: The Limited Partner represents and warrants to the Partnership and the General Partner that (a) it is fully aware of, and is capable of bearing, the risks relating to an investment in the Partnership, (b) it understands its Interest has not been registered under the Securities Act of 1933, as amended, or the securities law of any jurisdiction in reliance upon exemptions contained in those laws, (c) it has acquired its Interest for its own account, with the intention of holding the Interest for investment and without any intention of participating directly or indirectly in any redistribution or resale of any portion of the Interest in violation of the Securities Act of 1933, as amended, or any applicable law and (d) as of the date of this Agreement, the Limited Partner's Partnership Interest is free and clear from all liens, encumbrances, equities and claims or restrictions on transferability other than those imposed by this Agreement, the Securities Act of 1933, as amended, and the securities or "Blue Sky" laws of certain jurisdictions. On and after the execution date of this Agreement, each Limited Partner shall notify the General Partner if it is or becomes either a Foreign Person or Foreign Partner and such notice shall be given by any such Limited Partner within thirty (30) calendar days of such change. Notwithstanding any other provision of this Agreement to the contrary, the General Partner is authorized to take any action that is required under law to cause the Partnership to comply with any withholding or other payment requirements established under the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required to pay to any governmental authority any amount resulting from either the allocation of income or gain or a distribution to any Partner (including, without limitation, by reason of Sections 1441, 1442, 1445 or 1446 of the Code), the amount so paid shall be treated as a Distribution of cash to the Partner. The Capital Account of the Partner for which amounts are paid over to a governmental authority pursuant to this SECTION 8.4 shall be decreased by such amount paid over to the governmental authority. A Partner who has had amounts paid over to a governmental authority pursuant to this SECTION 8.4 shall be entitled to receive any refund of any such tax, penalty, interest or other amount received by the Partnership on account of amounts paid on behalf of the Partner pursuant to this SECTION 8.4; provided, however, that the amount due such Partner shall be reduced by any expenses of the Partnership incurred in connection with the payment or refund of such tax, penalty, interest or other amount. The Partnership shall have no duty or obligation to seek to obtain or collect any First Amended and Restated Agreement of Limited Partnership - page 24 25 refund or expend any amount to reduce the amount of any withholding, penalty, interest or other amount otherwise payable to any governmental authority. ARTICLE 9. ASSIGNMENT AND SUBSTITUTION 9.1 Permitted Transfers: The Limited Partner shall have the right to Transfer all or any part of its Interest by assignment, sale, transfer, pledge, hypothecation or other disposition to a reputable, creditworthy transferee (as reasonably determined by the General Partner) in compliance with this ARTICLE 9, and all applicable federal and state laws, including, without limitation, federal securities laws and state blue sky laws; provided, however, the General Partner's approval shall not be required for any transfer of the Limited Partner's Interest to an Affiliate or Subsidiary of the Limited Partner. Any Transfer in contravention of any of the provisions of this ARTICLE 9 shall be of no force and effect and shall not be binding upon or recognized by the Partnership. No transferee shall have the right to be admitted to the Partnership as a substituted Limited Partner except in accordance with SECTION 9.2. A transferee of the Limited Partner's Interest who is not admitted as a substitute Limited Partner shall have no right to require any information or account of the Partnership's transactions or to inspect the Partnership's books. Anything herein to the contrary notwithstanding, both the Partnership and the General Partner shall be entitled to treat the transferor of such Interest as the absolute owner thereof in all respects, and shall incur no liability for allocations of income, gain, loss, deduction, or credit, for Distributions or for transmittal of reports and notices required to be given to the Limited Partner until the provisions of SECTION 9.2 have been satisfied, at which time the transferee shall be treated as a substitute Limited Partner for purposes of such allocations, Distributions, or reports. 9.1.1 Assignment of Limited Partner's Rights: Any Limited Partner may transfer, assign or grant participations in its rights in the Operative Documents; provided, however, such Limited Partner shall be a "Limited Partner" for all purposes hereunder and the transferee, assignee or participant, as the case may be, shall not constitute a "Limited Partner" hereunder and, provided further, that no Limited Partner shall transfer or grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Operative Document except to the extent such amendment or waiver would (A) extend the final scheduled due date of any repayment of Equity Contribution which such participant is participating, or reduce the rate or extend the time of payment of interest, Equity Yield, Limited Partner Preferred Return or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the Capital Contribution amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect. In the case of any such participation, the participant shall not have any rights under any Operative Documents (the participant's rights against such Limited Partner in respect of such participation to be those set forth in the agreement executed by such Limited Partner in favor of the participant relating thereto) and all amounts payable by Partnership under the Operative Documents shall be determined as if such Limited Partner had not sold such participation. 9.1.2 Assignment to Affiliate: Notwithstanding the foregoing, any Limited Partner (or any Limited Partner together with one or more other Limited Partner) may (A) assign all or a portion of its rights and obligations under the Operative Documents to (x) its parent company and/or any affiliate of such Limited Partner which is at least First Amended and Restated Agreement of Limited Partnership - page 25 26 50% owned by such or Limited Partner or its parent company or to one or more Limited Partners or (y) in the case of any Limited Partner that is a fund that invests in loans, any other fund that invests in loans and is managed or advised by the same investment advisor of such Limited Partner or by an Affiliate of such investment advisor or (B) assign all, or if less than all, a portion of outstanding principal balance equal to at least $1,000,000 in the aggregate for the assigning Limited Partner or Limited Partners of such Equity Contribution and related outstanding obligations hereunder to one or more Eligible Transferees (treating any fund that invests in loans and any other fund that invests in loans and is managed or advised by the same investment advisor of such fund or by an Affiliate of such investment advisor as a single Eligible Transferee), each of which assignees shall become a party to this Agreement and the Lessor Indemnity and Security Agreement as a Limited Partner by execution of an Assignment and Assumption Agreement; provided that (w) Partnership Certificates will be issued, at Partnership's expense, to such new Limited Partner and to the assigning Limited Partner upon the request of such Person, such new Partnership Certificates to be in conformity with the requirements of Section 17.1, (x) the consent of Equity Administrative Agent shall be required in connection with any assignment to an Eligible Transferee pursuant to clause (B) above (which consents shall not be unreasonably withheld), (y) Equity Administrative Agent shall receive for its own account at the time of each such assignment, from the assigning or assignee Limited Partner, the payment of a non-refundable assignment fee of $3,500 and (z) promptly after such assignment, Partnership shall have received from Equity Administrative Agent notice of any such assignment, together with the copy of the Assignment and Assumption Agreement relating thereto. To the extent of any assignment pursuant to this Section 9.1.2, the assigning Limited Partner shall be relieved of its obligations hereunder. At the time of each assignment pursuant to this Section 9.1.2 to a Person which is not already a Limited Partner hereunder and which is not a U.S. Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Limited Partner shall, to the extent legally entitled to do so, provide to Partnership, the forms described in Section 8.4. To the extent that an assignment of all or any portion of a Limited Partner's interests would, at the time of such assignment, result in additional increased costs under Section 6.5 from those that would have been incurred by the respective assigning Limited Partner prior to such assignment, then Partnership shall not be obligated to pay such incremental additional increased costs (although Partnership shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment). First Amended and Restated Agreement of Limited Partnership - page 26 27 9.1.3 Notice of Assignment: Each Limited Partner shall provide written notice to Equity Administrative Agent of any assignment or participation by such Limited Partner of any interest it may have under any Operative Document. In the case of any participations, other than to which Lessee otherwise consents, the right of any such participant to indemnification or other amounts shall be limited to amounts which would have been due had no such participation been granted. 9.1.4 Security Interests: Notwithstanding any other provision in the Operative Documents, any Limited Partner may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in any of the Operative Documents in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board or U.S. Treasury Regulation 31 CFR 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under Applicable Law. 9.2 Transferees and Substituted Limited Partners: 9.2.1 Status of Limited Partner: If the Limited Partner shall Transfer all of its Interest, it shall continue to be a Limited Partner of the Partnership unless and until a substituted Limited Partner is admitted in its stead. 9.2.2 Status of Transferee: Any person or entity who or which is a transferee of any portion of the Limited Partner's Interest shall become a substituted Limited Partner when such person or entity shall have accepted and adopted the provisions of this Agreement in writing and shall have paid all legal and other fees, administration charges and filing costs in connection with his or its substitution as a Limited Partner; provided, however, that the substitution of any transferee of any portion of the Limited Partner's Interest as a substitute Limited Partner shall be subject to the consent of the General Partner, which consent shall not be unreasonably withheld or delayed; provided, however, the General Partner's approval shall not be required for any transfer of the Limited Partner's Interest to an affiliate or subsidiary of the Limited Partner. The rights of a transferee of any portion of the Limited Partner's Interest who does not become a substituted Limited Partner shall be limited solely to receipt of his or its share of Distributions and his allocable portion of Profit or Loss as determined under ARTICLE 5 hereof, to the extent those items were Transferred. 9.2.3 Obligations of Transferee: Any person or entity who is the transferee of all or any portion of the Limited Partner's Interest, but who does not become a substituted Limited Partner and desires to make a further assignment of any such Interest, shall be subject to all the provisions of this ARTICLE 9 to the same extent and in the same manner as the Limited Partner desiring to make a Transfer of its Interest. 9.5.4 Further Restrictions. There shall be no restrictions on the assignment of any portion of the Limited Partner's Interest, except as provided in this ARTICLE 9 or by applicable law. 9.6 Requirements of General Partner: At any time, and from time to time, the General Partner may establish reasonable requirements to assure that any Transfer is in compliance with the provisions of this ARTICLE 9. Such requirements may include, but not be limited to, a requirement for legal opinions as to compliance with applicable federal securities First Amended and Restated Agreement of Limited Partnership - page 27 28 laws and state blue-sky laws (or exemptions thereto) and a requirement for a balance sheet of the transferee to determine its creditworthiness. ARTICLE 10. RETIREMENT, RESIGNATION, BANKRUPTCY AND DISSOLUTION OF GENERAL PARTNER; ELECTION OF GENERAL PARTNER 10.1 Limitation on Dissolution, Removal of General Partner: 10.1.1 The General Partner may not be removed from the Partnership except as provided in this Agreement. The General Partner may not withdraw as General Partner of the Partnership unless approved by the Majority Limited Partners, which approval shall not be unreasonably withheld or delayed, and such withdrawal does not create a Default under the Credit Agreement. The General Partner shall give the Limited Partners at least ninety (90) days prior notice of its intention to withdraw as General Partner. 10.1.2 If the General Partner shall have (i) committed an act or omitted an act which results in a default under the Credit Agreement which has not been cured within the time period provided in the Credit Agreement; (ii) committed a breach of a material term of this Agreement and such breach has not been cured within thirty (30) days of written notice of same from any Limited Partner; or (iii) committed an act of gross negligence or fraud that results in material damage or loss to the Partnership, any Limited Partner shall have the right to remove the General Partner unless the General Partner indemnifies the Partnership in a manner satisfactory to the Limited Partners for any resulting damage or loss within thirty (30) calendar days after a determination that the General Partner has committed such an act. If the General Partner is so removed it shall be entitled to receive from the Partnership an amount, if any, equal to the General Partner's positive Capital Account balance (after all adjustments, including, without limitation, any Distribution of Partnership Property), plus all payments due to the General Partner as of the date of its removal as contemplated in ARTICLE 6 of this Agreement net of any fees, liabilities, losses, damages, penalties, claims, demands, actions, suits, judgments and related costs and expenses, including reasonable attorneys fees incurred or reasonably expected to be incurred by the Partnership as a result of any of the acts described in clause (i) through (iii) above; provided, however, in no event shall any portion of the Partnership Property, Cash From a Capital Transaction or Cash From Operations be distributed to the General Partner pursuant to this SECTION 10.1.2 prior to the payment of any Distribution to the Limited Partner due as of the date of such removal. 10.2 Bankruptcy, Dissolution or Legal Disability of the General Partner: If the General Partner withdraws or is removed as provided in SECTION 10.1, or the General Partner becomes bankrupt, dissolves or is otherwise unable to legally continue to act as the General Partner, the Partnership shall be dissolved and its affairs shall be wound up as soon as reasonably practicable, unless the Partnership is reconstituted and its business continued in accordance with the provisions of SECTIONS 10.5 and 11.1.1 hereof. Upon occurrence of such an event, the General Partner shall immediately cease to be General Partner and shall be repaid its Capital Account in cash to the extent available and not required to pay any amounts due to the Limited Partners, subject to SECTION 10.4 hereof. 10.3 Restrictions on Transfer of General Partner's Interest: The General Partner shall not Transfer its Interest unless approved by the Limited Partners, which approval shall be First Amended and Restated Agreement of Limited Partnership - page 28 29 granted or withheld in the sole discretion of the Limited Partners; provided, however, that the General Partner may pledge its interest in the Partnership to secure any Partnership Indebtedness. Any entity to which the entire interest of the General Partner in the Partnership is transferred in compliance with this SECTION 10.3 shall be substituted in its stead as the General Partner of the Partnership by the filing of appropriate amendments to this Agreement. 10.4 Liability of the Withdrawn General Partner: If the General Partner shall retire, resign, withdraw or be removed from the Partnership or shall Transfer its interest in compliance with SECTION 10.3 hereof, it shall be and remain liable for all obligations and liabilities incurred by it as General Partner prior to the time such retirement, resignation, withdrawal, removal or Transfer, as provided in this ARTICLE 10, shall have become effective, but it shall be free of any obligation or liability incurred on account of the activities of the Partnership from and after the time such retirement, resignation, withdrawal, Transfer or removal shall have become effective and a successor General Partner shall have been elected pursuant to SECTION 10.5 hereof. Nothing contained in this SECTION 10.4 shall relieve the General Partner from any liability to the Partnership for breach of any of its obligations in this Agreement, including, without limitation, those set forth in SECTION 10.1. 10.5 Election of Successor General Partner: If pursuant to SECTIONS 10.1.1 or 11.1.1 hereof, the Majority Limited Partners elect to reconstitute and continue the business of the Partnership, a successor General Partner shall be appointed by the Majority Limited Partners. Upon the selection of a successor General Partner, all steps necessary to effect the substitution of such successor, including, without limitation, the filing of an appropriate amendment to the Partnership's certificate of limited partnership and the Agreement, shall be performed by the successor General Partner. Notwithstanding the foregoing, if the General Partner ceases to act as General Partner, and if a successor General Partner is not elected within ninety (90) calendar days of such cessation, then the Partnership shall be dissolved and wound up in accordance with ARTICLE 11 hereof. Without limiting the generality of any other provision hereof, expenses incurred in the reformation, or attempted reformation, of the Partnership shall be deemed expenses of the Partnership. ARTICLE 11. DISSOLUTION AND WINDING UP 11.1 Events Causing Dissolution: The Partnership shall be dissolved and its affairs wound up as soon as reasonably practicable upon the earliest to occur of: 11.1.1 The withdrawal of the General Partner, unless the Majority Limited Partners, within ninety (90) calendar days of the date of such event, elect to reconstitute the Partnership and continue its business and a successor General Partner is elected in accordance with SECTION 10.5 hereof; 11.1.2 The General Partner determines that the Partnership should be dissolved and so advises the Limited Partner in writing, and such determination is approved by the Limited Partners; 11.1.3 The receipt of the final sum due with respect to the sale or other disposition of all or substantially all of the assets of the Partnership; or 11.1.4 Entry of a decree of judicial dissolution under the Act. First Amended and Restated Agreement of Limited Partnership - page 29 30 Dissolution of the Partnership shall be effective on the day on which the event occurs giving rise to the dissolution, but the Partnership shall not terminate until the Partnership's certificate of limited partnership shall have been canceled and the assets of the Partnership shall have been distributed as provided in SECTION 11.2 hereof. Notwithstanding the dissolution of the Partnership prior to the termination of the Partnership as aforesaid, the business of the Partnership and the affairs of the Partners, as such, shall continue to be governed by this Agreement. 11.2 Winding Up: 11.2.1 Order of Payment: Upon dissolution of the Partnership for any reason, the General Partner, if it has not wrongfully dissolved the Partnership, or if the General Partner wrongfully dissolved the Partnership, a liquidating trustee appointed by the Majority Limited Partners, shall take full account of the Partnership assets and liabilities, shall liquidate the assets as promptly as is consistent with obtaining the Fair Market Value thereof, and shall apply and distribute the proceeds therefrom in the following order: (a) To the payment of creditors of the Partnership (including Partners, if any) in the order of priority provided by law, but excluding secured creditors whose obligations will be assumed or otherwise transferred on the liquidation of Partnership assets; (b) To the repayment of amounts due, if any, pursuant to ARTICLE 6 hereof (but subject to Section 10.1.2 hereof); (c) To the establishment of any reserves for contingencies which the General Partner or the liquidating trustee, as the case may be, may in their sole discretion deem necessary, desirable or appropriate; and (d) To the Partners pursuant to the provisions of SECTION 5.3 hereof. 11.2.2 Distributions in Kind: If any assets of the Partnership are to be distributed in kind, such assets shall be distributed on the basis of the Fair Market Value thereof, and any Partner entitled to any interest in such assets shall receive such interest therein as a tenant in common with all other Partners so entitled. 11.2.3 Distributions Upon Liquidation: All Distributions upon liquidation of the Partnership shall be made in accordance with SECTION 5.3 hereof. The Limited Partner shall look solely to the assets of the Partnership for all Distributions, and shall have no recourse therefor (upon dissolution or otherwise) against the General Partner, except with respect to any claims relating to the acts described in clauses (i) through (iii) of SECTION 10.1.2 hereof. 11.2.4 Time Limitation: Any liquidating Distribution pursuant to this SECTION 11.2 shall be made no later than the later of (a) the end of the taxable year during which such liquidation occurs or (b) ninety (90) days after the date of such liquidation. 11.2.5 Cancellation of Certificate: Upon completion of liquidation of the Partnership, the Partnership shall terminate and the General Partner or the liquidating trustee, as the case may be, shall have the authority to execute and record a certificate of cancellation of First Amended and Restated Agreement of Limited Partnership - page 30 31 the Partnership, as well as any and all other documents required to effectuate the dissolution and termination of the Partnership. ARTICLE 12. FINANCIAL MATTERS 12.1 Books and Records: The General Partner shall keep or cause to be kept in reasonable detail books and records of account of the Partnership's business. Such books and records of account shall be maintained at the principal place of business of the Partnership. A reasonable charge for copying books and records may be charged by the Partnership. 12.2 Accounting and Fiscal Year: The books of the Partnership shall be kept on the accrual basis and the Partnership shall report its operations for tax purposes on the accrual method. The fiscal year of the Partnership shall end on December 31 of each year. 12.3 Reports: 12.3.1 Income Tax Returns: The General Partner, at General Partner's expense (subject to the right of reimbursement from the lessee of the Partnership Property), shall cause income tax returns for the Partnership to be prepared and timely filed with the appropriate authorities. A copy of such returns shall be mailed to the Limited Partners promptly following the filing thereof. 12.3.2 Regulatory Reports: The General Partner, at General Partner's expense (subject to the right of reimbursement from the lessee of the Partnership Property), shall cause to be prepared and timely filed with appropriate federal and state regulatory and administrative bodies, all reports required to be filed with such entities under then current applicable laws, rules and regulations. Such reports shall be prepared on the accounting or reporting basis required by such regulatory bodies. The Limited Partners shall be provided with a copy of any such report without expense to such Partner. 12.3.3 Financial and Other Information. The General Partner, at Partnership expense, shall: (a) Annual Financial Reports. Furnish to the Limited Partner, on or about the same time as furnished to the "Agent" under the Credit Agreement, the same annual financial statements of the Partnership required by the Credit Agreement. (b) Quarterly Balance Sheets. Furnish to the Limited Partner, on or about the same time as furnished to the "Agent" under the Credit Agreement, the same quarterly balance sheet of the Partnership required by the Credit Agreement. (c) Other Information as Requested. Promptly furnish to the Limited Partner such other information regarding the operations, business affairs and financial condition of the Partnership Property as it may reasonably request from time to time and permit the Limited Partner, its employees, attorneys and agents, to inspect the Partnership Property and the books and records thereof at any reasonable time. 12.4 Section 754 Election: On request by any transferee of the Limited Partner's Interest, the Partnership shall make an election under Section 754 of the Code to adjust the First Amended and Restated Agreement of Limited Partnership - page 31 32 basis of Partnership Property on the Transfer, provided the transferee agrees to reimburse the Partnership for any additional costs incurred by the Partnership in making the election and maintaining the books and records on a going forward basis as a result of making such election. ARTICLE 13. AMENDMENT 13.1 Approval of Amendment: Except as otherwise expressly provided, this Agreement nor any terms hereof may be amended, supplemented, waived or modified without the written agreement and consent of all parties hereto provided that where the consent of Limited Partners is required, such consent (except as provided below) may be given by (x) Majority Limited Partners, and any such consent shall be binding on all Limited Partners, provided further, that no such amendment, modification, waiver or supplement shall, (i) without the consent of a Limited Partner, (A) extend or reduce the scheduled repayment of its Equity Contribution, or reduce the rate or extend the time of payment of Limited Partner Preferred Return (except (x) in connection with the waiver of applicability of any post-default increase in interest rates and (y) that any amendment or modification that is agreed to by Majority Limited Partners directly affected thereby to the financial definitions in the Operative Documents shall not constitute a reduction in the Applicable Equity Rate for purposes of this clause (A), notwithstanding the fact that such amendment or modification would otherwise actually result in such a reduction, so long as the primary purpose (as determined in good faith by Partnership) of the respective amendment or modification was not to decrease the pricing pursuant to this Agreement and the other Operative Documents), (B) release all or substantially all of Partnership's interest in the Equipment (except as expressly provided herein or in the Lease Agreement), (C) reduce the percentage specified in the definition of Majority Limited Partner or (D) amend this Section 13.1, (ii) without the consent of Equity Administrative Agent, amend, modify or waive any provision relating to the rights or obligations of Equity Administrative Agent or (iii) without the consent of General Partner, amend, modify or waive any provision relating to the rights or obligations of General Partner. ARTICLE 14. REPRESENTATIONS, WARRANTIES AND COVENANTS OF GENERAL PARTNER 14.1 Representations and Warranties: General Partner hereby represents and warrants as of the date hereof and as of the Closing Date for the benefit of each Limited Partner as follows: 14.1.1 No Loan Default or Loan Event of Default of which it has knowledge has occurred and is continuing. 14.1.2 General Partner's and Partnership's chief executive office and principal place of business is located at 2911 Turtle Creek Boulevard, Suite 1240, Dallas, Texas and General Partner's and Partnership's records with respect to the transactions contemplated by the Operative Documents are located at such address. 14.1.3 Each of General Partner and Partnership is duly qualified and is authorized to do business and is in good standing in each jurisdiction where ownership, leasing or operation of its property or the conduct of its business requires such First Amended and Restated Agreement of Limited Partnership - page 32 33 qualifications except for failures to be so qualified which, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on General Partner's or Partnership's ability to perform its obligations or exercise its rights under the Operative Documents to which it is a party or on the business, property, assets, liabilities, condition (financial or otherwise) or prospects of General Partner or Partnership. Upon request by any Limited Partner or as otherwise required by any of the Operative Documents, General Partner will cause the Partnership to be qualified in the State of Texas. 14.1.4 After giving effect to each Bill of Sale therefor, Partnership has good and marketable title to each Item of Equipment (including the parts and components thereof) and the Lessor Collateral is free and clear of any Liens attributable to General Partner or Partnership other than Permitted Liens and Collateral Agent Liens. 14.1.5 Neither General Partner nor Partnership nor any Person authorized to act on either of their behalf will permit any transfer of any interest in Partnership, directly or indirectly, that would result in Partnership being treated as a Publicly Traded Partnership pursuant to Code Section 7704. 14.2 Covenants of General Partner: Each of General Partner and Partnership covenants for the benefit of each Limited Partner (unless each shall have otherwise waived in writing compliance herewith) during the term of this Agreement as follows: 14.2.1 It shall take all actions as are required to keep the representations and warranties made by it in Section 14.1 (except, in the case of Section 14.1.2, if the location of such office shall change, it shall provide each Limited Partner with not less than ten (10) days' prior written notice of such change), true and correct in all material respects (but without regard to the date when such representations and warranties were made or are expressed to be effective) until such time as all of the obligations secured hereby have been paid in full. 14.2.2 It shall obtain and maintain, or cause to be obtained or maintained, in full force and effect, any authorization, approval, license, or consent of any governmental or judicial authority including those which may be or become necessary in order for Limited Partners to obtain the full benefits of this Agreement and all rights and remedies granted or to be granted herein. 14.2.3 The proceeds of each Tranche A Note, Tranche B Loan and Equity Contribution shall be used solely to finance Partnership's acquisitions of Items of Equipment in accordance with the terms of the Participation Agreement and for costs related to such transactions. No part of the proceeds of any Tranche A Note, Tranche B Loan or Equity Contribution will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. Neither the issuing of any Tranche A Note, the making of any Tranche B Loan, the acceptance of the Capital Contributions nor the use of the proceeds thereof will violate or be inconsistent with the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System. 14.2.4 It shall comply in all material respects with all Applicable Laws, rules, regulations and orders of any jurisdiction, such compliance to include paying when due First Amended and Restated Agreement of Limited Partnership - page 33 34 all Taxes imposed upon it or upon its property by any Governmental Entity except to the extent contested in good faith and for which adequate reserves have been segregated. 14.2.5 It shall promptly take, and maintain the effectiveness of, all action of the type referred to in Section 14.2.2 or otherwise that may, from time to time, be necessary or appropriate under Applicable Law in connection with the performance by Partnership of its obligations under the Operative Documents, or the taking of any action hereby or thereby contemplated, or necessary for the legality, validity, binding effect or enforceability of the Operative Documents, or for the making of any payment or the transfer or remittance of any funds by Partnership under the Operative Documents. 14.2.6 It shall duly pay and discharge (i) immediately upon the attachment thereof (A) in the case of General Partner, all Liens attributable to General Partner on any Partnership asset other than Permitted Liens, and (B) in the case of Partnership, any Lien on any Partnership asset other than Permitted Liens and Collateral Agent Liens, (ii) as and when due, all of its indebtedness and others obligations before the time that any Lien attaches unless and only to the extent that any such amounts are not yet due and payable or the validity thereof is being contested in good faith by appropriate proceedings so long as such proceedings do not involve any material danger of the sale, forfeiture or loss of the Items of Equipment or any interest therein and it maintains appropriate reserves with respect thereto or has made adequate provision for the payment thereof, in accordance with generally accepted accounting principles and approved by Equity Administrative Agent on behalf of the Majority Limited Partners and (iii) all Taxes imposed upon or against it or its property or assets, or upon any property leased by it, prior to the date on which penalties attach thereto. 14.2.7 It shall keep at all times books of record and account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and affairs, and provide or cause to be provided adequate protection against loss or damage to such books of record and account. 14.2.8 It shall not operate in a manner that would result in an actual, constructive or substantive consolidation with any Limited Partner or any other Person other than Lessee, General Partner or Co-Obligor in the case of Partnership or other than the Partnership, Lessee, Co-Obligor or General Partner's sole shareholder in the case of General Partner, and Partnership shall observe all limited partnership formalities, maintain records separately and independently from those of any Limited Partner or other Person and enter into any transactions with any Limited Partner only on an arm's-length contractual basis. 14.2.9 For so long as any Limited Partner Preferred Return remains owing or any Limited Partner has not been repaid its capital contributions, it shall not without the consent of all Limited Partners (i) enter into any business other than its acquisition, leasing, financing and sale of the Equipment, (ii) create, incur, assume or permit to exist any Indebtedness, except as expressly permitted by the Participation Agreement, (iii) enter into, or be a party to, any transaction with any Person, except the transactions set forth in the Operative Documents and as expressly permitted thereby, or (iv) make any investment in, guarantee the obligations of, or make or advance money to any Person, through the direct or indirect lending of money, holding of securities or otherwise except the transactions set forth in the Operative Documents and as expressly permitted thereby. First Amended and Restated Agreement of Limited Partnership - page 34 35 14.2.10 It shall not wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease (substantially as a whole), or otherwise dispose of (whether in one or in a series of transactions) its assets except as expressly permitted by this Agreement. 14.2.11 It shall not amend, waive supplement or modify any Operative Document in any manner that would, or consent to any amendment, waiver, supplementation or modification of any Operative Document that would in any manner, (i) extend the time of repayment of the Limited Partner Preferred Return, Capital Contributions or payment of Equity Yield (except (x) in connection with the waiver of applicability of any post-default increase in interest rates and (y) that any amendment or modification that is agreed to by Majority Limited Partners directly affected thereby to the financial definitions in the Operative Documents shall not constitute a reduction in the Applicable Equity Rate for purposes of this clause (i), notwithstanding the fact that such amendment or modification would otherwise actually result in such a reduction, so long as the primary purpose (as determined in good faith by Partnership) of the respective amendment or modification was not to decrease the pricing pursuant to this Agreement and the other Operative Documents), (ii) release or sell all or substantially all of Partnership's interest in the Equipment (except as expressly provided herein or in the Lease Agreement), or (C) reduce the percentage specified in the definition of Majority Limited Partners without the written agreement and consent of each Limited Partner. ARTICLE 15. COVENANTS AND CONDITIONS OF LIMITED PARTNERS 15.1 The obligations of each Limited Partner to make its Capital Contribution to the Partnership shall be subject to the satisfaction of each of the following conditions: 15.1.1 The conditions precedent to Partnership's obligation to lease the Equipment in accordance with the terms of the Participation Agreement (except for the condition precedent set forth in Section 3.1(r) of the Participation Agreement) shall have been satisfied, without waiver or modification (except as consented to by Equity Administrative Agent), and such Limited Partner shall have received copies of all documents and opinions with respect thereto and any other evidence of satisfaction of such conditions as Limited Partner may reasonably request. 15.1.2 There shall exist no Loan Default or Loan Event of Default and all representations and warranties of Partnership and General Partner contained herein and in the other Operative Documents shall be true and correct with the same effect as though such representations and warranties had been made on and as of the Closing Date. 15.1.3 The Capital Contribution to be made by such Limited Partner does not exceed its Equity Commitment. 15.1.4 Such Limited Partner shall have received original counterparts (unless otherwise specified) in each case duly authorized, executed and delivered by each other party thereto in full force and effect of this Agreement, the Lessor Indemnity and Security Agreement, Notice of Assignment and Financing Statements with respect to the First Amended and Restated Agreement of Limited Partnership - page 35 36 Lessor Indemnity and Security Agreement and its Partnership Certificate and copies of the Participation Agreement, Lease Agreement, Indenture and the Tranche B Loan Agreement. 15.1.5 Such Limited Partner shall have received in form and substance satisfactory to such Limited Partner, the Certificate of Limited Partnership certified as of the Closing Date by the Secretary of General Partner. 15.1.6 Such Limited Partner shall have received in form and substance satisfactory to such Limited Partner, the certificate of incorporation, by-laws and resolutions of General Partner's board of directors approving of the transaction contemplated herein, each certified as of the Closing Date by the Secretary of General Partner, duly authorizing the execution, delivery and performance by General Partner and Partnership of the Operative Documents to which each is a party, and each other document to be delivered in connection therewith to which it is a party, together with an incumbency certificate as to the person or persons authorized to execute and delivery such documents on behalf of General Partner and Partnership. 15.1.7 Such Limited Partner shall have received written opinions of counsel to General Partner, dated the Closing Date and addressed to each Limited Partner in form and substance reasonably acceptable to such Limited Partner. 15.2. Equity Commitment. Subject to and upon the terms and conditions set forth in Section 3 herein set forth for the benefit of Limited Partner, each Limited Partner agrees to make a single Capital Contribution to Lessor on the Closing Date in an amount up to the amount of its Equity Commitment. The aggregate of the Capital Contributions to be made on the Closing Date shall be equal to 3.063525% of the aggregate Acquisition Costs of the Equipment. Each party hereto agrees that, except as provided below, no Limited Partner shall be required to make any Capital Contribution hereunder in an amount in excess of its pro rata share (based upon the aggregate of the Equity Commitments) of the aggregate Equity Components. If the conditions to the obligations of any Limited Partner specified in Section 15.1 have not been fulfilled or waived by it on or before the Commitment Termination Date, such Limited Partner shall be relieved of all further obligations with respect to its Equity Commitment. 15.3 Limited Partner Covenants. Each Limited Partner covenants and agrees for the benefit of each party hereto (unless each party hereto shall have otherwise waived in writing compliance herewith) during the term of this Agreement it shall (i) not cause or permit to exist any Lien attributable to it with respect to the Items of Equipment or any other asset of Partnership other than Permitted Liens or Collateral Agent Liens, (ii) promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien attributable to it, and (iii) make restitution to Partnership for any actual diminution of the assets of Partnership resulting from any such Liens attributable to it. ARTICLE 16 ADMINISTRATIVE PROVISONS A. Administrative Agent First Amended and Restated Agreement of Limited Partnership - page 36 37 16.1.1 Calculation of Equity Yield. Each Limited Partner hereby authorizes and directs the General Partner to designate the Equity Administrative Agent to calculate the Equity Yield due on each Floating Payment Date and give notice of such amounts to Lessee, Partnership and each Limited Partner at least two (2) Business Days before such Floating Payment Date. 16.1.2 Agent Agreement. Each Limited Partner agrees that the agreement designating the Equity Administrative Agent shall provide, among other things, that neither Equity Administrative Agent nor any of its respective directors, officers, agents or employees shall be liable for any action taken or omitted by it or them under or in connection with any Operative Document, except for its or their own gross negligence or willful misconduct and, without limitation of the generality of the foregoing, Equity Administrative Agent (i) may consult with legal counsel (including counsel for Lessee), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted in good faith by it in accordance with the advice of such counsel, accountants or experts, (ii) makes no warranty or representation to Limited Partners and shall not be responsible to any Limited Partner for any statements, warranties or representations made in or in connection with any Operative Document, (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Operative Document on the part of Partnership or to inspect the property (including the books and records) of Lessee, General Partner or Partnership, (iv) shall not be responsible to any Limited Partner for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Operative Document or any other instrument or document furnished pursuant thereto, and (v) shall incur no liability under or in respect of any Operative Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by fax, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties (including, but not limited to any notice, consent, certification, other instrument or writing from Limited Partners). 16.1.3 Equity Administrative Agent and Affiliates. With respect to any Capital Contributions made by it, Equity Administrative Agent shall have the same rights and powers under each Operative Document as any other Limited Partner may have and may exercise the same as though it were not an agent hereunder. Equity Administrative Agent and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, Partnership, Lessee or Guarantor, any of their Affiliates and any Person who may do business with or own securities of Partnership, Lessee or Guarantor or any such Affiliate, all as if Equity Administrative Agent were not an agent hereunder and without any duty to account therefor to any other party hereto. 16.1.4 Credit Decisions. Each Limited Partner acknowledges that it has, independently and without reliance upon Equity Administrative Agent, and based on the financial statements of Partnership, General Partner, Lessee and Guarantor and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Limited Partner also acknowledges that it will, independently and without reliance upon Equity Administrative Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Operative Documents. First Amended and Restated Agreement of Limited Partnership - page 37 38 16.1.5 Successor Equity Administrative Agent; Termination of Agency. Equity Administrative Agent may resign at any time by giving at least fifteen (15) days written notice thereof to each Limited Partner, and Equity Administrative Agent may be removed at any time with or without cause by the General Partner upon the direction of the Majority Limited Partners. Upon any resignation or removal of Equity Administrative Agent, the General Partner upon the direction of the Majority Limited Partners shall appoint a successor Equity Administrative Agent. If no successor Equity Administrative Agent shall have been so appointed within thirty (30) days after any such resignation of removal, the retiring Equity Administrative Agent may, appoint a successor Equity Administrative Agent which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Equity Administrative Agent hereunder by a successor Equity Administrative Agent, such successor Equity Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Equity Administrative Agent, and the obligations under each Operative Document. ARTICLE 17 ISSUANCE OF LIMITED PARTNERSHIP INTEREST CERTIFICATES A. Certificates. 17.1.1 A Limited Partner's Partnership Interest shall be represented by the Capital Contribution made by each Limited Partner, as set forth opposite such Limited Partner's name in Exhibit B, as such Exhibit shall be amended from time to time. Notwithstanding any other provision of this Agreement, no fractional Units shall be issued. 17.1.2 Distributions. Distributions on Partnership Interests shall be made in accordance with Article V. 17.1.3 Certificates. Each Limited Partner's ownership of the Partnership Interest set forth opposite such Limited Partner's name in Exhibit B shall be evidenced by a certificate ("Partnership Certificate") in the form of Exhibit C executed by the General Partner. The Limited Partners hereby authorize and instruct the General Partner to issue Partnership Certificates to the Limited Partners for the Partnership Interests specified in Exhibit B. Upon any change in the Partnership Interest held by any Limited Partner, such Limited Partner shall deliver its Partnership Certificate to the General Partner to be canceled and the Partnership shall issue a replacement Partnership Certificate reflecting the adjusted Partnership Interest. Ownership of the Partnership Certificates shall be proved by a Partnership Certificate register kept by the Partnership and the Equity Administrative Agent. In the event of any conflict between the register maintained by the Partnership and the Equity Administrative Agent, the register maintained by the Partnership shall prevail. Prior to due presentment for registration of transfer of any Partnership Certificate, the Partnership and each other Partner may deem and treat the Person in whose name the Partnership Certificate is registered as the absolute owner of such Partnership Certificate for all purposes whatsoever and neither the Partnership nor any Partner shall be affected by any notice to the contrary. First Amended and Restated Agreement of Limited Partnership - page 38 39 ARTICLE 18 MISCELLANEOUS 18.1 Notices: All notifications, notices, demands, requests and other communications herein provided for or made pursuant hereto shall be in writing (including telegraphic, telex, telecopier or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered via courier to the addresses listed below. All such notices and communications shall, when mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, be effective when deposited in the mails, delivered to the telegraph company, cable company or overnight courier, as the case may be, or sent by telex or telecopier, except that notices and communications to Equity Administrative Agent shall not be effective until received by Equity Administrative Agent. A copy of all notices Lessee is required to deliver under the Operative Documents Partnership shall be delivered by Partnership to Equity Administrative Agent. The initial address of the parties hereto is as follows: Partnership or General Partner: BRL Universal Equipment 2001 A, L.P. c/o Brazos Universal Equipment Management, Inc. 2911 Turtle Creek Blvd. Suite 1240 Dallas, Texas 75219 Attention: Gregory C. Greene, President Telephone: (214) 522-7296 Telefax: (214) 520-2006 Limited Partners: Deutsche Bank A.G., New York Branch c/o Deutsche Bank Alex. Brown Inc. 31 West 52nd Street, Mail Stop 1411 New York, NY 10019 Attn: Robert Martorano, Jr., Director Global Asset Finance and Leasing Telephone: (212) 469-7393 Telefax: (212) 469-7398 First Union National Bank 301 South College Street Charlotte, NC 28288 Attn: Robert Wateroff Telephone: (704) 374-6221 Telefax: (704) 374-6249 Equity Administrative Agent: Deutsche Bank A.G., New York Branch c/o Deutsche Bank Alex. Brown Inc. 31 West 52nd Street, Mail Stop 1411 New York, NY 10019 Attn: Robert Martorano, Jr., Director Global Asset Finance and Leasing Telephone: (212) 469-7393 Telefax: (212) 469-7398
First Amended and Restated Agreement of Limited Partnership - page 39 40 18.2 Headings: Titles or captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define, amplify or limit the scope, extent or intent of this Agreement or any provisions hereof. 18.3 Severability: The provisions of this Agreement are severable, and if any section or provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 18.4 Litigation: Subject to the terms hereof, the General Partner shall prosecute and defend such actions at law or in equity as may be necessary to enforce or protect the interests of the Partnership. The Partnership and the General Partner shall respond to any final decree, judgment or decision of any court, board or authority having jurisdiction in the matter and shall satisfy any such decree, judgment or decision first out of any insurance proceeds available therefor, next out of the assets of the Partnership and finally out of the assets of the General Partner. A. Governing Law: 18.5.1 THIS AGREEMENT AND THE OTHER OPERATIVE DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF PARTNERSHIP AND GENERAL PARTNER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE PARTIES HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY HEREUNDER AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY OTHER PARTY IN ANY OTHER JURISDICTION. 18.5.2 EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. First Amended and Restated Agreement of Limited Partnership - page 40 41 18.5.3 EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER OPERATIVE DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 18.6 Execution and Effectiveness: This Agreement may be executed (i) in multiple counterparts, each of which shall be regarded as an original and all of which shall constitute a single instrument and shall become effective on the Closing Date when each of the parties hereto shall have signed a copy hereof (whether the same or different copies) and (ii) by facsimile signature and each such signature shall be treated in all respects as having the same effect as an original signature. 18.7 Parties in Interest: The terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the personal representatives, successors and permitted assigns of the respective Partners. 18.8 Waiver of Partition: Each Partner expressly waives any right that he might have to require a partition of any Partnership Property or a dissolution of the Partnership, except as otherwise specifically provided herein. 18.9 Person and Gender: Whenever required by the context hereof, the singular shall include the plural, and vice-versa, and the masculine gender shall include the feminine and neuter genders, and vice-versa. 18.10 Entire Agreement: This Agreement contains the entire understanding between the parties and any prior understanding and agreements between them respecting the within subject matter. 18.11 Survival: Each of the representations, warranties, terms, covenants, agreements and conditions contained in this Agreement shall specifically survive the execution and delivery of this Agreement and the other Operative Documents, the making of the Equity Contributions and shall, unless otherwise expressly provided therein, continue in full force and effect until the Equity Contributions together with the Equity Yield and all other sums payable hereunder or thereunder have been indefeasibly paid in full. 18.12 No Broker: Each party hereto hereby represents and warrants to the other parties that no broker other than Deutsche Banc Alex. Brown, Inc. (whose fees shall be paid solely by Lessee) brought about the transactions contemplated hereby and each party hereby agrees to indemnify (the "Indemnifying Party") and hold each other party harmless from, any and all other liabilities and costs (including, without limitation, costs of counsel) to any Person claiming brokerage commissions or finder's fees as a result of any agreement with the Indemnifying Party. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] First Amended and Restated Agreement of Limited Partnership - page 41 42 IN WITNESS WHEREOF, this Agreement has been executed as of the date first above written. GENERAL PARTNER: BRL UNIVERSAL EQUIPMENT MANAGEMENT, INC., a Delaware corporation By: /s/ GREGORY C. GREENE ------------------------------------- Gregory C. Greene, President LIMITED PARTNER: Deutsche Bank A.G., New York Branch, By: /s/ ROBERT MARTORANO, JR. -------------------------------------- Robert Martorano, Jr. Director By: /s/ GENNARO R. AGASTINO -------------------------------------- Gennaro R. Agastino, Assistant Vice President LIMITED PARTNER: First Union National Bank, By: /s/ DAVID HUMPHREYS -------------------------------------- David Humphreys, Vice President The party below executes this Agreement for the sole purpose of evidencing his withdrawal from the Partnership and the agreement of the other Partners of the Partnership to such withdrawal. /s/ GREGORY C. GREENE ------------------------------ Gregory C. Greene First Amended and Restated Agreement of Limited Partnership - page 42 43 EXHIBIT .A. Separateness Provisions A. The Partnership shall at all times: 1. Observe all partnership formalities; 2. Maintain its own separate and distinct books of account, bank accounts, and partnership records; 3. Cause its financial statements to be prepared in accordance with generally accepted accounting principles; 4. Pay all its liabilities out of its own funds (which does not preclude the Partnership from reimbursing others for paying Partnership liabilities); 5. In all dealings with the public, identify itself, and conduct its business, under its own name and as a separate and distinct entity, and not fail to correct any known misunderstanding regarding its separate identity; 6. Independently make decisions with respect to its business and daily operations; 7. Not identify itself or any of its affiliates as a division or part of the other; 8. Pay the salaries of its own employees, if any; 9. File its own tax returns; and 10. Not guarantee or hold out its credit as being available to satisfy the obligations of others. As used in this EXHIBIT .A., "affiliate" means any person controlling, under common control with, or controlled by the person in question, and the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise. B. The Partnership shall not (i) commingle its assets with those of, or pledge its assets for the benefit of, any other person, (ii) assume or guarantee, or hold out its credit as being available to satisfy, the debts, liabilities or obligations of any other person, (iii) acquire obligations or securities of, or make loans or advances to, any affiliate or (vi) incur any indebtedness except in accordance with the Credit Agreement. First Amended and Restated Agreement of Limited Partnership - page 43 44 EXHIBIT B LIST OF PARTNERS, EQUITY COMMITMENTS AND CAPITAL CONTRIBUTION
Partner Name and Equity Capital Address for Notices Commitments Contribution ------------------- ----------- ------------ Deutsche Bank A.G., New York Branch $6,540,625 $6,540,625 c/o Deutsche Bank Alex. Brown Inc. 31 West 52nd Street, Mail Stop 1411 New York, NY 10019 Attn: Robert Martorano, Jr., Director Global Asset Finance and Leasing Telephone: (212) 469-7393 Telefax: (212) 469-7398 First Union National Bank $6,540,625 $6,540,625 301 South College Street Charlotte, NC 28288 Attn: Robert Wateroff Telephone: (704) 374-6221 Telefax: (704) 374-6249
First Amended and Restated Agreement of Limited Partnership - page 44 45 EXHIBIT C NON-NEGOTIABLE PARTNERSHIP CERTIFICATE FOR BRL UNIVERSAL EQUIPMENT 2001 A, L.P. "This Certificate and the Partnership Interest represented hereby are subject to that certain Amended and Restated Agreement of Limited Partnership dated as of February 9, 2001, and any amendment thereto, a copy of which agreement is on file at the principal place of business of the Partnership, and any sale, gift, pledge, assignment, bequest, transfer, transfer in trust, mortgage, alienation, hypothecation, encumbering or disposition of the Partnership Interest represented hereby in any manner whatsoever, voluntarily or involuntarily, including, without limitation, any attachment, assignment for the benefit of creditors or transfer by operation of law or otherwise, or any transfer as a result of any voluntary or involuntary legal proceedings, execution, sale, bankruptcy, insolvency, or otherwise of this Certificate or the Partnership Interest represented hereby in violation of said agreement shall be invalid." Certificate No. _____ Partnership Interest: $________________ BRL UNIVERSAL EQUIPMENT 2001 A, L.P., a Delaware limited partnership (the "Partnership"), hereby certifies that _______________ (the "Holder") is the registered owner of the above referenced Partnership Interest in the Partnership. This Certificate is issued pursuant to the Amended and Restated Agreement of Limited Partnership dated as of February 9, 2001, as the same may be amended, modified or supplemented from time to time (the "Partnership Agreement"). The rights, powers, preferences, restrictions and limitations of the Partnership Interest represented hereby are set forth in, and the Certificate and the Partnership Interest represented hereby are issued and shall in all respects be subject to, the terms and provisions of the Partnership Agreement. This Certificate is a registered Certificate. The Partnership may deem and treat the person in whose name this Certificate is registered in the register held at the principal place of business of the Partnership as the absolute owner hereof for all purposes whatsoever and the Partnership shall not be affected by any notice to the contrary. THIS CERTIFICATE AND THE PARTNERSHIP INTEREST REPRESENTED BY THIS CERTIFICATE ARE NONTRANSFERABLE EXCEPT AS EXPRESSLY PROVIDED IN THE PARTNERSHIP AGREEMENT. By acceptance of this Certificate for the above referenced Partnership Interest, and as a condition to being entitled to any rights and/or benefits with respect to the Partnership Interest evidenced hereby, the Holder hereof (including any transferee hereof) is deemed to have agreed, whether or not such Holder is admitted to the Partnership as a Limited Partner of the Partnership with respect to the Partnership Interest evidenced hereby, to comply with and be bound by all the terms and conditions of the Partnership Agreement. First Amended and Restated Agreement of Limited Partnership - page 45 46 Date:______________ BRL UNIVERSAL EQUIPMENT 2001 A, L.P. By: BRL UNIVERSAL EQUIPMENT MANAGEMENT, INC. Its General Partner By: _________________________________ Title: _________________________________ First Amended and Restated Agreement of Limited Partnership - page 46 EX-3.4 5 h84315ex3-4.txt BYLAWS 1 EXHIBIT 3.4 BYLAWS OF BRL UNIVERSAL EQUIPMENT CORP. 2 TABLE OF CONTENTS BYLAWS OF BRL UNIVERSAL EQUIPMENT CORP.
Page ---- ARTICLE I OFFICES................................................................................... 1 Section 1. Registered Office......................................................................... 1 Section 2. Other Offices............................................................................. 1 ARTICLE II MEETINGS OF THE STOCKHOLDERS.............................................................. 1 Section 1. Place of Meetings......................................................................... 1 Section 2. Annual Meeting............................................................................ 1 Section 3. Special Meetings.......................................................................... 1 Section 4. Notice of Annual or Special Meeting....................................................... 1 Section 5. Business at Special Meeting............................................................... 2 Section 6. Quorum of Stockholders.................................................................... 2 Section 7. Act of Stockholders' Meeting.............................................................. 2 Section 8. Voting of Shares.......................................................................... 2 Section 9. Proxies................................................................................... 3 Section 10. Voting List............................................................................... 3 Section 11. Action by Written Consent Without a Meeting............................................... 3 ARTICLE III BOARD OF DIRECTORS........................................................................ 4 Section 1. Powers.................................................................................... 4 Section 2. Number of Directors....................................................................... 4 Section 3. Election and Term......................................................................... 4 Section 4. Vacancies................................................................................. 4 Section 5. Resignation and Removal................................................................... 5 Section 6. Compensation of Directors................................................................. 5 Section 7. Chairman of the Board..................................................................... 5 ARTICLE IV MEETINGS OF THE BOARD..................................................................... 5 Section 1. First Meeting............................................................................. 5 Section 2. Regular Meetings.......................................................................... 5 Section 3. Special Meetings.......................................................................... 5 Section 4. Business at Regular or Special Meeting.................................................... 6 Section 5. Quorum of Directors....................................................................... 6
(i) 3
Page ---- Section 6. Act of Directors' Meeting................................................................. 6 Section 7. Action by Unanimous Written Consent Without a Meeting..................................... 6 Section 8. Interested Directors...................................................................... 6 ARTICLE V COMMITTEES................................................................................ 7 ARTICLE VI NOTICES................................................................................... 7 Section 1. Methods of Giving Notice.................................................................. 7 Section 2. Waiver of Notice.......................................................................... 8 Section 3. Attendance as Waiver...................................................................... 8 ARTICLE VII DIRECTORS' ACTION WITHOUT A MEETING BY USE OF CONFERENCE TELEPHONE................................................................... 8 ARTICLE VIII OFFICERS.................................................................................. 8 Section 1. Executive Officers........................................................................ 8 Section 2. Election and Qualification................................................................ 9 Section 3. Salaries.................................................................................. 9 Section 4. Term, Removal and Vacancies............................................................... 9 Section 5. Chief Executive Officer................................................................... 9 Section 6. President................................................................................. 9 Section 7. Vice Presidents........................................................................... 9 Section 8. Secretary................................................................................. 9 Section 9. Assistant Secretaries..................................................................... 10 Section 10. Controller................................................................................ 10 Section 11. Assistant Controller...................................................................... 10 Section 12. Officers' Bond............................................................................ 10 ARTICLE IX CERTIFICATES FOR SHARES................................................................... 10 Section 1. Certificates Representing Shares.......................................................... 10 Section 2. Restriction on Transfer of Shares......................................................... 11 Section 3. Voting Agreements......................................................................... 11 Section 4. Transfer of Shares........................................................................ 11 Section 5. Lost, Stolen or Destroyed Certificate..................................................... 12 Section 6. Closing of Transfer Books and Fixing Record Date.......................................... 12 Section 7. Registered Stockholders................................................................... 13 ARTICLE X GENERAL PROVISIONS........................................................................ 13 Section 1. Dividends................................................................................. 13 Section 2. Reserves.................................................................................. 13 Section 3. Negotiable Instruments.................................................................... 13 Section 4. Fiscal Year............................................................................... 13 Section 5. Seal...................................................................................... 13
(ii) 4
Page ---- Section 6. Books and Records......................................................................... 13 ARTICLE XI INDEMNIFICATION........................................................................... 14 ARTICLE XII AMENDMENTS................................................................................ 14
(iii) 5 BYLAWS OF BRL UNIVERSAL EQUIPMENT CORP. ARTICLE I OFFICES Section 1. Registered Office. The address of the corporation's registered office in Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of Newcastle, Delaware 19801. The name of the corporation's registered agent at such address is The Corporation Trust Company. Section 2. Other Offices. The corporation also may have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or as the business of the corporation may require. ARTICLE II MEETINGS OF THE STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders for the election of directors or for any other proper purpose shall be held at such place either within or without the State of Delaware as the Board of Directors may from time to time designate, as stated in the notice of such meeting or a duly executed waiver of notice thereof. Section 2. Annual Meeting. An annual meeting of the stockholders shall be held at such time and date as the Board of Directors may determine. At such meeting the stockholders entitled to vote thereat shall elect a Board of Directors, and may transact such other business as properly may be brought before the meeting. Section 3. Special Meetings. Special meetings of the stockholders may be called by the Chairman of the Board of Directors, the President, the Board of Directors or the holders of not less than ten percent (10%) of all shares entitled to vote at the meeting. Section 4. Notice of Annual or Special Meeting. Written or printed notice stating the location, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the President, the Secretary, or the officer or person calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. 6 Section 5. Business at Special Meeting. The business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice thereof. Section 6. Quorum of Stockholders. Unless otherwise provided in the Certificate of Incorporation or applicable law, the holders of a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the stockholders. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement of location, day, and hour of the adjourned meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified, unless the adjournment is for more than thirty (30) days or a new record date is fixed for the adjourned meeting, in which case notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at such meeting. The stockholders present at a duly organized meeting may continue to transact business until adjournment, and the subsequent withdrawal of any stockholder or the refusal of any stockholder to vote shall not affect the presence of quorum at the meeting. Section 7. Act of Stockholders' Meeting. Except with respect to the election of directors, the vote of the holders of a majority of the shares entitled to vote and represented in person or by proxy at a meeting at which a quorum is present shall be the act of the stockholders' meeting, unless the vote of a greater number is required by law or the Certificate of Incorporation. Unless otherwise provided in the Certificate of Incorporation, directors shall be elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of stockholders at which a quorum is present and all elections of directors shall be by written ballot. Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. Section 8. Voting of Shares. Each outstanding share shall be entitled to one vote on each matter submitted to a vote at a meeting of the stockholders, except to the extent that the voting rights of the shares of any class are limited or denied by the Certificate of Incorporation or by a resolution of the Board of Directors designating a series of preferred stock. At each election for directors, every stockholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected and for whose election he has the right to vote. Unless permitted by the Certificate of Incorporation, no stockholder shall be entitled to cumulate his votes by giving one candidate as many votes as the number of such directors to be elected multiplied by the number of shares owned by -2- 7 such stockholder or by distributing such votes on the same principle among any number of such candidates. Section 9. Proxies. At any meeting of the stockholders, each stockholder having the right to vote shall be entitled to vote either in person or by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. No proxy shall be valid after three (3) years from its date of execution unless otherwise provided in the proxy. Each proxy shall be revocable unless expressly provided therein to be irrevocable and the proxy is coupled with an interest or otherwise made irrevocable by law. Section 10. Voting List. The officer or agent having charge of the stock ledger of the corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and number of shares held by each, which list shall be maintained, for a period of ten (10) days prior to such meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, and shall be subject to inspection by any stockholder at any time during the usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or transfer books of the corporation or to vote at any such meeting of stockholders. Section 11. Action by Written Consent Without a Meeting. Any action required or permitted by law, the Certificate of Incorporation, or these Bylaws to be taken at a meeting of the 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, is signed by the holders of stock having not less than the minimum number of votes that would be necessary to take such action at a meeting at which the holders of all shares entitled to vote on the action were present and voting. Consent does not have to be unanimous. Every written consent must bear the date of signature of each stockholder who signs the consent. No written consent shall be effective to take the action that is the subject of the consent unless, within sixty (60) days after the date of the earliest dated consent delivered to the corporation in the manner required by this Section 11, a consent or consents signed by the holder or holders of shares having not less than the minimum number of votes that would be necessary to take the action that is the subject of the consent are delivered to the corporation by delivery to its registered office, its principal place of business, or an officer or agent of the corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery shall be by hand or certified or registered mail, return receipt requested. Delivery to the corporation's principal place of business shall be addressed to the President or Chief Executive Officer of the Corporation. Prompt notice of the taking of any action by stockholders without a meeting by less than unanimous written consent shall be given to those stockholders who did not consent in writing to the action. -3- 8 ARTICLE III BOARD OF DIRECTORS Section 1. Powers. The business and affairs of the corporation shall be managed by or under the direction of its Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised and done by the stockholders. Section 2. Number of Directors. The number of directors shall consist of one (1) or more members as determined from time to time in accordance with these Bylaws by resolution of the Board of Directors, but no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Section 3. Election and Term. The directors, other than the initial directors, shall be elected at the annual meeting of the stockholders except as provided in Section 4 of this Article, and each director of the corporation shall hold office until his successor is elected and qualified or until his death, resignation or removal. Unless required by the Certificate of Incorporation, directors need not be residents of the State of Delaware or stockholders of the corporation. Cumulative voting in the election of directors or otherwise is hereby expressly prohibited. Section 4. Vacancies. Any vacancy occurring in the Board of Directors shall be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, or by a sole remaining director, or if no directors remain, by an election at an annual or special meeting of the stockholders called for that purpose. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by the affirmative vote of a majority of the directors. A director elected to fill a newly created directorship shall hold office until his successor is elected and qualified or until his death, resignation or removal. Notwithstanding the preceding provisions of this Section 4, whenever the holders of any class or series of shares are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, any vacancies in such directorships and any newly created directorships of such class or series to be filled by reason of an increase in the number of such directors may be filled by the affirmative vote of a majority of the directors elected by such class or series then in office or by a sole remaining director so elected. Unless otherwise provided in the Certificate of Incorporation or these Bylaws, when one (1) or more directors shall resign from the Board of Directors effective at a future date, a majority of the directors then in office, including those who so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become -4- 9 effective, and each director so chosen shall hold office as provided in this Section 4 in the filling of other vacancies. Section 5. Resignation and Removal. Any director may resign at any time upon giving written notice to the corporation. At any meeting of stockholders called expressly for the purpose of removing a director or directors, any director or the entire Board of Directors may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Section 6. Compensation of Directors. As specifically prescribed from time to time by resolution of the Board of Directors, the directors of the corporation may be paid their expenses of attendance at each meeting of the Board and may be paid a fixed sum for attendance at each meeting of the Board or a stated salary in their capacity as directors. This provision shall not preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. Section 7. Chairman of the Board. The Board of Directors, at its first meeting after each annual meeting of stockholders, shall elect one of its members Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and shall have such other powers and duties as usually pertain to such position or as may be delegated by the Board of Directors. ARTICLE IV MEETINGS OF THE BOARD Section 1. First Meeting. The first meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of the stockholders and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. Section 2. Regular Meetings. Regular meetings of the Board of Directors may be held with or without notice at such time and at such place either within or without the State of Delaware as from time to time shall be prescribed by the Board of Directors. Section 3. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or by a majority of the Board of Directors. Written notice of special meetings of the Board of Directors shall be given to each director at least twenty-four (24) hours before the time of the meeting. -5- 10 Section 4. Business at Regular or Special Meeting. 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 notice of such meeting. Section 5. Quorum of Directors. A majority of the Board of Directors shall constitute a quorum for the transaction of business, unless a greater number is required by law or the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 6. Act of Directors' Meeting. The act 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, unless the act of a greater number is required by law or the Certificate of Incorporation. Section 7. Action by Unanimous Written Consent Without a Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors or any executive committee under the provisions of any applicable law, the Certificate of Incorporation or these Bylaws may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all members of the Board of Directors or of the executive committee, as the case may be. Such consent shall have the same force and effect as a unanimous vote of the Board of Directors or of the executive committee, as the case may be. Section 8. Interested Directors. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association, or other organization in which one (1) or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or -6- 11 (c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved, or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction. ARTICLE V COMMITTEES The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in such resolution or in the Certificate of Incorporation or in these Bylaws, shall have and may exercise all the authority of the Board of Directors, subject to the limitations imposed by applicable law. The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate one or more of its members as alternate members of any committee, who may, subject to any limitations imposed by the Board of Directors, replace absent or disqualified members at any meeting of that committee. Vacancies in the membership of any such committee shall be filled by resolution adopted by the majority of the full Board of Directors at a regular or special meeting of the Board. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or him by law. All committees shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. To the extent applicable, the provisions of Article IV of these Bylaws governing the meetings of the Board of Directors shall likewise govern the meetings of any committee thereof. Any member of the executive committee or any other committee may be removed by the Board of Directors by the affirmative vote of a majority of the full Board, whenever in its judgment the best interests of the corporation will be served thereby. ARTICLE VI NOTICES Section 1. Methods of Giving Notice. Whenever any notice is required to be given to any stockholder or director under the provisions of any law, the Certificate of Incorporation or these Bylaws, it shall be given in writing and delivered personally or mailed to such stockholder or director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time the same shall be deposited in the United States mail with sufficient postage thereon prepaid. Notice to directors may also be given by telegram, telex, telecopy or similar means -7- 12 of visual data transmission, and notice given by any of such means shall be deemed to be delivered when transmitted for delivery to the recipient. Section 2. Waiver of Notice. Whenever any notice is required to be given to any stockholder or director under the provisions of any law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Section 3. Attendance as Waiver. Attendance of a stockholder or director at a meeting shall constitute a waiver of notice of such meeting, except where a stockholder or director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, a meeting need be specified in any written waiver unless required by the Certificate of Incorporation or these Bylaws. ARTICLE VII DIRECTORS' ACTION WITHOUT A MEETING BY USE OF CONFERENCE TELEPHONE Subject to the provisions required or permitted for notice of meetings, unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors or members of any committee designated by such Board may participate in and hold a meeting of such Board or committee by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE VIII OFFICERS Section 1. Executive Officers. The officers of the corporation shall consist of a President and a Secretary, and may also include one or more Vice Presidents, a Controller, and such other officers as are provided for in this Article VIII, each of whom shall be elected by the Board of Directors as provided in Section 2 of this Article. Any two (2) or more offices may be held by the same person. -8- 13 Section 2. Election and Qualification. The Board of Directors, at its first meeting held immediately after each annual meeting of stockholders, shall choose a President and a Secretary. The Board of Directors also may elect one or more Vice Presidents, a Controller, and such other officers, including assistant officers and agents as may be deemed necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. Section 3. Salaries. The compensation of all officers and agents of the corporation shall be determined by the Board of Directors. Section 4. Term, Removal and Vacancies. Each officer of the corporation shall hold office until his successor is chosen and qualified or until his death, resignation, or removal. Any officer may resign at any time upon giving written notice to the corporation. Any officer or agent or member of the executive committee elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors. Section 5. Chief Executive Officer. Unless the Board of Directors designates otherwise, the Chairman of the Board shall be the Chief Executive Officer of the corporation. The Chief Executive Officer shall preside at all meetings of the stockholders. The Chief Executive Officer shall have such other powers and duties as usually pertain to such office or as may be delegated by the Board of Directors. Section 6. President. The President shall be ex-officio a member of all standing committees and shall have general powers of oversight, supervision and management of the business and affairs of the corporation, and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall have such other powers and duties as usually pertain to such office or as may be prescribed by the Board of Directors. He shall execute bonds, mortgages, instruments, contracts, agreements, and other documentation, except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. Section 7. Vice Presidents. Unless otherwise determined by the Board of Directors, the Vice Presidents, in the order of their seniority as such seniority may from time to time be designated by the Board of Directors, shall perform the duties and exercise the powers of the President in the absence or disability of the President. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 8. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders, and shall record all the proceedings of the meetings -9- 14 of the stockholders and of the Board of Directors in books to be kept for that purpose, and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors. He shall keep in safe custody the seal of the corporation, and, when authorized by the Board of Directors, affix the same to any instrument requiring it. When so affixed, such seal shall be attested by his signature or by the signature of the Controller or an Assistant Secretary. Section 9. Assistant Secretaries. Unless otherwise determined by the Board of Directors, the Assistant Secretaries, in the order of their seniority as such seniority may from time to time be designated by the Board of Directors, shall perform the duties and exercise the powers of the Secretary in the absence or disability of the Secretary. They shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 10. Controller. The Controller shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 11. Assistant Controller. Unless otherwise determined by the Board of Directors, the Assistant Controller shall perform the duties and exercise the powers of the Controller in the absence or disability of the Controller. He shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 12. Officers' Bond. If required by the Board of Directors, any officer so required shall give the corporation a bond (which shall be renewed as the Board may require) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of any and all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. ARTICLE IX CERTIFICATES FOR SHARES Section 1. Certificates Representing Shares. The corporation shall deliver certificates representing all shares to which stockholders are entitled. Such certificates shall be numbered and shall be entered in the books of the corporation as they are issued, and shall be signed -10- 15 by the Chairman of the Board of Directors, the President or a Vice President, and by the Controller or an Assistant Controller, or the Secretary or an Assistant Secretary of the corporation, and may be sealed with the seal of the corporation or a facsimile thereof. Any or all signatures on the certificate may be a facsimile. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of its issuance. If the corporation is authorized to issue shares of more than one class, there shall be set forth upon the face or back of the certificate a statement that the corporation will furnish to any stockholder upon request and without charge, a full statement of all of the powers, designations, preferences, limitations and relative rights of the shares of each class authorized to be issued and the qualifications, limitations or restrictions of such preferences and/or rights and, if the corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the Board of Directors to fix and determine the relative rights and preferences of subsequent series. Each certificate representing shares shall state upon the face thereof that the corporation is organized under the laws of the State of Delaware, the name of the person to whom issued, the number and the class and the designation of the series, if any, which such certificate represents and the par value of each share represented by such certificate or a statement that the shares are without par value. No certificate shall be issued for any share until the consideration therefor has been fully paid. Section 2. Restriction on Transfer of Shares. If any restriction on the transfer, or registration of the transfer, of shares shall be imposed or agreed to by the corporation, as permitted by law, the Certificate of Incorporation, or these Bylaws, such restriction shall be noted conspicuously on each certificate representing shares in accordance with applicable law. Section 3. Voting Agreements. A written counterpart of any voting agreement entered into among any number of stockholders of the corporation, or any number of stockholders of the corporation and the corporation itself, for the purpose of providing that shares of the corporation shall be voted in the manner prescribed in the agreement shall be deposited with the corporation at its registered office in Delaware and shall be subject to the inspection by any stockholder of the corporation or any beneficiary of the agreement daily during business hours. In addition, certificates of stock or uncertificated stock shall be issued to the person or persons, or corporation or corporations authorized to act as trustee for purposes of vesting in such person or persons, corporation or corporations, the right to vote such shares, to represent any stock of an original issue so deposited with him or them, and any certificates of stock or uncertificated stock so transferred to the voting trustee or trustees shall be surrendered and cancelled and new certificates or uncertificated stock shall be issued therefore to the voting trustee or trustees. In the certificate so issued, if any, it shall be stated that it is issued pursuant to such agreement, and that fact shall also be stated in the stock ledger of the corporation. -11- 16 Section 4. Transfer of Shares. Subject to the provisions of Section 7 of this Article IX, upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon its books. Section 5. Lost, Stolen or Destroyed Certificate. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 6. Closing of Transfer Books and Fixing Record Date. For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution, or in order to make a determination of stockholders for any other proper purpose (other than determining stockholders entitled to consent to action taken by stockholders that is proposed to be taken without a meeting of stockholders), the Board of Directors may fix in advance a date as the record date for any such determination of stockholders, such date to not precede the date of adoption of the resolution fixing the record date, and such date to be not more than sixty (60) days, and, in case of a meeting of stockholders, not less than ten (10) days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend or other distribution, or for any other proper purpose, the close of business on the day next preceding the date on which notice of the meeting is mailed or if notice is waived, the close of business on the day next preceding the day on which the meeting is held or the date on which the resolution of the Board of Directors declaring such dividend or relating to such other proper purpose is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section 6, such determination shall apply to any adjournment thereof; provided that the Board of Directors may fix a new record date for the adjourned meeting. Whenever action by stockholders is proposed to be taken by consent in writing without a meeting of stockholders, the Board of Directors may fix a record date for the purpose of determining stockholders entitled to consent to that action, which record date shall not precede, and shall not be more than ten (10) 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 and the prior action of the Board of Directors is not required by law, the record date for determining -12- 17 stockholders entitled to consent to action in writing without a meeting 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, its principal place of business, or an officer or agent of the corporation having custody of the books in which proceedings of meeting of stockholders are recorded. Delivery to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date shall have been fixed by the Board of Directors and prior action of the Board of Directors is required by law, the record date for determining stockholders entitled to consent to action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts a resolution taking such prior action. Section 7. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. ARTICLE X GENERAL PROVISIONS Section 1. Dividends. The Board of Directors from time to time may declare, and the corporation may pay, dividends on its outstanding shares in cash, property, or its own shares pursuant to law and subject to the provisions of the Certificate of Incorporation and these Bylaws. Section 2. Reserves. The Board of Directors may by resolution create a reserve or reserves out of earned surplus for any proper purpose or purposes, and may abolish any such reserve in the same manner. Section 3. Negotiable Instruments. All bills, notes, checks or instruments for the payment of money shall be signed by such officer or officers or such other person or persons as permitted by these Bylaws or in such manner as the Board of Directors from time to time may designate. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 5. Seal. The corporation may adopt a seal and if adopted, it shall have inscribed thereon the name of the corporation and may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced. -13- 18 Section 6. Books and Records. The corporation shall keep books and records of account and shall keep minutes of the proceedings of the stockholders, the Board of Directors, and each committee of the Board of Directors. The corporation shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of the original issuance of shares issued by the corporation and a record of each transfer of those shares that have been presented to the corporation for registration of transfer. Such records shall contain the names and addresses of all past and current stockholders of the corporation and the number and class of shares issued by the corporation held by each of them. Any books, records, minutes, and share transfer records may be in written form or in any other form capable of being converted into written form within a reasonable time. ARTICLE XI INDEMNIFICATION Section 1. Mandatory Indemnification. To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, the corporation shall indemnify any and all of its directors and officers, or former directors and officers, or any person who may have served at the corporation's request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Section 2. Mandatory Advancement of Expenses. To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, the corporation shall pay in advance all expenses (including attorneys' fees) incurred by any director or officer, or former director or officer, or any person who may have served at the corporation's request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, in defending any civil, criminal, administrative or investigative action, suit or proceeding. Such person shall repay such amount to the corporation if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized by this Article XI. ARTICLE XII AMENDMENTS These Bylaws may be altered, amended, or repealed or new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board, subject to the stockholders' right to adopt, amend or repeal these Bylaws or adopt new Bylaws. -14- EX-4.10 6 h84315ex4-10.txt INDENTURE DATED 2/9/01 1 EXHIBIT 4.10 BRL UNIVERSAL COMPRESSION FUNDING I, L.P. Issuer and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION Indenture Trustee ----------------------------------------- INDENTURE Dated as of February 9, 2001 ----------------------------------------- 2 TABLE OF CONTENTS
ARTICLE I DEFINITIONS Section 101. Defined Terms..............................................................3 Section 102. Other Definitional Provisions.............................................25 Section 103. Computation of Time Periods...............................................26 ARTICLE II THE NOTES Section 201. Authorization of Notes....................................................27 Section 202. Form of Notes; Global Notes...............................................27 Section 203. Execution; Recourse Obligation............................................30 Section 204. Certificate of Authentication.............................................31 Section 205. Registration; Registration of Transfer and Exchange of Notes..............31 Section 206. Mutilated, Destroyed, Lost and Stolen Notes...............................33 Section 207. Delivery, Retention and Cancellation of Notes.............................33 Section 208. ERISA Deemed Representations..............................................34 ARTICLE III PAYMENT OF NOTES; STATEMENTS TO NOTEHOLDERS Section 301. Principal and Interest....................................................34 Section 302. Trust Account.............................................................34 Section 303. Investment of Monies Held in the Trust Account and Series Accounts; Control over Eligible Investments...............................37 Section 304. Reports to Noteholders....................................................38 Section 305. Records...................................................................38 Section 306. CUSIP Numbers.............................................................38 Section 307. No Claim..................................................................38 Section 308. Compliance with Withholding Requirements..................................38 Section 309. Tax Treatment of Notes....................................................38 ARTICLE IV COLLATERAL Section 401. Collateral................................................................39 Section 402. Pro Rata Interest.........................................................39 Section 403. Indenture Trustee's Appointment as Attorney-in-Fact.......................40
3 Section 404. Release of Security Interest..............................................40 Section 405. Administration of Collateral..............................................42 ARTICLE V RIGHTS OF NOTEHOLDERS; ALLOCATION AND APPLICATION OF COLLECTIONS; REQUISITE GLOBAL MAJORITY Section 501. Rights of Noteholders.....................................................42 Section 502. Collections and Allocations...............................................43 Section 503. Determination of Requisite Global Majority................................43 ARTICLE VI COVENANTS Section 601. Payment of Principal and Interest; Payment of Taxes.......................43 Section 602. Maintenance of Office.....................................................44 Section 603. Corporate Existence.......................................................44 Section 604. Protection of Collateral..................................................44 Section 605. Enforce Head Lease Rights.................................................45 Section 606. Negative Covenants Regarding Collateral...................................45 Section 607. Non-Consolidation of the Issuer...........................................45 Section 608. No Bankruptcy Petition....................................................46 Section 609. Liens; Fixtures...........................................................46 Section 610. Other Debt................................................................46 Section 611. Guarantees, Loans, Advances and Other Liabilities.........................46 Section 612. Consolidation, Merger and Sale of Assets..................................47 Section 613. Other Agreements..........................................................47 Section 614. Charter Documents.........................................................47 Section 615. Capital Expenditures......................................................47 Section 616. Permitted Activities; Compliance with Limited Partnership Agreement.......47 Section 617. Investment Company Act....................................................48 Section 618. Payments of Collateral....................................................48 Section 619. Notices...................................................................48 Section 620. Books and Records.........................................................48 Section 621. Taxes.....................................................................48 Section 622. Subsidiaries..............................................................49 Section 623. Investments...............................................................49 Section 624. Use of Proceeds...........................................................49 Section 625. Asset Base Certificate....................................................49 Section 626. Financial Statements......................................................49 Section 627. Other Information.........................................................49
-ii- 4 Section 628. Independent Directors of General Partner..................................49 Section 629. [Reserved.................................................................50 Section 630. Hedging Requirements......................................................50 Section 631. Separate Identity.........................................................50 Section 632. New Master Lease Agreement with Users.....................................50 Section 633. Annual Perfection Opinion.................................................51 ARTICLE VII DISCHARGE OF INDENTURE; PREPAYMENTS Section 701. Full Discharge............................................................51 Section 702. Prepayment of Notes.......................................................51 ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES Section 801. Event of Default..........................................................52 Section 802. Acceleration of Stated Maturity; Rescission and Annulment.................54 Section 803. Collection of Indebtedness................................................55 Section 804. Remedies 55 Section 805. Indenture Trustee May Enforce Claims Without Possession of Notes..........56 Section 806. Allocation of Money Collected.............................................57 Section 807. Limitation on Suits.......................................................58 Section 808. Unconditional Right of Holders to Receive Principal and Interest..........59 Section 809. Restoration of Rights and Remedies........................................59 Section 810. Rights and Remedies Cumulative............................................59 Section 811. Delay or Omission Not Waiver..............................................59 Section 812. Control by Requisite Global Majority......................................59 Section 813. Waiver of Past Defaults...................................................60 Section 814. Undertaking for Costs.....................................................60 Section 815. Waiver of Stay or Extension Laws..........................................60 Section 816. Sale of Collateral........................................................60 Section 817. Action on Notes...........................................................61 ARTICLE IX CONCERNING THE INDENTURE TRUSTEE Section 901. Duties of the Indenture Trustee...........................................61 Section 902. Certain Matters Affecting the Indenture Trustee...........................63 Section 903. Indenture Trustee Not Liable..............................................64 Section 904. Indenture Trustee May Own Notes...........................................65 Section 905. Indenture Trustee's Fees and Expenses.....................................65
-iii- 5 Section 906. Eligibility Requirements for the Indenture Trustee........................65 Section 907. Resignation and Removal of the Indenture Trustee..........................66 Section 908. Successor Indenture Trustee...............................................66 Section 909. Merger or Consolidation of the Indenture Trustee..........................67 Section 910. Separate Indenture Trustees, Co-Indenture Trustees and Custodians.........67 Section 911. Representations and Warranties............................................68 Section 912. Indenture Trustee Offices.................................................70 Section 913. Notice of Event of Default................................................70 Section 914. Indenture Trustee's Application for Instructions from the Issuer..........70 Section 915. Indenture Trustee's Duties - Quarterly Tape...............................70 Section 916. Indenture Trustee's Duties - Monthly Tape.................................70 ARTICLE X SUPPLEMENTAL INDENTURES; AMENDMENTS Section 1001. Supplemental Indentures (Not Creating a New Series) Not Requiring Consent of Holders..........................................71 Section 1002. Supplemental Amendment (Not Creating a New Series) with Consent of Holders...................................................72 Section 1003. Execution of Supplemental Indentures......................................74 Section 1004. Effect of Supplemental Indentures.........................................74 Section 1005. Reference in Notes to Supplemental Indentures.............................74 Section 1006. Issuance of Series of Notes...............................................74 ARTICLE XI HOLDERS LISTS Section 1101. Indenture Trustee to Furnish Issuer Names and Addresses of Holders........75 Section 1102. Preservation of Information; Communications to Holders....................76 ARTICLE XII MISCELLANEOUS PROVISIONS Section 1201. Compliance Certificates and Opinions......................................76 Section 1202. Form of Documents Delivered to Indenture Trustee..........................76 Section 1203. Acts of Holders...........................................................77 Section 1204. Inspection................................................................77 Section 1205. Limitation of Rights......................................................78 Section 1206. Severability..............................................................78 Section 1207. Notices...................................................................78 Section 1208. Consent to Jurisdiction...................................................79 Section 1209. Captions..................................................................79 Section 1210. Governing Law.............................................................79
-iv- 6 Section 1211. No Petition...............................................................79 Section 1212. General Interpretive Principles...........................................79 Section 1213. WAIVER OF JURY TRIAL......................................................80 Section 1214. Waiver of Immunity........................................................80 Section 1215. Judgment Currency.........................................................80
Exhibits - -------- A -- Form of Non-Recourse Release B -- Investment Letter C -- Form of Master Lease D -- Interest Rate Swap Agreements
-v- 7 This Indenture, dated as of February 9, 2001 (as amended or supplemented from time to time as permitted hereby, the "Indenture"), between BRL UNIVERSAL COMPRESSION FUNDING I, L.P., a limited partnership formed under the laws of the State of Delaware (the "Issuer") and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee. GRANTING CLAUSE To secure the payment of all Outstanding Obligations and the performance of all of the Issuer's covenants and agreements in this Indenture and all other Related Documents, the Issuer hereby grants, assigns, conveys, mortgages, pledges, hypothecates and transfers to the Indenture Trustee, for the benefit of the Noteholders, any Series Enhancer and any Eligible Interest Rate Swap Counterparty, a security interest in and to all of the Issuer's right, title and interest in, to and under the following, whether now existing or hereafter created or acquired: (i) the Compressors (including all Substitute Compressors acquired by the Issuer from time to time) and other Sold Assets acquired by the Issuer from time to time; (ii) the Head Lease, including without limitation, (A) any and all payments and payment obligations of the Head Lessee thereunder, (B) all proceeds from any expropriation, seizure or condemnation payable to the Head Lessor pursuant thereto and any insurance proceeds payable to the Head Lessor pursuant thereto, (C) the Head Lessee Security Agreement and the Head Lease Collateral and (D) all rights of the Head Lessor to receive any payments or other amounts or to exercise any election or option or to make any decision or determination or to give or receive any notice, consent, waiver or approval or to take any other action under or in respect of the Head Lease, the Head Lessee Security Agreement, or the Head Lease Collateral, accept surrender or redelivery of the Head Lease Collateral or any part thereof, as well as all the rights, powers and remedies on the part of the Head Lessor, whether acting under the Head Lessee Security Agreement or by statute or at law or in equity or otherwise, arising out of any Head Lease Event of Default under the Head Lease and any right to restitution from the Head Lessee, any sublessee or any other Person in respect of any determination of invalidity of any such document; (iii) all cash and cash equivalents, Eligible Investments, Financial Assets, Investment Property, Securities Entitlements and other instruments or amounts credited or deposited from time to time in any Trust Account, the Lockbox Accounts and any Series Account; (iv) the Contribution Agreement, the Bills of Sale, the Sale Agreement, the Management Agreement, the Management Guaranty, the Representations and Warranties Agreement, the Intercreditor Agreement, all Interest Rate Swap Agreements and all other Related Documents; (v) all income, payments and Proceeds of the foregoing; and (vi) all of the following which arise out of or in any way relate to (but only to the extent they relate to) the Compressors and other Sold Assets acquired from time to time: 8 (a) All Accounts; (b) All Chattel Paper; (c) All Contracts; (d) All Documents; (e) All General Intangibles; (f) All Instruments; (g) All Inventory; (h) All property of the Issuer held by the Indenture Trustee including, without limitation, all property of every description now or hereafter in the possession or custody of or in transit to the Indenture Trustee for any purpose, including, without limitation, safekeeping, collection or pledge, for the account of the Issuer, or as to which the Issuer may have any right or power (but only to the extent such property relates to the Compressors and other Sold Assets acquired from time to time); (i) To the extent not included above and without limiting the foregoing, all Chattel Paper, all Leases and all schedules, supplements, amendments, modifications, renewals, extensions, and all guarantees and other credit support with respect to the foregoing, in each case whether now owned or hereafter acquired and all amounts, rentals, proceeds and other sums of money due and to become due under the Head Lease and/or Compressor Related Agreements, including (in each case only to the extent related to the Head Lease and/or the Compressors), without limitation, (1) all rentals, payments and other moneys, including all insurance payments and claims for losses due and to become due to the Issuer under, and all claims for damages arising out of the breach of, any Compressor Related Agreement; (2) the right of the Issuer to terminate, perform under, or compel performance of the terms of the Compressor Related Agreements; and (3) any guarantee of or credit support with respect to the Compressor Related Agreements and any rights of the Issuer in respect of any subleases or assignments permitted under the Compressor Related Agreements; (j) All insurance proceeds of the Compressors and the other Collateral and all proceeds of the voluntary or involuntary disposition of the Compressors and the other Collateral; (k) Any and all payments made or due to the Issuer in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Compressors and the other Collateral by any Governmental Authority and any other cash or non-cash receipts from the sale, exchange, collection or other disposition of the Compressors and the other Collateral; (l) To the extent not otherwise included, all income and Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing; and -2- 9 (m) Subject to the terms and conditions set forth in the Intercreditor Agreement, all of the Issuer's funds from time to time on deposit in the Lockbox Accounts and the Proceeds thereof. All of the property described in this Granting Clause is herein collectively called the "Collateral". In furtherance of the foregoing, the Issuer hereby appoints the Indenture Trustee as its designee for purposes of exercising any power of attorney or right granted by the Manager pursuant to the Management Agreement. ARTICLE 1 DEFINITIONS Section 101. Defined Terms. Capitalized terms used in this Indenture shall have the following meanings and the definitions of such terms shall be equally applicable to both the singular and plural forms of such terms: Accounts: Any "account," as such term is defined in Section 9-106 of the UCC, arising out of or in any way related to the Compressors and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to the Issuer (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by the Issuer or from any other transaction, whether or not the same involves the sale of goods or services by the Issuer (including, without limitation, any such obligation which may be characterized as an account or contract right under the UCC) and all of the Issuer's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of the Issuer's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to the Issuer under all purchase orders and contracts for the sale of goods or the performance of services or both by the Issuer (whether or not earned by performance on the part of the Issuer or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security credit support and guarantees of any kind given by any Person with respect to any of the foregoing. Act: Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture or any Supplement to be given or taken by Noteholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Noteholders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Indenture Trustee, with a copy (or if expressly required an original) to the Issuer and the Manager. Such instrument or instruments (and the action embodied therein and evidenced -3- 10 thereby) are herein sometimes referred to as the "Act" of the Noteholders signing such instrument or instruments. Additional Payments: Has the meaning set forth in Section 1 of the Head Lease. Advance Rate: The Advance Rate for each Lease Pool is set forth opposite the numerical designation of such Lease Pool in the table set forth below; provided, however, that the Advance Rate for a particular Lease Pool will reduce to zero on and after the date on which a Head Lease Event of Default shall have occurred and then be continuing:
Supplement Number Lease Pool Designation Advance Rate ----------------- ---------------------- ------------ 1 1 80% 2 2 75% 3 3 70% 4 4 70% 5 5 65% 6 6 60%
Affiliate: With respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Aggregate Appraised Value: The sum of the most recently available Appraised Values of the Compressors; provided, however, that if the Return Option has been selected on the most recent Termination Date in accordance with the provisions of Section 20.2 of the Head Lease, then, notwithstanding the results of any Appraisal, the Aggregate Appraised Value for the remaining Compressors will not exceed the product of (a) total horsepower of all Compressors and (b) the quotient of (i) the Net Sales Proceeds obtained in the most recent sale of Compressors made in connection with the exercise of the Return Option divided by (ii) the total number of horsepower in the Lease Pool sold pursuant to the Return Option. Applicable Law: With respect to any Person or Compressor, all existing laws, rules, regulations (including proposed, temporary and final income tax regulations), statutes, treaties, codes, ordinances, permits, certificates, orders and licenses of and interpretations by any Governmental Authority and judgments, decrees, injunctions, writs, or orders of any court, arbitrator or other administrative, judicial, or quasi-judicial tribunal or agency of competent jurisdiction applicable to such Person or item of equipment. -4- 11 Appraisal: An appraisal prepared by an Eligible Appraiser in conformity with, and subject to, the requirements of the code of professional ethics and standards of professional conduct of the American Society of Appraisers with respect to one or more Compressors which shall take into account, but not limited to, considerations such as the type of equipment, original year of manufacture and any refurbishment or overhaul of such equipment and compliance with the Maintenance Policy; provided that such Appraisal shall be conducted not more than 60 days prior to the Closing Date, each annual anniversary of the Closing Date or any other date specified in the Related Documents on which the Appraised Value is to be determined. The Appraised Value of a Compressor shall be automatically adjusted upon the delivery of any subsequent Appraisal in accordance with the terms of the Related Documents. Appraisal Date: The Payment Date occurring in February of each calendar year, commencing with the Payment Date in February 2002. Appraised Value: With respect to each Compressor, an amount equal to the mathematical average of three Appraisals, each of which shall estimate the amount which would be obtained in an arm's-length, all cash transaction between an informed and willing purchaser under no compulsion to buy and an informed and willing seller under no compulsion to sell such Compressor, which determination shall take into account (i) the age, type, manufacturer and physical condition of such Compressor, (ii) the actual level of compliance with the Manager's Maintenance Policy then in effect, (iii) all Liens on such Compressor and (iv) any material legal impediments to the prompt sale of such property interest; provided however, that for purposes of calculating the Asset Base, the Appraised Value of a Compressor that has been sold by or on behalf of Head Lessor and/or Head Lessee or that has been subject to a Casualty Loss shall be deemed to be zero. Asset Base: As of any date of determination, an amount equal to the lesser of (A) the product of (x) the Appraised Value of all Eligible Compressors (for the avoidance of doubt, this clause (x) includes all Head Lessor Compressors and all Head Lessee Compressors) and (y) the lesser of (i) 70% and (ii) the simple mathematical average (but not the weighted average) of the Advance Rates of all Lease Pools then outstanding; and (B) the product of (x) four and one-half (4.5) and (y) annualized Net Revenue for the Collection Period immediately preceding each Annual Appraisal Date, provided, however, that in calculating Net Revenue for purposes of this clause (B), such amount will be calculated utilizing the Monthly S&A Fee Rate and Operations Fee Rates that will be in effect for the next succeeding year as determined in accordance with the provisions of the Management Agreement. Asset Base Certificate: A certificate with appropriate insertions setting forth the components of the Asset Base as of the last day of the month for which such certificate is submitted, which certificate shall be in the form attached to the Management Agreement and shall be certified by an Authorized Signatory. Authorized Officer: With respect to any matter, any officer of or other Person representing the Issuer, the Manager or a Noteholder, as the case may be, who is authorized to act for that party with respect to the applicable matter. -5- 12 Authorized Signatory: Any Person designated by written notice delivered to the Indenture Trustee, the Deal Agent and any Series Enhancer as authorized to execute documents and instruments on behalf of a Person. Available Distribution Amount: For any Payment Date, an amount equal to the sum (without duplication) of (i) all Head Lessor Collections received during the immediately preceding Collection Period, (ii) all amounts received by the Issuer on the related Determination Date pursuant to any Interest Rate Swap Agreement, (iii) all Manager Advances received by the Issuer on the related Determination Date and (iv) any earnings on Eligible Investments in the Trust Account to the extent that such earnings were credited to such account during the related Collection Period. Back-up Management Agreement: A management agreement, in form and substance reasonably acceptable to the Requisite Global Majority among an Eligible Back-up Manager, the Manager, the Head Lessee and the Issuer. Back-up Manager: This term shall have the meaning set forth in Section 1 of the Management Agreement. Back-up Manager Fee: Shall have the meaning set forth in Section 1 of the Management Agreement. Bankruptcy Code: The Bankruptcy Reform Act of 1978, as amended. Bills of Sale: The Bills of Sale, dated as of February 9, 2001, by any Person(s) conveying Compressors to the Issuer other than UCI. Book Entry Custodian: The Person appointed pursuant to Section 202(g) hereof to act in accordance with a certain letter of representations agreement such person has with DTC, in which DTC delegates its duties to maintain the Book Entry Notes to such Person and authorizes such Person to perform such duties. Book Entry Notes: Each Note for so long as such Note is registered in the name of its depository or its nominee in accordance with the terms and conditions of the Indenture. Business Day: Any day other than a Saturday, a Sunday or a day on which banking institutions in New York City, London, England, Houston, Texas, Charlotte, North Carolina, or the city in which the Corporate Trust Office of the Indenture Trustee is located, are authorized or are obligated by law, executive order or governmental decree to be closed. Capital: Has the meaning set forth in Article I of the Partnership Agreement. Casualty Loss: Any of the following events with respect to any Compressor: (a) the actual total loss of such Compressor, (b) the Issuer's knowledge that such Compressor has become lost, stolen or destroyed, (c) 30 days following the Issuer's determination that such Compressor is damaged beyond repair or permanently rendered unfit for use for any reason whatsoever, or (d) if -6- 13 such Compressor is subject to a Lease, such Compressor shall have been deemed under its Lease to have suffered a casualty loss. Certificates: The certificates or other evidence of ownership held by the Preferred Limited Partners. Chattel Paper: Any lease or other "chattel paper," as such term is defined in Section 9-105(1)(b) of the UCC, arising out of or in any way related to the Compressors now owned or hereafter acquired by the Issuer. Class: With respect to any Series, all Notes having the same rights to payment and the same Final Maturity Date under the related Supplement. Closing Date: February 9, 2001. Code: The Internal Revenue Code of 1986, as amended, or any successor statute thereto. Collateral: This term shall have the meaning set forth in the Granting Clause of this Indenture. Collection Period: With respect to the first Payment Date, the period commencing on the Closing Date and ending on the last day of the next succeeding calendar month and for any subsequent Payment Date, the period from the first day of the calendar month immediately preceding the month in which such Payment Date occurs through the last day of such calendar month. Compressor: A natural gas compressor equipment unit, together with any tangible components thereof and all related appliances, parts, accessories, appurtenances, accessions, additions, improvements, replacements and other equipment or components of any nature from time to time incorporated or installed therein, owned by the Issuer or the Head Lessee. Compressor Related Agreement: Any agreement relating to (i) the Compressors or (ii) the use or management of such Compressors, whether in existence on any Series Issuance Date or thereafter acquired, including, but not limited to, all User Leases, the Management Agreement, the Contribution Agreement, the Head Lease, the Sale Agreement (if any), the Representations and Warranties Agreement (if any) and all Chattel Paper. Compressor Representations and Warranties: This term shall have the meaning set forth in the Contribution Agreement. Contracts: All contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments), arising out of or in any way related to the Compressors or to the Notes, in or under which the Issuer may now or hereafter have any right, title or interest, including, without limitation, the Management Agreement, the Contribution Agreement, the Bill of Sale, the Sale Agreement, the Representations and Warranties Agreements (if any), any Interest Rate Swap Agreements and any related agreements, security interests or UCC -7- 14 or other financing statements and, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. Contribution Agreement: The Contribution Agreement, dated as of February 9, 2001, between Universal and the Head Lessee, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. Contributor: This term shall have the meaning set forth in Section 1.01 of the Contribution Agreement. Control Party: This term shall have the meaning set forth in Section 402 of the related Supplement. Conversion Date: For each Series, has the meaning set forth in the applicable Supplement. Corporate Trust Office: The principal office of the Indenture Trustee at which at any particular time its corporate trust business shall be administered, which office shall initially be located at MAC N9311-161, Sixth Street and Marquette Avenue, Minneapolis, MN 55479. Corporate Trust Officer: Any Treasurer, Assistant Treasurer, Assistant Trust Officer, Trust Officer, Assistant Vice President, Vice President or Senior Vice President of the Indenture Trustee or any other officer who customarily performs functions similar to those performed by the Persons who at the time shall be such officers to whom any corporate trust matter is referred because of their knowledge of and familiarity with the particular subject. Deal Agent: This term shall have the meaning set forth in Section 101 of the Supplement. Default Interest: The incremental interest specified in the related Supplement payable by the Issuer resulting from (i) the failure of the Issuer to pay when due any principal or interest of the Notes of the related Series and (ii) the occurrence of an Event of Default with respect to such Series. Definitive Note: A Note issued in definitive form pursuant to the terms and conditions of Section 202 hereof. Depreciation Expense: Depreciation expense shall be calculated utilizing either (i) a depreciation policy which provides for calculation in accordance with straight-line depreciation over a fifteen (15) year useful life to an estimated residual value of twenty percent (20%) of the original cost of such Compressor or (ii) such other depreciation policy as may be utilized by the Manager from time to time, provided that use of such depreciation policy is more conservative than the standard described in clause (i) above (e.g., use of such depreciation policy would result in (a) a higher annual Depreciation Expense or (b) a lower estimated residual value) and is otherwise in accordance with GAAP. Depositary: The Depository Trust Company until a successor depositary shall have become such pursuant to the applicable provisions of the Indenture and thereafter "Depositary" shall mean or include each Person who is then a Depositary thereunder. For purposes of the Indenture, unless -8- 15 otherwise specified pursuant to Section 202, any successor Depositary shall, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Exchange Act, and any other applicable statute or regulation. Depositary Participants: A broker, dealer, bank, other financial institution or other Person for whom from time to time the Depositary effects book-entry transfers and pledges of securities deposited with the Depositary. Determination Date: The third Business Day prior to any Payment Date. Documents: Any "documents," as such term is defined in Section 9-105(1)(f) of the UCC, arising out of or in any way related to the Compressors and now owned or hereafter acquired by the Issuer. Dollars: United States Dollars. DTC: The Depository Trust Company. Effective Date: The date upon which the Notes of the first Series of Notes created under this Indenture are issued. Eligible Account: Either (a) a segregated account with an Eligible Institution or (b) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States or any of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank), and acting as a trustee for funds deposited in such account, so long as the senior securities of such depository institution shall have a credit rating from each Rating Agency in one of its generic credit rating categories no lower than "A3" or "A-", as the case may be, or (c) any account held with the Indenture Trustee provided that the institution then acting as Indenture Trustee is an Eligible Institution. Eligible Appraiser: An appraiser reasonably acceptable to the Requisite Global Majority which is independent with respect to Universal and its Affiliates within the meaning of the code of professional ethics of the American Society of Appraisers. Eligible Back-up Manager: Any Person acceptable to the Requisite Global Majority to fulfill the duties of the Back-up Manager pursuant to the Related Documents; provided, however, that on the Closing Date, each of Weatherford International, Enron Corp. and Duke Energy Corp. will be deemed to be an acceptable Eligible Back-up Manager. Eligible Compressor: As of any date of determination, any Compressor which, when considered individually (in the case of clauses (i), (iv) and (v) below) and collectively with all other Head Lessor Compressors and Head Lessee Compressors (in the case of clauses (i), (ii) and (iii) below), shall comply with all of the following requirements: -9- 16 (i) Compressor Representations and Warranties. The Compressor complies with all of the Compressor Representations and Warranties as if such representations were made as of such date; and (ii) Concentration Limits. Does not result in a violation of the Concentration Limits; and (iii) Portfolio Age Limit. Will not cause the Weighted Average Age of all Head Lessor Compressors and Head Lessee Compressors to exceed fifteen (15) years; and (iv) Compressor Location. Such Compressor is then located in one of the Equipment Filing Locations; and (v) Casualty Losses. Such Compressor is not then the subject of a Casualty Loss. Eligible Institution: Any one or more of the following institutions: (i) the corporate trust department of the Indenture Trustee, or (ii) a depositary institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), (a) which has both (x) a long-term unsecured senior debt rating of not less than "A" by Standard & Poor's Ratings Group and "A-2" by Moody's Investors Service, Inc., and (y) a short-term unsecured senior debt rating rated in the highest rating category by each Rating Agency and (b) whose deposits are insured by the Federal Deposit Insurance Corporation. Eligible Interest Rate Swap Counterparty: Any of the following: (A) any bank which has both (x) a long-term unsecured debt rating of at least "A" (or its equivalent) from each Rating Agency and (y) a short-term unsecured debt rating of "A1" (or its equivalent) from a Rating Agency or (B) any bank which is otherwise acceptable to each Series Enhancer and such notification of such other bank is given to the Rating Agencies. Eligible Investments: One or more of the following: (i) direct obligations of, and obligations fully guaranteed as to the timely payment of principal and interest by, the United States or obligations of any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States; (ii) certificates of deposit and bankers' acceptances (which shall each have an original maturity of not more than 365 days) of any United States depository institution or trust company incorporated under the laws of the United States or any State and subject to supervision and examination by federal and/or State authorities, provided that the long-term unsecured senior debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated "AA-" (or its equivalent) or better by the Rating Agencies, or the short-term unsecured senior debt obligations of such depository institution or trust company are rated by each Rating Agency in its highest rating category; -10- 17 (iii) commercial paper (having original maturities of not more than 270 days) of any corporation (other than the Issuer), incorporated under the laws of the United States or any State thereof which on the date of acquisition has been rated by each Rating Agency in the highest short-term unsecured commercial paper rating category; (iv) any money market fund that has been rated by each Rating Agency in its highest rating category (including any designations of "plus" or "minus") or that invests solely in Eligible Investments; (v) eurodollar deposits (which shall each have an original maturity of not more than 365 days) of any depository institution or trust company, provided that the long-term unsecured senior debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated "AA-" (or its equivalent) by the Rating Agencies, or the short-term unsecured senior debt obligations of such depository institution or trust company are rated by each Rating Agency in its highest rating category; (vi) repurchase obligations with a term not to exceed 90 days with respect to any security described in clause (i) above and entered into with a depository institution or trust company (acting as a principal) rated "AA-" or higher by the Rating Agencies; provided, however, that collateral transferred pursuant to such repurchase obligation must (A) be valued weekly at current market price plus accrued interest, (B) pursuant to such valuation, equal, at all times, 105% of the cash transferred by the Indenture Trustee in exchange for such collateral and (C) be delivered to the Indenture Trustee or, if the Indenture Trustee is supplying the collateral, an agent for the Indenture Trustee, in such a manner as to accomplish perfection of a security interest in the collateral by possession of certificated securities; and (vii) other obligations or securities that are acceptable to the related Series Enhancers and each Rating Agency as an Eligible Investment hereunder and will not result in a reduction or withdrawal in the then current rating of the Notes as evidenced by a letter to such effect from each Rating Agency and the related Series Enhancers. (viii) Each of the Eligible Investments may be purchased by or through an Affiliate of the Indenture Trustee. Enhancement Agreement: Any agreement, instrument or document governing the terms of any Series Enhancement or pursuant to which any Series Enhancement is issued or outstanding. Entitlement Order: This term shall have the meaning set forth in Section 303(c). Equipment Cost: With respect to any Compressor, the sum of (i) the vendor's or manufacturer's invoice price of such Compressor, (ii) all reasonable and customary costs necessary to put such Compressor in service and (iii) the costs of any overhauls performed with respect to such Compressor to the extent that such overhaul costs should be capitalized in accordance with GAAP. -11- 18 Equipment Filing Locations: The office(s) specified by Applicable Law in which UCC financing statements are to be filed for each State where any Eligible Compressor is located. ERISA: The Employee Retirement Income Security Act of 1974, as amended. Event of Default: With respect to any Series, the occurrence and continuance beyond any applicable notice and cure period of any of the events or conditions set forth in Section 801 of the Indenture. Exchange Act: The Securities Exchange Act of 1934, as amended. Excluded Payment: Taxes, fees or other charges imposed by, and payable to, any Governmental Authority. Existing Commitment: With respect to any Series, the aggregate Initial Commitment to purchase Notes, consisting of one or more classes, expressed as a dollar amount, as set forth in the related Supplement and subject to reduction from time to time in accordance with the related Supplement. Expected Final Payment Date: With respect to any Series, the date on which the principal balance of the Notes which are Outstanding of such Series are expected to be paid in full. The Expected Final Payment Date for a Series shall be set forth in the related Supplement. Final Maturity Date: With respect to any Series, the date on which the unpaid principal balance of, and accrued interest on, the Notes of such Series will be due and payable. The Final Maturity Date for a Series shall be set forth in the related Supplement. Finance Lease: A lease which satisfies the criteria for classification as a capital lease pursuant to GAAP, including Financing Accounting Standards Board Statement No. 13, as amended. Financial Assets: This term shall have the meaning set forth in Section 8-102(9) of the UCC. First Union: First Union Securities, Inc. and its permitted successors and assigns. General Intangibles: Any "general intangibles," as such term is defined in Section 9-106 of the UCC, arising out of or in any way related to the Compressors and now owned or hereafter acquired by the Issuer and, in any event, shall include, without limitation, all right, title and interest which the Issuer may now or hereafter have in or under any Contract, interests in partnerships, joint ventures and other business associations, licenses, permits, software, data bases, data, materials and records, claims in or under insurance policies, including unearned premiums, uncertificated securities, deposit accounts, rights to receive tax refunds and other payments and rights of indemnification. Generally Accepted Accounting Principles or GAAP: Those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting -12- 19 Standards Board or through other appropriate boards or committees thereof consistently applied as to the party in question. General Partner: Has the meaning set forth in Article I of the Partnership Agreement. Global Note: Either a Rule 144A Global Note or a Public Global Note. Governmental Authority: Any one of the following: (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented. Grant: Grant, bargain, sell, convey, assign, transfer, mortgage, pledge, create and perfect a security interest in and right of set-off against, deposit, set over and confirm. Gross Compressor Revenues: With respect to any Collection Period, an amount equal to all rental and other revenues and Net Sales Proceeds actually received by, or on behalf of, the Head Lessee during such Collection Period from the leasing or subleasing, as the case may be, of the Head Lessee Compressors and the Head Lessor Compressors. Head Lease: The Master Equipment Lease Agreement, dated as of February 9, 2001, by and between the Head Lessor and the Head Lessee, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. Head Lease Collateral: The Head Lessee Compressors and all other collateral security pledged by the Head Lessee to the Head Lessor pursuant to the terms of the Head Lessee Security Agreement. Head Lease Event of Default: This term shall have the meaning set forth in the Head Lease. Head Lessee: UCO Compression LLC, a limited liability company organized under the laws of the State of Delaware, and its successors and permitted assigns. Head Lessee Compressors: All Compressors now or hereafter owned by the Head Lessee. Head Lessee Security Agreement: The lessee security agreement, dated as of February 9, 2001, between the Head Lessee, as grantor, and the Head Lessor, as secured party, as such agreement shall be amended, modified or supplemented from time to time in accordance with its terms. Head Lessor: BRL Universal Compression Funding I, L.P., a limited partnership organized under the laws of the State of Delaware, and its successors and permitted assigns. Head Lessor Collections: With respect to any Collection Period, all payments (including any cash proceeds) actually received by the Head Lessor pursuant to the terms of the Head Lease, including, without limitation and/or duplication, (i) the Monthly Lease Payment, (ii) all -13- 20 Supplemental Rent, (iii) Net Sale Proceeds from Head Lessor Compressors, (iv) Warranty Purchase Amounts, (v) proceeds from the exercise of the Head Lessee Purchase Option under the Head Lease, (vi) all Additional Payments, (vii) any income, payments or proceeds of the Head Lease Collateral, and (viii) all other amounts, liabilities and obligations (other than indemnification payments) which the Head Lessee agrees to pay to the Head Lessor pursuant to the terms of the Head Lease. In no event shall any Excluded Payment received by, or on behalf of, the Head Lessor be included in the calculation of Head Lessor Collections. Head Lessor Compressors: All Compressors now or hereafter owned by the Head Lessor. Head Lessor Margin Letter: The letter agreement dated February 9, 2001, between the Head Lessee and the Head Lessor. Hedging Requirement: This term is defined in Section 630(a) of this Indenture. Holder: See Noteholder. Indebtedness: With respect to any Person means, without duplication, (a) any obligation of such Person for borrowed money, including, without limitation, (i) any obligation incurred through the issuance and sale of bonds, debentures, notes or other similar debt instruments, and (ii) any obligation for borrowed money which is non-recourse to the credit of such Person but which is secured by any asset of such Person, (b) any obligation of such Person on account of deposits or advances, (c) any obligation of such Person for the deferred purchase price of any property or services, except accounts payable arising in the ordinary course of such Person's business, (d) any obligation of such Person as lessee under a capital lease, (e) any Indebtedness of another secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person and (f) any obligation in respect of interest rate or foreign exchange hedging agreements. Indemnity Amounts: Indemnity payments to the Holders of the Notes (or their related credit or liquidity providers) or any Series Enhancer for increased costs, funding costs, breakage costs, taxes, other taxes, expenses or other indemnity payment. Indenture: This Indenture, dated as of February 9, 2001, between the Issuer and the Indenture Trustee and all amendments hereof and supplements hereto, including, with respect to any Series or Class, the related Supplement. Indenture Trustee: The Person performing the duties of the Indenture Trustee under this Indenture; initially, Wells Fargo Bank Minnesota, National Association. Indenture Trustee's Fees: This term is defined in Section 905 of this Indenture. Indenture Trustee Indemnified Amounts: This term is defined in Section 905 of this Indenture. -14- 21 Independent Accountants: Either (i) any "Big 5" accounting firm or (ii) any other independent certified public accountants of internationally recognized standing selected by the Issuer and acceptable to the Deal Agent and each Series Enhancer. Independent Director: A director who is not a current or former employee, officer, director, partner, member, or shareholder, creditor or customer of Universal or any of its Affiliates and is not related by blood or marriage to any such person and who has not received, and was not an employee, officer, director, partner, member or shareholder of any person that has received, from Universal or any of Universal's Affiliates, in any year within the five (5) years immediately preceding or any year during such director's incumbency as an Independent Director, fees or other income in excess of five percent (5%) of the gross income of such Person for any applicable year, provided that an Independent Director may serve in similar capacities for other special purpose entities formed by Universal or its Affiliates. As used in this defined term, "control", including the terms "controlling," "controlled by" and "under common control with," means the direct or indirect possession of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of at least 10% of the voting securities, by contract or otherwise. No resignation or removal of an Independent Director shall be effective until a successor Independent Director has been elected to replace such Independent Director. Initial Commitment: With respect to any Series, the aggregate initial commitment, expressed as a dollar amount, to purchase up to a specified principal balance of all Classes of such Series, which commitments shall be set forth in the related Supplement. Insolvency Law: The Bankruptcy Code or similar applicable law in any State or other applicable jurisdiction. Insolvency Proceeding: Any Proceeding under any applicable Insolvency Law. Instruments: Any "instrument," as such term is defined in Section 9-105(1)(i) of the UCC arising out of or in any way related to the Compressors and now owned or hereafter acquired by the Issuer, including, without limitation, all notes, certificated securities, and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. Intercreditor Agreement: The Intercreditor Agreement to be executed in the future among Universal Compression, Inc., the Issuer and various other financial institutions named therein, as such agreement has been and may be amended, modified or supplemented from time to time in accordance with its terms. Interest Rate Hedge Provider: Any Eligible Interest Rate Swap Counterparty or any counterparty to a cap, collar or other hedging instrument permitted to be entered into pursuant to this Indenture. Interest Rate Swap Agreement: An ISDA interest rate swap agreement cap, collar or other hedging instrument between the Issuer and the Eligible Interest Rate Swap Counterparty named therein, including any schedules and confirmations prepared and delivered in connection therewith, -15- 22 pursuant to which (i) the Issuer will receive payments from the Eligible Interest Rate Swap Counterparty based on LIBOR and (ii) recourse by the Eligible Interest Rate Swap Counterparty to the Issuer is limited to the Available Distribution Amount which pursuant to the terms of this Indenture are available for such purpose. Inventory: Any "inventory," as such term is defined in Section 9-109(4) of the UCC, wherever located, arising out of or in any way related to the Compressors and now or hereafter owned or acquired (whether as lessee or otherwise) by the Issuer and, in any event, shall include, without limitation, all Compressors, all inventory, merchandise, goods and other personal property which are held by or on behalf of the Issuer for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in the Issuer's business, or the processing, packaging, promotion, delivery or shipping of the same, and all furnished goods whether or not such inventory is listed on any schedules, assignments or reports furnished to the Indenture Trustee from time to time and whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of the Issuer or is held by the Issuer or by others for the Issuer's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of the Issuer or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons. Investment: When used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of securities of any other Person or by means of loan, advance, capital contribution, guaranty or other debt or equity participation or interest, or otherwise, in any other Person, including any partnership and joint venture interests of such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property. Investment Letter: This term is defined in Section 205 of this Indenture. Investment Property: This term shall have the meaning set forth in Section 9-115(f) of the UCC. Issuer: BRL Universal Compression Funding I, L.P., a limited partnership organized and existing under the laws of the State of Delaware, and its successors and permitted assigns. Lease: Each and every item of chattel paper, installment sales agreement, equipment lease or rental agreement (including progress payment authorizations) to which a Compressor is subject. The term "Lease" includes (a) all payments to be made thereunder, (b) all rights of the Issuer therein, and (c) any and all amendments, renewals, extensions or guaranties thereof. Lease Payment Adjustment: This term shall have the meaning set forth in the Head Lease. Lease Pool: This term shall have the meaning set forth in the Head Lease. -16- 23 LIBOR: The London Interbank Offered Rate. Lien: Any security interest, lien, charge, pledge, equity or encumbrance of any kind. Liquidity Reserve Account: This term shall have the meaning set forth in Section 311. Lockbox Accounts: This term shall have the meaning set forth in the Management Agreement. Maintenance Policy: The policy annexed as Exhibit B to the Management Agreement. Management Agreement: The Management Agreement, dated as of February 9, 2001, among the Manager, the Head Lessee and the Issuer, as such agreement shall be amended, supplemented or modified from time to time in accordance with its terms. Management Fee: This term shall have the meaning set forth in the Management Agreement. Management Guaranty: The Guaranty, dated as of February 9, 2001, issued by the Management Guarantor in respect of the Management Agreement, as such agreement shall be amended, supplemented or modified from time to time in accordance with its terms. Management Guarantor: Universal Compression Holdings, Inc., a Delaware corporation and its successors and permitted assigns. Manager: The Person performing the duties of the Manager under the Management Agreement; initially, Universal. Manager Advances: This term is defined in the Management Agreement. Manager Default: The occurrence of any of the events or conditions set forth in Section 12.1 of the Management Agreement. Manager Report: A written informational statement in the form attached as an exhibit to the Management Agreement to be provided by the Manager in accordance with the Management Agreement and furnished to the Indenture Trustee, the Deal Agent and each Series Enhancer. Manager Termination Notice: A written notice to be provided to the Manager pursuant to Section 405(a) of this Indenture with a copy to each Series Enhancer and the Deal Agent. Managing Officer: Any representative of the Manager involved in, or responsible for, the management of the day-to-day operations of the Issuer and the administration and servicing of the Compressors and the other Collateral whose name appears on a list of managing officers furnished to Issuer, each Series Enhancer and the Indenture Trustee by the Manager, as such list may from time to time be amended. -17- 24 Material Adverse Change: Any set of circumstances or events which is or could reasonably be expected to be material and adverse to the business, financial condition, operations or properties of the Head Lessee, the Contributor, the Management Guarantor, the Issuer or the Manager, individually or taken together as a whole. Monthly Lease Payment: This term shall have the meaning set forth in the Head Lease. Monthly Tape: This term shall have the meaning set forth in the Management Agreement. Net Book Value: With respect to a Compressor, the net book value thereof determined in accordance with GAAP as reflected on the books and records of the applicable Person. Net Revenue Event: This term shall have the meaning set forth in the Head Lease. Net Sales Proceeds: This term shall have the meaning set forth in Section 1 of the Head Lease. Notes: Any one of the promissory notes executed by the Issuer and authenticated by or on behalf of the Indenture Trustee, substantially in the form attached to the related Supplement. Noteholder or Holder: The person in whose name a Note is registered in the Note Register, except that, solely for the purposes of giving any consent, waiver, request or demand, the interest evidenced by any Note registered in the name of the Head Lessee, the Contributor or the Issuer or any Affiliate of any of them known to be such an Affiliate by the Indenture Trustee shall not be taken into account in determining whether the requisite percentage of the aggregate principal balance of the Notes which are Outstanding necessary to effect any such consent, waiver, request or demand is represented. Note Owners: With respect to a Global Note, the Person who is the owner of such Global Note, as reflected on the books of (i) the Depositary (a direct participant) or (ii) a Person maintaining an account with the Depositary (an indirect participant), in each case in accordance with the rules of the Depositary. Note Purchase Agreement: Any underwriting agreement or other purchase agreement for the Notes of any Series or Class. Note Register: The register maintained by the Indenture Trustee pursuant to Section 205 of this Indenture. Note Registrar: This term shall have the meaning as set forth in Section 205 hereof. Officer's Certificate: A certificate signed by a duly authorized officer of the Person who is required to sign such certificate. Opinion of Counsel: A written opinion of counsel, who, unless otherwise specified, may be counsel employed by the Issuer, the Transferor, the Contributor, the Sellers or the Manager, in each -18- 25 case reasonably acceptable to the Person or Persons to whom such Opinion of Counsel is to be delivered. The counsel rendering such opinion may rely (i) as to factual matters on a certificate of a Person whose duties relate to the matters being certified, and (ii) insofar as the opinion relates to local law matters, upon opinions of local counsel. Outstanding: When used with reference to the Notes and as of any particular date, any Note theretofore and thereupon being authenticated and delivered except: (i) any Note canceled by the Indenture Trustee or proven to the satisfaction of the Indenture Trustee to have been duly canceled by the Issuer at or before said date; (ii) any Note, or portion thereof, called for payment or redemption for which monies equal to the principal amount or redemption price thereof, as the case may be, with interest to the date of maturity or redemption, shall have theretofore been deposited with the Indenture Trustee (whether upon or prior to maturity or the redemption date of such Note); (iii) any Note in lieu of or in substitution for which another Note shall subsequently have been authenticated and delivered; and (iv) any Note held by the Issuer, the Contributor, the Seller or any Affiliate of any such Person. Notwithstanding the foregoing, any Note on which any portion of principal or interest has been paid by a Series Enhancer pursuant to an Enhancement Agreement shall be Outstanding until the Series Enhancer has been reimbursed in full therefor in accordance with the related Series Enhancement Agreement. Outstanding Obligations: As of any date of determination an amount equal to the sum of (i) the then outstanding principal balance of, and accrued interest payable on, all Notes issued under this Indenture, any Supplement hereto or any Note Purchase Agreement, (ii) all other amounts owing to Noteholders or to any Person under the Indenture, any Supplement hereto or any Note Purchase Agreement, including without limitation any amounts owed to any Series Enhancer and (iii) amounts outstanding under any Interest Rate Swap Agreement. Overcollateralization Event: This term shall have the meaning set forth in the Head Lease. Overdue Rate: The rate of interest specified in the related Supplement applicable to a Note then earning Default Interest. Ownership Interests: An ownership interest in a Global Note. Partnership Agreement: The First Amended and Restated Agreement of Limited Partnership of BRL Universal Compression Funding I, L.P., as such agreement shall be amended, supplemented or modified from time to time in accordance with its terms. -19- 26 Partnership Preferred Capital Payments: This term shall have the meaning set forth in the Partnership Agreement. Partnership Priority Payments: This term shall have the meaning set forth in the Partnership Agreement. Payment Date: With respect to any Series, the fifteenth (15th) day of each calendar month (or if such day is not a Business Day, the next succeeding Business Day). Permitted Encumbrance: With respect to the Collateral, any or all of the following: (i) Liens for taxes not yet delinquent or which are being contested in good faith by appropriate Proceedings and for the payment of which adequate reserves are provided by the Manager; (ii) with respect to the Compressors, carriers', warehousemen's, mechanics, or other like Liens arising in the ordinary course of business and relating to amounts not yet due or which shall not have been overdue for a period of more than sixty (60) days or which are being contested in good faith by appropriate Proceedings and for the payment of which adequate reserves are provided by the Manager; (iii) with respect to the Compressors, Leases entered into in the ordinary course of business providing for the leasing of Compressors; and (iv) Liens created pursuant to the terms of this Indenture or any other Related Document; provided that any Proceedings of the type described in clauses (i) and (ii) above could not reasonably be expected to subject the Indenture Trustee or any Series Enhancer or Noteholder to any civil or criminal penalty or liability or involve any significant risk of material loss, sale or forfeiture of all or any material portion of the Collateral. Person: An individual, a partnership, a limited liability company, a corporation, a joint venture, an unincorporated association, a joint-stock company, a trust, or other entity or a Governmental Authority. Plan: An "employee benefit plan," as defined in Section 3(3) of ERISA or a "Plan" within the meaning of Section 4975(e)(1) of the Code. Preferred Limited Partner or Limited Partner: This term shall have the meaning set forth in the Partnership Agreement. Prepayments: Any mandatory or optional prepayment of principal of any Class of Notes prior to the Expected Final Payment Date of such Class of Notes including, without limitation, any prepayment pursuant to Section 702 of this Indenture. Principal Payment Amount: With respect to any Series, the amount identified as such in the related Supplement. Principal Terms: With respect to any Series, (i) the name or designation of such Series; (ii) the initial principal amount of the Notes to be issued for such Series (or method for calculating such amount); (iii) the interest rate and any commitment fee to be paid with respect to each Class of Notes for such Series (or method for the determination thereof); (iv) the Payment Date and the date or dates from which interest shall accrue and principal shall be paid; (v) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts; (vi) the terms -20- 27 of any form of Series Enhancement with respect thereto; (vii) the Expected Final Payment Date and the Final Maturity Date for the Series; (viii) the number of Classes of Notes of the Series and, if the Series consists of more than one Class, the rights and priorities of each such Class; (ix) the priority of the Series with respect to any other Series; and (x) the Control Party with respect to such Series; and (xi) any other terms of such Series. Proceeding: Any suit in equity, action at law, or other judicial or administrative proceeding. Proceeds: "Proceeds," as such term is defined in Section 9-306(1) of the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other proceeds payable to the Issuer from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Issuer from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to the Issuer from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral above by any Governmental Authority (or any Person acting under color of Governmental Authority), and (d) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. Prospective Owner: This term is defined in Section 208 of this Indenture. Public Global Notes: A Book-Entry Note evidencing all or part of an issuance of Notes registered under the Securities Act and to which the provisions of Article II shall apply. Purchase Option Amount: Has the meaning set forth in Section 1 of the Head Lease. Quarterly Tape: This term shall have the meaning set forth in Section 1 of the Management Agreement. Rated Institutional Noteholder: An institutional Noteholder whose long term unsecured debt obligations are then rated BBB- or better by Standard & Poor's Rating Services and Baa3 or better by Moody's Investors Service, Inc. Rating Agency or Rating Agencies: With respect to any outstanding Series or Class, each statistical rating agency selected by the Issuer with the approval of any Series Enhancer for such Series to rate such Series or Class and that has an outstanding rating with respect to such Series or Class. Rating Agency Condition: With respect to any action to be taken or proposed action to be taken, shall mean that each Rating Agency shall have notified the Issuer, the Manager, any related Series Enhancer and the Indenture Trustee in writing that such action will not result in a reduction or withdrawal of any rating at issuance of any Notes which are Outstanding with respect to which it is a Rating Agency, including any underlying rating issued to a Series Enhancer of such Notes as if such Notes were issued without the benefit of any credit enhancement provided by such Series Enhancer. -21- 28 Record Date: With respect to any Payment Date, for Notes issued in physical form the last Business Day of the month preceding the month in which the related Payment Date occurs, except as otherwise provided with respect to a Series in the related Supplement. For Notes issued in book entry form, the last Business Day preceding the Payment Date. Related Assets: This term shall have the meaning set forth in Section 1.01 of the Contribution Agreement. Related Documents: With respect to any Series, the Contribution Agreement, the Sale Agreement, the Head Lease, the Head Lessee Security Agreement, the Intercreditor Agreement, the Supplemental Agreement, any Interest Rate Swap Agreements, the Management Agreements, the Management Guaranty, the Back-up Management Agreement (upon execution thereof), this Indenture, the related Supplement, the Notes of such Series, any Series Enhancement Agreement and each other document or instrument executed in connection with the issuance to any Series. Replacement Manager: This term shall have the meaning set forth in Section 1 of the Management Agreement. Representations and Warranties Agreement: The Agreement regarding the Bills of Sale, dated as February 9, 2001, between Universal and the Indenture Trustee, as such agreement may be amended, modified and supplemented from time to time in accordance with its terms. Requisite Global Majority: As of any date of determination, the determination of whether a Requisite Global Majority exists with respect to a particular course of action shall be determined in accordance with Section 503 of this Indenture. Responsible Officer: When used with respect to the Indenture Trustee, any officer assigned to the Corporate Trust Office (or any successor thereto), including any Vice President, Assistant Vice President, Trust Officer, any Assistant Secretary, any trust officer or any other officer of the Indenture Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Indenture. Return Option: Has the meaning set forth in the Head Lease. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time. Rule 144A Global Notes: A Note evidencing all or a part of an issuance of the Notes, registered in the name of the Depositary or its nominee, and delivered to the Depositary pursuant to the Depositary's instruction, in accordance with Section 202 of this Indenture and bearing the legend prescribed in Section 202 of this Indenture. Sale: This term shall have the meaning set forth in Section 816 of this Indenture. -22- 29 Sale Agreement: The Sale Agreement, dated as of February 9, 2001, between Head Lessee and the Issuer, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. Sales Date: The date on which a Compressor is sold by the Head Lessee to the Issuer pursuant to the terms of the Sale Agreement. Securities Act: The Securities Act of 1933, as amended from time to time. Securities Entitlement: This term shall have the meaning set forth in Section 8-102(17) of the UCC. Seller: UCO Compression LLC, a limited liability company organized and existing under the laws of the State of Delaware, and its successors and permitted assigns. Senior Class or Senior Notes: With respect to any Series of Notes, those Class(es) or Note(s) of such Series, if any, that are designated as a "Senior Class" or "Senior Notes" in the related Supplement. Senior Class Priority Payments: For each Series of Senior Notes which are Outstanding on any Payment Date, all amounts to be paid from the related Series Account on such Payment Date which represent payments of (i) interest (but not Default Interest) on such Series of Senior Notes or (ii) commitment fees, deal agent fees or other fees payable to the Holders of such Series of Senior Notes. If any Senior Class Priority Payments are paid by a Series Enhancer, then any reimbursement obligations of the Issuer to such Series Enhancer in respect of such payments, including interest thereby shall be included in the calculation of the Senior Class Priority Payments for such Series and paid to the Series Enhancer to the extent that such payment would not cause a shortfall in other Senior Class Priority Payments for the Noteholders of such Series. Series: Any series of Notes established pursuant to a Supplement. Series Account: Any deposit, trust, escrow or similar account maintained for the benefit of the Noteholders and any related Series Enhancer of any Series or Class as specified in the related Supplement. Series Enhancement: The rights and benefits provided to the Noteholders of any Series or Class pursuant to any letter of credit, surety bond, financial guaranty insurance policy, insurance agreement or other similar arrangement. The subordination of any Class to another Class shall not be deemed to be a Series Enhancement. Series Enhancement Agreement: Any Enhancement Agreement for any Series. Series Enhancer: The Person then providing any Series Enhancement, other than the Noteholders of any Class which is subordinated to another Class. -23- 30 Series Expected Final Payment Date: With respect to any Series, the Expected Final Payment Date specified in the related Supplement. Series Issuance Date: With respect to any Series, the date on which the Notes of such Series are to be originally issued in accordance with Section 1006 of this Indenture and the related Supplement. Sold Assets: This term shall have the meaning set forth in the Sale Agreement. State: Any state of the United States of America and, in addition, the District of Columbia. Sublessor: means the Head Lessee. Subordinate Class or Subordinate Notes: With respect to any Series of Notes, those Class(es) or Note(s) of such Series, if any, that are designated as a "Subordinate Class" or "Subordinate Notes" in the related Supplement. Subordinate Class Priority Payments: For each Series of Subordinate Notes which are Outstanding on any Payment Date, all amounts to be paid from the related Series Account on such Payment Date which represent payments of (i) interest (but not Default Interest) on such Series of Subordinate Notes or (ii) commitment fees, deal agent fees or other fees payable to such Series of Subordinate Notes. Subsidiary: A subsidiary of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than fifty percent (50.0%) of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by such Person, or one or more of the Subsidiaries of such Person, or a combination thereof. Substitute Compressor: This term shall have the meaning set forth in Section 3.04 of the Contribution Agreement. Supplement: Any supplement to the Indenture executed in accordance with Article X of this Indenture. Supplemental Rent: This term shall have the meaning set forth in Section 2.3 of the Head Lease. Termination Date: Has the meaning set forth in Section 1 of the Head Lease. Trigger Event: The occurrence and continuation of any of the following events or conditions: (i) a Manager Default, (ii) a Head Lease Event of Default, (iii) an Event of Default under this Indenture, (iv) an Overcollateralization Event that continues unremedied on the next succeeding Determination Date and/or (v) a Net Revenue Event that continues unremedied on the next succeeding Determination Date. -24- 31 Trust Account: The account or accounts established by and held in the name of the Indenture Trustee for the benefit of the Noteholders and any Series Enhancer pursuant to Section 303 hereof. UCC: The Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of the Indenture Trustee's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection of priority and for purposes of definitions related to such provisions. Universal: Universal Compression, Inc., a Texas corporation, and its successors and permitted assigns. Universal Party: Any one or more of the Head Lessee, Universal, the Manager or any Affiliate of any of the foregoing. User: This term shall have the meaning set forth in Section 1 of the Head Lessee Security Agreement. User Lease: This term shall have the meaning set forth in Section 1 of the Head Lessee Security Agreement. VFCC: Means Variable Funding Capital Corporation, a Delaware corporation, and its successors and assigns. Warranty Purchase Amount: With respect to any Compressor, the most recent Appraised Value of such Compressor. Weighted Average Age: As of any date of determination shall be equal to the sum for each Eligible Compressor of a fraction, the numerator of which is equal to the product of (x) the number of years (or portion thereof) elapsed from the date on which such Compressor was originally built and (y) the number of horsepower in such Compressor, and the denominator of which is equal to the total number of horsepower for all Eligible Compressors. Wholly-Owned Subsidiary: With respect to any Person, any corporation, association, partnership, limited liability company, joint venture or other business entity of which one hundred percent (100%) of the voting stock or, in the case of business entities other than corporations, other equity interests is owned or controlled directly or indirectly, by one or more of such Person. Section 102. Other Definitional Provisions. (a) With respect to any Series, all terms used herein and not otherwise defined herein shall have meanings ascribed to such terms in the related Supplement. -25- 32 (b) All terms defined in this Indenture shall have the defined meanings when used in any agreement, certificate or other document made or delivered pursuant hereto, including any Supplement, unless otherwise defined therein. (c) As used in this Indenture and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Indenture or in any such certificate or other document, and accounting terms partly defined in this Indenture or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP consistently applied. To the extent that the definitions of accounting terms in this Indenture or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP or regulatory accounting principles, the definitions contained in this Indenture or in any such certificate or other document shall control. (d) With respect to any Collection Period, the "related Record Date," the "related Determination Date," and the "related Payment Date," shall mean the Record Date occurring on the last Business Day of such Collection Period and the Determination Date and Payment Date next following the end of such Collection Period. (e) With respect to any Series of Notes, the "related Supplement" shall mean the Supplement pursuant to which such Series of Notes is issued and the "related Series Enhancer" shall mean the Series Enhancer for such Series of Notes. (f) All references to the Manager's financial statements shall mean the consolidated financial statements of the Manager and its consolidated subsidiaries. (g) With respect to any ratio analysis required to be performed as of the most recently completed fiscal quarter, the most recently completed fiscal quarter shall mean the fiscal quarter for which financial statements were required hereunder to have been delivered. (h) With respect to the calculations of the ratios set forth in this Indenture, the components of such calculations are to be determined in accordance with GAAP, consistently applied, with respect to the Manager. Section 103. Computation of Time Periods. Unless otherwise stated in this Indenture or any Supplement issued pursuant to the terms hereof, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." -26- 33 ARTICLE II THE NOTES Section 201. Authorization of Notes. (a) The number of Series or Classes of Notes which may be created by this Indenture is not limited; provided, however, that, the issuance of any Series of Notes shall not result in, or with the giving of notice or the passage of time or both would result in, the occurrence of an Event of Default or Trigger Event. The aggregate principal amount of Notes of each Series which may be issued, authenticated and delivered under this Indenture is not limited except as shall be set forth in any Supplement and as restricted by the provisions of this Indenture. (b) The Notes issuable under this Indenture shall be issued in such Series, and such Class or Classes within a Series, as may from time to time be created by Supplement pursuant to this Indenture. Each Series shall be created by a different Supplement and shall be designated to differentiate the Notes of such Series from the Notes of any other Series. The Issuer intends that each such Note shall constitute a "security" within the meaning of Article 8 of the UCC. (c) Upon satisfaction of and compliance with the requirements and conditions to closing set forth in the related Supplement, Notes of the Series to be executed and delivered on a particular Series Issuance Date pursuant to such related Supplement, may be executed by the Issuer and delivered to the Indenture Trustee for authentication following the execution and delivery of the related Supplement creating such Series or from time to time thereafter, and the Indenture Trustee shall authenticate and deliver Notes upon an Issuer request set forth in an Officer's Certificate of the Issuer signed by one of its Authorized Signatories, without further action on the part of the Issuer. Section 202. Form of Notes; Global Notes. (a) Notes of any Series or Class may be issued, authenticated and delivered, at the option of the Issuer, as Public Global Notes, Rule 144A Global Notes, or as Definitive Notes or as may otherwise be set forth in a Supplement and shall be substantially in the form of the exhibits attached to the related Supplement. Notes of each Series shall be dated the date of their authentication and shall bear interest at such rate, be payable as to principal, premium, if any, and interest on such date or dates, and shall contain such other terms and provisions as shall be established in the related Supplement. Except as otherwise provided in any Supplement, the Notes shall be issued in minimum denominations of $1,000,000 and in integral multiples of $1,000,000 in excess thereof; provided that one Note of each Class may be issued in a nonstandard denomination. (b) If the Issuer shall choose to issue Public Global Notes or Rule 144A Global Notes, such notes shall be issued in the form of one or more Public Global Notes or one or more Rule 144A Global Notes which (i) shall represent, and shall be denominated in an aggregate amount equal to, the aggregate principal amount of all Notes to be issued hereunder, (ii) shall be delivered as one or more Notes held by the Book Entry Custodian, or, if appointed to hold such Notes as provided below, the Notes shall be registered in the name of the Depositary or its nominee, (iii) shall be substantially in the form of the exhibits attached to the related Supplement, with such changes -27- 34 therein as may be necessary to reflect that each such Note is a Global Note, and (iv) shall each bear a legend substantially to the effect included in the form of the exhibits attached to the related Supplement. (c) Notwithstanding any other provisions of this Section 202 or of Section 205, unless and until a Global Note is exchanged in whole for Definitive Notes, a Global Note may be transferred, in whole, but not in part, and in the manner provided in this Section 202, only by (i) the Depositary to a nominee of such Depositary, or (ii) by a nominee of such Depositary to such Depositary or another nominee of such Depositary or (iii) by such Depositary or any such nominee to a successor Depositary selected or approved by the Issuer or to a nominee of such successor Depositary or in the manner specified in Section 202(d). The Depositary shall order the Note Registrar to authenticate and deliver any Book-Entry Notes and any Global Note for each Class of Notes having an aggregate initial outstanding principal balance equal to the initial outstanding balance of such Class. Note Owners shall hold their respective Ownership Interests in and to such Notes through the book-entry facilities of the Depositary. Without limiting the foregoing, any Note Owners shall hold their respective Ownership Interests, if any, in Public Global Notes only through Depositary Participants. (d) If (i) the Issuer elects to issue Definitive Notes, (ii) the Depositary for the Notes represented by one or more Global Notes at any time notifies the Issuer that it is unwilling or unable to continue as Depositary of the Notes or if at any time the Depositary shall no longer be a clearing agency registered under the Exchange Act and any other applicable statute or regulation, and a successor Depositary is not appointed or approved by the Issuer within 90 days after the Issuer receives such notice or becomes aware of such condition, as the case may be, (iii) the Indenture Trustee, at the direction of the Noteholders representing more than 50% of the outstanding principal balance of the Notes, elects to terminate the book-entry system through the Depositary or (iv) after an Event of Default or a Manager Default, Noteholders notify the Depositary, or Book Entry Custodian, as the case may be, in writing that the continuation of a book-entry system through the Depositary, or the Book Entry Custodian, as the case may be, is no longer in the Noteholders' best interest, upon the request of the Noteholders, the Issuer will promptly execute, and the Indenture Trustee, upon receipt of an Officer's Certificate evidencing such determination by the Issuer, will promptly authenticate and make available for delivery, Definitive Notes without coupons, in authorized denominations and in an aggregate principal amount equal to the principal amount of the Global Note then outstanding in exchange for such Global Note or as an original issuance of Notes and this Section 202(d) shall no longer be applicable to the Notes. Upon the exchange of the Global Notes for such Definitive Notes without coupons, in authorized denominations, such Global Notes shall be canceled by the Indenture Trustee. All Definitive Notes shall be issued without coupons. Such Definitive Notes in definitive form issued in exchange of the Global Notes pursuant to this Section 2.02(d) shall be registered in such names and in such authorized denominations as the Depositary in the case of an exchange or the Note Registrar in the case of an original issuance, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Indenture Trustee. The Indenture Trustee may conclusively rely on any such instructions furnished by the Depositary or the Note Registrar, as the case may be and shall not be liable for any delay in delivery of such instructions. The Indenture Trustee shall make such Notes available for delivery to the Persons in whose names such Notes are so registered. -28- 35 (e) As long as the Notes outstanding are represented by one or more Global Notes: (i) the Note Registrar and the Indenture Trustee may deal with the Depositary for all purposes (including the payment of principal of and interest on the Notes) as the authorized representative of the Note Owners; (ii) the rights of Note Owners shall be exercised only through the Depositary and shall be limited to those established by law and agreements between such Note Owners and the Depositary and/or the Depositary Participants. Unless and until Definitive Notes are issued, the Depositary will make book-entry transfers among the Depositary Participants and receive and transmit payments of principal of, and interest on, the Notes to such Depositary Participants; and (iii) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Holders of Notes evidencing a specified percentage of the voting rights of a particular series, the Depositary shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Note Owners and/or Depositary Participants owning or representing, respectively, such required percentage of the beneficial interest in the Notes (or Class of Notes) and has delivered such instruction to the Indenture Trustee. (f) Whenever a notice or other communication to the Noteholders is required under this Indenture, unless and until Notes have been issued in definitive form to Note Owners, the Indenture Trustee shall give all such notices and communications to the Depositary. (g) The Indenture Trustee is hereby initially appointed as the Book Entry Custodian and hereby agrees to act as such in accordance with the agreement that it has with the Depositary authorizing it to act as such. The Book Entry Custodian may, and, if it is no longer qualified to act as such, the Book Entry Custodian shall, appoint, by written instrument delivered to the Issuer and the Depositary, any other transfer agent (including the Depositary or any successor Depositary) to act as Book Entry Custodian under such conditions as the predecessor Book Entry Custodian and the Depositary or any successor Depositary may prescribe, provided that the predecessor Book Entry Custodian shall not be relieved of any of its duties or responsibilities by reason of any such appointment of other than the Depositary. If the Indenture Trustee resigns or is removed in accordance with the terms hereof, the successor Indenture Trustee or, if it so elects, the Depositary shall immediately succeed to its predecessor's duties as Book Entry Custodian. The Issuer shall have the right to inspect, and to obtain copies of, any Notes held as Book-Entry Notes by the Book Entry Custodian. (h) [Reserved] (i) No transfer of any Class of Note or interest therein shall be made unless that transfer is made pursuant to an effective registration statement under the Securities Act, and effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. If a transfer of any Definitive Note is to be made -29- 36 without registration under the Securities Act (other than in connection with the initial issuance thereof or a transfer thereof by the Depositary or one of its Affiliates), then the Note Registrar shall refuse to register such transfer unless it receives (and upon receipt, may conclusively rely upon) either: (i) a certificate from such Noteholder substantially in the form attached as Exhibit B hereto or such other certification reasonably acceptable to the Indenture Trustee and a certificate from such Noteholder's prospective transferee substantially in the form attached as Exhibit B hereto or such other certification reasonably acceptable to the Indenture Trustee; or (ii) an Opinion of Counsel satisfactory to the Indenture Trustee (which Opinion of Counsel shall not be an expense of the Issuer or any Affiliate thereof) to the effect that such transfer may be made without registration under the Securities Act, together with the written certification(s) as to the facts surrounding such transfer from the Noteholder desiring to effect such transfer and/or such Noteholder's prospective transferee on which such Opinion of Counsel is based. If such a transfer of any interest in a Book-Entry Note is to be made without registration under the Securities Act, the transferor will be deemed to have made each of the representations and warranties set forth on Exhibit B hereto in respect of such interest as if it was evidenced by a Definitive Note and the transferee will be deemed to have made each of the representations and warranties set forth in either Exhibit B hereto in respect of such interest as if it was evidenced by a Definitive Note. None of the Depositary, the Issuer, the Indenture Trustee or the Note Registrar is obligated to register or qualify any Class of Notes under the Securities Act or any other securities law or to take any action not otherwise required under this Indenture to permit the transfer of any Note or interest therein without registration or qualification. Any Noteholder or Note Owner desiring to effect such a transfer shall, and does hereby agree to, indemnify the Depositary, the Issuer, the Indenture Trustee and the Note Registrar against any liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws. Section 203. Execution; Recourse Obligation. The Notes shall be executed on behalf of the Issuer by manual or facsimile signature of an Authorized Signatory of the Issuer. The Notes shall be dated the date of their authentication by the Indenture Trustee. In case any Authorized Signatory of the Issuer whose signature or facsimile signature shall appear on the Notes shall cease to be an Authorized Signatory of the Issuer before the authentication by the Indenture Trustee and delivery of such Notes, such signature or facsimile signature shall nevertheless be valid and sufficient for all purposes. All Notes and the interest thereon shall be limited recourse obligations of the Issuer and shall be secured by all of the Issuer's right, title and interest in the Collateral. The Notes shall never constitute obligations of the Indenture Trustee, the Contributor, the Manager, the Seller or of any shareholder or any Affiliate of any other Person (other than the Issuer) or any officers, directors, employees or agents of any thereof, and no recourse may be had under or upon any obligation, covenant or agreement of this Indenture, any Supplement or of any Notes, or for any claim based thereon or otherwise in respect thereof, against any incorporator or against any past, present, or future owner, partner of an owner or any officer, employee or director thereof or of any successor entity, or any other Person, either directly or through the Issuer, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed that this Indenture and the obligations issued hereunder are solely obligations of the Issuer, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any other Person under or by reason of this Indenture, any Supplement or any Notes -30- 37 or implied therefrom, or for any claim based thereon or in respect thereof, all such liability and any and all such claims being hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Notes. Except as may be provided in any Supplement, no Person other than the Issuer shall be liable for any obligation of the Issuer under this Indenture or any Note or any losses incurred by any Noteholder. Section 204. Certificate of Authentication. No Notes shall be secured hereby or entitled to the benefit hereof or shall be or become valid or obligatory for any purpose unless there shall be endorsed thereon by manual signature a certificate of authentication by the Indenture Trustee, substantially in the form set forth in the form of Note attached to the related Supplement. Such certificate on any Note issued by the Issuer shall be conclusive evidence and the only competent evidence that it has been duly authenticated and delivered hereunder. At the written direction of the Issuer, the Indenture Trustee shall authenticate and deliver the Notes. It shall not be necessary that the same Authorized Signatory of the Indenture Trustee execute the certificate of authentication on each of the Notes. Section 205. Registration; Registration of Transfer and Exchange of Notes. (a) The Indenture Trustee shall keep at its Corporate Trust Office books for the registration and transfer of the Notes (the "Note Register"). The Issuer hereby appoints the Indenture Trustee as its registrar (the "Note Registrar") and transfer agent to keep such books and make such registrations and transfers as are hereinafter set forth in this Section 205 and also authorizes and directs the Indenture Trustee to provide a copy of such registration record to the Deal Agent upon its request. The names and addresses of the Holders of all Notes and all transfers of, and the names and addresses of the transferee of, all Notes will be registered in such Note Register. The Person in whose name any Note is registered shall be deemed and treated as the owner and Holder thereof for all purposes of this Indenture, and the Indenture Trustee, any related Series Enhancer and the Issuer shall not be affected by any notice or knowledge to the contrary. If a Person other than the Indenture Trustee is appointed by the Issuer to maintain the Note Register, the Issuer will give the Indenture Trustee and the Deal Agent prompt written notice of such appointment and of the location, and any change in the location, of the successor note registrar, and the Indenture Trustee and any related Series Enhancer shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof, and the Indenture Trustee shall have the right to conclusively rely upon a certificate executed on behalf of the Note Registrar by an officer thereof as to the names and addresses of the Noteholders and Series, Class and the principal amounts and number of such Notes. (b) Payments of principal, premium, if any, and interest on any Note shall be payable on each Payment Date only to the registered Holder thereof on the Record Date immediately preceding such Payment Date. The principal of, premium, if any, and interest on each Note shall be payable at the Corporate Trust Office of the Indenture Trustee in immediately available funds in such coin or currency of the United States of America as at the time for payment shall be legal tender for the payment of public and private debts. Except as set forth in any Supplement, all interest payable on the Notes shall be computed on the basis of a 360 day year consisting of twelve months of 30 days each. Notwithstanding the foregoing or any provision in any Note to the contrary, if so requested by the registered Holder of any Note by written notice to the Indenture Trustee, all -31- 38 amounts payable to such registered Holder may be paid either (i) by crediting the amount to be distributed to such registered Holder to an account maintained by such registered Holder with the Indenture Trustee or by transferring such amount by wire to such other bank in the United States, including a Federal Reserve Bank, as shall have been specified in such notice, for credit to the account of such registered Holder maintained at such bank, or (ii) by mailing a check to such address as such Holder shall have specified in such notice, in either case (subject to the provisions of Section 207 hereof) without any presentment or surrender of such Note to the Indenture Trustee at the Corporate Trust Office of the Indenture Trustee. (c) Upon surrender for registration of transfer of any Note at the Corporate Trust Officer the Issuer shall execute and the Indenture Trustee, upon written request, shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of the same class, of any authorized denominations and of a like aggregate original principal amount. (d) All Notes issued upon any registration of transfer or exchange of Notes shall be the legal, valid and binding obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture and any Supplement, as the Notes surrendered upon such registration of transfer or exchange. (e) Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Issuer or the Indenture Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Indenture Trustee duly executed, by the holder thereof or his attorney duly authorized in writing. (f) Any service charge, fees or expenses made or expense incurred by the Indenture Trustee for any such registration, discharge from registration or exchange referred to in this Section 205 shall be paid by the Noteholder. The Indenture Trustee or the Issuer may require payment by the Holder of a sum sufficient to cover any tax expense or other governmental charge payable in connection therewith. (g) If Notes are issued or exchanged in definitive form under Section 202, such Notes will not be registered by the Indenture Trustee unless each prospective Noteholder acquiring a Note, each prospective transferee acquiring a Note and each prospective owner (or transferee thereof) of a beneficial interest in Notes acquiring such beneficial interest provides the Manager, the Issuer, the Indenture Trustee and any successor Manager with a written representation that the statements in either subsections (1) or (2) of Section 208 is an accurate representation as to all sources of funds to be used to pay the purchase price of the Notes. (h) No transfer of a Note shall be deemed effective unless the registration and prospectus delivery requirements of Section 5 of the Securities Act and any applicable state securities laws are complied with, or such transfer is exempt from the registration and prospectus delivery requirements under the Securities Act and such laws. In the event that a transfer is to be made without registration or qualification, such Noteholder's prospective transferee shall deliver to the Indenture Trustee an investment letter substantially in the form of Exhibit B hereto (the "Investment Letter"). The Indenture Trustee is not under any obligation to register the Notes under -32- 39 the Securities Act or any other securities law or to bear any expense with respect to such registration by any other Person or monitor compliance of any transfer with the securities laws of the United States, regulations promulgated in connection thereto or ERISA unless the Notes are issued or exchanged in definitive form under Section 202. Section 206. Mutilated, Destroyed, Lost and Stolen Notes. (a) If (i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee such security or indemnity as it and the Issuer may require to hold the Issuer and the Indenture Trustee harmless (the unsecured indemnity of a Rated Institutional Noteholder being deemed satisfactory for such purpose), then the Issuer shall execute and the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note of the same Series and Class and maturity and of like terms as the mutilated, destroyed, lost or stolen Note; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become, or within thirty (30) days shall be or become due and payable, the Issuer may pay such destroyed, lost or stolen Note when so due or payable instead of issuing a replacement Note. (b) If, after the delivery of such replacement Note, or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer and the Indenture Trustee shall be entitled to recover upon the security or indemnity provided therefor to the extent of any and all loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in connection therewith. (c) The Indenture Trustee and the Issuer may, for each new Note authenticated and delivered under the provisions of this Section 206, require the advance payment by the Noteholder of the expenses, including counsel fees, service charges and any tax or governmental charge which may be incurred by the Indenture Trustee or the Issuer. Any Note issued under the provisions of this Section 206 in lieu of any Note alleged to be destroyed, mutilated, lost or stolen, shall be equally and proportionately entitled to the benefits of this Indenture with all other Notes of the same Series and Class. The provisions of this Section 206 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. Section 207. Delivery, Retention and Cancellation of Notes. Each Noteholder is required, and hereby agrees, to surrender to the Indenture Trustee, prior to the Expected Final Payment Date, any Note on which the final payment due thereon has been made. Any such Note as to which the Indenture Trustee has made or holds the final payment thereon shall be deemed canceled and unless any unreimbursed payment on such Note has been made by a Series Enhancer, shall no longer be Outstanding for any purpose of this Indenture, whether or not such Note is ever returned to the Indenture Trustee. Matured Notes delivered upon final payment to the Indenture Trustee and any Notes transferred or exchanged for other Notes shall be canceled and disposed of by the Indenture Trustee in accordance with its policy of disposal and the Indenture Trustee shall promptly deliver to the Issuer such canceled Notes upon reasonable prior written request. If the Indenture Trustee shall acquire, for its own account, any of the Notes, such acquisition shall not -33- 40 operate as a redemption or satisfaction of the indebtedness represented by such Notes. If the Issuer shall acquire any of the Notes, such acquisition shall operate as a redemption or satisfaction of the indebtedness represented by such Notes. Notes which have been canceled by the Indenture Trustee shall be deemed paid and discharged for all purposes under this Indenture. Section 208. ERISA Deemed Representations. Each prospective initial Noteholder acquiring Notes, each prospective transferee acquiring the Notes, and each prospective owner (or transferee thereof) of a beneficial interest in Notes (each a "Prospective Owner") will be deemed to have represented by such purchase to the Issuer, Variable Funding Capital Corporation, the Indenture Trustee, the Manager and any successor Manager that either (1) it is not acquiring the Notes with the assets of a Plan; or (2) the acquisition and holding of the Notes will not give rise to a nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975 of the Code. ARTICLE III PAYMENT OF NOTES; STATEMENTS TO NOTEHOLDERS Section 301. Principal and Interest. Distributions of principal, premium, if any, and interest on any Series or Class of Notes shall be made to Noteholders of each Series and Class as set forth in Section 302 of this Indenture and the related Supplement. The maximum Overdue Rate for any Note of any Series shall be equal to the sum of (i) two percent (2%) per annum and (ii) the interest rate per annum payable on such Note prior to the event giving rise to such Default Interest or, if interest payments on the affected Series of Notes is calculated based on a variable rate of interest, the interest rate that will be payable as a consequence of such default. If interest or principal amounts are paid by a Series Enhancer, then the Default Interest shall be owed to the Series Enhancer and shall not be paid to applicable Noteholders of such Series unless the related Series Enhancer has failed to make payment of such amounts in accordance with the terms of any applicable Series Enhancement Agreement. Section 302. Trust Account. (a) On or prior to the Closing Date, the Indenture Trustee shall establish and maintain the Trust Account with Wells Fargo Bank National Association. The Trust Account shall be in the name of the Indenture Trustee, on behalf of the Noteholders, any Eligible Interest Rate Swap Counterparty and any Series Enhancer, pursuant to the terms of this Indenture. Neither the Issuer nor the Indenture Trustee shall establish any additional Trust Accounts without prior written consent of the Deal Agent. (b) On or prior to the Closing Date, the Issuer shall direct the Head Lessee to deposit in the Trust Account when due (but in no event later than the Determination Date), all payments required to be deposited therein by this Indenture and the other Related Documents. (c) Pursuant to the Management Agreement, the Manager is required to deliver to the Indenture Trustee all calculations and allocations required by the Manager Report. On each Payment Date, the Indenture Trustee, based on the Manager Report provided that, in the absence of any Manager Report, the Indenture Trustee shall distribute all funds from the Trust Account available for distribution in accordance with the written direction of the Deal Agent, shall distribute -34- 41 funds in an amount equal to the Available Distribution Amount to the following Persons in the following order of priority: (1) To the extent not sufficient on a pro rata basis: (A) to the Indenture Trustee by wire transfer of immediately available funds, all Indenture Trustee's Fees and Indenture Trustee Indemnified Amounts then due and payable for all Series then Outstanding, to the extent not paid by the Manager not to exceed $20,000 annually, and (B) to the Back-up Manager, any Back-up Manager Fee than due and payable; (2) To each Eligible Interest Rate Swap Counterparty, on a pro rata basis, an amount equal to the sum of (i) any payments (other than termination payments) then due and payable pursuant to the terms of any Interest Rate Swap Agreement then in effect and (ii) any termination payment then due and payable pursuant to the terms of any Interest Rate Swap Agreement then in effect to the extent (but only to the extent) that such termination payments were not caused by a default by the related Eligible Interest Rate Swap Counterparty; (3) To the Series Account for each Series of Senior Notes then Outstanding, an amount equal to the Senior Class Priority Payments (including reimbursements payable to any Series Enhancer for interest previously paid provided for in the related Enhancement Agreement) for each such Series. If sufficient funds do not exist to pay in full all such Senior Class Priority Payments, such amounts shall be allocated among the Series of Senior Notes in the same proportion as the ratio of (x) the Senior Class Priority Payments of a particular Series of Senior Notes then Outstanding to (y) the aggregate Senior Class Priority Payments of all Series of Senior Notes then Outstanding; (4) To the Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to the Subordinate Class Priority Payments for each such Series. If sufficient funds do not exist to pay in full all such Subordinate Class Priority Payments, such amounts shall be allocated among the Series of Subordinate Notes in the same proportion as the ratio of (x) the Subordinate Class Priority Payments of a particular Series of Subordinate Notes then Outstanding to (y) the aggregate Subordinate Class Priority Payments of all Series of Subordinate Notes then Outstanding; (5) To the Issuer, the Partnership Priority Payments and the amounts required to be paid pursuant to the Head Lessor Margin Letter; (6) To the Series Account for each Series of Senior Notes then Outstanding, an amount equal to the Principal Payment Amounts for such Series; (7)To the Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to the Principal Payment Amounts for such Series; (8) To the Issuer, an amount equal to the Partnership Preferred Capital Payments; -35- 42 (9) To the Series Account for each Series of Senior Notes then Outstanding, that Series pro rata portion (based on then unpaid principal balances of such Senior Notes) of any Prepayment permitted or required pursuant to the provisions of Section 702 hereof; (10) To the Series Account for each Series of Subordinate Notes then Outstanding, that Series pro rata portion (based on then unpaid principal balances of such Subordinate Notes) of any Prepayment permitted or required pursuant to the provisions of Section 702 hereof; (11) To the Series Account for each Series of Notes then Outstanding, that Series pro rata portion (based on then unpaid principal balances of such Notes) of any Prepayment permitted or required pursuant to the provisions of Section 702 hereof; (12) To the Series Account for each Series of Senior Notes then Outstanding, an amount equal to any Indemnity Amounts (including indemnities owing to the Series Enhancer, the Deal Agent and each Noteholder) then due and owing pursuant to the terms of the related Supplement for such Series; (13) To the Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to any Indemnity Amounts (including indemnities owing to the Series Enhancer, the Deal Agent and each Noteholder) then due and owing pursuant to the terms of the related Supplement for such Series; (14) To the Issuer, an amount equal to any Indemnity Amounts then due and owing pursuant to the terms of the Partnership Agreement; (15) To each Eligible Interest Rate Swap Counterparty, on a pro rata basis, the amount of any unpaid termination payments then due and payable pursuant to the terms of any Interest Rate Swap Agreement then in effect; (16) To the Indenture Trustee by wire transfer of immediately available funds, all remaining unpaid Indenture Trustee's Fees and Indenture Trustee's Indemnified Amounts then due and payable (after giving effect to any payments made pursuant to clause (1); and (17) To the Issuer, any remaining Available Distribution Amount. (d) If any Series has more than one Class of Senior Notes then Outstanding, then the portion of Head Lessor Collections and other amounts allocable to such Series in accordance with Section 302(c) shall be calculated without regard to the payment priorities of the Classes of Senior Notes within such Series. If any Series has more than one Class of Subordinate Notes then Outstanding, then the portion of Head Lessor Collections and other amounts allocable to such Series in accordance with Section 302(c) shall be calculated without regard to the payment priorities of the Classes of Subordinate Notes within such Series. Once such Head Lessor Collections have been allocated to each Series, then that portion of the Head Lessor Collections allocable to such Series shall be paid to each Class of Noteholders of such Series in accordance with the priority of payments set forth in the related Supplement. -36- 43 Section 303. Investment of Monies Held in the Trust Account and Series Accounts; Control over Eligible Investments. (a) The Indenture Trustee shall invest any cash deposited in the Trust Account and each Series Account in such Eligible Investments as the Manager shall direct in writing or by telephone and subsequently confirmed in writing. Each Eligible Investment (including reinvestment of the income and proceeds of Eligible Investments) shall be held to its maturity and shall mature or shall be payable on demand not later than the Business Day immediately preceding the next succeeding Payment Date. If the Indenture Trustee has not received written instructions from the Manager by 2:30 p.m. (New York time) on the day such funds are received as to the investment of funds then on deposit in any of the aforementioned accounts, the Issuer hereby instructs the Indenture Trustee to invest such funds in Eligible Investments of the type described in clause (iv) of the definition of Eligible Investments. Any funds in the Trust Account and each Series Account not so invested must be fully insured by the Federal Deposit Insurance Corporation. Eligible Investments shall be made in the name of the Indenture Trustee for the benefit of the Noteholders, any Eligible Interest Rate Swap Counterparty and any Series Enhancer. Any earnings on Eligible Investments in the Trust Account and each Series Account shall be retained in each such account and be distributed in accordance with the terms of this Indenture or any related Supplement. The Indenture Trustee shall not be liable or responsible for losses on any investments made by it pursuant to this Section 303. (b) Each of the Issuer and the Indenture Trustee hereby agrees that (i) each of the Trust Account and the Series Accounts will be a "securities account" as such term is defined in Section 8-501(a) of the UCC, (ii) the Indenture Trustee shall, subject to the terms of this Indenture, treat the Issuer as entitled to exercise the rights that comprise any Financial Asset credited to such accounts, (iii) all Eligible Investments will be promptly credited to such accounts and shall be treated as a "Financial Asset" within the meaning of Section 8-102(a)(9) of the UCC, and (iv) all securities or other property underlying any Financial Assets credited to such accounts shall be registered in the name of the Indenture Trustee, indorsed to the Indenture Trustee and in no case will any financial asset credited to the Trust Account or Series Account be registered in the name of the Issuer, payable to the order of the Issuer or specially indorsed to the Issuer except to the extent the foregoing have been specially indorsed to the financial intermediary at which such accounts are maintained or in blank. (c) Upon the occurrence of a Trigger Event or an Event of Default hereunder, the Indenture Trustee, acting in accordance with the terms of this Indenture, shall be entitled to provide an Entitlement Order (as defined in Section 8-102(a)(8) of the UCC) to the financial intermediary at which such accounts are maintained. Upon receipt of the Entitlement Order in accordance with the provisions of this Indenture, the Indenture Trustee shall comply with such Entitlement Order without further consent by the Issuer or any other Person. (d) In the event that a Corporate Trust Officer of the Indenture Trustee obtains actual knowledge that the Indenture Trustee has or subsequently obtains by agreement, operation of law or otherwise a security interest in any of the Trust Account, any Series Account or any security entitlement credited thereto, the Indenture Trustee hereby agrees that such security interest shall be subordinate to the security interest created by this Indenture. The financial assets and other items deposited to the accounts will not be subject to deduction, set-off, banker's lien, or any other right in favor of any Person except as created pursuant to this Indenture. -37- 44 Section 304. Reports to Noteholders. The Indenture Trustee shall promptly upon request furnish to each Noteholder and each Series Enhancer a copy of all reports, financial statements and notices received by the Indenture Trustee pursuant to any Related Document. Section 305. Records. The Indenture Trustee shall cause to be kept and maintained adequate records pertaining to the Trust Account and each Series Account and all receipts and disbursements therefrom. The Indenture Trustee shall deliver at least monthly an accounting thereof in the form of a trust statement to the Issuer, the Deal Agent, the Manager and each Series Enhancer. Section 306. CUSIP Numbers. The Issuer in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Indenture Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer will promptly notify the Indenture Trustee of any change in the "CUSIP" numbers. Section 307. No Claim. Indemnities payable to the Indenture Trustee, the Manager and any other Person shall be non-recourse to the Issuer and shall not constitute a claim against the Issuer or the Collateral in the event such amounts are not paid in accordance with Section 302 of this Indenture. Section 308. Compliance with Withholding Requirements. Notwithstanding any other provision of this Indenture, the Indenture Trustee shall comply with all United States federal income tax withholding requirements with respect to payments to Noteholders of interest, original issue discount, or other amounts that the Indenture Trustee reasonably believes are applicable under the Code. The consent of Noteholders shall not be required for any such withholding. Section 309. Tax Treatment of Notes. The Issuer has entered into this Indenture, and the Notes will be issued, with the intention that, for federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness. The Issuer and the Indenture Trustee, by entering into this Indenture, and each Noteholder, by its acceptance of its Note, agree to treat the Notes for federal, state and local income, single business and franchise tax purposes as indebtedness. ARTICLE IV COLLATERAL -38- 45 Section 401. Collateral. (a) The Notes and the obligations of the Issuer hereunder shall be an obligation of the Issuer as provided in Section 203 hereof. The Noteholders and any Series Enhancer shall also have the benefit of, and the Notes shall be secured by and be payable solely from, the Issuer's right, title and interest in the Collateral. (b) Notwithstanding anything contained in this Indenture to the contrary, the Issuer expressly agrees that it shall remain liable under the Head Lease and each other agreement and contract included in the Collateral to observe and perform all the conditions and obligations to be observed and performed by the Issuer thereunder and that the Issuer shall perform all of its duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such contract and agreement. However, each of the Issuer and the Indenture Trustee acknowledge that the security interest of the Indenture Trustee in the Head Lease is subject to the Head Lessee's right of quiet enjoyment so long as no Head Lease Event of Default has occurred and is continuing and the Head Lessor continues to receive when due all amounts payable under the Head Lease. (c) The Indenture Trustee hereby acknowledges the appointment by the Issuer of the Manager to service and administer the Collateral in accordance with the provisions of the Management Agreement and, so long as such Management Agreement shall not have been terminated in accordance with its terms, the Indenture Trustee hereby agrees to provide the Manager with such documentation, and to take all such actions with respect to the Collateral as the Manager may reasonably request in writing in accordance with the express provisions of the Management Agreement. Until such time as the Management Agreement has been terminated in accordance with its terms, the Manager, on behalf of the Issuer, shall continue to collect all Accounts and payments on the Leases in accordance with the provisions of the Management Agreement. Section 402. Pro Rata Interest. (a) Except as expressly provided for herein and in any Supplement, the Notes of all Outstanding Series shall be equally and ratably entitled to the benefits of this Indenture without preference, priority or distinction, all in accordance with the terms and provisions of this Indenture and the related Supplement. All Notes of a particular Class issued hereunder are and are to be, to the extent (including any exceptions) provided in this Indenture and the related Supplement, equally and ratably secured by this Indenture without preference, priority or distinction on account of the actual time or times of the authentication or delivery of the Notes so that all Notes of a particular Series and Class at any time Outstanding (including Notes owned by the Seller and its Affiliates, other than the Issuer) shall have the same right, Lien and preference under this Indenture and shall all be equally and ratably secured hereby with like effect as if they had all been executed, authenticated and delivered simultaneously on the date hereof. (b) With respect to each Series of Notes, the execution and delivery of the related Supplement shall be upon the express condition that, if the conditions specified in Section 701 of this Indenture are met with respect to such Series of Notes, the security interest and all other estate and rights granted by this Indenture with respect to such Series of Notes shall cease and become null and void and all of the property, rights, and interest granted as security for the Notes of such Series shall revert to and revest in the Issuer without any other act or formality whatsoever. -39- 46 Section 403. Indenture Trustee's Appointment as Attorney-in-Fact. (a) The Issuer hereby irrevocably constitutes and appoints the Indenture Trustee, 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 Issuer and in the name of the Issuer or in its own name, from time to time, for the purpose of carrying out the terms of this Indenture, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Indenture; provided, however, that the Indenture Trustee has no obligation or duty to determine whether to perfect, file, record or maintain any perfected, filed or recorded document or instrument (all of which the Issuer shall prepare, deliver and instruct the Indenture Trustee to execute) in connection with the grant or security interest in the Collateral hereunder. (b) The Indenture Trustee shall not exercise the power of attorney or any rights granted to the Indenture Trustee pursuant to this Section 403 unless an Event of Default shall have occurred and then be continuing. The Issuer hereby ratifies, to the extent permitted by law, all actions that said attorney shall lawfully do, or cause to be done, by virtue hereof. The power of attorney granted pursuant to this Section 403 is a power coupled with an interest and shall be irrevocable until all Series of Notes are paid and performed in full. (c) The powers conferred on the Indenture Trustee hereunder are solely to protect the Indenture Trustee's interests in the Collateral and shall not impose any duty upon it to exercise any such powers except as set forth herein. The Indenture Trustee shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees, agents or representatives shall be responsible to the Issuer for any act or failure to act, except for its own negligence or willful misconduct. (d) The Issuer also authorizes the Indenture Trustee, at any time and from time to time upon the occurrence of an Event of Default, to (i) at the written direction of the Requisite Global Majority, terminate the Management Agreement then in effect and (ii) execute, in connection with the sale of Collateral provided for in Article VIII hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. (e) If the Issuer fails to perform or comply with any of its agreements contained herein, the Indenture Trustee, with the consent of, or at the direction of, the Requisite Global Majority, shall perform or comply, or otherwise cause performance or compliance, with such agreement. The reasonable expenses, including attorneys' fees and expenses, of the Indenture Trustee incurred in connection with such performance or compliance, together with interest thereon at the rate specified in the related Supplement, shall be payable by the Issuer to the Indenture Trustee on demand and shall constitute additional Outstanding Obligations secured hereby. Section 404. Release of Security Interest. The Indenture Trustee, at the written direction of the Manager ( a copy of which direction shall be delivered to the Deal Agent, each Series Enhancer and each Eligible Interest Rate Swap Counterparty), shall release from the Lien of this Indenture, (i) those Interest Rate Swap Agreements identified by the Manager; provided that, after giving effect to any such release of an Interest Rate Swap Agreement, the Issuer shall be in -40- 47 compliance with the requirement of Section 630 hereof and (ii) any additional Compressors identified by the Manager; provided, however, that any such release of Collateral shall be conditioned upon the receipt and approval by the Deal Agent of such documentation as the Deal Agent may reasonably request to demonstrate that, after giving effect to any such requested release of Compressors, none of the following events or conditions does or will exist: (i) a Net Revenue Event; or (ii) an Overcollateralization Event; or (iii) an Event of Default; or (iv) a Head Lease Event of Default; or (v) any Manager Default of the type described in paragraphs (a), (f), (h), (j), (k), (m) and (n) in Section 12.1 of the Management Agreement; or (vi) any other Manager Default not described in clause (v) above, but only to the extent that, the Requisite Global Majority has elected to terminate the defaulting Manager as the consequence of any such Manager Default in accordance with the terms of the Management Agreement. In connection with proving the existence or non-existence of either a Net Revenue Event or an Overcollateralization Event, the Issuer shall deliver (or shall cause to be delivered) to the Deal Agent all of the following: (A) three Appraisals establishing the then Aggregate Appraised Value (calculated after giving effect to the release of the requested Compressors); (B) a pro forma calculation establishing that, after giving effect to any such release of the requested Compressors and any associated Prepayment of the Notes and the Capital, no Net Revenue Event or Overcollateralization Event shall or will exist; and (C) an Officer's Certificate of the Manager that all of the conditions specified in this Section 404 have been satisfied. The Indenture Trustee will, promptly upon receipt of such certificate from the Manager and at the Issuer's expense, execute and deliver to the Issuer, the Seller or the Manager, as appropriate, each Series Enhancer, each Eligible Interest Rate Swap Counterparty and the Deal Agent, a non-recourse certificate of release substantially in the form of Exhibit A hereto and such additional documents and instruments as that Person may reasonably request to evidence the termination and release from the Lien of this Indenture of such Compressor and the other related items of Collateral. -41- 48 Section 405. Administration of Collateral. (a) The Indenture Trustee shall promptly as practicable notify the Noteholders, each Eligible Interest Rate Swap Counterparty, each Series Enhancer and the Deal Agent of any Manager Default of which a Corporate Trust Officer has actual knowledge. If a Manager Default shall have occurred and then be continuing, the Indenture Trustee, in accordance with the written direction of the Requisite Global Majority, shall deliver to the Manager (with a copy to the Deal Agent, each Rating Agency, each Series Enhancer and each Eligible Interest Rate Swap Counterparty) a Manager Termination Notice terminating the Manager of its responsibilities in accordance with the terms of the Management Agreement. If the Back-up Manager is prohibited by Applicable Law from serving as the Manager (and delivering the document evidencing such inability as set forth in the Back-up Management Agreement) and if the Deal Agent is unable to locate and qualify a replacement Manager within sixty (60) days after the date of delivery of the Manager Termination Notice, then the Indenture Trustee may appoint, or petition a court of competent jurisdiction to appoint as a successor Manager, a Person reasonably acceptable to the Requisite Global Majority, having a net worth of not less than $15,000,000 and whose regular business includes leasing of natural gas compressors. In connection with the appointment of a replacement Manager, the Indenture Trustee or Deal Agent may, with the written consent of the Requisite Global Majority, make such arrangements for the compensation of such replacement out of Head Lessor Collections as the Indenture Trustee, each Eligible Interest Rate Swap Counterparty, each Series Enhancer, the Deal Agent and such replacement Manager shall agree. The Indenture Trustee shall take such action, consistent with the Management Agreement and the other Related Documents, as shall be necessary to effectuate the appointment and installation of the Back-up Manager or another Manager. (b) Upon a Corporate Trust Officer's obtaining actual knowledge or the receipt of notice by the Indenture Trustee that a Warranty Purchase Amount has not been paid when due pursuant to the terms of the Related Documents, the Indenture Trustee shall notify each Series Enhancer, each Rating Agency, each Eligible Interest Rate Swap Counterparty and the Requisite Global Majority of such event and shall enforce such repurchase obligations at the direction of the Requisite Global Majority. ARTICLE V RIGHTS OF NOTEHOLDERS; ALLOCATION AND APPLICATION OF COLLECTIONS; REQUISITE GLOBAL MAJORITY Section 501. Rights of Noteholders. The Noteholders of each Series shall have the right to receive, at the times and in the amounts specified in the related Supplement, (i) the portion of Head Lessor Collections allocable to Noteholders of such Series pursuant to this Indenture and the related Supplement, (ii) funds on deposit in the Trust Account related thereto and (iii) funds on deposit in any Series Account for such Series or Class, or payable with respect to, any Series Enhancement for such Series or Class. Each Noteholder, by acceptance of its Notes, (a) acknowledges and agrees that (except as expressly provided herein and in a Supplement entered into in accordance with Section 1006(b) hereof) the Noteholders of a Series or Class shall not have any interest in any Series Account or Series Enhancement for the benefit of any other Series or Class -42- 49 and (b) ratifies and confirms the terms of this Indenture and the Related Documents executed in connection with such Series. Section 502. Collections and Allocations. With respect to each Collection Period, the Available Distribution Amount on deposit in the Trust Account will be allocated to each Series then Outstanding in accordance with Article III of this Indenture and the Supplements. Section 503. Determination of Requisite Global Majority. A Requisite Global Majority shall exist with respect to any action proposed to be taken pursuant to the terms of this Indenture or any Supplement if Control Parties representing a majority of the Existing Commitments of all Series then Outstanding shall approve or direct such proposed action (in making such a determination, each Control Party shall be deemed to have voted the entire Existing Commitment of the related Series in favor of, or in opposition to, such proposed action, as the case may be). Except where the Indenture specifically states otherwise, the Indenture Trustee, provided it has sent out notices in accordance with the Indenture, may act as directed by a majority of the outstanding Noteholders responding in writing to such request for amendment or written direction, provided however, that Noteholders representing at least 51% of the Existing Commitments of all Series then Outstanding as of the time such voting response is due back to the Indenture Trustee must have responded in writing to the Indenture Trustee's notice to amend or for written direction. In addition, the Indenture Trustee shall not have any liability to any Noteholder or Note Owner with respect to any action taken pursuant to such notice if the Noteholder or Note Owner does not respond to such notice within the time period set forth in such notice. By acceptance of a Note, each Noteholder and Note Owner agree to the foregoing provisions. ARTICLE VI COVENANTS For so long as any Outstanding Obligations of the Issuer under this Indenture or any Related Document have not been paid and/or performed, the Issuer shall observe each of the following covenants: Section 601. Payment of Principal and Interest; Payment of Taxes. (a) The Issuer will duly and punctually pay the principal of, and interest on, the Notes in accordance with the terms of the Notes, this Indenture and the related Supplement; (b) The Issuer will take all actions as are necessary to insure that all taxes and governmental claims, if any, in respect of the Issuer's activities and assets are promptly paid; and (c) The Issuer will not claim any credit on, make any deduction from the principal, premium, if any, or interest payable in respect of the Notes (other than amounts properly withheld from such payments under any applicable law) or assert any claim against any present or former Noteholder by reason of the payment of any taxes levied or assessed upon any of the Collateral. -43- 50 Section 602. Maintenance of Office. The chief executive office of the Issuer is located at 2911 Turtlecreek Boulevard, Suite 1240, Dallas, Texas 75215. The Issuer shall not establish a new location for its chief executive office unless (i) the Issuer shall provide each of the Indenture Trustee, each Rating Agency, the Deal Agent, each Eligible Interest Rate Swap Counterparty and each Series Enhancer not less than sixty (60) days' prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Indenture Trustee, the Deal Agent, any Eligible Interest Rate Swap Counterparty or any Series Enhancer may reasonably request, and (ii) not less than fifteen (15) days' prior to the effective date of such relocation, the Issuer shall have taken, at its own cost, all action necessary so that such change of location does not impair the security interest of the Indenture Trustee in the Collateral, or the perfection of the sale or contribution of the Compressors to the Issuer, and shall have delivered to the Indenture Trustee, the Deal Agent, each Eligible Interest Rate Swap Counterparty and each Series Enhancer copies of all filings required in connection therewith together with an Opinion of Counsel, satisfactory to the Indenture Trustee, the Deal Agent, each Eligible Interest Rate Swap Counterparty and the Series Enhancers, to the effect that such change of location does not impair either the perfection or priority of the Indenture Trustee's security interest in the Collateral. Section 603. Corporate Existence. The Issuer will keep in full effect its existence, rights and franchises as a limited partnership organized under the laws of the State of Delaware, and will obtain and preserve its qualification in each jurisdiction in which such qualification is necessary to protect the validity and enforceability of this Indenture, any Supplements issued hereunder and the Notes. Section 604. Protection of Collateral. The Issuer will from time to time execute and deliver all amendments hereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and will, upon the reasonable request of the Manager, the Indenture Trustee, the Deal Agent, any Eligible Interest Rate Swap Counterparty or any Series Enhancer, take such other action reasonably necessary or advisable to: (a) grant more effectively the security interest in all or any portion of the Collateral; (b) maintain or preserve the Lien of this Indenture (and the priority thereof) or carry out more effectively the purposes hereof; (c) perfect, publish notice of, or protect the validity of the security interest in the Collateral created pursuant to this Indenture; (d) enforce any of the items of the Collateral; (e) preserve and defend its right, title and interest to the Collateral and the rights of the Indenture Trustee in such Collateral against the claims of all Persons (other than the Noteholders or any Person claiming through the Noteholders), including any claims that the Compressor is a fixture; or -44- 51 (f) pay any and all taxes levied or assessed upon all or any part of the Collateral. Section 605. Enforce Head Lease Rights. Except as otherwise expressly permitted by the terms of the Related Documents, the Issuer will promptly enforce all of its rights under, and with respect to, the Head Lease and the Head Lease Collateral. Section 606. Negative Covenants Regarding Collateral. The Issuer will not, without (i) the prior written consent of the Indenture Trustee (acting at the direction of the Requisite Global Majority) and (ii) satisfaction of the Rating Agency Condition in each instance: (a) except as otherwise permitted by this Indenture, any Interest Rate Swap Agreement or the other Related Documents, the Issuer will not take, or fail to take, any action, and will use its reasonable efforts not to permit any action to be taken by others, which would release any Person from any of such Person's covenants or obligations under any agreement or instrument included in the Collateral, or which would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such agreement or instrument. In furtherance of the foregoing, the Issuer will not amend, modify or terminate the Head Lease and/or the Head Lessee Security Agreement or grant any waiver or consent from compliance with the express terms thereof. (b) at any time sell, transfer, exchange or otherwise dispose of any of the Collateral (including, without limitation, any Head Lease Collateral), except as follows: (i) in connection with a sale pursuant to Sections 612 or 816 hereof; (ii) sales of Compressors for a net sales proceeds payable to the Issuer of not less than the sum of the Appraised Values (as in effect on the Conversion Date) of the Compressors that were sold, regardless of whether such sales are considered to have been made in the ordinary course of business; or (iii) sales of Compressors in the ordinary course of business (including any such sales resulting from the sell/repair decision of the Manager) regardless of the sales proceeds realized from such sales so long as an Event of Default or Trigger Event is not then continuing or would result from such sale of Compressors. (c) (i) permit the validity or effectiveness of this Indenture to be impaired, or (ii) permit the Lien of this Indenture with respect to the Collateral to be subordinated, terminated or discharged, except as permitted in accordance with Section 404 or Article VII hereof, or (iii) permit any Person to be released from any covenants or obligations with respect to such Collateral, except as may be expressly permitted by the Management Agreement. Section 607. (a) Non-Consolidation of the Issuer. The Issuer shall be operated in such a manner that it shall not be substantively consolidated with the trust estate of any other person in the event of the bankruptcy or insolvency of the Issuer or such other person. Without limiting the foregoing the Issuer shall (1) conduct its business in its own name, (2) maintain its books and records separate from those of any other person, (3) maintain its bank accounts separate from those of any -45- 52 other person, (4) maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other person, (5) pay its own liabilities and expenses only out of its own funds, (6) enter into a transaction with an Affiliate only if such transaction is commercially reasonable and on the same terms as would be available in an arm's length transaction with a person or entity that is not an Affiliate, (7) allocate fairly and reasonably any overhead expenses that are shared with an Affiliate, (8) hold itself out as a separate entity, (9) maintain adequate capital in light of its contemplated business operations and (10) observe all other appropriate partnership and other organizational formalities. (b) Notwithstanding any provision of law which otherwise empowers the Issuer, the Issuer shall not (1) hold itself out as being liable for the debts of any other person, (2) act other than in its partnership name and through its general partner or its duly authorized officers or agents, (4) engage in any joint activity or transaction of any kind with or for the benefit of any Affiliate including any loan to or from or guarantee of the indebtedness of any Affiliate, except payment of lawful distributions to its partners, (5) commingle its funds or other assets with those of any other person, (6) create, incur, assume, guarantee or in any manner become liable in respect of any indebtedness (except pursuant to this Indenture) other than trade payables and expense accruals incurred in the ordinary course of its business or (7) take any other action that would be inconsistent with maintaining the separate legal identity of the Issuer. Section 608. No Bankruptcy Petition. The Issuer shall not (1) commence any Insolvency Proceeding seeking to have an order for relief entered with respect to it, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to it or its debts, (2) seek appointment of a receiver, trustee, custodian or other similar official for it or any part of its assets, (3) make a general assignment for the benefit of creditors, or (4) take any action in furtherance of, or consenting or acquiescing in, any of the foregoing. Section 609. Liens; Fixtures. The Issuer shall not permit (i) any Lien (except any Permitted Encumbrance) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the Proceeds thereof; (ii) the Lien of this Indenture not to constitute a valid first priority perfected security interest in the Collateral or (iii) any Compressor to be considered a fixture under applicable local law. Section 610. Other Debt. The Issuer shall not contract for, create, incur, assume or suffer to exist any Indebtedness other than (i) the Notes issued pursuant to this Indenture or any Supplement issued hereunder, (ii) any Management Fees and all other amounts payable pursuant to the provisions of the Management Agreement, (iii) trade payables and expense accruals incurred in the ordinary course and which are incidental to the purposes permitted pursuant to the Issuer's partnership agreement and (iv) obligations incurred pursuant to Interest Rate Swap Agreements permitted or required hereunder. Section 611. Guarantees, Loans, Advances and Other Liabilities. The Issuer will not make any loan, advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance on any obligation or capability of so doing, or otherwise), endorse (except for the endorsement of checks for collection or deposit) or -46- 53 otherwise become contingently liable, directly or indirectly, in connection with the obligations, stock or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person. Section 612. Consolidation, Merger and Sale of Assets. (a) The Issuer shall not consolidate with or merge with or into any other Person or sell, convey, transfer or lease all or substantially all of its assets, whether in a single transaction or a series of transactions, to any Person substantially all of its assets, except for (i) any such sale, conveyance or transfer contemplated in this Indenture or any Supplement issued hereunder and (ii) any lease of a Compressor in accordance with the terms of the Head Lease. (b) The obligations of the Issuer hereunder shall not be assignable nor shall any Person succeed to the obligations of the Issuer hereunder except in each case in accordance with the provisions of this Indenture. (c) The Issuer shall give prior written notice to any Rating Agencies of any action pursuant to this Section 612. Section 613. Other Agreements. The Issuer will not after the date of the issuance of the Notes enter into, or become a party to, any agreements or instruments other than this Indenture, the Supplement, the Sale Agreement, the Head Lease, the Management Agreement, the Back-up Management Agreement, the Head Lessee Security Agreement, the Note Purchase Agreement, or any other agreement(s) contemplated thereby, including, without limitation, (i) any agreement(s) for disposition of the Sold Assets permitted by Sections 612, 804 or 816 hereof and (ii) any agreement(s) for the sale or re-lease of a Compressor made in accordance with the provisions of the Management Agreement. In addition, the Issuer will not amend, modify or waive any provision of the Head Lease or the Sale Agreement or give any approval or consent or permission provided for therein without the prior written consent of the requisite Persons set forth in the Head Lease or the Sale Agreement. Section 614. Charter Documents. The Issuer will not amend or modify its Certificate of Limited Partnership or Partnership Agreement without the prior written consent of the Requisite Global Majority and satisfaction of the Rating Agency Condition. Section 615. Capital Expenditures. The Issuer will not make any expenditure (by long-term or operating lease or otherwise) for capital assets (both realty and personalty), except for (a) acquisition of additional Compressors from the Seller pursuant to the Sale Agreement or (b) overhaul expenses or capital improvements to the Compressors made in the ordinary course of its business and in accordance with the terms of the Management Agreement. Section 616. Permitted Activities; Compliance with Limited Partnership Agreement. The Issuer will not engage in any activity or enter into any transaction except as permitted under its Partnership Agreement as in effect on the date on which this Indenture is executed. The Issuer will observe all partnership, organizational and managerial procedures required -47- 54 by its Partnership Agreement, any other partnership formation documents of the Issuer, and the limited partnership laws of the State of Delaware. Section 617. Investment Company Act. The Issuer will conduct its operations, and will cause the Manager to conduct the Issuer's operations, in a manner which will not subject it to registration as an "investment company" under the Investment Company Act of 1940, as amended. Section 618. Payments of Collateral. If the Issuer shall receive from any Person any payments (other than rental payments from Users which will be processed in accordance with provisions of the Management Agreement) with respect to the Collateral (to the extent such Collateral has not been released from the Lien of this Indenture in accordance with Section 404 hereof), the Issuer shall receive such payment in trust for the Indenture Trustee, as secured party hereunder, and subject to the Indenture Trustee's security interest and shall immediately deposit such payment in the Trust Account. Section 619. Notices. The Issuer shall notify the Indenture Trustee, the Deal Agent, each Rating Agency and each Series Enhancer in writing of any of the following immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto: (a) Default. The occurrence of an Event of Default or Trigger Event; (b) Litigation. The institution of any litigation, arbitration proceeding or Proceeding before any Governmental Authority which, if adversely resolved, would result in a Material Adverse Change; (c) Material Adverse Change. The occurrence of a Material Adverse Change with respect to the Issuer. Section 620. Books and Records. The Issuer shall, and shall cause the Manager to, maintain complete and accurate books and records in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities. The Issuer shall report, or cause to be reported, on its financial records the transfer of the Sold Assets as a sale under GAAP. The Issuer will ensure that no financial statement, nor any consolidated financial statements of the Issuer, suggests that the assets of the Issuer are available to pay the debts of either the Contributor, the Seller, the Lessee or the Manager. The Issuer shall (i) keep complete minutes of the meetings and other proceedings of the Issuer, (ii) continuously maintain the resolutions, agreements and other instruments underlying the sale and transfer of the Sold Assets as official records of the Issuer. Section 621. Taxes. The Issuer shall, or shall cause the Manager to, pay when due, all of its taxes, unless, and only to the extent that, the Issuer is contesting such taxes in good faith and by appropriate proceedings and the Issuer has set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP. -48- 55 The Issuer shall remit (or cause to be remitted) to each Governmental Authority, all Excluded Payments actually by, or on behalf of, the Issuer and shall promptly remit to the Deal Agent and Indenture Trustee evidence that all such payments have been made. Section 622. Subsidiaries. The Issuer shall not create any Subsidiaries. Section 623. Investments. The Issuer shall not make or permit to exist any Investment in any Person except for Investments in Eligible Investments made in accordance with the terms of this Indenture. Section 624. Use of Proceeds. The Issuer shall use the proceeds of the Notes only for (i) the purchase of Compressors and related Collateral and (ii) other general corporate purposes. In addition, the Issuer shall not permit any proceeds of the Notes to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying any margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time, and shall furnish to each Holder, upon its request, a statement in conformity with the requirements of Regulation U. Section 625. Asset Base Certificate. The Issuer shall prepare and deliver to the Indenture Trustee, each Series Enhancer, each Rating Agency and the Deal Agent on each Determination Date, an Asset Base Certificate. Section 626. Financial Statements. The Issuer shall prepare and deliver to the Indenture Trustee, each Eligible Interest Rate Swap Counterparty, each Series Enhancer, each Rating Agency and the Deal Agent, or shall cause the Manager to prepare and deliver pursuant to the Management Agreement, (i) quarterly financial statements of the Issuer and Manager within 60 days of the end of each fiscal quarter and (ii) annual financial statements of the Issuer and Manager, audited by their regular Independent Accountants, within 120 days of the end of each fiscal year. All financial statements shall be prepared in accordance with GAAP. Delivery of such reports, information and documents to the Indenture Trustee is for informational purposes only and the Indenture Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer's compliance with any of its covenants hereunder (as to which the Indenture Trustee is entitled to rely exclusively on Officer's Certificates). Section 627. Other Information. For so long as any of the Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act and the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, the Issuer will, and shall cause Manager to, (i) provide or cause to be provided to any Holder of Notes and any prospective purchaser thereof designated by such a Holder, upon the request of such Holder or prospective purchaser, the information required to be provided to such Holder or prospective purchaser by Rule 144A(d)(4) under the Securities Act; and (ii) update such information to prevent such information from becoming materially false and materially misleading in a manner adverse to any Noteholder. Section 628. Independent Directors of General Partner. The general partner of the Issuer shall at all times be a corporation with one or more Independent Directors such that if there -49- 56 is more than one Independent Director, the Independent Directors will constitute a majority of all directors. Section 629. [Reserved.] Section 630. Hedging Requirements. (a) The Issuer will enter into and maintain (or will cause to be entered into and maintained) one or more Interest Rate Swap Agreements with one or more Eligible Interest Rate Swap Counterparties having an aggregate notional balance not less than 90% (and not greater than 100%) of the sum of the then unpaid principal balance of the Notes of all Series then Outstanding and all outstanding Capital. The duration of the Interest Rate Swap Agreements will be consistent with the Termination Dates of the Lease Pools. All of the foregoing requirements shall be collectively referred to as the "Hedging Requirement". (b) If (1) the Issuer, or Manager on behalf of Issuer, fails to maintain the requisite level of hedging set forth in Section 630(a) above, or (2) the Issuer prepays any Note, or (3) a Trigger Event shall have occurred, the Deal Agent (acting on behalf of the Requisite Global Majority) shall have the right, in its sole discretion and at the expense of the Issuer, to direct the Indenture Trustee, to either (i) enter into Interest Rate Swap Agreements on the Issuer's behalf or (ii) terminate any Interest Rate Swap Agreement then in effect in accordance with the terms of such Interest Rate Swap Agreement (and in the event of a partial prepayment of a Note, reduce the notional amount of such Interest Rate Swap Agreements in accordance with the terms thereof so that the remaining aggregate notional amounts shall not exceed the Hedging Requirement). In the event the Deal Agent or the Requisite Global Majority determines to direct the Indenture Trustee to enter into or to terminate or reduce an Interest Rate Swap Agreement on the Issuer's behalf, the Deal Agent or the Requisite Global Majority shall promptly send a copy of any such agreement to the Issuer and may provide the Indenture Trustee and Manager with a written direction to deposit in the Trust Account certain amounts to purchase, or reimburse the Deal Agent or the Requisite Global Majority or a third party for purchase or termination, such Interest Rate Swap Agreement. (c) All payments received from an Interest Rate Hedge Provider shall be deposited by the Issuer directly into the Trust Account in accordance with Section 302(a) hereof. Section 631. Separate Identity. The Issuer makes herein by this reference each of the representations and warranties made by it to Gardere Wynne Sewell, LLP in support of their opinions issued and delivered in connection with the issuance of the Notes, as if specifically made herein and agrees to comply with each of the factual assumptions contained in such opinions. Section 632. New Master Lease Agreement with Users. With respect to each Head Lessee Compressor and each Head Lessor Compressor, the Issuer shall (or shall cause such actions to be taken), within the timeframes set forth below, cause each related User to execute a revised master lease agreement, substantially in the form of Exhibit C hereto. The Issuer shall be deemed to be in compliance with this Section 632 if Users representing at least ninety-five percent (95%) of the Aggregate Appraised Value have executed such revised master lease agreement by August 8, 2001 and one hundred percent (100%) of the Aggregate Appraised Value by February 9, 2002. -50- 57 Section 633. Annual Perfection Opinion. Within 90 days after the beginning of each calendar year, beginning with the calendar year 2002, the Issuer shall furnish to the Indenture Trustee, the Deal Agent, each Rating Agency, and each Series Enhancer, an Opinion of Counsel either stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, recording and refiling of this Indenture, any Supplements hereto and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements, as are necessary to maintain the Lien created by this Indenture and reciting the details of such action or stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any Supplements hereto and any other requisite documents and the execution and filing of any financing statements and continuation statements that, in the opinion of such counsel, are required to maintain the lien and security interest of this Indenture. ARTICLE VII DISCHARGE OF INDENTURE; PREPAYMENTS Section 701. Full Discharge. Upon payment in full of all Outstanding Obligations, the Indenture Trustee shall, at the written request and at the expense of the Issuer, execute and deliver to the Issuer such deeds or other instruments as shall be requisite to evidence the satisfaction and discharge of this Indenture and the security hereby created, and to release the Issuer from its covenants contained in this Indenture and the related Supplement in connection with the satisfaction and discharge of the Indenture. The Indenture Trustee shall be entitled to receive an Opinion of Counsel stating that such satisfaction and discharge is authorized and permitted. Section 702. Prepayment of Notes . (a) Optional Prepayments. The Issuer may, from time to time, make an optional Prepayment of principal of the Notes of any Series at the times, in the amounts and subject to the conditions set forth in the related Supplement. The Issuer shall promptly confirm any telephonic notice of prepayment in writing. Any optional Prepayment of principal made by the Issuer pursuant to this Section 702 shall also include accrued interest to the date of the prepayment on the amount being prepaid. All Prepayments made in accordance with this Section 702(a) shall be accomplished by a deposit of funds (including any amounts required pursuant to the provisions of Section 702(c) hereof) directly into the Trust Account. (b) Mandatory Prepayments. If either or both of an Overcollateralization Event or a Net Revenue Event has occurred and is continuing, the Issuer may on or prior to the immediately succeeding Determination Date, either (i) acquire additional Eligible Compressors having an aggregate Appraised Value, or (ii) prepay the outstanding principal balance of, and accrued interest thereon (including, if any such prepayment relates to a variable funding Series, interest accrued through the end of any applicable interest tranche or fixed period), of any or all Series of Notes, in each case in an amount necessary to eliminate such conditions, which prepayment shall be applied in accordance with the provisions of Section 302 of this Indenture and the applicable provisions of the affected Supplements. If the Issuer does not cure such Overcollateralization Event or Net Revenue Event in the manner and within the time frame set forth in the preceding sentence or if any -51- 58 other Trigger Event is continuing, then on each subsequent Payment Date on which any such Trigger Event is continuing, that portion of Available Distribution Amount remaining after making all distributions required pursuant to clauses (1) through (5) inclusive of Section 302(c) hereof shall be used to prepay the then unpaid principal balance of the Notes and the Capital in accordance with Section 302(c) hereof, until the earlier to occur of (x) the then unpaid principal balance of the Notes and the Capital have been reduced to zero and (y) the date on which no Overcollateralization Event, Net Revenue Event or other Trigger Event is continuing. In addition to the foregoing, if the Head Lessee exercises the purchase option set forth in Section 32 of the Head Lease, then the Issuer shall prepay the Notes and the Capital in an amount equal to the sum of (i) the Purchase Option Amount then payable, (ii) accrued interest and accrued Partnership Priority Payments to the date of prepayment on the principal balance of the Notes and the Capital, respectively, so prepaid, (iii) any amounts payable pursuant to Section 702(c) and (iv) any breakage cost and other amounts specified in the related Supplement. All Prepayments made in accordance with this Section 702(b) shall be accomplished by a deposit of funds (including any funds required pursuant to Section 702(c) hereof) directly into the Trust Account. (c) Repayment of Eligible Interest Rate Swap Counterparties. If the Issuer has elected to make an optional Prepayment in accordance with the provisions of Section 702(a) above or is required to make a Prepayment in accordance with the provisions of Section 702(b), then the amount of such Prepayment shall include an amount necessary (determined by the Deal Agent) to reduce the notional balance of any Interest Rate Swap Agreement required by this Indenture in accordance with the terms of such Interest Rate Swap Agreement such that the remaining notional balances of such Interest Rate Swap Agreement shall not exceed the Hedging Requirement and to pay in full any termination charges assessed by the Eligible Interest Rate Swap Counterparty. Such additional amount shall be applied in accordance with Section 302 hereunder. ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES Section 801. Event of Default. "Event of Default", wherever used herein with respect to any Series of Notes, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority): (i) default in (A) the payment on any Payment Date of any interest, premium or commitment fees, if any, or Principal Payment Amount then due and payable on any Series of Notes, or (B) the payment on the Final Maturity Date of the then unpaid principal balance of any Class of Notes; -52- 59 (ii) default in the due observance or performance of any covenant of the Issuer set forth in Sections 606, 608, 610, 611, 612, 613, 614, 615, 616, 622, 623 or 629 hereof; (iii) default in the due observance or performance of any covenant of the Issuer or any Universal Party in any Related Document (to the extent such breach is not otherwise addressed in this Section 801) which breach or failure continues unremedied for a period of 30 days after the earliest of (i) any Authorized Officer of the Issuer, or the president, chief financial officer or any executive vice president of the applicable Universal Party, as the case may be, first acquiring knowledge thereof, (ii) the Indenture Trustee's giving written notice thereof to the Issuer and each Universal Party or (iii) any Noteholder giving written notice thereof to the Issuer, each Universal Party and the Indenture Trustee; (iv) any representation or warranty of the Issuer, or any Universal Party made in any other Related Document shall prove to be incorrect in any material respect as of the time when the same shall have been made and remains unremedied for a period of 30 days after the earliest of (i) any Authorized Officer of the Issuer or the president, chief financial officer or any executive vice president of the applicable Universal Party, as the case may be, first acquiring knowledge thereof, (ii) the Indenture Trustee's giving written notice thereof to the Issuer, and each Universal Party, or (iii) any Noteholder giving written notice thereof to the Issuer, each Universal Party and the Indenture Trustee; (v) the entry of a decree or order for relief by a court having jurisdiction in respect of any of the Issuer, Head Lessee, Universal or the Management Guarantor, as the case may be, in any involuntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, or sequestrator (or other similar official) for the Issuer, Head Lessee, Universal or the Management Guarantor, as the case may be, or for any substantial part of their respective properties, or ordering the winding up or liquidation of their respective affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (vi) the commencement by any of the Issuer, the Head Lessee, Universal, the Management Guarantor of a voluntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or the consent by the Issuer, the Head Lessee, Universal or the Management Guarantor to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Issuer, the Head Lessee, Universal or the Management Guarantor or any substantial part of their respective properties, or the making by the Issuer, the Head Lessee, Universal or the Management Guarantor of any general assignment for the benefit of creditors, or the failure by the Issuer, the Head Lessee, Universal or the Management Guarantor generally to pay its debts as they become due, or the taking of any action by the Issuer, the Head Lessee, Universal or the Management Guarantor in furtherance of any such action; (vii) Either of the following conditions shall exist: (A) the Indenture Trustee shall fail to have a first priority perfected security interest in all or any portion of the Collateral; or (B) the Head Lessor shall fail to have a first priority security interest in the Head Lease Collateral; -53- 60 (viii) a Manager Default shall have occurred and a replacement Manager has not assumed the duties of the terminated Manager by the second Payment Date following the occurrence of such Manager Default; (ix) a Head Lease Event of Default (after giving effect to all applicable grace and cure periods set forth in the Head Lease) shall have occurred and then be continuing; (xi) the Issuer is required to register as an investment company under the Investment Company Act of 1940, as amended; (xii) any payment shall be made by a Series Enhancer under any Enhancement Agreement; (xiii) the rendering against the Issuer of a final judgment, decree or order for the payment of money in excess of $10,000 and the continuance of such judgment, decree or order unsatisfied, unbonded or uninsured for a period of 60 consecutive days; or (xiv) if on any Payment Date, the sum of (i) the then unpaid principal balance of all Series of Notes then Outstanding and (ii) the then unpaid Capital, exceeds an amount equal to the then Aggregate Appraised Value, and such condition continues unremedied until the next succeeding Determination Date. The occurrence of an Event of Default with respect to one Series of Notes shall constitute an Event of Default with respect to all other Series of Notes then Outstanding unless the related Supplement with respect to each such Series of Notes shall specifically provide to the contrary. Section 802. Acceleration of Stated Maturity; Rescission and Annulment. (a) Upon the occurrence of an Event of Default of type described in paragraph (v) or (vi) of Section 801, the unpaid principal balance of, and accrued interest on, all Classes of Notes, together with all other amounts then due and owing to the Noteholders, shall become immediately due and payable without further action by any Person. Except as set forth in the immediately preceding sentence, if an Event of Default under Section 801 occurs and is continuing, then and in every such case the Requisite Global Majority may declare the principal of and accrued interest on all Notes of all Series then Outstanding to be due and payable immediately, by a notice in writing to the Issuer and to the Indenture Trustee given by the Requisite Global Majority, and upon any such declaration such principal and accrued interest shall become immediately due and payable. (b) At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as hereinafter in this Article provided, the Requisite Global Majority, by written notice to the Issuer and the Indenture Trustee, may rescind and annul such declaration and its consequences if: (i) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay: -54- 61 (A) all of the installments of interest and premium, if any, on and, if the Expected Final Payment Date has occurred, principal of all Notes which were overdue prior to the date of such acceleration; (B) to the extent that payment of such interest is lawful, interest upon overdue installments of interest at the Overdue Rate for such Notes set forth in the related Supplement; (C) all sums paid or advanced by the Indenture Trustee hereunder or the Manager and the reasonable compensation, out-of-pocket expenses, disbursements and advances of the Indenture Trustee, its agents and counsel incurred in connection with the enforcement of this Indenture; (D) all amounts due to any Series Enhancer; (E) all scheduled payments then due under any Interest Rate Swap Agreement, together with interest thereon in accordance with the terms thereof; and (ii) all Events of Default, other than the nonpayment of the principal of or interest on Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 813 hereof. No such rescission with respect to any Event of Default shall affect any subsequent Event of Default or impair any right consequent thereon. Section 803. Collection of Indebtedness. The Issuer covenants that, if an Event of Default occurs and is continuing and a declaration of acceleration has been made under Section 802 and not rescinded, the Issuer will, upon demand of the Indenture Trustee, pay to the Indenture Trustee, for the benefit of the Noteholders of all Series then Outstanding, all Eligible Interest Rate Swap Counterparties and all Series Enhancers, the whole amount then due and payable on such Notes for principal and interest, with interest upon the overdue principal and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest, at the Overdue Rate payable with respect to each such Note; and, in addition thereto, such further amount as shall be sufficient to cover all other Outstanding Obligations and the costs and out-of-pocket expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and counsel incurred in connection with the enforcement of this Indenture. Section 804. Remedies. If an Event of Default shall occur and be continuing, the Indenture Trustee, by such officer or agent as it may appoint, shall notify the applicable Rating Agencies, if any, of such Event of Default and shall, if instructed by the Requisite Global Majority: (i) institute any Proceedings, in its own name and as trustee of an express trust, for the collection of all amounts then due and payable on the Notes of all Series or under this Indenture or the related -55- 62 Supplement with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Collateral and any other assets of the Issuer any monies adjudged due; (ii) subject to (A) the quiet enjoyment rights of any lessee of a Compressor (other than the Head Lessee) and (B) the restrictions set forth in the Intercreditor Agreement, sell (including any sale made in accordance with Section 816 hereof), hold or lease the Collateral or any portion thereof or rights or interest therein, at one or more public or private transactions conducted in any manner permitted by law; (iii) terminate the Management Agreement and engage the Back-up Manager or another replacement Manager; (iv) terminate the Head Lease; (v) institute any Proceedings from time to time for the complete or partial foreclosure of the Lien created by this Indenture with respect to the Collateral; (vi) institute such other appropriate Proceedings to protect and enforce any other rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy; (vii) exercise any remedies of a secured party under the UCC or any applicable law and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee or the Noteholders hereunder; and (viii) appoint a receiver or a manager over the Issuer or its assets. Section 805. Indenture Trustee May Enforce Claims Without Possession of Notes. (a) In all Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all of the Noteholders, and it shall not be necessary to make any Noteholder a party to any such Proceedings. (b) All rights of action and claims under this Indenture, the related Supplement or such Notes may be prosecuted and enforced by the Indenture Trustee without the possession of any of the Notes or the production thereof in any Proceeding relating thereto, and any such Proceeding instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery whether by judgment, settlement or otherwise shall, after provision for the payment of the reasonable compensation, expenses, and disbursements incurred and advances made, by the Indenture Trustee, its agents and counsel, be for the ratable benefit of the Holders of -56- 63 the Notes, subject to the subordination of payments among Classes of a particular Series as set forth in the related Supplement. Section 806. Allocation of Money Collected. If the Notes of all Series have been declared due and payable following an Event of Default and such declaration and its consequences have not been rescinded or annulled, any money collected by the Indenture Trustee pursuant to this Article or otherwise and any other monies that may be held or thereafter received by the Indenture Trustee as security for such Notes shall be applied, to the extent permitted by law, in the following order, at the date or dates fixed by the Indenture Trustee: (1) To the payment of all costs and expenses of collection incurred by the Indenture Trustee (including the reasonable fees and expenses of counsel to the Indenture Trustee) and of all other amounts due the Indenture Trustee under Section 905 hereof; and (2) To each Eligible Interest Rate Swap Counterparty, on a pro rata basis, an amount equal to the sum of (i) any payments (other than termination payments) then due and payable pursuant to the terms of any Interest Rate Swap Agreement then in effect and (ii) any termination payment then due and payable pursuant to the terms of any Interest Rate Swap Agreement then in effect to the extent (but only to the extent) that such termination payments were not caused by a default by the related Eligible Interest Rate Swap Counterparty; (3) To the Series Account for each Series of Senior Notes then Outstanding, an amount equal to the Senior Class Priority Payments (including reimbursements payable to any Series Enhancer for interest previously paid provided for in the related Enhancement Agreement) for each such Series. If sufficient funds do not exist to pay in full all such Senior Class Priority Payments, such amounts shall be allocated among the Series of Senior Notes in the same proportion as the ratio of (x) the Senior Class Priority Payments of a particular Series of Senior Notes then Outstanding to (y) the aggregate Senior Class Priority Payments of all Series of Senior Notes then Outstanding; (4) To the Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to the Subordinate Class Priority Payments for each such Series. If sufficient funds do not exist to pay in full all such Subordinate Class Priority Payments, such amounts shall be allocated among the Series of Subordinate Notes in the same proportion as the ratio of (x) the Subordinate Class Priority Payments of a particular Series of Subordinate Notes then Outstanding to (y) the aggregate Subordinate Class Priority Payments of all Series of Subordinate Notes then Outstanding; (5) To the Issuer, Partnership Priority Payments and the amounts required to be paid pursuant to the Head Lessor Margin Letter; (6) To the Series Account for each Series of Senior Notes then Outstanding, an amount equal to the then unpaid principal balance of such Series of Senior Notes; (7) To the Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to the then unpaid principal balance of such Series of Senior Notes; -57- 64 (8) To the Issuer, an amount equal to the Partnership Preferred Capital Payments; (9) To the Series Account for each Series of Senior Notes then Outstanding, an amount equal to any Indemnity Amounts (including indemnities owing to the Series Enhancer, the Deal Agent and each Noteholder) then due and owing pursuant to the terms of the related Supplement for such Series; (10) To the Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to any Indemnity Amounts (including indemnities owing to the Series Enhancer, the Deal Agent and each Noteholder) then due and owing pursuant to the terms of the related Supplement for such Series; (11) To the Preferred Limited Partners, an amount equal to any Indemnity Amounts then due and owing pursuant to the terms of the Partnership Agreement; (12) To each Eligible Interest Rate Swap Counterparty, on a pro rata basis, the amount of any unpaid termination payments then due and payable pursuant to the terms of any Interest Rate Swap Agreement then in effect; and (13) To the Issuer, any remaining amount. Section 807. Limitation on Suits. Except to the extent provided in Section 808 hereof, no Noteholder shall have the right to institute any Proceeding, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (i) such Holder has previously given written notice to the Indenture Trustee of a continuing Event of Default; (ii) the Requisite Global Majority shall have made written request to the Indenture Trustee to institute Proceedings in respect of such Event of Default in its own name as the Indenture Trustee hereunder; (iii) such Holder or Holders have offered to the Indenture Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request (the unsecured indemnity of a Rated Institutional Noteholder being deemed satisfactory for such purpose); (iv) the Indenture Trustee has, for 30 days after its receipt by a Corporate Trust Officer of such notice, request and offer of security or indemnity, failed to institute any such Proceeding; and (v) no direction inconsistent with such written request has been given to the Indenture Trustee during such 30 day period by the Requisite Global Majority; -58- 65 it being understood and intended that no one or more Noteholders shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Noteholder, or to obtain or to seek to obtain priority or preference over any other Noteholder (except to the extent provided in the related Supplement) or to enforce any right under this Indenture, except in the manner herein provided and for the benefit of all Noteholders. Section 808. Unconditional Right of Holders to Receive Principal and Interest. Notwithstanding any other provision of this Indenture, each Noteholder shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest on such Note as such principal and interest becomes due and payable and to institute any Proceeding for the enforcement of such payment, and such rights shall not be impaired without the consent of such Holder. Section 809. Restoration of Rights and Remedies. If the Indenture Trustee, any Series Enhancer or any Holder has instituted any Proceeding to enforce any right or remedy under this Indenture or the related Supplement and such Proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Indenture Trustee, any Series Enhancer or to such Holder, then and in every such case, subject to any determination in such Proceeding, the Issuer, the Indenture Trustee, such Series Enhancer and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Indenture Trustee, such Series Enhancer and the Holders shall continue as though no such Proceeding had been instituted. Section 810. Rights and Remedies Cumulative. No right or remedy conferred upon or reserved to the Indenture Trustee, any Series Enhancer or to the Holders pursuant to this Indenture or any Supplement is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 811. Delay or Omission Not Waiver. No delay or omission of the Indenture Trustee, of any Series Enhancer or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Indenture Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Holders, as the case may be. Section 812. Control by Requisite Global Majority. Upon the occurrence of an Event of Default, the Requisite Global Majority shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee or exercising any trust or power conferred on the Indenture Trustee, provided that (i) such direction shall not be in conflict with any rule of law or with this Indenture, including, without limitation, Section 804 hereof, (ii) such Requisite Global Majority has offered to the Indenture Trustee reasonable security or indemnity against costs, expenses and liabilities which it might incur in connection therewith as -59- 66 provided in Section 902(iii) hereof and (iii) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee which is not inconsistent with such direction. Section 813. Waiver of Past Defaults. (a) The Requisite Global Majority may, on behalf of all Noteholders of all Series, waive any past Event of Default and its consequences, except an Event of Default: (i) in the payment of the principal of, or interest on, any Note of any Series; or (ii) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of all the Noteholders of all Series pursuant to Section 1002 of this Indenture. (b) Upon any such waiver, such Event of Default shall cease to exist and shall be deemed to have been cured and not to have occurred for every purpose of this Indenture; provided, however, that no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon. Section 814. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Note by acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as the Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, that the provisions of this Section shall not apply to any suit instituted by the Indenture Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% of the aggregate principal balance of the Notes of all Series then Outstanding, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Note on or after the Expected Final Payment Date of such Note. Section 815. Waiver of Stay or Extension Laws. The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 816. Sale of Collateral. (a) The power to effect any sale (a "Sale") of any portion of the Collateral pursuant to Section 804 hereof shall not be exhausted by any one or more Sales as to any portion of the Collateral remaining unsold, but shall continue unimpaired until the entire Collateral shall have been sold or all Outstanding Obligations shall have been paid. The -60- 67 Indenture Trustee (at the direction of the Requisite Global Majority) may from time to time postpone any Sale by public announcement made at the time and place of such Sale. (b) Upon any Sale, whether made under the power of sale hereby given or under judgment, order or decree in any Proceeding for the foreclosure or involving the enforcement of this Indenture: (i) the Indenture Trustee, at the written direction of the Requisite Global Majority, may bid for and purchase the property being sold, and upon compliance with the terms of such Sale may hold, retain and possess and dispose of such property in accordance with the terms of this Indenture; and (ii) the receipt of the Indenture Trustee or of any officer thereof making such Sale shall be a sufficient discharge to the purchaser or purchasers at such Sale for its or their purchase money, and such purchaser or purchasers, and its or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Indenture Trustee or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for any loss, misappropriation or non-application thereof. (c) The Indenture Trustee shall execute and deliver an appropriate instrument of conveyance transferring its interest in any portion of the Collateral in connection with a Sale thereof. In addition, the Indenture Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the Issuer to transfer and convey its interest (subject to lessee's rights of quiet enjoyment) in any portion of the Collateral in connection with a Sale thereof, and to take all action necessary to effect such Sale. No purchaser or transferee at such a Sale shall be bound to ascertain the Indenture Trustee's authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies. (d) The Indenture Trustee acknowledges that its right to sell, transfer or otherwise convey any Interest Rate Swap Agreement or exercise any foreclosure rights with respect thereto shall be subject to compliance with the provisions of the applicable Interest Rate Swap Agreement. Section 817. Action on Notes. The Indenture Trustee's right to seek and recover judgment on the Notes or under this Indenture or any Supplement shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture or any Supplement. Neither the Lien of this Indenture nor any rights or remedies of the Indenture Trustee, any Series Enhancer or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral or upon any of the assets of the Issuer. ARTICLE IX CONCERNING THE INDENTURE TRUSTEE Section 901. Duties of the Indenture Trustee. The Indenture Trustee, prior to the occurrence of an Event of Default or after the cure or waiver of any Event of Default that may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and the related Supplement and no implied duties shall be inferred against it. If an Event of Default with respect to any Series has occurred and is continuing, the Indenture Trustee, at the written direction of the Requisite Global Majority, shall exercise such of the rights and powers -61- 68 vested in it by this Indenture and the related Supplement, and use the same degree of care and skill in its exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. The Indenture Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Indenture Trustee which are specifically required to be furnished pursuant to any provisions of this Indenture and any applicable Supplement, shall determine whether they are substantially in the form required by this Indenture and any applicable Supplement; provided, however, that the Indenture Trustee shall not be responsible for the accuracy or content (including mathematical calculations) of any such resolution, certificate, statement, opinion, report, document, order or other instrument furnished pursuant to this Indenture and any applicable Supplement. No provision of this Indenture or any Supplement shall be construed to relieve the Indenture Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default and after the cure or waiver of any Event of Default that may have occurred, the duties and obligations of the Indenture Trustee shall be determined solely by the express provisions of this Indenture and any Supplements issued pursuant to the terms hereof. The Indenture Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and any Supplements issued pursuant to the terms hereof, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee and, in the absence of bad faith on the part of the Indenture Trustee, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates, statements, reports, documents, orders, opinions or other instruments (whether in their original or facsimile form) furnished to the Indenture Trustee and conforming to the requirements of this Indenture and any Supplements issued pursuant to the terms hereof; (ii) The Indenture Trustee shall not be liable for an error of judgment made in good faith by a Corporate Trust Officer or Corporate Trust Officers of the Indenture Trustee, unless it shall be proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and (iii) The Indenture Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Requisite Global Majority relating to the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred upon the Indenture Trustee, under this Indenture. No provisions of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate security or indemnity against such risk or liability is not -62- 69 reasonably assured to it (the unsecured indemnity of (A) a Rated Institutional Noteholder, or (B) any Series Enhancer (so long as its claims paying ability is rated "AAA" or "Aaa", as applicable) shall not constitute reasonable grounds for believing that repayment of any such funds is not reasonably assured to it.) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section 901. Section 902. Certain Matters Affecting the Indenture Trustee. Except as otherwise provided in Section 901 hereof: (i) The Indenture Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any Opinion of Counsel, certificate of an officer of the Manager, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document (whether in its original or facsimile form) reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Indenture Trustee may consult with counsel of its selection and any advice of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance in reliance thereof; (iii) The Indenture Trustee shall be under no obligation to institute, conduct or defend any litigation or proceeding hereunder or in relation hereto at the request, order or direction of the Requisite Global Majority, pursuant to the provisions of this Indenture, unless the Requisite Global Majority shall have offered to the Indenture Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby (the unsecured indemnity of (A) a Rated Institutional Noteholder being deemed satisfactory for such purpose or (B) any Series Enhancer (so long as its claims paying ability is rated "AAA" or "Aaa", as applicable) being deemed satisfactory for such purpose); (iv) The Indenture Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (v) The Indenture Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing to do so by the Requisite Global Majority; provided, however, that the Indenture Trustee may require reasonable security or indemnity satisfactory to it against any cost, expense or liability likely to be incurred in making such investigation as a condition to so proceeding (the unsecured indemnity of (A) a Rated Institutional Noteholder being deemed satisfactory for such purposes or (B) any Series Enhancer (so long as its claims paying ability -63- 70 is rated "AAA" or "Aaa," as applicable,) being deemed satisfactory for such purpose). The reasonable expense of any such examination shall be paid, on a pro rata basis, by the Noteholders or, if paid by the Indenture Trustee, shall be reimbursed by such Noteholders upon demand; (vi) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder; provided, however, that any agreement with an agent or an attorney shall provide for due care by such agent or attorney in respect of the Issuer; (vii) The Indenture Trustee shall not be charged with knowledge of any default or Event of Default unless either a Corporate Trust Officer of the Indenture Trustee shall have actual knowledge or written notice of such shall have been actually received by a Corporate Trust Officer of the Indenture Trustee; and (viii) the rights, privileges, protections, immunities and benefits given to the Indenture Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Indenture Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder. The provisions of this Section 902 shall be applicable to the Indenture Trustee in its capacity as the Indenture Trustee under this Indenture. Section 903. Indenture Trustee Not Liable. (a) The recitals contained herein (other than the representations and warranties contained in Section 911 hereof), in any Supplement and in the Notes (other than the certificate of authentication on the Notes) shall be taken as the statements of the Issuer, and the Indenture Trustee assumes no responsibility for their correctness. The Indenture Trustee makes no representations as to the validity or sufficiency of this Indenture, any Supplement, the Notes, the Collateral or of any related document. The Indenture Trustee shall not be accountable for the use or application by the Issuer of any of the Notes or of the proceeds thereof, or for the use or application of any funds paid to the Issuer or the Manager in respect of the Collateral. (b) The Indenture Trustee shall have no responsibility or liability for or with respect to the existence or validity of any Compressor, the perfection of any security interest (whether as of the date hereof or at any future time), the maintenance of or the taking of any action to maintain such perfection, the validity of the assignment of any portion of the Collateral to the Indenture Trustee or of any intervening assignment, the compliance by any Universal Party with any covenant or the breach by any Universal Party of any warranty or representation made hereunder, in any Supplement or in any related document or the accuracy of such warranty or representation, any investment of monies in the Trust Account or any Series Account or any loss resulting therefrom (provided that such investments are made in accordance with the provisions of Section 303 hereof), or the acts or omissions of the Seller or the Manager taken in the name of the Indenture Trustee. -64- 71 (c) Except as expressly provided herein or in any Supplement, the Indenture Trustee shall not have any obligation or liability under any Contract by reason of or arising out of this Indenture or the granting of a security interest in such Contract hereunder or the receipt by the Indenture Trustee of any payment relating to any Contract pursuant hereto, nor shall the Indenture Trustee be required or obligated in any manner to perform or fulfill any of the obligations of the Issuer, the Seller or the Manager under or pursuant to any Contract, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it, or the sufficiency of any performance by any party, under any Contract. Section 904. Indenture Trustee May Own Notes. The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Notes with the same rights it would have if it were not the Indenture Trustee; provided that such transaction shall not result in the disqualification of the Indenture Trustee for purposes of Rule 3a-7 under the Investment Company Act of 1940. Section 905. Indenture Trustee's Fees and Expenses. The fees ("Indenture Trustee Fees") of the Indenture Trustee shall be paid by the Issuer in accordance with Section 302 hereof and shall in no event exceed $12,000 per year. Subject to the provisions of Section 902(iii) hereof, the Issuer shall, to the extent not paid by the Manager, indemnify the Indenture Trustee and each of its officers, directors and employees for, and hold them harmless against, any loss, liability, damage claim or expense incurred without negligence or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself both individually and in its representative capacity against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder ("Indenture Trustee Indemnified Amounts"). The obligations of the Issuer under this Section 905 to compensate the Indenture Trustee, to pay or reimburse the Indenture Trustee for expenses, disbursements and advances and to indemnify and hold harmless, the Indenture Trustee shall constitute Outstanding Obligations hereunder and shall survive the resignation or removal of the Indenture Trustee and the satisfaction and discharge of this Indenture. When the Indenture Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 801(v) or Section 801(vi), the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law. Section 906. Eligibility Requirements for the Indenture Trustee. The Indenture Trustee hereunder shall at all times be a national banking association or a corporation, organized and doing business under the laws of the United States of America or any State, and authorized under such laws to exercise corporate trust powers. In addition, the Indenture Trustee or its parent corporation shall at all times (i) have a combined capital and surplus of at least $250,000,000, (ii) be subject to supervision or examination by Federal or state authority and (iii) have a long-term unsecured senior debt rating of "A-2" or better by Moody's Investors Service, Inc. and a long-term unsecured senior debt rating of "A" by Standard & Poor's Rating Services and short-term unsecured senior debt rating of "P-1" or better by Moody's Investors Service, Inc. and a short-term unsecured -65- 72 senior debt rating of "A-2" by Standard & Poor's Rating Services. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, then, for the purposes of this Section 906, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of this Section, the Indenture Trustee shall resign promptly in the manner and with the effect specified in Section 907 hereof. Section 907. Resignation and Removal of the Indenture Trustee. The Indenture Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Issuer, the Manager, the Deal Agent, each Series Enhancer and the Noteholders. Upon receiving such notice of resignation, the Issuer shall promptly appoint a successor trustee by written instrument, a copy of which original instrument shall be delivered to the resigning Indenture Trustee and the successor Indenture Trustee. A copy of the instrument shall also be delivered to the Deal Agent. If no successor Indenture Trustee shall have been so appointed and have accepted appointment within 30 days after the giving of such notice of resignation, the Requisite Global Majority may appoint a successor trustee or, if it does not do so within 30 days thereafter, the resigning Indenture Trustee, with the consent of the Deal Agent and each Series Enhancer, may petition at the expense of the Issuer any court of competent jurisdiction for the appointment of a successor trustee, which successor trustee shall meet the eligibility standards set forth in Section 906. If at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of Section 906 hereof and shall fail to resign after written request therefor by the Issuer, any Series Enhancer or the Manager, or if at any time the Indenture Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Indenture Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Indenture Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Issuer shall remove the Indenture Trustee and appoint a successor Indenture Trustee by written instrument, in duplicate, one copy of which original instrument shall be delivered to the Indenture Trustee so removed and one copy to the successor Indenture Trustee. Any resignation or removal of the Indenture Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 908 hereof. Section 908. Successor Indenture Trustee. Any successor Indenture Trustee appointed as provided in Section 907 hereof shall execute, acknowledge and deliver to the Issuer and to its predecessor Indenture Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Indenture Trustee shall become effective and such successor Indenture Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as the Indenture Trustee herein. The predecessor Indenture Trustee shall upon payment of all charges due it, its agents and counsel deliver to the successor Indenture Trustee all documents relating to the Collateral, if any, delivered to it, together with any amount remaining in the Trust Account, and any other Series Accounts. In addition, the predecessor Indenture Trustee and, upon request of the successor Indenture Trustee, the Issuer shall execute and deliver such -66- 73 instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor Indenture Trustee all such rights, powers, duties and obligations. No successor Indenture Trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor Indenture Trustee shall be eligible under the provisions of Section 906 hereof and a Requisite Global Majority has not objected to such appointment within ten (10) days. Upon acceptance of appointment by a successor Indenture Trustee as provided in this Section, the Issuer shall mail notice of the succession of such Indenture Trustee hereunder to all Noteholders at their addresses as shown in the registration books maintained by the Indenture Trustee. If the Issuer fails to mail such notice within 10 days after acceptance of appointment by the successor Indenture Trustee, the successor Indenture Trustee shall cause such notice to be mailed at the expense of the Issuer. Section 909. Merger or Consolidation of the Indenture Trustee. Any entity into which the Indenture Trustee may be merged or converted or with which it may be consolidated, or any entity resulting from any merger, conversion or consolidation to which the Indenture Trustee shall be a party, or any entity succeeding to the business of the Indenture Trustee, shall be the successor of the Indenture Trustee hereunder, provided such entity shall be eligible under the provisions of Section 906 hereof, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 910. Separate Indenture Trustees, Co-Indenture Trustees and Custodians. If the Indenture Trustee is not capable of acting outside the United States, it shall have the power from time to time to appoint one or more Persons or corporations to act either as co-trustees jointly with the Indenture Trustee, or as separate trustees, or as custodians, for the purpose of holding title to, foreclosing or otherwise taking action with respect to any of the Collateral, when such separate trustee or co-trustee is necessary or advisable under any applicable laws or for the purpose of otherwise conforming to any legal requirement, restriction or condition in any applicable jurisdiction. The separate trustees, co-trustees, or custodians so appointed shall be trustees, co-trustees, or custodians for the benefit of all Noteholders and shall have such powers, rights and remedies as shall be specified in the instrument of appointment; provided, however, that no such appointment shall, or shall be deemed to, constitute the appointee an agent of the Indenture Trustee. The Issuer shall join in any such appointment, but such joining shall not be necessary for the effectiveness of such appointment. Every separate trustee, co-trustee and custodian shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions: (i) all powers, duties, obligations and rights conferred upon the Indenture Trustee in respect of the receipt, custody and payment of moneys shall be exercised solely by the Indenture Trustee; -67- 74 (ii) all other rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee, co-trustee, or custodian jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee, co-trustee or custodian; (iii) no trustee or custodian hereunder shall be personally liable by reason of any act or omission of any other trustee or custodian hereunder; and (iv) the Issuer or the Indenture Trustee may at any time accept the resignation of or remove any separate trustee, co-trustee or custodian so appointed by it or them if such resignation or removal does not violate the other terms of this Indenture. Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee, co-trustee, or custodian shall refer to this Indenture and the conditions of this Article. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be furnished to the Indenture Trustee and each Series Enhancer. Any separate trustee, co-trustees, or custodian may, at any time, constitute the Indenture Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee, co-trustee, or custodian shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee or custodian. No separate trustee, co-trustee or custodian hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 906 hereof and no notice to Noteholders of the appointment thereof shall be required under Section 908 hereof. The Indenture Trustee agrees to instruct the co-trustees, if any, to the extent necessary to fulfill the Indenture Trustee's obligations hereunder. Section 911. Representations and Warranties. The Indenture Trustee hereby represents and warrants as of the Effective Date of each Series that: -68- 75 (a) Organization and Good Standing. The Indenture Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America, and has the power to own its assets and to transact the business in which it is presently engaged; (b) Authorization. The Indenture Trustee has the power, authority and legal right to execute, deliver and perform this Indenture and each Supplement and to authenticate the Notes, and the execution, delivery and performance of this Indenture and each Supplement and the authentication of the Notes has been duly authorized by the Indenture Trustee by all necessary corporate action; (c) Binding Obligations. This Indenture and each Supplement, assuming due authorization, execution and delivery by the Issuer, constitutes the legal, valid and binding obligations of the Indenture Trustee, enforceable against the Indenture Trustee in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors' rights generally and the rights of trust companies in particular and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any proceeding therefor may be brought, whether in a proceeding at law or in equity; (d) No Violation. The performance by the Indenture Trustee of its obligations under this Indenture and each Supplement will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice, lapse of time or both) a default under, the charter documents or bylaws of the Indenture Trustee; (e) No Proceedings. There are no proceedings or investigations to which the Indenture Trustee is a party pending, or, to the knowledge of the Indenture Trustee without independent investigation, threatened, before any court, regulatory body, administrative agency or other tribunal or Governmental Authority (A) asserting the invalidity of this Indenture or the Notes, (B) seeking to prevent the issuance of the Notes or the consummation of any of the transactions contemplated by this Indenture or (C) seeking any determination or ruling that would materially and adversely affect the performance by the Indenture Trustee of its obligations under, or the validity or enforceability of, this Indenture or the Notes; and (f) Approvals. Neither the execution or delivery by the Indenture Trustee of this Indenture nor the consummation of the transactions by the Indenture Trustee contemplated hereby requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any Governmental Authority under any existing federal or State of Minnesota law governing the banking or trust powers of the Indenture Trustee. (g) Control of Indenture Trustee. The Indenture Trustee is not directly or indirectly controlled by Universal or any of its Affiliates. The Indenture Trustee will promptly notify the Issuer, each Series Enhancer, the Deal Agent and the Contributor if it at any time it becomes controlled by Universal or any of its affiliates. -69- 76 (h) Knowledge of Adverse Claims. Wells Fargo Bank Minnesota, National Association does not have any knowledge of adverse claim with respect to the Collateral in which the security interest is being granted. Section 912. Indenture Trustee Offices. The Indenture Trustee shall maintain in the State of Minnesota an office or offices or agency or agencies where Notes may be surrendered for registration of transfer or exchange, which office shall initially be located at MAC N9311-161, Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479 and shall promptly notify the Issuer, the Manager and the Noteholders of any change of such location. Section 913. Notice of Event of Default. If a Corporate Trust Officer of the Indenture Trustee shall have actual knowledge that an Event of Default with respect to any Series shall have occurred and be continuing, the Indenture Trustee shall promptly (but in any event within five (5) Business Days) give written notice thereof to each Noteholder and any Rating Agency and Series Enhancer of such Series. For all purposes of this Indenture, in the absence of actual knowledge by a Corporate Trust Officer of the Indenture Trustee, the Indenture Trustee shall not be deemed to have actual knowledge of any Event of Default unless notified in writing thereof by the Issuer, the Seller, the Manager, any Series Enhancer or any Noteholder, and such notice references the applicable Series of Notes generally, the Issuer, this Indenture or the applicable Supplement. Section 914. Indenture Trustee's Application for Instructions from the Issuer. Any application by the Indenture Trustee for written instructions from the Issuer may, at the option of the Indenture Trustee, set forth in writing any action proposed to be taken or omitted by the Indenture Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. The Indenture Trustee shall not be liable for any action taken by, or omission of, the Indenture Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not be less than three Business Days after the date any officer of the Issuer actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Indenture Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted. Section 915. Indenture Trustee's Duties - Quarterly Tape. Pursuant to the Management Agreement, the Manager is required to deliver to the Indenture Trustee and the Indenture Trustee hereby covenants to accept, on the Closing Date and within thirty (30) days after the end of each calendar quarter thereafter, the Quarterly Tape, which Quarterly Tape shall contain each User's name, address, telephone number, location of Compressor(s), monthly rental rate, maintenance information and other pertinent terms and conditions of the User Lease; provided, however, that the Quarterly Tape is in a format to be agreed upon the by Manager and the Indenture Trustee. Section 916. Indenture Trustee's Duties - Monthly Tape. (a) Pursuant to the Management Agreement the Manager is required to deliver to the Indenture Trustee and the Indenture Trustee hereby consents to accept, on each Determination Date, the Monthly Tape, which Monthly Tape shall contain the data necessary or desirable for the Indenture Trustee to recompute the monthly distributions under this Indenture and the Head Lease. The Indenture Trustee shall notify -70- 77 the Issuer, the Manager, any Eligible Swap Counterparty and any Series Enhancer in writing of any material inconsistencies between the related Manager Report and the Monthly Tape and of any information that is missing from such Manager Report and shall confirm conformity of actual Manager remittances to such Manager Report. (b) If the Manager disagrees with the computations provided under paragraph (a) above by the Indenture Trustee or if the Manager has not reconciled such discrepancy, the Indenture Trustee agrees to confer with the Manager to resolve such disagreement on or prior to the next succeeding Determination Date and shall settle such discrepancy with the Manager, and notify the Deal Agent and any Series Enhancer of the resolution thereof. The Manager hereby agrees to cooperate, at its own expense, with the Indenture Trustee in reconciling any discrepancies herein. If within thirty (30) days of notice to the Manager, any Series Enhancer, the Deal Agent and the Indenture Trustee, such discrepancy is not resolved, the Indenture Trustee shall promptly notify the Indenture Trustee and any Series Enhancer of such discrepancy. Following receipt of such notice from the Indenture Trustee, the Manager shall deliver to the Rating Agencies, the Noteholders, any Series Enhancer, any Eligible Swap Counterparty and the Indenture Trustee no later than the related Payment Date a certificate describing the nature and cause of such discrepancies and the Manager shall hire independent accountants (who may also provide other services to the Manager), at Manager's expense, to examine the Manager Report and attempt to reconcile discrepancies at the earliest possible date. The result, if any, of such reconciliation shall be reflected in the Manager Report for the next succeeding Determination Date. Other than the duties specifically set forth in this Indenture, the Indenture Trustee shall have no obligations hereunder, including, without limitation, to supervise, verify, monitor or administer the performance of the Manager. The Indenture Trustee shall have no liability for any actions taken or omitted by the Manager. The duties and obligations of the Indenture Trustee shall be determined solely by the express provisions of this Indenture and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee. ARTICLE X SUPPLEMENTAL INDENTURES; AMENDMENTS Section 1001. Supplemental Indentures (Not Creating a New Series) Not Requiring Consent of Holders. (a) Without the consent of any Holder and based on an Opinion of Counsel in form and substance reasonably acceptable to the Requisite Global Majority to the effect that such Supplement is for one of the purposes set forth in clauses (i) through (vii) below, the Issuer and the Indenture Trustee, at any time and from time to time, may, with the consent of each affected Series Enhancer, enter into an amendment hereto or into one or more Supplements in form satisfactory to the Indenture Trustee, for any of the following purposes; provided, however, if any party to this Indenture is unable to sign any amendment due to its dissolution, winding up or comparable circumstances, then the consent of the Noteholders representing at least 51% of the Existing Commitments of all Series then Outstanding shall be sufficient to amend this Indenture without such party's signature: -71- 78 (i) to add to the covenants of the Issuer in this Indenture for the benefit of the Holders of all Series then Outstanding or of any Series Enhancer, or to surrender any right or power conferred upon the Issuer in this Indenture; (ii) to cure any ambiguity, to correct or supplement any provision in this Indenture which may be inconsistent with any other provision in this Indenture, or to make any other provisions with respect to matters or questions arising under this Indenture; (iii) to correct or amplify the description of any property at any time subject to the Lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the Lien of this Indenture, or to subject additional property to the Lien of this Indenture; (iv) to add to the conditions, limitations and restrictions on the authorized amount, terms and purposes of issue, authentication and delivery of the Notes, as herein set forth, or additional conditions, limitations and restrictions thereafter to be observed by the Issuer; (v) to convey, transfer, assign, mortgage or pledge any additional property to or with the Indenture Trustee; (vi) to evidence the succession of the Indenture Trustee pursuant to Article IX; or (vii) to add any additional Events of Default. Prior to the execution of any amendment or Supplement issued pursuant to this Section 1001, the Issuer shall provide written notice to each Rating Agency setting forth in general terms the substance of any such amendment or Supplement. (b) Promptly after the execution by the Issuer and the Indenture Trustee of any amendment or Supplement pursuant to this Section 1001, the Indenture Trustee shall mail to the Holders of all Notes then Outstanding, each Rating Agency, each Eligible Interest Rate Swap Counterparty and Series Enhancer related to such Series, a notice setting forth in general terms the substance of such amendment or Supplement, together with a copy of the text of such amendment or Supplement. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment or Supplement. Section 1002. Supplemental Amendment (Not Creating a New Series) with Consent of Holders. (a) With the consent of the Requisite Global Majority and each affected Series Enhancer, the Issuer and the Indenture Trustee may enter into an amendment or a Supplement hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, if any party to this Indenture is unable to sign any amendment due to its dissolution, winding up or comparable circumstances, then the consent of the Noteholders -72- 79 representing at least 51% of the Existing Commitments of all Series then Outstanding shall be sufficient to amend this Indenture without such party's signature: provided, further, that no such amendment or Supplement shall amend or modify the terms of any Supplement related to a particular Series (i.e., the Supplement establishing the Principal Terms of such Series) without the consent of the Control Party for such Series; and provided, further, that no such amendment or Supplement shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) reduce the principal amount of any Note or the rate of interest thereon, change the priority of any payments required pursuant to this Indenture or any Supplement, or the date on which, or the place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Final Maturity Date thereof; (ii) reduce the percentage of Outstanding Notes or commitments of the Noteholders or the Partners required for (a) the consent of any Supplement to this Indenture, (b) the consent required for any waiver of compliance with certain provisions of this Indenture or certain Events of Default hereunder and their consequences as provided for in this Indenture or (c) the consent required to waive any payment default on the Notes; (iii) modify any of the provisions of this Section except to increase any percentage provided herein, or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby; (iv) modify or alter the definition of the terms "Outstanding," "Requisite Global Majority", "Asset Base", "Overcollateralization Event", "Net Revenue Event", "Trigger Event", "Existing Commitment", "Eligible Compressor" or "Initial Commitment"; (v) impair or adversely affect the Collateral except as otherwise permitted herein; (vi) modify or alter Section 702 of this Indenture; (vii) permit the creation of any Lien ranking prior to or on a parity with the Lien of this Indenture with respect to any part of the Collateral or terminate the Lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Note of the security afforded by the Lien of this Indenture; or (viii) modify any of the provisions of this Indenture in such a manner as to affect the amount or timing of any payments of interest or principal due on any Note. -73- 80 Prior to the execution of any amendment or Supplement issued pursuant to this Section 1002, the Issuer shall provide a written notice to each Rating Agency setting forth in general terms the substance of any such amendment or Supplement. (b) Promptly after the execution by the Issuer and the Indenture Trustee of any amendment or Supplement pursuant to this Section, the Issuer shall mail to the Holders of the Notes, each Rating Agency, each Eligible Interest Rate Swap Counterparty and Series Enhancer related to such Series, a notice setting forth in general terms the substance of such amendment or Supplement, together with a copy of the text of such amendment or Supplement. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment or Supplement. Section 1003. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, a Supplement permitted by this Article or the modification thereby of the trusts created by this Indenture, the Indenture Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such Supplement is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be obligated to, enter into any such Supplement which affects the Indenture Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 1004. Effect of Supplemental Indentures. Upon the execution of any Supplement under this Article, this Indenture shall be modified in accordance therewith, and such Supplement shall form a part of this Indenture for all purposes, and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 1005. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any Supplement pursuant to this Article may, and shall if required by the Issuer, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such Supplement. If the Issuer shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee, may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Notes. Section 1006. Issuance of Series of Notes. (a) The Issuer may from time to time direct the Indenture Trustee in writing to execute and authenticate one or more Series of Notes (each, a "Series"). (b) On or before the Series Issuance Date relating to any Series, the Issuer and the Indenture Trustee will execute and deliver a Supplement which will specify the Principal Terms of such Series. The terms of such Supplement may modify or amend the terms of this Indenture solely as applied to such Series, and, with the consent of the Control Party for any other Series, may amend this Indenture as applicable to such other Series, in accordance with Section 1002 hereof. The obligation of the Indenture Trustee to authenticate, execute and deliver the Notes of such Series and to execute and deliver the related Supplement is subject to the satisfaction of the following conditions: -74- 81 (i) except for any Supplement executed on the Closing Date on or before the tenth Business Day immediately preceding the Series Issuance Date (unless the parties to be notified agree to a shorter notice period), the Issuer shall have given the Indenture Trustee, the Manager, the Deal Agent, each Rating Agency (and, if such additional Series is to be registered pursuant to the Securities Act, all Rating Agencies that have rated any prior Series) and any Series Enhancer entitled thereto pursuant to the relevant Supplement notice of the Series and the Series Issuance Date; (ii) the Issuer shall have delivered to the Indenture Trustee the related Supplement, in form satisfactory to the Indenture Trustee, executed by the Issuer; (iii) the Issuer shall have delivered to the Indenture Trustee any related Enhancement Agreement executed by each of the parties thereto; (iv) the Rating Agency Condition shall have been satisfied with respect to all Series; (v) the Issuer shall have delivered to the Indenture Trustee, each Rating Agency, each Series Enhancer and, if required, any Noteholder, any Opinions of Counsel required by the related Supplement, including without limitation with respect to true sale, enforceability, non-consolidation and security interest perfection issues; (vi) the Issuer shall have delivered to the Indenture Trustee an Officer's Certificate of the Issuer stating that no Trigger Event or Event of Default has occurred and is then continuing and that there is not a substantial likelihood that the issuance of such additional Series would result in a Trigger Event or an Event of Default at any time in the future; (vii) such other conditions as shall be specified in the related Supplement; and (viii) the Issuer shall have delivered to the Indenture Trustee an Officer's Certificate that all of the conditions specified in clauses (i) through (vii) have been satisfied. Upon satisfaction of the above conditions, the Indenture Trustee shall execute the Supplement and authenticate, execute and deliver the Notes of such Series. ARTICLE XI HOLDERS LISTS Section 1101. Indenture Trustee to Furnish Issuer Names and Addresses of Holders. Unless otherwise provided in the related Supplement, the Indenture Trustee will furnish or cause to be furnished to the Issuer and each Series Enhancer (i) not more than 10 days after receipt of a request from the Issuer, a list, in such form as the Issuer may reasonably require, of the names and addresses and tax identification numbers of the Holders of Notes as of such Date, and (ii) at such other times as the Issuer may request in writing, within 30 days after the receipt by the Issuer of any -75- 82 such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished. Section 1102. Preservation of Information; Communications to Holders. The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Indenture Trustee as provided in Section 1101 and the names and addresses of Holders received by the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in Section 1101 upon receipt of a new list so furnished. ARTICLE XII MISCELLANEOUS PROVISIONS Section 1201. Compliance Certificates and Opinions. (a) Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture or any Supplement, the Issuer shall furnish to the Indenture Trustee a certificate stating that all conditions precedent, if any, provided for in this Indenture and any relevant Supplement relating to the proposed action have been complied with and, if deemed reasonably necessary by the Indenture Trustee or if required pursuant to the terms of this Indenture, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. (b) Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether such covenant or condition has been complied with; and (ii) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 1202. Form of Documents Delivered to Indenture Trustee. (a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. (b) Any certificate or opinion may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows that the -76- 83 certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. (c) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Section 1203. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture or any Supplement to be given or taken by Holders may be (i) embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing, (ii) evidenced by the written consent or direction of Holders of the specified percentage of the principal amount of the Notes, or (iii) evidenced by a combination of such instrument or instruments; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments and record are delivered to the Indenture Trustee and, where it is hereby expressly required, to the Issuer. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section 1203. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Indenture Trustee deems sufficient. (c) The ownership of Notes shall be proved by the Note Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note. Section 1204. Inspection. (a) Upon reasonable request, the Issuer agrees that it shall make available to any representative of the Indenture Trustee, the Deal Agent, any Eligible Interest Rate Swap Counterparty or any Series Enhancer and their duly authorized representatives, attorneys or accountants, for inspection and copying its books of account, records and reports relating to the Compressors and copies of all Leases or other documents relating thereto. The Indenture Trustee, Series Enhancers and Noteholders shall and shall cause their respective representatives to hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing). Each of Indenture Trustee, Series Enhancers and Noteholders agree that it and its shareholders, directors, agents, accountants and attorneys shall keep confidential any matter of which it becomes aware through such inspections or -77- 84 discussions (unless readily available from public sources), except as may be otherwise required by regulation, law or court order or required by appropriate governmental authorities or as necessary to preserve its rights or security under or to enforce the Related Documents, provided that the foregoing shall not limit the right of the Series Enhancer to make such information available to its regulators, securities rating agencies, reinsurers and credit and liquidity providers whom the Series Enhancer reasonably believes will respect the confidential nature of such information. Any expense incident to the reasonable exercise by the Indenture Trustee, Series Enhancer or any Noteholder of any right under this Section shall be borne by the Person exercising such right unless an Event of Default shall have occurred and then be continuing in which case such expenses shall be borne by the Issuer. (b) The Issuer also agrees to allow the Indenture Trustee, Deal Agent, any Eligible Interest Rate Swap Counterparty, any Series Enhancer or any prospective owner to inspect the Manager's facilities during normal business hours. Subject in all cases to the disclosure requirements and regulations promulgated under the Exchange Act. Section 1205. Limitation of Rights. Except as expressly set forth in this Indenture, this Indenture shall be binding upon the Issuer, the Noteholders and their respective successors and permitted assigns and shall not inure to the benefit of any Person other than the parties hereto, the Noteholders and the Manager as provided herein. Notwithstanding the previous sentence, the parties hereto, the Seller and the Manager acknowledge that any Series Enhancer for a Series of Notes and any Eligible Interest Rate Swap Counterparty is an express third party beneficiary hereof entitled to enforce its rights hereunder as if actually a party hereto. Section 1206. Severability. If any provision of this Indenture is held to be in conflict with any applicable statute or rule of law or is otherwise held to be unenforceable for any reason whatsoever, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatsoever. The invalidity of any one or more phrases, sentences, clauses or Sections of this Indenture shall not affect the remaining portions of this Indenture, or any part thereof. Section 1207. Notices. All demands, notices and communications hereunder shall be in writing, personally delivered, or by facsimile (with subsequent telephone confirmation of receipt thereof), or sent by internationally recognized overnight courier service, (a) in the case of the Indenture Trustee, at the following address: MAC N9311-161 Sixth Street and Marquette Avenue, Minneapolis, Minnesota 55479, Attention: Corporate Trust Services-Asset-Backed Administration (b) in the case of the Issuer, at the following address: 2911 Turtlecreek Boulevard, Suite 1240, Dallas, Texas 75215, Attention: General Counsel, (c) in the case of each Rating Agency, its address set forth in the related Supplement, in the case of any Series Enhancer, at its address set forth in the related Supplement, or at other such address as shall be designated by such party in a written notice to the other parties. Any notice required or permitted to be given to a Noteholder shall be given by certified first class mail, postage prepaid (return receipt requested), or by courier, or by facsimile, with subsequent telephone confirmation of receipt thereof, in each case at the address of such Holder as shown in the Note Register or to the telephone and fax number furnished by such Noteholder. -78- 85 Notice shall be effective and deemed received (a) two days after being delivered to the courier service, if sent by courier, (b) upon receipt of confirmation of transmission, if sent by facsimile, or (c) when delivered, if delivered by hand. Any rights to notices conveyed to a Rating Agency pursuant to the terms of this Indenture with respect to any Series or Class shall terminate immediately if such Rating Agency no longer has a rating outstanding with respect to such Series or Class. Section 1208. Consent to Jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE ISSUER ARISING OUT OF OR RELATING TO THIS INDENTURE, OR ANY TRANSACTION CONTEMPLATED HEREBY, MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK AND THE ISSUER HEREBY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND, SOLELY FOR THE PURPOSES OF ENFORCING THIS INDENTURE, THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE ISSUER HEREBY CONSENTS TO SERVICE OF PROCESS BY REGISTERED MAIL, FEDERAL EXPRESS OR SIMILAR COURIER SERVICE AT THE ADDRESS AT WHICH NOTICES ARE TO BE GIVEN, IT BEING AGREED THAT SERVICE IN SUCH MANNER SHALL CONSTITUTE VALID SERVICE UPON SUCH PARTY AND ITS SUCCESSORS AND ASSIGNS IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION 1208 SHALL AFFECT THE RIGHT OF ANY SUCH PARTY OR ITS SUCCESSORS AND ASSIGNS TO SERVICE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. Section 1209. Captions. The captions or headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Indenture. Section 1210. Governing Law. THIS INDENTURE SHALL BE CONSTRUED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW, AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 1211. No Petition. The Indenture Trustee, on its own behalf, hereby covenants and agrees, and each Noteholder by its acquisition of a Note shall be deemed to covenant and agree, that it will not institute against the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law, at any time other than on a date which is at least one year and one day after the last date on which any Note of any Series was Outstanding. Section 1212. General Interpretive Principles. For purposes of this Indenture except as otherwise expressly provided or unless the context otherwise requires: -79- 86 (a) the defined terms in this Indenture shall include the plural as well as the singular, and the use of any gender herein shall be deemed to include any other gender; (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date hereof; (c) references herein to "Articles", "Sections", "Subsections", "paragraphs", and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, paragraphs and other subdivisions of this Indenture; (d) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions; (e) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular provision; and (f) the term "include" or "including" shall mean without limitation by reason of enumeration. Section 1213. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AS AGAINST THE OTHER PARTIES HERETO, ANY RIGHTS IT MAY HAVE TO A JURY TRIAL IN RESPECT OF ANY CIVIL ACTION OR PROCEEDING (WHETHER ARISING IN CONTRACT OR TORT OR OTHERWISE), INCLUDING ANY COUNTERCLAIM, ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, INCLUDING IN RESPECT OF THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT HEREOF OR THEREOF. Section 1214. Waiver of Immunity. To the extent that any party hereto or any of its property is or becomes entitled at any time to any immunity on the grounds of sovereignty or otherwise from any legal actions, suits or proceedings, from set-off or counterclaim, from the jurisdiction or judgment of any competent court, from service of process, from execution of a judgment, from attachment prior to judgment, from attachment in aid of execution, or from execution prior to judgment, or other legal process in any jurisdiction, such party, for itself and its successors and assigns and its property, does hereby irrevocably and unconditionally waive, and agrees not to plead or claim, any such immunity with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Indenture, the other Related Documents or the subject matter hereof or thereof, subject, in each case, to the provisions of the Related Documents and mandatory requirements of applicable law. Section 1215. Judgment Currency. The parties hereto (A) acknowledge that the matters contemplated by this Indenture are part of an international financing transaction and (B) hereby agree that (i) specification and payment of Dollars is of the essence, (ii) Dollars shall be the currency of account in the case of all obligations under the Related Documents unless otherwise expressly provided herein or therein, (iii) the payment obligations of the parties under the Related Documents shall not be discharged by an amount paid in a currency or in a place other than that -80- 87 specified with respect to such obligations, whether pursuant to a judgment or otherwise, except to the extent actually received by the Person entitled thereto and converted into Dollars by such Person (it being understood and agreed that, if any transaction party shall so receive an amount in a currency other than Dollars, it shall (A) if it is not the Person entitled to receive payment, promptly return the same (in the currency in which received) to the Person from whom it was received or (B) if it is the Person entitled to receive payment, either, in its sole discretion, (x) promptly return the same (in the currency in which received) to the Person from whom it was received or (y) subject to reasonable commercial practices, promptly cause the conversion of the same into Dollars), (iv) to the extent that the amount so paid on prompt conversion to Dollars under normal commercial practices does not yield the requisite amount of Dollars, the obligee of such payment shall have a separate cause of action against the party obligated to make the relevant payment for the additional amount necessary to yield the amount due and owing under the Related Documents, (v) if, for the purpose of obtaining a judgment in any court with respect to any obligation under any of the Related Documents, it shall be necessary to convert to any other currency any amount in Dollars due thereunder and a change shall occur between the rate of exchange applied in making such conversion and the rate of exchange prevailing on the date of payment of such judgment, the obligor in respect of such obligation will pay such additional amounts (if any) as may be necessary to insure that the amount paid on the date of payment is the amount in such other currency which, when converted into Dollars and transferred to New York City, New York, in accordance with normal banking procedures, will result in realization of the amount then due in Dollars and (vi) any amount due under this paragraph shall be due as a separate debt and shall not be affected by or merged into any judgment being obtained for any other sum due under or in respect of the Related Documents. Section 1216. Statutory References. References in this Indenture and in each of the other "Related Documents" to any section of the Uniform Commercial Code or the UCC shall mean, on or after the effective date of adoption of any revision to the Uniform Commercial Code or the UCC in the applicable jurisdiction, such revised or successor section thereto. -81- 88 IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed and delivered by their respective officers duly authorized, all as of the day and year first above written. BRL UNIVERSAL COMPRESSION FUNDING I, L.P. By: BRL UNIVERSAL COMPRESSION MANAGEMENT, INC. its general partner By: /s/ GREGORY C. GREENE --------------------------------------- Name: Gregory C. Greene Title: President WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, not in its individual capacity but solely as indenture trustee By: /s/ MARIANNA C. STERSHIC --------------------------------------- Name: Marianna C. Stershic Title: Vice President INDENTURE EX-4.11 7 h84315ex4-11.txt SERIES 2000-1 SUPPLEMENT TO INDENTURE 1 Exhibit 4.11 - ------------------------------------------------------------------------------- BRL UNIVERSAL COMPRESSION FUNDING I, L.P. Issuer and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION Indenture Trustee ------------------------------ SERIES 2001-1 SUPPLEMENT Dated as of February 9, 2001 to INDENTURE Dated as of February 9, 2001 ------------------------------ SERIES 2001-1 NOTES - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- ARTICLE I Definitions; Calculation Guidelines Section 101. Definitions.....................................................1 ARTICLE II Creation of the Series 2001-1 Notes Section 201. Designation....................................................12 Section 202. Authentication and Delivery....................................12 Section 203. Interest Payments on the Series 2001-1 Notes...................13 Section 204. Principal Payments on the Series 2001-1 Notes..................13 Section 205. Amounts and Terms of Series 2001-1 Noteholder Commitments......14 Section 206. Taxes..........................................................16 Section 207. Increased Costs; Capital Adequacy; Illegality..................17 ARTICLE III Series 2001-1 Series Account and Allocation and Application of Amounts Therein Section 301. Series 2001-1 Series Account...................................19 Section 302. Distributions from Series 2001-1 Series Account................19 ARTICLE IV Additional Covenants Section 401. Additional Series..............................................20 Section 402. Control Party..................................................20 Section 403. Rule 144A......................................................20 Section 404. Use of Proceeds................................................20 Section 405. Allocation of Prepayments......................................20 ARTICLE V Conditions of Effectiveness and Future Lending Section 501. Effectiveness of Supplement....................................21
-i- 3 Section 502. Advances on Series 2001-1 Notes................................22 ARTICLE VI Representations and Warranties Section 601. Existence......................................................24 Section 602. Authorization..................................................24 Section 603. No Conflict; Legal Compliance..................................24 Section 604. Validity and Binding Effect....................................24 Section 605. Financial Statements...........................................24 Section 606. Executive Offices..............................................25 Section 607. No Agreements or Contracts.....................................25 Section 608. Consents and Approvals.........................................25 Section 609. Margin Regulations.............................................25 Section 610. Taxes..........................................................25 Section 611. Other Regulations..............................................26 Section 612. Solvency and Separateness......................................26 Section 613. Survival of Representations and Warranties.....................26 Section 614. No Default.....................................................27 Section 615. Litigation and Contingent Liabilities..........................27 Section 616. Title; Liens...................................................27 Section 617. Subsidiaries...................................................27 Section 618. No Partnership.................................................27 ARTICLE VII Miscellaneous Provisions Section 701. Ratification of Indenture......................................28 Section 702. Counterparts...................................................28 Section 703. Governing Law..................................................28 Section 704. Statutory References...........................................28
-ii- 4
EXHIBITS - -------- A -- Form of Class A Note
-iii- 5 SERIES 2001-1 SUPPLEMENT, dated as of February 9, 2001 (the "Supplement"), between BRL UNIVERSAL COMPRESSION FUNDING I, L.P., a limited partnership organized under the laws of the State of Delaware (the "Issuer") and Wells Fargo Bank Minnesota, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee (the "Indenture Trustee"). W I T N E S S E T H : Pursuant to the Indenture, dated as of February 9, 2001 (as amended, modified or supplemented from time to time in accordance with its terms, the "Indenture"), between the Issuer and the Indenture Trustee, the Issuer may from time to time direct the Indenture Trustee to authenticate one or more new Series of Notes. The Principal Terms of any new Series are to be set forth in a Supplement to the Indenture. Pursuant to this Supplement, the Issuer and the Indenture Trustee shall create a new Series of Notes and specify the Principal Terms thereof. NOW THEREFORE, in consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the other parties and the Series 2001-1 Noteholders: ARTICLE I Definitions; Calculation Guidelines Section 101. Definitions. (a) Whenever used in this Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Indenture. "ADJUSTED EURODOLLAR RATE" means on any day, an interest rate per annum equal to the quotient, expressed as a percentage and rounded upwards (if necessary) to the nearest 1/100 of 1%, obtained by dividing (i) the LIBOR Rate on such day by (ii) the decimal equivalent of 100% minus the Eurodollar Reserve Percentage on such day. "AFFECTED PARTY" means each Series 2001-1 Noteholder, each Liquidity Bank, all assignees and purchaser of each Series 2001-1 Noteholder or Liquidity Bank, the Deal Agent or any sub-agent of the Deal Agent. "AFFILIATE" shall have the meaning set forth in Section 101 of the Indenture. 6 "AGGREGATE CLASS A NOTE PRINCIPAL BALANCE" means, as of any date of determination, an amount equal to the sum of the Class A Note Principal Balances of all Series 2001-1 Notes then Outstanding. "ALTERNATIVE RATE" means on any day, an interest rate per annum equal to the Adjusted Eurodollar Rate; provided, however, that the Alternative Rate on any such day for the outstanding principal amount of any Class A Advance allocated to an Interest Accrual Period shall be the Base Rate if (i) on or before the first day of such Interest Accrual Period, the Deal Agent shall have been notified that a Eurodollar Disruption Event has occurred and is continuing and (ii) as a result thereof, such Class A Advance was funded by a source of funds for which interest is determined by reference to the Base Rate. "APPLICABLE MARGIN" means, with respect to each unpaid Class A Advance during an Interest Accrual Period, one of the following amounts: (A) for the period commencing on the Closing Date to (but not excluding) February 9, 2002, either (x) one and one-half of one percent (1.50%) per annum or (y) if a Back-up Management Agreement has not been executed and delivered to each of the Indenture Trustee and the Deal Agent by August 9, 2001, two percent (2%) per annum commencing on (and including) August 9, 2001 to (but excluding) the earlier of (x) February 9, 2002 and (y) the date on which the Back-up Management Agreement is executed and delivered as set forth above; (B) for the period commencing on February 9, 2002 to (but including) February 9, 2003, either (x) two percent (2.00%) per annum or (y) if a Back-up Management Agreement has not been executed and delivered to each of the Indenture Trustee and the Deal Agent, three and one-half percent (3.5%) per annum provided that this clause (y) shall cease to be effective on the date on which the Back-up Management Agreement is executed and delivered as set forth above; (C) for the period from February 9, 2003 and thereafter, either (x) two and one-half of one percent (2.50%) per annum or (y) if a Back-up Management Agreement has not been executed and delivered to each of the Indenture Trustee and the Deal Agent, three and one half percent (3.5%) provided that this clause (y) shall cease to be effective on the date on which the Back-up Management Agreement is executed and delivered. (D) if any Class A Advance (or portion thereof) has been funded utilizing a source of funds for which interest is determined by reference to the Base Rate, then, for any period of time for which such Class A Advance has been funded at the Base Rate, zero. "APPRAISED VALUE" shall have the meaning set forth in Section 101 of the Indenture. "ASSET BASE" shall have the meaning set forth in Section 101 of the Indenture. 2 7 "ASSET BASE CERTIFICATE" shall have the meaning set forth in Section 101 of the Indenture. "AVAILABILITY" means, as of any date of determination for any Series 2001-1 Noteholder prior to the Conversion Date, the lesser of (A) the excess, if any of (x) the Class A Note Existing Commitment of such Series 2001-1 Noteholder on such date of determination over (y) the then Class A Note Principal Balance of such Series 2001-1 Note owned by such Series 2001-1 Noteholder on such date of determination or (B) the excess, if any, of (x) the Percentage of such Series 2001-1 Noteholder of the Asset Base over (y) the then Class A Note Principal Balance of the Series 2001-1 Note owned by such Series 2001-1 Noteholder. On or subsequent to the Conversion Date, zero. "BACK-UP MANAGEMENT AGREEMENT" shall have the meaning set forth in Section 101 of the Indenture. "BASE RATE" means on any date, a fluctuating rate of interest per annum equal to the higher of (a) the Prime Rate and (b) the Federal Funds Rate plus 0.50% per annum. "BREAKAGE COSTS" shall have the meaning set forth in Section 205(c) hereof. "BUSINESS DAY" shall have the meaning set forth in Section 101 of the Indenture. "CAPITAL" shall have the meaning set forth in the Partnership Agreement. "CLASS A ADVANCE" means an advance of funds made by a Class A Noteholder pursuant to the provisions of Section 205(b) of this Supplement. "CLASS A NOTE" means any one of the notes, substantially in the form of Exhibit A to this Supplement, issued pursuant to the terms of this Supplement. "CLASS A NOTE EXISTING COMMITMENT" means the aggregate initial commitment to purchase the Class A Notes, expressed as a dollar amount, subject to reduction in accordance with the terms of the Series 2001-1 Note Purchase Agreement. "CLASS A NOTE INTEREST PAYMENT" means for each Payment Date and each Series 2001-1 Noteholder, an amount equal to the sum, for each day during the immediately preceding calendar month ending on the immediately preceding day, of an amount equal to the product of (i) the principal amount of each Class A Advance, (ii) a rate equal to the sum of (x) the Alternative Rate on such day and (y) the Applicable Margin, and (iii) 1/360, in the case of the Adjusted Eurodollar Rate, or 1/365 or 1/366, as applicable, in the case of the Base Rate. The Deal Agent shall, by not later than the fifth (5th) Business Day proceeding each Payment Date, deliver to each of the Issuer and the Manager a calculation of the Class A Note Interest Payment payable on such Payment Date. 3 8 "CLASS A NOTE PRINCIPAL BALANCE" means, with respect to any Class A Note as of any date of determination, an amount equal to the excess of (x) the sum of (A) the Class A Note Principal Balance of such Class A Note on the Effective Date and (B) the sum of all Class A Advances made by such Class A Noteholder on or subsequent to the Effective Date, over (y) the cumulative amount of all other principal payments (including Prepayments) actually paid to such Series 2001-1 Noteholder subsequent to the Effective Date. "CLASS A NOTE UNUSED COMMITMENT" means, with respect to any Series 2001-1 Noteholder as of any date of determination: (A) prior to the Conversion Date the excess of (i) the Class A Note Existing Commitment then in effect for such Series 2001-1 Noteholder, over (ii) the Class A Note Principal Balance of the Series 2001-1 Note owned by such Series 2001-1 Noteholder as of such date of determination, measured after giving effect to all Class A Advances made and all principal payments to be received by such Series 2001-1 Noteholder on such date of determination and (B) on or subsequent to the Conversion Date, zero. "CLASS A NOTEHOLDER" means a Series 2001-1 Noteholder. "CLOSING" means the time at which each of the conditions precedent set forth in Article V of this Supplement shall have been duly fulfilled or satisfied. "CLOSING DATE" means the date on which Closing occurs. "CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute thereto. "COLLATERAL" shall have the meaning set forth in Section 101 of the Indenture. "COLLECTION PERIOD" shall have the meaning set forth in Section 101 of the Indenture. "COMMERCIAL PAPER NOTE" shall mean short-term promissory notes having a maturity of between 1 and 270 days. "COMMITMENT FEE" shall have the meaning set forth in Section 205(d) hereof. "COMMITMENT FEE PERCENTAGE" means, as of any date of determination, one-half of one percent (0.50%) per annum. "COMPRESSOR" shall have the meaning set forth in Section 101 of the Indenture. "CONTRIBUTION AGREEMENT" means the Contribution Agreement, dated as of February 9, 2001, between Universal and the Transferor, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. "CONTRIBUTOR" shall have the meaning set forth in the Contribution Agreement. "CONTROL PARTY" has the meaning set forth in Section 402 of this Supplement. 4 9 "CONVERSION DATE" means, with respect to Series 2001-1, the earlier to occur of (x) the date on which a Trigger Event occurs and (y) February 9, 2002, as the date in this clause (y) may be extended annually with the prior written consent of all of the Holders of the Series 2001-1 Notes. "CREDIT AND COLLECTION POLICY" means the credit and collection policy of Universal initially specified in Exhibit C to the Management Agreement and subsequently reported in accordance with the terms of the Management Agreement. "DEAL AGENT" means First Union Securities, Inc. "DEFAULT INTEREST" means, for any Payment Date, the incremental amount of interest payable on the Class A Notes in accordance with the provisions of Section 203(b) hereof. "DEFINITIVE NOTE" shall have the meaning set forth in Section 101 of the Indenture. "DETERMINATION DATE" means the third Business Day prior to any Payment Date. "DOLLARS" and the sign "$" means lawful money of the United States of America. "EFFECTIVE DATE" means February 9, 2001. "ELIGIBLE ACCOUNT" shall have the meaning set forth in Section 101 of the Indenture. "EURODOLLAR DISRUPTION EVENT" means any of the following: (a) a determination by a Class A Noteholder, the Liquidity Bank (or any of its assignees or participants) or the Deal Agent that it would be contrary to law (on any of its assignees or participants) or to the directive of any central bank or other governmental authority (whether or not having the force of law) to obtain Dollars in the London interbank market to make, fund or maintain any Class A Advance for such Interest Accrual Period, (b) a determination by a Class A Noteholder, the Liquidity Bank (or any of its assignees or participants) or the Deal Agent that the rate at which deposits of Dollars are being offered to such lender in the London interbank market does not accurately reflect the cost to such Class A Noteholder or the Liquidity Bank (or any of its assignees or participants) of making, funding or maintaining any Class A Advance for such Interest Accrual Period, (c) the inability of a Class A Noteholder or the Liquidity Bank (or any of its assignees or participants) to obtain Dollars in the London interbank market to make, fund or maintain any Class A Advance for such Interest Accrual Period or (d) any Liquidity Bank shall have notified the Deal Agent of the inability, for any reason, of such Liquidity Bank or any of its assignees or participants to determine the Adjusted Eurodollar Rate. "EURODOLLAR RESERVE PERCENTAGE" means for any day in any Interest Accrual Period (or, if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such period during which any such percentage shall be so applicable), the reserve percentage applicable on such day under regulations issued from time to time by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for FUNB, with 5 10 respect to liabilities or assets consisting of or including Eurocurrency Liabilities (as defined in Regulation D of the Federal Reserve Board, as in effect from time to time) and having a term equal to such Interest Accrual Period. "EVENT OF DEFAULT" means, with respect to any Series, the occurrence of any of the events or conditions set forth in Section 801 of the Indenture. "FEDERAL FUNDS RATE" means for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the federal funds rates and confirmed in Federal Reserve Board Statistical Release H.15 (519) or any successor or substitute publication selected by FUNB (or, if such day is not a Business Day, for the next preceding Business Day), or, if, for any reason, such rate is not available on any day, the rate determined, in the sole opinion of FUNB, to be the rate at which federal funds are being offered for sale in the national federal funds market at 9:00 a.m. (New York City time). "FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve System or any successor thereto. "FUNB" means First Union National Bank. "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" shall have the meaning set forth in Section 101 of the Indenture. "GOVERNMENTAL AUTHORITY" shall have the meaning set forth in Section 101 of the Indenture. "HEAD LEASE" means the Master Equipment Lease Agreement, dated as of February 9, 2001, by and between the Head Lessor and the Head Lessee, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. "INCREASED COSTS" means any fee, expense or increased cost charged to a Series 2001-1 Noteholder on account of the adoption of any applicable law, rule or regulation (including any applicable law, rule, or regulation regarding capital adequacy) or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority as provided by Section 207 of this Supplement. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 206(a) hereof. "INDENTURE COMPLIANCE CERTIFICATE" means the certificate of the Issuer given pursuant to Section 502(c) hereof. "INDENTURE TRUSTEE" means the Person performing the duties of the Indenture Trustee under the Indenture; initially, Wells Fargo Bank Minnesota, National Association. "INDEPENDENT DIRECTOR" shall have the meaning set forth in Section 101 of the Indenture. 6 11 "INSOLVENCY LAW" means the Bankruptcy Code or similar applicable law in any State or other applicable jurisdiction. "INTEREST ACCRUAL PERIOD" means, with respect to a Payment Date, the period beginning with, and including, the first day of the immediately preceding calendar month and ending on and including the last of such calendar month; except that, in the case of the first Interest Accrual Period for each Class A Advance, the period beginning with and including the initial funding date and ending on and including the last day of the calendar month immediately preceding the initial Payment Date. If such period is associated with LIBOR Rate fundings, the Interest Accrual Period shall be at the Deal Agent's discretion; provided, however, that such period shall end not later than either the Payment Date of the following month or the Payment Date of the second succeeding month "INTEREST RATE SWAP AGREEMENT" shall have the meaning set forth in Section 101 of the Indenture. "ISSUER" BRL Universal Compression Funding I, L.P., a limited partnership organized and existing under the laws of the State of Delaware, and its successors and permitted assigns. "LEASE" shall have the meaning set forth in Section 101 of the Indenture. "LEASE POOL" shall have the meaning set forth in the Head Lease. "LIBOR" means the London Interbank Offered Rate. "LIBOR RATE" means, for any day during any Interest Accrual Period and any Class A Advance, an interest rate per annum equal to: (i) to the extent that VFCC has funded the acquisition of, or maintenance of its investment in, the Class A Notes through the issuance of Commercial Paper Notes: (a) the posted rate for 30-day deposits in United States Dollars appearing on Telerate page 3750 as of 11:00 a.m. (London time) at such time and on such day; or (b) if no such rate appears on Telerate page 3750 at such time and on such day, then the LIBOR Rate shall be determined by First Union at its principal office in Charlotte, North Carolina as its rate (each such determination, absent manifest error, to be conclusive and binding on all parties hereto and their assignees) at which 30-day deposits in Dollars are being, have been, or would be offered or quoted by First Union to major banks in the applicable interbank market for Eurodollar deposits at or about 11:00 a.m. (Charlotte, North Caroline time) on such day; and 7 12 (ii) in all other case: (a) the posted rate for 30-day deposits in United States Dollars appearing on Telerate page 3750 as of 11:00 a.m. (London time) at such time and on such day; or (b) if no such rate appears on Telerate page 3750 at such time and on such day, then the LIBOR Rate shall be determined by First Union at its principal office in Charlotte, North Carolina as its rate (each such determination, absent manifest error, to be conclusive and binding on all parties hereto and their assignees) at which 30-day deposits in Dollars are being, have been, or would be offered or quoted by First Union to major banks in the applicable interbank market for Eurodollar deposits at or about 11:00 a.m. (Charlotte, North Carolina time) on such day. "LIEN" shall have the meaning set forth in Section 101 of the Indenture. "LIQUIDITY AGREEMENT" means the liquidity agreement, dated as of February 9, 2001 among VFCC, the investors named therein, First Union Securities, Inc. and FUNB, as such agreement shall be amended, modified or supplemented from time to time in accordance with its terms. "LIQUIDITY BANK" means FUNB, as the liquidity bank under the Series 2001-1 Note Purchase Agreement, and its permitted successors and assigns. "MAJORITY OF HOLDERS" means, with respect to the Series 2001-1 Notes, one or more Class A Noteholders representing more than fifty percent (50%) of the then Aggregate Class A Note Principal Balance. "MANAGEMENT AGREEMENT" means the management agreement, dated as of February 9, 2000, among the Manager, the Head Lessee and the Head Lessor, as such agreement shall be amended, supplemented or modified from time to time in accordance with its terms. "MANAGER" means the Person performing the duties of the Manager under the Management Agreement; initially, Universal. "MANAGER DEFAULT" means the occurrence of any of the events or conditions set forth in Section 12.1 of the Management Agreement. "MATERIAL ADVERSE CHANGE" shall have the meaning set forth in Section 101 of the Indenture. "NOTEHOLDER" or "HOLDER" shall have the meaning set forth in Section 101 of the Indenture. "NOTE REGISTER" shall have the meaning set forth in Section 101 of the Indenture. 8 13 "OTHER TAXES" shall have the meaning set forth in Section 206(b) of this Supplement. "OUTSTANDING" shall have the meaning set forth in Section 101 of the Indenture. "OVERDUE RATE" means, for any Determination Date, an interest rate per annum equal to the sum of (i) the Base Rate then in effect plus (ii) two percent (2%). "PAYMENT DATE" shall have the meaning set forth in Section 201 hereof. "PERCENTAGE" means, with respect to any Series 2001-1 Noteholder as of any date of determination, a fraction (expressed as a percentage), the numerator of which is the Series 2001-1 Noteholder's Class A Note Existing Commitment and the denominator of which is equal to the aggregate Class A Note Existing Commitments of all Series 2001-1 Noteholders. "PERSON" shall have the meaning set forth in Section 101 of the Indenture. "POTENTIAL TRIGGER EVENT" means any event or condition that, with notice or the passage of time or both, could reasonably be expected to constitute a Trigger Event. "PREPAYMENTS" shall have the meaning set forth in Section 101 of the Indenture. "PRIME RATE" means the interest rate per annum announced by FUNB from time to time as its "prime rate" or "base rate" in the United States, such rate to change as and when such designated rate changes. The Prime Rate is not intended to be the lowest rate of interest charged by FUNB in connection with extensions of credit to debtors. "PRINCIPAL PAYMENT AMOUNT" shall have the meaning set forth in the Indenture. "RATING AGENCY" or "RATING AGENCIES" shall have the meaning set forth in Section 101 of the Indenture. "RATING AGENCY CONDITION" shall have the meaning set forth in Section 101 of the Indenture. "RECORD DATE" shall have the meaning set forth in Section 101 of the Indenture. "REQUISITE GLOBAL MAJORITY" shall have the meaning set forth in Section 101 of the Indenture. "SALE AGREEMENT" means the Sale Agreement, dated as of February 9, 2001, between UCO Compression LLC and the Issuer, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. "SCHEDULED PRINCIPAL PAYMENT AMOUNT" means, for the Series 2001-1 Notes for any Payment Date, one of the following: 9 14 (1) on any Payment Date prior to the expiration of a Term of a Lease Pool, zero; (2) on the expiration date of a Term of a Lease Pool, an amount determined in accordance with the following formula: ACNPB - CDDE + TPPA where: ACNPB = the sum of (i) Aggregate Class A Note Principal Balance on such Termination Date and (ii) the unpaid principal balance of the Capital on such Termination Date; and CDDE = the sum of (i) Aggregate Class A Note Principal Balance on the Conversion Date and (ii) the unpaid principal balance of the Capital on the Conversion Date; TPPA = the sum of the Targeted Principal Payout Amounts (determined on the Conversion Date) for all Lease Pools (including the Lease Pool under consideration) whose Term has expired or terminated on or prior to the Termination Date under consideration. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SELLER" means UCO Compression LLC, a limited liability company organized and existing under the laws of the State of Delaware, and its successors and permitted assigns. "SENIOR CLASS PRIORITY PAYMENTS" shall have the meaning set forth in Section 201 hereof. "SERIES 2001-1" shall mean the Series of Notes the terms of which are specified in this Supplement. "SERIES 2001-1 FINAL MATURITY DATE" means the Payment Date occurring in FEBRUARY 2009. "SERIES 2001-1 INITIAL COMMITMENT" means $194,000,000. "SERIES 2001-1 NOTEHOLDER" shall mean the Person in whose name a Series 2001-1 Note is registered in the Note Register. "SERIES 2001-1 NOTES" shall have the meaning set forth in "CLASS A NOTE". "SERIES 2001-1 NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement among the Issuer, VFCC and the Deal Agent, dated as of February 9, 2001 pursuant to which VFCC agreed to purchase certain Series 2001-1 Notes. 10 15 "SERIES 2001-1 SERIES ACCOUNT" means the account established by the Issuer in the name of the Indenture Trustee with the Indenture Trustee into which funds are deposited from the Trust Account pursuant to Section 302 of the Indenture. "SERIES 2001-1 TRANSACTION DOCUMENTS" means any and all of the Indenture, this Supplement, the Series 2001-1 Notes, the Management Agreement, the Back-up Management Agreement, the Contribution Agreement, the Bill(s) of Sale, the Representation and Warranty Agreement, the Sale Agreement, the Head Lease, Head Lessee Security Agreement, the Series 2001-1 Note Purchase Agreement, the Liquidity Agreement, the Interest Rate Swap Agreements, and any and all other agreements, documents and instruments executed and delivered by or on behalf or in support of the Issuer with respect to the issuance and sale of the Series 2001-1 Notes, as any of the foregoing may from time to time be amended, modified, supplemented or renewed. "TARGETED PRINCIPAL PAYOUT AMOUNT" means an amount determined for each Lease Pool on the Conversion Date equal to the product of (x) a fraction the numerator of which is the Advance Rate for such Lease Pool and the denominator of which is the sum of the Advance Rates for all Lease Pools in effect on the Conversion Date and (y) the sum of (i) the Aggregate Class A Note Principal Balance on the Conversion Date and (ii) the unpaid principal balance of the Capital on the Conversion Date. "TAXES" shall have the meaning set forth in Section 206(a) of this Supplement. "TERM" shall have the meaning set forth in Section 4 of the Head Lease. "TERMINATION DATE" shall have the meaning set forth in Section 1 of the Head Lease. "TRANSFEROR" means UCO Compression LLC, a limited liability company organized and existing under the laws of the State of Delaware. "TRIGGER EVENT" shall have the meaning set forth in Section 101 of the Indenture. "TRUST ACCOUNT" shall have the meaning set forth in Section 101 of the Indenture. "UNIVERSAL" shall mean Universal Compression Inc., a Delaware corporation, and its successor and permitted assigns. "UNIVERSAL PARTY" means any one or more of the Issuer, the Seller, the Lessee, the Transferor, the Contributor, the Manager or any Affiliate of any of the foregoing. "VFCC" means Variable Funding Capital Corporation, a Delaware corporation, and its successors and assigns. (b) Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Indenture. 11 16 ARTICLE II Creation of the Series 2001-1 Notes Section 201. Designation. There is hereby created a Series of Notes to be issued in one Class pursuant to the Indenture and this Supplement to be known respectively as "BRL Universal Compression Funding I, L.P. Floating Rate Secured Notes, Series 2001-1". The Series 2001-1 Notes will be issued on the Effective Date in the initial principal balance of up to $194,000,000 and will not have priority over any Senior Class of any other Series, except to the extent set forth in the Supplement for such other Series. (a) The Payment Date with respect to the Series 2001-1 Notes shall be the 15th day of each month, commencing March 15, 2001 or, if such day is not a Business Day, the immediately following Business Day , so long as such Business Day does not occur in the succeeding month or (ii) if the immediately following Business Day would fall in the succeeding month, the Business Day immediately preceding the fifteenth (15th) day of such month (each a "Payment Date"). (b) The Series 2001-1 Notes shall be issued as Definitive Notes, substantially in the form of Exhibit A hereto. The transfer restrictions set forth in Section 202(i) and Section 205(g) and (h) of the Indenture shall not be applicable to any transfer of the Note (or an interest therein) by VFCC to the Liquidity Bank in accordance with the provisions of the Liquidity Agreement. (c) Payments of principal on the Series 2001-1 Notes shall be payable from funds on deposit in the Series 2001-1 Series Account or otherwise at the times and in the amounts set forth in Article III of the Indenture and Article III of this Supplement. (d) The Class A Note Interest Payment and the Commitment Fee shall constitute "Senior Class Priority Payments", as such term is utilized in the Indenture. The Scheduled Principal Payment Amount shall constitute the "Principal Payment Amount" for Series 2001-1, as such term is utilized in the Indenture. (e) On the Closing Date, there is no Series Enhancer or Enhancement Agreement applicable to the Series 2001-1 Notes. In addition, no Rating Agencies have been designated for the Series 2001-1 Notes on the Closing Date. (f) In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Supplement shall govern. Section 202. Authentication and Delivery. (a) On the Effective Date, Issuer shall sign, and shall direct the Indenture Trustee in writing pursuant to Section 201 of the Indenture to duly authenticate, and the Indenture Trustee, upon receiving such direction, (i) shall authenticate (by manual or facsimile signature), subject to compliance with the conditions precedent set forth in Section 501 hereof and the Series 2001-1 Note 12 17 Purchase Agreement, the Series 2001-1 Notes in accordance with such written directions, and (ii) subject to compliance with the conditions precedent set forth in Section 501 hereof and the Series 2001-1 Note Purchase Agreement, shall deliver such Series 2001-1 Notes to the Noteholders in accordance with such written directions. (b) In accordance with Section 202 of the Indenture, the Class A Notes shall be represented by one or more Definitive Notes. (c) The Series 2001-1 Notes shall be executed by manual or facsimile signature by the Issuer and shall be substantially in the form of Exhibit A hereto. (d) The Series 2001-1 Notes shall be issued in minimum denominations of $250,000 and in integral multiples of $100,000 in excess thereof. Section 203. Interest Payments on the Series 2001-1 Notes. (a) Interest on Series 2001-1 Notes. Interest will be paid on each Series 2001-1 Note in an amount equal to the Class A Note Interest Payment. Such Class A Note Interest Payment shall be payable on each Payment Date from amounts on deposit in the Series 2001-1 Series Account in accordance with Section 302 of this Supplement. To the extent that the amount of interest which is due and payable on any Payment Date is not paid in full on such date, such shortfall, together with interest thereon at the interest rate applicable to such Interest Accrual Period, shall be due and payable on the immediately succeeding Payment Date. (b) Interest on Overdue Amounts. If the Issuer shall default in the payment when due of (i) the unpaid principal balance of any Series 2001-1 Notes on the Series 2001-1 Final Maturity Date, or (ii) the Class A Note Interest Payment on any Series 2001-1 Note when due, or (iii) any other amount becoming due under this Supplement, the Issuer shall, pursuant to Section 302 hereof, from time to time pay interest (the incremental interest payable in excess of the interest otherwise payable, "Default Interest") on such unpaid amounts, to the extent permitted by applicable law, to, but not including, the date of actual payment (after as well as before judgment), at a rate per annum equal to the Overdue Rate, for the period during which such principal, interest or other amount shall be unpaid from the due date of such payment to the date of actual payment thereof. Any such Default Interest shall be payable at the times and subject to the priorities set forth in Section 302 of this Supplement. Section 204. Principal Payments on the Series 2001-1 Notes. In addition to any Prepayment required pursuant to the provisions of Section 204(b) hereof, the principal balance of the Series 2001-1 Notes shall be payable on each Payment Date from amounts on deposit in the Series 2001-1 Series Account in an amount equal to the Scheduled Principal Payment Amount for such Payment Date. The unpaid principal amount of the Series 2001-1 Notes together with all unpaid interest (including all Default Interest), fees (including all Commitment Fees), expense, costs and other amounts payable by the Issuer to the Series 2001-1 Noteholders and the Indenture Trustee 13 18 pursuant to the terms of the Indenture and this Supplement, shall be due and payable in full on the earlier to occur of (x) the date on which an Event of Default shall occur and the Series 2001-1 Notes have been accelerated in accordance with Section 802 of the Indenture and (y) the Series 2001-1 Final Maturity Date. (a) So long as a Trigger Event is continuing, the principal balance of the Series 2001-1 Notes shall be required to be prepaid at the times and in the amounts set forth in Section 702(b) of the Indenture. In connection with any Prepayment made in accordance with this Section 204(b), the Issuer shall pay (i) any Breakage Costs assessed by the Deal Agent, on behalf of the Class A Noteholders or the Liquidity Bank and (ii) any fees and costs assessed by any Eligible Interest Rate Swap Counterparty. (b) The Issuer may, on any Payment Date and upon three (3) Business Days' prior notice (which notice shall be irrevocable when given), voluntarily prepay the Class A Note Principal Balance after notice to the Series 2001-1 Noteholders in accordance with the terms of this Supplement, by making a wire transfer to the Class A Noteholders; provided, however, that the Issuer may not make such repayment from funds in the Trust Account or the Series 2001-1 Series Account, except to the extent that funds in any such account would be otherwise be payable to the Issuer in accordance with the terms of this Supplement. In connection with any Prepayment made in accordance with this Section 204(b), the Issuer shall pay (i) any Breakage Costs assessed by the Deal Agent, on behalf of the Class A Noteholders or the Liquidity Bank and (ii) any fees and costs assessed by any Eligible Interest Rate Swap Counterparty. Section 205. Amounts and Terms of Series 2001-1 Noteholder Commitments. (a) Commitments. Subject to the terms and conditions of this Supplement and the Series 2001-1 Note Purchase Agreement, each Series 2001-1 Noteholder shall make its portion of the Series 2001-1 Initial Commitment available to the Issuer on the Effective Date. (b) Advances. Prior to the Conversion Date each Class A Note shall be a revolving note with a maximum principal amount equal to the Class A Note Existing Commitment then in effect for the related Series 2001-1 Noteholder. The Deal Agent shall maintain a record of all Class A Advances and repayments made on the Series 2001-1 Notes and absent manifest error such records shall be conclusive. On any two Business Days in any calendar month requested by the Issuer and presuming that the Issuer shall have given three Business Days' prior notice to the Deal Agent and shall have satisfied all applicable conditions precedent set forth in Article V hereof, each Series 2001-1 Noteholder shall, subject to the terms and conditions of the Class A Note Purchase Agreement, deposit with the account designated by the Issuer by wire transfer of same day funds an amount equal to its Percentage of the requested Class A Advance; provided, however, that, each Class A Advance by each Class A Noteholder shall be for an amount (A) not less than the lesser of (x) its then unused Class A Note Existing Commitment and (y) Five Million Dollars ($5,000,000) in the case of the first Class A Advance and thereafter Five Hundred Thousand Dollars ($500,000), and (B) not greater than the Availability of such Series 2001-1 Noteholder on such Business Day; 14 19 provided, further, that in the event that any Series 2001-1 Noteholder fails to make a Class A Advance in accordance with its Class A Note Existing Commitment, then the other Series 2001-1 Noteholder(s) shall not be obligated to fund the Percentage of the defaulted Series 2001-1 Noteholder(s). (c) Each request for a Class A Advance shall be submitted in writing to the Deal Agent in the manner contemplated in Section 1207 of the Indenture by not later than 1:00 p.m. (Charlotte, North Carolina time) on the third Business Day prior to the date of the requested advance and shall be irrevocable when given. Each request for a Class A Advance shall constitute a reaffirmation by Issuer that (1) no Event of Default, Manager Default or Trigger Event has occurred and is continuing and (2) the representations and warranties contained in the Series 2001-1 Transaction Documents are true, correct and complete in all material respects to the same extent as though made on and as of the date of the request, except to the extent such representations and warranties specifically relate to an earlier date, in which event they shall be true, correct and complete in all material respects as of such earlier date. If (i) any Class A Advance requested by the Issuer is not made or effectuated, for any reason whatsoever, related to a default or nonperformance by the Issuer, on the date specified thereof or (ii) any optional prepayment of the Series 2001-1 Notes is not made when specified in the notice delivered pursuant to Section 702 of the Indenture, the Issuer shall indemnify each Class A Noteholder against any reasonable loss, cost or expense directly incurred by such Class A Noteholder (excluding any consequential or other similar damages), including, without limitation, any loss (including loss of anticipated profits, net of anticipated profits in the reemployment of such funds in the manner determined by the Deal Agent), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Class A Noteholder (as determined by the Deal Agent) to fund or maintain such Class A Advance, as the case may be, during such Interest Accrual Period (all of the foregoing collectively, "Breakage Costs"). (d) On each Payment Date, the Issuer shall pay a commitment fee (the "Commitment Fee") to each Class A Noteholder in an amount equal to the product for each day during the immediately preceding Collection Period of (x) the applicable Commitment Fee Percentage on such date, (y) a fraction (expressed as percentage) the numerator of which is one and the denominator of which is equal to the actual number of days in the applicable year and (z) the Class A Note Unused Commitment of such Class A Noteholder on such date. Such Commitment Fee shall be payable from amounts then on deposit in the Series 2001-1 Series Account in accordance with Section 302 hereof. (e) All payments of principal and interest on the Series 2001-1 Notes shall be paid to the Class A Noteholders reflected in the Note Register as of the related Record Date by wire transfer of immediately available funds for receipt prior to 11:00 a.m. (New York City time) on the related Payment Date. Any payments received by a Class A Noteholder after 11:00 a.m. (New York City time) on any day shall be considered to have been received on the next succeeding Business Day. 15 20 (f) All payments received by the Deal Agent from the Issuer by wire transfer of immediately available funds prior to 11:00 a.m. (New York City time) on the related Payment Date shall be disbursed by the Deal Agent to the Class A Noteholders or the Liquidity Bank by no later than 3:00 p.m. on such Business Day. Any payments received by the Deal Agent after 11:00 a.m. (New York City time) on any day shall be paid to the Class A Noteholders by 11:00 a.m. on the next Business Day. Section 206. Taxes. (a) In addition to payments of principal and interest on the Series 2001-1 Notes when due, the Issuer shall pay, but only in accordance with the priorities for distributions set forth in Section 302 of this Supplement, any and all present or future taxes, fees, duties, levies, imposts, or charges, or any other similar deduction or withholding, whatsoever imposed by any Governmental Authority, and all liabilities with respect thereto, excluding, in the case of each Series 2001-1 Noteholder and any Person to whom a Series 2001-1 Noteholder has sold an interest in the Series 2001-1 Note, the Deal Agent and any Liquidity Bank (such Series 2001-1 Noteholder and any such Person being an "Indemnified Party"), such taxes as are imposed on or measured by each Indemnified Party's net income by the jurisdiction under the laws of which such Indemnified Party, as the case may be, is organized or maintains an office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). (b) In addition, the Issuer shall pay, subject to the priorities set forth in Section 302, any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Supplement or any other documents related to the issuance of the Series 2001-1 Notes except for any such taxes due upon the transfer by a Class A Noteholder of its Series 2001-1 Notes (hereinafter referred to as "Other Taxes"). (c) If any Taxes or Other Taxes are directly asserted or imposed against any Indemnified Party, the Issuer shall indemnify and hold harmless such Indemnified Party, subject to the priorities for distribution set forth in Section 302, for the full amount of the Taxes or Other Taxes (including any Taxes or Other Taxes asserted or imposed by any jurisdiction on amounts payable under this Section 206) paid by the Indemnified Party and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted or imposed. If the Issuer fails to pay any Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Indemnified Party the required receipts or other required documentary evidence, the Issuer shall indemnify the Indemnified Party for any incremental Taxes or Other Taxes, interest or penalties that may become payable by the Indemnified Party as a result of any such failure. Payment under this indemnification shall be made in accordance with the priorities for distributions set forth in Section 302 of this Supplement after the Indemnified Party makes written demand therefor. Indemnified Party shall give prompt notice to Issuer of any assertion of Taxes or Other Taxes so that Issuer may, at its option, contest such assertion. 16 21 (d) Within thirty (30) days after the date of any payment by the Issuer of Taxes or Other Taxes, the Issuer shall furnish to each of the Series 2001-1 Noteholders the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Series 2001-1 Noteholders. (e) Taxes and Other Taxes shall not constitute a claim against the Issuer or the Collateral in the event such amounts are not paid in accordance with Section 302 of this Supplement. (f) On or before the date it acquires a Series 2001-1 Note (and, so long as it may properly do so, periodically thereafter, as requested by Issuer, to keep forms up to date), each Series 2001-1 Noteholder that is organized under the laws of a jurisdiction outside the United States of America hereby is deemed to have agreed by its acceptance of its Series 2001-1 Note to deliver to the Indenture Trustee any certificates, documents or other evidence that shall be required by the Code (or any regulations issued pursuant thereto) to establish that, assuming the Series 2001-1 Notes are properly characterized as indebtedness, it is exempt from existing United States Federal withholding requirements, including two original copies of Internal Revenue Service Form W-8BEN or Form W-8ECI or applicable successor form, properly completed and duly executed by the Series 2001-1 Noteholder certifying that it is entitled to receive payments under this Agreement without deduction or withholding of any United States Federal income taxes (or at a reduced rate). If any Series 2001-1 Noteholder does not comply with the requirements of this Section 206(f), then the amounts payable to such Series 2001-1 Noteholder pursuant to this Section 206 shall be limited to reflect such withholding. Any Person making a payment to any Class A Noteholder of Class A Note Interest Payment, Scheduled Principal Payment Amount or Commitment Fees shall be considered as having been paid by the Issuer to the Series 2001-1 Noteholder for all purposes of this Supplement. Section 207. Increased Costs; Capital Adequacy; Illegality. (a) If either (i) the introduction of or any change (including, without limitation, any change by way of imposition or increase of reserve requirements) in or in the interpretation of any law or regulation or (ii) the compliance by an Affected Party with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), shall (A) subject an Affected Party to any Tax (except for Taxes on the overall net income of such Affected Party), duty or other charge with respect to Class A Note, or any right to make Class A Advance hereunder, or on any payment made hereunder, (B) impose, modify or deem applicable any reserve requirement (including, without limitation, any reserve requirement imposed by the Board of Governors of the Federal Reserve System, but excluding any reserve requirement, if any, included in the determination of the Adjusted Eurodollar Rate), special deposit or similar requirement against assets of, deposits with or for the amount of, or credit extended by, any Affected Party or (C) impose any other condition affecting a Series 2001-1 Note or any Series 2001-1 Noteholder's rights hereunder, the result of which is to increase the cost to any Affected Party or to reduce the amount of any sum received or receivable by an Affected Party under this Agreement, then within ten days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis for such demand), the Issuer shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such additional or increased cost incurred or such reduction suffered. 17 22 (b) If either (i) the introduction of or any change in or in the interpretation of any law, guideline, rule, regulation, directive or request or (ii) compliance by any Affected Party with any law, guideline, rule, regulation, directive or request from any central bank or other Governmental Authority (whether or not having the force of law), including, without limitation, compliance by an Affected Party with any request or directive regarding capital adequacy, has or would have the effect of reducing the rate of return on the capital of any Affected Party as a consequence of its obligations hereunder or arising in connection herewith to a level below that which any such Affected Party could have achieved but for such introduction, change or compliance (taking into consideration the policies of such Affected Party with respect to capital adequacy) by an amount deemed by such Affected Party to be material, then from time to time, within ten days after demand by such Affected Party (which demand shall be accompanied by a statement setting forth the basis for such demand), the Issuer shall pay directly to such Affected Party such additional amount or amounts as will compensate such Affected Party for such reduction. (c) If as a result of any event or circumstance similar to those described in clauses (a) or (b) of this section, any Affected Party is required to compensate a bank or other financial institution providing liquidity support, credit enhancement or other similar support to such Affected Party in connection with this Agreement or the funding or maintenance of Purchases hereunder, then within ten days after demand by such Affected Party, the Seller shall pay to such Affected Party such additional amount or amounts as may be necessary to reimburse such Affected Party for any amounts payable or paid by it. (d) In determining any amount provided for in this section, the Affected Party may use any reasonable averaging and attribution methods. Any Affected Party making a claim under this section shall submit to the Issuer and the Manager a written description as to such additional or increased cost or reduction and the calculation thereof, which written description shall be conclusive absent demonstrable error. (e) If a Liquidity Bank shall notify the Deal Agent that a Eurodollar Disruption Event as described in clause (a) of the definition of "Eurodollar Disruption Event" has occurred, the Deal Agent shall in turn so notify the Issuer, whereupon all Class A Advances in respect of which Class A Note Interest Payment accrues at the Adjusted Eurodollar Rate shall immediately be converted into a Class A Advance in respect of which interest accrues at the Base Rate. (f) Any amounts payable by the Issuer pursuant to this Section 207 shall be paid in accordance with the provisions of Section 302 hereof and shall not constitute a claim against the Issuer or the Collateral in the event that such amounts are not paid in accordance with Section 302 of this Supplement. 18 23 ARTICLE III Series 2001-1 Series Account and Allocation and Application of Amounts Therein Section 301. Series 2001-1 Series Account. The Issuer shall establish on the Closing Date and maintain in the name of the Indenture Trustee, so long as any Series 2001-1 Note is Outstanding, an Eligible Account at Wells Fargo Bank Minnesota, National Association which shall be designated as the Series 2001-1 Series Account, which account shall be held by the Indenture Trustee for the benefit of the Series 2001-1 Noteholders pursuant to the Indenture and this Supplement. All deposits of funds by or for the benefit of the Series 2001-1 Noteholders from the Trust Account shall be accumulated in, and withdrawn from, the Series 2001-1 Series Account in accordance with the provisions of the Indenture and this Supplement. Section 302. Distributions from Series 2001-1 Series Account . On each Payment Date, the Indenture Trustee shall distribute funds then on deposit in the Series 2001-1 Series Account in accordance with the priorities set forth below: (i) To each Holder of a Series 2001-1 Note on the immediately preceding Record Date, an amount equal to the Class A Note Interest Payment (exclusive of Default Interest) payable to such Series 2001-1 Noteholders for such Payment Date; (ii) To each Holder of a Series 2001-1 Note on the immediately preceding Record Date, an amount equal to the Commitment Fee payable to such Series 2001-1 Noteholders for such Payment Date; (iii) To each Holder of a Series 2001-1 Note on the immediately preceding Record Date, an amount equal to its pro rata portion of the Scheduled Principal Payment Amount then due and payable to Series 2001-1 on such Payment Date; (iv) To each Holder of a Series 2001-1 Note on the immediately preceding Record Date, an amount equal to its pro rata portion of any principal Prepayment then due and payable to Series 2001-1 on such Payment Date; (v) To each Holder of a Series 2001-1 Note, pro rata, an amount equal to Taxes, Other Taxes, Increased Costs, Breakage Costs, indemnities and other amounts (including Default Interest) then due and payable by the Issuer to the Series 2001-1 Noteholders pursuant to the Series 2001-1 Transaction Documents; and (vi) After application of the amounts required to be paid pursuant to Section 302 of the Indenture, to the Issuer, any remaining amounts then on deposit in the Series 2001-1 Series Account. 19 24 ARTICLE IV Additional Covenants In addition to the covenants set forth in Article VI of the Indenture, the Issuer hereby makes the following additional covenants for the benefit of the Series 2001-1 Noteholders: Section 401. Additional Series. The Issuer shall not issue any additional Series of Notes on or after the Closing Date without (a) the Rating Agency Condition (if any Series of Notes are then rated by a Rating Agency, (b) confirmation, in writing, that the unpaid principal balances of all Series of Notes then Outstanding do not exceed the Asset Base, as evidenced by the Asset Base Certificate most recently received by the Indenture Trustee (dated not earlier than the preceding Payment Date), (c) receipt of a certificate from an officer of the Issuer stating that no Trigger Event, Manager Default or Event of Default has occurred and is then continuing or would result from the issuance of such new Series and (d) the Deal Agent shall have given its prior written consent. Section 402. Control Party. For purposes of determining a Requisite Global Majority pursuant to Section 503 of the Indenture, the Control Party of Series 2001-1 shall mean the Majority of Holders of the Series 2001-1 Notes then Outstanding. Section 403. Rule 144A. So long as any of the Series 2001-1 Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, Issuer shall, unless it becomes subject to and complies with the reporting requirements of Section 13 or 15(d) of the Exchange Act, or Rule 12g3-2(b) thereunder, provide to any Series 2001-1 Noteholder of such restricted securities, or to any prospective Series 2001-1 Noteholder of such restricted securities designated by a Series 2001-1 Noteholder, upon the request of such Noteholder or prospective Series 2001-1 Noteholders, any information required to be provided by Rule 144A(d)(4) under the Securities Act. Section 404. Use of Proceeds. The proceeds from the issuance of the Series 2001-1 Notes shall be used to purchase certain Head Lessor Compressors and for general corporate purposes. Section 405. Allocation of Prepayments. So long as Series 2001-1 is the only Series Outstanding, all principal Prepayments permitted or required pursuant to Section 702 of the Indenture shall be allocated solely to Series 2001-1. 20 25 ARTICLE V Conditions of Effectiveness and Future Lending Section 501. Effectiveness of Supplement. The effectiveness of this Supplement is subject to the condition precedent that the Indenture Trustee shall have received all of the following, each duly executed and dated as of the Closing Date, in form and substance satisfactory to each of the Series 2001-1 Noteholders and each (except for the Series 2001-1 Notes, of which only the originals shall be signed) in sufficient number of signed counterparts to provide one for each Series 2001-1 Noteholder (notwithstanding the satisfaction of the conditions precedent, upon the making of a Class A Advance hereunder, all of Indenture Trustee's rights under this Agreement (and by operation of law) shall vest in the Indenture Trustee, whether or not the conditions precedent to such Advance were in fact satisfied): (a) Series 2001-1 Notes. Separate Series 2001-1 Notes executed by the Issuer in favor of each Series 2001-1 Noteholder in the aggregate stated principal amount of such Series 2001-1 Notes that such Noteholder has agreed to purchase. (b) Certificate(s) of Secretary or Assistant Secretary. Separate certificates executed by the corporate secretary or assistant secretary of each Universal Party, each dated the Closing Date, certifying (i) that the respective company has the authority to execute and deliver, and perform its respective obligations under each of the Series 2001-1 Transaction Documents to which it is a party, and (ii) that attached are true, correct and complete copies of the organic documents, authorizations and incumbency certificates in form and substance satisfactory to the Series 2001-1 Noteholders, as to such matters as they shall require. (c) Security Documents. The Indenture and this Supplement, in form and substance satisfactory to the Series 2001-1 Noteholders, the Indenture Trustee and the Deal Agent, shall have been executed and delivered by Issuer, and all other parties thereto, together with all Uniform Commercial Code financing statements and other documents reasonably requested by Series 2001-1 Noteholders Indenture Trustee or the Deal Agreement. (d) Opinions of Counsel. Opinions of Counsel to the Issuer, as to perfection and priority of the Indenture Trustee's security interest in the Collateral, and from counsel to the Issuer, Contributor, the Head Lessee and Manager, in form and in substance satisfactory to the Series 2001-1 Noteholders, as to true sale, non-consolidation and any other such matters as they shall require. (e) Series 2001-1 Transaction Documents. Each of the Series 2001-1 Transaction Documents shall have been duly executed and delivered and all of the conditions precedent therein have either been satisfied or waived by the Deal Agent. (f) Insurance. The Indenture Trustee shall have received certificates evidencing insurance coverage in respect of the Compressors, which shall be reasonably satisfactory to the Indenture Trustee, as additional loss payee. 21 26 (g) Up Front Fee. The Issuer shall have paid, or made arrangements for payment satisfactory to the Deal Agent for, the up front fee set forth in the letter agreement, dated as of the Closing Date between the Issuer and First Union Securities, Inc. (h) Limited Partnership Interests. Variable Funding Capital Corporation and First Union Investors shall have purchased the limited partnership interests in the Issuer. (i) Merger. Universal Compression, Inc. and Weatherford Industries shall have consummated their merger. (j) [Reserved] (k) Ratings of Universal's High Yield Debt. Universal's high yield debt issued contemporaneously with the execution and delivery of this Series 2001-1 Supplement is rated "BB-" or higher by S&P and "Ba3" by Moody's. (l) Credit and Collection Policy. The Issuer shall have delivered to the Deal Agent two (2) copies of Universal's Credit and Collection Policy. (m) Issuer Certificate An officer's certificate certifying that all of the conditions set forth in clauses (a) through (l) above have been satisfied. Section 502. Advances on Series 2001-1 Notes. The obligation of each of the Series 2001-1 Noteholders to make a Class A Advance pursuant to its commitment under this Supplement and the Series 2001-1 Note Purchase Agreement is subject to the following further conditions precedent being fulfilled with respect to each such Class A Advance: (a) Default. Before and after giving effect to such Class A Advance, no Event of Default or Manager Default shall have occurred and be continuing. (b) Trigger Event. Before and after giving effect to such Class A Advance, no Trigger Event or Potential Trigger Event shall have occurred and be continuing unless such Class A Advance has been approved by each of (i) the Requisite Global Majority and (ii) each Series 2001-1 Noteholder. (c) Certification. Issuer shall have delivered to the Deal Agent a compliance certificate, signed by a financial officer of Issuer stating that (i) each of the conditions precedent set forth in this Section 502 and in the Series 2001-1 Note Purchase Agreement have been satisfied with respect to such Class A Advance and (ii) that all of the representations and warranties of the Issuer contained in each Series 2001-1 Transaction Document is true and correct in all material respects as of the date of such Class A Advance. (d) Asset Base Certificate. Issuer shall have delivered to the Deal Agent a duly completed and executed Asset Base Certificate, determined after giving effect to any Eligible Compressors to be acquired with the proceeds of such Class A Advance, which demonstrates that, after giving effect to such Class A Advance, (A) the sum of (i) the Aggregate Class A Note Principal 22 27 Balances and (ii) the then unpaid Capital does not exceed the Asset Base, (B) no Net Revenue Event exists or would exist, or (C) no Overcollateralization Event exists or would exist. (e) Conversion Date. The Conversion Date shall not have occurred. (f) Issuer Certificate An officer's certificate certifying that all of the conditions set forth in paragraphs (a) through (e) of this Section 502 have been satisfied. 23 28 ARTICLE VI Representations and Warranties To induce the Series 2001-1 Noteholders to purchase the Series 2001-1 Notes hereunder, the Issuer hereby represents and warrants (as of the Effective Date and each date on which a Class A Advance is made) to the Indenture Trustee for the benefit of the Series 2001-1 Noteholders that: Section 601 Existence. Issuer is a Delaware limited partnership duly formed and validly existing and is duly qualified to do business in each jurisdiction where the failure to do so would have a material adverse effect upon the Issuer. Section 602. Authorization. Issuer has the partnership power and is duly authorized to execute and deliver this Supplement and the other Series 2001-1 Transaction Documents to which it is a party; Issuer is and will continue to be duly authorized to borrow monies hereunder; and Issuer is and will continue to be authorized to perform its obligations under this Supplement and under the other Series 2001-1 Transaction Documents. The execution, delivery and performance by Issuer of this Supplement and the other Series 2001-1 Transaction Documents to which it is a party and the borrowings hereunder do not and will not require any consent or approval of any Governmental Authority, partner or any other Person which has not already been obtained. Section 603. No Conflict; Legal Compliance. The execution, delivery and performance of this Supplement and each of the other Series 2001-1 Transaction Documents and the execution, delivery and payment of the Series 2001-1 Notes will not: (a) contravene any provision of Issuer's partnership agreement; (b) contravene, conflict with or violate any applicable law or regulation, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority that could result in a Material Adverse Change; or (c) violate or result in the breach of, or constitute a default under the Indenture, the Series 2001-1 Transaction Documents, any other indenture or other loan or credit agreement, or other agreement or instrument to which Issuer is a party or by which Issuer, or its property and assets may be bound or affected that could result in a Material Adverse Change. Issuer is not in violation or breach of or default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any contract, agreement, lease, license, indenture or other instrument to which it is a party that could result in a Material Adverse Change. Section 604. Validity and Binding Effect. This Supplement is, and each Series 2001-1 Transaction Document to which Issuer is a party, when duly executed and delivered, will be, legal, valid and binding obligations of Issuer, enforceable against Issuer in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors' rights or by general principles of equity limiting the availability of equitable remedies. Section 605. Financial Statements. Since September 30, 2000, there has been no Material Adverse Change in the financial condition of any Universal Party. 24 29 Section 606. Executive Offices. The current location of Issuer's chief executive office and principal place of business is 2911 Turtle Creek Boulevard, Suite 1240, Dallas, Texas 75219. Section 607. No Agreements or Contracts. The Issuer is not now and has not been a party to any contract or agreement (whether written or oral) other than the Series 2001-1 Transaction Documents. Section 608. Consents and Approvals. No approval, authorization or consent of any trustee or holder of any Indebtedness or obligation of Issuer or of any other Person under any agreement, contract, lease or license or similar document or instrument to which Issuer is a party or by which Issuer is bound, is required to be obtained by Issuer in order to make or consummate the transactions contemplated under the Series 2001-1 Transaction Documents, except for those approvals, authorizations and consents that have been obtained on or prior to the Effective Date. All consents and approvals of, filings and registrations with, and other actions in respect of, all Governmental Authorities required to be obtained by Issuer in order to make or consummate the transactions contemplated under the Series 2001-1 Transaction Documents have been, or prior to the time when required will have been, obtained, given, filed or taken and are or will be in full force and effect, or due provision has been made therefor reasonably acceptable to the Indenture Trustee and the Majority of Holders. Section 609. Margin Regulations. Issuer does not own any "margin security", as that term is defined in Regulation U of the Federal Reserve Board, and the proceeds of the Series 2001-1 Notes issued under this Supplement will be used only for the purposes contemplated hereunder. None of the proceeds of the Series 2001-1 Notes will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the loans under this Supplement to be considered a "purpose credit" within the meaning of Regulations T, U and X. Issuer will not take or permit any agent acting on its behalf to take any action which might cause this Supplement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board. Section 610. Taxes. All federal, state, local and foreign tax returns, reports and statements required to be filed by Issuer have been filed with the appropriate Governmental Authorities, and all Taxes, Other Taxes and other impositions shown thereon to be due and payable by Issuer have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid, or Issuer is contesting its liability therefor in good faith and has fully reserved all such amounts according to GAAP in the financial statements provided to the Noteholders pursuant to Section 626 of the Indenture. Issuer has paid when due and payable all material charges upon the books of Issuer and no Governmental Authority has asserted any Lien against Issuer with respect to unpaid Taxes or Other Taxes. Proper and accurate amounts have been withheld by Issuer from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. 25 30 Section 611. Other Regulations. Issuer is not: (a) a "public utility company" or a "holding company," or an "affiliate" or a "Subsidiary company" of a "holding company," or an "affiliate" of such a "Subsidiary company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or (b) an "investment company," or an "affiliated person" of, or a "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. The issuance of the Series 2001-1 Notes hereunder and the application of the proceeds and repayment thereof by Issuer and the performance of the transactions contemplated by this Supplement and the other Series 2001-1 Transaction Documents will not violate any provision of the Investment Company Act or the Public Utility Holding Company Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder. Section 612. Solvency and Separateness. (i) The capital of the Issuer is adequate for the business and undertakings of the Issuer; (ii) Other than with respect to the transactions contemplated by the Series 2001-1 Transaction Documents, the Issuer is not engaged in any business transactions with any Universal Party; (iii) A majority of the directors of a general partner of the Issuer are Independent Directors; (iv) The Issuer's funds and assets are not, and will not be, commingled with those of any Universal Party, except as permitted by the Management Agreement; (v) The partnership agreement of the Issuer requires it to maintain correct and complete books and records of account; and (vi) The Issuer is not insolvent under the Insolvency Law and will not be rendered insolvent by the transactions contemplated by the Series 2001-1 Transaction Documents and after giving effect to such transactions, the Issuer will not be left with an unreasonably small amount of capital with which to engage in its business nor will the Issuer have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. The Issuer does not contemplate the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, trustee or similar official in respect of the Issuer or any of its assets. Section 613. Survival of Representations and Warranties. So long as any of the Series 2001-1 Notes shall be Outstanding and until payment and performance in full of the Obligations, the representations and warranties contained herein shall have a continuing effect as having been true when made. 26 31 Section 614. No Default. No Event of Default, Manager Default or Trigger Event has occurred and is continuing and no event has occurred that with the passage of time would become an Event of Default, Manager Default or Trigger Event. Section 615. Litigation and Contingent Liabilities. No claims, litigation, arbitration proceedings or governmental proceedings by any Governmental Authority are pending or threatened against or are affecting the Issuer or any of its Affiliates the results of which might interfere with the consummation of any of the transactions contemplated by this Supplement or any document issued or delivered in connection herewith. Section 616. Title; Liens. Issuer has good, legal and marketable title to each of its respective assets, and none of such assets is subject to any Lien, except for the Lien created or permitted pursuant to the Indenture. Section 617. Subsidiaries. Issuer has had no subsidiaries. Section 618. No Partnership. Issuer is not a partner or joint venturer in any partnership or joint venture. 27 32 ARTICLE VII Miscellaneous Provisions Section 701. Ratification of Indenture. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument. Section 702. Counterparts. This Supplement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. Section 703. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 704. Statutory References. References in this Supplement and any other Series 2001-1 Transaction Document to any section of the Uniform Commercial Code or the UCC shall mean, on or after the effective date of adoption of any revision to the Uniform Commercial Code or the UCC in the applicable jurisdiction, such revised or successor section thereto. 28 33 IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Supplement to be duly executed and delivered by their respective officers all as of the day and year first above written. BRL UNIVERSAL COMPRESSION FUNDING I, L.P. By: BRL UNIVERSAL COMPRESSION MANAGEMENT, INC. Its: general partner By: /s/ GREGORY C. GREENE ------------------------------------- Name: Gregory C. Greene ----------------------------------- Title: President ---------------------------------- WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, not in its individual capacity, but solely as Indenture Trustee By: /s/ MARIANNA C. STERSHIC ------------------------------------- Name: Marianna C. Stershic ----------------------------------- Title: Vice President ---------------------------------- 34 EXHIBIT A FORM OF CLASS A NOTE THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THIS NOTE MAY NOT BE OFFERED FOR SALE, TRANSFER OR ASSIGNMENT UNLESS (1) SO REGISTERED OR THE TRANSACTION RELATING THERETO SHALL BE EXEMPT WITHIN THE MEANING OF SUCH ACT AND THE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ADOPTED THEREUNDER AND (2) SUCH TRANSACTION COMPLIES WITH THE PROVISIONS SET FORTH IN SECTION 205 OF THE INDENTURE. BECAUSE OF THE PROVISIONS FOR THE PAYMENT OF PRINCIPAL CONTAINED HEREIN, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. ANYONE PURCHASING THIS NOTE MAY ASCERTAIN THE OUTSTANDING PRINCIPAL AMOUNT HEREOF BY INQUIRY TO THE INDENTURE TRUSTEE. EACH PURCHASER OF A CLASS A NOTE SHALL BE DEEMED TO REPRESENT AND WARRANT TO THE INITIAL PURCHASER, THE ISSUER, THE INDENTURE TRUSTEE AND THE MANAGER THAT EITHER (1) IT IS NOT ACQUIRING A CLASS A NOTE WITH THE ASSETS OF AN "EMPLOYEE BENEFIT PLAN" AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR A "PLAN" WITHIN THE MEANING OF SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986; OR (2) THE ACQUISITION AND HOLDING OF A CLASS A NOTE WILL NOT GIVE RISE TO A NONEXEMPT PROHIBITED TRANSACTION UNDER SECTION 406(a) OF ERISA OR SECTION 4975 OF THE CODE. BRL UNIVERSAL COMPRESSION FUNDING I, L.P. SECURED NOTE SERIES 2001-1, CLASS A Up to $194,000,000 No. 1 February 9, 2001 KNOW ALL PERSONS BY THESE PRESENTS that BRL UNIVERSAL COMPRESSION FUNDING I, L.P., a Delaware limited partnership (the "Issuer"), for value received, hereby promises to pay to First Union Securities Inc., as agent for Variable Funding Capital Corporation and the related purchasers, or their registered assigns, at the principal corporate trust office of the Indenture Trustee named below, (i) the principal sum of up to One Hundred Ninety-Four Million Dollars ($194,000,000), which sum shall be payable on the dates and in the amounts set forth in the Indenture, dated as of February 9, 2001 (as amended, restated or otherwise modified from time to time, the "Indenture") and the Series 2001-1 Supplement, dated as of February 9, 2001 (as amended, restated or otherwise modified from time to time, the "Series 2001-1 Supplement"), each between the Issuer and Wells Fargo Bank Minnesota, National Association as indenture trustee 35 (the "Indenture Trustee"), (ii) interest on the outstanding principal amount of this Class A Note on the dates and in the amounts set forth in the Indenture and the Series 2001-1 Supplement and (iii) the other amounts required to be paid pursuant to the Indenture and the Series 2000-1 Supplement. A record of each Class A Advance, Prepayment and repayment shall be made by the Deal Agent and absent manifest error such record shall be conclusive. Capitalized terms not otherwise defined herein will have the meaning set forth in the Indenture and the Series 2001-1 Supplement. Payment of the principal of and interest on this Class A Note shall be made in lawful money of the United States of America which at the time of payment is legal tender for payment of public and private debts. The principal balance of, and interest on this Class A Note is payable at the times and in the amounts set forth in the Indenture and the 2001-1 Supplement by wire transfer of immediately available funds to the account designated by the Holder of record on the immediately preceding Record Date. This Class A Note is one of the authorized notes identified in the title hereto and issued in the aggregate principal amount of up to One Hundred Ninety-Four Million Dollars ($194,000,000.00) pursuant to the Indenture and the Series 2001-1 Supplement. The Class A Notes shall be an obligation of the Issuer and shall be secured by the Collateral, all as defined in, and subject to the limitations set forth in, the Indenture and the Series 2001-1 Supplement. This Class A Note is transferable as provided in the Indenture and the Series 2001-1 Supplement, subject to certain limitations therein contained, only upon the books for registration and transfer kept by the Indenture Trustee, and only upon surrender of this Class A Note for transfer to the Indenture Trustee duly endorsed by, or accompanied by a written instrument of transfer in form reasonably satisfactory to the Indenture Trustee duly executed by the registered Holder hereof or his attorney duly authorized in writing. The Indenture Trustee or the Issuer may require payment by the Holder of a sum sufficient to cover any tax expense or other governmental charge payable in connection with any transfer or exchange of the Class A Notes. The Issuer, the Indenture Trustee and any other agent of the Issuer may treat the person in whose name this Class A Note is registered as the absolute owner hereof for all purposes, and neither the Issuer, the Indenture Trustee, nor any other such agent shall be affected by notice to the contrary. The Class A Notes are subject to Prepayment, at the times and subject to the conditions set forth in the Indenture and the Series 2001-1 Supplement. If an Event of Default shall occur and be continuing, the principal of and accrued interest on this Class A Note may be declared to be due and payable in the manner and with the effect provided in the Indenture and the Series 2001-1 Supplement. The Indenture permits, with certain exceptions as therein provided, the issuance of supplemental indentures with the consent of the Requisite Global Majority, in certain specifically described instances. Any consent given by the Requisite Global Majority shall be conclusive and A-2 36 binding upon the Holder of this Class A Note and on all future holders of this Class A Note and of any Class A Note issued in lieu hereof whether or not notation of such consent is made upon this Class A Note. Supplements and amendments to the Indenture and the Series 2001-1 Supplement may be made only to the extent and in circumstances permitted by the Indenture and the Series 2001-1 Supplement. The Holder of this Class A Note shall have no right to enforce the provisions of the Indenture and the Series 2001-1 Supplement or to institute action to enforce the covenants, or to take any action with respect to a default under the Indenture and the Series 2001-1 Supplement, or to institute, appear in or defend any suit or other proceedings with respect thereto, except as provided under certain circumstances described in the Indenture and the Series 2001-1 Supplement; provided, however, that nothing contained in the Indenture and the Series 2001-1 Supplement shall affect or impair any right of enforcement conferred on the Holder hereof to enforce any payment of the principal of and interest on this Class A Note on or after the due date thereof; provided further, however, that by acceptance hereof the Holder is deemed to have covenanted and agreed that it will not institute against the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any applicable bankruptcy or similar law, at any time other than at such time as permitted by Section 1211 of the Indenture and the Series 2001-1 Supplement. Each purchaser of a Class A Note shall be deemed to represent and warrant to the Initial Purchaser, the Issuer, the Indenture Trustee and the Manager that either (1) it is not acquiring a Class A Note with the assets of an "Employee Benefit Plan" as Defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as Amended, or a "Plan" Within the Meaning of Section 4975 of the Internal Revenue Code of 1986; or (2) the acquisition and holding of a Class A Note will not give rise to a nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975 of the Code. This Class A Note, and the rights and obligations of the parties hereunder, shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York without giving effect to its conflicts of law principles. All terms and provisions of the Indenture and the Series 2001-1 Supplement are herein incorporated by reference as if set forth herein in their entirety. IT IS HEREBY CERTIFIED, RECITED AND DECLARED, that all acts, conditions and things required to exist, happen and be performed precedent to the execution and delivery of the Indenture and the Series 2001-1 Supplement and the issuance of this Class A Note and the issue of which it is a part, do exist, have happened and have been timely performed in regular form and manner as required by law. Unless the certificate of authentication hereon has been executed by the Indenture Trustee by manual signature of one of its authorized officers, this Class A Note shall not be entitled to any benefit under the Indenture and the Series 2001-1 Supplement, or be valid or obligatory for any purpose. A-3 37 IN WITNESS WHEREOF, BRL Universal Compression Funding L.P. has caused this Class A Note to be duly executed by its duly authorized representative, on this _____ day of February, 2001. BRL UNIVERSAL COMPRESSION FUNDING I, L.P. By: BRL COMPRESSION MANAGEMENT, INC. its general partner By: ___________________________________ Its:___________________________________ This Note is one of the Class A Notes described in the within-mentioned Indenture and the Series 2001-1 Supplement. WELLS FARGO BANK MINNESOTA, N. A. By: ____________________________________ Its: ___________________________________ EX-5.1 8 h84315ex5-1.txt OPINION OF ROBERT R. VEACH, JR. 1 EXHIBIT 5.1 [LETTERHEAD OF ROBERT R. VEACH, JR.] March 19, 2001 BRL Universal Equipment 2001 A, L.P. BRL Universal Equipment Corp. 2911 Turtle Creek Blvd., Suite 1240 Dallas, Texas 75219 Re: Registration Statement on Form S-4 relating to $350,000,000 aggregate principal amount of 8 7/8% Senior Secured Notes due 2008 Ladies and Gentlemen: I have acted as counsel for BRL Universal Equipment 2001 A, L.P., a Delaware limited partnership ("BRL"), and BRL Universal Equipment Corp., a Delaware corporation ("BRL Corp." and, together with BRL, the "Issuers"), in connection with the preparation of a Registration Statement on Form S-4 (the "Registration Statement") filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), by the Issuers and Universal Compression, Inc., a Texas corporation ("UCI"), as issuer of the lease obligations that are intended to fund the notes referred to below, and Universal Compression Holdings, Inc., a Delaware corporation ("UCH" and, together with UCI, "Universal"), as issuer of the guarantee obligations with respect to UCI's lease obligations. Pursuant to the Registration Statement, the Issuers are offering to exchange up to $350,000,000 aggregate principal amount of the Issuers' 8 7/8% Senior Secured Notes due 2008 that have been registered under the Securities Act (the "New Notes") for a like principal amount of the Issuers' issued and outstanding 8 7/8% Senior Secured Notes due 2008 (the "Old Notes"). In my capacity as counsel to the Issuers, I have reviewed the Indenture (the "Indenture") dated as of February 9, 2001 among the Issuers, Universal and The Bank of New York, as trustee (the "Trustee"), the Equipment Lease Agreement dated as of February 9, 2001 between BRL, as lessor, and UCI, as lessee, and the Participation Agreement dated as of February 9, 2001 among UCI, UCH, BRL, Bankers Trust Company and the other financial institutions listed on the signature pages thereto. I have also reviewed such matters of law and examined original, certified, conformed or photographic copies of such other documents, records, agreements and certificates as I deemed necessary as a basis for the opinions hereinafter expressed. In such review, I have assumed the genuineness of all signatures, the authenticity of all documents submitted as originals, and the conformity with the originals of all documents submitted as copies and, as to certificates of public officials, I have assumed the same to have been properly given and to be accurate. As to matters of fact material to this opinion, I have relied, without independent investigation, upon statements and representations of representatives of the Issuers, Universal, the Trustee and of public officials. This opinion is limited in all respects to the laws of the State of New York, the General Corporation Law of the State of Delaware and the federal laws of the United States, and no opinion is expressed as to the laws of any other jurisdiction. This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. Based on the foregoing, and subject to the assumptions, limitations and qualifications set forth herein, I am of the opinion that: 2 BRL Universal Equipment 2001 A, L.P. BRL Universal Equipment Corp. March 19, 2001 Page 2 1. The issuance, execution and delivery of the New Notes have been duly authorized by the Issuers and, when executed, authenticated, issued and delivered in the manner provided for in the Indenture in exchange for the Old Notes, will constitute legal, valid and binding obligations of the Issuers, enforceable against them in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights generally and general equitable principles (regardless of whether considered in a proceeding in equity or at law). 2. The Indenture constitutes a legal, valid and binding obligation of the Issuers, enforceable against the Issuers in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights generally and general equitable principles (regardless of whether considered in a proceeding in equity or at law). This opinion is given as of the date hereof, and I undertake no obligation to advise you after the date hereof of facts or circumstances that come to my attention or changes in laws or regulations that occur which could affect the opinions contained herein. In connection with the opinions rendered herein, I have relied with your consent, as to all matters pertaining to the laws of the State of New York, on the opinion of Clifford Chance Rogers & Wells LLP delivered to the initial purchasers of the Old Notes. This opinion may not be furnished to or relied upon by any person or entity for any purpose without my prior written consent. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to me under the caption "Legal Matters" in the Prospectus that is included in the Registration Statement. Very truly yours, /s/ ROBERT R. VEACH, JR. EX-10.2 9 h84315ex10-2.txt EQUIPMENT LEASE AGREEMENT - DATED 2/9/01 1 EXHIBIT 10.2 EQUIPMENT LEASE AGREEMENT between BRL UNIVERSAL EQUIPMENT 2001 A, L.P., as Lessor and UNIVERSAL COMPRESSION, INC., as Lessee Dated as of February 9 , 2001 -------------------------------------------------- UNIVERSAL COMPRESSION, INC. AS LESSEE OF $427,000,000 OF GAS COMPRESSION EQUIPMENT -------------------------------------------------- TO THE EXTENT, IF ANY, THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. COUNTERPART NO._____ OF _____ SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. 2 TABLE OF CONTENTS
Page ---- 1. Definitions..............................................................................................1 2. Agreement for Leasing of Equipment; Quiet Enjoyment......................................................1 3. Conditions Precedent.....................................................................................1 4. Delivery, Acceptance and Leasing of Equipment............................................................1 5. Term.....................................................................................................2 6. Return of Equipment......................................................................................2 6.1 Redelivery......................................................................................2 6.2 Storage.........................................................................................3 6.3 Timely Redelivery; Deemed Purchase Option.......................................................3 6.4 Specific Performance............................................................................4 7. Payments.................................................................................................4 7.1 Rent Payment....................................................................................4 7.1.1 Semi-Annual Payment....................................................................4 7.1.2 Floating Lease Payment.................................................................4 7.2 Supplemental Payments...........................................................................4 7.3 Method of Payment...............................................................................4 7.4 Notification of Lease Payments..................................................................5 7.5 Prepayments Limited.............................................................................5 8. Net Lease Agreement......................................................................................5 9. Grant of Security Interest; Equipment to be and Remain Personal Property.................................6 10. Use of Equipment; Compliance with Laws...................................................................7 11. Maintenance and Repair of Equipment; Filing of Reports...................................................8 12. Alterations..............................................................................................9 13. Substitutions of Equipment...............................................................................9 14. Appraisals..............................................................................................11 15. Identification Marks....................................................................................11 16. Inspection..............................................................................................11
(i) 3 17. Assignment and Subleasing...............................................................................11 18. Liens...................................................................................................13 19. Loss, Damage or Destruction.............................................................................13 19.1 Risk of Loss, Damage or Destruction............................................................13 19.2 Replacement of Equipment Upon an Event of Loss.................................................13 19.3 Application of Payments Not Relating to an Event of Loss.......................................14 20. Insurance...............................................................................................14 21. NO LESSOR WARRANTIES....................................................................................15 22. Assignment of Manufacturer Warranties...................................................................16 23. Events of Default.......................................................................................16 24. Remedies Upon Default...................................................................................18 25. Lessor's Right to Perform for Lessee....................................................................19 26. Late Charges............................................................................................20 27. Notices.................................................................................................20 28. Lessee's Renewal, Transfer and Early Termination Options; Purchase Obligation...........................20 28.1 Renewal Option.................................................................................20 28.2 Lessee's End of Term Purchase Option...........................................................20 28.3 Third Party Sale or Redelivery of Equipment....................................................21 28.3.1 Notice to Remarket or Return Possession of Equipment..................................21 28.3.2 Remarketing Obligations...............................................................21 28.3.3 Sale of Equipment to Third Party Buyer................................................22 28.4 Lessee's Early Purchase Options and Obligations................................................22 29. End of Term Lease Payment Adjustment....................................................................24 29.1 Third Party Sale of Equipment..................................................................24 29.2 Lessee Payment.................................................................................24 29.3 Lessor Payment.................................................................................25 29.4 Excess Wear Lease Payment Adjustment...........................................................25 30. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL..................................25 31. Miscellaneous...........................................................................................26 32. Registration............................................................................................27 33. Execution and Effectiveness.............................................................................27
(ii) 4
Page ---- EXHIBIT A.........[Form of] Lease Supplement EXHIBIT B.........[Form of] Notice of Substitution
(iii) 5 EQUIPMENT LEASE AGREEMENT dated as of February 9, 2001 (this "Lease Agreement"), between BRL UNIVERSAL EQUIPMENT 2001 A, L.P., a Delaware limited partnership ("Lessor") and UNIVERSAL COMPRESSION, inc., a Texas corporation ("Lessee"). In consideration of the mutual covenants and agreements set forth herein and in the Participation Agreement of even date hereof (the "Participation Agreement") among Lessee, Universal Compression Holdings, Inc., as Guarantor, Lessor, The Bank of New York, not in its individual capacity but for the benefit of Tranche A Noteholders, Bankers Trust Company, and the other financial institutions that may become party thereto, as Tranche B Lenders, BRL Universal Equipment Management, Inc., as Lessor General Partner, Bankers Trust Company as Administrative Agent and Bankers Trust Company as Collateral Agent, the parties hereto agree as follows: 1. Definitions. Unless the context otherwise requires, capitalized terms used herein and not otherwise defined herein shall have meanings set forth or referred to in Appendix A to the Participation Agreement which Appendix A also contains the rules of usage that shall apply hereto. 2. Agreement for Leasing of Equipment; Quiet Enjoyment. Subject to, and upon all of the terms and conditions of this Lease Agreement, Lessor hereby agrees to lease to Lessee and Lessee hereby agrees to lease from Lessor the Items of Equipment for the Term. Lessor agrees that so long as no Lease Event of Default has occurred and is continuing, it shall not take or cause to be taken or authorize any Person to take any action (except for the creation of Collateral Agent Liens), contrary to or interfering with Lessee's or any Sublessee's right to peaceful possession, use and quiet enjoyment of each Item of Equipment without any interference, hindrance, ejection or molestation whatsoever; provided, however, nothing in this Section 2 shall prevent Lessor and its Assignee from exercising their inspection rights in accordance with Section 16. Additionally, during the Term with respect to each Item of Equipment, unless a Lease Event of Default shall exist and Lessee's rights to use such Item of Equipment shall have been terminated pursuant to the terms of this Lease Agreement, Lessee shall, except to the extent otherwise expressly provided in the Operative Documents, be entitled to (i) receive, enjoy, distribute and otherwise dispose of the income, royalties, payments, recoveries and other proceeds with respect to (or included as a part of) such Item without the consent or joinder of Lessor and (ii) otherwise utilize, license, consign, substitute, sublease and maintain such Item in a manner consistent with the provisions of the Operative Documents including, without limitation, of Sections 5, 10, 11, 12, 13, 17 and 22. 3. Conditions Precedent. Lessor shall have no obligation to lease any Item of Equipment to Lessee unless each of the conditions set forth in Section 3 of the Participation Agreement are fulfilled to the satisfaction of, or waived by, Lessor. 4. Delivery, Acceptance and Leasing of Equipment. Lessor shall not be liable to Lessee for any failure or delay in the delivery of any Item of Equipment to Lessee. Forthwith upon delivery of each Item of Equipment to Lessee, Lessee shall evidence its acceptance of such Item of Equipment hereunder and of the condition of such Item of Equipment by executing and 6 delivering to Lessor a Lease Supplement for such Item, dated the Closing Date. THE EXECUTION BY LESSOR AND LESSEE OF A LEASE SUPPLEMENT FOR AN ITEM OF EQUIPMENT SHALL (i) EVIDENCE THAT SUCH ITEM IS LEASED UNDER, AND IS SUBJECT TO ALL OF THE TERMS, PROVISIONS AND CONDITIONS OF, THIS LEASE AGREEMENT, AND (ii) CONSTITUTE LESSEE'S UNCONDITIONAL AND IRREVOCABLE ACCEPTANCE OF SUCH ITEM FOR ALL PURPOSES OF THIS LEASE AGREEMENT. 5. Term. The Term for each Item of Equipment shall commence on the Closing Date, and, unless this Lease Agreement is sooner terminated with respect to such Item of Equipment or all Items of Equipment pursuant to the provisions hereof, shall end on the Termination Date. 6. Return of Equipment. 6.1 Redelivery. (a) On or before the date of the expiration or earlier termination of the Term with respect to each Item of Equipment (unless Lessee has exercised its transfer option with respect thereto pursuant to Section 28.2 or 28.4; or a third party sale thereof acceptable to Lessor is consummated on the Termination Date with respect thereto pursuant to Section 28.3 or Lessee is required to purchase such Item of Equipment), Lessee will, at its expense, dismantle (to the extent necessary to ship such Item of Equipment), surrender and deliver possession of each Item of Equipment to Lessor at the Redelivery Location with (i) a certificate executed by a Responsible Officer of Lessee certifying that (A) Lessee has used best efforts to maintain for each Item of Equipment being redelivered all plans, specifications and operating, maintenance and repair manuals prepared or reviewed by Lessee or any of its Affiliates and (B) such Item of Equipment is in the condition required hereunder, (ii) a copy of an inventory list for each Item and (iii) all then current plans, specifications and operating, maintenance, and repair manuals and logs relating to such Item that have been retained by Lessee or any of its Affiliates, and (iv) with respect to any Item of Equipment which qualifies for or is subject to any manufacturer's maintenance, repair or warranty policy, (A) if such manufacturer is Lessee or an affiliate thereof, Lessee shall cause such manufacturer to deliver to Lessor a statement or certificate that has been signed by an authorized representative of the manufacturer attesting to the availability of such maintenance, repair or warranty policy and (B) if the manufacturer is not Lessee nor an affiliate of Lessee and generally provides its customers upon request a statement or certificate attesting to the availability of such maintenance, repair or warranty policy, then Lessee shall utilize reasonable efforts to obtain from such manufacturer such a statement or certificate. (b) At the time of such return to Lessor, each Item of Equipment (and each part or component thereof) shall (i) meet the original design specifications and operating standards of such Item, (ii) be in as good operating condition, state of repair and appearance as when delivered to Lessee hereunder, and shall not have been subjected to excess wear and tear; provided, that ordinary wear and tear as a result of normal and customary usage is excepted; and provided, further that "ordinary wear and tear" as used herein shall not be construed as permitting any material broken, damaged or missing items or components of any Item of Equipment such that its value, utility, Residual Value or remaining useful life will be reduced, (iii) be in the condition required by Section 11 and with respect to any Item of Equipment that qualifies for or -2- 7 is subject to any manufacturer's maintenance, repair or warranty policy, such Item shall have been maintained and repaired in a manner consistent with such policy, (iv) have no missing or damaged components such that its value, utility, Residual Value or remaining useful life will be reduced, (v) comply with all laws and rules referred to in Sections 10 and 11, (vi) have attached or affixed thereto any addition, modification or improvement considered an accession thereto as provided in Section 12 and (vii) have had removed therefrom in a workmanlike manner, (x) at Lessor's option, any addition, modification or improvement which, as provided in Section 12, is owned by Lessee, and (y) any insignia or marking, and each Item of Equipment (and each part or component thereof), shall be free and clear of all Liens, other than Lessor Liens and Collateral Agent Liens. (c) All operating licenses and agreements pertinent to the operation of each Item of Equipment, (other than non-transferable licenses to use software), that are capable of being transferred, shall be fully transferable upon the expiration of the Term to Lessor or its designee. Lessee shall transfer any such transferable license or agreement upon return of the Item of Equipment at Lessee's cost and expense. (d) Each Item of Equipment that qualifies for or is subject to any manufacturer's maintenance, repair or warranty policy must be properly deinstalled in a manner consistent with such policy and in such a way that the Item remains eligible for or subject to such policy, as appropriate, and Lessee shall provide a certificate from a Responsible Officer certifying that each Item of Equipment was deinstalled in a manner consistent with such policy and remains eligible for or subject to such policy, as appropriate. Upon deinstallation, each Item of Equipment shall be secured properly for air or overland or other suitable transport. Each Item of Equipment shall be delivered to the Redelivery Location in the manner in which is customary for such Item of Equipment. (e) Lessee shall, at its own expense, make repairs necessary to restore each Item of Equipment to the condition required by this Section 6.1 prior to redelivery hereunder. (f) Upon redelivery, Lessee shall provide any additional documentation reasonably requested by Lessor and reasonably available to Lessee, at Lessee's cost, relating to the redelivery of or Lessee's interest in each Item of Equipment. 6.2 Storage. For the purpose of delivering possession of any Item of Equipment to Lessor as above required, Lessee shall at its own cost, expense and risk cause each such Item of Equipment to be insured in accordance with Section 20 and stored at the Redelivery Location identified by Lessor at the risk of Lessee without charge to Lessor for insurance, rent or storage until all such Items of Equipment have been sold, leased or otherwise disposed of by Lessor; provided, however, Lessee's obligations under this Section 6.2 shall terminate with respect to each Item of Equipment one (1) year after the required date of delivery of such Item to the Redelivery Location in the condition required by Section 6.1. 6.3 Timely Redelivery; Deemed Purchase Option. If Lessee has not timely satisfied the obligations and conditions set forth in Section 6.1 with respect to the redelivery of each and every Item of Equipment, then Lessee shall be deemed to have exercised the purchase -3- 8 option set forth in Section 28.2 and Lessee shall pay to Lessor the Purchase Option Amount with respect to all Items of Equipment. 6.4 Specific Performance. The provisions of this Section 6 are of the essence of this Lease Agreement, and the parties hereto agree that Lessor shall be entitled to specific performance of the covenants of Lessee set forth in this Section 6. 7. Payments. 7.1 Rent Payment. 7.1.1 Semi-Annual Payment. Lessee hereby agrees to pay Lessor for each Item of Equipment in arrears on each Semi-Annual Payment Date for such Item during the Term, an amount equal to the interest accrued on the Tranche A Component for such Item under the terms of the Tranche A Notes (and if the Tranche A Notes have been paid or Lessor's obligations thereunder otherwise discharged prior to the Termination Date, the amount of interest that would have accrued had the Tranche A Notes not been so paid or otherwise discharged). Amounts due on a Semi-Annual Payment Date under this Section 7.1.1 shall be calculated on a 30/360 day basis. 7.1.2 Floating Lease Payment. Lessee hereby agrees to pay Lessor for each Item of Equipment in arrears on each Floating Payment Date during the Term, in an amount equal to the sum of (i) the interest accrued on the Tranche B Component for such Item under the terms of the Tranche B Loan Agreement (and if the Tranche B Loans have been repaid or Lessor's obligations thereunder otherwise discharged prior to the Termination Date, the amount of interest that would have accrued had the Tranche B Loans not been so paid or otherwise discharged) (ii) the Equity Yield accrued on the Equity Component for such Item in accordance with the terms of the Limited Partnership Agreement and (iii) an amount equal to yield accrued on the Acquisition Cost for such Item at the rate per annum set forth in the Lessor Margin Letter. Amounts due on a Floating Payment Date under this Section 7.1.2 shall be calculated for each day (from and including the first day of such Floating Payment Period to but excluding the last day of such Floating Payment Period) elapsed during the Floating Payment Period then ending. 7.2 Supplemental Payments. Each Supplemental Payment shall be due and Lessee agrees to pay to Lessor, or to whomever shall be entitled thereto as expressly provided herein or in the other Operative Documents, all Supplemental Payments which are due from Lessee, when such payments are specified to be paid pursuant to the terms of the Operative Documents, or if not so specified, within five (5) Business Days of written demand therefor. 7.3 Method of Payment. All payments of Lease Payments and Supplemental Payments required to be made by Lessee to Lessor (or, in the case of Supplemental Payments, any other Person entitled thereto) shall be made in lawful money of the United States of America in immediately available funds no later than 1:00 p.m. (New York time) on the date due to such account as shall be designated by Lessor or any Assignee. All payments received after 1:00 p.m. (New York time) shall be deemed received on the next Business Day. Subject to the assignment set forth in Section 7 of the Participation Agreement, all payments of Lease Payments required to -4- 9 be made by Lessee to Lessor hereunder shall be paid at the address or bank account as Lessor may hereafter designate in writing to Lessee no less than three (3) Business Day before the date such payments are due. 7.4 Notification of Lease Payments. At least two (2) Business Days before each Floating Payment Date, Lessor or its designee shall advise Lessee of the total amount of any Floating Lease Payment due on such Payment Date. Lessor hereby designates Administrative Agent to so advise Lessee for so long as the Tranche B Loans remain outstanding. No failure on the part of Lessor or its designee to provide a notice under this Section 7.4 shall release Lessee of any obligation to make a payment in accordance herewith; provided, however, no Lease Default shall occur with respect to any Floating Lease Payment and no interest at the Overdue Rate shall accrue with respect to any non-payment of such amount until the later of the date such payment is due and the date two (2) Business Days after such notice is given. 7.5 Prepayments Limited. Except as may otherwise be provided in this Lease Agreement, no Lease Payments or portion thereof may be prepaid. 8. Net Lease Agreement. This Lease Agreement is a net lease agreement. Lessee acknowledges and agrees that its obligations hereunder, including, without limitation, its obligations to pay Lease Payments and all Supplemental Payments payable hereunder, shall be unconditional and irrevocable under any and all circumstances, shall not be subject to cancellation, termination, modification or repudiation by Lessee, and shall be paid and performed by Lessee (with respect to payments under Sections 7.1.1, 28.2, 28.4 and 29.2, without notice or demand and with respect to any Floating Lease Payment or payment under Section 29.1 without demand) and without any abatement, reduction, diminution, setoff, defense (other than prior payment), counterclaim or recoupment whatsoever, including, without limitation, any abatement, reduction, diminution, setoff, defense (other than prior payment), counterclaim, withholding or recoupment due or alleged to be due to, or by reason of, any past, present or future claims which Lessee may have against Lessor, Indenture Trustee, any Tranche A Noteholder, any Tranche B Lender, any Limited Partner, Lessor General Partner, Collateral Agent, Administrative Agent, any Assignee, any sublessee or assignee of Lessee, any manufacturer or supplier of any Item of Equipment or any part thereof, or any other Person for any reason whatsoever, or any defect in any Item of Equipment or any part thereof, or the condition, design, operation or fitness for use thereof, any damage to, or any loss or destruction of, any Item of Equipment or any part thereof, or any Liens or rights of others with respect to any Item of Equipment or any part thereof, or any default or failure to pay by any sublessee or assignee of Lessee, or any prohibition or interruption of or other restriction against Lessee's use, operation, possession, maintenance, insurance, improvement or return of any Item of Equipment thereof, for any reason whatsoever, or any interference with such use, operation or possession by any Person, or any default by Lessor in the performance of any of its obligations herein contained, or any other indebtedness or liability, howsoever and whenever arising, of Lessor, Indenture Trustee, any Tranche A Noteholder, any Tranche B Lender, any Limited Partner, Lessor General Partner, Collateral Agent, Administrative Agent, any Assignee, any sublessee or assignee of -5- 10 Lessee, any other Person, or by reason of insolvency, bankruptcy or similar proceedings by or against Lessor, Indenture Trustee, any Tranche A Noteholder, any Tranche B Lender, any Limited Partner, Lessor General Partner, Collateral Agent, Administrative Agent, any Assignee, Lessee, any sublessee or assignee of Lessee, or any other Person, or for any other reason whatsoever, whether similar or dissimilar to any of the foregoing, any present or future laws to the contrary notwithstanding; it being the intention of the parties hereto that all Lease Payments and Supplemental Payments payable by Lessee shall continue to be payable in all events and in the manner and at the times herein provided, unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Lease Agreement. Nothing contained in this Section 8 shall (i) affect any claim, action or right that Lessee may have against Lessor or any other Person, including pursuant to Section 2 nor (ii) be considered as (x) a guaranty of the fair market value or useful life of any Item upon the commencement, expiration or termination of the Term with respect to an Item, (y) a prohibition of assertion of any claim against any manufacturer, supplier, dealer, vendor, contractor, subcontractor or installer with respect to any Item or any part thereof or (z) a waiver by Lessee of any of its express rights under any of the Operative Documents or of its right to assert and sue upon any claims it may have against any Person in one or more separate actions. 9. Grant of Security Interest; Equipment to be and Remain Personal Property. This Lease Agreement is a financing agreement intended as security. Lessee hereby grants, bargains, assigns, transfers, conveys and pledges to Lessor a security interest in and Lien upon all of its rights, title and interest in, to and under the Equipment, the subleases related to such Equipment, Lessee's interest in any bill of sale and in each manufacturer's, vendor's or dealer's warranty for the Equipment, and all proceeds thereof, including, without limitation, all rentals, income and profits in respect of the Items of Equipment, whether under such subleases or otherwise, all credits granted by any manufacturer, vendor or dealer with respect to the return of any Item of Equipment and the proceeds of any insurance payable with respect to the Items of Equipment (the "Lessee Collateral") as collateral security for the payment and performance by Lessee of obligations owed to Lessor under the Operative Documents. For each Item of Equipment, Lessee will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to Lessor from time to time such confirmatory assignments, conveyances, financing and continuation statements, transfer endorsements, powers of attorney, notes, reports and other assurances or instruments and take such further actions which Lessor or Assignee may reasonably request to perfect, preserve or protect Lessor's security interest granted hereunder or which Lessor reasonably deems necessary or advisable in order to obtain the full benefits of the Liens created or intended to be created hereunder, and will take such other actions reasonably requested by Lessor or Assignee to effectuate the intent of the Operative Documents. To the extent permitted by Applicable Law, Lessee authorizes Lessor and Assignee to file any such financing and continuation statements without the signature of Lessee. Lessee will pay all applicable filing fees and related expenses incurred in accordance with this Section 9. Within the six-month period preceding the fifth anniversary of the filing of any UCC personal property financing statements, Lessee will provide to Lessor continuation statements with respect to the UCC financing statements filed in connection herewith, will file the same in accordance with Applicable Law, and promptly upon such filing will provide Lessor with written evidence thereof. Lessee irrevocably authorizes Lessor and does hereby make, constitute and appoint Lessor and any officer of Lessor, with full power of substitution, as Lessee's true and lawful attorney-in-fact, with power, in its own name or in the name of Lessee, to endorse any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of Lessee Collateral that may -6- 11 come into possession of Lessor; to sign and endorse any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to Lessee Collateral; to pay or discharge Taxes, Liens, security interests or other encumbrances at any time levied or placed on or threatened against Lessee Collateral; to demand, collect, receipt for, compromise, settle and sue for moneys due in respect of Lessee Collateral; and generally, to do, at Lessor's option and at Lessee's expense, at any time, or from time to time, all acts and things which Lessor deems necessary to protect, preserve and realize upon Lessee's Collateral and Lessor's security interests therein and in order to effect the intent of the Operative Documents all as fully and effectually as Lessee might or could do; and Lessee hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof; provided, however that Lessor agrees not to exercise any such power unless a Lease Event of Default has occurred and is continuing. This power of attorney shall be coupled with an interest and irrevocable for the term of this Agreement and thereafter as long as any of the obligations of Lessee under any Operative Documents shall be outstanding. The powers conferred on Lessor hereunder are solely to protect its interest in Lessee Collateral and shall not impose any duty upon Lessor to exercise any such powers. Lessor shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its partners nor the officers, directors or employees of the Lessor General Partner shall be responsible to Lessee for any act or failure to act, except for its own gross negligence or willful misconduct. It is the intention and understanding of both Lessor and Lessee, that Lessee shall take all such actions as may be required to assure, that the Equipment shall be and at all times remain personal property, notwithstanding the manner in which the Equipment may be attached or affixed to realty. 10. Use of Equipment; Compliance with Laws. (a) Lessee agrees that each Item of Equipment will be used and operated in compliance with any and all insurance policy terms, conditions and provisions referenced in the Operative Documents and in all material respects with all statutes, laws, ordinances, rules and regulations of any federal, national, state or local governmental body, agency or authority applicable to the use and operation of such Item of Equipment, including, without limitation, environmental, noise and pollution laws (including notifications and reports), and that each Item of Equipment will be used and operated solely in the manner for which it was intended and in accordance with the license or certificate, if any, provided by the manufacturer thereof. (b) Lessee agrees that no Item of Equipment shall be used by Lessee other than in the subleasing of such Item to Lessee's customers. (c) Lessee agrees that no Item of Equipment shall be used or located at a location other than a State within the United States; provided however an Item of Equipment may be used or located in a United States territory if a perfected first priority security interest can be created with respect to such Item by the filing of Financing Statements. -7- 12 (d) Lessee shall use reasonable precautions to prevent loss or damage to each Item of Equipment from fire and other hazards. Lessee shall not permit any Item of Equipment to be moved from its location as of the Closing Date therefor unless it has, at its own expense, made, executed, endorsed, acknowledged, filed and/or delivered to Lessor such confirmatory assignments, conveyances, financing and continuation statements, transfer endorsements, or other assurances or instruments necessary to perfect, preserve and protect Lessor's security interest in such Item of Equipment. (e) Lessee shall not permit any Item of Equipment to be used in any unlawful trade or in any manner that would violate in any material respect any law that would expose such Item of Equipment to penalty, forfeiture or capture. (f) Lessee shall not attach or incorporate any Item of Equipment to or in any other item of equipment or other personal property or to or in any real property in a manner that could give rise to the assertion of any Lien on such Item of Equipment by reason of such attachment or the assertion of a claim that such Item of Equipment has become a fixture and is subject to a Lien or claim of ownership in favor of a third party. 11. Maintenance and Repair of Equipment; Filing of Reports. (a) Lessee, at its sole cost and expense, shall maintain (or caused to be maintained) each Item of Equipment (i) in a manner consistent with the Lessee Maintenance Practices, so as to keep each Item in good condition (ordinary wear and tear excepted), (ii) in all material respects in compliance with Applicable Law, (iii) in compliance with the manufacturer's maintenance standards and procedures, (iv) in all respects in compliance with the insurance applicable to such Items of Equipment and subject, however, to the provisions of Section 19 with respect to Loss, Damage or Destruction and (v) in compliance in all material respects with environmental laws. (b) Lessee at its sole cost and expense shall maintain all records, logs and other materials required by any Governmental Entity having jurisdiction over any Item of Equipment or Lessee to be maintained in respect of such Item of Equipment. (c) Lessee shall not change the Lessee Maintenance Practices in any manner that would diminish the value or Residual Value of any Item of Equipment in any material respect. (d) Lessee hereby waives any right now or hereafter conferred by law to make repairs on the Equipment at the expense of Lessor. (e) Lessee agrees to prepare and deliver to Lessor and any Assignee within a reasonable time prior to the required date of filing (or, to the extent permissible, file on behalf of Lessor and any Assignee) any and all reports (other than income tax returns) to be filed by Lessor or any Assignee with any federal, national, state or other regulatory authority by reason of the ownership by Lessor or any Assignee of any Item of Equipment or the leasing thereof to Lessee to the extent any such reports are required because of the nature of the Equipment. -8- 13 12. Alterations. (a) Except as required or permitted by the provisions of this Section 12, Lessee shall not modify an Item of Equipment without the prior written authority and approval of Lessor. (b) In case any Item of Equipment (or any equipment, part or appliance therein) is required to be altered, added to, replaced or modified in order to comply with any insurance policies required pursuant to this Lease Agreement or Applicable Law ("Required Alteration"), Lessee agrees to make such Required Alteration at its own expense and the same shall, without further act, immediately be and become the property of, and title shall vest in, Lessor free and clear of all Liens other than Lessor Liens and Permitted Liens and subject to the terms of this Lease Agreement. Any parts installed or replacements made by Lessee upon any Item of Equipment pursuant to its obligation to maintain and keep the Equipment in good and serviceable operating condition and repair under Section 11 shall be considered accessions to such Item of Equipment and ownership thereof or security interest therein shall be immediately vested in Lessor. (c) Lessee may make any optional renovation, improvement, addition, or alteration to any Item of Equipment ("Optional Alteration") provided that with respect to each Item of Equipment such Optional Alteration does not impair the value, use or remaining useful life of such Item of Equipment. In the event an Optional Alteration is readily removable without impairing the value, use or remaining useful life of the Item of Equipment, and is not a part, item of equipment or appliance which replaces any part, item of equipment or appliance originally incorporated or installed in or attached to such Item of Equipment on the Closing Date or any part, item of equipment or appliance in replacement of or substitution for any such original part, item of equipment or appliance, any such Optional Alteration shall be and remain the property of Lessee. To the extent such Optional Alteration is not readily removable without impairing the value, use or remaining useful life of an Item of Equipment to which such Optional Alteration has been made, or is a part, item of equipment or appliance which replaces any part, item of equipment or appliance originally incorporated or installed in or attached to such Item of Equipment on the Closing Date therefor or any part, item of equipment or appliance in replacement of or substitution for any such original part, item of equipment or appliance, the same shall, without further act, immediately be and become the property of, and title shall vest in, Lessor free and clear of all Liens other than Lessor Liens and Permitted Liens and shall be subject to the terms of this Lease Agreement. 13. Substitutions of Equipment. (a) Notwithstanding any provision of any Operative Document to the contrary and subject to the provisions of this Section 13, Lessee may at any time, so long as no Lease Event of Default has occurred and is continuing hereunder, substitute an Item or Items of Equipment ("Replaced Equipment") with natural gas compressors ("Replacement Equipment") that (i) as of the date Lessee delivers the Notice of Substitution defined below in Section 13(b) (the "Substitution Date") has a Date of Manufacture or a Date of Overhaul no earlier than three (3) years prior to the Substitution Date, (ii) is not subject to any Liens other than Permitted Liens or Lessor Liens (iii) is of a Similar Type, and (iv) has an estimated fair market value as of the -9- 14 Substitution Date and an estimated Residual Value in each case when aggregated with the estimated fair market values and the estimated Residual Values, respectively, equal to, or in excess of, the aggregate Acquisition Costs and the aggregate Residual Values, respectively, of the Replaced Equipment; provided, however, the condition in clause (i) need not be satisfied if (x) Lessee shall have delivered to Lessor and Assignee with the Notice of Substitution an Appraisal confirming satisfaction of the condition in clause (iii) or (y) as of the Substitution Date, the aggregate Acquisition Costs for all Replacement Equipment that does not satisfy clause (i) or for which no Appraisal has been delivered does not exceed, from time to time, $3,000,000; and provided further, that after any such substitution, the Items of Equipment as a group are representative of the types and horse power of natural gas compressors at the time owned, managed or leased by Lessee. (b) On the first Business Day of each week after Lessee has, in the immediately prior calendar week, substituted Replacement Equipment for Replaced Equipment, Lessee shall provide Lessor with written notice thereof ("Notice of Substitution") in the form of Exhibit B hereto which Notice of Substitution shall have attached thereto one or more Bills of Sale representing the transfer from the seller thereof to Lessor for a purchase price (the "Acquisition Cost" identified therefor on such Notice of Substitution) which purchase price, when aggregated with the purchase prices of all other Replacement Equipment being transferred to Lessor shall equal the aggregate Acquisition Costs of the Replaced Equipment. Upon substitution of an Item of Equipment under this Section 13 all rights and interests of Lessor in such Replaced Equipment shall automatically cease and vest in Lessee. Lessor will at the request and cost of Lessee furnish to or at the direction of Lessee, a bill of sale without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens) and otherwise in form and substance reasonably satisfactory to Lessee and Lessor, evidencing the transfer to or at the direction of Lessee, of all of Lessor's right, title and interest in and to such Replaced Item(s), "as-is", "where-is". The purchase price for such Replacement Equipment shall be deemed paid by Lessor by virtue of its reconveyance to Lessee or its designee of the Replaced Equipment and no further action shall be required between Lessee or the seller of such Replacement Equipment on the one hand and Lessor on the other hand to convey the Replacement Equipment to Lessor or between Lessee or its designated purchaser of the Replaced Equipment on the one hand and Lessor on the other hand to convey the Replaced Equipment to Lessee or its designee, provided that Lessor shall execute or cause Collateral Agent to execute any documents reasonably requested by Lessee (at Lessee's sole cost and expense) to evidence the release of any Liens created pursuant to the Operative Documents with respect to such Replaced Equipment. Upon the occurrence of such events, Replacement Equipment shall be deemed to be Equipment as of the date of the related Notice of Substitution for all purposes set forth in this Lease Agreement and the other Operative Documents and that the Acquisition Cost for such Replacement Equipment shall be equal to the Acquisition Cost set forth therefor on the Notice of Substitution. (c) In the event that, upon its receipt of a Notice of Substitution and the related Bills of Sale for any Replacement Equipment, Lessor shall reasonably challenge whether the aggregates of the fair market values or Residual Values of said Replacement Equipment are equal to, or in excess of, the aggregates of the Acquisition Costs or Residual Values, respectively, of the Replaced Equipment, Lessee shall either within thirty (30) days of Lessor's demand (i) revise the previously delivered Notice of Substitution and related bills of sale so as to -10- 15 replace or supplement said Replacement Equipment with other or additional Replacement Equipment that Lessor reasonably believes satisfies the requirements of this Section 13, or (ii) within thirty (30) days of Lessor's demand, provide Lessor with an Appraisal confirming that the aggregate fair market values and Residual Values of the Replacement Equipment are equal to or greater than the aggregate Acquisition Costs and Residual Values, respectively, of the Replaced Equipment. 14. Appraisals. Lessee shall at its own expense cause an Appraisal of each Item of Equipment for which no Appraisal has been previously delivered (the date of such Appraisal, an "Appraisal Date") upon the earliest of: (i) the date eighteen (18) months after the last Appraisal Date (or if no Appraisal Date has occurred, after the first date on which Replacement Equipment is made subject to this Lease) and (ii) the first date on which there is subject to this Lease, Replacement Equipment with aggregate Acquisition Costs in excess of $15,000,000 and for which no Appraisal has been previously delivered. 15. Identification Marks. Lessee shall use its best efforts to affix within ninety (90) days of the Closing Date and shall thereafter keep and maintain, prominently displayed on each Item of Equipment, a plaque or label with the words "OWNED BY BRL UNIVERSAL EQUIPMENT 2001 A, L.P., AND SUBJECT TO A SECURITY INTEREST IN FAVOR OF BANKERS TRUST COMPANY AS COLLATERAL AGENT FOR NOTEHOLDERS OF AND LENDERS TO BRL UNIVERSAL EQUIPMENT 2001 A, L.P." or other appropriate words designated by Lessor, with appropriate changes thereof and additions thereto as from time to time may be required by law in order to protect Lessor's and any Assignee's interests in such Item. Lessee shall not allow the name of any Person, to be placed upon any Item of Equipment as a designation that might be interpreted as indicating a claim of ownership thereto or a security interest therein by any Person other than Lessor or any Assignee. 16. Inspection. Lessee shall permit Lessor (and any designee or authorized representatives thereof) to make inquiries of Lessee (and Lessee shall respond to such inquiries) with respect to matters relevant to the Equipment and to inspect any Item of Equipment, at such Person's expense (unless there is a Lease Event of Default continuing, in which event such inspection shall be at the expense of Lessee), including the cost and expense for such Person's transportation to and from any site on which an Item is located, and under conditions reasonably acceptable to Lessee, and Lessee will make available the books and records of Lessee related thereto (including, but not limited to, all Subleases) and subject to Section 17(b) make copies and extracts therefrom, and will make available officers and the independent public accountants of Lessee with respect to such matters, all upon reasonable notice and at such reasonable times during normal business hours and as may be reasonably requested. 17. Assignment and Subleasing. (a) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS SECTION 17, LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, LEASE ANY ITEM OF EQUIPMENT OR ASSIGN, TRANSFER OR ENCUMBER ITS RIGHTS, INTERESTS OR OBLIGATIONS HEREUNDER. ANY ATTEMPTED LEASE IN VIOLATION HEREOF AND ANY ASSIGNMENT, TRANSFER OR ENCUMBERING BY -11- 16 LESSEE OF ITS RIGHTS, INTERESTS OR OBLIGATIONS HEREUNDER SHALL BE NULL AND VOID. So long as no Lease Event of Default shall have occurred and be continuing, Lessee may, without the consent of Lessor, agree to sublease, agree to extend any sublease of, or agree to transfer in any other manner expressly provided for under this Agreement one or more Items of Equipment to any other Person (a "Sublessee"); provided that such Items of Equipment (whether one or more) are maintained in the United States in accordance with Section 10(c); and provided further, that any sublease entered into or extended pursuant to this Section 17(a) shall satisfy each of the following conditions (a "Sublease"): (i) such Sublease shall expire before, or automatically expire on or before, the expiration of the Term; unless at the time such Sublease is made, Lessee has elected to exercise its purchase option under Section 28.2 and no Lease Event of Default shall have occurred and is continuing; (ii) such Sublease shall be in writing; shall identify the Item of Equipment by manufacturer, model and unit number; shall expressly prohibit any further assignment, sublease or transfer by Sublessee of any rights or interests in the Equipment; (iii) such Sublease may contain a purchase option in favor of the Sublessee or any other provision pursuant to which the Sublessee may obtain record or beneficial title to the Equipment leased thereunder from Lessee, provided upon the exercise of such purchase option, Lessee substitutes new Equipment hereunder in accordance with Section 13; (iv) such Sublease shall prohibit the Sublessee from making any alterations or modifications to the Equipment that would violate this Lease Agreement; (v) such Sublease shall require the Sublessee (i) to maintain the Equipment in accordance with Sections 10 and 11 or shall require Lessee to maintain the Equipment and (ii) to engage in activities with the Equipment in a manner consistent with the Equipment's intended purpose and in accordance with the Equipment's specifications; and (vi) such Sublease and all other Subleases at the time in effect taken as a whole shall be no less favorable with respect to their terms or the creditworthiness of their sublessees than the subleases of all other similar equipment owned, leased or managed by Lessee. For so long as a Lease Event of Default has occurred and is continuing Lessee shall not agree to sublease or agree to extend any sublease of any Item of Equipment without the consent of Lessor; provided, however, if such Lease Event of Default is solely the result of a breach of a covenant or of covenants to deliver financial or other information to Lessor or Administrative Agent or to use, maintain or repair the Equipment in accordance with Sections 10 and 11, (a "Limited Event of Default"), Lessee may agree to sublease any Item of Equipment in accordance with the requirements set forth in clauses (i) through (vi) of Section 17(a), provided the sublease therefor is expressly subject and subordinate to Lessor's -12- 17 and any Assignee's interests in such Item of Equipment. If a Limited Event of Default is subsequently cured in accordance with the terms of this Lease Agreement, Lessee may cure any further Lease Default or Lease Event of Default arising from any failure to make any Sublease expressly subject to and subordinate to Lessor's and any Assignee's interest by delivering to Lessor and Administrative Agent a copy of such Sublease and certifying that it is no less favorable with respect to its terms or the creditworthiness of its sublessee than the subleases (or leases) to customers of Lessee of the other natural gas compressors owned or managed or leased by Lessee, taken as a whole. (b) Upon request by Lessor, Lessee shall promptly deliver to Lessor and Administrative Agent (x) a schedule of all subleases of the Equipment, including Subleases certified by a Responsible Officer of Lessee and (y) for so long as a Lease Default has occurred and is continuing, copies of each sublease of an Item of Equipment (including any Sublease) at the time in effect. No such subleasing by Lessee will reduce or affect any of the obligations of Lessee hereunder or the rights of Lessor (and any Assignee) hereunder, and all of the obligations of Lessee hereunder shall be and remain primary and shall continue in full force and effect as the obligations of a principal and not of a guarantor or surety. (c) Lessee shall not discriminate against the Items of Equipment when determining which of natural gas compressors owned, managed or leased by Lessee that it will lease to its customers. 18. Liens. Lessee shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to (i) any Item of Equipment or any part thereof or Lessor's interest therein (ii) any proceeds of any Item of Equipment, (iii) any insurances required hereunder, (iv) any sublease of any Item of Equipment or (v) this Lease Agreement or any of Lessor's interests hereunder, except Permitted Liens and Lessor Liens. Lessee, at its own expense, will promptly pay, satisfy and otherwise take such actions as may be necessary to keep this Lease Agreement and each Item of Equipment free and clear of, and to duly discharge or eliminate or bond in a manner satisfactory to Lessor and any Assignee, any Lien other than Permitted Liens and Lessor Liens if the same shall arise at any time. Lessee will notify Lessor and any Assignee in writing promptly upon a Responsible Officer of Lessee obtaining knowledge of any Lien other than Permitted Liens and Lessor Liens that shall attach to the Equipment or any Item of Equipment, and of the full particulars thereof. 19. Loss, Damage or Destruction. 19.1 Risk of Loss, Damage or Destruction. Lessee hereby assumes all risk of loss, damage, theft, taking, destruction, confiscation, requisition or commandeering, partial or complete, of or to each Item of Equipment ("Loss, Damage or Destruction"), however caused or occasioned except for Loss, Damage or Destruction caused by the gross negligence or willful misconduct of Lessor, such risk to be borne by Lessee with respect to each Item of Equipment from the date of this Lease Agreement, and continuing until (i) such Item of Equipment has been returned to Lessor in accordance with the provisions of Section 6, (ii) the rights and interests in such Item of Equipment have been transferred to Lessee in accordance with the provisions of Section 28.2 or 28.4 or (iii) such Item of Equipment has been sold in accordance with Section 28.3. 19.2 Replacement of Equipment Upon an Event of Loss. If an Event of Loss occurs with respect to an Item of Equipment during the Term thereof, Lessee shall give Lessor -13- 18 and any Assignee prompt written notice of such loss and shall replace such Item within sixty (60) days of the date of the Event of Loss subject to and in accordance with Section 13. Any payments (including without limitation, insurance proceeds) received at any time by Lessor from any Government Entity, insurer or other Person as a result of an occurrence of such Event of Loss, provided no Lease Event of Default shall have occurred and be continuing, shall be paid to Lessee upon substitution of such Item of Equipment in accordance with Section 13, and if a Lease Event of Default shall have occurred and is continuing, shall be paid to and retained by Lessor as security for Lessee's obligations under the Operative Documents until such time as no Lease Event of Default is continuing. 19.3 Application of Payments Not Relating to an Event of Loss. Subject to Section 20(d), any payments (including, without limitation, insurance proceeds) received at any time by Lessor or Lessee from any Governmental Entity, insurer or other Person with respect to any loss or damage to any Item or Items of Equipment not constituting an Event of Loss, will be applied directly in payment of repairs or for replacement of property in accordance with the provisions of Sections 11 and 12, if not already paid by Lessee, or if already paid by Lessee and no Lease Event of Default shall have occurred and be continuing, shall be applied to reimburse Lessee for such payment, and any balance remaining after compliance with the provisions of said Sections with respect to such loss or damage shall be retained by Lessee. If any Lease Event of Default shall have occurred and be continuing, all payments hereunder shall be paid to and retained by Lessor as security for Lessee's obligations under the Operative Documents until such time as no Lease Event of Default is continuing. 20. Insurance. (a) Lessee will cause to be carried and maintained, at its sole expense, with respect to each Item of Equipment at all times during the Term thereof and for the geographic area in which such Item is at any time located and until such Item of Equipment has been returned to Lessor pursuant to Section 6, the rights and interests therein have been transferred to Lessee pursuant to Section 28.2 or 28.4 or sold to a third party pursuant to Section 28.3 physical damage insurance (including theft and collision insurance) insuring against risks of physical loss or damage to the Equipment ("Property Insurance") in an amount no less than the aggregate Acquisition Costs for all Items of Equipment per occurrence except for Lessee's customary sub-limits for certain perils, and insurance, and liability insurance in the amount of $50,000,000 per occurrence against liability for bodily injury, death and property damage resulting from the use and operation of the Equipment (including sudden and accidental environmental pollution coverage) ("Liability Insurance") of the types and amounts of coverage equal to or greater than the insurance coverage Lessee carries on any other similar equipment owned, managed or leased by Lessee. Property Insurance shall not have deductibles, in the aggregate, in excess of $2,500,000 per annum and the Liability Insurance shall have no deductibles. The policies of insurance required under this Section 20 shall be valid and enforceable policies issued by insurers having an A.M. Best Company rating of "A-" or better or otherwise acceptable to Administrative Agent and shall provide coverage with respect to incidents occurring anywhere in the United States. In the event that any of such Liability Insurance policies for an Item of Equipment shall now or hereafter provide coverage on a "claims-made" basis, Lessee shall continue to maintain such policies in -14- 19 effect for a period of not less than three (3) years after the expiration of the Term of the last Item of Equipment financed hereunder. (b) Such Property Insurance policy or policies will name Lessee, Lessor and any Assignee as the loss payees. Such Liability Insurance policy or policies will name Lessor, Lessor General Partner, Indenture Trustee, each Tranche B Lender, Administrative Agent, Collateral Agent and each of their shareholders, partners, directors, officers, employees, agents and servants (each an "Additional Insured") as an additional insured. Each such policy shall provide that (i) the insurers waive any claim for premiums and any right of subrogation or setoff against Additional Insureds, (ii) it may not be invalidated against any Additional Insured by reason of any violation of a condition or breach of warranty of the policies or the application therefor by Lessee, (iii) it may be canceled or materially altered or reduced in coverage by the insurer only after no less than ten (10) days' prior written notice from Lessee's insurance broker to Lessor and Administrative Agent, and (iv) the insurer will give written notice to Lessor and Administrative Agent in the event of nonpayment of premium by Lessee when due. (c) On the Closing Date, and thereafter not less than three (3) days prior to the expiration dates of any expiring policies required under this Section 20, Lessee shall furnish Lessor and Administrative Agent with certificates of the insurance or replacement insurance coverage required by this Section 20. (d) During the Term, unless a Lease Default has occurred and be continuing, all proceeds of Property Insurance on account of any damage to or destruction to the Equipment in an amount less than $1,000,000 shall be paid over to Lessee or as it may direct and any such proceeds equal to or greater than $1,000,000 shall be paid over to Lessor to be applied in accordance with Section 19.3. In the event that a Lease Event of Default shall have occurred and be continuing all such proceeds shall be paid to Lessor to be applied in accordance with Section 19.2 or 19.3 as the case may be. 21. NO LESSOR WARRANTIES. LESSOR HEREBY LEASES THE EQUIPMENT TO LESSEE AS-IS WHERE-IS, WITH ALL FAULTS, IF ANY, AND IN WHATEVER CONDITION IT MAY BE IN, AND EXPRESSLY DISCLAIMS AND MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESSED OR IMPLIED, AS TO THE DESIGN, CONDITION, QUALITY, CAPACITY, MERCHANTABILITY, DURABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF, OR ANY OTHER MATTER CONCERNING, THE EQUIPMENT. LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR, ANY PARTNER OF LESSOR OR ANY AFFILIATE THEREOF OR ANY OF THEIR RESPECTIVE SHAREHOLDERS, PARTNERS, OFFICERS, DIRECTORS, EMPLOYEES, SERVANTS OR AGENT FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE EQUIPMENT OR BY LESSEE'S LOSS OF USE THEREOF FOR ANY REASON WHATSOEVER, INCLUDING COMPLIANCE WITH ENVIRONMENTAL LAWS (WHICH ITEMS OF EQUIPMENT, LESSEE ACKNOWLEDGES, WERE SELECTED BY LESSEE ON THE BASIS OF ITS OWN JUDGMENT WITHOUT RELIANCE ON ANY STATEMENTS, REPRESENTATIONS, GUARANTIES OR -15- 20 WARRANTIES MADE BY LESSOR, ANY PARTNER OF LESSOR, OR ANY AFFILIATE THEREOF OR ANY OF THEIR RESPECTIVE SHAREHOLDERS, PARTNERS, OFFICERS, DIRECTORS, EMPLOYEES, SERVANTS OR AGENTS. 22. Assignment of Manufacturer Warranties. So long and only so long as a Lease Event of Default shall not have occurred and be continuing, and so long and only so long as an Item of Equipment shall be subject to this Lease Agreement and Lessee shall be entitled to possession of such Item hereunder, Lessor authorizes Lessee, at Lessee's expense, to assert for Lessor's account, and assigns to Lessee all rights and powers of Lessor under any manufacturer's, vendor's or dealer's warranty on the Equipment or any part thereof and Lessor agrees to use reasonable efforts at Lessee's expense to assist Lessee in obtaining the benefits of such warranties; provided, however, that Lessee shall indemnify, protect, save, defend and hold harmless Lessor, each of its partners and any Affiliate thereof and each of their respective shareholders, partners, officers, directors, employees, servants and agents from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by any such Person in connection therewith, as a result of, or incident to, any action by Lessee pursuant to the foregoing authorization except as a result of such Person's gross negligence or willful misconduct. 23. Events of Default. The occurrence of any of the following specified events (whatever the reason for such Lease Event of Default and whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a "Lease Event of Default": (a) Lessee shall fail to make any Lease Payment (other than a Semi-Annual Lease Payment) or pay any amounts under Sections 28.2, 28.4 and 29 on the date the same is due and payable and such failure shall continue unremedied for three (3) or more Business Days; or (b) Lessee shall fail to make any Semi-Annual Lease Payment on the date the same is due and payable and such failure shall continue unremedied for twenty-five (25) or more days; or (c) Lessee shall fail to observe or perform any of the covenants, agreements or obligations of Lessee set forth in Sections 6, 17 or 20 of this Lease Agreement or Section 10 or 12.1 of the Participation Agreement, and such failure shall continue unremedied for ten (10) or more Business Days after receipt by Lessee of written notice thereof from Lessor or any Assignee; or (d) Lessee or Guarantor shall fail to perform or observe any other covenant, condition, or agreement to be performed or observed by it under any Operative Document (other than those identified in clauses (a), (b) and (c) above), and such failure shall continue unremedied for a period of thirty (30) days after receipt by Lessee of written notice thereof from Lessor or any Assignee; or -16- 21 (e) any representation or warranty made by Lessee or Guarantor in any of the Operative Documents, or in any certificate delivered pursuant thereto, shall prove to be untrue in any material respect; or (f) Lessee or any Subsidiary of Lessee shall default in the payment when due of any principal of or interest on any of its other Debt aggregating $20,000,000 or more, or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Debt shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Debt ( or a trustee or Administrative Agent on behalf of such holder or holders) to cause, such Debt to become due prior to its stated maturity; or (g) At any time after the execution and delivery thereof, Section 8 of the Participation Agreement ceases to be in full force and effect or Guarantor denies or disaffirms it obligations thereunder; or (h) Lessee or any of its Subsidiaries shall commence a voluntary case concerning itself under the Bankruptcy Code; or an involuntary case is commenced against Lessee or any of its Subsidiaries, and is not dismissed within sixty (60) days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of Lessee or any of its Subsidiaries, or Lessee or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Lessee or any of its Subsidiaries, or there is commenced against Lessee or any of its Subsidiaries any such proceeding which remains undismissed for a period of sixty (60) days, or Lessee or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or Lessee or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of sixty (60) days; or Lessee or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by Lessee or any of its Subsidiaries for the purpose of effecting any of the foregoing; or (i) Reserved; or (j) One or more judgments or decrees shall have been entered against Lessee or any Subsidiary involving in the aggregate for Lessee and its Subsidiaries a liability (not paid or fully covered by a reputable and solvent insurance company) and such judgments and decrees either shall be final and non-appealable or shall not be vacated, discharged or stayed or bonded pending appeal for any period of thirty (30) consecutive days, and the aggregate amount of all such judgments exceeds $20,000,000; or (k) At any time after the execution and delivery thereof, any of the Operative Documents shall cease to be in full force and effect, or shall cease to give the Lessor the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the Lessee Collateral (other than Lessee -17- 22 Collateral with a value not to exceed $1,000,000)), or Collateral Agent the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of Lessor Collateral (other than Lessor Collateral with a value not to exceed $1,000,000)) in each case superior to and prior to the rights of all third Persons (except as permitted herein), and subject to no other Liens other than Permitted Liens and Lessor Liens; or (l) A Change of Control shall occur. 24. Remedies Upon Default. Upon the occurrence of any Lease Event of Default and at any time thereafter so long as the same shall be continuing, Lessor may (except in the case of a Lease Event of Default of the type described in Section 23(h), in which case Lessor shall be deemed automatically without further act to have elected the remedy set forth in clause (d) below) exercise one or more of the following remedies, to the extent permitted by Applicable Law, as Lessor in its sole discretion shall elect: (a) Lessor may terminate or cancel this Lease Agreement, without prejudice to any other remedies of Lessor hereunder, with respect to all or any Item of Equipment, and whether or not this Lease Agreement has been so terminated, may enter the premises of Lessee, subject to Lessee's normal safety and security concerns, including standard confidentiality requirements, or of any other party to take immediate possession of the Equipment and remove all or any Item of Equipment by summary proceedings or otherwise, or may cause Lessee, at Lessee's expense, to store, maintain, surrender and deliver possession of the Equipment or such Item in the same manner as provided in Section 6; (b) Lessor may hold, keep idle or lease to others any Item of Equipment, as Lessor in its sole discretion may determine, free and clear of any rights of Lessee, except that Lessee's obligation to pay Lease Payments for any Lease Payment Periods commencing after Lessee shall have been deprived of possession pursuant to this Section 24 shall be reduced by the net proceeds (after taking into account all expenses associated therewith), if any, received by Lessor from leasing the Equipment or such Item to any Person other than Lessee for the same Lease Payment Periods or any portion thereof; (c) Lessor may sell the Equipment or any Item of Equipment at public or private sale as Lessor may determine, free and clear of any rights of Lessee, and Lessee shall pay to Lessor, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Lease Payments due for the Equipment or Item(s) so sold for any Lease Period commencing after the date on which such sale occurs), the sum, without duplication, of (i) all unpaid Lease Payments payable for each Item of Equipment for all Lease Payment Periods through the date on which such sale occurs, plus (ii) an amount equal to the excess, if any, of (A) the Acquisition Cost of the Item(s) of Equipment so sold over (B) the Net Proceeds of Sale, plus interest on the amount of such excess from the date of such sale until the date of payment by Lessee at a rate equal to the aggregate of (1) 82% of the Tranche A Rate, (2) 15% of the Applicable Tranche B Rate, (3) 3% of the Applicable Equity Rate and (4) 2.0%, plus (iii) all unpaid Supplemental Payments due with respect to each Item of Equipment so sold; -18- 23 (d) whether or not Lessor shall have exercised, or shall thereafter at any time exercise, any of its rights under subsection (a) or (b) above with respect to any Item(s) of Equipment, Lessor, by written notice to Lessee specifying a payment date, may demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Lease Payment due for any Item(s) of Equipment for any Lease Payment Period commencing after the payment date specified in such notice and in lieu of the exercise by Lessor of its remedies under subsection (b) above in the case of a re-lease of such Item(s) or under subsection (c) above with respect to a sale of such Item(s)), the sum, without duplication, of (i) all unpaid Lease Payments payable for such Item(s) for all Lease Payment Periods through the payment date specified in such notice, plus (ii) all unpaid Supplemental Payments due with respect to such Item(s) as of the payment date specified in such notice, plus (iii) an amount equal to any Premium, Makewhole or Breakage Costs owed or paid by Lessor to any Person under the Operative Documents, plus (iv) an amount, with respect to each such Item, equal to the Acquisition Cost of such Item(s); provided, however, upon payment in full by Lessee within ten (10) days of demand of all amounts due under this Section 24(d), Lessor will at the request and cost of Lessee furnish to or at the direction of Lessee a bill of sale, without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens), and otherwise in form and substance reasonably satisfactory to Lessee and Lessor evidencing the transfer to or at the direction of Lessee, all of Lessor's right, title and interest in and to such Item(s), "as-is, where-is"; and (e) Lessor may exercise any other right or remedy which may be available to it under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof and terminate this Lease Agreement. Lessee shall be liable for all costs and expenses, including reasonable attorney's fees and expenses, incurred by Lessor, the Indenture Trustee, Collateral Agent, Administrative Agent or any Assignee by reason of the occurrence of any Lease Event of Default or the exercise of Lessor's remedies with respect thereto, including all reasonable costs and expenses incurred in connection with the return of the Equipment in accordance with Section 6 or in placing the Equipment in the condition required by said Section. Except as otherwise expressly provided above, no remedy referred to in this Section 24 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Lessor at law or in equity; and the exercise or beginning of exercise by Lessor of any one or more of such remedies shall not constitute the exclusive election of such remedies and shall not preclude the simultaneous or later exercise by Lessor of any or all of such other remedies. No express or implied waiver by Lessor of any Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Lease Event of Default. To the extent permitted by applicable law, Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require Lessor to sell, lease or otherwise use the Equipment in mitigation of Lessor's damages as set forth in this Section 24 or which may otherwise limit or modify any of Lessor's rights and remedies in this Section 24. 25. Lessor's Right to Perform for Lessee. If Lessee fails to make any Supplemental Payment required to be made by it hereunder or fails to perform or comply with any of its agreements contained herein, which failure shall continue until such time as such failure shall -19- 24 constitute a Lease Event of Default and can be cured by the payment of money, Lessor may (but shall not be obligated) itself, after notice to Lessee, make such payment or perform or comply with such agreement, and the amount of such payment and the amount of the reasonable expenses of Lessor incurred in connection with such payment or the performance of or compliance with such agreement, as the case may be, together with interest thereon at the rate specified in Section 26, shall, if not paid by Lessee to Lessor on demand, be deemed a Supplemental Payment hereunder; provided, however, that no such payment, performance or compliance by Lessor shall be deemed to cure any Lease Event of Default with respect to Lessee. 26. Late Charges. Lessee shall pay to Lessor, upon demand, to the extent permitted by applicable law, interest on any installment of a Lease Payment not paid when due, and on any Supplemental Payment or other amount payable under this Lease Agreement which is not paid when due, for any period for which any of the same is overdue (without regard to any grace period) at a rate equal to the lesser of (a) the Overdue Rate and (b) the maximum rate of interest permitted by law. 27. Notices. All notices provided for or required under the terms and provisions hereof shall be given in accordance with Section 12.4 of the Participation Agreement. 28. Lessee's Renewal, Transfer and Early Termination Options; Purchase Obligation. 28.1 Renewal Option. If no Lease Event of Default shall have occurred and be continuing, Lessee has not elected to purchase (or deemed to purchase) the Equipment under Section 28.2 and this Lease Agreement shall not have been earlier terminated, Lessee may request in writing to renew the Lease Agreement on the basis of ten (10) one-year renewals with respect to all but not less than all Items of Equipment then subject to this Lease Agreement by providing to Administrative Agent and Lessor a written notice of request to renew within 365 days prior to the end of the Term. In its sole discretion, Lessor shall determine on or before the date three (3) months prior to the end of the Term whether to renew and extend the leasing of the Equipment on terms and conditions acceptable to Lessee and Lessor; provided any such extension shall be conditioned on the repayment of the Tranche A Notes and Tranche B Loans. Any failure on the part of Lessor to respond to Lessee's request shall be deemed a refusal to extend the Term. 28.2 Lessee's End of Term Purchase Option. (a) On the Termination Date, if this Lease Agreement shall not have been earlier terminated, Lessee or its designee shall be entitled, at its option, to acquire all, but not less than all, of Lessor's rights and interests in all, but not less than all, of the Items of Equipment for an amount (the "Purchase Option Amount"), with respect to all Items of Equipment, payable in immediately available funds, equal to the sum without duplication of (i) the aggregate of the Acquisition Costs of all Items of Equipment, plus (ii) the Lease Payments due and payable for such Items of Equipment on the Termination Date, plus (iii) any Supplemental Payments then due and owing. -20- 25 (b) Upon payment in full of all amounts due upon the exercise of Lessee's option under this Section 28.2, Lessor will, at the request and cost of Lessee, (i) transfer to or at the direction of Lessee, without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens), all of Lessor's right, title and interest in and to such Item(s), "as-is, where-is" and (ii) furnish to or at the direction of Lessee, a bill of sale without recourse or warranty (except as to Lessor Liens and Collateral Agent Liens) in form and substance reasonably satisfactory to Lessee and Lessor, evidencing such transfer. (c) If Lessee does not intend to exercise its purchase option under this Section 28.2, Lessee shall give written notice to Lessor to such effect in accordance with Section 28.3.1. If Lessee fails to give such written notice to Lessor, such failure shall constitute an election and a binding obligation of Lessee to exercise the purchase option hereunder and to pay Lessor the Purchase Option Amount with respect thereto on the Termination Date. 28.3 Third Party Sale or Redelivery of Equipment. 28.3.1 Notice to Remarket or Return Possession of Equipment. So long as no Lease Default or Lease Event of Default shall have occurred, Lessee shall have the option, exercisable by giving Lessor written notice (a "Redelivery Notice") on or before 365 days prior to the Termination Date, to remarket all Items of Equipment then subject to this Lease Agreement and, if the Equipment is not sold to a third party in accordance with 28.3.3, deliver the Equipment to Lessor or its designee on the Termination Date in accordance with Section 6. In the event Lessee fails to deliver a Redelivery Notice within the time period prescribed in the preceding sentence or the Redelivery Notice is revoked or for any other reason deemed not effective, Lessee shall be deemed to have irrevocably elected to purchase each Item of Equipment in accordance with Section 28.2 and shall proceed to purchase the Equipment in accordance therewith. If at any time after Lessee delivers a Redelivery Notice, a Lease Default or a Lease Event of Default shall occur, then Lessee's Redelivery Notice shall be deemed automatically irrevocably revoked and Lessee shall be deemed to have irrevocably elected the purchase option in Section 28.2 and shall proceed to purchase the Equipment in accordance therewith. 28.3.2 Remarketing Obligations. In the event that Lessee does not exercise its option to acquire Lessor's rights and interests in all the Equipment pursuant to Section 28.2, then Lessee shall have the obligation during the last 365 days of the Term, if applicable (the "Remarketing Period"), to solicit bona fide bids for not less than all Items of Equipment from prospective purchasers who are financially capable of purchasing such Items of Equipment for cash on an "as-is", "where-is" basis, without recourse or warranty. Any bid received by Lessee prior to the end of the Remarketing Period shall be promptly communicated to Lessor in writing, setting forth the amount of such bid and the name and address of the person or entity submitting such bid. Notwithstanding the foregoing, Lessor shall have the right, but not the obligation, to seek bids for the Equipment during the Remarketing Period and Lessee shall grant Lessor and Administrative Agent or their respective designees access to the Equipment upon reasonable notice and during normal business hours to facilitate the exercising of such right. -21- 26 28.3.3 Sale of Equipment to Third Party Buyer. On the Termination Date, provided that all the conditions set forth in Sections 28.3.1, 28.3.2 and in clauses (i) and (ii) below have been met, Lessor shall sell (or cause to be sold) all Items of Equipment, for cash to the bidder, if any, who shall have submitted the highest bid during the Remarketing Period on an "as-is", "where-is" basis and without recourse or warranty, and upon receipt by Lessor of the sales price, Lessor shall instruct Lessee to deliver and Lessee shall deliver the Equipment to such bidder; provided, that (i) any such sale to a third party shall be consummated, and the sales price for the Equipment shall have been paid to Lessor in immediately available funds, on or before the Termination Date; and (ii) Lessor shall not be obligated to sell such Equipment if the Net Proceeds of Sale of all, but not less than all, the Equipment are less than the aggregate Maximum Lessor Risk Amount applicable to all, but not less than all, the Equipment as of the Termination Date. Upon satisfaction of the conditions to any sale under this Section 28.3 (including the absence of any Lease Default or Lease Event of Default during the Remarketing Period) and payment in full of all amounts due upon such a sale, Lessor will, at the request and cost of the bidder, transfer to or at the direction of the bidder, without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens), all of Lessor's right, title and interest in and to such Item(s), "as-is", "where-is" and at the cost and request of the bidder, furnish to or at the direction of Lessee, a bill of sale without recourse or warranty (except as to Lessor Liens) and otherwise in form and substance reasonably satisfactory to the bidder and Lessor, evidencing such transfer. 28.4 Lessee's Early Purchase Options and Obligations. 28.4.1 Partial Purchase Option. Provided this Lease Agreement shall not have been earlier terminated and no Lease Event of Default shall have occurred and is continuing and subject to the provisions of Section 28.4.4, Lessee or its designee shall be entitled, at Lessee's option, (i) on any Floating Payment Date prior to February 15, 2004, to purchase with the proceeds of one or more Equity Offerings, within the first 120 days after the consummation of the related Equity Offering all but not less than all of Lessor's rights and interests in one or more Items of Equipment which in the aggregate for all such purchases under this Section 28.4.1 have Acquisition Costs not in excess of thirty five (35%) percent of the aggregate Acquisition Costs of all Items of Equipment as of the Closing Date and (ii) on any Floating Payment Date on or after February 15, 2005 to purchase all but not less than all of Lessor's rights and interest in one or more Items of Equipment. 28.4.2 Total Purchase Option. Provided this Lease Agreement shall not have been earlier terminated and no Lease Event of Default shall have occurred and is continuing (except, in the case of clause (i), a Lease Event of Default caused by a Change of Control provided such Lease Event of Default has been waived in writing by Tranche B Lenders and Lessor), and subject to the provisions of Section 28.4.4, Lessee or its designee shall be entitled, at Lessee's option, (i) on any Business Day within ninety (90) days after the occurrence of a Change of Control that occurs prior to February 15, 2005, (ii) on any Business Day within thirty (30) days after the Tranche A Notes have been accelerated or have otherwise become due and payable prior to the Scheduled Termination Date and (iii) on any Business Day in connection with a legal defeasance or covenant defeasance of the Tranche A Notes in accordance with the terms of the -22- 27 Indenture to purchase all, but not less than all, of Lessor's rights and interest, in all, but not less than all, Items of Equipment. 28.4.3 Purchase Offer Obligations. Provided this Lease Agreement has not been earlier terminated and no Lease Event of Default shall have occurred and is continuing (except, in the case of clause (i), a Lease Event of Default caused by a Change of Control provided the Tranche B Notes have not been accelerated or have otherwise become due and payable prior to the Scheduled Termination Date) and subject to the provisions of Section 28.4.4, Lessee shall (i) within twenty-five (25) days after a Change of Control offer to purchase all of but not less than all of Lessor's interests in all of the Equipment and promptly after the expiration of the corresponding tender offer under the Indenture shall purchase Items of Equipment with aggregate Acquisition Costs (x) equal to or greater than 122% of the Tranche A Notes to be Purchased by Lessor pursuant to the corresponding tender offer under the Indenture (such amount, the "Equity Redemption Target") (y) less than the Equity Redemption Target but greater than the Equity Redemption Target less $50,000 or (z) greater than the Equity Redemption Target and (ii) within twenty-five (25) to forty (40) days after a Net Proceeds Offer Trigger Date, offer to purchase from Lessor all but not less than all of Lessor's interest in Equipment having aggregate Acquisition Costs equal to or greater than 122% of the amount of Tranche A Notes for which an offer to purchase is to be made under Section 9.2(c) of the Participation Agreement and promptly after the expiration of the corresponding tender offer under the Indenture shall purchase Items of Equipment with aggregate Acquisition Costs (x) equal 122% of the Tranche A Notes to be purchased by Lessor pursuant to the corresponding tender offer under the Indenture (such amount, the "Net Proceeds Redemption Target") (y) less than the Net Proceeds Redemption Target but greater than the Net Proceeds Redemption Target less $50,000 or (z) greater than the Net Proceeds Redemption Target. 28.4.4 Exercise of Purchase Options and Obligations. Each of the purchase options and obligations set forth in this Section 28.4 shall be exercisable by giving or requiring Lessee to give, as the case may be, Lessor irrevocable written notice of such election or offer to purchase at least thirty-five (35) but no more than sixty (60) days before the proposed date of purchase (the "Purchase Date") and by payment to Lessor on such Purchase Date in immediately available funds an amount (the "Option Amount"), with respect to each Item of Equipment to be acquired, equal to the sum, without duplication, of (i) the Acquisition Cost of such Item of Equipment, plus (ii) the Lease Payments due and payable for such Item of Equipment on the Purchase Date, plus (iii) any Premium payable by Lessor on the Tranche A Notes as a result of such purchase, plus (iv) the amount of Breakage Costs, if any payable by Lessor as a result of such purchase, plus (v) any Supplemental Payments then due and owing to any Person. Any amounts paid by Lessee under Section 28.4.3 in excess of the Equity Redemption Target or Net Proceeds Redemption Target, as the case may be, shall be held by Lessor as collateral for Lessee's obligations hereunder. Lessor shall invest such collateral in Permitted Investments and any amounts earned thereon shall be for Lessee's Account. When less than all Items of Equipment are to be sold by Lessor hereunder, the Items to be sold shall be selected by Lessee, provided however, they must be acceptable to Lessor in its sole discretion and such sale shall be conditioned upon delivery by Lessee to (and in the case of a sale under Section 28.4.3, Lessee shall be obligated to deliver to) Lessor and Administrative Agent of an Appraisal dated no earlier than thirty (30) days prior to the date of such sale confirming that the then aggregate fair market -23- 28 value and Residual Values of the Items of Equipment at such time not being sold shall each be greater than or equal to the aggregate Acquisition Costs for such Items. Upon payment in full of all amounts due upon the sale of any Item of Equipment under this Section 28.4, Lessor will, at the request and cost of Lessee, transfer to or at the direction of Lessee, without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens), all of Lessor's right, title and interest in and to such Item(s) so purchased, "as-is", "where-is" and, at the request and cost of Lessee, furnish to or at the direction of Lessee, a bill of sale without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens) and otherwise in form and substance reasonably satisfactory to Lessee and Lessor, evidencing such sale. 29. End of Term Lease Payment Adjustment. 29.1 Third Party Sale of Equipment. This Section 29.1 shall apply only if no Lease Default or Lease Event of Default has occurred and a sale of the Items of Equipment to a third party pursuant to Section 28.3 has been consummated on the Termination Date. If the Net Proceeds of Sale of such Items of Equipment are less than the aggregate Acquisition Costs as of the Termination Date, Lessee shall, on the Termination Date, pay to Lessor as an end of term Lease Payment adjustment, in immediately available funds, an amount equal to such deficiency (a "Deficiency") as an adjustment to the Lease Payment payable under this Lease Agreement for such Items of Equipment plus the Lease Payment due and payable for such Item(s) of Equipment on the Termination Date, plus any Supplemental Payments then due and owing to Lessor hereunder; provided, however, the amount of the Deficiency payable by Lessee with respect to such Items of Equipment shall not exceed the aggregate Maximum Lessee Risk Amount. If the Net Proceeds of Sale of such Items of Equipment exceed the aggregate Acquisition Cost of such Items of Equipment and if Lessee shall have paid Lessor on or before the Termination Date the Lease Payment due and payable for such Items of Equipment on the Termination Date, plus all Supplemental Payments then due and owing with respect to such Items of Equipment, Lessor shall pay to such Lessee an amount equal to such excess as an adjustment to the Lease Payment payable under this Lease Agreement for such Items of Equipment. 29.2 Lessee Payment. If a sale of any Item of Equipment either to Lessee pursuant to Section 28.2 or 28.4 or to a third party pursuant to Section 28.3 has not been consummated on the Termination Date for any reason, then Lessee shall on the Termination Date pay to Lessor as an end of term Lease Payment adjustment, in immediately available funds, as an adjustment to the Lease Payment payable under this Lease Agreement for such Item, an amount equal, without duplication, to the sum of the Lease Payment due and payable for such Item of Equipment on the Termination Date, plus all Supplemental Payments then due and owing with respect to such Item(s) plus (i) the Maximum Lessee Risk Amount of such Item, if (x) on the Termination Date no Lease Event of Default or Lease Default shall have occurred and be continuing hereunder, and (y) all Items of Equipment then subject to this Lease Agreement have been returned to Lessor on the Termination Date in the condition and at the locations required by Section 6, and (z) this Lease -24- 29 Agreement shall not have been terminated prior to the Termination Date or (ii) Acquisition Cost of such Item, if (x) on the Termination Date a Lease Event of Default or Lease Default shall have occurred and be continuing hereunder, or (y) any Item of Equipment then subject to this Lease Agreement shall not have been returned to Lessor on the Termination Date in the condition and at the locations required by Section 6, or (z) this Lease Agreement shall have been terminated prior to the Termination Date; provided, however, if Lessee pays all amounts due for all Equipment in accordance with this clause (ii) on or prior to the Termination Date, Lessor will at the cost of Lessee transfer to or at the direction of Lessee, without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens), all of Lessor's right, title and interest in and to such Item(s), "as-is", "where-is" and at the cost of Lessee furnish to or at the direction of Lessee, if Lessee shall so request, a bill of sale without recourse or warranty (except as to the absence of Lessor Liens and Collateral Agent Liens) and otherwise in form and substance reasonably satisfactory to Lessee and Lessor, evidencing such transfer. Lessee shall remain liable for the payment of, and upon the consummation by Lessor of the sale of any Item(s) of Equipment on or after the Termination Date, Lessee shall pay, or reimburse Lessor for the payment of, all applicable sales, excise or other Taxes imposed as a result of such sale, other than gross or net income taxes attributable to such sale, and such obligation shall survive the termination of this Lease Agreement. 29.3 Lessor Payment. If Lessor sells the Equipment after the Termination Date, Lessor shall pay to Lessee, as an end of term Lease Payment adjustment, the amount by which the Net Proceeds of Sale exceed the sum, without duplication, of (prior to the application of such proceeds) (a) all amounts owed by Lessor or Lessee to any Person under the Operative Documents as a result of any Lease Default or Lease Event of Default, (b) the aggregate Acquisition Costs of all Equipment as of the Termination Date, (c) all interest and Equity Yield (including any interest and Equity Yield accrued at the respective Overdue Rate) accrued on any Tranche A Note, Tranche B Loan and Equity Contribution since the Termination Date and (d) all amounts owed to Lessor, if any under the Lessor Margin Letter. 29.4 Excess Wear Lease Payment Adjustment. If after a sale of any Item of Equipment to a third party under Section 28.3.3 in which the amount of the Deficiency payable by Universal was limited by the Maximum Lessee Risk Amount or upon redelivery of any Item of Equipment to Lessor upon termination of the Lease it is determined by an Appraisal that such Item of Equipment suffered from excess wear and tear, Lessee shall pay Lessor as an end of term Lease Payment adjustment an amount equal to the lesser of (i) the reduction in fair market value caused by such excess wear and tear and (ii) the amount by which the difference between the Net Proceeds of Sale of such Item and the Acquisition Cost therefor exceeded the Deficiency paid by Lessee in accordance with Section 29.1. 30. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS LEASE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS LEASE AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS LEASE AGREEMENT, EACH OF LESSEE AND LESSOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. LESSEE HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 111 EIGHTH -25- 30 AVENUE, NEW YORK 10011 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, LESSEE AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO LESSOR AND ASSIGNEE. EACH OF LESSEE AND LESSOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SECTION 12.4 OF THE PARTICIPATION AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LESSEE OR LESSOR UNDER THIS LEASE AGREEMENT, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY PERSON IN ANY OTHER JURISDICTION. (b) EACH OF LESSEE AND LESSOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS LEASE AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS LEASE AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS LEASE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 31. Miscellaneous. Any provision of this Lease 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 or diminishing Lessor's rights under 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. To the extent permitted by applicable law, Lessee hereby waives any provision of law which renders any provision of this Lease Agreement prohibited or unenforceable in any respect. No term or provision of this Lease Agreement may be amended, altered, waived, discharged or terminated except in accordance with Section 12.2 of the Participation Agreement. A waiver on any one occasion shall not be construed as a waiver on a future occasion. Except as provided in Section 12.7 of the Participation Agreement, neither Lessee nor Lessor shall assign or transfer its interests in this Lease Agreement. All of the covenants, conditions and obligations contained in this Lease Agreement shall be binding upon and shall inure to the benefit of the respective -26- 31 successors and assigns of Lessor and (subject to the restrictions of Section 17) Lessee. This Lease Agreement and the other Operative Documents, and each related instrument, document, agreement and certificate, collectively constitute the complete and exclusive statement of the terms of the agreement between Lessor and Lessee with respect to the acquisition and leasing of the Equipment, and cancel and supersede any and all prior oral or written understandings with respect thereto. 32. Registration. This Lease Agreement is a registered instrument. Administrative Agent shall establish and maintain registration books in which it will register, and register any assignment effected in compliance with Section 12.7 of the Participation Agreement of Lessor's interest in this Lease Agreement or any portion thereof and which identifies each registered holder of any interest of Lessor in this Lease Agreement or any portion thereof. Except for the interests of Collateral Agent pursuant to the Operative Documents, no transfer by Lessor of any interest in this Lease Agreement shall be effective unless and until such transfer is made upon the registration books maintained by Administrative Agent. 33. Execution and Effectiveness. This Lease Agreement may be executed in any number of identical counterparts, any set of which signed by all parties hereto shall be deemed to constitute a complete, executed original for all purposes and shall become effective when each of the parties hereto and each of the parties to the Participation Agreement have executed and delivered this Lease Agreement and the Participation Agreement as the case may be. -27- 32 IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement to be duly executed by their duly authorized representatives as of the date first above written. BRL UNIVERSAL EQUIPMENT 2001 A, L.P., as Lessor By BRL Universal Equipment Management, Inc. Its General Partner By: /s/ GREGORY C. GREENE -------------------------------------- Name: Gregory C. Greene Title: President UNIVERSAL COMPRESSION, INC., as Lessee By: /s/ RICHARD W. FITZGERALD -------------------------------------- Name: Richard W. FitzGerald Title: Senior Vice President and Chief Financial Officer COUNTERPART NO. ___ OF ___ SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. -Signature Page- [Equipment Lease Agreement] 33 EXHIBIT A TO LEASE AGREEMENT [FORM OF] LEASE SUPPLEMENT This Lease Supplement (this "Supplement") is executed pursuant to, and incorporates by reference all of the terms, conditions and provisions of, the Equipment Lease Agreement dated as of February 9, 2001, between the undersigned BRL Universal Equipment 2001 A, L.P., ("Lessor") and Universal Compression, Inc. ("Lessee") (herein, as amended and supplemented from time to time, called the "Lease Agreement"). All capitalized terms used herein which are not defined herein shall have the meaning given to such terms in the Lease Agreement. A. SUPPLEMENT Lessee hereby (i) acknowledges and certifies that each Item of Equipment described below or on any Schedule attached hereto (each, an "Item" and collectively, the "Equipment") has been selected by, delivered to Lessee, and is located at the location set forth below, and as between Lessor and Lessee, each Item identified as assembled is of a size, design, capacity and manufacture acceptable to and suitable for Lessee's purposes, has been installed to Lessee's satisfaction, and is in good working order, repair and condition and (ii) unconditionally and irrevocably accepts each Item under the Lease Agreement on the date hereof. Lessor and Lessee hereby agree that each Item described below or on any Schedule attached hereto is hereby leased by Lessor to Lessee under and subject to all of the terms, conditions and provisions of the Lease Agreement, that the lease term of each such Item commences on the date hereof and that such date is the Closing Date and that the Acquisition Cost, Term, Maximum Lessee Risk Percentage, and Maximum Lessor Risk Percentage for all Items of Equipment covered by this Lease Supplement are as set forth below. Lessee hereby agrees to pay the Lease Payments for all Items covered by this Lease Supplement in the amounts and at the times specified in Section 7 of the Lease Agreement and as specified below, reaffirms its acknowledgments and agreements in the Lease Agreement and certifies that its representations and warranties set forth in Section 2 of the Participation Agreement and in any related certificate delivered to Lessor are true and correct on the date hereof except to the extent they relate to an earlier date, in which case such representations and warranties were true and correct as of such date. 1. Description of Item(s) of Equipment (include make, model and unit number and whether such Item is completely assembled and the estimated date assembly will be completed): See Schedule 1 attached hereto. 2. Location: See Schedule 1 attached hereto. 3. Acquisition Cost: See Schedule 1 attached hereto 34 4. Tranche A Component: See Schedule 1 attached hereto 5. Tranche B Component: See Schedule 1 attached hereto 6. Equity Component: See Schedule 1 attached hereto 7. Term: commencing on date hereof ("Closing Date") and ending on [________________]. 8. Certain Values: a. Maximum Lessee Risk Percentage: ____% [not to exceed 90%] b. Maximum Lessor Risk Percentage: ____% [the difference between 100% and the percentage in item 8a above ] B. GRANT OF SECURITY INTEREST The Lease Agreement and this Supplement constitute a financing agreement intended as security. In consideration of the agreements contained therein and in the Operative Documents, Lessee hereby grants, bargains, assigns, transfers, conveys and pledges to Lessor a security interest in and Lien upon all of its rights, title and interest in, to and under the Equipment, the subleases related to such Equipment, Lessee's interest in any bill of sale and in each manufacturer's, vendor's or dealer's warranty for the Equipment, and all proceeds thereof, including, without limitation, all rentals, income and profits in respect of the Items of Equipment, whether under such subleases or otherwise, all credits granted by any manufacturer, vendor or dealer with respect to the return of any Item of Equipment and the proceeds of any insurance payable with respect to the Items of Equipment as collateral security for the payment and performance by Lessee of obligations owed to Lessor under the Operative Documents. -2- 35 Dated: ____________, ____. BRL UNIVERSAL EQUIPMENT 2001 A, L.P., as Lessor By BRL Universal Equipment Management, Inc. Its General Partner By: -------------------------------------- Name: Title: UNIVERSAL COMPRESSION, INC., Lessee By: -------------------------------------- Name: Title: -3- EX-10.4 10 h84315ex10-4.txt TRANCHE B LOAN AGREEMENT - DATED 2/9/01 1 EXHIBIT 10.4 TRANCHE B LOAN AGREEMENT among BRL UNIVERSAL EQUIPMENT 2001 A, L.P. as Borrower BANKERS TRUST COMPANY as Administrative Agent and Collateral Agent THE TRANCHE B LENDERS PARTY HERETO as Tranche B Lenders THE BANK OF NOVA SCOTIA as Syndication Agent for Tranche B Lenders BANK ONE, NA as Documentation Agent for Tranche B Lenders FIRST UNION NATIONAL BANK as Managing Agent for Tranche B Lenders Dated as of February 9, 2001 ---------------------------- UNIVERSAL COMPRESSION, INC., AS LESSEE OF $427,000,000 OF GAS COMPRESSION EQUIPMENT ---------------------------- 2 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND INTERPRETATION................................................................................1 2. THE CREDITS...................................................................................................1 2.1. Tranche B Lender Commitment.....................................................................1 2.2. Tranche B Notes.................................................................................1 2.3. Payments........................................................................................2 2.3.1. Principal..............................................................................2 2.3.2. Interest...............................................................................2 2.3.3. Period Selection.......................................................................2 2.3.4. Overdue Rate...........................................................................3 2.3.5. Payment Instructions...................................................................3 2.3.6. Ratable Partial Prepayments............................................................3 2.4. Prepayments Limited.............................................................................3 2.5. Mandatory Prepayments...........................................................................4 2.5.1. Sale of Items of Equipment or Lease Termination........................................4 2.5.2. Other Termination of Lease Agreement...................................................4 2.6. Application of Prepayments......................................................................4 2.7. Increased Costs, Illegality, etc................................................................4 3. CONDITIONS PRECEDENT..........................................................................................6 3.1. Conditions of Tranche B Loans...................................................................6 4. AFFIRMATIVE COVENANTS.........................................................................................6 4.1. Obligations.....................................................................................6 4.2. Enforcement.....................................................................................6 4.3. Defense.........................................................................................6 4.4. Financial Information...........................................................................7 4.5. Inspection......................................................................................7 5. EVENTS OF DEFAULT.............................................................................................7 5.1. Tranche B Events of Default.....................................................................7 5.1.1. Non-Payment............................................................................7 5.1.2. Misleading Statements..................................................................7 5.1.3. Breaches of Other Operative Documents..................................................7 5.1.4. Insolvency Events......................................................................8 5.1.5. Monetary Judgments.....................................................................8 5.1.6. Non-Monetary Judgments.................................................................8 5.1.7. Lease Event of Default.................................................................8
3
Page ---- 5.1.8. Other Indebtedness.....................................................................9 5.1.9. Investment Company.....................................................................9 5.2. Remedies of Tranche B Lenders...................................................................9 5.2.1. Rights in Collateral...................................................................9 5.2.2. Acceleration...........................................................................9 5.2.3. Rights Cumulative......................................................................9 6. MISCELLANEOUS................................................................................................10 6.1. Amendment or Waiver............................................................................10 6.2. Notices........................................................................................10 6.4. Payments Set Aside.............................................................................10 6.5. Assignments....................................................................................10 6.6. Set-off........................................................................................10 6.7. Execution and Effectiveness....................................................................11 6.8. Severability...................................................................................11 6.9. Acknowledgments................................................................................11 6.10. Further Assurances.............................................................................11 6.11. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL.........................11 6.12. Survival of Agreement..........................................................................12 6.13. Domicile of Tranche B Loans....................................................................13 6.14. Entire Agreement...............................................................................13 [FORM OF] NOTE....................................................................................................1 [FORM OF] ASSIGNMENT AND ASSUMPTION AGREEMENT.....................................................................1 ANNEX FOR ASSIGNMENT AND ASSUMPTION AGREEMENT.....................................................................1
(ii) 4 This TRANCHE B LOAN AGREEMENT (this "Agreement") dated as of February 9, 2001 among BRL UNIVERSAL EQUIPMENT 2001 A, L.P., as Borrower ("Borrower"), the several Tranche B Lenders from time to time parties to this Agreement (collectively, the "Tranche B Lenders"), BANKERS TRUST COMPANY, as Collateral Agent ("Collateral Agent") and BANKERS TRUST COMPANY, as Administrative Agent for the Tranche B Lenders ("Administrative Agent"). WITNESSETH: Borrower, Administrative Agent, Collateral Agent and Tranche B Lenders have agreed to enter into this Agreement pursuant to the terms and conditions of the Participation Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties hereto agree as follows: 1. DEFINITIONS AND INTERPRETATION Unless the context otherwise requires, capitalized terms used herein and not otherwise defined herein shall have meanings set forth or referred to in Appendix A to the Participation Agreement dated as of the date hereof among Universal Compression Inc., Universal Compression Holdings, Inc., Borrower, The Bank of New York, the Tranche B Lenders party thereto, BRL Universal Equipment Management, Inc., Administrative Agent and Collateral Agent, which Appendix A also contains the rules of usage that shall apply hereto. 2. THE CREDITS 2.1. Tranche B Lender Commitment. Subject to and upon the terms and conditions set forth in this Agreement and the Participation Agreement, each Tranche B Lender agrees to make a single non-revolving Tranche B Loan on the Closing Date to Borrower in accordance with Section 4.1 of the Participation Agreement. 2.2. Tranche B Notes. (a) Each Tranche B Loan shall be evidenced by a single promissory note of Borrower in substantially the form of Exhibit A hereto with the blanks and payment amounts appropriately completed in conformity herewith (each, a "Tranche B Note"). (b) The Tranche B Note issued to each Tranche B Lender shall (i) be executed by Borrower, (ii) be payable to such Tranche B Lender or registered assigns and be dated the Closing Date, (iii) be in a stated principal amount equal to the principal amount funded by such Tranche B Lender, (iv) mature on the Maturity Date, (v) bear interest as provided in Section 2.3.2, (vi) be subject to mandatory repayment as provided in Section 2.5 and (vii) be entitled to the benefits of this Agreement and the other Operative Documents. (c) Each Tranche B Lender will note on its internal records the amount of the Tranche B Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Tranche B Note endorse on the reverse side thereof the outstanding principal amount of 5 the Tranche B Loan evidenced thereby. Failure to make any such notation shall not affect Borrower's obligations in respect of such Tranche B Loan. 2.3. Payments. 2.3.1. Principal. Unless otherwise required to be paid earlier under Section 2.5 or 5.2, the principal amount of each Tranche B Loan shall be payable on the Maturity Date. 2.3.2. Interest. Borrower agrees to pay to each Tranche B Lender on each Floating Payment Date interest accrued on the unpaid principal amount of such Tranche B Lender's Tranche B Loan from the date the proceeds thereof are disbursed to Borrower in accordance with Section 2.2 until the date on which such Tranche B Loan (together with accrued and unpaid interest thereon) is repaid in full (whether on the Maturity Date, by acceleration or otherwise) at the Applicable Tranche B Rate calculated for each day elapsed since the immediately preceding Floating Payment Date, or in the case of the first Floating Payment Date, since the Closing Date as follows: AR x P x 1/D where, AR = the Applicable Tranche B Rate for such day; P = the unpaid principal balance of such Tranche B Loan on such day; and D = 360 or, to the extent the Applicable Tranche B Rate is based on the Alternate Rate, 365 or 366 days, as applicable. 2.3.3. Period Selection. Provided no Lease Event of Default shall have occurred and is continuing, Borrower shall at least three (3) LIBOR Banking Days prior to each Floating Payment Date deliver to the Administrative Agent written notice of its election to have the Applicable Tranche B Rate for all Tranche B Loans be based on one-month, two-month, three-month, or six-month LIBOR or on the Alternate Rate (which election shall be the same as the corresponding election by Lessee under Section 5 of the Participation Agreement). The Floating Payment Period based on one-month, two-month, three-month or six-month LIBOR shall commence on such Floating Payment Date and shall end on the calendar date corresponding to the first day of such Floating Payment Period in the first, second, third or six month, respectively; provided however, if such day is not a LIBOR Banking Day, then the last day of such Floating Payment Period shall be the next LIBOR Banking Day, provided further, if such next LIBOR Banking Day would be in the next calendar month, then the last day of such Floating Payment Period shall be the immediately preceding LIBOR Banking Day. The Floating Payment Period for Alternate Rate based Tranche B Loans shall commence on such Floating Payment Date and shall end on the date specified for such in Borrower's notice of election, provided such date shall not be more than ninety (90) days from such Floating Payment Date. Borrower shall not make an election that would cause the new Floating Payment Date resulting from such -2- 6 election to be later than the Maturity Date. If Borrower fails to provide such notice of election at least three (3) LIBOR Banking Days before any Floating Payment Date, Borrower shall be deemed to have elected a one-month LIBOR based Applicable Tranche B Rate. At any time while a Lease Event of Default exists, the Applicable Tranche B Rate after each Floating Payment Date shall be based on one-month LIBOR. 2.3.4. Overdue Rate. Borrower shall pay to each Tranche B Lender interest on any part of the principal amount of such Tranche B Lender's Tranche B Loan and interest thereon, if any, and any other amount payable by Borrower hereunder or under the Participation Agreement which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise) on demand for the period commencing on the due date thereof until the same is paid in full at the Overdue Rate. 2.3.5. Payment Instructions. All payments to any Tranche B Lender hereunder or under the other Operative Documents shall be made without defense, set-off or counterclaim to such Tranche B Lender no later than 1:00 p.m. (New York time) on the date when due and shall be made in lawful money of the United States of America in immediately available funds to such account as such Tranche B Lender may designate in a written notice to Borrower, Administrative Agent and Collateral Agent. All payments received after 1:00 p.m. (New York time) shall be deemed received on the next Business Day. Administrative Agent shall determine the Applicable Tranche B Rates, the Overdue Rate, if any, and the interest and principal, if any, due on the Tranche B Loans, on each Floating Payment Date and shall advise Borrower and, as the designee of Borrower under Section 7.4 of the Lease Agreement, Lessee, Collateral Agent and each Tranche B Lender of such amounts owed with respect thereto at least two (2) Business Days before such Floating Payment Date. No failure on the part of Administrative Agent to provide a notice under this Section 2.3.4 shall release Borrower of any obligation to make a payment in accordance herewith, provided however, no Tranche B Default shall occur and no interest at the Overdue Rate shall accrue with respect to the non-payment of any such payment until the later of the date such payment is due and the date two (2) Business Days after such notice is given. 2.3.6. Ratable Partial Prepayments. If any Tranche B Lender, whether by setoff or otherwise, has payment made to it with respect to any portion of amounts owing to it under the Operative Documents (other than Excepted Payments) in a greater proportion than that received by the other parties, the party receiving the greater proportion agrees, promptly upon written demand, to purchase for cash without recourse or warranty a portion of the amounts owing such other party under the Operative Documents so that after such purchase each party will hold its ratable proportion of the amounts owed Tranche B Lenders under the Operative Documents; provided, however, that if all or any portion of such excess amount is thereafter recovered from such party, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 2.4. Prepayments Limited. No partial prepayment of the Tranche B Loan may be made except to the extent and in the manner expressly permitted by this Agreement. -3- 7 2.5. Mandatory Prepayments. 2.5.1. Sale of Items of Equipment or Lease Termination. In the event that Lessee purchases Borrower's rights and interests to and in any Item of Equipment pursuant to the Lease Agreement, on the Floating Payment Date on which such purchase occurs, Borrower shall prepay and apply, and there shall become due and payable on such Floating Payment Date the principal amount of each Tranche B Loan equal to the pro rata portion (based on the aggregate outstanding principal balances of all Tranche B Loans) of the Tranche B Component of such Item of Equipment and all accrued and unpaid interest thereon; provided however, if an Item of Equipment is sold pursuant to Section 28.4.3 of the Lease Agreement and the aggregate Acquisition Costs of all Items at the time being sold under such Section is less than the Equity Redemption Target or Net Proceeds Redemption Target as the case may be then the principal amount of the Tranche B Loans to be pre-paid under this Section 2.5.1 shall be reduced by the amount of such shortfall. 2.5.2. Other Termination of Lease Agreement. If the Lease Agreement is terminated with respect to any Item of Equipment (other than with respect to an item of Replaced Equipment) on any date other than the Scheduled Termination Date, Borrower shall prepay and apply, and there shall become due and payable on such date the principal amount of each Tranche B Loan equal to the pro rata portion (based on the aggregate outstanding principal balances of all Tranche B Loans) of the Tranche B Component of such Item of Equipment, all accrued and unpaid interest thereon and related Breakage Costs, if any. 2.6. Application of Prepayments. The amount of any prepayment received by any Tranche B Lender pursuant to Section 2.5 shall be applied (i) first, to the payment of Breakage Costs, if any, (ii) second, to the payment of interest calculated subject to the last sentence of Section 2.3.5 at the Overdue Rate on all amounts owed to such Tranche B Lender under the Operative Documents and past due, if any, calculated from the dates due, to the date of such prepayment, (iii) third, to the payment of accrued but unpaid interest on principal amount being prepaid as of the date of such prepayment, (iv) fourth, to the payment of any other amounts then due to such Tranche B Lender under the Operative Documents for accrued Taxes, increased costs under Section 2.7 and any other amounts then due other than principal, and (v) fifth, to the payment of all principal amounts then due to such Tranche B Lender. 2.7. Increased Costs, Illegality, etc. (a) In the event that Administrative Agent in the case of (i) below or any Tranche B Lender in the case of (ii) or (iii) below shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto but, with respect to clause (i) below, may be made only by Administrative Agent): (i) that by reason of any changes arising after the date of this Agreement affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of LIBOR Rate; or -4- 8 (ii) at any time, that such Tranche B Lender shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Tranche B Loan because of (x) any change since the date of this Agreement in any applicable law or governmental rule, regulation, order, guideline or request (whether or not having the force of law) or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, order, guideline or request, such as, for example, but not limited to: (A) a change in the basis of taxation of payment to any Tranche B Lender of the principal of or interest on the Tranche B Notes, or any other amounts payable to any Tranche B Lender hereunder (except for changes in the rate of tax on, or determined by reference to, the net income or profits of such Tranche B Lender pursuant to the laws of the jurisdiction in which it is organized or in which its principal office or applicable lending office is located or any subdivision thereof or therein) or (B) a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the LIBOR Rate and/or (y) other circumstances since the date of this Agreement affecting such Tranche B Lender or the interbank Eurodollar market or the position of such Tranche B Lender in such market; or (iii) at any time, that the continuance of any Tranche B Loan has been made (x) unlawful by any law or governmental rule, regulation or order, (y) impossible by compliance by any Tranche B Lender in good faith with any governmental request (whether or not having force of law) or (z) impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Tranche B Lender (or Administrative Agent, in the case of clause (i) above) shall promptly give notice (by telephone promptly confirmed in writing) to Lessor and Lessee and, except in the case of clause (i) above, to Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each of the other Tranche B Lenders, as the case may be). Thereafter (x) in the case of clause (i) or clause (iii) above, upon at least three LIBOR Banking Days' written notice to Administrative Agent, the affected Tranche B Lender shall convert the Applicable Tranche B Rates to the sum of the Alternative Rate plus the Applicable Tranche B Margin, (y) in the case of clause (ii) above, Borrower shall pay (to the extent not paid by Lessee when due in accordance with the Quiet Enjoyment and Indemnity Agreement (Tranche B)) to such Tranche B Lender, within fifteen (15) days of such Tranche B Lender's written request therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Tranche B Lender reasonably shall determine) as shall be required to compensate such Tranche B Lender for such increased costs or reductions in amounts received or receivable hereunder as set forth in such written request as to the additional amounts owed to such Tranche B Lender, showing in reasonable detail the basis for the calculation thereof, submitted to Borrower by such Tranche B Lender (which written request shall, absent manifest error, be final and conclusive and binding on all the parties hereto). (b) If any Tranche B Lender incurs any Breakage Costs as a result of the occurrence of any of the events set forth in clause (x) of the last sentence of Section 2.7(a), or if -5- 9 at any time after the date of this Agreement any Tranche B Lender determines that the introduction of or any change in any applicable law or governmental rule, regulation, order, guideline, directive or request (whether or not having the force of law) concerning capital adequacy, or any change in interpretation or administration thereof by any governmental authority, central bank or comparable agency, will have the effect of increasing the amount of capital required or expected to be maintained by such Tranche B Lender or any corporation controlling such Tranche B Lender based on its obligations hereunder, then Borrower shall pay (to the extent not paid by Lessee when due in accordance with the Quiet Enjoyment and Indemnity Agreement (Tranche B)) to such Tranche B Lender, upon its written demand therefor, such Breakage Costs or additional amounts as shall be required to compensate such Tranche B Lender or such other corporation for the increased cost to such Tranche B Lender or such other corporation or the reduction in the rate of return to such Tranche B Lender or such other corporation as a result of such increase of capital. In determining such additional amounts, each Tranche B Lender will act reasonably and in good faith and will use averaging and attribution methods which are reasonable, provided that such Tranche B Lender's determination of Breakage Costs or compensation owing under this Section 2.7(b) shall, absent manifest error, be final and conclusive and binding on all the parties hereto. Each Tranche B Lender, upon determining that any Breakage Costs or additional amounts will be payable pursuant to this Section 2.7(b), will give prompt written notice thereof to Borrower, which notice shall show in reasonable detail the basis for calculation of such additional amounts. 3. CONDITIONS PRECEDENT 3.1. Conditions of Tranche B Loans. The obligation of each Tranche B Lender to make its Tranche B Loan hereunder is subject to the conditions precedent set forth in Section 3.2 of the Participation Agreement. 4. AFFIRMATIVE COVENANTS So long as any Tranche B Loan or other Obligation shall remain unpaid or unsatisfied: 4.1. Obligations. Borrower will faithfully abide by, perform and discharge each and every obligation, covenant and agreement to be performed by Borrower under the Operative Documents to which it is a party, and neither Administrative Agent nor Collateral Agent shall be responsible for any of such obligations, covenants or agreements under any circumstances. 4.2. Enforcement. At the request of Administrative Agent, Borrower will use its reasonable efforts to enforce or secure the performance of each and every obligation, covenant, condition and agreement contained in the Lease Agreement to be performed by Lessee. 4.3. Defense. Borrower, at the reasonable request of Administrative Agent, will appear in and defend every action or proceeding arising under, growing out of or in any manner connected with the Lease Agreement or the obligations, duties or liabilities thereunder of Borrower and Lessee. -6- 10 4.4. Financial Information. Borrower shall furnish to Administrative Agent or cause to be furnished to Administrative Agent, as the case may be (i) promptly upon receipt thereof, the documents, certificates and financial statements to be provided by Lessee pursuant to Section 9.3 of the Participation Agreement, (ii) such other information regarding the condition or operations, financial or otherwise, of Lessee, Guarantor or the Lessor Collateral as Majority Tranche B Lenders may from time to time reasonably request and which Lessee or Guarantor is obligated to provide to Borrower under the terms of the Operative Documents, (iii) upon notice thereof, notice of the existence of any Lease Default or Lease Event of Default, (iv) promptly upon receipt thereof, copies of all notices, lists or other written information received by Borrower from Lessee pursuant to the Operative Documents, and (v) promptly upon receipt thereof, copies of all notices, communications, documents and agreements relating to the Lessor Collateral. 4.5. Inspection. It shall allow or cause to allow any Person acting on behalf of any Tranche B Lender (i) to exercise on its behalf the inspection and examination rights set forth in Section 16 of the Lease Agreement and (ii) to visit, inspect and examine its books of record and accounts of Borrower and to discuss with Borrower its affairs, finances and accounts, in each case at such times and as often as any Tranche B Lender or Administrative Agent may reasonably request. 5. EVENTS OF DEFAULT 5.1. Tranche B Events of Default. The occurrence of any of the following specified events (whatever the reason for such Tranche B Event of Default and whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a "Tranche B Event of Default"; 5.1.1. Non-Payment. Borrower fails to pay, (i) when and as required to be paid herein, any amount of principal or interest of any Tranche B Loan and such amount remains unpaid for three (3) or more Business Days after the same is due and payable or (ii) any other fee or any other amount payable hereunder or under the Participation Agreement and default shall continue for ten (10) or more Business Days after receipt by Borrower of written notice thereof from Administrative Agent or any Tranche B Lender; or 5.1.2. Misleading Statements. Any representation or warranty by Borrower made in any of the Operative Documents or in any certificate delivered pursuant thereto shall prove to be untrue in any material respect on the date as of which made; or 5.1.3. Breaches of Other Operative Documents. Borrower fails to perform or observe any other covenant, condition or agreement required to be performed or observed by Borrower by the terms of this Agreement or any other Operative Document (other than any covenant, condition or agreement expressly made for the sole benefit of Tranche A Noteholders or identified in Section 5.1.1. above) and such failure shall continue unremedied for a period of thirty (30) days after receipt by Borrower of written notice thereof from Administrative Agent or any Tranche B Lender; or -7- 11 5.1.4. Insolvency Events. (i) Borrower shall consent to the appointment of or the taking of possession by a receiver, agent or liquidator of itself or of a substantial part of its property, or Borrower shall admit in writing its inability to pay its debts generally as they become due, or does not pay its debts generally as they become due or shall make a general assignment for the benefit of creditors, or Borrower shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization, liquidation or other relief in a case under any bankruptcy laws or other insolvency laws (as in effect at such time) or an answer admitting the material allegations of a petition filed against it, or Borrower shall seek relief by voluntary petition, answer or consent, under the provisions of any other bankruptcy or other similar law providing for the reorganization or winding-up of corporations (as in effect at such time) or Borrower shall seek an agreement, composition, extension or adjustment with its creditors under such laws, or Borrower shall adopt a resolution authorizing action in furtherance of any of the foregoing; or (ii) an order, judgment or decree shall be entered by any court of competent jurisdiction without the consent of Borrower (A) appointing a receiver, trustee or liquidator of Borrower or of any substantial part of its property, or (B) sequestering any substantial part of the property of Borrower, or (C) granting any other relief in respect of Borrower as a debtor under any bankruptcy laws or other insolvency laws (as in effect at such time), and in each case any such order, judgment or decree of appointment or sequestration shall remain in force undismissed, unstayed and unvacated for a period of sixty (60) days after the date of entry thereof; or (iii) a petition against Borrower in a case under any bankruptcy laws or other insolvency laws (as in effect at such time) is filed and not withdrawn or dismissed within sixty (60) days thereafter, or if, under the provisions of any law providing for reorganization or winding-up of corporations which may apply to Borrower, any court of competent jurisdiction assumes jurisdiction, custody or control of such person or of any substantial part of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed and unterminated for a period of sixty (60) days; or 5.1.5. Monetary Judgments. One or more monetary non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against Borrower (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty (30) days after the entry thereof, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of Borrower to enforce any such judgment; or 5.1.6. Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against Borrower which does or would reasonably be expected to have a material adverse effect with respect to Borrower, and there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of Borrower to enforce any such judgment; or 5.1.7. Lease Event of Default. A Lease Event of Default shall have occurred and be continuing; or -8- 12 5.1.8. Other Indebtedness. Borrower shall (i) default in any payment of any Indebtedness aggregating $1,000 or more beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any Indebtedness aggregating $1,000 or more or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to have caused, such Indebtedness to become due prior to its stated maturity, or (iii) any Indebtedness of Borrower aggregating $1,000 or more shall be declared to be due and payable, or required to be prepaid other than by a regularly scheduled required prepayment, prior to the stated maturity thereof, other than a partial redemption of Tranche A Notes under Section 3.03(a), 3.03(b), 4.13 or 4.14 of the Indenture; or 5.1.9. Investment Company. Borrower shall become an "investment company" within the meaning of the Investment Company Act of 1940, as amended or the arrangements contemplated by the Operative Documents shall require registration as an "investment company" within the meaning of such Act. 5.2. Remedies of Tranche B Lenders. 5.2.1. Rights in Collateral. If a Tranche B Event of Default shall have occurred and be continuing, then and in every such case Administrative Agent shall, upon written request by the Majority Tranche B Lenders, subject to the provisions of Section 7 of the Participation Agreement and Lessee's right of quiet enjoyment pursuant to Section 2 of the Lease Agreement, exercise any or all of the rights and powers and pursue any and all of the remedies under the other Security Documents, and any and all remedies available to a secured party under the UCC or any other provision or law. 5.2.2. Acceleration. If a Tranche B Event of Default referred to in Section 5.1.4 shall have occurred or a Lease Event of Default of the type referred to in clause (g) of Section 23 of the Lease Agreement thereof shall have occurred, then and in every such case, the unpaid principal of each Tranche B Loan, together with interest accrued but unpaid thereon, Breakage Costs, if any, and all other amounts due to each Tranche B Lender shall, unless such Tranche B Lender shall otherwise direct, immediately and without further act become due and payable by Borrower to such Tranche B Lender, without presentment, demand, protest or notice, all of which are hereby waived. If any other Tranche B Event of Default shall have occurred and be continuing, then and in every such case, Administrative Agent shall, upon written request by the Majority Tranche B Lenders, by written notice or notice to Borrower, declare all Tranche B Loans to be due and payable, whereupon the unpaid principal of the Tranche B Loans then outstanding, together with accrued but unpaid interest thereon, Breakage Costs, if any, and all other amounts due from Borrower to Tranche B Lenders, shall immediately and without further act become due and payable by Borrower to Tranche B Lenders without presentment, demand, protest or other notice, all of which are hereby waived. 5.2.3. Rights Cumulative. Each and every right, power and remedy herein given to Tranche B Lenders specifically or otherwise in this Agreement shall be cumulative and shall be in addition to every other right, power and remedy herein specifically -9- 13 given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Majority Tranche B Lenders. 6. MISCELLANEOUS 6.1. Amendment or Waiver. Neither this Agreement nor any other Operative Document nor any term hereof or thereof may be changed, amended, waived, discharged or terminated except in accordance with Section 12.2 of the Participation Agreement. 6.2. Notices. Unless otherwise provided herein, all notices, requests, demands, consents, instructions or other communications to or upon the respective parties to this Agreement shall be given in accordance with Section 12.4 of the Participation Agreement. 6.3. No Waiver. No failure to exercise and no delay in exercising, on the part of Administrative Agent or any Tranche B Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 6.4. Payments Set Aside. To the extent that Borrower makes a payment to Administrative Agent, Collateral Agent or Tranche B Lenders, or Administrative Agent, Collateral Agent or Tranche B Lenders exercise any right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by Administrative Agent, Collateral Agent or such Tranche B Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any event of the type described in Section 5.1.4 or otherwise, then (i) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (ii) each Tranche B Lender severally agrees to pay to Administrative Agent or Collateral Agent, upon demand its pro rata share of any amount so recovered from or repaid by Administrative Agent or Collateral Agent. 6.5. Assignments. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, neither Borrower nor any Tranche B Lender may assign or transfer any of its rights, obligations or interest hereunder except in accordance with Section 12.7 of the Participation Agreement. 6.6. Set-off. In addition to any rights and remedies of Tranche B Lenders provided by Applicable Law, if a Tranche B Event of Default exists or the Tranche B Loans have been accelerated, each Tranche B Lender is authorized at any time and from time to time, without prior notice to Borrower, any such notice being waived by Borrower to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such -10- 14 Tranche B Lender to or for the credit or the account of Borrower against any and all obligations owing to such Tranche B Lender, now or hereafter existing, irrespective of whether or not Administrative Agent or such Tranche B Lender shall have made demand under this Agreement or any other Operative Document and although such obligations may be contingent or unmatured. Each Tranche B Lender agrees promptly to notify Borrower and Administrative Agent after any such set-off and application made by such Tranche B Lender; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. 6.7. Execution and Effectiveness. This Agreement may be executed (i) in multiple counterparts, each of which shall be regarded as an original and all of which shall constitute a single instrument and shall become effective on the Closing Date when each of the parties hereto shall have signed a copy hereof (whether the same or different copies) and (ii) by facsimile signature and each such signature shall be treated in all respects as having the same effect as an original signature. 6.8. 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. To the extent permitted by Applicable Law, the parties hereto hereby waive any provision of law that renders any provisions hereof prohibited or unenforceable in any respect. 6.9. Acknowledgments. Borrower hereby acknowledges that: (a) neither Administrative Agent nor any Tranche B Lender has any fiduciary relationship with or duty to Borrower arising out of or in connection with this Agreement or any of the other Operative Documents, and the relationship between Administrative Agent, Collateral Agent and Tranche B Lenders, on one hand, and Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (b) no joint venture is created hereby or by the other Operative Documents or otherwise exists by virtue of the transactions contemplated hereby among Tranche B Lenders or among Borrower and Tranche B Lenders. 6.10. Further Assurances. Borrower agrees to do such further acts and things and to execute and deliver to Administrative Agent or Collateral Agent such additional assignments, agreements, powers and instruments, as Administrative Agent may reasonably require or deem advisable to carry into effect the purposes of this Agreement and the other Operative Documents or to better assure and confirm unto Administrative Agent and Tranche B Lenders their respective rights, powers and remedies hereunder. 6.11. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED -11- 15 BY THE LAW OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH IN SECTION 12.4 OF THE PARTICIPATION AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR COLLATERAL AGENT UNDER THIS AGREEMENT, ANY TRANCHE B LENDER OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION. (b) BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 6.12. Survival of Agreement. All covenants, agreements, representations and warranties made by Borrower in the Participation Agreement and in the certificates or other instruments prepared or delivered in connection with or pursuant to the Participation Agreement, this Agreement or any other Operative Document shall be considered to have been relied upon by Tranche B Lenders and shall survive the making by Tranche B Lenders of the Tranche B Loans, and the execution and delivery to Tranche B Lenders of the Tranche B Notes evidencing such Tranche B Loans, regardless of any investigation made by Tranche B Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Tranche B Loan or any fee or any other amount payable under this Agreement or any other Operative Document is outstanding and unpaid. -12- 16 6.13. Domicile of Tranche B Loans. Each Tranche B Lender may transfer and carry its Tranche B Loans at, to or for the account of any lending office, Subsidiary or Affiliate of such Tranche B Lender, provided however, any amount Borrower is thereafter obligated to pay under Section 2.7 shall be limited to the amount Borrower would have had to pay had no transfer occurred under this Section 6.13. 6.14. Entire Agreement. This Agreement and each of the other Operative Documents, taken together, constitute and contain the entire agreement of the parties hereto and supersede any and all prior agreements, negotiations, correspondence, understandings and communications among the parties, whether written or oral, respecting the subject matter hereof. -13- 17 WHEREFORE, the parties hereto have caused this Agreement to be duly executed and delivered in New York, New York by their proper and duly authorized officers as of the day and year first above written. BRL UNIVERSAL EQUIPMENT 2001 A, L.P., as Borrower By BRL Universal Equipment Management, Inc. Its General Partner By: /s/ GREGORY C. GREENE ------------------------------------------- Name: Gregory C. Greene Title: President BANKERS TRUST COMPANY as Administrative Agent By: /s/ MARCUS M. TARKINGTON ------------------------------------------- Name: Marcus M. Tarkington Title: Director BANKERS TRUST COMPANY as Collateral Agent By: /s/ MARCUS M. TARKINGTON ------------------------------------------- Name: Marcus M. Tarkington Title: Director BANKERS TRUST COMPANY as a Tranche B Lender By: /s/ MARCUS M. TARKINGTON ------------------------------------------- Name: Marcus M. Tarkington Title: Director FIRST UNION NATIONAL BANK as a Tranche B Lender By: /s/ DAVID HUMPHREYS ------------------------------------------- Name: David Humphreys Title: Vice President -Signature Page- [Tranche B Loan Agreement] 18 BANK ONE, NA (Main Office Chicago) as a Tranche B Lender By: /s/ J. CHARLES FREEL, JR. ------------------------------------------- Name: J. Charles Freel, Jr. Title: First Vice President THE BANK OF NOVA SCOTIA as a Tranche B Lender By: /s/ M.D. SMITH ------------------------------------------- Name: M.D. Smith Title: Agent -Signature Page- [Tranche B Loan Agreement] 19 EXHIBIT A [FORM OF] NOTE NOTE $ New York, New York ----------------- February __, 2001 [ ] ----------------- FOR VALUE RECEIVED, the undersigned, BRL Universal Equipment 2001 A, L.P., (the "Borrower"), PROMISES TO PAY TO [ ], a [ ] organized under the laws of [ ] (the "Tranche B Lender"), or its registered assigns, if not earlier accelerated, on the Maturity Date (as defined in Appendix A to the Participation Agreement (the "Participation Agreement") dated as of February 9, 2001 among Universal Compression, Inc., Universal Compression Holdings, Inc., Borrower, The Bank of New York, not in its individual capacity but for the benefit of Tranche A Noteholders, Tranche B Lenders party thereto, BRL Universal Equipment Management, Inc., Bankers Trust Company as Administrative Agent and Bankers Trust Company as Collateral Agent at such place as Tranche B Lender designates on Schedule 2 to the Participation Agreement or as Tranche B Lender may from time to time designate, the principal sum of ___________________________ United States Dollars (U.S. $_____________) in lawful money of the United States and in immediately available funds. Interest on the unpaid principal balance outstanding herewith from time to time shall be payable as stated in the Tranche B Loan Agreement and, if principal is not earlier accelerated in accordance with the terms of the Tranche B Loan Agreement shall be payable on each Floating Payment Date. Capitalized terms used but not otherwise defined in this Tranche B Note shall have the respective meaning given to such terms in Appendix A to the Participation Agreement. Borrower may make prepayments on this Tranche B Note only as provided in the Tranche B Loan Agreement. This is one of the Tranche B Notes referred to in the Tranche B Loan Agreement and is entitled to the benefits of the provisions of the Tranche B Loan Agreement, the security provided by the Security Documents and the indemnification set forth in Section 10 of the Participation Agreement. Upon the occurrence of a Tranche B Event of Default, the principal hereof and accrued interest hereon may be declared to be and shall thereupon become forthwith due and payable, together with all other amounts owing or payable under the Tranche B Loan Agreement or under any other Operative Document, all as provided in the Tranche B Loan Agreement. In the event any sum payable hereunder is not paid when due (by acceleration or otherwise), such sum shall bear interest at the Overdue Rate in accordance with Section 2.3.3 of the Tranche B Loan Agreement. 20 Exhibit A Page 2 This Tranche B Note is subject to the repayment and prepayment provisions set forth in Section 2.5 of the Tranche B Loan Agreement. Borrower waives presentment, demand, protest or notice of any kind in connection with this Tranche B Note. This Tranche B Note is issued as a registered Tranche B Note. Borrower may deem and treat the Person in whose name this Tranche B Note is registered on the register held by Administrative Agent or its agent as the absolute owner hereof (whether or not this Tranche B Note shall be overdue) for the purpose of paying payments of principal, Breakage Costs, if applicable, and interest and for all other purposes, and Borrower and Tranche B Lender shall not be affected by any notice to the contrary. This Tranche B Note may be transferred or assigned only in accordance with the provisions of the Participation Agreement. Tranche B Lender shall have recourse for all liabilities and obligations arising under this Tranche B Note, the Tranche B Loan Agreement and the other Operative Documents to the extent of such collateral, if any, as may secure Borrower's obligations and liabilities under this Tranche B Note, the Tranche B Loan Agreement and the other Operative Documents. Neither this Tranche B Note nor the Tranche B Loan Agreement shall require the payment or permit the collection of interest in excess of the maximum permitted by law. If any such excess of interest is provided for, or shall be adjudicated to be so provided for, herein or in the Tranche B Loan Agreement, Borrower shall not be obligated to pay such interest in excess of the maximum amount permitted by law, and the right to demand the payment of any such excess shall be and is hereby waived. Without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Tranche B Note which are made for the purpose of determining whether such rate exceeds the maximum rate permitted by Applicable Law, shall be made, to the extent permitted by Applicable Law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby all interest at any time contracted for, charged or received from the Borrower or otherwise by the Tranche B Lender in connection with the Tranche B Loan. This provision shall control any other provision of this Tranche B Note or the Tranche B Loan Agreement. This Tranche B Note shall be governed by and construed in accordance with the laws of the State of New York. BRL UNIVERSAL EQUIPMENT 2001 A, L.P. By BRL Universal Equipment Management, Inc. Its General Partner By: -------------------------------- Name: Gregory C. Greene Title: President 21 EXHIBIT B [FORM OF] ASSIGNMENT AND ASSUMPTION AGREEMENT Date , 20 ---------- --- -- Reference is made to the Tranche B Loan Agreement described in Item 2 of Annex I hereto (as such Tranche B Loan Agreement may hereafter be amended, supplemented or otherwise modified from time to time, the "Tranche B Loan Agreement"). Capitalized terms unless defined herein have the meaning assigned to them in Appendix A to the Participation Agreement (the "Participation Agreement") dated as of February 9, 2001 among Universal Compression, Inc., Universal Compression Holdings, Inc., Borrower, The Bank of New York, not in its individual capacity but for the benefit of Tranche A Noteholders, Tranche B Lenders party thereto, BRL Universal Equipment Management, Inc., Bankers Trust Company as Administrative Agent and Bankers Trust Company as Collateral Agent _______________ (the "Assignor") and ____________ (the "Assignee") hereby agree as follows: 1. Assignor hereby sells and assigns to Assignee without recourse and without representation or warranty (other than as expressly provided herein), and Assignee hereby purchases and assumes from Assignor, that interest in and to all of Assignor's rights and obligations under the Tranche B Loan Agreement and the other Operative Documents as of the date hereof which represents the percentage interest specified in Item 4 of Annex I hereto (the "Assigned Share") of all of the outstanding rights and obligations under the Tranche B Loan Agreement including, without limitation, all rights and obligations with respect to the Assigned Share of Assignor's outstanding Tranche B Loan. 2. Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Tranche B Loan Agreement or the other Operative Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Tranche B Loan Agreement or the other Operative Documents or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of Lessor, Lessee, Guarantor or any of its Subsidiaries or the performance or observance by Lessor, Lessee, Guarantor or any of its Subsidiaries of any of their obligations under the Operative Documents or any other instrument or document furnished pursuant thereto. 3. Assignee (i) confirms that it has received a copy of the Tranche B Loan Agreement and the other Operative Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption Agreement; (ii) agrees that it will, independently and without reliance upon Administrative Agent, Collateral Agent, Assignor or any other Tranche B Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Tranche B Loan Agreement or the other Operative Documents; (iii) confirms that it is an Eligible Transferee; (iv) appoints and authorizes 22 Exhibit B Page 2 Administrative Agent and Collateral Agent to take such action as agent on its behalf and to exercise such powers under the Tranche B Loan Agreement and the other Operative Documents as are delegated to Administrative Agent and Collateral Agent, as the case may be, by the terms thereof, together with such powers as are reasonably incidental thereto; [and] (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Tranche B Loan Agreement and the other Operative Documents are required to be performed by it as a Tranche B Lender[; and (vi) to the extent legally entitled to do so, attaches the forms described in Section 12.7(iv) of the Participation Agreement (1). 4. Following the execution of this Assignment and Assumption Agreement by Assignor and Assignee, an executed original hereof (together with all attachments) will be delivered to Administrative Agent. The effective date of this Assignment and Assumption Agreement shall be the date of execution hereof by Assignor and Assignee and the receipt of the consent of Administrative Agent, Lessor and Lessee to the extent required by Section 12.7 of the Participation Agreement and receipt by Administrative Agent of the assignment fee referred to in such Section 12.7(iv) of the Participation Agreement, unless otherwise specified in Item 5 of Annex I hereto (the "Settlement Date"). 5. Upon the delivery of a fully executed original hereof to Administrative Agent (including all consents required under Section 12.7(iv) of the Participation Agreement) and registration of the assignment of the Tranche B Note assigned hereunder in accordance with Section 11.8(b) of the Participation Agreement, as of the Settlement Date, (i) Assignee shall be a party to the Tranche B Loan Agreement and the Participation Agreement and, to the extent provided in this Assignment and Assumption Agreement, have the rights and obligations of a Tranche B Lender thereunder and under the other Operative Documents and (ii) Assignor shall, to the extent provided in this Assignment and Assumption Agreement, relinquish its rights and be released from its obligations under the Tranche B Loan Agreement, the Participation Agreement and the other Operative Documents. 6. It is agreed that Assignee shall be entitled to all interest on the Assigned Share of the Tranche B Loan at the rates specified in Item 6 of Annex I. It is further agreed that all payments of principal made on the Assigned Share of the Tranche B Loan which occur on and after the Settlement Date will be paid directly by Administrative Agent to Assignee. Upon the Settlement Date, Assignee shall pay to Assignor an amount specified by Assignor in writing which represents the Assigned Share of the principal amount of the Tranche B Loans made by Assignor pursuant to the Tranche B Loan Agreement and which are outstanding on the Settlement Date, net of any closing costs, and which are being assigned hereunder. Assignor and Assignee shall make all appropriate adjustments in payments under the Tranche B Loan Agreement for periods prior to the Settlement Date directly between themselves on the Settlement Date. - ---------- (1) Include if the Assignee is organized under the laws of a jurisdiction outside of the United States. 23 Exhibit B Page 3 7. THIS ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. 24 Exhibit B Page 4 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Assignment and Assumption Agreement, as of the date first above written, such execution also being made on Annex I hereto. Accepted this day [NAME OF ASSIGNOR], of ________ __, ____ as Assignor By ---------------------------------- Title: [NAME OF ASSIGNEE], as Assignee By ---------------------------------- Title: [If required under Section 12.7(iv) of the Participation Agreement] We hereby consent to the above assignment: Bankers Trust Company Universal Compression, Inc. as Administrative Agent as Lessee By By ------------------------------- --------------------------- - ---------------------------------- ----------------------------- (Print Name and Title) (Print Name and Title) BRL Universal Equipment 2001 A, L.P. as Lessor By BRL Universal Equipment Management, Inc. Its General Partner By ------------------------------- ---------------------------------- (Print Name and Title) EX-10.5 11 h84315ex10-5.txt MASTER EQUIPMENT LEASE AGREEMENT - DATED 2/9/01 1 EXHIBIT 10.5 MASTER EQUIPMENT LEASE AGREEMENT between BRL UNIVERSAL COMPRESSION FUNDING I, L.P. as Head Lessor and UCO COMPRESSION LLC as Head Lessee Dated as of February 9, 2001 ---------------------------------------- 2 TABLE OF CONTENTS
Page ---- 1. Definitions...............................................................1 2. General Provisions.......................................................12 2.1 Agreement for Leasing of Compressors............................12 2.2 Monthly Lease Payment and Additional Payment....................12 2.3 Supplemental Rent...............................................12 2.4 Payments of Rent................................................12 2.5 Minimum Rent....................................................12 2.6 Nature of Payment, Taxes........................................13 2.7 Quiet Enjoyment Intention of the Parties........................13 2.8 Characterization of Head Lease..................................13 2.9 Overpayments....................................................14 3. Delivery, Acceptance and Leasing of Compressors..........................14 4. Term.....................................................................14 5. Return of Compressors....................................................14 5.1 Redelivery......................................................14 5.2 Items to Accompany Redelivery...................................14 5.3 Redelivery Condition............................................15 5.4 Storage.........................................................15 5.5 Timely Redelivery, Deemed Purchase Option.......................16 5.6 Specific Performance............................................16 6. Net Lease Agreement......................................................16 7. Compressors are Personal Property........................................17 8. Use of Compressors, Compliance with Laws.................................17 9. Maintenance and Repair of Compressors....................................18 10. Alterations..............................................................18 11. Assignment and Subleasing by Head Lessee.................................19 12. Liens....................................................................20
i 3 13. Loss, Damage or Destruction..............................................20 13.1 Risk of Loss, Damage or Destruction.............................20 13.2 Payment Upon an Event of Loss...................................21 13.3 Application of Payments Not Relating to an Event of Loss........21 14. Insurance................................................................22 15. NO HEAD LESSOR WARRANTIES................................................23 16. Assignment of Manufacturer Warranties....................................23 17. Head Lease Event of Default..............................................23 18. Remedies Upon Default....................................................25 19. Head Lessor's Right to Perform for Head Lessee...........................26 20. End of Term Options......................................................27 20.1 Head Lessee Purchase Option.....................................27 20.2 Return Option...................................................27 20.3 Renewal Option..................................................29 21. General Indemnity........................................................29 22. Tax Indemnity............................................................33 23. Security for Head Lessor's Obligations...................................34 24. Notices..................................................................34 25. GOVERNING LAW, SUBMISSION TO JURISDICTION: VENUE, WAIVER OF JURY TRIAL..............................................34 26. Miscellaneous............................................................35 27. Execution and Effectiveness..............................................36 28. Statutory References.....................................................36 29. Severability.............................................................36 30. Counterparts.............................................................36 31. Amendments and Waivers...................................................36
ii 4 32. Purchase Option..........................................................36
EXHIBIT A Form of Lease Supplement iii 5 This MASTER EQUIPMENT LEASE AGREEMENT dated as of February 9, 2001 (herein, as amended, supplemented and otherwise modified from time to time, this "Head Lease"), is between BRL UNIVERSAL COMPRESSION FUNDING I, L.P., a Delaware limited partnership (together with its successors and assigns, "Head Lessor") and UCO COMPRESSION LLC, a Delaware limited liability company (together with its successors and assigns, "Head Lessee"). In consideration of the mutual covenants and agreements set forth herein, the parties hereto agree as follows: 1. Definitions. Whenever used in this Head Lease, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Other capitalized items not defined below shall have the meanings given to such terms in the Indenture (as defined below). Additional Payment: For any Rent Payment Date on which a Trigger Event is continuing, an amount equal to the sum of (x) excess of (A) the Available Head Lessee Collections for the immediately preceding Collection Period, over (B) the sum of all amounts actually paid pursuant to clauses (1) through (6) inclusive of Section 7.2(b) of the Head Lessee Security Agreement on such Rent Payment Date, and (y) any amount on deposit in the Back-up Manager Account in excess of the amount, determined by the Deal Agent in its sole discretion, that is or would be needed to compensate a replacement manager). Advance Rate: With respect to each Lease Supplement and each Lease Pool set forth in such Lease Supplement, the Advance Rate for such Lease Pool is set forth in the following table; provided, however, that the Advance Rate for a particular Lease Pool will reduce to zero on and after the date on which a Head Lease Event of Default shall have occurred and then be continuing:
Supplement Lease Advance Number Pool Rate ---------- ----- ------- 1 1 80% 2 2 75% 3 3 70% 4 4 70% 5 5 65% 6 6 60%
Affiliate: This term shall have the meaning set forth in Section 101 of the Indenture. After-Tax or After-Tax Basis: After deduction of the net amount of all Taxes actually required to be paid by any Person (taking into account any Tax savings actually realized and not already taken into account by such Person or any Affiliate thereof by reason of the event or circumstance giving rise to the payment that is being paid on an After-Tax Basis) with respect to the receipt or accrual by it of an amount (including additional amounts received by reason of such amounts being paid on an After-Tax Basis). 6 Aggregate Appraised Value: The sum of the most recently available Appraised Values of the Compressors; provided, however, that if the Return Option has been selected on the most recent Termination Date in accordance with the provisions of Section 20.2 hereof, then, notwithstanding the results of any Appraisal, the Aggregate Appraised Value for the remaining Compressors will not exceed the product of (a) total horsepower of all Compressors and (b) the quotient of (i) the Net Sales Proceeds obtained in the most recent sale of Compressors made in connection with the exercise of the Return Option divided by (ii) the total number of horsepower in the Lease Pool sold pursuant to the Return Option. Aggregate Required OC Amount: As of any date of determination, an amount equal to the difference between (1) an amount equal to the quotient of (x) the then unpaid principal balance of all Notes and Capital then outstanding divided by (y) the mathematical average of the Advance Rates for each Lease Pool for which the related Term has not expired or terminated and (2) the then unpaid principal balance of all Notes and Capital then outstanding. Allocable Portion: With respect to each Lease Pool, a fraction (expressed as a percentage) the numerator of which is equal to the sum of the most recently available Appraised Values for all Eligible Compressors in such Lease Pool and the denominator of which is equal to the sum of the most recently available Aggregate Appraised Values for all Lease Pools for which the Term thereof has not yet expired or been terminated. Annual Appraisal Date: The Payment Date occurring in February of each calendar year commencing February 2002. Applicable Law: This term shall have the meaning set forth in Section 101 of the Indenture. Appraisal: This term shall have the meaning set forth in Section 101 of the Indenture. Appraised Value: This term shall have the meaning set forth in Section 101 of the Indenture. Available Head Lessee Collections: This term shall have the meaning set forth in Section 1 of the Head Lessee Security Agreement. Back-up Manager Fee: This term shall have the meaning set forth in Section 1 of the Management Agreement. Breakage Costs: This term shall have the meaning set forth in Section 205(c) of the Series 2001-1 Supplement. Business Day: This term shall have the meaning set forth in the Indenture. Capital: This term shall have the meaning set forth in the Partnership Agreement. 2 7 Certificates: This term shall have the meaning set forth in Section 101 of the Indenture. Claim: This term shall have the meaning set forth in Section 21 hereof. Class A Note Interest Payment: This term shall have the meaning set forth in Section 101 of the Series 2001-1 Supplement. Closing Date: This term shall have the meaning set forth in Section 101 of the Indenture. Collection Period: This term shall have the meaning set forth in Section 101 of the Indenture. Commitment Fee: For each Rent Payment Date, the commitment fees payable on the next succeeding Payment Date, as such amounts and dates are set forth in the Series 2000-1 Supplement issued pursuant to the Indenture. Compressor: This term shall have the meaning set forth in Section 101 of the Indenture. Concentration Limits: This term has the meaning set forth in Section 1.01 of the Contribution Agreement. Determination Date: This term shall have the meaning set forth in Section 101 of the Series 2001-1 Supplement. Dollars: This term shall have the meaning set forth in Section 101 of the Indenture. Eligible Compressor: This term shall have the meaning set forth in Section 101 of the Indenture. Entitled Party: This term shall have the meaning set forth in the Head Lessee Security Agreement. Equipment Filing Locations: This term shall have the meaning set forth in Section 101 of the Indenture. Event of Default: This term shall have the meaning set forth in Section 101 of the Indenture. Event of Loss: With respect to any Compressor means (a) the loss of such Compressor or any substantial part thereof, or (b) the loss of the use of such Compressor due to theft or disappearance for a period in excess of 45 days during the Term, or existing at the expiration or earlier termination of the Term, or (c) the destruction, damage beyond repair, or rendition of such Compressor or any substantial part thereof permanently unfit for normal use for any reason 3 8 whatsoever, or (d) the condemnation, confiscation, seizure, or requisition of use or title to such Compressor or any substantial part thereof by a or any Governmental Authority under the power of eminent domain or otherwise beyond the earlier of fifteen (15) days and the end of the Term. Excluded Payment: This term shall have the meaning set forth in Section 101 of the Indenture. Fair Market Sales Value: With respect to the Compressor, an amount equal in amount to, the value which would be obtained in an arm's length transaction between an informed and willing purchaser under no compulsion to buy and an informed and willing seller under no compulsion to sell the compressor. Governmental Authority: This term shall have the meaning set forth in Section 101 of the Indenture. Gross Compressor Lease Revenues: For any Collection Period, an amount equal to the sum of all rental payments (but excluding (i) indemnity payments received from Universal, (ii) Net Sales Proceeds and (iii) any rental payment for which the Manager has previously made an unreimbursed Manager Advance) received by, or on behalf of, the Head Lessee during such Collection from the leasing or subleasing, as the case may be, of both the Head Lessee Compressors and the Head Lessor Compressors. Head Lease: This term shall have the meaning set forth in Section 2.1 hereof. Head Lease Collateral: This term shall have the meaning set forth in Section 2 of the Head Lessee Security Agreement. Head Lease Event of Default: This term shall have the meaning set forth in Section 17. Head Lessee Collection Account: This term shall have the meaning set forth in the Head Lessee Security Agreement. Head Lessee Collections: For any Collection Period, an amount equal to the sum of (i) the Gross Compressor Lease Revenues actually received by, or on behalf of, the Head Lessee during such Collection Period, (ii) the Net Sales Proceeds actually received by, or on behalf of, the Head Lessee during such Collection Period from the sale of any Head Lessee Compressor in accordance with the terms of the Related Documents, and (iii) any Manager Advances. Head Lessee Compressors: This term shall have the meaning set forth in Section 101 of the Indenture. Head Lessee Indemnified Person: The Head Lessor (including its partners and the officers, directors, shareholders and Affiliates of each such Partner), the Indenture Trustee and the Noteholders. 4 9 Head Lessee Purchase Option: This term shall have the meaning set forth in Section 20.1 hereof. Head Lessee Security Agreement: The head lessee security agreement, dated as of February 9, 2001, between the Head Lessee and the Head Lessor, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. Head Lessor Compressors: This term shall have the meaning set forth in Section 101 of the Indenture. Head Lessor Liens: Any Lien on or against any Compressor, this Head Lease, or Head Lessor's interest therein arising as a result of (a) any claim against Head Lessor not resulting from the transactions contemplated by the Related Documents, (b) any act or omission of Head Lessor which is not required or expressly permitted by the Related Documents or is in violation of any of the terms of the Related Documents, (c) any claim against Head Lessor with respect to taxes or obligations of such Person against which Head Lessee is not required to indemnify such Person pursuant to the Related Documents or (d) any claim against Head Lessor arising out of any transfer by Head Lessor of all or any portion of the interest of such Person in any Compressor or the Related Documents other than the transfer of interest in or possession of such Compressor by such Person pursuant to and in accordance with the Related Documents or pursuant to the exercise of any remedy set forth in the Related Documents. Indemnitee: Each of the Head Lessor, the Indenture Trustee, each Noteholder, each Entitled Party, their Affiliates, and each of the successors and permitted assigns and each of the partners, directors, officers, employees, servants and agents of each of the foregoing and of each such Affiliate and of such successors and permitted assigns. Indenture: The indenture, dated as of February 9, 2001, between the Issuer and the Indenture Trustee, as such may be amended, supplemented and otherwise modified from time to time in accordance with its terms. Indenture Trustee: This term shall have the meaning set forth in Section 905 of the Indenture. Indenture Trustee Fees: This term shall have the meaning set forth in Section 101 of the Indenture. Insolvency Law: This term shall have the meaning set forth in Section 101 of the Indenture. Interest Expense: For each Rent Payment Date, an amount equal to the sum of (i) Class A Note Interest Payment payable on the next succeeding Payment Date and (ii) the amounts payable by the Issuer under any Interest Rate Swap Agreement on such Payment Date (as each such term is defined in the Series 2000-1 Supplement issued pursuant to the Indenture). 5 10 Interest Rate Swap Agreement: This term shall have the meaning set forth in Section 101 of the Indenture. Issuer: This term shall have the meaning set forth in Section 101 of the Indenture. Lease Payment Adjustment: For any Lease Pool, the difference between (x) the product of (i) the Purchase Option Percentage and (ii) the sum of (A) the aggregate unpaid principal balance of the Notes and the Capital as of the Termination Date, (B) all accrued but unpaid interest on and Commitment Fees payable with respect to the Notes on the Termination Date, and (C) any unpaid Partnership Priority Payments on such Termination Date and (y) the Net Sales Proceeds of such Compressors conducted at the time and subject to the conditions set forth in Section 20.2.4 hereof; provided, however, that the Lease Payment Adjustment for any Lease Pool shall not exceed an amount equal to the Maximum Head Lessee Risk Amount. Lease Pool: Collectively all of the Head Lessor Compressors set forth in a specific Lease Supplement. Lease Supplement: Each supplement to this Head Lease executed from time to time by the Head Lessor and the Head Lessee, which supplement shall be substantially in the form of Exhibit A hereto. Liability Insurance: This term shall have the meaning set forth in Section 14 hereof. Lien: This term shall have the meaning set forth in Section 101 of the Indenture. Manager: This term shall have the meaning set forth in Section 101 of the Indenture. Manager Advance: This term shall have the meaning set forth in Section 8.1 of the Management Agreement. Manager Default: This term shall have the meaning set forth in Section 12.1 of the Management Agreement. Manager Report: This term shall have the meaning set forth in Section 101 of the Indenture. Maximum Head Lessee Risk Amount: For any Lease Pool on any date of determination, an amount equal to the maximum amount permissible such that after giving effect to such payment this Head Lease is classified as an operating lease under GAAP. Maximum Head Lessor Risk Amount: For any Lease Pool on any date of determination, an amount equal to the maximum amount permissible such that after giving effect to such payment this Head Lease is classified as an operating lease under GAAP. Monthly Lease Payment: For any Rent Payment Date, one of the following amounts: 6 11 (A) if no Trigger Event is then continuing, the excess of (i) the sum of the amounts (if any) payable on the immediately succeeding (or related) Payment Date pursuant to clauses (1), (2), (3), (4), (5), (6), (7) and (8) of Section 302(c) of the Indenture over (ii) the amount to be received by the Issuer on such Payment Date from all Interest Rate Swap Agreements; or (B) if a Trigger Event is then continuing, the sum of (i) the amount set forth in clause (A) above and (ii) the Additional Payment. Net Revenue: For any Collection Period, the excess of (x) the Gross Compressor Lease Revenues actually billed by, or on behalf of, the Head Lessee during such Collection Period over (y) the amounts payable pursuant to clauses (1) and (2) of Section 7.2(b) of the Head Lessee Security Agreement for such Collection Period. Net Revenue Event: The condition that will exist if the Manager Report delivered on any Determination Date indicates that the Net Revenue for the related Collection Period is less than an amount equal to the product of (i) two and (ii) the amounts payable pursuant to clauses (3), (4) and (5) (excluding the portion thereof representing commitment fees or availability fees) of Section 302(c) of the Indenture for such Collection Period, provided, however, that solely for purposes of this clause (ii), the Back-up Manager Fee payable pursuant to clause (1) of Section 302(c) of the Indenture shall be excluded from the Monthly Lease Payment so long as no Trigger Event is continuing. Once a Net Revenue Event occurs, such Net Revenue Event will continue until the date on which a subsequent Manager Report indicates that such condition is no longer continuing. Net Sales Proceeds: With respect to each Compressor sold by, or on behalf of, Head Lessor or the Head Lessee, as the case may be, to a third party, the net amount of the proceeds of sale of such Compressor, after deducting from the gross proceeds of such sale (i) all sales taxes and other taxes as may be applicable to the sale or transfer of such Compressor, (ii) all fees, costs and expenses of such sale reasonably incurred by Head Lessor or Head Lessee in the case of a sale on the Termination Date or by Head Lessor in the case of a sale after the Termination Date and (iii) any other amounts for which, if not paid Head Lessor would be liable as a result of such sale or which, if not paid, would constitute a Lien on such Compressor. Noteholders: This term shall have the meaning set forth in Section 101 of the Indenture. Notes: As of any date of determination all of the Notes issued pursuant to the Indenture that are then Outstanding. Optional Alteration: This term shall have the meaning set forth in Section 10 hereof. Outstanding: This term shall have the meaning set forth in Section 101 of the Indenture. Overcollateralization Event: The condition that will exist if the Manager Report delivered on any Determination Date indicates the existence of any of the following conditions: 7 12 (1) the sum of the then unpaid principal balance of all Notes and the then unpaid Capital, exceeds an amount equal to the excess of (A) the then Aggregate Appraised Value over (B) the then Aggregate Required OC Amount; (2) with respect to any Lease Pool, an amount equal to the product of (x) the Allocable Portion for such Lease Pool and (y) the then unpaid principal balances of the Notes and Capital, exceeds an amount equal to 115% of the sum of the most recent Appraised Values of all Eligible Compressors in such Lease Pool; or (3) the sum of the then unpaid principal balance of the Notes and the then unpaid Capital is greater than an amount equal to the product of (x) four and one-half (4.5) and (y) annualized Net Revenue for the Collection Period immediately preceding each Annual Appraisal Date, provided, however, that in calculating Net Revenue for purposes of this clause (3), such amount will be calculated utilizing the Monthly S&A Fee Rate (as defined in the Management Agreement) and Operations Fee Rates that will be in effect for the next succeeding year as determined in accordance with the provisions of the Management Agreement. Once an Overcollateralization Event occurs, such Overcollateralization Event shall continue until the date on which a subsequent Manager Report indicates that none of the conditions set forth in paragraphs (1) and (3) above is no longer continuing. Overdue Rate: This term shall have the meaning set forth in Section 101 of the Indenture. Partnership Agreement: This term shall have the meaning set forth in Section 101 of the Indenture. Partnership Priority Payment: This term shall have the meaning set forth in Section 101 of the Indenture. Payment Date: This term shall have the meaning set forth in Section 101 of the Indenture. Permitted Encumbrances: Any of the following: (i) any Lien created by any Related Documents; (ii) the rights of others under subleases to the extent expressly permitted by the terms of Section 11 of this Head Lease; (iii) Head Lessor Liens; (iv) Liens for Taxes either not yet due or being contested in good faith by appropriate proceedings so long as such proceedings do not involve a material danger of the sale, forfeiture, loss or restriction on use of the Compressors; (v) suppliers', vendors', mechanics', workmen's, repairmen's, employees' or other like Liens arising in the ordinary course of business for amounts the payment of which is either not yet delinquent or is being contested in good faith by appropriate proceedings so long as such proceedings do not involve a material danger of the sale, forfeiture, loss or restriction on use of the Compressors, and the Head Lessee shall maintain reserves for the discharge of such Lien in accordance with its general practice, 8 13 if any; and (vi) pre-judgment Liens for claims against the Head Lessee or any sublessee permitted under the Head Lease which are contested in good faith and Liens arising out of judgments or awards against the Head Lessee or any permitted sublessee with respect to which an appeal or proceeding for review is being prosecuted in good faith and to which a stay of execution has been obtained pending such appeal or review. Person: An individual, a partnership, a limited liability company, a corporation, a joint venture, an unincorporated association, a joint-stock company, a trust, or other entity or a Governmental Authority. Property Insurance: This term shall have the meaning set forth in Section 14 hereof. Prospective Trigger Event: Any event or condition which with the giving of notice or the passage of time or both would constitute a Trigger Event. Purchase Option Amount: With respect to each Lease Pool for which the Head Lessee has elected to exercise the Head Lessee Purchase Option, an amount equal to the sum of: (1) all Monthly Lease Payments and Supplemental Rent then due and owing; (2) the product of (i) the Purchase Option Percentage and (ii) the sum of (A) the aggregate unpaid principal balance of the Notes and the Capital as of the Termination Date, (B) all accrued but unpaid interest on and Commitment Fees payable with respect to the Notes on the Termination Date, and (C) any unpaid Partnership Priority Payments on such Termination Date; plus (3) any breakage fees assessed under any Interest Rate Swap Agreement in connection with the exercise of any such purchase option. Purchase Option Percentage: As of any Termination Date, a fraction (expressed as a percentage), the numerator of which is the Advance Rate for the Lease Pool associated with such Termination Date, and the denominator of which is the sum of the Advance Rates for all Lease Pools in effect on the Termination Date. Redelivery Location: A location or locations within the United States designated by Head Lessor. Related Documents: This term shall have the meaning set forth in Section 101 of the Indenture. Remarketing Period: This term shall have the meaning set forth in Section 20.2 hereof. 9 14 Renewal Option: The renewal option of the Head Lessee set forth in Section 20.3 hereof. Rent Payment Date: The second (2nd) Business Day prior to each Payment Date. Report: This term shall have the meaning set forth in Section 22(b) hereof. Required Alteration: This term shall have the meaning set forth in Section 10 hereof. Responsible Officer: With respect to any Person other than the Indenture Trustee, the chief executive officer, the president, the chief financial officer, the chief operating officer, the treasurer or the vice president for financial or legal affairs of such Person, and with respect to the Indenture Trustee, an officer in the Corporate Trust Department of Wells Fargo Bank Minnesota, National Association with responsibility for this transaction. Return Option: The end of term option set forth in Section 20.2 hereof. Senior Class Priority Payments: This term shall have the meaning set forth in Section 201 of the Series 2001-1 Supplement. Supplemental Rent: Any and all amounts, liabilities and obligations (other than Monthly Lease Payments) which the Head Lessee assumes or agrees to pay under the Head Lease or any other Related Document (whether or not styled as Supplemental Rent) to any Person, including, without limitation and without duplication, (i) payments of Purchase Option Amount and amounts calculated with reference thereto, (ii) if the Return Option is exercised in accordance with the provisions of Section 20.2 hereof, the Lease Payment Adjustment, (iii) indemnity and other payments payable pursuant to (A) Sections 21 and 22 of this Head Lease and (B) clauses (12), (13), (14) and (15) of Section 302(c) of the Indenture, (iv) all costs and expenses incurred by the Head Lessor (including its partners) in connection with the transactions contemplated by the Related Documents and (v) all amounts, other than principal and interest on the Notes, which the Head Lessor is obligated to pay under the Indenture (including Breakage Costs, increased costs, make-whole payments and tax indemnification). Tax and Taxes: Any and all fees (including license, documentation and registration fees), taxes (including income, gross receipt, sales, rental, use, turnover, value added, property (tangible and intangible), excise and stamp taxes), licenses, levies, imposts, duties, recording charges or fees, charges, assessments and withholdings of any nature whatsoever, together with any and all assessments, penalties, fines, additions thereto and interest thereon, in each case imposed by any taxing authority. Taxing Authority: This term shall have the meaning set forth in Section 22 hereof. Term: This term shall have the meaning set forth in Section 4 hereof. 10 15 Termination Date: With respect to each Lease Supplement and each Lease Pool set forth in such Lease Supplement, the date set forth below under the column "Termination Date" in the schedule set forth below:
Lease Pool/Lease Termination Number of Supplement Number Date Years in Term ------------------ --------------------- --------------- 1 February 15, 2004 3 2 February 15, 2005 4 3 February 15, 2006 5 4 February 15, 2007 6 5 February 15, 2008 7 6 February 15, 2009 8
When used in the Related Documents, the Termination Date of a Lease Pool will be calculated without regard to the extension set forth in Section 20.3 hereof. Trigger Event: The occurrence and continuation of any of the following events or conditions: (i) a Manager Default, (ii) a Head Lease Event of Default, (iii) an Event of Default under this Indenture, (iv) an Overcollateralization Event that continues unremedied on the immediately succeeding Determination Date and/or (v) a Net Revenue Event that continues unremedied on the immediately succeeding Determination Date. Either or both of an Overcollateralization Event and a Net Revenue Event can be cured in accordance with the provisions of Section 702(b) of the Indenture and shall continue until the date on which a subsequent Manager Report indicates that such conditions no longer exist. Trust Account: This term shall have the meaning set forth in Section 101 of the Indenture. Universal: This term shall have the meaning set forth in Section 101 of the Indenture. User: This term shall have the meaning set forth in the Head Lessee Security Agreement. User Lease: This term shall have the meaning set forth in the Head Lessee Security Agreement. Weighted Average Age: This term shall have the meaning set forth in Section 101 of the Indenture. 11 16 2. General Provisions. 2.1 Agreement for Leasing of Compressors. Subject to, and upon all of the terms and conditions of this Head Lease, Head Lessor hereby agrees to lease to Head Lessee, and Head Lessee hereby agrees to lease from Head Lessor, the Compressors identified in each Lease Supplement from time to time executed by the Head Lessor and the Head Lessee. Each Lease Supplement entered into by the parties shall constitute a separate non-cancellable lease agreement and shall incorporate therein all of the terms and conditions of this Head Lease and contain such additional terms and conditions as agreed upon and the term "Head Lease" shall refer to all Lease Supplements outstanding from time to time as such Lease Supplements incorporate the terms of this Head Lease. 2.2 Monthly Lease Payment and Additional Payment. The Head Lessee agrees to pay to the Head Lessor in advance, on each Rent Payment Date during the Term of any of the Lease Pools, the Monthly Lease Payment and any Additional Payment then due. The portion of Monthly Lease Payment and Additional Payment allocable to each Lease Supplement for which the Term has not then expired shall be equal to the product of (x) the Monthly Lease Payment and (y) the Allocable Portion. 2.3 Supplemental Rent. The Head Lessee agrees to pay to such Person as shall be entitled thereto as expressly provided herein or in any other Related Document, as appropriate, any and all Supplemental Rent when and as the same shall become due and owing. Without limiting the Head Lessee's obligation to pay amounts of Supplemental Rent in accordance with the Related Documents, the Head Lessee shall pay, on demand, as Supplemental Rent, interest at the lesser of (x) the Overdue Rate and (y) the maximum rate permissible by law, on any part of any installment of Monthly Lease Payment, Additional Payment and/or Supplemental Rent not paid when due, in each case for the period from the due date thereof until the same shall be paid in full. 2.4 Payments of Rent. All Monthly Lease Payments and Supplemental Rent shall be paid in Dollars by wire transfer in immediately available funds by not later than 11:00 a.m., New York City time, on the due date therefor. All Monthly Lease Payment and Supplemental Rent payable to the Head Lessor hereunder shall be paid by the Head Lessee to the Head Lessor to the Trust Account, or to such other account in the United States as the Head Lessor shall have specified in a notice to the Head Lessee at least ten Business Days prior to the date on which such Monthly Lease Payment or Supplemental Rent, as the case may be, shall be due. If any payment hereunder is due on a date which is not a Business Day, then payment is to be made on the next following Business Day, and the amount thereof to be paid on such next Business Day shall be the amount which would have been payable on the date which is not a Business Day (unless calculation of such amount is based on actual days elapsed). 2.5 Minimum Rent. Anything contained in this Head Lease or any other Related Document to the contrary notwithstanding, on each Rental Payment Date there will be due and payable hereunder an amount of Monthly Lease Payment and Supplemental Rent, which shall be in an amount at least sufficient to pay in full any payments required to be made on the immediately following Payment Date of the principal balance of the Notes and any related Interest Expense, 12 17 Commitment Fees, Indenture Trustee Fees, and Partnership Priority Payments, other than any such payment due as a result of an acceleration of the Notes by reason of an Event of Default. 2.6 Nature of Payment, Taxes. All payments of the Monthly Lease Payment and Supplemental Rent shall be made free and clear of, and without deduction or withholding for, any and all Taxes of any nature whatsoever except if, when and to the extent required by Applicable Law. If any such withholding Taxes are imposed on or against or with respect to any amounts payable by the Head Lessee under this Head Lease, then the Head Lessee shall pay, as Supplemental Rent, an additional amount such that the net amount actually received by the Head Lessor will, after deduction of such Taxes and payment thereof by the Head Lessee to the applicable taxing authority, be equal on an After-Tax Basis to the amount that would have been received by the Head Lessor in the absence of such withholding Taxes. (a) If the Head Lessee is liable for the payment of such withholding Taxes, it shall pay the full amount of withholding Tax (including any additional withholding Tax as may be payable as a result of the payment of additional amounts pursuant to Section 2.6(a)) to the competent tax authorities within the applicable statutory deadlines, and upon such payment, deliver to the Head Lessor a duly executed certificate, confirming such payment, together with such other documents as the Head Lessor may require under Applicable Law in order to obtain a refund or tax credit, if available, in respect of such withholding Taxes. 2.7 Quiet Enjoyment Intention of the Parties. Head Lessor agrees that so long as no Head Lease Event of Default has occurred and is continuing, Head Lessor shall not take, or cause to be taken, any action (except for the creation of the Liens created by operation of the Related Documents), contrary to or interfering with Head Lessee's or any User's right to peaceful possession, use and quiet enjoyment of each Compressor without any interference, hindrance, ejection or molestation whatsoever; provided, however nothing in this Section 2.7 shall prevent Head Lessor or the Indenture Trustee from exercising their inspection rights as set forth in the Head Lessee Security Agreement. 2.8 Characterization of Head Lease. Head Lessor and Head Lessee intend that for federal and all state and local income tax, bankruptcy, regulatory, commercial law and all other purposes (other than for accounting purposes) (A) this Head Lease and each Lease Supplement will be treated as a financing arrangement and (B) Head Lessee will be treated as the owner of the Head Lessor Compressors and will be entitled to all tax benefits ordinarily available to owners of property similar to the Head Lessor Compressors for such tax purposes. Head Lessor and Head Lessee further do intend this Head Lease and each Lease Supplement to constitute a "lease intended as security" within the meaning of UCC Section 1-201(37). Head Lessee shall claim the cost recovery deductions associated with each Head Lessor Compressor and Head Lessor shall not, unless required by law, take on its tax return a position inconsistent with Head Lessee's claim of such deductions. Notwithstanding the foregoing, neither party hereto has made, nor shall be deemed to have made, any representation or warranty as to the availability of any of the foregoing treatments under applicable accounting rules, tax, bankruptcy, regulatory or commercial law or under any other set of rules. 13 18 2.9 Overpayments. To the extent that the Head Lessor shall at any time receive from the Head Lessee funds in excess of the Monthly Lease Payment and Supplemental Rent then due and payable, then, so long as no Head Lease Event of Default is then continuing, the Head Lessor shall promptly return to the Head Lessee the amount of such excess payment. 3. Delivery, Acceptance and Leasing of Compressors. The execution by Head Lessor and Head Lessee of a Lease Supplement shall (a) evidence that each Compressor leased under such Lease Supplement is leased under, and is subject to all of the terms, provisions and conditions of, this Head Lease, and (b) constitute Head Lessee's unconditional and irrevocable acceptance of each such Compressor for all purposes of this Head Lease and the related Lease Supplement without further action by any Person. Head Lessor shall not be liable to Head Lessee for any failure or delay in the delivery of any Compressor to Head Lessee. 4. Term. The Term for each Lease Supplement shall commence on the Closing Date and, unless this Head Lease is terminated earlier with respect to any Compressor, the Term of such Lease Supplement shall end on the Termination Date specified in such Lease Supplement unless extended under the circumstances and for the duration specified in Section 20.3 hereof (each such period between the Closing Date and the Termination Date, a "Term"). 5. Return of Compressors. 5.1 Redelivery. Unless Head Lessee has (i) exercised the Head Lessee Purchase Option, (ii) sold the Compressors to a third party on the Termination Date pursuant to the Return Option or (iii) repurchased a Compressor pursuant to the terms of the Related Documents, then on or prior to the expiration or earlier termination of the Term of the related Lease Pool, Head Lessee shall dismantle (to the extent necessary to ship such Compressor), surrender and deliver possession to Head Lessor at the Redelivery Location of each Compressor included in the related Lease Pool. All such costs of dismantling, surrender and delivery shall be payable by the Head Lessee. 5.2 Items to Accompany Redelivery. Each redelivery under Section 5.1 shall be accompanied by (i) a certificate executed by a Responsible Officer of Head Lessee certifying that (A) Head Lessee has used best efforts to maintain for each Compressor being redelivered all plans, specifications and operating, maintenance and repair manuals prepared or reviewed by Head Lessee or any of its Affiliates and (B) such Compressor is in the condition required hereunder, (ii) a copy of an inventory list for each Compressor, (iii) all then current plans, specifications and operating, maintenance, and repair manuals and logs relating to such Compressor that have been retained by Head Lessee or any of its Affiliates, (iv) with respect to any Compressor which qualifies for or is subject to any manufacturer's maintenance, repair or warranty policy: (A) if such manufacturer is the Head Lessee or an Affiliate thereof, Head Lessee shall cause such manufacturer to deliver to Head Lessor a statement or certificate that has been signed by an authorized representative of the manufacturer to the availability of such maintenance, repair or warranty policy or (B) if the manufacturer is not the Head Lessee or an Affiliate thereof and generally provides its customers upon request a statement or certificate attesting to the availability of such maintenance, repair or warranty policy, then Head Lessee shall utilize reasonable efforts to obtain from such manufacturer such a statement or certificate, and (v) any additional documentation reasonably requested by Head 14 19 Lessor, at Head Lessee's cost, relating to the redelivery of or Head Lessor's interest in each Compressor. 5.3 Redelivery Condition. At the time of such return to Head Lessor, each Compressor (and each part or component thereof) shall (i) meet the original design specifications and operating standards of such Compressor, (ii) be in as good operating condition, state of repair and appearance as when delivered to Head Lessee hereunder, and shall not have been subjected to excess wear and tear; provided, that ordinary wear and tear as a result of normal and customary usage is excepted; and provided, further that "ordinary wear and tear" as used herein shall not be construed as permitting any material broken, damaged or missing items or components of any Compressor such that its value, utility or remaining useful life will be reduced, (iii) be in the condition required by Section 9 and with respect to any Compressor that qualifies for or is subject to any manufacturer's maintenance, repair or warranty policy, such Compressor shall have been maintained and repaired in a manner consistent with such policy, (iv) have no missing or damaged components such that its value, utility or remaining useful life will be reduced, (v) comply with all laws and rules referred to in Section 8, (vi) have attached or affixed thereto any addition, modification or improvement considered an accession thereto as provided in Section 10 and (vii) have had removed therefrom in a workmanlike manner, (x) at Head Lessor's option, any addition, modification or improvement which, as provided in Section 10, is owned by Head Lessee, and (y) any insignia or marking, and each Compressor (and each part or component thereof), shall be free and clear of all Liens, other than Head Lessor Liens. All operating licenses and agreements pertinent to the operation of each Compressor, (other than non-transferable licenses to use software), that are capable of being transferred, shall be fully transferable upon the expiration of the Term to Head Lessor or its designee. Head Lessee shall transfer any such transferable license or agreement upon return of the Compressor at Head Lessee's cost and expense. Each Compressor that qualifies for or is subject to any manufacturer's maintenance, repair or warranty policy must be properly deinstalled in a manner consistent with such policy and in such a way that the Compressor remains eligible for or subject to such policy, as appropriate, and Head Lessee shall provide a certificate from a Responsible Officer certifying that each Compressor was deinstalled in a manner consistent with such policy and remains eligible for or subject to such policy, as appropriate. Upon deinstallation, each Compressor shall be secured properly for air or overland or other suitable transport. Each Compressor shall be delivered to the Redelivery Location in the manner in which is customary for such Compressor. Head Lessee shall, at its own expense, make repairs necessary to restore each Compressor to the condition required by this Section 5.3 prior to redelivery hereunder. Upon redelivery, Head Lessee shall provide any additional documentation reasonably requested by Head Lessor and reasonably available to Head Lessee, at Head Lessee's cost, relating to the redelivery of such Compressor. 5.4 Storage. For the purpose of delivering possession of any Compressor to Head Lessor as above required, Head Lessee shall at its own cost, expense and risk cause each such 15 20 Compressor to be insured in accordance with Section 14 and stored at the Redelivery Location identified by Head Lessor at the risk of Head Lessee without charge to Head Lessor for insurance, rent or storage until all such Compressors have been sold, leased or otherwise disposed of by Head Lessor; provided, however, Head Lessee's obligations under this Section 5.4 shall terminate with respect to each Compressor one (1) year after the required date of delivery of such Compressor to the Redelivery Location in the condition required by Section 5.3. 5.5 Timely Redelivery, Deemed Purchase Option. If Head Lessee has not timely satisfied the obligations and conditions set forth in Section 5.1 with respect to the redelivery of each and every Compressor, then Head Lessee shall be deemed to have exercised the Head Lessee Purchase Option set forth in Section 21.1 hereof and Head Lessee shall pay to Head Lessor the Purchase Option Amount with respect to all such Compressors in such Lease Pool. 5.6 Specific Performance. The provisions of this Section 5 are of the essence of this Head Lease, and the parties hereto agree that, Head Lessor shall be entitled to specific performance of the covenants of Head Lessee set forth in this Section 5. 6. Net Lease Agreement. This Head Lease is a net lease agreement. Head Lessee acknowledges and agrees that its obligations hereunder, including, without limitation, its obligations to pay Monthly Lease Payments and Supplemental Rent payable hereunder, shall be absolute and unconditional and irrevocable under any and all circumstances, shall not be subject to cancellation, termination, modification or repudiation by Head Lessee, and shall be paid and performed by Head Lessee without notice or demand (except whenever this Head Lease expressly provides for notice or demand or both) and without any abatement, reduction, diminution, setoff, defense (other than prior payment), counterclaim or recoupment whatsoever, including, without limitation, any abatement, reduction, diminution, setoff, defense (other than prior payment), counterclaim, withholding or recoupment due or alleged to be due to, or by reason of, any past, present or future claims which Head Lessee may have against Head Lessor, the Indenture Trustee, any Entitled Party, any sublessee or assignee of Head Lessee, any manufacturer or supplier of any Compressor or any part thereof, or any other Person for any reason whatsoever, or any defect in any Compressor or any part thereof, or the condition, design, operation or fitness for use thereof, any damage to, or any loss or destruction of, any Compressor or any part thereof, or any Liens or rights of others with respect to any Compressor or any part thereof, or any default or failure to pay by any sublessee or assignee of Head Lessee, or any prohibition or interruption of or other restriction against Head Lessee's use, operation, possession, maintenance, insurance, improvement or return of any Compressor thereof, for any reason whatsoever, or any interference with such use, operation or possession by any Person, or any default by Head Lessor in the performance of any of its obligations herein contained, or any other indebtedness or liability, howsoever and whenever arising, of Head Lessor, the Indenture Trustee, any Entitled Party, any sublessee or assignee of Head Lessee, any other Person, or by reason of insolvency, bankruptcy or similar proceedings by or against Head Lessor, the Indenture Trustee, any Entitled Party, any sublessee or assignee of Head Lessee, or any other Person, or for any other reason whatsoever, whether similar or dissimilar to any of the foregoing, any present or future law to the contrary notwithstanding; it being the intention of the parties hereto that all Monthly Lease Payments, and Supplemental Rent payable by Head Lessee hereunder shall continue to be payable in all events and in the manner and at the times herein provided, unless the obligation to pay the same shall be terminated pursuant to the express provisions of this Head Lease. Nothing contained 16 21 in this Section 6 shall (a) affect any claim, action or right that Head Lessee may have against Head Lessor or any other Person nor (b) be considered as (i) a guaranty of the fair market value or useful life of any Compressor upon the commencement, expiration or termination of the Term with respect to any Compressor, (ii) a prohibition of assertion of any claim against any manufacturer, supplier, dealer, vendor, contractor, subcontractor or installer with respect to any Compressor or any part thereof or (iii) a waiver by Head Lessee of any of its express rights under any of the Related Documents or of its right to assert and sue upon any claims it may have against any Person in one or more separate actions. 7. Compressors are Personal Property. It is the intention and understanding of both Head Lessor and Head Lessee that the Compressors shall be and at all times remain personal property, notwithstanding the manner in which the Compressors may be attached or affixed to realty. The Head Lessee agrees to take all actions that are necessary or desirable to ensure the continued characterization of the Compressor as personal property under Applicable Law. 8. Use of Compressors, Compliance with Laws. Head Lessee agrees that each Compressor will be used and operated in compliance with any and all insurance policy terms, conditions and provisions referenced in the Related Documents and in all material respects with all statutes, laws, ordinances, rules and regulations of any federal, national, state or local governmental body, agency or authority applicable to the use and operation of such Compressor, including, without limitation, environmental, noise and pollution laws (including notifications and reports), and that each Compressor will be used and operated solely in the manner for which it was intended and in accordance with the license or certificate, if any, provided by the manufacturer thereof. Head Lessee agrees that no Compressor shall be used by Head Lessee other than in the subleasing of such Compressor to Head Lessee's customers and no Compressor shall be used or located at a location outside of the United States or in a jurisdiction other than the Equipment Filing Locations. Head Lessee shall use reasonable precautions to prevent loss or damage to each Compressor from fire and other hazards. Head Lessee shall not permit any Compressor to be moved from the location in which it is located on the Closing Date unless the Head Lessee has, at its own expense, made, executed, endorsed, acknowledged, filed and/or delivered to Head Lessor such confirmatory assignments, conveyances, financing and continuation statements, transfer endorsements, or other assurances or instruments (other than estoppel certificates or other agreements, certificates or other documents to be delivered by any Lessee or other Person (other than an Affiliate of Head Lessee)) necessary to perfect, preserve and protect Head Lessor's security interest in such Compressor. Head Lessee shall not permit any Compressor to be used in any unlawful trade or in any manner that would violate any law that would expose such Compressor to penalty, forfeiture or capture. Head Lessee shall not attach or incorporate any Compressor to or in any other Compressor or other personal property or to or in any real property in a manner that could give rise to the assertion of any Lien on such Compressor by reason of such attachment or the assertion of a claim that such Compressor has become a fixture and is subject to a Lien in favor of a third party. Head Lessee shall comply in all material respects with environmental laws and maintain liability insurance as required pursuant to the Related Documents for all Compressors. 17 22 9. Maintenance and Repair of Compressors. Head Lessee, at its sole cost and expense shall maintain (or cause to be maintained) each Compressor (i) in a manner consistent with Head Lessee's maintenance practices applicable to its other equipment of the same or similar type as such Compressor, so as to keep each Compressor in good condition (ordinary wear and tear excepted), (ii) in all material respects in compliance with Applicable Law, (iii) in compliance with the manufacturer's maintenance standards and procedures and (iv) in all respects in compliance with the insurance applicable to such Compressors. Head Lessee shall comply in all material respects with environmental laws and maintain liability insurance as required pursuant to the Related Documents for all Compressors. Head Lessee agrees to prepare and deliver to Head Lessor and each Entitled Party within a reasonable time prior to the required date of filing (or, to the extent permissible, file on behalf of Head Lessor and the Indenture Trustee) any and all reports (other than income tax returns) to be filed by Head Lessor or the Indenture Trustee with any federal, national, state or other regulatory authority by reason of the ownership by Head Lessor or the Indenture Trustee of any Compressor or the leasing thereof to Head Lessee to the extent any such reports are required because of the nature of the Compressors. Head Lessee agrees to maintain all records, logs and other materials required by any Governmental Authority having jurisdiction over any Compressor or Head Lessee, to be maintained in respect of such Compressor. Head Lessee hereby waives any right now or hereafter conferred by law to make repairs on the Compressors at the expense of Head Lessor. 10. Alterations. (a) Except as required or permitted by the provisions of this Section 10, Head Lessee shall not modify or alter a Compressor without the prior written approval of the Head Lessor and each Entitled Party. (b) In case any Compressor (or any part or component thereof) is required to be altered, added to, replaced or modified in order to comply with any insurance policies required pursuant to this Head Lease or Applicable Law (any such alteration, additional replacement or modification, "Required Alteration"), Head Lessee agrees to make (or cause to be made) such Required Alteration at its own expense. Thereupon, title to such Required Alteration shall, without further act, immediately become the property of Head Lessor, free and clear of all Liens, other than Head Lessor Liens and Permitted Encumbrances and such Required Alteration shall immediately become subject to the terms and conditions of this Head Lease. (c) Head Lessee may make any optional renovation, improvement, addition, or alteration to any Compressor ("Optional Alteration") provided that such Optional Alteration does not impair the value, use or remaining useful life of such Compressor. In the event an Optional Alteration is readily removable without impairing the value, use or remaining useful life of the Compressor, and is not a part or appliance which replaces any part or appliance originally incorporated or installed in or attached to such Compressor on the Closing Date thereof the Head Lessee may (or, if requested by the Head Lessor shall) remove such Optional Alteration whereupon such Optional Alteration will remain the property of Head Lessee. To the extent such Optional Alteration is not readily removable without impairing the value, use or remaining useful life of the Compressor to which such Optional Alteration has been made, or is a part or appliance which replaces any part or appliance originally incorporated or installed in or attached to such Compressor on the Closing Date thereof the same, such Optional Alteration shall, without further act, 18 23 immediately be and become the property of, and title shall vest in, Head Lessor, free and clear of all Liens, other than Head Lessor Liens and Permitted Encumbrances, and shall be subject to the terms of this Head Lease. Any parts installed or replacements made by any Head Lessee upon any Compressor pursuant to its obligation to maintain and keep the Compressors in the condition required pursuant to the terms of this Head Lease shall be considered accessions to such Compressor and ownership thereof shall be immediately vested in Head Lessor. 11. Assignment and Subleasing by Head Lessee. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS SECTION 11, HEAD LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF THE HEAD LESSOR AND EACH ENTITLED PARTY, ASSIGN, TRANSFER OR ENCUMBER ITS RIGHTS, INTERESTS OR OBLIGATIONS HEREUNDER. ANY ATTEMPTED ASSIGNMENT, TRANSFER OR ENCUMBRANCE BY HEAD LESSEE OF ITS RIGHTS, INTERESTS OR OBLIGATIONS HEREUNDER SHALL BE NULL AND VOID. So long as no Head Lease Event of Default shall have occurred and be continuing, Head Lessee may, without the consent of Head Lessor, sublease one or more Compressors to any User; provided, that all of the following requirements shall be satisfied with respect to each such User Lease entered into pursuant to this Section 11: (a) the entering into of such User Lease shall not result in (i) a violation of the provisions of Section 5.2 of the Management Agreement, (ii) a violation of a Concentration Limit or (iii) the occurrence of a Trigger Event or a Prospective Trigger Event; (b) the Compressors are physically located within the United States; (c) such User Lease shall expire before, or automatically expire on or before, the expiration of the Term; unless at the time such User Lease is made, Head Lessee is permitted to and has elected to exercise the Head Lessee Purchase Option under Section 20.1 hereof and no Trigger Event or Prospective Trigger Event shall have occurred and is continuing; (d) such User Lease shall be in writing; shall identify the Compressor by manufacturer, model and unit number; and shall expressly prohibit any further assignment, sublease or transfer by User of any rights or interests in the Compressor; (e) such User Lease may contain a purchase option in favor of the User or any other provision pursuant to which the User may obtain record or beneficial title to the Compressor leased thereunder from Head Lessee, provided upon the exercise of such purchase option, Head Lessee substitute new Compressor(s) in accordance with the provisions of Section 13.4 hereof; (f) such User Lease shall prohibit the User from making any alterations or modifications to the Compressors that would violate the provisions of Section 10 of this Head Lease; and (g) such User Lease shall require the User (i) to maintain the Compressor in accordance with Sections 8 and 9 hereof or shall require Head Lessee to maintain the Compressor 19 24 in accordance with those provisions and (ii) to engage in activities with the Compressor in a manner consistent with the Compressor's intended purpose and in accordance with the Compressor's specifications. For so long as a Head Lease Event of Default has occurred and is continuing, Head Lessee shall not agree to sublease or agree to extend any sublease of any Compressor without the consent of Head Lessor and each Entitled Party; provided, however, if such Head Lease Event of Default is solely the result of a breach of a covenant or of covenants to deliver financial or other information to Head Lessor or any Entitled Party or to use, maintain or repair the Compressors in accordance with Sections 8 and 9 (a "Limited Event of Default"), Head Lessee may agree to sublease any Compressor in accordance with the requirements set forth in clauses (a) through (g) of this Section 11; provided such User Lease is expressly subject and subordinate to Head Lessor's and each Entitled Party's interests in such Compressor. If a Limited Event of Default is subsequently cured in accordance with the terms of this Head Lease, Head Lessee may cure any Head Lease Event of Default arising from any failure to make any User Lease to be expressly subject to and subordinate to Head Lessor's and each Entitled Party`s interest by delivering to Head Lessor and each Entitled Party a copy of such User Lease and certifying that such User Lease complies with the provisions of Section 5.2 of the Management Agreement. Upon request by Head Lessor, Head Lessee shall promptly deliver to Head Lessor and Deal Agent (x) a schedule of all User Leases of the Compressor including Users certified by a Responsible Officer of Head Lessee and (y) for so long as a Head Lease Event of Default has occurred and is continuing, copies of each User Lease at the time in effect. No such subleasing by Head Lessee will reduce or affect any of the obligations of Head Lessee hereunder or the rights of Head Lessor and each Entitled Party hereunder, and all of the obligations of Head Lessee hereunder shall be and remain primary and shall continue in full force and effect as the obligations of a principal and not of a guarantor or surety. 12. Liens. Head Lessee shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to (a) any Compressor or any part thereof or Head Lessor's interest therein or proceeds thereof, (b) any insurances required hereunder or (c) this Head Lease or any of Head Lessor's interests hereunder, except (i) Head Lessor Liens and (ii) in the case of clause (a), Permitted Encumbrances. Head Lessee, at its own expense, will promptly pay, satisfy and otherwise take such actions as may be necessary to keep this Head Lease and each Compressor free and clear of, and to duly discharge or eliminate (or bond in a manner satisfactory to Head Lessor and each Entitled Party), any Lien that may arise in violation of the foregoing. Head Lessee will notify Head Lessor and Indenture Trustee in writing promptly upon a Responsible Officer of Head Lessee obtaining knowledge of any Lien, other than Permitted Encumbrances, that shall attach to the Compressors and of the full particulars of such Lien. 13. Loss, Damage or Destruction. 13.1 Risk of Loss, Damage or Destruction. Head Lessee hereby assumes all risk of loss, damage, theft, taking, destruction, confiscation, requisition or commandeering, partial or complete, of or to each Compressor ("Loss, Damage or Destruction"), however caused or occasioned except for Loss, Damage or Destruction caused by the gross negligence or willful misconduct of 20 25 Head Lessor. Any such of Loss, Damage or Destruction to be borne by Head Lessee with respect to each Compressor commencing on the Closing Date, and continuing until the earliest to occur of (x) the return of such Compressor in accordance with the provision of Section 5 hereof, (y) the transfer of such Compressor to Head Lessee in accordance with the provisions of Section 20 or (z) the sale of such Compressor in accordance with Section 20. 13.2 Payment Upon an Event of Loss. If an Event of Loss occurs with respect to a Compressor during the Term thereof, Head Lessee shall give Head Lessor, the Deal Agent and Indenture Trustee prompt written notice of such loss and shall within thirty (30) days after the occurrence of such Event of Loss (i) replace such Compressor in accordance with the provisions of Section 13.4 hereof or (ii) pay to Head Lessor an amount equal to the sum of (A) all unpaid Monthly Lease Payments (determined on a pro rata basis based on the number of horsepower of such Compressor) due and payable for such Compressor, plus (B) the most recent Appraised Value of such Compressor, plus (C) all other Supplemental Rent (determined on a pro rata basis based on the number of horsepower of such Compressor) due for such Compressor as of the date of payment of the amounts specified in the foregoing clauses (A) and (B). Any payments received at any time by Head Lessor or by Head Lessee from any insurer or other party as a result of the occurrence of such Event of Loss of a Compressor will be applied in reduction of Head Lessee's obligation to pay the foregoing amounts, if not already paid by Head Lessee, or, if already paid by Head Lessee, will be applied to reimburse Head Lessee for its payment of such amount, unless a Head Lease Event of Default shall have occurred and be continuing in which event any such payments received by Head Lessor and applied in accordance with the priority of payments established under the Indenture. In the event that any payments received by Head Lessor or Indenture Trustee referred to in the immediately preceding sentence with respect to any Compressor exceed any amounts due and owing by Head Lessee to Head Lessor under the Related Documents, then, provided there are no amounts due and owing by Head Lessee under the Related Documents and no Head Lease Event of Default shall have occurred and be continuing, such excess shall forthwith be paid to Head Lessee. Upon payment in full of such amounts, (a) the Head Lessee's obligations hereunder with respect to such Compressor (other than those expressly stated to survive the termination of this Head Lease) shall terminate, and (b) all rights and interests of Head Lessor in such Compressor shall automatically cease and vest in Head Lessee. Head Lessor will at the request and cost of Head Lessee furnish to or at the direction of Head Lessee, a bill of sale without recourse or warranty (except as to the absence of Head Lessor Liens) and otherwise in form and substance reasonably satisfactory to Head Lessee and Head Lessor, evidencing the transfer to or at the direction of Head Lessee, all of Head Lessor's right, title and interest in and to such Compressor(s), "as-is, where-is". Following any such transfer, Head Lessee will be subrogated to all claims of Head Lessor, if any, against third parties to the extent the same relate to physical damage to or loss of the transferred Compressor which was the subject of such Event of Loss. 13.3 Application of Payments Not Relating to an Event of Loss. Any payments (including, without limitation, insurance proceeds) received at any time by Head Lessor or Head Lessee from any Governmental Authority or other party with respect to any loss or damage to any Compressor not constituting an Event of Loss, will be applied directly in payment of repairs or for replacement of property in accordance with the provisions of Section 13 hereof, if not already paid by Head Lessee, or if already paid by Head Lessee and no Head Lease Event of Default shall have occurred and be continuing, shall be applied to reimburse Head Lessee for such payment. Any 21 26 balance remaining after making such payment with the provisions of said Sections with respect to such loss or damage shall be retained by Head Lessee. If any Head Lease Event of Default shall have occurred and be continuing, all payments hereunder shall be paid to Head Lessor in accordance with Section 13.3. 13.4 Substitution of Compressors. So long as no Trigger Event or Prospective Trigger Event is continuing or would result therefrom, the Head Lessee may substitute one or more Eligible Compressors for any Compressor(s) for which an Event of Loss has occurred. Any such substitution shall be implemented in accordance with and subject to the restrictions set forth in Section 3.04 of the Sale Agreement. 14. Insurance. (a) Head Lessee will cause to be carried and maintained, at its sole expense, with respect to each Compressor at all times during the Term thereof and for the geographic area in which such Compressor is at any time located physical damage insurance (including theft and collision insurance) insuring against risks of physical loss or damage to the Compressors ("Property Insurance") in an amount no less than the Appraised Value for each Compressor per occurrence except for Head Lessee's customary sub-limits for certain perils, and insurance, and liability insurance in the amount of $50,000,000 per occurrence against liability for bodily injury, death and property damage resulting from the use and operation of the Compressors (including sudden and accidental environmental pollution coverage) ("Liability Insurance") of the types and amounts of coverage equal to or greater than the insurance coverage Head Lessee carries on the UCI Compressors. Property Insurance shall not have deductibles, in the aggregate, in excess of an amount equal to the product of (x) one half of one percent (.50%) and (y) the then Aggregate Appraised Value, and the Liability Insurance shall have no deductibles. The policies of insurance required under this Section shall be valid and enforceable policies issued by insurers having an A.M. Best Company rating of "A-" or better or otherwise acceptable to Deal Agent and shall provide coverage with respect to incidents occurring anywhere in the United States. In the event that any of such Liability Insurance policies for a Compressor shall now or hereafter provide coverage on a "claims-made" basis, Head Lessee shall continue to maintain such policies in effect for a period of not less than three (3) years after the expiration of the Term of the last Compressor subject to the term of this Head Lease. (b) Such Property Insurance policy or policies will name the Head Lessor and each Entitled Party as the loss payees. Such Liability Insurance policy or policies will name the Head Lessor and each of their shareholders, partners, directors, officers, employees, agents and servants (each an "Additional Insured") as an additional insured. Each such policy shall provide that (i) the insurers waive any claim for premiums and any right of subrogation or setoff against Additional Insureds, (ii) it may not be invalidated against any Additional Insured by reason of any violation of a condition or breach of warranty of the policies or the application therefor by Lessee, (iii) it may be canceled or materially altered or reduced in coverage by the insurer only after no less than ten (10) days' prior written notice from Head Lessee's insurance broker to Head Lessor and each Entitled Party, and (iv) the insurer will give written notice to Lessor and each Entitled Party in the event of nonpayment of premium by Head Lessee when due. 22 27 (c) On the Closing Date, and thereafter not less than three (3) days prior to the expiration dates of any expiring policies required under this Section 5.7, the Head Lessee shall furnish Head Lessor, the Deal Agent and each Entitled Party with certificates of the insurance or replacement insurance coverage required by this Section 5.7. 15. NO HEAD LESSOR WARRANTIES. HEAD LESSOR HEREBY LEASES THE COMPRESSORS TO HEAD LESSEE AS-IS WHERE-IS, WITH ALL FAULTS, IF ANY, AND IN WHATEVER CONDITION IT MAY BE IN, AND EXPRESSLY DISCLAIMS AND MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESSED OR IMPLIED, AS TO THE DESIGN, CONDITION, QUALITY, CAPACITY, MERCHANTABILITY, DURABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF, OR ANY OTHER MATTER CONCERNING, THE COMPRESSORS. HEAD LESSEE HEREBY WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR INFRINGEMENT) IT MIGHT HAVE AGAINST HEAD LESSOR, ANY CERTIFICATE HOLDER OR ANY OTHER PERSON FOR ANY LOSS, DAMAGE (INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE COMPRESSORS OR BY HEAD LESSEE'S LOSS OF USE THEREOF FOR ANY REASON WHATSOEVER, INCLUDING COMPLIANCE WITH ENVIRONMENTAL LAWS (WHICH ITEMS OF COMPRESSORS, HEAD LESSEE ACKNOWLEDGES, WERE SELECTED BY HEAD LESSEE ON THE BASIS OF ITS OWN JUDGMENT WITHOUT RELIANCE ON ANY STATEMENTS, REPRESENTATIONS, GUARANTIES OR WARRANTIES MADE BY HEAD LESSOR). 16. Assignment of Manufacturer Warranties. So long and only so long as a Head Lease Event of Default shall not have occurred and be continuing, and so long (and only so long) as a Compressor shall be subject to this Head Lease and Head Lessee shall be entitled to possession of such Compressor hereunder, Head Lessor authorizes Head Lessee, at Head Lessee's expense, to assert for Head Lessee's account, and assigns to Head Lessee all rights and powers of Head Lessor under any manufacturer's, vendor's or dealer's warranty on the Compressors or any part thereof and Head Lessor agrees to use reasonable efforts at Head Lessee's expense to assist Head Lessee in obtaining the benefits of such warranties; provided, however, that Head Lessee shall indemnify, protect, save, defend and hold harmless Head Lessor from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by Head Lessor in connection therewith, as a result of, or incident to, any action by Head Lessee pursuant to the foregoing authorization. 17. Head Lease Event of Default. The occurrence of any of the following specified events or conditions (whatever the reason for such event or condition and whether such event or condition shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute a "Head Lease Event of Default": (a) Head Lessee shall fail to pay any payment of Monthly Lease Payment or Supplemental Rent on the date such payment becomes due and such failure shall continue unremedied for two (2) Business Days; provided, however, that to the extent that the Deal Agent has failed to deliver when due the calculation of Senior Class Priority Payments payable on such Payment Date, then the failure to make such portion of the Monthly Lease Payment shall not 23 28 constitute a Head Lease Event of Default until one Business Day after such information is so delivered; or (b) Head Lessee shall fail to observe or perform any of the covenants, agreements or obligations of the Head Lessee set forth in any of paragraphs (dd) and (ff) of Section 5 of the Head Lessee Security Agreement; or (c) Head Lessee shall fail to perform or observe any other covenant, condition, or agreement to be performed or observed by it under any Related Document (other than those identified in clauses (a) and (b) above), and such failure shall continue unremedied for a period of thirty (30) days after the earlier to occur of (1) receipt by Head Lessee of written notice thereof from Head Lessor or the Indenture Trustee or (2) the date on which any of the president, any senior vice president or any executive vice president of Head Lessee shall have actual knowledge of such failure; or (d) any representation or warranty made by Head Lessee in any of the Related Documents, or in any certificate delivered pursuant thereto, shall prove to be untrue in any material respect on the date of which made; or (e) the entry of a decree or order for relief by a court having jurisdiction in respect of the Head Lessee in any involuntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, or sequestrator (or other similar official) for the Head Lessee or for any substantial part of its properties, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (f) the commencement by the Head Lessee of a voluntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or the consent by the Head Lessee to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Head Lessee or any substantial part of its properties, or the making by the Head Lessee of any general assignment for the benefit of creditors, or the failure by the Head Lessee generally to pay its debts as they become due, or the taking of any action by the Head Lessee in furtherance of any such action; (g) the Head Lessor shall fail to have a first priority perfected security interest in the Head Lessee Collateral; (h) the Head Lessee is required to register as an investment company under the Investment Company Act of 1940, as amended; (i) the rendering against the Head Lessee of a final judgment, decree or order for the payment of money in excess of $10,000 and the continuance of such judgment, decree or order unsatisfied, unbonded or uninsured for a period of 60 consecutive days; (j) an Event of Default shall have occurred under the Indenture; 24 29 (k) one or more of the Concentration Limits are violated and such condition continues unremedied for a period of forty-five (45) days; (l) the Weighted Average Age of all Head Lessor Compressors and Head Lessee Compressors exceeds fifteen (15) years and such condition continues unremedied for forty-five (45) days; or (m) a Manager Default shall have occurred and a replacement Manager has not assumed the duties of the terminated Manager by the second Payment Date following the occurrence of such Manager Default. 18. Remedies Upon Default. Upon the occurrence of any Head Lease Event of Default and at any time thereafter so long as the same shall be continuing, Head Lessor may exercise one or more of the following remedies, to the extent permitted by applicable law, as Head Lessor in its sole discretion shall elect: (a) Head Lessor may terminate or cancel this Head Lease, without prejudice to any other remedies of Head Lessor hereunder, with respect to all or any Compressor, and whether or not this Head Lease has been so terminated, may enter the premises of Head Lessee, subject to Head Lessee's normal safety and security concerns, including standard confidentiality requirements, or any other party to take immediate possession of the Compressors and remove all or any Compressor by summary proceedings or otherwise, or may cause Head Lessee, at Head Lessee's expense, to store, maintain, surrender and deliver possession of the Compressors or such Compressor in the same manner as provided in Section 5.4; (b) Head Lessor may hold, keep idle or lease to others any Compressor, as Head Lessor in its sole discretion may determine, free and clear of any rights of Head Lessee, except that Head Lessee's obligation to pay Monthly Lease Payments on any Rent Payment Date after Head Lessee shall have been deprived of possession pursuant to this Section 18 shall be reduced by the net proceeds, if any, received by Head Lessor from leasing the Compressors to any Person other than Head Lessee for the same periods or any portion thereof; (c) Head Lessor may sell the Compressors or any Compressor at public or private sale as Head Lessor may determine, free and clear of any rights of Head Lessee, and Head Lessee shall pay to Head Lessor, as liquidated damages for loss of a bargain and not as a penalty (in lieu of the Monthly Lease Payments due for the Compressor so sold for any period commencing after the date on which such sale occurs), the sum, without duplication, of (i) all unpaid Monthly Lease Payments payable for such Compressor for all periods through the date on which such sale occurs, plus (ii) an amount equal to the excess, if any, of (x) the Appraised Value of the Compressor so sold over (y) the net proceeds of such sale, plus interest at the rate specified in Section 2.3 on the amount of such excess from the due date thereof until the date of actual payment, plus (iii) all unpaid Supplemental Rent due with respect to such Compressor so sold; (d) the Head Lessor, by written notice to the Head Lessee specifying a payment date which shall be not earlier than ten, nor more than 60, days from the date of such notice, may demand that the Head Lessee pay to the Head Lessor, and the Head Lessee shall pay the Head Lessor, on the payment date specified in such notice, as liquidated damages for loss of a bargain and 25 30 not as a penalty (in lieu of the Monthly Lease Payment payable after such payment date), or amount equal to the sum of (i) any unpaid Monthly Lease Payment due and payable on or before such payment date, plus (ii) all unpaid Supplemental Rent as of such payment date, plus (iii) an amount equal to the excess, if any, of Aggregate Appraised Value over the Fair Market Sales Value of all of the Compressors leased hereunder as of such payment date, plus, in the case of either clause (A) or (B) above, to the extent permitted by Applicable Law, interest at the Overdue Rate on the amounts payable pursuant to this Section 18(d) from the payment date specified pursuant to this Section 18(d) to the date of actual payment of all such amounts; (e) Head Lessor may exercise any other right or remedy which may be available to it under the Head Lessee Security Agreement or Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof and terminate this Head Lease. In addition, Head Lessee shall be liable for all costs and expenses, including reasonable attorney's fees and expenses, incurred by Head Lessor and any Entitled Party by reason of the occurrence of any Head Lease Event of Default or the exercise of Head Lessor's remedies with respect thereto, including all reasonable costs and expenses incurred in connection with the return of the Compressors in accordance with Section 8 or in placing the Compressors in the condition required by said Section. Except as otherwise expressly provided above, no remedy referred to in this Section 18 is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to Head Lessor at law or in equity; and the exercise or beginning of exercise by Head Lessor of any one or more of such remedies shall not constitute the exclusive election of such remedies and shall not preclude the simultaneous or later exercise by Head Lessor of any or all of such other remedies. No express or implied waiver by Head Lessor of any Head Lease Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Head Lease Event of Default. To the extent permitted by applicable law, Head Lessee hereby waives any rights now or hereafter conferred by statute or otherwise which may require Head Lessor to sell, lease or otherwise use the Compressors in mitigation of Head Lessor's damages as set forth in this Section 18 or which may otherwise limit or modify any of Head Lessor's rights and remedies in this Section 18. 19. Head Lessor's Right to Perform for Head Lessee. During the existence and continuance of a Head Lease Event of Default, the Head Lessor or its designee may, but shall not be obligated to, (i) subject to the terms of any Related Document, perform any and all acts required by the Head Lessee's covenants herein contained and take all such action thereon as in the Head Lessor's opinion may be reasonably necessary or appropriate therefor and (ii) make advances to perform the same. The Head Lessee shall reimburse the Head Lessor for the amount of any such payment or advance and the amount of the Head Lessor's reasonable and documented costs and expenses incurred in connection with such acts or cure, together with interest thereon, to the extent permitted by Applicable Law, at the Overdue Rate, all of which shall be deemed Supplemental Rent due and payable by the Head Lessee upon demand. The Head Lessor shall be under no obligation to the Head Lessee or any other Person to perform any such act or make any such payment, and no such payment or performance shall be deemed to waive Head Lease Event of Default or relieve the Head Lessee of its obligations hereunder or be deemed an eviction or termination of this Head Lease or a repossession of the Compressors or any interest therein. 26 31 20. End of Term Options. 20.1 Head Lessee Purchase Option. The Head Lessee shall have the option to purchase all (but not less than all) of the Compressors in such terminating Lease Pool on the Termination Date for such Lease Pool for the Head Lessee Purchase Option Amount in accordance with the terms of this Section 20.1 (the "Head Lessee Purchase Option"). If no Trigger Event or Prospective Trigger Event is then continuing, the Head Lessee may exercise the Head Lessee Purchase Option by giving written notice to the Head Lessor (with a copy to each Entitled Party) not more than 210 days prior to the Termination Date and not later than 180 days prior to the Termination Date (which election shall be irrevocable as of the 180th day prior to the Termination Date). If Head Lessee shall have elected to exercise the Head Lessee Purchase Option, Head Lessee must demonstrate to Head Lessor and the Deal Agent (to the Deal Agent's satisfaction) that it has sufficient liquidity to exercise the Head Lessee Purchase Option and if the Head Lessee is unable to demonstrate such requisite level of liquidity the Head Lessee shall be deemed to have elected the Renewal Option. If a Trigger Event or a Prospective Trigger Event has occurred subsequent to the date on which the Head Lessee elected to exercise the Head Lease Purchase Option and is continuing on the scheduled Termination Date of the respective Lease Pool, then the Head Lessee will be deemed to have elected the Renewal Option with respect to such Lease Pool. If the Head Lessee shall have elected to not exercise the Head Lease Purchase Option, the Head Lessee shall provide written notice to such effect by not later than the 180th day prior to the Termination Date. If the Head Lessee shall have elected to exercise the Head Lessee Purchase Option and no Trigger Event or Prospective Trigger Event is continuing on the scheduled Termination Date for such Lease Pool, the Head Lessee shall pay the Purchase Option Amount by immediate available cash to the Head Lessor on the Termination Date. Upon payment in full of all amounts due upon the exercise of the Head Lessee Purchase Option, Head Lessor will, at the request and cost of Head Lessee, transfer to or at the direction of Head Lessee, without recourse or warranty (except as to the absence of Head Lessor Liens), all of Head Lessor's right, title and interest in and to the Compressor(s) in the related Lease Pool, "as-is, where-is" and at the cost and request of Head Lessee, furnish to or at the direction of Head Lessee, a bill of sale without recourse or warranty evidencing such transfer (except as to the absence of Head Lessor Liens), such bill of sale to be in form and substance reasonably satisfactory to Head Lessee and Head Lessor. If Head Lessee does not intend to exercise the Head Lessee Purchase Option, Head Lessee shall give written notice to Head Lessor to such effect in accordance with Section 20.2.1. Prior to the Head Lessor's incurring costs to remarket or otherwise utilize the Compressors in the maturing Lease Pool, the Head Lessor shall have the right to request from the Lessee not more than one year prior to the Termination Date a notice from the Lessee as to its intention with respect to its exercise of the Head Lessee Purchase Option; provided, however, that failure to make any such request shall not alter the rights or obligations of the parties or give rise to any liability on the part of the Head Lessor nor shall it limit to Head Lessee's right to change its intentions in that regard. 20.2 Return Option. 20.2.1 Remarketing Obligations. If the Head Lessee is then permitted to exercise the Return Option and so elects to exercise the Return Option, the Head Lessee shall give written notice to the Head Lessor (with a copy to each Entitled Party) not more than 210 days prior 27 32 to the Termination Date and not later than 180 days prior to the Termination Date (which election shall be irrevocable as of the 180th day prior to the Termination Date). In the event that Head Lessee does not exercise the Head Lessee Purchase Option in accordance with the provisions of Section 20.1 hereof and is not otherwise prohibited from exercising the Return Option in accordance with the terms of such provision, then Head Lessee shall be deemed to have elected the Return Option and have the obligation during the last 180 days of the related Term (the "Remarketing Period") to solicit bona fide bids for not less than all Compressors in the related Lease Pool from prospective purchasers who are financially capable of purchasing such Compressors in the related Lease Pool for cash on an "as-is", "where-is" basis, without recourse, representation or warranty. Any bid received by Head Lessee prior to the end of the Remarketing Period shall be promptly communicated to Head Lessor and each Entitled Party in writing, setting forth the amount of such bid and the name and address of the person or entity submitting such bid. Notwithstanding the foregoing, Head Lessor and each Entitled Party shall have the right, but not the obligation, to seek bids for the Compressors during the Remarketing Period and Head Lessee shall grant Head Lessor and each Entitled Party or their respective designees access to the Compressors in the related Lease Pool upon reasonable notice and during normal business hours to facilitate the exercising of such right. 20.2.2 Deemed Exercise of Head Lessee Purchase Option or Renewal Option. In the event Head Lessee fails to deliver the notice described in (and within the time period prescribed in) Section 20.1, then Head Lessee shall be deemed to have elected (A) so long as no Trigger Event or Prospective Trigger Event shall have occurred and is continuing at such time, the Head Lessee Purchase Option and (B) if a Trigger Event or Prospective Trigger Event is then continuing on the due date of such notice, the Renewal Option. If a Trigger Event or a Prospective Trigger Event shall occur at any time after Head Lessee gives written notice of its intention to exercise the Return Option and return possession of the Compressors to Head Lessor and on or prior to the related Termination Date, then Head Lessee's notice to return possession of the Compressors in the related Lease Pool shall be deemed automatically revoked and Head Lessee shall be deemed to have elected the Renewal Option. 20.2.3 Sale of Compressors to Third Party Buyer. On the Termination Date, provided that all the conditions set forth in Sections 20.2.1, 20.2.2 and in clauses (a) and (b) in this Section 20.2.3 have been met, then on the Termination Date for such Lease Pool the Head Lessor shall sell (or cause to be sold) all Compressors in the related Lease Pool, for cash to the bidder, if any, who shall have submitted the highest bid during the Remarketing Period on an "as is", "where-is" basis and without recourse or warranty. Upon receipt by Head Lessor of the sales price, Head Lessor shall instruct Head Lessee to deliver, and Head Lessee shall deliver, the Compressors in the related Lease Pool to such bidder; provided, that (a) any such sale to a third party shall be consummated, and the sales price for the Compressors in the related Lease Pool shall have been paid directly to the Indenture Trustee in immediately available funds, on or before the Termination Date; and (b) Head Lessor shall not be obligated to sell such Compressors in the related Lease Pool if the Net Sales Proceeds of all of the Compressors in the related Lease Pool are less than the aggregate Maximum Head Lessor Risk Amount applicable to the related Lease Pool. Upon payment in full of all amounts due upon a sale under this Section 21.2.3, Head Lessor will, so long as no Head Lease Event of Default shall have occurred and be continuing and subject to compliance with the provisions of Section 404 of the Indenture, at the request and cost of the bidder, transfer to or at the 28 33 direction of the bidder, without recourse or warranty (except as to the absence of Head Lessor Liens), all of Head Lessor's right, title and interest in and to such Compressor(s), "as is", "where-is" and at the cost and request of the bidder, furnish to or at the direction of Head Lessee, a bill of sale without recourse or warranty (except as to Head Lessor Liens) and otherwise in form and substance reasonably satisfactory to the bidder and Head Lessor, evidencing such transfer. 20.2.4 End of Term Lease Payment Adjustment. If either (x) the Net Sales Proceeds of such Compressors is less than the Purchase Option Amount for such Lease Pool Date or (y) the Head Lessor does not consummate any proposed sale due to the failure of the condition set forth in clause (b) of Section 21.2.3, Head Lessee shall pay to Head Lessor in immediately available funds on the Termination Date, an amount equal to the Lease Payment Adjustment. 20.3 Renewal Option. If the Head Lessee shall be deemed to have elected the Renewal Option pursuant to the provisions of Section 20.1 or 20.2 hereof, then the Term of the related Lease Pool shall continue on the terms set forth herein until the earlier to occur of (x) the date on which an Indenture Event of Default occurs and (y) the date on which the Trigger Event is cured and the Head Lessee exercise the Head Lessee Purchase Option in accordance with the provision of Section 20.1 hereof. 21. General Indemnity. (a) The Head Lessee hereby agrees to, and hereby does, indemnify each Indemnitee on an After-Tax Basis against, and agrees to protect, defend and keep harmless on an After-Tax Basis each Indemnitee from, any and all liabilities (including, without limitation, negligence, warranty, statutory, product, strict or absolute liability, liability in tort or otherwise), obligations, losses, settlements, damages, penalties, claims, actions, suits, judgments or proceedings of any kind and nature, costs, expenses and disbursements (including reasonable legal fees and expenses of external counsel and reasonable allocable fees and expenses of internal legal counsel) of whatsoever kind and nature (whether or not any of the transactions contemplated by the Related Documents are consummated), imposed on, incurred or suffered by, or asserted against, such Indemnitee (herein collectively called "Claims"), in any way relating to or arising out of: (i) the Compressors, the Head Lessee Security Agreement or any portion of or interest in either of the foregoing or any other property in which the Head Lessor has an interest under any Related Document; (ii) the Head Lease, the Head Lessee Security Agreement and any other Related Document or any of the transactions contemplated thereby, or resulting therefrom, or execution or delivery thereof, or the performance, enforcement or amendment of any of the terms thereof; (iii) the conduct of the business or affairs of the Head Lessee or the purchase, acceptance, rejection, financing, refinancing, mortgaging, delivery, non-delivery, manufacture, construction, acquisition, design, condition, operation, use, ownership, lease, sublease, sub-sublease, maintenance, repair, substitution, possession, rental, conversion, return, registration, re- 29 34 registration, alteration, overhaul, modification, improvement, testing, removal, replacement, installation, storage, severance, transfer of title, abandonment, sale, resale, or other application or disposition or use of the Compressors, and the Head Lease Collateral or any portion of or interest in any one or more of the foregoing or any other property in which the Head Lessor has an interest under any Related Document, including, without limitation, any Claim in any way relating to or arising out of (a) any violation of environmental law, (b) loss of or damage to any property or the environment or death or injury to any Person, (c) any patent, trademark or copyright infringement, and (d) latent or other defects, regardless of whether discoverable; and including, without limitation, injury, death, and property damage to others; (iv) non-performance or breach by any Head Lessee of any covenant or obligation, or the falsity of any representation or warranty by Head Lessee, contained in this Head Lease, the Head Lessee Security Agreement or any other Related Document or any act, or omission to act in breach of a legal duty to act, with respect to or in connection with the Head Lease or the Compressors or any portion of or interest in any one or more of the foregoing or any other property in which the Head Lessor has an interest under any Related Document; (v) any increased costs, Breakage Costs or other indemnities payable with respect to the Notes and the Certificates; (vi) the imposition of any Lien on or with respect to the Compressor or any Head Lease Collateral or any portion of or interest in any one or more of the foregoing or any other property in which the Indenture Trustee has an interest under any Related Document; (vii) any violation of any Applicable Law with respect to the Compressors, the Head Lease Collateral or any portion of or interest in any one or more of the foregoing, or any other property in which any Indemnitee has an interest under any Related Document or the transactions contemplated by or resulting from the Related Documents; (viii) the environmental condition and impact of, to or from the Compressors, the Head Lease Collateral or any other property in which any Indemnitee has an interest under any Related Document; (ix) any regulatory action under Applicable Law pertaining directly or indirectly to the Compressors, the Head Lease Collateral or any other property in which any Indemnitee has an interest under any Related Document; (x) a failure to provide and maintain the Head Lease Collateral required hereunder in accordance with the terms of the Related Documents; or 30 35 (xi) any change in Applicable Law occurring after the Closing Date. (b) The following Claims are excluded from the Head Lessee's agreement to indemnify any Indemnitee under Section 22(a): (i) any Claim attributable to events or circumstances occurring after (A) the return of the Compressor (except for any Claim arising from a return under conditions not in accordance with the Head Lease or a return in connection with a Head Lease Event of Default) or (B) the purchase of the Compressor by the Head Lessee and payment in full of the applicable Purchase Option Amount or other purchase price therefor provided for under the Related Documents by the Head Lessee (except to the extent that such Claim arises in respect of or relating to any period prior to or simultaneously with the occurrence of the events described in (A) or (B)), unless such Claim relates to, or is a remedy with respect to, any Head Lease Event of Default arising therefrom; (ii) any Claim that is a Tax (other than any Tax included for purposes of making a payment on an After-Tax Basis) or a cost related to the payment, non-payment or contesting of a Tax whether or not such Tax or cost is indemnified for under any other provision of this Agreement or any other Related Document; (iii) with respect to a particular Indemnitee, any Claim to the extent, but only to the extent, resulting from the gross negligence or willful misconduct of such Indemnitee (except to the extent, in each case, if any, that such gross negligence or willful misconduct is imputed to such Indemnitee by reason of such Indemnitee's interest in the Compressors); (iv) with respect to a particular Indemnitee, any Claim to the extent, but only to the extent, caused by the breach by such Indemnitee of any material agreement, covenant or indemnification in any Related Document, except, in each case, to the extent that such breach shall have been caused by any act, or failure to act in breach of a duty to do so, by Head Lessee or any of its Affiliates; (v) with respect to a particular Indemnitee, any Claim to the extent, but only to the extent, caused by any misrepresentation or false or misleading representation or warranty of a material nature by such Indemnitee contained in any Related Document; (vi) with respect to a particular Indemnitee, any Claim that is a cost, fee or expense payable by such Indemnitee pursuant to any provision of this Head Lease or any other Related Document where it is expressly stated in such 31 36 provision that such cost, fee or expense is not subject to indemnification by the Head Lessee under this Head Lease; (vii) with respect to any particular Indemnitee, any Claim to the extent caused by amendments, supplements, waivers or consents with respect to the Related Documents requested by such Indemnitee unless (i) a Head Lease Event of Default shall have occurred and be continuing, (ii) such amendment, supplement, waiver or consent shall have been required by any Related Document or by Applicable Law or (iii) the Head Lessee shall have expressly agreed to pay for the same in any Related Document; (viii) with respect to any particular Indemnitee, any Claim for losses of future profits or losses attributable to any Indemnitee's overhead (other than allocation of such Indemnitee's internal counsel expenses relating to a Head Lease Event of Default. (c) Insured Claims. In the case of any Claim indemnified by the Head Lessee hereunder which is covered by a policy of insurance maintained by the Head Lessee pursuant to Section 14 of this Head Lease, each Indemnitee agrees to cooperate, at the Head Lessee's expense, with the insurers in the exercise of their rights to investigate, defend or compromise such Claim as may be required to retain the benefits of such insurance with respect to such Claim. (d) Subrogation. To the extent that a Claim indemnified by the Head Lessee under this Section 21 is in effect paid in full by the Head Lessee or an insurer under a policy of insurance maintained by the Head Lessee pursuant to Section 21 of the Head Lease such insurer, as the case may be, shall be subrogated to the rights and remedies of the Indemnitee on whose behalf such Claim was paid (other than rights of such Indemnitee under insurance policies maintained at its own expense) with respect to the transaction or event giving rise to such Claim; provided, however, that the Head Lessee shall not be entitled to exercise any such right of subrogation at any time while a Head Lease Event of Default has occurred and is continuing. Should an Indemnitee receive any refund, in whole or in part, with respect to any Claim paid by the Head Lessee hereunder, it shall promptly pay the amount refunded (but not an amount in excess of the amount the Head Lessee or any of its insurers, has paid in respect of such Claim) over to the Head Lessee after deducting from such amount any withholding Tax in respect thereof (and the Company shall indemnify the relevant Indemnitees against any such withholding Taxes). (e) No Guaranty. The general indemnification provisions of this Section 21 are not intended to constitute a guaranty by the Head Lessee that the principal or interest on the Note will be paid. (f) Certain Amounts Payable. The Head Lessee shall promptly pay on request to the party entitled thereto as Supplemental Rent (on an After-Tax Basis as to such party and the beneficiaries) amounts equal to all amounts, other than principal and interest, payable by the Issuer including, without limitation, increased costs, make-whole amount and tax indemnification. 32 37 22. Tax Indemnity. Head Lessee agrees to pay timely, and promptly upon notice to indemnify and hold each Indemnitee harmless on an After-Tax Basis from, any and all Taxes imposed on or with respect to or asserted against such Indemnitee, the Head Lessee, this Head Lease (or any document contemplated hereby), the Compressors or part or component thereof, or such Indemnitee's interest therein, by any federal, state, local or foreign government or taxing authority (each, a " Taxing Authority") with respect to the Compressors, or the manufacture, purchase, acceptance, rejection, ownership, delivery, leasing, subleasing, possession, use, condition, operation, maintenance, repair, modification, replacement, return, sale or other disposition thereof, or upon or with respect to rental payments, receipts, earnings or other proceeds received or accrued with respect to the Compressors while the same is subject to any Lease Supplement, and (x) until possession thereof has been delivered to Head Lessor in accordance with this Head Lease or any Lease Supplement or (y) the Compressors have been purchased by the Head Lessee as provided in Section 20.1 hereof, and provided in the case of clauses (x) and (y) that Head Lessee has theretofore paid all amounts payable to the Head Lessor and each other Indemnitee as provided herein, including all such Taxes payable under this Section 22 (excluding, however, (i) federal income taxes and Taxes to the extent based on, or to the extent measured by, the net income and, to the extent imposed as a result of such Indemnitee engaging in business in the jurisdiction imposing such Tax, gross income, capital, franchise and comparable doing business Taxes of such Indemnitee imposed by Taxing Authorities of those jurisdictions in which such Indemnitee is subject to such Taxes by reason of transactions unrelated to the transactions contemplated by this Head Lease , (ii) Taxes imposed on such Indemnitee arising from any voluntary sale or transfer by such Indemnitee of any interest in the Compressors or any related documents, other than (x) any assignment for security in connection with a financing contemplated by this Head Lease and the transactions related thereto and (y) any such sale or transfer while a Head Lease Event of Default is continuing, (iii) Taxes imposed with respect to a period, acts or events after the last to occur of (w) the end of the Term, (x) delivery of possession of the Compressors to the Head Lessor as provided herein, (y) except in the case of Taxes attributable to the Compressors, the payment by the Head Lessee of all amounts due under this Head Lease and the Related Documents and (z) the completion of the exercise of remedies by the Head Lessor in connection with a Head Lease Event of Default, provided, however that this clause (iii) shall not apply to the extent that such Taxes are imposed on payments made by the Head Lessee pursuant to this Head Lease and the Related Documents regardless of when such payments are made, or relate to the exercise of remedies in connection with a Head Lease Event of Default, or arise from the failure of the Head Lessee to take (or fail to take) actions required by this Head Lease and the Related Documents, or a breach of a representation, warranty, covenant or other obligation under the Lease or relate to events occurring or matters arising prior to or simultaneously with the end of the Term, (iv) Taxes imposed on an assignee of the Head Lessor which are in excess of Taxes of which would be due under this Head Lease under applicable law as of the date of such assignment had the Head Lessor not assigned its interest in this Head Lease and the Compressors to an assignee, (v) Taxes arising from the gross negligence or wilful misconduct of such Indemnitee or a material breach by such Indemnitee of its obligations under this Head Lease or any Related Document, and (vi) Taxes imposed as a result of an unreasonable failure by such Indemnitee to cooperate (at the Head Lessee's expense) with the Head Lessee in connection with filing of tax forms or taking of other actions in connection with the payment of Taxes. In the event an Indemnitee receives a refund of any Tax which has been paid by Head Lessee, such refund, plus all interest paid in connection therewith and fairly attributable thereto, shall be refunded to Head Lessee. 33 38 (a) If any return, report or statement (" Report") relating to Taxes or otherwise is required to be made by Head Lessee or an Indemnitee relating to the Compressor or the transactions contemplated by this Head Lease, Head Lessee shall so notify such Indemnitee and shall prepare and timely file such Report at its own expense and provide a copy thereof to such Indemnitee, provided, that if such report or return is required by Applicable Law to be filed by such Indemnitee the Head Lessee shall timely provide to such Indemnitee such report or return (in form and substance reasonably satisfactory to such Indemnitee) for filing. Head Lessee shall cause all billings of such Taxes to be made to the Head Lessee (to the extent permitted by law), make timely payment thereof and furnish written evidence of such payment to such Indemnitee promptly after payment thereof. 23. Security for Head Lessor's Obligations. In order to secure all amounts payable by and all obligations to be performed by the Head Lessor under the Indenture and the other Related Documents, the Head Lessor has agreed in the Indenture, among other things, to assign to the Indenture Trustee for its benefit and the benefit of the various Entitled Parties certain rights under this Head Lease and to pledge to the Indenture Trustee, and to grant a first priority security interest in favor of the Indenture Trustee, in this Head Lease, subject to the reservations and conditions therein set forth. The Head Lessee hereby consents to such assignments and to the creation of such pledge and security interest and the pledges and security interests in the other Collateral created thereunder and acknowledges receipt of a copy of the Indenture, it being understood that such consent shall not affect any requirement or the absence of any requirement for any consent under any other circumstances. To the extent, if any, that a 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 such Lease Supplement may be created through the transfer or possession of any counterpart hereof other than the original counterpart, which shall be identified as the counterpart containing the receipt therefor executed by the Indenture Trustee on the signature page hereof. 24. Notices. All demands, notices, and communications under this Agreement shall be in writing personally delivered, or sent by facsimile (with subsequent telephone confirmation of receipt thereof) or sent by overnight courier service, at the following address: (a) the Head Lessor and/or the Head Lessee, each at its address at 4440 Brittmoore Road, Houston, Texas 77041; and (b) the Indenture Trustee, the Noteholders, the Rating Agencies and any Series Enhancer and Administrative Agent at their respective addresses set forth in the related Supplement. Notice shall be effective and deemed received (a) two days after being delivered to the courier service, if sent by courier, (b) upon receipt of confirmation of transmission, if sent by telecopy, or (c) when delivered, if delivered by hand. Either party may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section 24 for giving notice and by otherwise complying with any applicable terms of this Agreement. 25. GOVERNING LAW, SUBMISSION TO JURISDICTION: VENUE, WAIVER OF JURY TRIAL. 25.1 THIS AGREEMENT SHALL BE CONSTRUED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAW, AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 34 39 25.2 ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE CONTRIBUTOR OR THE TRANSFEREE ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY TRANSACTION CONTEMPLATED HEREBY, MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK AND THE CONTRIBUTOR AND THE TRANSFEREE EACH HEREBY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND, SOLELY FOR THE PURPOSES OF ENFORCING THIS AGREEMENT, THE CONTRIBUTOR AND THE TRANSFEREE EACH HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. LESSEE HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 111 EIGHTH AVENUE, NEW YORK 10011 AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, HEAD LESSEE AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE AGENT UNDER THIS HEAD LEASE AGREEMENT. EACH OF HEAD LESSEE AND HEAD LESSOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT 4440 BRITTMOORE ROAD, HOUSTON, TEXAS 77041 ATTENTION: GENERAL COUNSEL, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF HEAD LESSEE OR HEAD LESSOR UNDER THIS HEAD LEASE AGREEMENT, TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY PERSON IN ANY OTHER JURISDICTION. 25.3 EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AS AGAINST THE OTHER PARTIES HERETO, ANY RIGHTS IT MAY HAVE TO A JURY TRIAL IN RESPECT OF ANY CIVIL ACTION OR PROCEEDING (WHETHER ARISING IN CONTRACT OR TORT OR OTHERWISE), INCLUDING ANY COUNTERCLAIM, ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER RELATED DOCUMENT, INCLUDING IN RESPECT OF THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT HEREOF OR THEREOF. 26. Miscellaneous. Any provision of this Head Lease which is prohibited or un-enforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating or diminishing Head Lessor's rights under 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. To the extent permitted by applicable law, Head Lessee hereby waives any provision of law which renders any provision of this Head Lease prohibited or unenforceable in any respect. No term or provision of this 35 40 Head Lease may be amended, altered, waived, discharged or terminated except in a writing signed by the parties to this Head Lease and the Indenture Trustee. A waiver on any one occasion shall not be construed as a waiver on a future occasion. Neither Head Lessee nor Head Lessor shall assign or transfer its interests in this Head Lease. All of the covenant conditions and obligations contained in this Head Lease shall be binding upon and shall inure to the benefit of the respective successors and assigns of Head Lessor and (subject to the restrictions of Sections 19.1 and 19.2) Head Lessee. This Head Lease and the other Related Documents, and each related instrument, document, agreement and certificate, collectively constitute the complete and exclusive statement of the terms of the agreement between Head Lessor and Head Lessee with respect to the acquisition and leasing of the Compressors, and cancel and supersede any and all prior oral or written understandings with respect thereto. 27. Execution and Effectiveness. This Head Lease may be executed in any number of identical counterparts, any set of which signed by all parties hereto shall be deemed to constitute a complete, executed original for all purposes and shall become effective when each of the parties hereto and each of the parties hereto have executed and delivered this Head Lease. 28. Statutory References. References in this Head Lease to any section of the Uniform Commercial Code shall mean, on or after the effective date of adoption of any revision to the uniform commercial code in the applicable jurisdiction, such revised or successor section thereto. 29. Severability. Any provision of this Head Lease 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, provided that in no event shall the provisions of Sections 20, 21 and 22 be deemed to be severable from the other provisions of this Head Lease. To the extent permitted by Applicable Law, the Head Lessee and the Head Lessor hereby waive any provision of law that renders any provision hereof invalid, prohibited or unenforceable in any respect. 30. Counterparts. This Head Lease may be executed by the parties hereto in separate counterparts, each of which, subject to Section 25 hereof, when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 31. Amendments and Waivers. No term or provision of this Head Lease may be changed, waived, discharged or terminated orally, but may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which the enforcement of the change, waiver, discharge or termination is sought. 32. Purchase Option. (a) So long as no Head Lease Event of Default is then outstanding, the Head Lessee may, upon three (3) Business Days' prior written notice to the Head Lessor, the Indenture Trustee and Deal Agent, purchase one or more Compressors identified in such notification for an amount equal to the greater of (i) 4.5 times the Net Revenue associated with such Compressors and 36 41 (ii) the Appraised Value of such Compressors; provided, however, that such identified Compressors must be selected in accordance with one of the following methodologies: (1) all such Compressors must be selected from the then outstanding Lease Pool with the latest Termination Date; (2) ratably from all Lease Pools then outstanding in accordance with the methodology set forth in paragraph (b) of this Section 32. (b) If the Head Lessee has, pursuant to clause (2) of Section 32(a), elected to select such purchased Compressors from all Lease Pools then outstanding, then the amount of Compressors to be drawn from each Lease Pool shall be equal to the product of (x) the sum of the Appraised Values of all Compressors to be purchased on such date and (y) the Purchase Option Percentage for each such Lease Pool. Once the aggregate amount of Compressors to be selected from each Lease Pool has been determined, then the specific Compressors from each Lease Pool will be selected on a non-discriminatory basis. (c) Upon payment in full of all amounts due upon the exercise of the purchase option, Head Lessor will, at the request and cost of Head Lessee and subject to compliance with the provisions of Section 404 of the Indenture, transfer to or at the direction of Head Lessee, without recourse or warranty (except as to the absence of Head Lessor Liens), all of Head Lessor's right, title and interest in and to the Compressor(s) in the related Lease Pool, "as-is, where-is" and at the cost and request of Head Lessee, furnish to or at the direction of Head Lessee, a bill of sale without recourse or warranty evidencing such transfer (except as to the absence of Head Lessor Liens), such bill of sale to be in form and substance reasonably satisfactory to Head Lessee and Head Lessor. [Signatures to follow] 37 42 IN WITNESS WHEREOF, the parties hereto have caused this Head Lease to be duly executed by their duly authorized representatives as of the date first above written. BRL UNIVERSAL COMPRESSION FUNDING I, L.P., as Head Lessor by: BRL Universal Compression Management, Inc. By: /s/ GREGORY C. GREENE --------------------------------- Name: Gregory C. Greene Title: President UCO COMPRESSION LLC, as Head Lessee By: /s/ RICHARD W. FITZGERALD --------------------------------- Name: Richard W. FitzGerald Title: Senior Vice President HEAD LEASE AGREEMENT EX-10.6 12 h84315ex10-6.txt SENIOR SECURED REVOLVING CREDIT AGREEMENT 1 EXHIBIT 10.6 SENIOR SECURED REVOLVING CREDIT AGREEMENT DATED AS OF FEBRUARY 9, 2001 AMONG UNIVERSAL COMPRESSION, INC., AS BORROWER, FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT, BANK ONE, NA, AS SYNDICATION AGENT, AND THE LENDERS SIGNATORY HERETO $125,000,000 SENIOR SECURED REVOLVING CREDIT FACILITY 2
TABLE OF CONTENTS PAGE ---- Section 1.01 Terms Defined Above.....................................1 Section 1.02 Certain Defined Terms...................................1 Section 1.03 Accounting Terms and Determinations....................20 ARTICLE II Commitments............................................21 Section 2.01 Loans and Letters of Credit............................21 Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit...............................................22 Section 2.03 Changes of Commitments.................................24 Section 2.05 Several Obligations....................................26 Section 2.06 Notes..................................................26 Section 2.07 Prepayments............................................26 Section 2.08 Borrowing Base.........................................28 Section 2.09 Assumption of Risks....................................29 Section 2.10 Obligation to Reimburse and to Prepay..................29 Section 2.11 Lending Offices........................................31 ARTICLE III Payments of Principal and Interest.....................32 Section 3.01 Repayment of Loans.....................................32 Section 3.02 Interest...............................................32 ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc........33 Section 4.01 Payments...............................................33 Section 4.02 Pro Rata Treatment.....................................33 Section 4.03 Computations...........................................33 Section 4.04 Agent Reliance.........................................34 Section 4.05 Set-off, Sharing of Payments, Etc......................34 Section 4.06 Taxes..................................................35 ARTICLE V Capital Adequacy.......................................38 Section 5.01 Additional Costs.......................................38 Section 5.02 Limitation on LIBOR Loans..............................40 Section 5.03 Illegality.............................................40 Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03.............................................40 Section 5.05 Compensation...........................................40 Section 5.06 Replacement Lenders....................................41 ARTICLE VI Conditions Precedent...................................42 Section 6.01 Initial Funding........................................42 Section 6.02 Initial and Subsequent Loans and Letters of Credit.....45 Section 6.03 Conditions Precedent for the Benefit of Lenders........46 Section 6.04 No Waiver..............................................46 ARTICLE VII Representations and Warranties.........................46 Section 7.01 Corporate Existence....................................46
-ii- 3 PAGE ---- Section 7.02 Financial Condition....................................46 Section 7.03 Litigation.............................................47 Section 7.04 No Breach..............................................47 Section 7.05 Authority..............................................47 Section 7.06 Approvals..............................................47 Section 7.07 Use of Loans...........................................48 Section 7.08 ERISA..................................................48 Section 7.09 Taxes..................................................49 Section 7.10 Titles, etc............................................49 Section 7.11 No Material Misstatements..............................50 Section 7.12 Investment Company Act.................................50 Section 7.13 Public Utility Holding Company Act.....................50 Section 7.14 Subsidiaries...........................................50 Section 7.15 Location of Business and Offices.......................50 Section 7.16 Defaults...............................................50 Section 7.17 Environmental Matters..................................51 Section 7.18 Compliance with the Law................................52 Section 7.19 Insurance..............................................52 Section 7.20 Reserved...............................................52 Section 7.21 Hedging Agreements.....................................52 Section 7.22 Restriction on Liens...................................52 ARTICLE VIII Affirmative Covenants..................................53 Section 8.01 Reporting Requirements.................................53 Section 8.02 Litigation.............................................55 Section 8.03 Maintenance, Etc.......................................55 Section 8.04 Environmental Matters..................................55 Section 8.05 Further Assurances.....................................56 Section 8.06 Performance of Obligations.............................56 Section 8.07 Reserved...............................................56 Section 8.08 Reserved...............................................56 Section 8.09 Additional Collateral; Releases of Collateral..........56 Section 8.10 ERISA Information and Compliance.......................57 ARTICLE IX Negative Covenants.....................................58 Section 9.01 Debt...................................................58 Section 9.03 Investments, Loans and Advances........................60 Section 9.04 Dividends, Distributions and Redemptions...............60 Section 9.05 Reserved...............................................61 Section 9.06 Nature of Business.....................................61 Section 9.07 Reserved...............................................61 Section 9.08 Mergers, Etc...........................................61 Section 9.09 Proceeds of Notes; Letters of Credit...................61 Section 9.10 ERISA Compliance.......................................61 Section 9.11 Sale or Discount of Receivables........................63 Section 9.12 Reserved...............................................63
-iii- 4 PAGE ---- Section 9.13 Certain Financial Covenants............................63 Section 9.14 Sale of Properties.....................................64 Section 9.15 Environmental Matters..................................64 Section 9.16 Transactions with Affiliates...........................64 Section 9.17 Subsidiaries...........................................64 Section 9.18 Negative Pledge Agreements.............................65 ARTICLE X Events of Default; Remedies............................65 Section 10.01 Events of Default......................................65 Section 10.02 Remedies...............................................67 ARTICLE XI The Administrative Agent...............................68 Section 11.01 Appointment, Powers and Immunities.....................68 Section 11.02 Reliance by Administrative Agent.......................69 Section 11.03 Defaults...............................................69 Section 11.04 Rights as a Lender.....................................69 Section 11.05 Indemnification........................................70 Section 11.06 Non-Reliance on Administrative Agent and other Lenders..............................................70 Section 11.07 Action by Administrative Agent.........................70 Section 11.08 Resignation or Removal of Administrative Agent.........71 ARTICLE XII Miscellaneous..........................................71 Section 12.01 Waiver.................................................71 Section 12.02 Notices................................................72 Section 12.03 Payment of Expenses, Indemnities, Etc..................72 Section 12.04 Amendments, Etc........................................75 Section 12.05 Successors and Assigns.................................75 Section 12.06 Assignments and Participations.........................75 Section 12.07 Invalidity.............................................77 Section 12.08 Counterparts...........................................77 Section 12.09 References.............................................77 Section 12.10 Survival...............................................77 Section 12.11 Captions...............................................77 Section 12.12 No Oral Agreements.....................................77 Section 12.13 Governing Law; Submission to Jurisdiction..............78 Section 12.14 Interest...............................................79 Section 12.15 Confidentiality........................................80 Section 12.16 Effectiveness..........................................81 Section 12.17 Exculpation Provisions.................................81 Section 12.18 Hedging Agreements.....................................81
-iv- 5 ANNEXES, EXHIBITS AND SCHEDULES Annex I - List of Maximum Revolving Credit Amounts Exhibit A - Form of Note Exhibit B - Form of Borrowing, Continuation and Conversion Request Exhibit C - Form of Compliance Certificate Exhibit D - List of Security Instruments Exhibit E - Form of Assignment Agreement Exhibit F - Form of Letter of Credit Application Exhibit G - Form of Notice of Account Designation Exhibit H - Form of Borrowing Base Certificate Schedule 1.01 - Equipment Fair Market Value Computation Schedule 2.01(b) - Existing Letters of Credit Schedule 7.02 - Liabilities Schedule 7.03 - Litigation Schedule 7.09 - Taxes Schedule 7.10 - Titles, etc. Schedule 7.14 - Subsidiaries and Partnerships Schedule 7.17 - Environmental Matters Schedule 7.19 - Insurance Schedule 7.21 - Hedging Agreements Schedule 7.22 - Negative Pledges Schedule 9.01 - Debt Schedule 9.02 - Liens Schedule 9.03 - Investments, Loans and Advances Schedule 9.16 - Transactions with Affiliates -v- 6 THIS SENIOR SECURED REVOLVING CREDIT AGREEMENT dated as of February 9, 2001, is among: UNIVERSAL COMPRESSION, INC., a corporation formed under the laws of the State of Texas (the "Borrower"); each of the lenders that is a signatory hereto or which becomes a signatory hereto as provided in Section 12.06 (individually, together with its successors and assigns, a "Lender" and, collectively, the "Lenders"); and FIRST UNION NATIONAL BANK, a national banking association (in its individual capacity, "FUNB"), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). R E C I T A L S A. The Borrower has requested that the Lenders provide certain loans to and extensions of credit on behalf of the Borrower; and B. The Lenders have agreed to make such loans and extensions of credit subject to the terms and conditions of this Agreement. C. In consideration of the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS Section 1.01 Terms Defined Above. As used in this Senior Secured Revolving Credit Agreement, the terms "Administrative Agent," "Borrower," "Lender," "Lenders," and "FUNB" shall have the meanings indicated above. Section 1.02 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Article I or in other provisions of this Senior Secured Revolving Credit Agreement in the singular to have equivalent meanings when used in the plural and vice versa): "ABS Facility" shall mean that certain $200,000,000 asset backed securitization facility under that certain Indenture dated February 9, 2001, between BRL Universal Compression Funding I, L.P., as Issuer, and Wells Fargo Bank, National Association, as Indenture Trustee. "Accounts Receivable" shall mean, for any Person, all of such Person's accounts, instruments, contract rights, chattel paper, documents, and general intangibles arising from the sale of goods and/or the rendition of services by such Person in the ordinary course of business, and the proceeds thereof and all security and guaranties therefor, whether now existing or hereafter created, and all returned, reclaimed or repossessed goods, and all books and records pertaining to the foregoing. 7 "Additional Costs" shall have the meaning assigned such term in Section 5.01(a). "Affected Loans" shall have the meaning assigned such term in Section 5.04. "Affiliate" of any Person shall mean (i) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (ii) any director or officer of such first Person or of any Person referred to in clause (i) above and (iii) if any Person in clause (i) above is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to "control" (including, with its correlative meanings, "controlled by" and "under common control with") such corporation or other Person. "Agreement" shall mean this Senior Secured Revolving Credit Agreement, as the same may from time to time be amended or supplemented. "Aggregate Commitments" at any time shall equal the amount calculated in accordance with Section 2.03. "Aggregate Maximum Revolving Credit Amounts" at any time shall equal the sum of the Maximum Revolving Credit Amounts of the Lenders (not to exceed $125,000,000), as the same may be reduced pursuant to Section 2.03(b). "Alternate Currency" shall mean such foreign currencies which are readily convertible into Dollars and are acceptable to the Administrative Agent. "Applicable Lending Office" shall mean, for each Lender and for each Type of Loan, the lending office of such Lender (or an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other offices of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" shall mean: (a) During the Initial Pricing Period, the applicable per annum percentage determined as follows: (i) If, on the Closing Date, the Borrower has not received a credit rating on its senior secured Debt issued in conjunction with the HY-SL Facility of BB or 8 better from S&P or Ba2 or better from Moody's, the Applicable Margin for the Initial Pricing Period shall be (A) 1 1/2% per annum with respect to Base Rate Loans, and (B) 2 1/2% per annum with respect to LIBOR Loans. (ii) If, on the Closing Date, the Borrower has received a credit rating on its senior secured Debt issued in conjunction with the HY-SL Facility of BB or better from S&P or Ba2 or better from Moody's, the Applicable Margin for the Initial Pricing Period shall be (A) 1 1/4% per annum with respect to Base Rate Loans, and (B) 2 1/4% per annum with respect to LIBOR Loans; provided, however, if, during the Initial Pricing Period, the Borrower's credit rating on its senior secured Debt issued in conjunction with the HY-SL Facility falls below BB from S&P or Ba2 from Moody's, then the Applicable Margin shall revert back to the applicable per annum percentage rate specified in (a)(i) of this definition. (iii) The Applicable Margin for commitment fees shall be 1/2 of 1%. (b) From and including August 9, 2001, and at all times thereafter, the applicable per annum percentage is determined as follows: (i) If, after the Initial Pricing Period, the Borrower has not received a credit rating on its senior secured Debt issued in conjunction with the HY-SL Facility of BB or better from S&P or Ba2 or better from Moody's, the Applicable Margin shall be the applicable per annum percentage set forth at the appropriate intersection in the table shown below based on the Total Leverage Ratio as in effect from time to time:
Applicable Margin ----------------- LIBOR Base Rate Commitment Total Leverage Ratio Loans Loans Fees -------------------- ----- --------- ---------- Greater than or equal to 4.25 to 1.0, but less than 4.75 to 1.0 2.50% 1.50% .50% Greater than or equal to 3.75 to 1.0, but less than 4.25 to 1.0 2.25% 1.25% .50% Greater than or equal to 3.25 to 1.0, but less than 3.75 to 1.0 2.00% 1.00% .50% Greater than or equal to 2.75 to 1.0, but less than 3.25 to 1.0 1.75% .75% .375% Less than 2.75 to 1.0 1.50% .50% .375%
(ii) If, after the Initial Pricing Period, the Borrower has received a credit rating on its senior secured Debt issued in conjunction with the HY-SL Facility of -3- 9 BB or better from S&P or Ba2 or better from Moody's, the Applicable Margin shall be the applicable per annum percentage set forth at the appropriate intersection in the table shown below based on the Total Leverage Ratio as in effect from time to time:
Applicable Margin ----------------- LIBOR Base Rate Commitment Total Leverage Ratio Loans Loans Fees -------------------- ----- --------- ---------- Greater than or equal to 4.25 to 1.0, but less than 4.75 to 1.0 2.25% 1.25% .50% Greater than or equal to 3.75 to 1.0, but less than 4.25 to 1.0 2.00% 1.00% .50% Greater than or equal to 3.25 to 1.0, but less than 3.75 to 1.0 1.75% .75% .375% Greater than or equal to 2.75 to 1.0, but less than 3.25 to 1.0 1.50% .50% .375% Less than 2.75 to 1.0 1.25% .25% .300%
provided, however, if, after the Initial Pricing Period, the Borrower's credit rating on its senior secured Debt issued in conjunction with the HY-SL Facility falls below BB from S&P or Ba2 from Moody's, then the Applicable Margin shall revert back to the applicable per annum percentage rate specified in (b)(i) of this definition. (c) For purposes of determining the Applicable Margin, the first test period for EBITDAR will be calculated as of June 30, 2001. Each change in the Applicable Margin resulting from a change in the Total Leverage Ratio (which shall be calculated quarterly) shall take effect as of the first day of the fiscal quarter for which the Total Leverage Ratio is calculated. "Assignment" shall have the meaning assigned such term in Section 12.06(b). "Base Rate" shall mean, with respect to any Base Rate Loan, for any day, the higher of (i) the Federal Funds Rate for any such day plus 1/2 of 1% or (ii) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Loans that bear interest at rates based upon the Base Rate. -4- 10 "Borrowing Base" shall mean the sum of the Working Capital Borrowing Base plus the Equipment Borrowing Base; provided, however, at no time shall the Borrowing Base exceed the lesser of (i) $125,000,000 and (ii) the Aggregate Maximum Revolving Credit Amounts. "Borrowing Base Certificate" shall mean the certificate required by Section 8.01(i), and otherwise being substantially in the form of Exhibit H. "Business Day" shall mean, other than for Letters of Credit, any day other than a day on which commercial banks are authorized or required to close in Texas or in North Carolina and, where such term is used in the definition of "Quarterly Date" or if such day relates to a borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or the Interest Period for, a LIBOR Loan or a notice by the Borrower with respect to any such borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. With respect to Letters of Credit, "Business Day" shall mean any day other than a day on which commercial banks are authorized or required to close in the domicility of the respective Issuing Bank. "Capital Lease" shall mean a lease of (or other arrangement conveying the right to use) real and/or personal Property, or a combination thereof, with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a Debt in accordance with GAAP. "Capital Lease Obligations" shall mean, as to any Person, all obligations of such Person as lessee under any Capital Lease, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" shall mean, (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock and (ii) with respect to any Person that is not a corporation, any and all partnerships or other equity interests of such Person. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions, but other than by the granting of a Lien in accordance with this Agreement or by way of consolidation or merger) of all or substantially all of the assets of the Borrower and its Subsidiaries, or Holdings and its Subsidiaries, in each case taken as a whole, to any Person or "group" (as defined in Section 13(d)(3) of the Exchange Act) other than to the Permitted Holders; (ii) the approval by the holders of Capital Stock of the Borrower or of Holdings of any plan or proposal for the liquidation or dissolution of the Borrower or Holdings (whether or not otherwise in compliance with the provisions of this Agreement); (iii) any Person or "group" within the meaning of Section 13(d) of the Exchange Act (other than the Permitted Holders and Holdings) shall become the "beneficial owner" as defined in Rule 13d-3 under the Exchange -5- 11 Act, of shares representing more than 50% of the aggregate voting power represented by the Capital Stock of the Borrower or of Holdings, or (iv) the replacement of a majority of the Board of Directors of the Borrower or Holdings over a two-year period from the directors who constituted the Board of Directors of the Borrower or Holdings, as the case may be, at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of the Borrower or Holdings, as the case may be, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. "CHP" means Castle Harlan Partners III, L.P., a private investment fund managed by Castle Harlan, Inc., a Delaware corporation. "Closing Date" shall mean February 9, 2001. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time and any successor statute. "Commitment" shall mean, for any Lender, its obligation to make Loans and to participate in the Letters of Credit as provided in Section 2.01(b) up to the amount of such Lender's Maximum Revolving Credit Amount. "Consolidated Current Assets" shall mean all assets of the Borrower and its Consolidated Subsidiaries which under GAAP would be classified as current assets. "Consolidated Current Liabilities" shall mean all liabilities of the Borrower and its Consolidated Subsidiaries which under GAAP would be classified as current liabilities but excluding the current maturities on long-term Debt. "Consolidated Net Income" shall mean with respect to the Borrower and its Consolidated Subsidiaries, for any period, the aggregate of the net income (or loss) of the Borrower and its Consolidated Subsidiaries after allowances for taxes for such period, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein) the following: (i) the net income of any Person in which the Borrower or any Consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Borrower and its Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in such period by such other Person to the Borrower or to a Consolidated Subsidiary, as the case may be; (ii) the net income (but not loss) of any Consolidated Subsidiary to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental Requirement applicable to such Consolidated Subsidiary, or is otherwise restricted or prohibited in each case determined in accordance with GAAP; (iii) the net income (or loss) of any Person acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; -6- 12 (iv) any extraordinary gains or losses, including gains or losses attributable to Property sales not in the ordinary course of business; and (v) the cumulative effect of a change in accounting principles and any gains or losses attributable to writeups or write downs of assets. "Consolidated Subsidiaries" shall mean each Subsidiary of the Borrower (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of the Borrower in accordance with GAAP. "Debt" shall mean, for any Person the sum of the following (without duplication): (i) all obligations of such Person (whether created or assumed) for borrowed money or evidenced by bonds, debentures, notes or other similar instruments (including principal, interest, fees and charges); (ii) all obligations of such Person (whether contingent or otherwise) in respect of bankers' acceptances, letters of credit, surety or other bonds and similar instruments; (iii) all obligations of such Person to pay the deferred purchase price of Property or services (other than for borrowed money); (iv) all Capital Lease Obligations in respect of which such Person is liable (whether contingent or otherwise); (v) all Operating Equipment Lease Obligations which require such Person or its Affiliate to make payments over the term of such lease; (vi) all Debt (as described in the other clauses of this definition) and other obligations of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person; (vii) all Debt (as described in the other clauses of this definition) and other obligations of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the debtor or obligations of others; (viii) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position or covenants of others or to purchase the Debt or Property of others; (ix) obligations to deliver goods or services in consideration of advance payments; (x) obligations to pay for goods or services whether or not such goods or services are actually received or utilized by such Person; (xi) any capital stock of such Person in which such Person has a mandatory obligation to redeem such stock; (xii) any Debt of a Special Entity for which such Person is liable either by agreement or because of a Governmental Requirement; and (xiv) all net obligations of such Person under Hedging Agreements. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dollar Equivalent" shall mean, at any time of determination thereof, the amount of Dollars involved which could be purchased with the applicable amount of the Alternate Currency involved computed at the spot rate of exchange as quoted or utilized by the Administrative Agent on the date of determination thereof. "Dollars" and "$" shall mean lawful money of the United States of America. "Domestic Subsidiary" shall mean each Subsidiary of the Borrower which is not a Foreign Subsidiary. -7- 13 "EBITDAR" shall mean, for any period, the sum of Consolidated Net Income for such period plus the following expenses or charges to the extent deducted from Consolidated Net Income in such period: Total Interest Expense, taxes, depreciation, amortization and rental expense excluding non-recurring charges. EBITDAR will be: (a) adjusted on a pro forma basis (reasonably acceptable to the Administrative Agent) for acquisitions and divestitures including projected synergies; (b) calculated utilizing annualized results for the period from and including the Closing Date up to but excluding the applicable quarterly determination date; and (c) from and after April 1, 2002, and at all times thereafter, calculated on a rolling four-quarter basis. "Effective Date" shall have the meaning assigned such term in Section 12.16. "Eligible Accounts Receivable" shall mean all Accounts Receivable of the Borrower and its Subsidiaries which have been created in the ordinary course of the Borrower's and its Subsidiaries' business, upon which the Borrower's and its Subsidiaries' right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which the Administrative Agent has a perfected, first priority Lien (subject only to Excepted Liens and the exceptions set forth in (ix) below), and such Accounts Receivable shall be valued net of any reserves in connection therewith required to be established by GAAP. The term "Eligible Accounts Receivable" shall not include (i) Accounts Receivable which are unpaid more than 90 days from the invoice date thereof to the extent such accounts exceed 15% of all Eligible Accounts Receivable; (ii) any account for which there exists a right of set off, defense or discount, except regular discounts allowed in the ordinary course of business to promote prompt payment (and for which no defense or counterclaim has been asserted); (iii) any account which represents an obligation of any local, state or federal government agency or entity; (iv) any account which arises out of a contract or order which, by its terms, forbids or makes void or unenforceable any assignment by the Borrower to the Administrative Agent of the account receivable arising with respect thereto; (v) any account arising from a "consignment"; (vi) any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, parent or subsidiary of the Borrower; (vii) any accounts arising from sales of goods or services in which the performance of the Borrower has been bonded; (viii) any Accounts Receivable generated in the Operating Equipment Lease Facilities and the ABS Facility (provided, however, that up to 15% of all Eligible Accounts Receivable arising from the leasing of equipment by UCO Compression LLC acquired in connection with the ABS Facility may be included as Eligible Accounts Receivable, notwithstanding the absence of a perfected Lien in favor of the Administrative Agent with respect to such Accounts Receivable, at any time prior to the occurrence and continuance of a Trigger Event (as such term is defined in the ABS Facility)); and (ix) Accounts Receivable generated by Foreign Subsidiaries in excess of 35% of all Eligible Accounts Receivable even if the Administrative Agent shall not have a Lien thereon; provided, however, no Accounts -8- 14 Receivable shall be Eligible Accounts Receivable if generated by a Foreign Subsidiary which has incurred Debt and further provided, however, all Accounts Receivable generated by a Foreign Subsidiary which has pledged such Accounts Receivable as collateral for the Indebtedness may be Eligible Accounts Receivable if such Accounts Receivable are not excluded by the other clauses of this definition (except for this clause (ix)). "Eligible Equipment" shall mean gas compression equipment of the Borrower having a fair market value (as determined by Schedule 1.01) equal to the incremental funded amount of the Aggregate Commitments in excess of the Working Capital Borrowing Base, in which the Administrative Agent has a perfected, first priority Lien (subject only to Excepted Liens). "Eligible Inventory" shall mean at any time all inventory of raw materials and work in process, then owned by the Borrower and its Subsidiaries (less any reserve for obsolescence, any reserve for slow-moving inventory, or any other similar contra-account to inventory all of which shall be satisfactory to the Administrative Agent) and held for sale or disposition in the ordinary course of business, in which the Administrative Agent has a perfected, first priority Lien (subject only to Excepted Liens and the exception set forth in clause (iii) below), valued at the lower of cost or market price; provided, however, the term Eligible Inventory shall not include (i) any gas compression equipment of the Borrower and its Subsidiaries to the extent same is deemed to be "inventory" as a result of constituting finished goods under the Uniform Commercial Code of any applicable jurisdiction, (ii) raw materials and work in progress once same are incorporated into equipment which constitutes finished goods and (iii) inventory of raw materials and work in progress owned by a Foreign Subsidiary in excess of 35% of all Eligible Inventory even if the Administrative Agent shall not have a Lien thereon. "Environmental Laws" shall mean any and all Governmental Requirements pertaining to health or the environment in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any time has conducted business, or where any Property of the Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection laws. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA; provided, however, that (i) in the event either OPA, CERCLA or RCRA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (ii) to the extent the laws of the state in which any Property of the Borrower or any Subsidiary is located establish a meaning for "oil," "hazardous -9- 15 substance," "release," "solid waste" or "disposal" which is broader than that specified in either OPA, CERCLA or RCRA, such broader meaning shall apply. "Equipment Borrowing Base" shall mean at any time an amount equal to the Eligible Equipment (on a dollar-for-dollar basis). "Equipment Loans" shall mean loans made pursuant to Section 2.01(a)(ii). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and any successor statute. "ERISA Affiliate" shall mean each trade or business (whether or not incorporated) which together with the Borrower or any Subsidiary would be deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. "ERISA Event" shall mean (i) a "Reportable Event" described in Section 4043 of ERISA and the regulations issued thereunder, (ii) the withdrawal of the Borrower, any Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (iii) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, (iv) the institution of proceedings to terminate a Plan by the PBGC or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "Event of Default" shall have the meaning assigned such term in Section 10.01. "Excepted Liens" shall mean: (i) Liens for taxes, assessments or other governmental charges or levies not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained; (ii) Liens in connection with workmen's compensation, unemployment insurance or other social security, old age pension or public liability obligations not yet due or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (iii) operators', vendors', carriers', warehousemen's, repairmen's, mechanics', workmen's, materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or statutory landlord's liens, each of which is in respect of obligations that have not been outstanding more than 90 days or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP; (iv) any Liens reserved in leases or farmout agreements for rent or royalties and for compliance with the terms of the farmout agreements or leases in the case of leasehold estates, to the extent that any such Lien referred to in this clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (v) encumbrances (other than to secure the payment of borrowed money or the deferred purchase price of Property or services), easements, restrictions, servitudes, permits, conditions, covenants, exceptions or -10- 16 reservations in any rights of way or other Property of the Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, and defects, irregularities, zoning restrictions and deficiencies in title of any rights of way or other Property which in the aggregate do not materially impair the use of such rights of way or other Property for the purposes of which such rights of way and other Property are held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (vi) deposits of cash or securities to secure the performance of bids, trade contracts, leases, statutory obligations and other obligations of a like nature incurred in the ordinary course of business; and (vii) Liens permitted by the Security Instruments; (viii) Liens arising out of fully bonded judgments; and (ix) Liens for Borrower's title to Property leased under Capital Leases. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "Existing Letters of Credit" shall mean those letters of credit listed on attached Schedule 2.01(b) and all reimbursement obligations pertaining to any such letter of credit. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with a member of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the date for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent on such day on such transactions as determined by the Administrative Agent. "Fee Letter" shall mean that certain letter agreement from First Union Securities, Inc. to the Borrower and agreed to by FUNB dated January 12, 2001, concerning certain fees in connection with this Agreement and any agreements or instruments executed in connection therewith, as the same may be amended or replaced from time to time. "Financial Statements" shall mean the financial statement or statements of Holdings and its Consolidated Subsidiaries described or referred to in Section 7.02. "Foreign Credit Facility" shall mean any credit facility of any Subsidiary of the Borrower (i) whose jurisdiction of incorporation is other than the United States of America, any state thereof, the District of Columbia or any possession thereof and (ii) which derives substantially all of its income from jurisdictions other than the United States of America. -11- 17 "Foreign Subsidiary" shall mean each Subsidiary of the Borrower that is incorporated under the laws of any jurisdiction other than the United States of America, any State thereof, or any territory thereof. "Foreign Subsidiary Indebtedness" shall have the meaning assigned such term in Section 9.01(i). "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Governmental Authority" shall include the country, the state, county, city and political subdivisions in which any Person or such Person's Property is located or which exercises valid jurisdiction over any such Person or such Person's Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them including monetary authorities which exercises valid jurisdiction over any such Person or such Person's Property. Unless otherwise specified, all references to Governmental Authority herein shall mean a Governmental Authority having jurisdiction over, where applicable, the Borrower, its Subsidiaries or any of their Property or the Administrative Agent, any Lender or any Applicable Lending Office. "Governmental Requirement" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (whether or not having the force of law), including, without limitation, Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority. "Hedging Agreements" shall mean any commodity, interest rate or currency swap, cap, floor, collar, forward agreement or other exchange or protection agreements or any option with respect to any such transaction. "Highest Lawful Rate" shall mean, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "Holdings" shall mean Universal Compression Holdings, Inc., a Delaware corporation. "HY-SL Facility" shall mean that certain $427,000,000 high yield synthetic lease facility as described in the Offering Memorandum. "Indebtedness" shall mean (without duplication) any and all amounts owing or to be owing by the Borrower to the Administrative Agent, the Issuing Bank, the Lenders and/or any Affiliate of any Lender in connection with the Loan Documents and the Letter of Credit -12- 18 Application, and any Hedging Agreements now or hereafter arising between the Borrower and any Lender or any Affiliate of any Lender and permitted by the terms of this Agreement and all renewals, extensions and/or rearrangements of any of the foregoing. "Indemnified Parties" shall have the meaning assigned such term in Section 12.03(a)(ii). "Indemnity Matters" shall mean any and all actions, suits, proceedings (including any investigations, litigation or inquiries), claims, demands and causes of action made or threatened against a Person and, in connection therewith, all losses, liabilities, damages (including, without limitation, consequential damages) or reasonable costs and expenses of any kind or nature whatsoever incurred by such Person whether caused by the sole or concurrent negligence of such Person seeking indemnification. "Initial Funding" shall mean the funding of the initial Loans or issuance of the initial Letters of Credit upon satisfaction of the conditions set forth in Sections 6.01 and 6.02. "Initial Pricing Period" shall mean the period from and including the Closing Date through August 9, 2001. "Interest Coverage Ratio" shall mean the ratio of (i) EBITDAR for the applicable Testing Period to (ii) Total Interest Expense for the applicable Testing Period. "Interest Period" shall mean, with respect to any LIBOR Loan, the period commencing on the date such LIBOR Loan is made and ending on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, as the Borrower may select as provided in Section 2.02 (or such longer period as may be requested by the Borrower and agreed to by the Majority Lenders), except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period may end after the Revolving Credit Termination Date; (ii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) no Interest Period shall have a duration of less than one month and, if the Interest Period for any LIBOR Loans would otherwise be for a shorter period, such Loans shall not be available hereunder. "Investment" shall mean, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any -13- 19 Person. "Investment" shall exclude extensions of trade credit by Borrower and its Subsidiaries on commercially reasonable terms in accordance with normal trade practices of Borrower or such Subsidiary, as the case may be. "Issuing Bank" shall mean, for any Letters of Credit issued on or after the Closing Date, FUNB or any other Lender agreed to among the Borrower, the Administrative Agent and such Lender to issue Letters of Credit. As to the Existing Letters of Credit, the Issuing Bank for each Existing Letter of Credit shall be as set forth on Schedule 2.01.(b). "LC Commitment" at any time shall mean $50,000,000. "LC Exposure" at any time shall mean the difference between aggregate face amount of all undrawn and uncancelled Letters of Credit (including the Dollar Equivalent of the face amounts of outstanding Offshore Currency Letters of Credit) and the aggregate of all amounts drawn under all Letters of Credit and not yet reimbursed. "Lender Affiliate" shall mean (a) with respect to any Lender (i) an Affiliate of such Lender or (ii) any entity (whether a corporate, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender and (b) with respect to any Lender that is a fund which invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Letters of Credit Application" shall mean a letter of credit application, in the form of Exhibit F, delivered to the Administrative Agent requesting the issuance, reissuance, extension or renewal of any Letter of Credit and containing the information set forth in Section 2.02(g). "Letters of Credit" shall mean the Existing Letters of Credit, and the letters of credit issued pursuant to Section 2.01(b) and all reimbursement obligations pertaining to any such letters of credit, and "Letter of Credit" shall mean any one of the Letters of Credit and the reimbursement obligations pertaining thereto, and shall include Offshore Currency Letters of Credit. "LIBOR" shall mean the rate of interest determined on the basis of the rate for deposits in Dollars for a period equal to the applicable Interest Period commencing on the first day of such Interest Period appearing on Bridge Telerate Service (formerly Dow Jones Market Service) Page 3750 as of 11:00 a.m. (London time) two (2) Business Days prior to the first day of the applicable Interest Period. In the event that such rate does not appear on Bridge Telerate Service (formerly Dow Jones Market Service) Page 3750, "LIBOR" shall be determined by the Administrative Agent to be the rate per annum at which deposits in Dollars are offered by leading reference banks in the London interbank market to FUNB at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period for a -14- 20 period equal to such Interest Period and in an amount substantially equal to the amount of the applicable Loan. "LIBOR Loans" shall mean Loans the interest rates on which are determined on the basis of rates referred to in the definition of "LIBOR Rate". "LIBOR Rate" shall mean, with respect to any LIBOR Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to the quotient of (i) LIBOR for such Loan for the Interest Period for such Loan divided by (ii) 1 minus the Reserve Requirement for such Loan for such Interest Period. "Lien" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing. "Loan Documents" shall mean this Agreement, the Notes and the Security Instruments. "Loans" shall mean the loans as provided for by Section 2.01. "Majority Lenders" shall mean, at any time while no Loans are outstanding, Lenders having more than 50% of the Aggregate Commitments and, at any time while Loans are outstanding, Lenders holding more than 50% of the outstanding aggregate principal amount of the Loans (without regard to any sale by a Lender of a participation in any Loan under Section 12.06(c)). "Material Adverse Effect" shall mean any material and adverse effect on (i) the assets, liabilities, financial condition, business, operations or affairs of the Borrower and its Subsidiaries taken as a whole as reflected in the Financial Statements, or from the facts represented or warranted in any Loan Document or in the Offering Memorandum, or (ii) the ability of the Borrower and its Subsidiaries taken as a whole to meet their obligations under the Loan Documents on a timely basis. "Maximum Revolving Credit Amount" shall mean, as to each Lender, the amount set forth opposite such Lender's name on Annex I under the caption "Maximum Revolving Credit Amounts" (as the same may be reduced pursuant to Section 2.03(b) pro rata to each Lender -15- 21 based on its Percentage Share or increased pursuant to Section 2.03(d)), as modified from time to time to reflect any assignments permitted by Section 12.06(b). "Moody's shall mean Moody's Investors Services, Inc. "Multiemployer Plan" shall mean a Plan defined as such in Section 3(37) or 4001(a)(3) of ERISA. "9-7/8% Senior Discount Notes" shall mean those certain unsecured 9-7/8% Senior Discount Notes due 2008, issued pursuant to that certain Indenture dated as of February 20, 1998, between TW Acquisition Corporation (now known as Borrower) and the United States Trust Company of New York. "Notes" shall mean the Notes provided for by Section 2.06, together with any and all renewals, extensions for any period, increases, rearrangements, substitutions or modifications thereof. "Offering Memorandum" shall mean that certain Offering Memorandum dated February 9, 2001 and pertaining to those certain Senior Secured Notes due February 15, 2008 in the amount of $350,000,000 to be issued by BRL Universal Equipment 2001 A, L.P. and BRL Universal Equipment Corp. "Offshore Currency" shall mean any lawful currency (other than Dollars) that the relevant Issuing Bank with respect to any Offshore Currency Letter of Credit, in its sole reasonable opinion, at any time determines to be (a) freely traded in the offshore interbank foreign exchange markets, (b) freely transferable, and (c) freely convertible into Dollars. "Offshore Currency Letter of Credit" shall mean any Letter of Credit denominated in an Offshore Currency. "Operating Equipment Lease" shall mean, as to any Person, any asset backed securitization transaction (other than the ABS Facility) entered into for the purpose of financing gas compression equipment and any operating lease transaction relating to gas compression equipment that is treated as an operating lease for purposes of accounting in accordance with GAAP but not for tax purposes. "Operating Equipment Lease Facility" shall mean each operating lease transaction or asset backed securitization transaction (other than the ABS Facility) contemplated by an Operating Equipment Lease, including, without limitation, the HY-SL Facility. "Operating Equipment Lease Obligations" shall mean, as to any Person, all obligations of such Person as lessee under any Operating Equipment Lease. "Other Taxes" shall have the meaning assigned such term in Section 4.06(b). -16- 22 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions. "Percentage Share" shall mean the percentage of the Aggregate Commitments to be provided by a Lender under this Agreement as indicated on Annex I hereto, as modified from time to time to reflect any assignments permitted by Section 12.06(b). "Permitted Holder(s)" shall mean (i) WGCS and any Affiliate of WGCS and (ii) each of CHP and Castle Harlan Inc. and employees, management, directors and Affiliates of the foregoing. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government or any agency, instrumentality or political subdivision thereof, or any other form of entity. "Plan" shall mean any employee pension benefit plan, as defined in Section 3(2) of ERISA, which (i) is currently or hereafter sponsored, maintained or contributed to by the Borrower, any Subsidiary or an ERISA Affiliate or (ii) was at any time during the preceding six calendar years sponsored, maintained or contributed to, by the Borrower, any Subsidiary or an ERISA Affiliate. "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount payable by the Borrower under this Agreement or any other Loan Document, a rate per annum during the period commencing on the date of occurrence of an Event of Default until such amount is paid in full or all Events of Default are cured or waived equal to 2% per annum above the Base Rate as in effect from time to time plus the Applicable Margin (if any), but in no event to exceed the Highest Lawful Rate; provided however, for a LIBOR Loan, the "Post-Default Rate" for such principal shall be, for the period commencing on the date of occurrence of an Event of Default and ending on the earlier to occur of the last day of the Interest Period therefor or the date all Events of Default are cured or waived, 2% per annum above the interest rate for such Loan as provided in Section 3.02(a)(ii), but in no event to exceed the Highest Lawful Rate. "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by FUNB as its prime rate at its principal office in Charlotte, North Carolina. Each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Principal Office" shall mean the principal office of the Administrative Agent, presently located at 301 South College Street, Charlotte, North Carolina 28288-0608. "Property" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. -17- 23 "Purchase Money Indebtedness" shall mean Indebtedness, the proceeds of which are used to finance the acquisition, construction or improvement of inventory, equipment or other property in the ordinary course of business. "Quarterly Date" shall mean the last day of each March, June, September and December, in each year, the first of which shall be March 31, 2001; provided, however, that if any such day is not a Business Day, such Quarterly Date shall be the next succeeding Business Day. "Redetermination Rate" shall have the meaning assigned such term in Section 2.08(a). "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean, with respect to any Lender, any change after the Closing Date in any Governmental Requirement (including Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of lenders (including such Lender or its Applicable Lending Office) of or under any Governmental Requirement (whether or not having the force of law) by any Governmental Authority charged with the interpretation or administration thereof. "Required Payment" shall have the meaning assigned such term in Section 4.04. "Reserve Requirement" shall mean, for any Interest Period for any LIBOR Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which LIBOR is to be determined as provided in the definition of "LIBOR" or (ii) any category of extensions of credit or other assets which include a LIBOR Loan. "Responsible Officer" shall mean, as to any Person, the Chief Executive Officer, the President or any Vice President of such Person and, with respect to financial matters, the term "Responsible Officer" shall include the Chief Financial Officer of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower. "Revolving Credit Termination Date" shall mean the earlier to occur of (i) February 9, 2006 or (ii) the date that the Commitments are sooner terminated pursuant to Sections 2.03(b) or 10.02. -18- 24 "SEC" shall mean the Securities and Exchange Commission or any successor Governmental Authority. "Security Instruments" shall mean the Letters of Credit, the Fee Letter, the agreements or instruments described or referred to in Exhibit D, and any and all other agreements or instruments now or hereafter executed and delivered by the Borrower or any other Person (other than participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment or performance of the Notes, or this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, supplemented or restated from time to time. "Special Entity" shall mean any joint venture, limited liability company or partnership, general or limited partnership or any other type of partnership or company other than a corporation in which the Borrower or one or more of its other Subsidiaries is a member, owner, partner or joint venturer and owns, directly or indirectly, at least a majority of the equity of such entity or controls such entity, but excluding any tax partnerships that are not classified as partnerships under state law. For purposes of this definition, any Person which owns directly or indirectly an equity investment in another Person which allows the first Person to manage or elect managers who manage the normal activities of such second Person will be deemed to "control" such second Person (e.g. a sole general partner controls a limited partnership). "S&P" shall mean Standard & Poors Ratings Group, a division of The McGraw-Hill Companies, Inc. "Subsidiary" shall mean (i) any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower or one or more of its Subsidiaries or by the Borrower and one or more of its Subsidiaries and (ii) any Special Entity. "Taxes" shall have the meaning assigned such term in Section 4.06(a). "Testing Period" shall mean (a) for any determination made during the period from and including Closing Date through fiscal quarter ending March 31, 2002, a single period consisting of the fiscal quarter of the Borrower last ended, utilizing annualized results for the period from and including the Closing Date through such fiscal quarter end, and (b) for any determination made from and including April 1, 2002, and at all times thereafter, a single period consisting of the four consecutive fiscal quarters of the Borrower then last ended (whether or not such quarters are all within the same fiscal year); provided, however, that if a particular provision of this Agreement indicates that a Testing Period shall be a different specified duration, such Testing -19- 25 Period shall consist of the particular fiscal quarter or quarters then last ended which are so indicated in such provision. "Total Debt" shall mean, at any time (without duplication), the sum of (i) 100% of Debt reflected on the balance sheet of the Borrower in accordance with GAAP, plus (ii) 82% of any amount funded (Debt and equity) under Operating Equipment Lease Facilities including the HY-SL Facility, plus (iii) 85% of any amount funded (Debt and equity) under the ABS Facility. "Total Interest Expense" shall mean, for any period, the total consolidated interest expense net of cash interest income of the Borrower and its Consolidated Subsidiaries for such period (including, without limitation, the cash equivalent of the interest expense associated with Capital Lease Obligations and all interest paid on the 9 7/8 % Senior Discount Notes, but excluding (i) upfront fees paid in connection with this Agreement, the ABS Facility or HY-SL Facility, (ii) Debt or lease issuance costs which have to be amortized, (iii) lease payments on any office equipment or real property and (iv) any principal components paid on all lease payments) plus rental payments made in connection with Operating Equipment Lease Obligations and the ABS Facility (excluding any principal amortization components). "Total Leverage Ratio" shall mean the ratio of Total Debt to EBITDAR. "Type" shall mean, with respect to any Loan, a Base Rate Loan or a LIBOR Loan. "UCO Compression LLC" shall mean UCO Compression LLC, a Delaware limited liability company, which is the bankruptcy remote, special purpose, wholly-owned Subsidiary of the Borrower created to own and lease gas compression equipment in conjunction with the ABS Facility. "WGCS" shall mean Weatherford Global Compression Services, L.P. "WGCS Merger" shall mean the merger pursuant to that certain Agreement and Plan of Merger dated as of October 23, 2000 among Enterra Compression Company, WEUS Holding, Inc., Weatherford International Inc., Holdings and the Borrower, and related agreements. "Wholly-Owned Subsidiary" shall mean, as to Holdings, any Subsidiary of which all of the outstanding shares of capital stock or other equity interests, on a fully-diluted basis, are owned by Holdings or one or more of the Wholly-Owned Subsidiaries or by Holdings and one or more of the Wholly-Owned Subsidiaries. "Working Capital Borrowing Base" shall mean at any time an amount equal to the sum of 50% of Eligible Accounts Receivable, plus 50% of Eligible Inventory. "Working Capital Loans" shall mean loans made pursuant to Section 2.01(a)(i). Section 1.03 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to -20- 26 accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the audited financial statements of the Borrower referred to in Section 7.02 (except for changes concurred with by the Borrower's independent public accountants). ARTICLE II COMMITMENTS Section 2.01 Loans and Letters of Credit. (a) Loans. (i) Working Capital Loans. Each Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Borrower during the period from and including (i) the Closing Date or (ii) such later date that such Lender becomes a party to this Agreement as provided in Section 12.06(b), to and up to, but excluding, the Revolving Credit Termination Date in an aggregate principal amount at any one time outstanding up to, but not exceeding, the amount of such Lender's Commitment as then in effect, minus the aggregate outstanding principal amount of Equipment Loans made by such Lender; provided, however, that the aggregate principal amount of all such Working Capital Loans by all Lenders hereunder at any one time outstanding together with the LC Exposure shall not exceed the Working Capital Borrowing Base as then in effect. Subject to the terms of this Agreement, during the period from the Closing Date to and up to, but excluding, the Revolving Credit Termination Date, the Borrower may borrow, repay and reborrow the amount described in this Section 2.01(a)(i). (ii) Equipment Loans. Each Lender severally agrees, on the terms and conditions of this Agreement, to make loans to the Borrower during the period from and including (i) the Closing Date or (ii) such later date that such Lender becomes a party to this Agreement as provided in Section 12.06(b), to and up to, but excluding, the Revolving Credit Termination Date in an aggregate principal amount at any one time outstanding up to, but not exceeding, the amount of such Lender's Commitment as then in effect, minus the sum of (A) the aggregate outstanding principal amount of Working Capital Loans made by such Lender and (B) the LC Exposure; provided, however, that the aggregate principal amount of all such Equipment Loans by all Lenders hereunder at any one time outstanding shall not exceed the Equipment Borrowing Base as then in effect. Subject to the terms of this Agreement, during the period from the Closing Date to and up to, but excluding, the Revolving Credit Termination Date, the Borrower may borrow, repay and reborrow the amount described in this Section 2.01(a)(ii). (iii) Maximum Amount of Loans. All Loans made by all Lenders under Sections 2.01(a)(i) and 2.01(a)(ii) at any one time outstanding together with the LC Exposure shall not exceed the Aggregate Commitments. -21- 27 (iv) Overadvances. Notwithstanding anything contained in this Section 2.01 to the contrary, but provided the Borrower is otherwise entitled to a Working Capital Loan under the Working Capital Borrowing Base, the Borrower shall be entitled to request an advance under the Working Capital Borrowing Base up to the Aggregate Maximum Revolving Credit Amounts; provided, however, (i) Borrower shall represent to the Administrative Agent in the borrowing request (referenced in Section 2.02(c)) for such overadvance that Borrower owns sufficient unencumbered equipment assets to pledge as Eligible Equipment to eliminate the overadvance and (ii) in all such cases in which the overadvance is $10,000,000 or less, Borrower or its Subsidiary shall within 15 days of the making of such advance, either pledge additional equipment assets as Eligible Equipment under Security Instruments in form and substance acceptable to the Administrative Agent, having value sufficient to nullify the overadvance, or repay such overadvance, and in all such cases in which the amount of the overadvance is in excess of $10,000,000, then the Borrower or its Subsidiary shall have five (5) Business Days to either pledge additional equipment assets as Eligible Equipment under Security Instruments in form and substance acceptable to the Administrative Agent, having value sufficient to nullify the overadvance, or repay such overadvance. (b) Letters of Credit. During the period from and including the Closing Date to, but excluding, the 30th day prior to the Revolving Credit Termination Date, the Issuing Bank, as issuing bank for the Lenders, agrees to extend credit for the account of the Borrower at any time and from time to time by issuing, renewing, extending or reissuing Letters of Credit; provided however, the LC Exposure at any one time outstanding shall not exceed the lesser of (i) the LC Commitment or (ii) the Working Capital Borrowing Base as then in effect, minus the aggregate principal amount of all Working Capital Loans then outstanding. The Lenders shall participate in such Letters of Credit according to their respective Percentage Shares. Each of the Letters of Credit shall (i) be issued by the Issuing Bank on a sight basis only, (ii) contain such terms and provisions as are reasonably required by the Issuing Bank, (iii) be for the account of the Borrower and (iv) expire not later than (A) 30 days before the Revolving Credit Termination Date, with respect to commercial letters of credit, and (B) 10 days before the Revolving Credit Termination Date, with respect to standby letters of credit. The Borrower may request that one or more Letters of Credit be issued in an Offshore Currency denomination as part of the LC Exposure. The aggregate Dollar Equivalent of all Offshore Currency Letters of Credit, as of the issuance date of any such Offshore Currency Letter of Credit, shall not exceed $25,000,000 as determined by the Administrative Agent. No Issuing Bank shall be obligated to issue an Offshore Currency Letter of Credit if such Issuing Bank has determined, in its sole discretion, that it is unable to fund obligations in the requested Offshore Currency; provided, however, the Administrative Agent shall use its best efforts to locate suitable issuers if no Issuing Banks are able to fund obligations in the requested Offshore Currency. From and after the Closing Date, the Existing Letters of Credit shall be deemed to be Letters of Credit issued pursuant to this Section 2.01(b). (c) Limitation on Types of Loans. Subject to the other terms and provisions of this Agreement, at the option of the Borrower, the Loans may be Base Rate Loans or LIBOR -22- 28 Loans; provided that, without the prior written consent of the Majority Lenders, no more than ten (10) LIBOR Loans may be outstanding at any time. Section 2.02 Borrowings, Continuations and Conversions, Letters of Credit. (a) Borrowings. The Borrower shall give the Administrative Agent (which shall promptly notify the Lenders) advance notice as hereinafter provided of each borrowing hereunder, which shall specify (i) the aggregate amount of such borrowing, (ii) the Type and (iii) the date (which shall be a Business Day) of the Loans to be borrowed, and (iv) (in the case of LIBOR Loans) the duration of the Interest Period therefor. (b) Minimum Amounts. All Base Rate Loan borrowings shall be in amounts of at least $250,000 or the remaining balance of the Aggregate Commitments, if less, or the amount of a borrowing to fund a Letter of Credit pursuant to Section 2.10(b), if less, or any whole multiple of $250,000 in excess thereof, and all LIBOR Loans shall be in amounts of at least $1,000,000 or the amount of a borrowing to fund a Letter of Credit pursuant to Section 2.10(b), if less, or any whole multiple of $500,000 in excess thereof. (c) Notices. The initial borrowing and all subsequent borrowings, continuations and conversions shall require advance written notice to the Administrative Agent (which shall promptly notify the Lenders) in the form of Exhibit B (or telephonic notice promptly confirmed by such a written notice), which in each case shall be irrevocable, from the Borrower to be received by the Administrative Agent not later than 12:00 p.m. Eastern time on the date of each Base Rate Loan borrowing and three (3) Business Days prior to the date of each LIBOR Loan borrowing, continuation or conversion. Without in any way limiting the Borrower's obligation to confirm in writing any telephonic notice, the Administrative Agent may act without liability upon the basis of telephonic notice believed by the Administrative Agent in good faith to be from the Borrower prior to receipt of written confirmation. In each such case, the Borrower hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice except in the case of gross negligence or willful misconduct by the Administrative Agent. (d) Continuation Options. Subject to the provisions made in this Section 2.02(d), the Borrower may elect to continue all or any part of any LIBOR Loan beyond the expiration of the then current Interest Period relating thereto by giving advance notice as provided in Section 2.02(c) to the Administrative Agent (which shall promptly notify the Lenders) of such election, specifying the amount of such Loan to be continued and the Interest Period therefor. In the absence of such a timely and proper election, the Borrower shall be deemed to have elected to convert such LIBOR Loan to a Base Rate Loan pursuant to Section 2.02(e). All or any part of any LIBOR Loan may be continued as provided herein, provided that (i) any continuation of any such Loan shall be (as to each Loan as continued for an applicable Interest Period) in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have -23- 29 occurred and be continuing, each LIBOR Loan shall be converted to a Base Rate Loan on the last day of the Interest Period applicable thereto. (e) Conversion Options. The Borrower may elect to convert all or any part of any LIBOR Loan on the last day of the then current Interest Period relating thereto to a Base Rate Loan by giving advance notice to the Administrative Agent (which shall promptly notify the Lenders) of such election. Subject to the provisions made in this Section 2.02(e), the Borrower may elect to convert all or any part of any Base Rate Loan at any time and from time to time to a LIBOR Loan by giving advance notice as provided in Section 2.02(c) to the Administrative Agent (which shall promptly notify the Lenders) of such election. All or any part of any outstanding Loan may be converted as provided herein, provided that (i) any conversion of any Base Rate Loan into a LIBOR Loan shall be (as to each such Loan into which there is a conversion for an applicable Interest Period) in amounts of at least $1,000,000 or any whole multiple of $500,000 in excess thereof and (ii) no Default shall have occurred and be continuing. If a Default shall have occurred and be continuing, no Base Rate Loan may be converted into a LIBOR Loan. (f) Advances. Not later than 1:00 p.m. Eastern time on the date specified for each borrowing hereunder, each Lender shall make available the amount of the Loan to be made by it on such date to the Administrative Agent, to an account which the Administrative Agent shall specify, in immediately available funds, for the account of the Borrower. The amounts so received by the Administrative Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by depositing the same, in immediately available funds, in an account of the Borrower, designated by the Borrower and maintained at the Principal Office. (g) Letters of Credit. The Borrower shall submit to the Administrative Agent and the Issuing Bank a Letter of Credit Application not later than 11:00 A.M. Eastern time, not less than three (3) Business Days prior to the proposed date of issuance (or such shorter period as may be agreed to by the Administrative Agent and the Issuing Bank) and at least thirty (30) Business Days prior to the date of amendment, renewal or extension (or such shorter period as may be agreed to by the Administrative Agent and the Issuing Bank) of a Letter of Credit hereunder. Each Letter of Credit Application shall specify (i) the amount of such Letter of Credit, (ii) the date (which shall be a Business Day) such Letter of Credit is to be issued, amended, renewed or extended, (iii) the duration thereof, (iv) the name and address of the beneficiary thereof, (v) the form of the Letter of Credit and (vi) such other information as the Administrative Agent and the Issuing Bank may reasonably request, all of which shall be reasonably satisfactory to the Administrative Agent and the Issuing Bank, subject to the terms and conditions of this Agreement, on the date specified for the issuance, amendment, renewal or extension of a Letter of Credit, the Issuing Bank shall issue, amend, renew or extend such Letter of Credit to the beneficiary thereof. Promptly thereafter, the Issuing Bank shall notify the Administrative Agent and the Borrower, in writing, of such issuance, amendment, renewal or extension and such notice shall be accompanied by a copy of such issuance, amendment, renewal or extension. Promptly after receipt of such notice, the Administrative Agent shall notify each -24- 30 Lender, in writing, of such issuance, amendment, renewal or extension and if any Lender so requests, the Administrative Agent shall provide such Lender with copies of such issuance, amendment, renewal or extension. Section 2.03 Changes of Commitments. (a) The Aggregate Commitments shall at all times be equal to the lesser of (i) the Aggregate Maximum Revolving Credit Amounts after adjustments resulting from reductions pursuant to Section 2.03(b), or (ii) the Borrowing Base as determined from time to time. (b) The Borrower shall have the right to terminate or to reduce the amount of the Aggregate Maximum Revolving Credit Amounts at any time, or from time to time, upon not less than three (3) Business Days' prior notice to the Administrative Agent (which shall promptly notify the Lenders) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction (which shall not be less than $1,000,000 or any whole multiple of $500,000 in excess thereof) and shall be irrevocable and effective only upon receipt by the Administrative Agent. (c) The Aggregate Maximum Revolving Credit Amounts once terminated or reduced may not be reinstated. (d) The Borrower shall have the right, without the consent of the Lenders but with the prior approval of the Administrative Agent, not to be unreasonably withheld, to cause from time to time an increase in the Aggregate Commitments of the Lenders by adding to this Agreement one or more additional Lenders or by allowing one or more Lenders to increase their respective Commitments; provided, however (i) no Event of Default shall have occurred hereunder which is continuing, (ii) no such increase shall result in the Aggregate Commitments hereunder exceeding $125,000,000, (iii) no Lender's Commitment shall be increased without such Lender's consent, and (iv) on the effective date of any such increase, there shall be no outstanding LIBOR Loans hereunder. Section 2.04 Fees. (a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Margin (Commitment Fee), on the daily average unused amount of the Aggregate Commitments for the period from and including the Closing Date up to, but excluding, the earlier of the date the Aggregate Commitments are terminated or the Revolving Credit Termination Date. Accrued commitment fees shall be payable quarterly in arrears on each Quarterly Date and on the earlier of the date the Aggregate Commitments are terminated or the Revolving Credit Termination Date. (b) Letter of Credit Fees. -25- 31 (i) The Borrower agrees to pay to the Administrative Agent, for the account of each Lender and the Issuing Bank, commissions for issuing the Letters of Credit on the daily outstanding amount of the maximum liability of the Issuing Bank existing from time under such Letter of Credit (including the Dollar Equivalent of the face amount of the outstanding Offshore Currency Letter of Credit) (calculated separately for each Letter of Credit) at a rate equal to the Applicable Margin for LIBOR Loans, in effect from time to time during the term of each Letter of Credit, provided that each Letter of Credit shall bear a minimum yearly commission of $300.00. Each Letter of Credit shall be deemed outstanding up to the available face amount of the Letter of Credit (including the Dollar Equivalent of the face amount of the outstanding Offshore Currency Letter of Credit) until the Issuing Bank has received from the Beneficiary a written cancellation authorization, in form and substance acceptable to the Issuing Bank or until the date the Letter of Credit expires by its terms. Such commissions are payable quarterly in arrears on each Quarterly Date and upon cancellation or expiration of each such Letter of Credit. (ii) Out of the fees described in Section 2.04(b)(i), the Administrative Agent shall pay to each Issuing Bank, for such Issuing Bank's account, 0.125% per annum of each such fee as an issuing fee and shall pay to the Lenders a pro rata share of the remaining portion of such fees. (iii) The Borrower shall pay to the Issuing Bank for its own account, upon each drawing or payment under, issuance of, or amendment to, any Letter of Credit, such amount as shall at the time of such event be the administrative charge and reasonable out-of-pocket expenses which the Issuing Bank or its Affiliate is generally imposing in connection with such occurrence with respect to letters of credit. (c) The Borrower shall pay to the Administrative Agent for its own account such other fees as are set forth in the Fee Letter on the dates specified therein to the extent not paid prior to the Closing Date. Section 2.05 Several Obligations. The failure of any Lender to make any Loan to be made by it or to provide funds for disbursements or reimbursements under Letters of Credit on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan or provide funds on such date, but no Lender shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender or to provide funds to be provided by such other Lender. Section 2.06 Notes. The Loans made by each Lender shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit A, dated (i) the Closing Date or (ii) the effective date of an Assignment pursuant to Section 12.06(b), payable to the order of such Lender in a principal amount equal to its Maximum Revolving Credit Amount as originally in effect and otherwise duly completed and such substitute Notes as required by Section 12.06(b). The date, amount, Type, interest rate and Interest Period of each Loan made -26- 32 by each Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Note, and, prior to any transfer may be endorsed by such Lender on the schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender's or the Borrower's rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of its Note. Section 2.07 Prepayments. (a) Voluntary Prepayments. The Borrower may prepay the Base Rate Loans upon not less than one (1) Business Day's prior notice to the Administrative Agent (which shall promptly notify the Lenders), which notice shall specify the prepayment date (which shall be a Business Day) and the amount of the prepayment (which shall be at least $1,000,000 or the remaining aggregate principal balance outstanding on the Notes) and shall be irrevocable and effective only upon receipt by the Administrative Agent, provided that interest on the principal prepaid, accrued to the prepayment date, shall be paid on the prepayment date. The Borrower may prepay LIBOR Loans on the same conditions as for Base Rate Loans (except that prior notice to the Administrative Agent shall not be less than three (3) Business Days for LIBOR Loans) and in addition such prepayments of LIBOR Loans shall be subject to the terms of Section 5.05 and shall be in an amount equal to all of the LIBOR Loans for the Interest Period prepaid. (b) Mandatory Prepayments. (i) If, after giving effect to any termination or reduction of the Aggregate Maximum Revolving Credit Amounts pursuant to Section 2.03(b), the outstanding aggregate principal amount of the Loans plus the LC Exposure exceeds the Aggregate Maximum Revolving Credit Amounts, the Borrower shall (A) prepay the Loans on the date of such termination or reduction in an aggregate principal amount equal to the excess, together with interest on the principal amount paid accrued to the date of such prepayment and (B) if any excess remains after prepaying all of the Loans because of LC Exposure, pay to the Administrative Agent on behalf of the Lenders an amount equal to the excess to be held as cash collateral as provided in Section 2.10(b) hereof. (ii) Upon any redetermination of the amount of the Borrowing Base in accordance with Section 2.08, if the redetermined Working Capital Borrowing Base is less than the aggregate outstanding principal amount of the Working Capital Loans plus the LC Exposure then the Borrower shall, with respect to any such deficiency that is (A) equal to or less than $10,000,000, within fifteen (15) days, or (B) greater than $10,000,000, within five (5) Business Days, either (1) prepay the Working Capital Loans in an aggregate principal amount equal to such deficiency, together with interest on the principal amount paid accrued to the date of such prepayment or (2) grant or cause to be granted to the Administrative Agent a first priority Lien (subject only to Excepted Liens) in gas compression equipment of the Borrower or its Subsidiaries having a fair market value (as determined by Schedule 1.01) equal to or greater than -27- 33 the amount of such Working Capital Borrowing Base deficiency, which pledge of Eligible Equipment shall (x) increase the amount of the Equipment Borrowing Base by and amount equal to the fair market value (as determined by Schedule 1.01) of such Eligible Equipment and (y) automatically convert Working Capital Loans in an aggregate amount equal to such fair market value of Equipment Loans; provided that if there remains a Working Capital Borrowing Base deficiency after prepaying Working Capital Loans or converting such Working Capital Loans to Equipment Loans by pledging gas compression equipment because the LC Exposure continues to exceed the Working Capital Borrowing Base, then the Borrower shall pay to the Administrative Agent on behalf of the Lenders an amount equal to such remaining Working Capital Borrowing Base deficiency to be held as cash collateral for the Letters of Credit as provided in Section 2.10(b). (iii) Upon any redetermination of the amount of the Borrowing Base in accordance with Section 2.08, if the redetermined Equipment Borrowing Base is less than the aggregate outstanding principal amount of the Equipment Loans then the Borrower shall either (A) prepay the Equipment Loans in an aggregate principal amount equal to such deficiency, together with interest on the principal amount paid accrued to the date of such prepayment or (B) give written notice to the Administrative Agent to convert Equipment Loans equal to the aggregate principal amount of such deficiency to Working Capital Loans. (iv) Upon any release of Eligible Equipment pursuant to Section 8.09(b), the Borrower shall simultaneously prepay the Equipment Loans in an aggregate principal amount equal to the fair market value of such Eligible Equipment at the time the applicable Lien was created, together with interest on the principal amount paid accrued to the date of prepayment. (v) Upon any overadvance pursuant to Section 2.01(a)(iv), the Borrower shall prepay the Working Capital Loans (or pledge assets) as required by said Section 2.01(a)(iv). (vi) Upon any disposition pursuant to Section 9.14(c), the Borrower shall prepay Equipment Loans as provided in such section. (c) Generally. Prepayments permitted or required under this Section 2.07 shall be without premium or penalty, except as required under Section 5.05 for prepayment of LIBOR Loans. Any prepayments on the Loans may be reborrowed subject to the then effective Aggregate Commitments. Section 2.08 Borrowing Base. (a) The Borrowing Base shall be determined in accordance with Section 2.08(b) and (c) by the Administrative Agent. Upon any redetermination of the Borrowing Base, such redetermination shall remain in effect until the next successive Redetermination Date. "Redetermination Date" shall mean the date that the redetermined Borrowing Base becomes effective subject to the notice requirements specified in Section 2.08(c). So long as any of the Aggregate Commitments are in effect or any LC Exposure or Loans are outstanding hereunder, -28- 34 this facility shall be governed by the then effective Borrowing Base. Until the first redetermination of the Borrowing Base, $50,000,000 shall be available for advance under the Working Capital Borrowing Base. (b) The Borrowing Base will be redetermined 45 days following the end of each fiscal quarter of the Borrower, commencing with the fiscal quarter ending March 31, 2001. In addition, the Borrower shall have the right to require the Administrative Agent to redetermine the Borrowing Base, but no more frequently than once each calendar month. (c) Based upon the information contained in the Borrowing Base Certificate delivered pursuant to Section 8.01(i) and such other supplemental information as the Administrative Agent may reasonably request, the Administrative Agent will redetermine the Borrowing Base, such redetermination to be in accordance with the Administrative Agent's normal and customary procedures as such exist at that particular time. (d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the new Borrowing Base. Any redetermination of the Borrowing Base shall not be in effect until written notice is received by the Borrower. Section 2.09 Assumption of Risks. The Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit or any transferee thereof with respect to its use of such Letter of Credit. Neither the Issuing Bank (except in the case of gross negligence or willful misconduct on the part of the Issuing Bank or any of its employees as determined by final and non appealable judgment of a court of competent jurisdiction), its correspondents nor any Lender shall be responsible for the validity, sufficiency or genuineness of certificates or other documents or any endorsements thereon, even if such certificates or other documents should in fact prove to be invalid, insufficient, fraudulent or forged; for errors, omissions, interruptions or delays in transmissions or delivery of any messages by mail, telex, or otherwise, whether or not they be in code; for errors in translation or for errors in interpretation of technical terms; the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; the failure of any beneficiary or any transferee of any Letter of Credit to comply fully with conditions required in order to draw upon any Letter of Credit; or for any other consequences arising from causes beyond the Issuing Bank's control or the control of the Issuing Bank's correspondents. In addition, neither the Issuing Bank, the Administrative Agent nor any Lender shall be responsible for any error, neglect, or default of any of the Issuing Bank's correspondents; and none of the above shall affect, impair or prevent the vesting of any of the Issuing Bank's, the Administrative Agent's or any Lender's rights or powers hereunder, all of which rights shall be cumulative. The Issuing Bank and its correspondents may accept certificates or other documents that appear on their face to be in order, without responsibility for further investigation of any matter contained therein regardless of any notice or information to the contrary. In furtherance and not in limitation of the foregoing provisions, the Borrower agrees that any action, inaction or omission taken or not taken by the Issuing Bank or by any correspondent for the Issuing Bank in good faith in -29- 35 connection with any Letter of Credit, or any related drafts, certificates, documents or instruments, shall be binding on the Borrower and shall not put the Issuing Bank or its correspondents under any resulting liability to the Borrower. Section 2.10 Obligation to Reimburse and to Prepay. (a) In connection with any Letter of Credit, the Borrower may make funds available for disbursement by the Issuing Bank in connection with such Letter of Credit. In such cases, the Issuing Bank shall use such funds which the Borrower has made available to fund such Credit. In addition, the Borrower may give written instructions to the Issuing Bank and the Administrative Agent to make a Loan under this Agreement to fund any Letters of Credit which may be drawn. In all such cases, the Borrower shall give the appropriate notices required under this Agreement for a Base Rate Loan or a LIBOR Loan. If a disbursement by the Issuing Bank is made under any Letter of Credit, in cases in which the Borrower has not either provided its own funds to fund a draw on a Letter of Credit or given the Administrative Agent prior notice for a Loan under this Agreement, then the Borrower shall pay to the Administrative Agent within two (2) Business Days after notice of any such disbursement is received by the Borrower, the amount of each such disbursement made by the Issuing Bank under the Letter of Credit (if such payment is not sooner effected as may be required under this Section 2.10 or under other provisions of the Letter of Credit), together with interest on the amount disbursed from and including the date of disbursement until payment in full of such disbursed amount at a varying rate per annum equal to (i) the then applicable interest rate for Base Rate Loans through the second Business Day after notice of such disbursement is received by the Borrower and (ii) thereafter, the Post-Default Rate for Base Rate Loans (but in no event to exceed the Highest Lawful Rate) for the period from and including the third Business Day following the date of such disbursement to and including the date of repayment in full of such disbursed amount. The obligations of the Borrower under this Agreement with respect to each Letter of Credit shall be absolute, unconditional and irrevocable and shall be paid or performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, but only to the fullest extent permitted by applicable law, the following circumstances: (i) any lack of validity or enforceability of this Agreement, any Letter of Credit or any of the Security Instruments; (ii) any amendment or waiver of (including any default), or any consent to departure from this Agreement (except to the extent permitted by any amendment or waiver), any Letter of Credit or any of the Security Instruments; (iii) the existence of any claim, set-off, defense or other rights which the Borrower may have at any time against the beneficiary of any Letter of Credit or any transferee of any Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, the Administrative Agent, any Lender or any other Person, whether in connection with this Agreement, any Letter of Credit, the Security Instruments, the transactions contemplated hereby or any unrelated transaction; (iv) any statement, certificate, draft, notice or any other document presented under any Letter of Credit proves to have been forged, fraudulent, insufficient or invalid in any respect or any statement therein proves to have been untrue or inaccurate in any respect whatsoever; (v) payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate which appears on its face to comply, but does -30- 36 not comply, with the terms of such Letter of Credit; and (vi) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. Notwithstanding anything in this Agreement to the contrary, the Borrower will not be liable for payment or performance that results from the gross negligence or willful misconduct of the Issuing Bank as determined by a final and non appealable judgment of a court of competent jurisdiction, except (i) where the Borrower or any Subsidiary actually recovers the proceeds for itself or the Issuing Bank of any payment made by the Issuing Bank in connection with such gross negligence or willful misconduct or (ii) in cases where the Administrative Agent makes payment to the named beneficiary of a Letter of Credit. (b) In the event of the occurrence of any Event of Default, a payment or prepayment pursuant to Section 2.07(b) or the maturity of the Notes, whether by acceleration or otherwise, an amount equal to the LC Exposure (or an amount equal to the amount by which the LC Exposure exceeds the Working Capital Borrowing Base in the case of Section 2.07(b)) shall be deemed to be forthwith due and owing by the Borrower to the Issuing Bank, the Administrative Agent and the Lenders as of the date of any such occurrence; and the Borrower's obligation to pay such amount shall be absolute and unconditional, without regard to whether any beneficiary of any such Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower may now or hereafter have against any such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such payments shall be held by the Issuing Bank on behalf of the Lenders as cash collateral securing the LC Exposure in an account or accounts at the Principal Office; and the Borrower hereby grants to and by its deposit with the Administrative Agent grants to the Administrative Agent a security interest in such cash collateral. In the event of any such payment by the Borrower of amounts contingently owing under outstanding Letters of Credit and in the event that thereafter drafts or other demands for payment complying with the terms of such Letters of Credit are not made prior to the respective expiration dates thereof, the Administrative Agent agrees, if no Event of Default has occurred and is continuing or if no other amounts are outstanding under this Agreement, the Notes or the Security Instruments, to remit to the Borrower (i) amounts for which the contingent obligations evidenced by the Letters of Credit have ceased and (ii) amounts on deposit as cash collateral for Letters of Credit, to the extent that the LC Exposure no longer exceeds the Working Capital Borrowing Base, in connection with a redetermination of such Working Capital Borrowing Base. (c) Each Lender severally and unconditionally agrees that it shall promptly reimburse the Issuing Bank an amount equal to such Lender's Percentage Share of any disbursement made by the Issuing Bank under any Letter of Credit that is not reimbursed according to this Section 2.10. (d) Notwithstanding anything to the contrary contained herein, if no Event of Default has occurred and is continuing and subject to availability under the Aggregate -31- 37 Commitments (after reduction for LC Exposure), to the extent the Borrower has not reimbursed the Issuing Bank for any drawn upon Letter of Credit within one (1) Business Days after notice of such disbursement has been received by the Borrower, the amount of such Letter of Credit reimbursement obligation shall automatically be funded by the Lenders as a Loan hereunder and used by the Lenders to pay such Letter of Credit reimbursement obligation. If an Event of Default has occurred and is continuing, or if the funding of such Letter of Credit reimbursement obligation as a Loan would cause the aggregate amount of all Loans outstanding to exceed the Aggregate Commitments (after reduction for LC Exposure), such Letter of Credit reimbursement obligation shall not be funded as a Loan, but instead shall accrue interest as provided in Section 2.10(a). Section 2.11 Lending Offices. The Loans of each Type made by each Lender shall be made and maintained at such Lender's Applicable Lending Office for Loans of such Type. ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST Section 3.01 Repayment of Loans. On the Revolving Credit Termination Date the Borrower shall pay to the Administrative Agent, for the account of each Lender, the outstanding aggregate principal and accrued and unpaid interest under the Notes. Section 3.02 Interest. (a) Interest Rates. The Borrower will pay to the Administrative Agent, for the account of each Lender, interest on the unpaid principal amount of each Loan made by such Lender for the period commencing on the date such Loan is made to, but excluding, the date such Loan shall be paid in full, at the following rates per annum: (i) if such a Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate; and (ii) if such a Loan is a LIBOR Loan, for each Interest Period relating thereto, the LIBOR Rate for such Loan plus the Applicable Margin (as in effect from time to time), but in no event to exceed the Highest Lawful Rate. (b) Post-Default Rate. Notwithstanding the foregoing, the Borrower will pay to the Administrative Agent, for the account of each Lender interest at the applicable Post-Default Rate on any principal of any Loan made by such Lender, and (to the fullest extent permitted by law) on any other amount payable by the Borrower hereunder, under any Loan Document or under any Note held by such Lender to or for account of such Lender, for the -32- 38 period commencing on the date of an Event of Default until the same is paid in full or all Events of Default are cured or waived. (c) Due Dates. Accrued interest on Base Rate Loans shall be payable on each Quarterly Date commencing on March 31, 2001, and accrued interest on each LIBOR Loan shall be payable on the last day of the Interest Period therefor and, if such Interest Period is longer than three months at three-month intervals following the first day of such Interest Period, except that interest payable at the Post-Default Rate shall be payable from time to time on demand and interest on any LIBOR Loan that is converted into a Base Rate Loan (pursuant to Section 5.04) shall be payable on the date of conversion (but only to the extent so converted). Any accrued and unpaid interest on the Loans shall be paid on the Revolving Credit Termination Date. (d) Determination of Rates. Promptly after the determination of any interest rate provided for herein or any change therein, the Administrative Agent shall notify the Lenders to which such interest is payable and the Borrower thereof. Each determination by the Administrative Agent of an interest rate or fee hereunder shall, except in cases of manifest error, be final, conclusive and binding on the parties. ARTICLE IV PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. Section 4.01 Payments. Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrower under this Agreement and the Notes shall be made in Dollars, in immediately available funds, to the Administrative Agent at such account as the Administrative Agent shall specify by notice to the Borrower from time to time, not later than 11:00 a.m. Eastern time on the date on which such payments shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). Such payments shall be made without (to the fullest extent permitted by applicable law) defense, set-off or counterclaim. Each such payment so received by the Administrative Agent under this Agreement or any Note for account of a Lender shall be paid promptly to such Lender in immediately available funds. Except as otherwise provided in the definition of "Interest Period", if the due date of any payment under this Agreement or any Note would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. At the time of each payment to the Administrative Agent of any principal of or interest on any borrowing, the Borrower shall notify the Administrative Agent of the Loans to which such payment shall apply. In the absence of such notice the Administrative Agent may specify the Loans to which such payment shall apply, but to the extent possible such payment or prepayment will be applied first to the Loans comprised of Base Rate Loans. Section 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein each Lender agrees that: (i) each borrowing from the Lenders under Section 2.01 and each -33- 39 continuation and conversion under Section 2.02 shall be made from the Lenders pro rata in accordance with their Percentage Share, each payment of fees under Section 2.04 shall be made for account of the Lenders pro rata in accordance with their Percentage Share, and each termination or reduction of the amount of the Aggregate Maximum Revolving Credit Amounts under Section 2.03(b) shall be applied to the Commitment of each Lender, pro rata according to the amounts of its respective Commitment; (ii) each payment of principal of Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amount of the Loans held by the Lenders; (iii) each payment of interest on Loans by the Borrower shall be made for account of the Lenders pro rata in accordance with the amounts of interest due and payable to the respective Lenders; and (iv) each reimbursement by the Borrower of disbursements under Letters of Credit shall be made for account of the Issuing Bank or, if funded by the Lenders, pro rata for the account of the Lenders, in accordance with the amounts of reimbursement obligations due and payable to each respective Lender. Section 4.03 Computations. Interest on LIBOR Loans and fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable, unless such calculation would exceed the Highest Lawful Rate, in which case interest shall be calculated on the per annum basis of a year of 365 or 366 days, as the case may be. Interest on Base Rate Loans shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which such interest is payable. Section 4.04 Agent Reliance. Unless the Administrative Agent shall have received notice from a Lender before the date of any borrowing of the proceeds of the Loan that such Lender will not make available to the Administrative Agent such Lender's Percentage Share of such advance, the Administrative Agent may assume that such Lender has made its Percentage Share of such borrowing available to the Agent on the date of such borrowing in accordance with Section 2.02(c) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made its Percentage Share of such borrowing available to the Administrative Agent, such Lender agrees to immediately pay to the Administrative Agent on demand such corresponding amount, together with interest on such amount, for each day from the date such amount is made available to the Borrower until the date such amount is paid to the Administrative Agent, at the overnight Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount and interest as provided above, such corresponding amount so paid shall constitute such Lender's advance as part of such Borrowing for purposes of this Agreement even though not made on the same day as the other advances comprising such borrowing. Section 4.05 Set-off, Sharing of Payments, Etc. (a) The Borrower agrees that, in addition to (and without limitation of) any right of set-off, bankers' lien or counterclaim a Lender may otherwise have, each Lender shall -34- 40 have the right and be entitled (after consultation with the Administrative Agent), at its option, to offset balances held by it or by any of its Affiliates for account of the Borrower at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Lender's Loans, or any other amount payable to such Lender hereunder, which is not paid when due (including applicable grace periods) (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Administrative Agent thereof, provided that such Lender's failure to give such notice shall not affect the validity thereof. (b) If any Lender shall obtain payment of any principal of or interest on any Loan made by it to the Borrower under this Agreement (or reimbursement as to any Letter of Credit) through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise, and, as a result of such payment, such Lender shall have received a greater percentage of the principal or interest (or reimbursement) then due hereunder by the Borrower to such Lender than the percentage received by any other Lenders, it shall promptly (i) notify the Administrative Agent and each other Lender thereof and (ii) purchase from such other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans (or participations in Letters of Credit) made by such other Lenders (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Lenders shall share the benefit of such excess payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal and/or interest on the Loans held by each of the Lenders (or reimbursements of Letters of Credit). To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that any Lender so purchasing a participation (or direct interest) in the Loans made by other Lenders (or in interest due thereon, as the case may be) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Lender were a direct holder of Loans (or Letters of Credit) in the amount of such participation. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 4.05 applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section 4.05 to share the benefits of any recovery on such secured claim. (c) Notwithstanding anything to the contrary contained in this Agreement, the Lenders hereby agree that they shall not set off any funds in any lock boxes whatsoever in connection with this Agreement, except for such lock boxes which may be established in connection with this Agreement. Section 4.06 Taxes. -35- 41 (a) Payments Free and Clear. Any and all payments by the Borrower hereunder shall be made, in accordance with Section 4.01, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender, the Issuing Bank and the Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by (i) any jurisdiction (or political subdivision thereof) of which the Administrative Agent, the Issuing Bank or such Lender, as the case may be, is a citizen or resident or in which such Lender has an Applicable Lending Office, (ii) the jurisdiction (or any political subdivision thereof) in which the Administrative Agent, the Issuing Bank or such Lender is organized, or (iii) any jurisdiction (or political subdivision thereof) in which such Lender, the Issuing Bank or the Administrative Agent is presently doing business which taxes are imposed solely as a result of doing business in such jurisdiction (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Lenders, the Issuing Bank or the Administrative Agent (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.06) such Lender, the Issuing Bank or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxing authority or other Governmental Authority in accordance with applicable law. (b) Other Taxes. In addition, to the fullest extent permitted by applicable law, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any Assignment or any Security Instrument (hereinafter referred to as "Other Taxes"). (c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WILL INDEMNIFY EACH LENDER AND THE ISSUING BANK AND THE ADMINISTRATIVE AGENT FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION 4.06) PAID BY SUCH LENDER, THE ISSUING BANK OR THE ADMINISTRATIVE AGENT (ON THEIR BEHALF OR ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER THE DATE ANY LENDER, THE ISSUING BANK OR THE ADMINISTRATIVE AGENT, AS THE CASE MAY BE, MAKES WRITTEN DEMAND THEREFOR. IF ANY LENDER OR THE ADMINISTRATIVE AGENT RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY -36- 42 TAXES OR OTHER TAXES FOR WHICH SUCH LENDER, ISSUING BANK OR THE ADMINISTRATIVE AGENT HAS RECEIVED PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR SUCH REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT THE BORROWER, UPON THE REQUEST OF SUCH LENDER, THE ISSUING BANK OR THE ADMINISTRATIVE AGENT, AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES, INTEREST OR OTHER CHARGES) TO SUCH LENDER OR THE ADMINISTRATIVE AGENT IN THE EVENT SUCH LENDER OR THE ADMINISTRATIVE AGENT IS REQUIRED TO REPAY SUCH REFUND OR CREDIT. (d) Lender Representations. (i) Each Lender represents that it is either (1) a banking association or corporation organized under the laws of the United States of America or any state thereof or (2) it is entitled to complete exemption from United States withholding tax imposed on or with respect to any payments, including fees, to be made to it pursuant to this Agreement (A) under an applicable provision of a tax convention to which the United States of America is a party or (B) because it is acting through a branch, agency or office in the United States of America and any payment to be received by it hereunder is effectively connected with a trade or business in the United States of America. Each Lender that is not a banking association or corporation organized under the laws of the United States of America or any state thereof agrees to provide to the Borrower and the Administrative Agent on the Closing Date, or on the date of its delivery of the Assignment pursuant to which it becomes a Lender, and at such other times as required by United States law or as the Borrower or the Administrative Agent shall reasonably request, two accurate and complete original signed copies of either (A) Internal Revenue Service Form 4224 (or successor form) certifying that all payments to be made to it hereunder will be effectively connected to a United States trade or business (the "Form 4224 Certification") or (B) Internal Revenue Service Form 1001 (or successor form) certifying that it is entitled to the benefit of a provision of a tax convention to which the United States of America is a party which completely exempts from United States withholding tax all payments to be made to it hereunder (the "Form 1001 Certification"). In addition, each Lender agrees that if it previously filed a Form 4224 Certification, it will deliver to the Borrower and the Administrative Agent a new Form 4224 Certification prior to the first payment date occurring in each of its subsequent taxable years; and if it previously filed a Form 1001 Certification, it will deliver to the Borrower and the Administrative Agent a new certification prior to the first payment date falling in the third year following the previous filing of such certification. Each Lender also agrees to deliver to the Borrower and the Administrative Agent such other or supplemental forms as may at any time be required as a result of changes in applicable law or regulation in order to confirm or maintain in effect its entitlement to exemption from United States -37- 43 withholding tax on any payments hereunder, provided that the circumstances of such Lender at the relevant time and applicable laws permit it to do so. If a Lender determines, as a result of any change in either (i) a Governmental Requirement or (ii) its circumstances, that it is unable to submit any form or certificate that it is obligated to submit pursuant to this Section 4.06, or that it is required to withdraw or cancel any such form or certificate previously submitted, it shall promptly notify the Borrower and the Administrative Agent of such fact. If a Lender is organized under the laws of a jurisdiction outside the United States of America, unless the Borrower and the Administrative Agent have received a Form 1001 Certification or Form 4224 Certification satisfactory to them indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax, the Borrower shall withhold taxes from such payments at the applicable statutory rate. Each Lender agrees to indemnify and hold harmless the Borrower or Administrative Agent, as applicable, from any United States taxes, penalties, interest and other expenses, costs and losses incurred or payable by (i) the Administrative Agent as a result of such Lender's failure to submit any form or certificate that it is required to provide pursuant to this Section 4.06 or (ii) the Borrower or the Administrative Agent as a result of their reliance on any such form or certificate which such Lender has provided to them pursuant to this Section 4.06. (ii) For any period with respect to which a Lender has failed to provide the Borrower with the form required pursuant to this Section 4.06, if any, (other than if such failure is due to a change in a Governmental Requirement occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 4.06 with respect to taxes imposed by the United States which taxes would not have been imposed but for such failure to provide such forms; provided, however, that if a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such taxes. (iii) Any Lender claiming any additional amounts payable pursuant to this Section 4.06 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or the Administrative Agent or to change the jurisdiction of its Applicable Lending Office or to contest any tax imposed if the making of such a filing or change or contesting such tax would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender. ARTICLE V CAPITAL ADEQUACY -38- 44 Section 5.01 Additional Costs. (a) LIBOR Regulations, etc. The Borrower shall pay directly to each Lender from time to time such amounts as such Lender may determine to be necessary to compensate such Lender for any costs which it determines are attributable to its making or maintaining of any LIBOR Loans or issuing or participating in Letters of Credit hereunder or its obligation to make any LIBOR Loans or issue or participate in any Letters of Credit hereunder, or any reduction in any amount receivable by such Lender hereunder in respect of any of such LIBOR Loans, Letters of Credit or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or any Note in respect of any of such LIBOR Loans or Letters of Credit (other than taxes imposed on the overall net income of such Lender or of its Applicable Lending Office for any of such LIBOR Loans by the jurisdiction in which such Lender has its principal office or Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of such Lender, or the Commitment or Loans of such Lender or the London interbank market; or (iii) imposes any other condition affecting this Agreement or any Note (or any of such extensions of credit or liabilities) or such Lender's Commitment or Loans. Each Lender will notify the Administrative Agent and the Borrower of any event occurring after the Closing Date which will entitle such Lender to compensation pursuant to this Section 5.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, and will designate a different Applicable Lending Office for the Loans of such Lender affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender, be disadvantageous to such Lender, provided that such Lender shall have no obligation to so designate an Applicable Lending Office located in the United States. If any Lender requests compensation from the Borrower under this Section 5.01(a), the Borrower may, by notice to such Lender, suspend the obligation of such Lender to make additional Loans of the Type with respect to which such compensation is requested until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable). (b) Regulatory Change. Without limiting the effect of the provisions of Section 5.01(a), in the event that at any time (by reason of any Regulatory Change or any other circumstances arising after the Closing Date affecting (A) any Lender, (B) the London interbank market or (C) such Lender's position in such market), the LIBOR Rate, as determined in good faith by such Lender, will not adequately and fairly reflect the cost to such Lender of funding its LIBOR Loans, then, if such Lender so elects, by notice to the Borrower and the Administrative Agent, the obligation of such Lender to make additional LIBOR Loans shall be suspended until such Regulatory Change or other circumstances ceases to be in effect (in which case the provisions of Section 5.04 shall be applicable). -39- 45 (c) Capital Adequacy. Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Borrower shall pay directly to any Lender from time to time on request such amounts as such Lender may reasonably determine to be necessary to compensate such Lender or its parent or holding company for any costs which it determines are attributable to the maintenance by such Lender or its parent or holding company (or any Applicable Lending Office), pursuant to any Governmental Requirement following any Regulatory Change, of capital in respect of its Commitment, its Note, its Loans or any interest held by it in any Letter of Credit, such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Lender or its parent or holding company (or any Applicable Lending Office) to a level below that which such Lender or its parent or holding company (or any Applicable Lending Office) could have achieved but for such Governmental Requirement. Such Lender will notify the Borrower that it is entitled to compensation pursuant to this Section 5.01(c) as promptly as practicable after it determines to request such compensation. (d) Compensation Procedure. Any Lender notifying the Borrower of the incurrence of additional costs under this Section 5.01 shall in such notice to the Borrower and the Administrative Agent set forth in reasonable detail the basis and amount of its request for compensation. Determinations and allocations by each Lender for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to Section 5.01(a) or (b), or of the effect of capital maintained pursuant to Section 5.01(c), on its costs or rate of return of maintaining Loans or its obligation to make Loans or issue Letters of Credit, or on amounts receivable by it in respect of Loans or Letters of Credit, and of the amounts required to compensate such Lender under this Section 5.01, shall be conclusive and binding for all purposes, provided that such determinations and allocations are made on a reasonable basis. Any request for additional compensation under this Section 5.01 shall be paid by the Borrower within thirty (30) days of the receipt by the Borrower of the notice described in this Section 5.01(d). Section 5.02 Limitation on LIBOR Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any LIBOR Rate for any Interest Period: (i) the Administrative Agent determines (which determination shall be conclusive, absent manifest error) that quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR Rate" in Section 1.02 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for LIBOR Loans as provided herein; or (ii) the Administrative Agent determines (which determination shall be conclusive, absent manifest error) that the relevant rates of interest referred to in the definition of "LIBOR Rate" in Section 1.02 upon the basis of which the rate of interest for LIBOR Loans for such Interest Period is to be determined are not sufficient to adequately cover the cost to the Lenders of making or maintaining LIBOR Loans; -40- 46 then the Administrative Agent shall give the Borrower prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional LIBOR Loans. Section 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder, then such Lender shall promptly notify the Borrower thereof and such Lender's obligation to make LIBOR Loans shall be suspended until such time as such Lender may again make and maintain LIBOR Loans (in which case the provisions of Section 5.04 shall be applicable). Section 5.04 Base Rate Loans Pursuant to Sections 5.01, 5.02 and 5.03. If the obligation of any Lender to make LIBOR Loans shall be suspended pursuant to Sections 5.01, 5.02 or 5.03 ("Affected Loans"), all Affected Loans which would otherwise be made by such Lender shall be made instead as Base Rate Loans (and, if an event referred to in Section 5.01(b) or Section 5.03 has occurred and such Lender so requests by notice to the Borrower, all Affected Loans of such Lender then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) Base Rate Loans, all payments of principal which would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans. Section 5.05 Compensation. The Borrower shall pay to each Lender within thirty (30) days of receipt of written request of such Lender (which request shall set forth, in reasonable detail, the basis for requesting such amounts and which shall be conclusive and binding for all purposes provided that such determinations are made on a reasonable basis), such amount or amounts as shall compensate it for any loss, cost, expense or liability which such Lender determines are attributable to: (i) any payment, prepayment or conversion of a LIBOR Loan properly made by such Lender or the Borrower for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10.01) on a date other than the last day of the Interest Period for such Loan; or (ii) any failure by the Borrower for any reason (including but not limited to, the failure of any of the conditions precedent specified in Article VI to be satisfied) to borrow, continue or convert a LIBOR Loan from such Lender on the date for such borrowing, continuation or conversion specified in the relevant notice given pursuant to Section 2.02(c). Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepayment or conversion or failure to borrow to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan -41- 47 which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the interest component of the amount such Lender would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Lender). Section 5.06 Replacement Lenders. (a) If any Lender has notified the Borrower and the Administrative Agent of its incurring additional costs under Section 5.01 or has required the Borrower to make payments for Taxes under Section 4.06, then the Borrower may, unless such Lender has notified the Borrower and the Administrative Agent that the circumstances giving rise to such notice no longer apply, terminate, in whole but not in part, the Commitment of any Lender (other than the Administrative Agent) (the "Terminated Lender") at any time upon five (5) Business Days' prior written notice to the Terminated Lender and the Administrative Agent (such notice referred to herein as a "Notice of Termination"). (b) In order to effect the termination of the Commitment of the Terminated Lender, the Borrower shall: (i) obtain an agreement with one or more Lenders to increase their Commitment or Commitments and/or (ii) request any one or more other banking institutions to become parties to this Agreement in place and instead of such Terminated Lender and agree to accept a Commitment or Commitments; provided, however, that such one or more other banking institutions are reasonably acceptable to the Administrative Agent and become parties by executing an Assignment (the Lenders or other banking institutions that agree to accept in whole or in part the Commitment of the Terminated Lender being referred to herein as the "Replacement Lenders"), such that the aggregate increased and/or accepted Commitments of the Replacement Lenders under clauses (i) and (ii) above equal the Commitment of the Terminated Lender. (c) The Notice of Termination shall include the name of the Terminated Lender, the date the termination will occur (the "Lender Termination Date"), and the Replacement Lender or Replacement Lenders to which the Terminated Lender will assign its Commitment and, if there will be more than one Replacement Lender, the portion of the Terminated Lender's Commitment to be assigned to each Replacement Lender. (d) On the Lender Termination Date, (i) the Terminated Lender shall by execution and delivery of an Assignment assign its Commitment to the Replacement Lender or Replacement Lenders (pro rata, if there is more than one Replacement Lender, in proportion to the portion of the Terminated Lender's Commitment to be assigned to each Replacement Lender) indicated in the Notice of Termination and shall assign to the Replacement Lender or Replacement Lenders each of its Loans (if any) then outstanding and participation interests in Letters of Credit (if any) then outstanding pro rata as aforesaid), (ii) the Terminated Lender shall endorse its Note, payable without recourse, representation or warranty to the order of the Replacement Lender or Replacement Lenders (pro rata as aforesaid), (iii) the Replacement -42- 48 Lender or Replacement Lenders shall purchase the Note held by the Terminated Lender (pro rata as aforesaid) at a price equal to the unpaid principal amount thereof plus interest and facility and other fees accrued and unpaid to the Lender Termination Date, and (iv) the Replacement Lender or Replacement Lenders will thereupon (pro rata as aforesaid) succeed to and be substituted in all respects for the Terminated Lender with like effect as if becoming a Lender pursuant to the terms of Section 12.06(b), and the Terminated Lender will have the rights and benefits of an assignor under Section 12.06(b). To the extent not in conflict, the terms of Section 12.06(b) shall supplement the provisions of this Section 5.06(d). For each assignment made under this Section 5.06, the Replacement Lender shall pay to the Administrative Agent the processing fee provided for in Section 12.06(b). The Borrower will be responsible for the payment of any breakage costs incurred in connection with the sale of Loans by Terminated Lenders to Replacement Lenders, as if such Loans had been prepaid and breakage costs had accrued thereto in accordance with Section 5.05. ARTICLE VI CONDITIONS PRECEDENT Section 6.01 Initial Funding. The obligation of the Lenders to make the Initial Funding is subject to the receipt by the Administrative Agent and the Lenders of all fees payable pursuant to Section 2.04 on or before the Closing Date and the receipt by the Administrative Agent of the following documents and satisfaction of the other conditions provided in this Section 6.01, each of which shall be satisfactory to the Administrative Agent in form and substance: (a) A certificate of the Secretary or an Assistant Secretary of the Borrower setting forth (i) resolutions of its board of directors with respect to the authorization of the Borrower to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the Borrower (y) who are authorized to sign the Loan Documents to which Borrower is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of the Borrower, certified as being true and complete. The Administrative Agent and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Borrower to the contrary. (b) A certificate of the Secretary or an Assistant Secretary of Holdings setting forth (i) resolutions of its board of directors with respect to the authorization of Holdings to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of Holdings (y) who are authorized to sign the Loan Documents to which Holdings is a party and (z) who will, until replaced by another officer -43- 49 or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of Holdings, certified as being true and complete. The Administrative Agent and the Lenders may conclusively rely on such certificate until they receive notice in writing from Holdings to the contrary. (c) A certificate of the Secretary or an Assistant Secretary of each Subsidiary party to a Loan Document, setting forth (i) resolutions of its board of directors with respect to the authorization of such Subsidiary to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of such Subsidiary (y) who are authorized to sign the Loan Documents to which such Subsidiary is a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of the authorized officers, and (iv) the articles or certificate of incorporation and bylaws of such Subsidiary, certified as being true and complete. The Administrative Agent and the Lenders may conclusively rely on such certificate until they receive notice in writing from the Borrower to the contrary. (d) Certificates of the appropriate state agencies with respect to the existence, qualification and good standing of the Borrower, Holdings and each Subsidiary party to a Loan Document. (e) A compliance certificate which shall be substantially in the form of Exhibit C, duly and properly executed by a Responsible Officer and dated as of the Closing Date. (f) The Notes, duly completed and executed. (g) The Security Instruments, including those described on Exhibit D, duly completed and executed in sufficient number of counterparts for recording, if necessary. (h) An opinion of Gardere Wynne Sewell, counsel to the Borrower, Holdings and the Subsidiaries party to a Loan Document, in form and substance satisfactory to the Administrative Agent, as to such matters incident to the transactions herein contemplated and as the Administrative Agent may reasonably request. (i) A certificate of insurance coverage of the Borrower evidencing that the Borrower is carrying insurance in accordance with Section 7.19. (j) Copies of Requests for Information or Copies (Form UCC-11) or equivalent commercially obtained reports, listing all effective financing statements which name any of the Borrower, Holdings or any Subsidiary party to a Loan Document (under their present names and any previous names) as debtor and which are filed in all jurisdictions in which such Persons own property or conduct business, together with copies of such financing statements. -44- 50 (k) Completion of an environmental review in form, scope and substance satisfactory to the Administrative Agent. (l) Since September 30, 2000, there shall not have been any adverse change or any development involving a prospective adverse change in or affecting the Properties, general affairs, management, financial position, shareholders' equity or results of operation of the Borrower, Holdings or any Subsidiary. (m) All necessary approvals from any Governmental Authority or other Person in connection with the Properties and the transactions contemplated by the Loan Documents shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action by any applicable authority. (n) A borrowing notice in the form of Exhibit B duly completed and executed by the Borrower. (o) A Letter of Credit Application pertaining to each Letter of Credit duly completed and executed by Borrower. (p) A Notice of Account Designation substantially in the form of Exhibit G, duly completed and executed by the Borrower. (q) Evidence of the successful closing of the WGCS Merger. (r) Evidence that all Debt assumed by the Borrower in conjunction with the WGCS Merger does not differ materially from that presented in the pro forma financial statements in the Offering Memorandum. (s) No Default shall exist hereunder. (t) The Borrower shall deliver, or cause to be delivered, to the Administrative Agent on the Closing Date or as soon thereafter as is practicable, but in any event within 90 days of the Closing Date, the original certificates representing the stock pledged to the Administrative Agent pursuant to the Security Instruments. (u) Except as disclosed on Schedule 7.03, no material litigation shall exist against the Borrower or any Subsidiary. (v) Such other documents as the Administrative Agent or any Lender or special counsel to the Administrative Agent may reasonably request. Section 6.02 Initial and Subsequent Loans and Letters of Credit. The obligation of the Lenders to make Loans to the Borrower upon the occasion of each borrowing hereunder and to issue, renew, extend or reissue Letters of Credit for the account of the Borrower -45- 51 (including the Initial Funding) is subject to the further conditions precedent that, as of the date of such Loans and after giving effect thereto: (a) no Default shall have occurred and be continuing; (b) no Material Adverse Effect shall have occurred; and (c) the representations and warranties made by the Borrower in Article VII and in the Security Instruments shall be true on and as of the date of the making of such Loans or issuance, renewal, extension or reissuance of a Letter of Credit with the same force and effect as if made on and as of such date and following such new borrowing, except to the extent such representations and warranties are expressly limited to an earlier date or the Majority Lenders may expressly consent in writing to the contrary. Each request for a borrowing or issuance, renewal, extension or reissuance of a Letter of Credit by the Borrower hereunder shall constitute a certification by the Borrower to the effect set forth in Section 6.02(c) (both as of the date of such notice and, unless the Borrower otherwise notifies the Administrative Agent prior to the date of and immediately following such borrowing or issuance, renewal, extension or reissuance of a Letter of Credit as of the date thereof). Section 6.03 Conditions Precedent for the Benefit of Lenders. All conditions precedent to the obligations of the Lenders to make any Loan are imposed hereby solely for the benefit of the Lenders, and no other Person may require satisfaction of any such condition precedent or be entitled to assume that the Lenders will refuse to make any Loan in the absence of strict compliance with such conditions precedent. Section 6.04 No Waiver. No waiver of any condition precedent shall preclude the Administrative Agent or the Lenders from requiring such condition to be met prior to making any subsequent Loan or preclude the Lenders from thereafter declaring that the failure of the Borrower to satisfy such condition precedent constitutes a Default. ARTICLE VII REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Administrative Agent and the Lenders that (each representation and warranty herein is given as of the Closing Date and shall be deemed repeated and reaffirmed on the dates of each borrowing and issuance, renewal, extension or reissuance of a Letter of Credit as provided in Section 6.02): Section 7.01 Corporate Existence. Each of the Borrower and each Subsidiary: (i) is a corporation duly organized, legally existing and in good standing under the laws of the -46- 52 jurisdiction of its incorporation; (ii) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (iii) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. Section 7.02 Financial Condition. The audited consolidated balance sheet of Holdings and its consolidated subsidiaries as at March 31, 2000 and the related consolidated statement of income, stockholders' equity and cash flow of Holdings and its consolidated subsidiaries for the fiscal year ended on said date, with the opinion thereon of Deloitte Touche heretofore furnished to each of the Lenders and the unaudited consolidated balance sheet of Holdings and its consolidated subsidiaries as at September 30, 2000 and their related consolidated statements of income, stockholders' equity and cash flow of Holdings and its consolidated subsidiaries for the six (6) month period ended on such date heretofore furnished to the Administrative Agent, are complete and correct and fairly present the consolidated financial condition of Holdings and its consolidated subsidiaries as at said dates and the results of its operations for the fiscal year and the six (6) month period on said dates in all material respects, all in accordance with GAAP, as applied on a consistent basis (subject, in the case of the interim financial statements, to normal year-end adjustments). Neither the Borrower nor any Subsidiary has on the Closing Date any material Debt, contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the Financial Statements or in Schedule 7.02. Since March 31, 2000, there has been no change or event having a Material Adverse Effect. Since the date of the Financial Statements, neither the business nor the Properties of the Borrower or any Subsidiary have been materially and adversely affected as a result of any fire, explosion, earthquake, flood, drought, windstorm, accident, strike or other labor disturbance, embargo, requisition or taking of Property or cancellation of contracts, permits or concessions by any Governmental Authority, riot, activities of armed forces or acts of God or of any public enemy. Notwithstanding anything in this Agreement to the contrary, as of the Closing Date, the Financial Statements required and referenced in this Agreement shall mean the pro forma financial statements contained in the Offering Memorandum which give effect to the WGCS Merger. Section 7.03 Litigation. Except as disclosed to the Lenders in Schedule 7.03 hereto, at the Closing Date there is no litigation, legal, administrative or arbitral proceeding, investigation or other action of any nature pending or, to the knowledge of the Borrower threatened against or affecting the Borrower or any Subsidiary which involves the possibility of any judgment or liability against the Borrower or any Subsidiary not fully covered by insurance (except for normal deductibles), and which would have a Material Adverse Effect. Section 7.04 No Breach. Neither the execution and delivery of the Loan Documents, nor compliance with the terms and provisions hereof will conflict with or result in a breach of, or require any consent which has not been obtained as of the Closing Date under, the respective charter or by-laws of the Borrower or any Subsidiary, or any Governmental -47- 53 Requirement or any agreement or instrument to which the Borrower or any Subsidiary is a party or by which it is bound or to which it or its Properties are subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of the Borrower or any Subsidiary pursuant to the terms of any such agreement or instrument other than the Liens created by the Loan Documents. Section 7.05 Authority. The Borrower and each Subsidiary have all necessary corporate power and authority to execute, deliver and perform its obligations under the Loan Documents to which it is a party; and the execution, delivery and performance by the Borrower and each Subsidiary of the Loan Documents to which it is a party, have been duly authorized by all necessary corporate action on its part; and the Loan Documents constitute the legal, valid and binding obligations of the Borrower and each Subsidiary, enforceable in accordance with their terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). Section 7.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority are necessary for the execution, delivery or performance by the Borrower or any Subsidiary of the Loan Documents or for the validity or enforceability thereof, except for the recording and filing of the Security Instruments as required by this Agreement and of the merger documents as required by the WGCS Merger. Section 7.07 Use of Loans. The proceeds of the Loans shall be used for working capital and other general corporate purposes. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan hereunder will be used to buy or carry any margin stock. Section 7.08 ERISA. (a) The Borrower, each Subsidiary and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. (b) Each Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code. (c) No act, omission or transaction has occurred which could result in imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA. -48- 54 (d) No Plan (other than a defined contribution plan) or any trust created under any such Plan has been terminated since September 2, 1974. No liability to the PBGC (other than for the payment of current premiums which are not past due) by the Borrower, any Subsidiary or any ERISA Affiliate has been or is expected by the Borrower, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred. (e) Full payment when due has been made of all amounts which the Borrower, any Subsidiary or any ERISA Affiliate is required under the terms of each Plan or applicable law to have paid as contributions to such Plan, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan. (f) The actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrower's most recently ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. (g) None of the Borrower, any Subsidiary or any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion at any time without any material liability. (h) None of the Borrower, any Subsidiary or any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the preceding six calendar years, sponsored, maintained or contributed to, any Multiemployer Plan. (i) None of the Borrower, any Subsidiary or any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the Plan. Section 7.09 Taxes. Except as set out in Schedule 7.09, each of the Borrower and its Subsidiaries has filed all United States Federal income tax returns and all other tax returns which are required to be filed by them and have paid all material taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate. No tax lien has been filed and, to the knowledge of the Borrower, no claim is being asserted with respect to any such tax, fee or other charge. Section 7.10 Titles, etc. -49- 55 (a) Except as set out in Schedule 7.10, the Borrower and its Subsidiaries have good and marketable title to their material Properties, (i) except in cases where the failure to have said good and marketable title would not reasonably cause a Material Adverse Effect and (ii) free and clear of all Liens, except Liens permitted by Section 9.02. (b) All leases and agreements necessary for the conduct of the business of the Borrower and its Subsidiaries are valid and subsisting, in full force and effect and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which would affect in any material respect the conduct of the business of the Borrower and its Subsidiaries. (c) The rights, Properties and other assets presently owned, leased or licensed by the Borrower and its Subsidiaries including, without limitation, all easements and rights of way, include all rights, Properties and other assets necessary to permit the Borrower and its Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the Closing Date. (d) All of the assets and Properties of the Borrower and its Subsidiaries (taken as a whole) which are reasonably necessary for the operation of its business are in good working condition and are maintained in accordance with prudent business standards. Section 7.11 No Material Misstatements. No written information, statement, exhibit, certificate, document or report furnished to the Administrative Agent and the Lenders (or any of them) by the Borrower or any Subsidiary in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not materially misleading in the light of the circumstances in which made and with respect to the Borrower and its Subsidiaries taken as a whole. To Borrower's knowledge, there is no fact peculiar to the Borrower or any Subsidiary which has a Material Adverse Effect or in the future is reasonably likely to have (so far as the Borrower can now reasonably foresee) a Material Adverse Effect and which has not been set forth in this Agreement or the other documents, certificates and statements furnished to the Administrative Agent by or on behalf of the Borrower or any Subsidiary or otherwise prior to, or on, the Closing Date in connection with the transactions contemplated hereby. Section 7.12 Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 7.13 Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. -50- 56 Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14, the Borrower has no Subsidiaries. Section 7.15 Location of Business and Offices. The Borrower's principal place of business and chief executive offices are located at the address stated on the signature page of this Agreement. The principal place of business and chief executive office of each Subsidiary are located at the addresses stated on Schedule 7.14. Section 7.16 Defaults. Neither the Borrower nor any Subsidiary is in material default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a material default under any material agreement or instrument to which the Borrower or any Subsidiary is a party or by which the Borrower or any Subsidiary is bound which default would have a Material Adverse Effect. No Default hereunder has occurred and is continuing. Section 7.17 Environmental Matters. Except (i) as provided in Schedule 7.17 or (ii) as would not have a Material Adverse Effect (or with respect to (c), (d) and (e) below, where the failure to take such actions would not have a Material Adverse Effect): (a) Neither any Property of the Borrower or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or any Environmental Laws; (b) Without limitation of clause (a) above, no Property of the Borrower or any Subsidiary nor the operations currently conducted thereon or, to the best knowledge of the Borrower, by any prior owner or operator of such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or to any remedial obligations under Environmental Laws; (c) All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any and all Property of the Borrower and each Subsidiary, including without limitation past or present treatment, storage, disposal or release of a hazardous substance or solid waste into the environment, have been duly obtained or filed, and the Borrower and each Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar authorizations; (d) All hazardous substances, solid waste, and oil and gas exploration and production wastes, if any, generated at any and all Property of the Borrower or any Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and, to the best knowledge of the Borrower, all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental -51- 57 Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority in connection with any Environmental Laws; (e) The Borrower has taken all steps reasonably necessary to determine and has determined that no hazardous substances, solid waste, or oil and gas exploration and production wastes, have been disposed of or otherwise released and there has been no threatened release of any hazardous substances on or to any Property of the Borrower or any Subsidiary except in compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment; (f) To the extent applicable, all Property of the Borrower and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by the OPA or scheduled as of the Closing Date to be imposed by OPA during the term of this Agreement, and the Borrower does not have any reason to believe that such Property, to the extent subject to OPA, will not be able to maintain compliance with the OPA requirements during the term of this Agreement; and (g) Neither the Borrower nor any Subsidiary has any known contingent liability in connection with any release or threatened release of any oil, hazardous substance or solid waste into the environment. Section 7.18 Compliance with the Law. Neither the Borrower nor any Subsidiary has violated any Governmental Requirement or failed to obtain any license, permit, franchise or other governmental authorization necessary for the ownership of any of its Properties or the conduct of its business, which violation or failure would have (in the event such violation or failure were asserted by any Person through appropriate action) a Material Adverse Effect. Section 7.19 Insurance. Schedule 7.19 attached hereto contains an accurate description of all material policies of fire, liability, workmen's compensation and other forms of insurance owned or held by the Borrower and each Subsidiary. All such policies are in full force and effect, all premiums with respect thereto covering all periods up to and including the date of the closing have been paid, and no notice of cancellation or termination has been received with respect to any such policy. Such policies are sufficient for compliance with all requirements of law and of all agreements to which the Borrower or any Subsidiary is a party; are valid, outstanding and enforceable policies; provide adequate insurance coverage in at least such amounts and against at least such risks (but including in any event public liability) as are usually insured against in the same general area by companies engaged in the same or a similar business for the assets and operations of the Borrower and each Subsidiary; will remain in full force and effect through the respective dates set forth in the binders for said insurance without the payment of additional premiums; and will not in any way be affected by, or terminate or lapse by reason of, the transactions contemplated by this Agreement. Neither the Borrower nor any Subsidiary has been refused any insurance with respect to its assets or operations, nor has its coverage been -52- 58 limited below usual and customary policy limits, by an insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last three years. Section 7.20 Reserved. Section 7.21 Hedging Agreements. Schedule 7.21 sets forth, as of the Closing Date, a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas or other commodities) of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied), and the counter party to each such agreement. Section 7.22 Restriction on Liens. Except as set forth on Schedule 7.22, neither the Borrower nor any of its Subsidiaries is a party to any agreement or arrangement (other than this Agreement and the Security Instruments), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to other Persons on or in respect of their respective assets or Properties. ARTICLE VIII AFFIRMATIVE COVENANTS The Borrower covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of all Loans hereunder, all interest thereon and all other amounts payable by the Borrower hereunder: Section 8.01 Reporting Requirements. The Borrower shall deliver, or shall cause to be delivered, to the Administrative Agent with sufficient copies of each for the Lenders: (a) Annual Financial Statements. As soon as available and in any event within 120 days after the end of each fiscal year of Holdings, the audited consolidated and unaudited consolidating statements of income, stockholders' equity, changes in financial position and cash flow of Holdings and its consolidated subsidiaries for such fiscal year, and the related consolidated and consolidating balance sheets of Holdings and its consolidated subsidiaries as at the end of such fiscal year, and setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by the related opinion of independent public accountants of recognized national standing acceptable to the Administrative Agent which opinion shall state that said financial statements fairly present the consolidated and consolidating financial condition and results of operations of Holdings and its consolidated subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP, except for such changes in such principles with which the independent -53- 59 public accountants shall have concurred and such opinion shall not contain a "going concern" or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default. (b) Quarterly Financial Statements. As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of Holdings, consolidated and consolidating statements of income, stockholders' equity, changes in financial position and cash flow of Holdings and its consolidated subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present the consolidated and consolidating financial condition and results of operations of Holdings and its consolidated subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments). (c) Notice of Default, Etc. Promptly after the Borrower knows that any Default or any Material Adverse Effect has occurred, a notice of such Default or Material Adverse Effect, describing the same in reasonable detail and the action the Borrower proposes to take with respect thereto, and at the Lender's option, a copy of the notice of such Default. (d) Management Letters. Promptly after Borrower's or any Subsidiaries' receipt thereof, a copy of any "management letter" addressed to the board of directors of Borrower or such Subsidiary from its certified public accountants and any internal control memoranda relating thereto. (e) SEC Filings, Etc. Promptly upon its becoming available, each financial statement, report, notice or proxy statement sent by the Borrower to stockholders generally and each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters) in respect thereof filed by the Borrower with or received by the Borrower in connection therewith from any securities exchange or the SEC or any successor agency. (f) Other Matters. From time to time such other information regarding the business, affairs or financial condition of the Borrower or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Lender or the Administrative Agent may reasonably request. (g) Hedging Agreements. As soon as available and in any event within ten (10) Business Days after each Quarterly Date, a report, in form and substance satisfactory to the Administrative Agent, setting forth as of the last Business Day of such Quarterly Date a true and complete list of all Hedging Agreements (including commodity price swap agreements, forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery -54- 60 of oil, gas or other commodities) of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.21, any margin required or supplied under any credit support document, and the counter party to each such agreement. (h) Labor Disputes. Promptly upon becoming aware of any labor dispute which could reasonably be expected to have a Material Adverse Effect, a notice of such dispute describing same in detail and the action of the Borrower proposes to take with respect thereto. (i) Borrowing Base Certificate. Within 45 days after each fiscal quarter end, the Borrower shall deliver to the Administrative Agent a Borrowing Base Certificate, duly complete and executed by a Responsible Officer of the Borrower. The Borrower will furnish to the Administrative Agent, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate substantially in the form of Exhibit C executed by a Responsible Officer (i) certifying as to the matters set forth therein and stating that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail), and (ii) setting forth in reasonable detail the computations necessary to determine whether the Borrower is in compliance with Section 9.13(a), (b) and (c) as of the end of the respective fiscal quarter or fiscal year. Section 8.02 Litigation. The Borrower shall promptly give to the Administrative Agent notice of any litigation or governmental investigation or proceeding pending against the Borrower or any of its Subsidiaries which could reasonably be expected to materially and adversely affect the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of Borrower or any of its Subsidiaries. Section 8.03 Maintenance, Etc. (a) Generally. The Borrower shall and shall cause each Subsidiary to: preserve and maintain its corporate existence and all of its material rights, privileges, franchises, patents, trademarks, copyrights and licenses; keep books of record and account in which full, true and correct entries will be made of all dealings or transactions in relation to its business and activities; comply with all Governmental Requirements if failure to comply with such requirements will have a Material Adverse Effect; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; upon reasonable notice, permit representatives of the Administrative Agent or any Lender, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Lender or the Administrative Agent (as the case may be). -55- 61 (b) Proof of Insurance. Contemporaneously with the delivery of the financial statements required by Section 8.01(a) to be delivered for each year, the Borrower will furnish or cause to be furnished to the Administrative Agent and the Lenders a certificate of insurance coverage from the insurer in form and substance satisfactory to the Administrative Agent and, if requested, will furnish the Administrative Agent and the Lenders copies of the applicable policies. (c) Operation of Properties. The Borrower will and will cause each Subsidiary to operate its Properties or cause such Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance in all material respects with all Governmental Requirements. Section 8.04 Environmental Matters. (a) Establishment of Procedures. The Borrower will and will cause each Subsidiary to establish and implement such procedures as may be reasonably necessary to continuously determine and assure that any failure of the following does not have a Material Adverse Effect: (i) all Property of the Borrower and its Subsidiaries and the operations conducted thereon and other activities of the Borrower and its Subsidiaries are in compliance with and do not violate the requirements of any Environmental Laws, (ii) no oil, hazardous substances or solid wastes are disposed of or otherwise released on or to any Property owned by any such party except in compliance with Environmental Laws, (iii) no hazardous substance will be released on or to any such Property in a quantity equal to or exceeding that quantity which requires reporting pursuant to Section 103 of CERCLA, and (iv) no oil, oil and gas exploration and production wastes or hazardous substance is released on or to any such Property so as to pose an imminent and substantial endangerment to public health or welfare or the environment. (b) Notice of Action. The Borrower will promptly notify the Administrative Agent and the Lenders in writing of any threatened action, investigation or inquiry by any Governmental Authority of which the Borrower has knowledge in connection with any Environmental Laws, excluding routine testing and corrective action. Section 8.05 Further Assurances. The Borrower will and will cause each Subsidiary to cure promptly any defects in the creation and issuance of the Notes and the execution and delivery of the Security Instruments and this Agreement. The Borrower at its expense will and will cause each Subsidiary to promptly execute and deliver to the Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Borrower or any Subsidiary, as the case may be, in the Security Instruments and this Agreement, or to further evidence and more fully describe the collateral intended as security for the Notes, or to correct any omissions in the Security Instruments, or to state more fully the security obligations set out herein or in any of the Security Instruments, or to perfect, protect or preserve any Liens created pursuant to any of the -56- 62 Security Instruments, or to make any recordings, to file any notices or obtain any consents, all as may be reasonably necessary or appropriate in connection therewith. Section 8.06 Performance of Obligations. The Borrower will pay the Notes according to the reading, tenor and effect thereof; and the Borrower will and will cause each Subsidiary to do and perform every act and discharge all of the obligations to be performed and discharged by them under the Security Instruments and this Agreement, at the time or times and in the manner specified. Section 8.07 Reserved. Section 8.08 Reserved. Section 8.09 Additional Collateral; Releases of Collateral. (a) Lien on Gas Compression Equipment. All gas compression equipment of the Borrower or its Subsidiary which is to become Eligible Equipment used in the determination of the Equipment Borrowing Base shall be subject to a first-priority Lien (subject only to Excepted Liens) in favor of the Administrative Agent, which Lien will be created and perfected by and in accordance with the provisions of security agreements and financing statements, or other Security Instruments, all in form and substance satisfactory to the Administrative Agent in its sole discretion and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. In all such cases, Borrower shall supply the Administrative Agent with a description of such equipment for purposes of amending and supplementing the description of equipment in the Security Instruments together with the name of the jurisdiction for filing perfection notices and the owner thereof. Borrower and Administrative Agent shall forthwith execute such UCC-1 Forms as may be needed. The Administrative Agent shall inform the Borrower as soon as reasonably practicable of all recording data for such filings. (b) Releases. So long as no Event of Default exists, the Borrower will be entitled to releases of Eligible Equipment; provided, however, the aggregate outstanding principal amount of the Equipment Loans shall be reduced by an amount equal to the fair market value of such Eligible Equipment at the time the applicable Lien was created. In such cases, Borrower shall deliver appropriate, fully-competed release forms to the Administrative Agent and the Administrative Agent shall execute and return same to Borrower or its counsel as soon as reasonably practicable and in any event within five (5) Business Days. Section 8.10 ERISA Information and Compliance. The Borrower will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the Administrative Agent with sufficient copies to the Lenders (i) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other report with respect to each Plan or any trust created thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA Event or of any "prohibited transaction," as described in section 406 of ERISA or in section 4975 of the Code, in connection -57- 63 with any Plan or any trust created thereunder, a written notice signed by a Responsible Officer specifying the nature thereof, what action the Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (iii) immediately upon receipt thereof, copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a Multiemployer Plan), the Borrower will, and will cause each Subsidiary and ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA (determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA. ARTICLE IX NEGATIVE COVENANTS The Borrower covenants and agrees that, so long as any of the Commitments are in effect and until payment in full of Loans hereunder, all interest thereon and all other amounts payable by the Borrower hereunder, without the prior written consent of the Majority Lenders: Section 9.01 Debt. Neither Holdings, the Borrower nor any Subsidiary will incur, create, assume or permit to exist any Debt, except: (a) the Notes or other Indebtedness or any guaranty of or suretyship arrangement for the Notes or other Indebtedness; (b) Debt (including unfunded commitments) of the Borrower or Holdings existing on the Closing Date which is reflected in the Financial Statements or is disclosed in Schedule 9.01, and any renewals, extensions, refinancings and modifications (but not increases) thereof; (c) accounts payable (for the deferred purchase price of Property or services) from time to time incurred in the ordinary course of business which, if greater than 90 days past the invoice or billing date, are being contested in good faith by appropriate proceedings if reserves adequate under GAAP shall have been established therefor; (d) Debt of the Borrower under Hedging Agreements which are for bona fide business purposes and are not speculative; (e) Operating Equipment Lease Obligations; -58- 64 (f) other Debt of the Borrower and its Domestic Subsidiaries incurred, not to exceed $35,000,000 in the aggregate; (g) Debt evidenced by Capital Lease Obligations and Purchase Money Indebtedness; provided that in no event shall the aggregate principal amount of Capital Lease Obligations and Purchase Money Indebtedness permitted by this clause (g) exceed $30,000,000 at any time outstanding; (h) Debt with respect to surety bonds, appeal bonds or customs bonds required in the ordinary course of business or in connection with the enforcement of rights or claims of the Borrower or any of its Subsidiaries or in connection with judgments that do not result in a Default or an Event of Default, provided that the aggregate outstanding amount of all cash surety bonds, appeal bonds and custom bonds permitted by this clause (h) shall not at any time exceed $5,000,000; and (i) Debt of any Foreign Subsidiary of the Borrower or Holdings the proceeds of which Debt are used for such Foreign Subsidiary's and/or its Foreign Subsidiaries' working capital and general corporate purposes ("Foreign Subsidiary Indebtedness"). (j) Debt for borrowed money assumed by the Borrower or one of its Subsidiaries, or of a Subsidiary of the Borrower acquired, pursuant to an acquisition or merger permitted pursuant to the terms of this Agreement, provided that such Debt shall not exceed $65,000,000 in the aggregate at any time and such Debt was not incurred in connection with, or in anticipation or contemplation of such permitted acquisition or merger; and provided further that the aggregate amount of Debt permitted pursuant to this clause (j) that has a scheduled maturity date that is earlier than the scheduled Revolving Credit Termination Date shall not exceed $30,000,000. Section 9.02 Liens. Neither the Borrower nor any Subsidiary will create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except: (a) Liens securing the payment of any Indebtedness; (b) Excepted Liens; (c) Liens securing Capital Lease Obligations and Purchase Money Indebtedness allowed under Section 9.01(g), but only on the Property under lease or purchased; (d) Liens on assets created in connection with (i) the HY-SL Facility, (ii) the ABS Facility, (iii) any Operating Equipment Lease Facility, including, without limitation, Liens on assets of any Subsidiary of the Borrower created for the purpose and as condition to such Operating Equipment Lease Facility and (iv) securing Operating Equipment Lease Obligations with respect to Operating Equipment Leases and guaranties thereof, provided that such Liens do -59- 65 not extend to or cover any Property or assets of the Borrower or any of its Subsidiaries other than the Property subject to or pledged to such Operating Equipment Leases, any Property or rights (including rights under subleases) relating to such leased property and the equity interests of the lessee in any such Operating Equipment Lease, provided, however, that at the time of entering into (and immediately after giving effect to) any such lease, no Event of Default shall have occurred or be continuing under this Agreement; (e) Liens disclosed on Schedule 9.02; (f) Liens arising out of Hedging Agreements with Lenders or Lender Affiliates; (g) Liens relating to Debt permitted under Section 9.01(f), provided that the aggregate amount of Debt secured by such Liens shall not exceed $20,000,000; (h) Liens on assets of Foreign Subsidiaries under Foreign Credit Facilities; and (i) Liens securing acquired Debt permitted under Section 9.01(j); provided, however, such Liens do not extend to or cover any property other than the property or assets that secured such Debt prior to the time it was acquired or assumed. Section 9.03 Investments, Loans and Advances. Neither the Borrower nor any Subsidiary will make or permit to remain outstanding any loans or advances to or Investments in any Person, except that, so long as no Event of Default has occurred and is continuing, the foregoing restriction shall not apply to: (a) Investments, loans or advances reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.03; (b) accounts receivable arising in the ordinary course of business; (c) direct obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one year from the date of creation thereof; (d) commercial paper maturing within one year from the date of creation thereof rated in the highest grade by S&P or Moody's; (e) deposits maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United States of any other bank or trust company which is organized under the laws of the United States or any -60- 66 state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000.00 (as of the date of such Lender's or bank or trust company's most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by Standard & Poor's Corporation or Moody's Investors Service, Inc., respectively; (f) deposits in money market funds investing exclusively in Investments described in Section 9.03(c), 9.03(d) or 9.03(e); (g) other Investments, loans or advances not to exceed $100,000,000 in any one fiscal year or $250,000,000 in the aggregate at any time outstanding; and (h) payroll advances and employee loans up to $5,000,000; Section 9.04 Dividends, Distributions and Redemptions. The Borrower will not declare or pay any dividend, purchase, redeem or otherwise acquire for value any of its stock now or hereafter outstanding, return any capital to its stockholders or make any distribution of its assets to its stockholders; except that so long as there shall exist no Default or Event of Default (both before and after giving effect to the payment thereof) (i) the Borrower may pay cash dividends to Holdings so long as the proceeds thereof are immediately used by Holdings to purchase shares of common stock or options to purchase shares of common stock of Holdings held by former employees of the Borrower following the termination of their employment by the Borrower or any of its Subsidiaries provided that the aggregate amount of cash dividends paid pursuant to this Section 9.04(i) shall not during any fiscal year of the Borrower exceed $7,500,000; or (ii) the Borrower may make other distributions provided that the aggregate amount of such distributions shall not exceed $5,000,000 during any fiscal year. Section 9.05 Reserved. Section 9.06 Nature of Business. Neither the Borrower nor any Subsidiary will allow any material change to be made in the character of its business. Section 9.07 Reserved. Section 9.08 Mergers, Etc. Neither the Borrower nor any Subsidiary will merge into or with or consolidate with any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property or assets to any other Person except that (a) any Subsidiary of Borrower may be merged into or consolidated with or sell, lease or otherwise dispose of all or substantially all of its Property or assets to (i) Borrower, so long as Borrower is the surviving business entity, or (ii) another Subsidiary of Borrower, and (b) the Borrower may merger into or consolidate with any Person provided, in each case (i) immediately thereafter and giving effect thereto, no event shall occur and be continuing which constitutes a Default or Event of Default, and (ii) the Borrower is the surviving business entity. -61- 67 Section 9.09 Proceeds of Notes; Letters of Credit. The Borrower will not permit the proceeds of the Notes or Letters of Credit to be used for any purpose other than those permitted by Section 7.07. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulation T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. Section 9.10 ERISA Compliance. The Borrower will not at any time: (a) Engage in, or permit any Subsidiary or ERISA Affiliate to engage in, any transaction in connection with which the Borrower, any Subsidiary or any ERISA Affiliate could be subjected to either a civil penalty assessed pursuant to section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code; (b) Terminate, or permit any Subsidiary or ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could result in any liability to the Borrower, any Subsidiary or any ERISA Affiliate to the PBGC; (c) Fail to make, or permit any Subsidiary or ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto; (d) Permit to exist, or allow any Subsidiary or ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of Section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan; (e) Permit, or allow any Subsidiary or ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by the Borrower, any Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA; (f) Contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan; (g) Acquire, or permit any Subsidiary or ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to the Borrower, any Subsidiary or any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan that is subject to -62- 68 Title IV of ERISA under which the actuarial present value of the benefit liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities; (h) Incur, or permit any Subsidiary or ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) Contribute to or assume an obligation to contribute to, or permit any Subsidiary or ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by such entities in their sole discretion at any time without any material liability; or (j) Amend or permit any Subsidiary or ERISA Affiliate to amend, a Plan resulting in an increase in current liability such that the Borrower, any Subsidiary or any ERISA Affiliate is required to provide security to such Plan under section 401(a)(29) of the Code. Section 9.11 Sale or Discount of Receivables. Neither the Borrower nor any Subsidiary will discount or sell (with or without recourse) any of its notes receivable or accounts receivable, except in the ordinary course of business. Section 9.12 Reserved. Section 9.13 Certain Financial Covenants. (a) Current Ratio. The Borrower will not permit its ratio of (i) Consolidated Current Assets to (ii) Consolidated Current Liabilities to be less than 1.0 to 1.0 at any time. (b) Total Debt to EBITDAR. The Borrower will not permit its Total Leverage Ratio as of the end of any Testing Period to be greater than the ratios and for the periods indicated below:
Period Ratio ------ ----- Closing Date through 3/31/02 4.75 to 1.00 4/01/02 and at all times thereafter 4.50 to 1.00
(c) Interest Coverage Ratio. The Borrower will not permit its Interest Coverage Ratio as of the end of any Testing Period to be less than the ratios and for the periods indicated below: -63- 69
Period Ratio ------ ----- Closing Date through 3/31/02 2.00 to 1.00 4/01/02 through 3/31/04 2.25 to 1.00 4/01/04 and at all times thereafter 2.50 to 1.00
(d) Test and Calculations of Financial Ratios. Until the fiscal quarter beginning April 1, 2002, the financial ratios set forth in Section 9.13(a), (b) and (c) will be tested on a quarterly basis beginning March 31, 2001. Said financial ratios will be calculated utilizing annualized results for the period from and including the Closing Date through the applicable quarterly determination date. From and including April 1, 2002 and at all times thereafter, said financial ratios will be determined on a rolling four-quarter basis. Section 9.14 Sale of Properties. The Borrower will not, and will not permit any Subsidiary to, sell, assign, convey or otherwise transfer any Property; except that the Borrower and any Subsidiary: (a) may sell or otherwise dispose of any Property which, in the reasonable judgment of such Person, is obsolete, worn out or otherwise no longer useful in the conduct of such Person's business; (b) may sell or lease inventory or equipment to their respective customers in the ordinary course of business; and (c) may dispose of Property necessary to effectuate Operating Equipment Lease Facilities otherwise permitted hereby; provided, however, 100% of the net proceeds received in connection with any such disposition shall be used to prepay the outstanding principal balance (if any) of the Equipment Loans on a dollar for dollar basis. Section 9.15 Environmental Matters. Neither the Borrower nor any Subsidiary will cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any remedial obligations under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations would have a Material Adverse Effect. Section 9.16 Transactions with Affiliates. Except for certain transition service agreements entered into in conjunction with the WGCS Merger on or prior to the Closing Date and disclosed to the Administrative Agent and the Lenders on Schedule 9.16, neither the Borrower nor any Subsidiary will enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate -64- 70 unless such transactions are otherwise permitted under this Agreement, are in the ordinary course of its business and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. Section 9.17 Subsidiaries. The Borrower shall not, and shall not permit any Subsidiary to, create any additional Subsidiaries except for (a) Subsidiaries formed in connection with Operating Equipment Lease Facilities permitted hereunder, (b) Subsidiaries resulting from the WCG mergers or from future mergers or acquisitions permitted hereunder and (c) new Subsidiaries created by the Borrower in compliance with Section 9.03. Upon the creation of any new Subsidiaries, the stock thereof shall be pledged as collateral for this Agreement (subject to the 65% limitation for first-tier Foreign Subsidiaries). Section 9.18 Negative Pledge Agreements. Neither the Borrower nor any Subsidiary will create, incur, assume or permit to exist any contract, agreement or understanding (other than this Agreement and the Security Instruments) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property as may be required in connection with this Agreement or restricts any Subsidiary from paying dividends to the Borrower, or which requires the consent of or notice to other Persons in connection therewith, except for any such contract, agreement or understanding entered into in connection with an Operating Equipment Lease Facility or otherwise existing as of the Closing Date. ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 10.01 Events of Default. One or more of the following events shall constitute an "Event of Default": (a) the Borrower shall default in the payment or prepayment when due of any principal of or interest on any Loan, or any reimbursement obligation for a disbursement made under any Letter of Credit, or any fees or other amount payable by it hereunder or under any Security Instrument and such default, other than a default of a payment or prepayment of principal (which shall have no cure period), shall continue unremedied for a period of 5 Business Days; or (b) the Borrower or any Subsidiary shall default in the payment when due of any principal of or interest on any of its other Debt aggregating $20,000,000 or more, or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Debt shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Debt (or a trustee or Administrative Agent on behalf of such holder or holders) to cause, such Debt to become due prior to its stated maturity; or -65- 71 (c) any representation, warranty or certification made or deemed made herein or in any Security Instrument by the Borrower or any Subsidiary, or any certificate furnished to any Lender or the Administrative Agent pursuant to the provisions hereof or any Security Instrument, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) the Borrower shall default in the performance of any of its obligations under Article IX or any other Article of this Agreement other than under Article VIII; or the Borrower shall default in the performance of any of its obligations under Article VIII or any Security Instrument (other than the payment of amounts due which shall be governed by Section 10.01(a)) and such default shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) notice thereof to the Borrower by the Administrative Agent or any Lender (through the Administrative Agent), or (ii) the Borrower otherwise becoming aware of such default; or (e) the Borrower shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) the Borrower shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, liquidation or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Federal Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) a proceeding or case shall be commenced, without the application or consent of the Borrower, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Borrower of all or any substantial part of its assets, or (iii) similar relief in respect of the Borrower under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 days; or (iv) an order for relief against the Borrower shall be entered in an involuntary case under the Federal Bankruptcy Code; or (h) a judgment or judgments for the payment of money in excess of insurance coverage which causes, or could reasonably be expected to cause a Material Adverse Effect, shall be rendered by a court against the Borrower or any Subsidiary and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within thirty (30) days from the date of entry thereof and the Borrower or -66- 72 such Subsidiary shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) the Loan Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid, binding and enforceable in accordance with their terms, or, with respect to the Security Instruments, shall cease to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or the Borrower shall so state in writing; or (j) the Borrower and its Domestic Subsidiaries shall fail to collectively own gas compression equipment assets (free and clear of any Liens except Excepted Liens and Liens securing Indebtedness) having a combined fair market value in excess of $125,000,000; or (k) an event having a Material Adverse Effect shall occur; or (l) Holdings takes, suffers or permits to exist any of the events or conditions referred to in paragraphs (e), (f), (g) or (h) or if any provision of any Loan Document to which Holdings is a party shall for any reason cease to be valid and binding on Holdings or if Holdings shall so state in writing, or if a default occurs and is continuing beyond any applicable notice and cure period under any Loan Document to which Holdings is a party; or (m) any Subsidiary takes, suffers or permits to exist any of the events or conditions referred to in paragraphs (e), (f), (g) or (h); or (n) a Change of Control shall occur. Section 10.02 Remedies. (a) In the case of an Event of Default other than one referred to in clauses (e), (f) or (g) of Section 10.01 or in clauses (m) and (n) to the extent they relate to clauses (e), (f) or (g), the Administrative Agent, upon request of the Majority Lenders, shall, by notice to the Borrower, cancel the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.10(b)) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower. (b) In the case of the occurrence of an Event of Default referred to in clauses (e), (f) or (g) of Section 10.01 or in clauses (m) and (n) to the extent they relate to clauses (e), (f) or (g), the Commitments shall be automatically canceled and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the -67- 73 Borrower hereunder and under the Notes (including without limitation the payment of cash collateral to secure the LC Exposure as provided in Section 2.10(b)) shall become automatically immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Borrower. (c) All proceeds received after maturity of the Notes, whether by acceleration or otherwise shall be applied first to reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments; second to accrued interest on the Notes; third to fees; fourth pro rata to principal outstanding on the Notes and other Indebtedness; fifth to serve as cash collateral to be held by the Administrative Agent to secure the LC Exposure; and any excess shall be paid to the Borrower or as otherwise required by any Governmental Requirement. (d) Hedging Agreements between the Borrower and any of its Subsidiaries and the Administrative Agent or a Lender and/or any Lender Affiliate are secured by the Security Instruments pari passu with all other Indebtedness. As such, proceeds from Security Instruments shall be shared pro rata on all Indebtedness. All proceeds received after maturity of the Notes, whether by acceleration or otherwise, shall be applied first to reimbursement of expenses provided for in the Security Instruments; next, all such proceeds shall be split pro rata between the Hedging Agreements (which form part of the Indebtedness) on the one hand and all other Indebtedness pursuant to this Agreement on the other hand. Thereafter, all such proceeds applicable to the Notes and other obligations under this Agreement shall be applied, first to reimbursement of expenses and indemnities provided for in this Agreement; second to accrued interest on the Notes; third to fees; fourth pro rata to principal outstanding on the Notes and other Indebtedness; fifth to serve as cash collateral to be held by the Agent to secure the LC Exposure; and any excess shall be paid to the Borrower or as otherwise required by any Governmental Requirement. (e) Acceleration and termination of all Hedging Agreements involving the Administrative Agent or Lenders or the Lender Affiliates shall be governed by the terms of the Hedging Agreements. ARTICLE XI THE ADMINISTRATIVE AGENT Section 11.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Administrative Agent to act as its Administrative Agent hereunder and under the Security Instruments with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and the Security Instruments, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 shall include reference to its Affiliates and its and its Affiliates' officers, directors, employees, -68- 74 attorneys, accountants, experts and Administrative Agents): (i) shall have no duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of the Loan Documents be a trustee or fiduciary for any Lender; (ii) makes no representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, effectiveness, legality, enforceability or sufficiency of this Agreement, any Note or any other document referred to or provided for herein or for any failure by the Borrower or any other Person (other than the Administrative Agent) to perform any of its obligations hereunder or thereunder or for the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower, its Subsidiaries or any other obligor or guarantor; (iii) except pursuant to Section 11.07 shall not be required to initiate or conduct any litigation or collection proceedings hereunder; and (iv) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith including its own ordinary negligence, except for its own gross negligence or willful misconduct. The Administrative Agent may employ Administrative Agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such Administrative Agents, accountants, attorneys or experts selected by it in good faith or any action taken or omitted to be taken in good faith by it in accordance with the advice of such Administrative Agents, accountants, attorneys or experts. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent. The Administrative Agent is authorized to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. Section 11.02 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent. Section 11.03 Defaults. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans or of fees or failure to reimburse for Letter of Credit drawings) unless the Administrative Agent has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a "Notice of Default." In the event that the Administrative Agent receives such a notice of the occurrence of a Default, the Administrative Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default, the Administrative Agent shall give each Lender prompt notice of each such payment Default. Section 11.04 Rights as a Lender. With respect to its Commitments and the Loans made by it and its participation in the issuance of Letters of Credit, FUNB (and any -69- 75 successor acting as Administrative Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. FUNB (and any successor acting as Administrative Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Administrative Agent, and FUNB and its Affiliates may accept fees and other consideration from the Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT AND THE ISSUING BANK RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE SHARES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE BORROWER UNDER SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT OR THE ISSUING BANK IN ANY WAY RELATING TO OR ARISING OUT OF: (I) THIS AGREEMENT, THE SECURITY INSTRUMENTS OR ANY OTHER DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT, ANY SECURITY INSTRUMENT OR OF ANY SUCH OTHER DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE ADMINISTRATIVE AGENT OR THE ISSUING BANK, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ADMINISTRATIVE AGENT. Section 11.06 Non-Reliance on Administrative Agent and other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and its decision to enter into this Agreement, and that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of this Agreement, the Notes, the Security Instruments or any other document referred to or provided for herein or to inspect the properties or books of the Borrower. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any -70- 76 Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Administrative Agent or any of its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as special counsel to the Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. Section 11.07 Action by Administrative Agent. Except for action or other matters expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (i) receive written instructions from the Majority Lenders (or all of the Lenders as expressly required by Section 12.04) specifying the action to be taken, and (ii) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions of the Majority Lenders (or all of the Lenders as expressly required by Section 12.04) and any action taken or failure to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders. If a Default has occurred and is continuing, the Administrative Agent shall take such action with respect to such Default as shall be directed by the Majority Lenders (or all of the Lenders as required by Section 12.04) in the written instructions (with indemnities) described in this Section 11.07, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement and the Security Instruments or applicable law. Section 11.08 Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower, and the Administrative Agent may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Upon the acceptance of such appointment hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article XI and Section 12.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. -71- 77 ARTICLE XII MISCELLANEOUS Section 12.01 Waiver. No failure on the part of the Administrative Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. Section 12.02 Notices. All notices and other communications provided for herein and in the other Loan Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement or the other Loan Documents) shall be given or made by telex, telecopy, courier or U.S. Mail or in writing and telexed, telecopied, mailed or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof or in the Loan Documents, except that for notices and other communications to the Administrative Agent other than payment of money, the Borrower need only send such notices and communications to the Administrative Agent care of the Houston address of FUNB; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement or in the other Loan Documents, all such communications shall be deemed to have been duly given when transmitted, if transmitted before 1:00 p.m. local time on a Business Day (otherwise on the next succeeding Business Day) by telex or telecopier and evidence or confirmation of receipt is obtained, or personally delivered or, in the case of a mailed notice, three (3) Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid. Section 12.03 Payment of Expenses, Indemnities, etc. (a) The Borrower agrees: (i) whether or not the transactions hereby contemplated are consummated, to pay all reasonable expenses of the Administrative Agent in the administration (both before and after the execution hereof and including advice of counsel as to the rights and duties of the Administrative Agent and the Lenders with respect thereto) of, and in connection with the negotiation, syndication, investigation, preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto (including, without limitation, travel, photocopy, mailing, courier, telephone and other similar expenses of the Administrative Agent, the cost of environmental audits, surveys and appraisals at reasonable intervals, the -72- 78 reasonable fees and disbursements of counsel and other outside consultants for the Administrative Agent and, in the case of enforcement, the reasonable fees and disbursements of counsel for the Administrative Agent and any of the Lenders); and promptly reimburse the Administrative Agent for all amounts expended, advanced or incurred by the Administrative Agent or the Lenders to satisfy any obligation of the Borrower under this Agreement or any Security Instrument, including without limitation, all costs and expenses of foreclosure; (ii) TO INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, ADMINISTRATIVE AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS OF ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES, (IV) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY SECURITY INSTRUMENT OR THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE BORROWER OR HOLDINGS SET FORTH IN ANY OF THE LOAN DOCUMENTS, (VI) THE ISSUANCE, EXECUTION AND DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER ANY LETTER OF CREDIT, (VII) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S), (VIII) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS OR (IX) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE ADMINISTRATIVE AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE ADMINISTRATIVE AGENT OR LENDER OR BY REASON OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY; AND (iii) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST -73- 79 RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS; PROVIDED, HOWEVER, NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 12.03(A)(III) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR OTHERWISE). (b) No Indemnified Party may settle any claim to be indemnified without the consent of the indemnitor, such consent not to be unreasonably withheld; provided, that the indemnitor may not reasonably withhold consent to any settlement that an Indemnified Party proposes, if the indemnitor does not have the financial ability to pay all its obligations outstanding and asserted against the indemnitor at that time, including the maximum potential claims against the Indemnified Party to be indemnified pursuant to this Section 12.03. (c) In the case of any indemnification hereunder, the Administrative Agent or Lender, as appropriate shall give notice to the Borrower of any such claim or demand being made against the Indemnified Party and the Borrower shall have the non-exclusive right to join in the defense against any such claim or demand provided that if the Borrower provides a defense, the Indemnified Party shall bear its own cost of defense unless there is a conflict between the Borrower and such Indemnified Party. (d) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND -74- 80 TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE INDEMNIFIED PARTY. (e) The Borrower's obligations under this Section 12.03 shall survive any termination of this Agreement and the payment of the Notes and shall continue thereafter in full force and effect. (f) The Borrower shall pay any amounts due under this Section 12.03 within thirty (30) days of the receipt by the Borrower of notice of the amount due. Section 12.04 Amendments, Etc. Any provision of this Agreement or any Security Instrument may be amended, modified or waived with the Borrower's and the Majority Lenders' prior written consent; provided that (i) no amendment, modification or waiver which extends the final maturity of the Loans, increases the Aggregate Maximum Revolving Credit Amounts, forgives the principal amount of any Indebtedness outstanding under this Agreement, releases any guarantor of the Indebtedness or releases all or substantially all of the collateral, reduces the interest rate applicable to the Loans or the fees payable to the Lenders generally, extends any Letter of Credit beyond its stated termination, affects Section 2.03(a), this Section 12.04 or Section 12.06(a) or modifies the definition of "Majority Lenders" shall be effective without consent of all Lenders; (ii) no amendment, modification or waiver which increases the Maximum Revolving Credit Amount of any Lender shall be effective without the consent of such Lender; and (iii) no amendment, modification or waiver which modifies the rights, duties or obligations of the Administrative Agent shall be effective without the consent of the Administrative Agent. Section 12.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 12.06 Assignments and Participations. (a) The Borrower may not assign its rights or obligations hereunder or under the Notes or any Letters of Credit without the prior consent of all of the Lenders and the Administrative Agent. (b) Any Lender may, upon the written consent of the Administrative Agent and the Borrower, which consent shall not be unreasonably withheld, assign to one or more assignees all or a portion of its rights and obligations under this Agreement pursuant to an Assignment Agreement substantially in the form of Exhibit E (an "Assignment"); provided, however, that (i) any such assignment shall be in the amount of at least $5,000,000 or such lesser amount to which the Borrower has consented; (ii) the assignee or assignor shall pay to the Administrative Agent a processing and recordation fee of $3,500 for each assignment; and (iii) Borrower's consent shall not be required if an event of Default has occurred and is continuing. Any such assignment will become effective upon the execution and delivery to the -75- 81 Administrative Agent of the Assignment and the consent of the Administrative Agent, which consent shall not be unreasonably withheld. Promptly after receipt of an executed Assignment, the Administrative Agent shall send to the Borrower a copy of such executed Assignment. Upon receipt of such executed Assignment, the Borrower, will, at its own expense, execute and deliver new Notes to the assignor and/or assignee, as appropriate, in accordance with their respective interests as they appear. Upon the effectiveness of any assignment pursuant to this Section 12.06(b), the assignee will become a "Lender," if not already a "Lender," for all purposes of this Agreement and the Security Instruments. The assignor shall be relieved of its obligations hereunder to the extent of such assignment (and if the assigning Lender no longer holds any rights or obligations under this Agreement, such assigning Lender shall cease to be a "Lender" hereunder except that its rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not be affected). The Administrative Agent will prepare on the last Business Day of each month during which an assignment has become effective pursuant to this Section 12.06(b), a new Annex I giving effect to all such assignments effected during such month, and will promptly provide the same to the Borrower and each of the Lenders. (c) Each Lender may transfer, grant or assign participations in all or any part of such Lender's interests hereunder pursuant to this Section 12.06(c) to any Person, provided that: (i) such Lender shall remain a "Lender" for all purposes of this Agreement and the transferee of such participation shall not constitute a "Lender" hereunder; and (ii) no participant under any such participation shall have rights to approve any amendment to or waiver of any of the Loan Documents except to the extent such amendment or waiver would (x) forgive any principal owing on any Indebtedness or extend the final maturity of the Loans, (y) reduce the interest rate (other than as a result of waiving the applicability of any post-default increases in interest rates) or fees applicable to any of the Commitments or Loans or Letters of Credit in which such participant is participating, or postpone the payment of any thereof, or (z) release any guarantor of the Indebtedness or release all or substantially all of the collateral (except as provided in the Loan Documents) supporting any of the Commitments or Loans or Letters of Credit in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the Security Instruments (the participant's rights against the granting Lender in respect of such participation to be those set forth in the agreement with such Lender creating such participation); provided, however, participants consent shall be necessary with respect to any amendments which (i) extends the final maturity of the Loans, (ii) increases the Aggregate Maximum Revolving Credit Amounts, (iii) reduces the interest rate applicable to the Loans or the fees payable to the Lenders generally, (iv) modifies the definition of "Majority Lenders", (v) extends any Letter of Credit beyond its stated termination or (vi) releases all or substantially all of the Collateral and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, provided that such participant shall be entitled to receive additional amounts under Article V on the same basis as if it were a Lender and be indemnified under Section 12.03 as if it were a Lender. In addition, each agreement creating any participation must include an agreement by the participant to be bound by the provisions of Section 12.15. (d) The Lenders may furnish any information concerning the Borrower in the possession of the Lenders from time to time to assignees and participants (including prospective -76- 82 assignees and participants); provided that, such Persons agree to be bound by the provisions of Section 12.15. (e) Notwithstanding anything in this Section 12.06 to the contrary, any Lender may assign and pledge its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve System and/or such Federal Reserve Bank. No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder. (f) Notwithstanding any other provisions of this Section 12.06, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any state. Section 12.07 Invalidity. In the event that any one or more of the provisions contained in any of the Loan Documents or the Letters of Credit, shall, for any reason, be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of the Notes, this Agreement or any Security Instrument. Section 12.08 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. Section 12.09 References. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular article, section or subsection. Any reference herein to a Section shall be deemed to refer to the applicable Section of this Agreement unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein. Section 12.10 Survival. The obligations of the parties under Section 4.06, Article V, and Sections 11.05 and 12.03 shall survive the repayment of the Loans and the termination of the Commitments. To the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent's and the Lenders' Liens, security interests, rights, powers and remedies under this Agreement and each Security Instrument shall continue in full force and effect. In such event, each Security Instrument shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Administrative Agent and the Lenders to effect such reinstatement. -77- 83 Section 12.11 Captions. Captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. CH. 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE THE ADMINISTRATIVE AGENT OR ANY LENDER FROM OBTAINING JURISDICTION OVER THE BORROWER IN ANY COURT OTHERWISE HAVING JURISDICTION. (c) THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT CORPORATION SYSTEM, INC., LOCATED AT 1021 MAIN STREET, SUITE 1150, HOUSTON, TEXAS 77002, AS THE DESIGNEE, APPOINTEE AND ADMINISTRATIVE AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER, SERVICE OF PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A COPY OF SUCH PROCESS SERVED ON SUCH ADMINISTRATIVE AGENT WILL BE PROMPTLY FORWARDED BY OVERNIGHT COURIER TO THE BORROWER AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE OF -78- 84 THE BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. (d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION. (e) THE BORROWER AND EACH LENDER HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY SECURITY INSTRUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (III) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OF ADMINISTRATIVE AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE SECURITY INSTRUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.13. Section 12.14 Interest. It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such -79- 85 consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Indebtedness (or, to the extent that the principal amount of the Indebtedness shall have been or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the full term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.14 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.14. To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the Highest Lawful Rate, such Lender elects to determine the applicable rate ceiling under such Chapter by the indicated weekly rate ceiling from time to time in effect. Section 12.15 Confidentiality. For the purposes of this Section 12.15, "Confidential Information" means information about the Borrower furnished by the Borrower or its Affiliates (collectively, the "Disclosing Parties") to the Administrative Agent or any of the Lenders, including, but not limited to, any actual or pending agreement, business plans, ecological data and accounting records, financial statements, or other financial data of any kind, any title documents, reports or other information relating to matters of title, any projects or plans, whether actual or prospective, and any other documents or items embodying any such Confidential Information; provided that such term does not include information that (a) was publicly known or otherwise known prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by the Administrative Agent or the Lenders or any Person acting on behalf thereof, (c) otherwise becomes known to the Administrative Agent or Lenders other than through disclosure by the Disclosing Parties or (d) constitutes financial statements delivered to the Administrative Agent and the Lenders under Section 8.01(a) that are otherwise publicly available. The Administrative Agent and the Lenders will maintain the confidentiality of such Confidential Information delivered to such Person, provided that each such Person (a "Restricted Person") may deliver or disclose Confidential Information to such Restricted Person's directors, officers, employees, agents, attorneys and affiliates, who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 12.15, (iii) such Restricted Person's financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially -80- 86 in accordance with the terms of this Section 12.15, (iv) any other Lender, (v) any assignee to which such Restricted Person sells or offers to sell its Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 12.15), (vi) any Person from which such Restricted Person offers to purchase any security of the Borrower (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 12.15), (vii) any Governmental Authority having jurisdiction over such Restricted Person, (viii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about such Restricted Person's investment portfolio, or (ix) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any Governmental Requirement applicable to such Restricted Person, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which such Restricted Person is a party or (z) if an Event of Default has occurred and is continuing, to the extent such Restricted Person may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of its rights and remedies under the Notes and this Agreement. Each Lender, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 12.15 as though it were a party to this Agreement. On reasonable request by the Borrower in connection with the delivery to any Lender of information required to be delivered to such Lender under this Agreement or requested by such Lender (other than a Lender that is a party to this Agreement or its nominee), such Lender will enter into an agreement with the Borrower embodying the provisions of this Section 12.15. The Borrower waives (on its own behalf and on behalf of its Subsidiaries) any and all other rights it (or its Subsidiaries) may have to confidentiality as against the Administrative Agent and the Lenders arising by or under any contract, agreement, statute or law except as expressly stated in this Section 12.15. Section 12.16 Effectiveness. This Agreement shall be effective on the Closing Date (the "Effective Date"). Section 12.17 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE SECURITY INSTRUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE SECURITY INSTRUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS." -81- 87 Section 12.18 Hedging Agreements. Notwithstanding anything to the contrary contained herein, the terms and provisions of this Agreement shall not apply to any Hedging Agreements, except to the extent necessary for all Hedging Agreements with Lenders and/or their Affiliates to be secured by the Security Instruments on a pari passu basis with other Indebtedness and for the proceeds from the Security Instruments to be applied as set forth in Section 10.02(c) hereof. -82- 88 The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. BORROWER: UNIVERSAL COMPRESSION, INC. By: /s/ RICHARD W. FITZGERALD --------------------------------- Name: Richard W. FitzGerald Title: Senior Vice President Address for Notices: 4440 Brittmoore Road Houston, Texas 77041 Telecopier No.: (713) 466-6720 Telephone No.: (713) 335-7000 Attention: President Copy to: General Counsel Copy to: Carol M. Burke Gardere Wynne Sewell LLP 1000 Louisiana, Suite 3400 Houston, Texas 77002 Telecopier No.: (713) 276-6561 Telephone No.: (713) 276-5561 89 LENDER AND Administrative Agent: FIRST UNION NATIONAL BANK, Individually and as Administrative Agent By: /s/ DAVID HUMPHREYS -------------------------------------- Name: David Humphreys Title: Vice President Lending Office for Base Rate Loans and LIBOR Loans: 201 South College Street 23rd Floor NC 0680 Charlotte, North Carolina 28288 Telecopier No.: (704) 383-0288 Address for Notices: 201 South College Street 23rd Floor NC 0680 Charlotte, North Carolina 28288 Attention: Syndication Agency Services Telecopier No.: (704) 383-0288 With copy to: First Union Securities, Inc. 1001 Fannin, Suite 2255 Houston, Texas 77002 Attention: David Humphreys Telecopier No.: (713) 650-1071 90 LENDERS: BANK ONE, NA (Main Office Chicago), Individually and as Syndication Agent By: /s/ J. CHARLES FREEL, JR. ---------------------------------- Name: J. Charles Freel, Jr. Title: First Vice President Lending Office for Base Rate Loans: 1 Bank One Plaza 0634, IFNP, 10 Chicago, IL 60670 Lending Office for LIBOR Loans: 1 Bank One Plaza IL 1 0634 Chicago, IL 60670 Address for Notices: 201 St. Charles Ave. 28th Floor New Orleans, LA 70170 Attention: Anthony Restel Telecopier No.: (504) 623-6555 With copy to: 1 Bank One Plaza 0634, IFNP, 10 Chicago, IL 60670 Attention: Brenda De Los Reyes Telecopier No.: (312) 732-4840 91 LENDERS: NATIONAL WESTMINSTER BANK PLC NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH By: /s/ KEVIN J. HOWARD --------------------------------- Name: Kevin J. Howard Title: Managing Director NATIONAL WESTMINSTER BANK PLC, NASSAU BRANCH By: /s/ KEVIN J. HOWARD --------------------------------- Name: Kevin J. Howard Title: Managing Director Lending Office for Base Rate Loans and LIBOR Loans: 65 East 55th Street 21st Floor New York, New York 10022 Telecopier No.: (212) 401-1494 Address for Notices: 65 East 55th Street 21st Floor New York, New York 10022 Attention: Sheila Shaw Telecopier No.: (212) 401-1494 With copy to: 600 Travis Suite 6070 Houston, Texas 77002 Attention: Scott Barton Telecopier No.: (713) 221-2430 92 LENDERS: THE BANK OF NOVA SCOTIA By: /s/ M.D. SMITH --------------------------------- Name: M.D. Smith Title: Agent Lending Office for Base Rate Loans and LIBOR Loans: The Bank of Nova Scotia, Atlanta Agency 600 Peachtree Street N.E. Suite 2700 Atlanta, Georgia 30308 Telecopier No.: (404) 888-8998 Address for Notices: The Bank of Nova Scotia, Atlanta Agency 600 Peachtree Street N.E. Suite 2700 Atlanta, Georgia 30308 Attention: Donna Gardner Telecopier No.: (404) 888-8998 With copy to: The Bank of Nova Scotia Houston Representative Office 1100 Louisiana, Suite 3000 Houston, Texas 77002 Attention: Jean-Paul Purdy Telecopier No. (713) 752-2425 93 LENDERS: BANKERS TRUST COMPANY By: /s/ MARCUS M. TARKINGTON --------------------------------- Name: Marcus M. Tarkington Title: Director Lending Office for Base Rate Loans and LIBOR Loans: 130 Liberty 14th Floor New York, New York 10006 Telecopier No.: (212) 250-7351 Address for Notices: 130 Liberty 14th Floor New York, New York 10006 Attention: J. TARACHAND -------------------------- Telecopier No.: (212) 250-7351 With copy to: 130 Liberty 34th Floor New York, New York 10006 Attention: MARCUS M. TARKINGTON -------------------------- Telecopier No.: (212) 250-8693 94 ANNEX I MAXIMUM REVOLVING CREDIT AMOUNTS AND PERCENTAGE SHARE
PERCENTAGE SENIOR LENDER MAXIMUM COMMITMENT AMOUNT SHARE ------------- ------------------------- ---------- First Union National Bank $ 45,000,000 41% Bank One, NA (Chicago) $ 20,000,000 18% National Westminster Bank PLC $ 20,000,000 18% The Bank of Nova Scotia $ 15,000,000 14% Bankers Trust Company $ 10,000,000 9% TOTAL $110,000,000.00 100%
Annex I-1 95 EXHIBIT A FORM OF NOTE $___________________ February ___, 2001 FOR VALUE RECEIVED, UNIVERSAL COMPRESSION, INC., a Texas corporation (the "Borrower") hereby promises to pay to the order of ______________________________ (the " Lender"), at the principal office of FIRST UNION NATIONAL BANK, as Administrative Agent (the "Agent"), at 301 South College Street, Charlotte, North Carolina 28288-0608, the principal sum of ____________________________________________ Dollars ($____________) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Lender to the Borrower under the Credit Agreement, as hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. The date, amount, Type, interest rate, Interest Period and maturity of each Loan made by the Lender to the Borrower, and each payment made on account of the principal thereof, shall be recorded by the Lender on its books and, prior to any transfer of this Note, endorsed by the Lender on the scheduleS attached hereto or any continuation thereof. This Note is one of the Notes referred to in the Senior Secured Revolving Credit Agreement dated as of February 9, 2001, among the Borrower, the Lenders which are or become parties thereto (including the Lender), and the Agent (as the same may be amended or supplemented from time to time, the "Credit Agreement"), and evidences Loans made by the Lender thereunder. Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. This Note is issued pursuant to the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the Security Instruments. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events, for prepayments of Loans upon the terms and conditions specified therein and other provisions relevant to this Note. Notwithstanding the provisions of this Note, in no event shall the interest payable hereon, whether before or after maturity, exceed the maximum amount of interest which, under applicable Law, may be contracted for, charged, or received on this Note, and this Note is expressly made subject to the provisions of the Credit Agreement which more fully set out the limitations on how interest accrues hereon. In the event applicable law provides for an interest Exhibit A-2 96 ceiling under Chapter 303 of the Texas Finance Code (the "Texas Finance Code") as amended, for that day, the ceiling shall be the "weekly ceiling" as defined in the Texas Finance Code and shall be used in this Note for calculating the Highest Lawful Rate and for all other purposes. The term "applicable law" as used in this Note shall mean the laws of the State of Texas or the laws of the United States, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. UNIVERSAL COMPRESSION, INC. By: Name: Title: Exhibit A-3 EX-10.10 13 h84315ex10-10.txt MANAGEMENT AGREEMENT - DATED 2/9/2001 1 EXHIBIT 10.10 MANAGEMENT AGREEMENT UNIVERSAL COMPRESSION, INC., AS MANAGER AND UCO COMPRESSION LLC, AS AN OWNER AND BRL UNIVERSAL COMPRESSION FUNDING I, L.P. AS AN OWNER FEBRUARY 9, 2001 ALL RIGHTS, TITLE AND INTEREST IN AND TO THIS AGREEMENT ON THE PART OF UCO COMPRESSION LLC AND BRL UNIVERSAL COMPRESSION FUNDING I L.P. HAVE BEEN ASSIGNED TO AND ARE SUBJECT TO A SECURITY INTEREST IN FAVOR OF WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, AS INDENTURE TRUSTEE, UNDER AN INDENTURE, DATED AS OF FEBRUARY 9, 2001, FOR THE BENEFIT OF THE PERSONS REFERRED TO THEREIN. 2 MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT, dated as of February 9, 2001 (as amended, modified or supplemented from time to time in accordance with the terms hereof, this "Agreement") is entered into among UCO Compression LLC, a limited liability company formed under the laws of the state of Delaware whose principal office is at 4440 Brittmoore Road, Houston, Texas (together with its successors and permitted assigns, the "Head Lessee" ), BRL UNIVERSAL COMPRESSION FUNDING I, L.P., a limited partnership organized under the laws of the State of Delaware (together with its successors and assigns, the "Head Lessor"; collectively, with the Head Lessee, the "Owner"), and UNIVERSAL COMPRESSION, INC., a corporation organized under the laws of the state of Delaware whose principal office is at 4440 Brittmoore Road, Houston, Texas (together with its successors and permitted assigns, the "Manager" or "UCI" or "Universal"). RECITALS WHEREAS, the Owner is the owner of, or otherwise entitled to the use of, the Owner Compressors (as defined below); and WHEREAS, the Manager is in the business of leasing Compressors to various Users thereof; WHEREAS, the Head Lessor has leased all of its Compressors to the Head Lessee pursuant to that certain Master Equipment Lease Agreement between Head Lessor and Head Lessee dated as of February 9, 2001; WHEREAS, the Head Lessee (and, to the extent any Compressors are returned to Head Lessor, the Head Lessor) and the Manager desire to enter into a contract pursuant to which the Manager will operate and sublease to Users (as defined below), the Owner Compressors (as defined below); NOW, THEREFORE, in consideration of the premises and mutual representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: 1. DEFINITIONS Capitalized terms used in this Agreement not otherwise defined herein shall have the meaning assigned to such terms in the Indenture, dated as of February 9, 2001 (the "Indenture"), between the Issuer and Wells Fargo Bank Minnesota, National Association, as indenture trustee (the "Indenture Trustee"); otherwise, terms defined herein shall have the following meanings, and the definitions of such terms shall be equally applicable to the singular and plural forms of such terms: "ACCOUNT" shall mean the Head Lessee Collection Account as defined in the Head Lessee Security Agreement. "ACCOUNTANT'S REPORT" shall have the meaning set forth in Section 9.1(j) hereof. "ADDITIONAL INSURED" shall have the meaning set forth in Section 5.7(b) hereof. 3 "AFFILIATE" shall have the meaning set forth in Section 101 of the Indenture. "ANNUAL APPRAISAL DATE" shall have the meaning set forth in Section 1 of the Head Lease. "APPLICABLE LAW" shall have the meaning set forth in Section 101 of the Indenture. "APPRAISAL" shall have the meaning set forth in Section 101 of the Indenture. "APPRAISED VALUE" shall have the meaning set forth in Section 101 of the Indenture. "ASSET BASE CERTIFICATE" shall have the meaning set forth in Section 101 of the Indenture. "AVAILABLE HEAD LESSEE COLLECTIONS" shall have the meaning set forth in Section 1 of the Head Lessee Security Agreement. "AVERAGE RENTAL RATE" means, for any calendar month, the quotient obtained by dividing (x) the aggregate gross rentals actually billed during such month relating to the Owner Compressors or the Other UCI Compressors, as the case may be, that were actually on lease during such calendar month, by (y) the aggregate number of horsepower represented by the Owner Compressors or the Other UCI Compressors, as the case may be that were actually on lease during such calendar month. "BACK-UP MANAGEMENT AGREEMENT" shall have the meaning set forth in Section 101 of the Indenture. "BACK-UP MANAGER" means the Person appointed to serve as back-up manager pursuant to the Back-up Management Agreement. "BACK-UP MANAGER FEE" means the amount to be set forth in a separate letter agreement between the Manager, the Owners and the Back-up Manager upon appointment of such Back-up Manager; provided however, that the amount of such Back-up Manager Fee must be approved in writing by the Deal Agent. "BUSINESS DAY" shall have the meaning set forth in Section 101 of the Indenture. "CASUALTY LOSS" shall have the meaning set forth in Section 101 of the Indenture. "CASUALTY PROCEEDS" shall mean the net proceeds received by, or on behalf of, the Owner as a result of a Casualty Loss with respect to any Compressor, whether derived from insurance payments, payments from Users of such Compressor, or otherwise. "CERTIFICATES" shall have the meaning set forth in Section 101 of the Indenture. "CHANGE OF CONTROL" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions, but other than by the granting of a Lien in accordance with the Head Lessee Security Agreement) of all or substantially all of the assets of UCI and its Subsidiaries, taken as a whole, to any Person or "Group" -2- 4 (as defined in Section 13(d)(3) of the Exchange Act) (whether or not otherwise in compliance with the provisions of the Head Lease) other than to the Permitted Holders; (ii) the approval by the holders of capital stock of UCI of any plan or proposal for the liquidation or dissolution of UCI; (iii) any Person or "group" within the meaning of Section 13(d) of the exchange Act (other than the Permitted Holders and UCH) shall become the "beneficial owner" as defined in Rule 13d-3 under the Exchange Act, of shares representing more than 50% of the aggregate voting power represented by the capital stock of UCI; or (iv) the replacement of a majority of the Board of Directors of UCI or UCH over a two-year period from the directors who constituted the Board of Directors of UCI or UCH, as the case may be, at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of UCI or UCH, as the case may be, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved. "CLOSING DATE" shall have the meaning set forth in Section 101 of the Indenture. "COLLECTION PERIOD" shall have the meaning set forth in Section 101 of the Indenture. "COMPRESSOR" shall have the meaning set forth in Section 101 of the Indenture. "COMPRESSOR TERMINATION EVENT" shall have the meaning set forth in Section 3.3 hereof. "CONCENTRATION LIMITS" shall have the meaning set forth in Section 1.01 of the Contribution Agreement. "CREDIT AND COLLECTION POLICY" means the credit and collection policy of Universal specified in Exhibit C attached hereto. "DEAL AGENT" means First Union Securities, Inc. "DETERMINATION DATE" shall have the meaning set forth in Section 101 of the Indenture. "DOLLARS" shall have the meaning set forth in Section 101 of the Indenture. "EFFECTIVE DATE" shall have the meaning set forth in Section 101 of the Indenture. "ENTITLED PARTY" shall have the meaning set forth in the Head Lessee Security Agreement. "EXCESS OPERATIONS EXPENSE" shall have the meaning given such term within the definition of "Operation Fee" in this Agreement. "EXCESS S&A EXPENSES" shall have the meaning given such term within the definition of "S&A Fee" in this Agreement. "GAAP" shall have the meaning set forth in Section 101 of the Indenture. "GOVERNMENTAL AUTHORITY" shall have the meaning set forth in Section 101 of the Indenture. -3- 5 "GROSS COMPRESSOR REVENUES" shall have the meaning set forth in Section 101 of the Indenture. "HEAD LEASE" means the Master Equipment Lease Agreement, dated as of February 9, 2001, between the Head Lessor and the Head Lessee, as such agreement may be amended, modified or supplement from time to time in accordance with its terms. "HEAD LESSEE COLLECTION ACCOUNT" has the meaning assigned to the term in the Head Lessee Security Agreement. "HEAD LESSEE COLLECTIONS" shall have the meaning assigned to the term in Section 1 of the Head Lease. "HEAD LESSEE COMPRESSORS" means all Compressors owned by the Head Lessee, whether now owned or hereafter acquired. "HEAD LESSOR COMPRESSORS" shall have the meaning set forth in Section 101 of the Indenture. "HEAD LESSEE SECURITY AGREEMENT" means the head lessee security agreement, dated as of February 9, 2001, between the Head Lessee and the Head Lessor, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms. "IMPOSITIONS" shall have the meaning set forth in Section 5.8 of this Agreement. "INCENTIVE MANAGEMENT FEE" means for each Payment Date one of the following amounts: (1) if Universal or any of its Affiliates is then fulfilling the role of the Manager on such Payment Date, zero; or (2) if Universal or any of its Affiliates is not than fulfilling the role of the Manager, the amount designated as such to be set forth in a separate letter agreement among the Owner, Universal and the Back-up Manager, provided however, that (i) the amount of such Incentive Management Fee must be approved in writing by the Deal Agent and (ii) if the Manager shall fail to appoint a Back-up Manager in accordance with the terms of the Related Documents, then the Deal Agent may (without the need of obtaining the consent of the Owner or the Manager) establish a market based Incentive Management Fee with a Back-up Manager appointed by the Deal Agent. "INDEBTEDNESS" shall have the meaning set forth in Section 101 of the Indenture. "INDEMNIFICATION PROCEEDS" means, for any accounting period, all proceeds received by Manager from Lessees pursuant to the Leases, insurance or other sources, including amounts received from the insurance specified in Sections 9.1 and 9.2, for indemnification of liability and loss with respect to the Owner Compressors. -4- 6 "INDEMNIFIED PARTY" shall have the meaning set forth in Section 16.2 hereof. "INDENTURE" means the Indenture, dated as of February 9, 2001, between Issuer and the Indenture Trustee, as such indenture may be amended, supplemented or modified from time to time in accordance with its terms. "INDEPENDENT ACCOUNTANTS" shall have the meaning set forth in Section 101 of the Indenture. "INTEREST EXPENSE" shall have the meaning set forth in Section 1 of the Head Lessee Security Agreement. "ISSUER" shall have the meaning set forth in Section 101 of the Indenture. "LEASE" shall have the meaning set forth in Section 101 of the Indenture. "LEASE POOL" shall have the meaning set forth in Section 1 of the Head Lease. "LIABILITY INSURANCE" shall have the meaning set forth in Section 5.7 of this Agreement. "LIEN" shall have the meaning set forth in Section 101 of the Indenture. "LIEN CLAIM" shall have the meaning set forth in Section 4.2 hereof. "LIMITED PARTNERS" shall have the meaning set forth in Section 1.22 of the Partnership Agreement. "LIST OF COMPRESSORS" has the meaning set forth in Section 1.01 of the Contribution Agreement. "LOCKBOX" means a lockbox or post office box covered by a Lockbox Agreement. "LOCKBOX ACCOUNTS" means bank accounts into which Head Lessee Collections from User Leases are deposited, and any bank account that is hereafter created in accordance with, and to perform the functions contemplated for "Lockbox Accounts" in, Section 5.1 of this Agreement. "LOCKBOX AGREEMENT" means any letter agreement, substantially in the form of Exhibit D to this Agreement among a Lockbox Bank, the Manager, the Head Lessee, Head Lessor and Wells Fargo Bank Minnesota, National Association, as indenture trustee, and other parties named therein as any such letter agreement may be amended or modified from time to time in accordance with its terms. "LOCKBOX BANK" means any of the banks at which one or more Lockbox Accounts are maintained. "MANAGEMENT AGREEMENT" shall have the meaning set forth in Section 101 of the Indenture. -5- 7 "MANAGEMENT FEE" means, for any Payment Date, an amount equal to the sum of (i) the Operations Fee then due and payable, (ii) the S&A Fee then due and payable and (iii) the Reimbursable Services then due and payable. "MANAGEMENT GUARANTY" means the guaranty, dated as of February 9, 2001, executed by Universal Compression Holdings, Inc. with respect to the obligation of the Manager under this Agreement. "MANAGEMENT TERM" shall mean the term of the management, marketing, maintenance and other obligations of Manager and Owner under this Agreement with respect to the Owner Compressors, which term shall commence as of the Closing Date and continuing until terminated as provided in this Agreement. "MANAGER" shall have the meaning set forth in Section 101 of the Indenture. "MANAGER ADVANCE" has the meaning set forth in Section 8.1 hereof. "MANAGER DEFAULT" shall mean the existence of any conditions or events set forth in Section 12.1 hereof. "MANAGER MALFEASANCE" shall have the meaning set forth in Section 4.2 hereof. "MANAGER REPORT" means a written informational statement by Manager in a form attached on Exhibit A hereto. "MANDATORY ALTERATION" shall have the meaning set forth in Section 5.9 hereof. "MONTHLY LEASE PAYMENT" shall have the meaning set forth in Section 1 of the Head Lease. "MONTHLY S&A FEE RATE" shall mean four percent (4%), as such percentage may be adjusted from time to time in accordance with the provisions of Section 11.2 hereof. "MONTHLY TAPE" means an electronic data file containing the following information and any such other information as may be mutually agreed by the Owner, the Manager and the Deal Agent: (i) User name, address and telephone number, (ii) the Compressor(s) leased to such User, (including the manufacturer thereof and the related horsepower) (iii) the location of such Compressors, (iv) the monthly rental and (v) the monthly expenses for each Compressor. "MONTHLY UTILIZATION RATE" shall mean, for any calendar month a fraction (expressed as a percentage) the numerator of which is equal to the weighted average of the total number of horsepower of domestic UCI Compressors which are subject to a User Lease during such month and the denominator of which is equal to the weighted average of the total number of horsepower included in the domestic UCI Compressors during such month. "NET REVENUE" shall have the meaning set forth in Section 1 of the Head Lease. -6- 8 "NET SALES PROCEEDS" shall have the meaning set forth in Section 101 of the Indenture. "NONRECOVERABLE ADVANCE" shall have the meaning set forth in Section 8.1(b) of this Agreement. "NOTES" means as of any date of determination all of the Notes issued pursuant to the Indenture that are then Outstanding. "OPERATIONS FEE" means for any Payment Date one of the following amounts: (1) so long as Universal or any Affiliate thereof is the Manager, the UCI Operations Fee; (2) at all times not covered by clause (1) the actual operating fees actually incurred by a successor Manager in the Collection Period immediately preceding such Payment Date with respect to the Owner Compressors; provided however that, to the extent that the amount set forth in this paragraph (2) exceeds an amount equal to one hundred seventeen percent (117%) of the amount that would have otherwise been payable pursuant to paragraph (1), then the amount of such excess (the "Excess Operation Expenses") shall be paid as set forth in Section 7.2(b) of the Head Lessee Security Agreement. For all Owner Compressors that, to the best knowledge of the Manager, are then the subject of a Casualty Loss, the Operations Fee shall be equal to zero. "OPERATIONS FEE RATE" means for each Owner Compressor managed by the Manager for any calendar month the amount set forth in the following table (as such amounts may be adjusted from time to time in accordance with Section 11.3(b)) which will vary depending on the horsepower represented by such Owner Compressor and whether the Manager is required to provide the fluids for such Owner Compressor:
Operations Fee per Month Operations Fee (including per Month Compressor fluids (excluding Horsepower when not Compressor fluids per Compressor paid by User) when paid by User) --------------- ------------------- ------------------- Under 100 $10.35 $9.60 100 to 599 $5.80 $5.05 600 to 1000 $3.85 $3.10 Over 1000 $3.75 $3.00
"OPINION OF COUNSEL" shall have the meaning set forth in Section 101 of the Indenture. -7- 9 "OTHER UCI COMPRESSORS" shall mean UCI Compressors excluding the Owner Compressors. "OUTSTANDING" shall have the meaning set forth in Section 101 of the Indenture. "OVERHAUL FEE" shall mean for any Payment Date and with respect to any Owner Compressor that has undergone an overhaul during the immediately preceding calendar month, the amount set forth in Section 5.6(c) hereof. "OWNER COMPRESSORS" shall mean on the Closing Date the Compressors owned by, or leased to, the Owner and listed in Exhibit A to this Agreement, and shall mean from time to time after the Closing Date such Compressors plus any Substitute Compressors and Compressors acquired by Head Lessor or Head Lessee subsequent to the Closing Date and managed pursuant to this Agreement less any Compressors which are subject to a Compressor Termination Event. For avoidance of doubt, the term "Owner Compressors" shall encompass both the Head Lessor Compressors and the Head Lessee Compressors. "OWNER LIEN CLAIM AMOUNT" shall have the meaning set forth in Section 4.2 hereof. "PAYMENT DATE" shall have the meaning set forth in Section 101 of the Indenture. "PARTNERSHIP AGREEMENT" shall mean the First Amended and Restated Agreement of Limited Partnership of BRL Universal Compression Funding I, L.P., as such agreement may be amended, supplemented or modified from time to time in accordance with its terms. "PERMITTED HOLDER" means with respect to the Manager, any of the following: (i) any wholly-owned subsidiary of Universal Compression Holdings, Inc., Weatherford International or Castle Harlan (ii) any lineal descendant of any individual controlling shareholder, or any spouse or any adopted child of any such descendant; (iii) any trust for the benefit of any person described in clauses (ii) or (iii) and any trustee of any such trust; (iv) any legal representative of any person or trust described in clauses (ii) or (iii); or (v) any partnership, corporation, limited liability company or other entity controlling, controlled by or under common control with any person, trust or other entity described in clauses (i), (ii), (iii) or (iv). The term "control" for purposes of clause (v) shall mean the ability to influence, direct or otherwise significantly affect the major policies, activities or actions of any person or entity. "PERSON" shall have the meaning set forth in Section 101 of the Indenture. "PROPERTY INSURANCE" shall have the meaning set forth in Section 5.7 of this Agreement. "QUARTERLY TAPE" means an electronic data file containing sufficient information, including maintenance and overhaul information, for the Back-up Manager to perform all of its duties pursuant to the terms of the Related Documents. "RATING AGENCY" shall have the meaning set forth in Section 101 of the Indenture. -8- 10 "REIMBURSABLE SERVICES" has the meaning set forth in Section 11.5 hereof. "RELATED DOCUMENT" shall have the meaning set forth in Section 101 of the Indenture. "REPLACEMENT MANAGER" means any Person appointed to replace Manager as manager of the Owner Compressors pursuant to the provisions of Section 12.2. "REQUISITE GLOBAL MAJORITY" shall have the meaning set forth in Section 101 of the Indenture. "RESPONSIBLE OFFICER" with respect to the Manager, means the President, Executive Vice President, Senior Vice President or Chief Financial Officer; with respect to all other entities, this term shall have the meaning set forth in Section 101 of the Indenture. "RUN-TIME CREDIT RATIO" means for any Determination Date, a fraction (expressed as a percentage) the numerator of which is equal to the aggregate rental credits issued by the Manager to Users of the Owner Compressors during the three (3) immediately preceding calendar months and the denominator of which is the Gross Compressor Lease Revenues actually billed by the Manager with respect to the Owner Compressors subject to a User Lease during the three (3) immediately preceding calendar months. "S&A FEE" means for any Payment Date one of the following amounts: (1) if Universal or any Affiliate thereof is then fulfilling the role of the Manager, the UCI S&A Fee; or (2) if Universal or any Affiliate thereof is not then fulfilling the role of the Manager the actual selling and administrative fees actually incurred by a successor Manager in the Collection Period immediately preceding such Payment Date with respect to the Owner Compressors; provided however that, to the extent that the amount set forth in this paragraph (2) exceeds an amount equal to one hundred seventeen percent (117%) of the amount that would have otherwise been payable pursuant to numbered paragraph (1), then the amount of such excess (the "Excess S&A Expenses") shall be paid as set forth in Section 7.2(b) of the Head Lessee Security Agreement. "SECURITY" shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. "SERIES ENHANCER" shall have the meaning set forth in Section 101 of the Indenture. "SERVICES STANDARD" shall mean such efforts which are at a level of care and diligence consistent with generally accepted industry standards and which are at least equal to the efforts used by Universal with respect to the UCI Compressors. "SUPPLEMENTAL RENT" shall have the meaning set forth in Section 1 of the Head Lease. "TRIGGER EVENT" shall have the meaning set forth in Section 101 of the Indenture. "UCI COMPRESSORS" shall mean at any time the Compressors owned, managed or leased by Universal. -9- 11 "UCI MANAGED COMPRESSORS" shall mean at any time the Compressors managed by Universal. "UCI OPERATIONS FEE" shall have the meaning set forth in Section 11.3(a) hereof. "UCI S&A FEE" shall have the meaning set forth in Section 11.2(a) hereof. "UCH" shall mean Universal Compression Holdings, Inc. "USER" shall have the meaning set forth in Section 1 of the Head Lessee Security Agreement. "USER LEASE" shall have the meaning set forth in Section 1 of the Head Lessee Security Agreement. "US$ OR US DOLLARS" means the lawful currency of the United States of America. 2. APPOINTMENT OF MANAGER 2.1 Appointment. Upon the terms and conditions hereinafter provided, Owner hereby appoints Universal as the initial Manager of the Owner Compressors. In such capacity, the Manager shall be responsible for the operation, leasing and managing of the Owner Compressors on behalf of Owner. Universal hereby accepts such appointment and agrees to so manage the Owner Compressors in accordance with this Agreement. 2.2 Standard of Performance. In performing its obligations hereunder, the Manager shall exercise the same degree of skill and care with which it manages Other UCI Compressors held for its own account and, in any event, in a manner consistent with the customary practices of other managers of comparable equipment. The duties of the Manager will be limited to those expressly set forth in this Agreement and the Manager will not have any fiduciary or other implied duties or obligations to the Owner. 2.3 Conflicts of Interest. The Manager shall perform its duties and obligations under this Agreement on a fair and equitable basis. Without prejudice to the generality of the foregoing, the Manager will not discriminate between the Owner Compressors and any Other UCI Compressor on any basis which could reasonably be considered discriminatory or adverse. 2.4 Similar Services. It is expressly understood and agreed that nothing herein shall be construed to prevent, prohibit or restrict the Manager or any Affiliate of the Manager from providing the same or similar services as those provided under this Agreement to any other Person or from manufacturing, selling, owning, leasing, managing or otherwise dealing in with compressors on its or others' behalf provided that no such activity shall in any way reduce the obligations of the Manager hereunder to comply with the Services Standard. 2.5 Use of Affiliates. Owner hereby consents to and agrees that, in performing its duties hereunder, Manager may further contract with its Affiliates to provide any or all services to be -10- 12 provided by Manager, provided that Manager shall remain responsible for all services to be provided by Manager which its Affiliates have contracted to perform. 2.6 Relationship between Owner and Manager. All of the functions, duties and services performed by the Manager under this Agreement shall be performed by the Manager as an independent contractor and not as agent of the Owner except to the limited extent set forth in the following sentence. The Manager does not have the authority to act as agent of the Owner and that the Manager, in its capacity as such, does not, except as to the execution of User Leases with respect to the Owner Compressors, have the authority to bind the Owner and/or its assets. The Owner does not have liability for the acts of the Manager. Any fees or other compensation payable by the Owner to the Manager are ordinary and necessary business expenses of the Owner. 3. MANAGEMENT TERM 3.1 Duration of Management Term. The Management Term shall commence as of the date hereof and shall continue in force with respect to an Owner Compressor until the earliest to occur of (i) the occurrence of a Casualty Loss with respect to such Owner Compressor, (ii) the date on which the Indenture is discharged in accordance with its terms and the Lessor and its partners have received payment in full of all amounts owing to them pursuant to the terms of the limited partnership agreement of the Head Lessor, and (iii) the removal of the Manager in accordance with the provisions of Section 12 hereof. Except as set forth in Section 12 hereof, the rights and obligations of Universal as the initial Manager hereunder may not be terminated by, on or behalf of, the Owner for any reason. 3.2 Resignation by Manager. Universal may not resign from its obligations and duties as Manager hereunder, except (i) with the prior written consent of the Requisite Global Majority or (ii) upon a determination that the performance by Universal of its duties under this Agreement is no longer permissible under Applicable Law, which determination shall be evidenced by an Opinion of Counsel, in form and substance reasonably satisfactory to the Requisite Global Majority, to such effect delivered to the Indenture Trustee and each Entitled Party. No such resignation will become effective until a Replacement Manager has assumed the obligations and duties of the Manager under this Agreement in accordance with the terms hereof. 3.3 Termination with Respect to an Owner Compressor. Notwithstanding, the other provisions of this Section 3 to the contrary, the Management Term shall terminate with respect to any Owner Compressor which is sold, foreclosed upon, lost, stolen, damaged beyond repair, damaged and not required to be repaired pursuant to Section 5.6 hereof, requisitioned (other than a temporary requisition for a period of not more than 180 days) by any Governmental Authority, worn out, unsuitable for use or economically obsolete (any of the foregoing, a "Compressor Termination Event") as of the date of such Compressor Termination Event after the deposit into the Head Lessee Collection Account of all Casualty Proceeds and other amounts received with respect to such Owner Compressor. Each of Owner and Manager shall notify the other party promptly after it obtains knowledge of any Compressor Termination Event. -11- 13 4. OWNERSHIP OF OWNER COMPRESSORS 4.1 Retention of Title. Owner (with respect to the Head Lessee Compressors) or the Head Lessor (with respect to the Head Lessor Compressors) shall at all times retain full legal and equitable title to the Owner Compressor, notwithstanding the management thereof by Manager hereunder. Manager shall not make reference to or otherwise deal with or treat the Owner Compressors in any manner except in conformity with this Section 4.1. The form of User Lease utilized by the Manager shall disclose that the Manager may be leasing Compressors on behalf of a third party. 4.2 Liens. Manager will promptly pay or discharge any and all sums claimed by any party (any of the foregoing a "Lien Claim"), which, if unpaid, might become a lien, charge, security interest or other encumbrance upon or with respect to any Owner Compressor, including any accession thereto, or any part thereof or the interest of Owner therein other than Permitted Encumbrances and will promptly discharge any such lien, charge, security interest or other encumbrance which arises; provided, however, that Manager shall be under no obligation to pay or discharge any Lien Claim so long as it is contesting the validity thereof in good faith in a reasonable manner and by appropriate legal proceedings and the nonpayment thereof does not, in the reasonable opinion of Manager, adversely affect the title, property or rights of Owner or any Entitled Party thereof; provided further that Manager shall not be required to pay or discharge any Lien Claim except (1) to the extent that it results from an act or omission by Manager with respect to which Manager would not be entitled to indemnification pursuant to Section 16 hereof ("Manager Malfeasance") or (2) prior to such payment or discharge Manager receives from Owner the amount thereof (the "Owner Lien Claim Amount"). If any Lien Claim shall have resulted from Manager Malfeasance and shall have been paid by Owner, then Manager shall reimburse Owner, upon presentation of an invoice therefor, provided that the Manager would have otherwise been directly liable to make such payment in accordance with the terms of this Agreement. 5. DUTIES/RIGHTS OF MANAGER 5.1 Duties of Manager. Subject to the terms and provisions hereof, Manager shall provide the services specified in this Section 5 to, and on behalf of, Owner during the Management Term with respect to the Owner Compressors. The parties hereto acknowledge and agree that, if an Owner Compressor is then subject to a User Lease, the User under such User Lease may provide certain of the obligations set forth in Sections 5.6, 5.7 and 5.8 hereof. 5.2 Marketing. (a) During the Management Term, Manager shall, consistent with the Services Standard, keep the Owner Compressors under User Leases subject to the same utilization rates and in the same manner as Other UCI Compressors. In addition, the Manager shall, consistent with the Services Standard, negotiate the terms and conditions of such User Leases provided that such terms and conditions must be consistent with those of User Leases for Other UCI Compressors and, in any event, must comply with (i) then generally accepted industry standards and (ii) with respect to the Head Lessor Compressors, the provisions of Section 11 of the Head Lease. In furtherance thereof, Manager shall cause its employees and agents involved in the day-to-day marketing and re-leasing of the Owner Compressors to perform their respective responsibilities without any distinction -12- 14 between Owner Compressors and the Other UCI Compressors, except to the extent required by this Agreement. (b) In performing its marketing duties pursuant to this Section 5.2, the Manager shall use its best efforts to comply with the Concentration Limits. 5.3 Lease Obligations. Manager shall, consistent with the Services Standard, cause to be performed when due, on Owner's behalf, all of Owner's performance obligations under the User Leases, the Head Lease, the Head Lessee Security Agreement and the other Related Documents to which the Owner is a party; provided, however, that nothing contained herein shall be construed as creating credit recourse to the Manager for (i) principal, interest or premium payments on the Notes and/or the limited partnership interest of the Head Lessor or (ii) indemnification payments otherwise payable by the Head Lessor pursuant to the Related Documents (except to the extent that the Manager would otherwise be liable for such indemnification payment pursuant to the provisions of Section 16 hereof). 5.4 Billing and Other Information. During the Management Term, Manager shall bill, on behalf of Owner, for all rentals and other sums due to Owner with respect to those Owner Compressors then subject to a User Lease. 5.5 Defaults by Users; Lease Amendments and Waiver. (a) In the event of any breach or default by a User under a User Lease, Manager shall, consistent with the Services Standard, take such action, in the name of Owner, with respect to such defaulted User Lease including, without limitation, (i) the termination of such User Lease as to any or all Owner Compressors subject thereto, (ii) the recovery of possession of any or all Owner Compressors subject thereto and (iii) the enforcement of any other rights or remedies of Owner under such User Lease, including, without limitation, the right to payment of any rent or other amounts owed by the User under such User Lease. In furtherance of the foregoing, Manager shall, consistent with the Services Standard, (i) institute and prosecute such legal proceedings in the name of Owner as is permitted by Applicable Law in order to accomplish the foregoing, (ii) settle, compromise and/or terminate such proceedings or (iii) reinstate such User Lease; provided that Manager shall not be required to take any such action if, in the exercise of its reasonable commercial judgment, Manager would not take such action if such Owner Compressors were Other UCI Compressors. All amounts expended by the Manager in performing its obligations pursuant to the provisions of this Section 5.5, after reduction of such amounts for enforcement cost actually received by the Manager pursuant to the terms of the related User Leases, shall be a Reimbursable Service. Owner reserves the right to take, upon written notice to Manager, in its sole discretion, any or all of the actions described in this Section 5.5 directly in its own name and on its own behalf. In such event Manager, at Owner's expense, shall cooperate with Owner and provide Owner with such assistance as Owner may reasonably request. (b) In performing its obligations hereunder, the Manager may, acting in the name of the Owner and without the necessity of obtaining the prior consent of the Owner or any Entitled Party, grant consents or enter into and grant modifications, waivers and amendments to the terms of -13- 15 any User Lease except for consents, modifications, waivers or amendments that are inconsistent with the Services Standard. 5.6 Maintenance; Manager's Expenses. (a) Manager shall, consistent with the Services Standard, cause the Owner Compressors to be maintained in good operating order and condition. The standard for such maintenance shall be consistent with the Services Standard and shall be the highest of the following: (i) any standard required or set forth for the Owner Compressors by Applicable Law, (ii) any standard set by Manager for Other UCI Compressors of similar type, model and age; (iii) with respect to the Head Lessor Compressors, the standards set forth in the Head Lease, and (iv) with respect to the Owner Compressors leased to each User, any standard set forth in the related User Lease. All amounts expended by the Manager for maintenance (other than an overhaul made in compliance with Section 5.6(b) hereof) of the Owner Compressors, after reduction of such amounts for maintenance payments actually received by the Manager pursuant to the terms of any related User Lease, shall be at the expense of the Manager. (b) Manager shall conduct, or cause to be conducted, overhauls of the Owner Compressors at such intervals and in such detail as it conducts overhauls of the Other UCI Compressors. (c) Maintenance and/or overhauls may be performed by Manager or third parties as reasonably determined by Manager. For overhauls, Owner will pay for (i) materials at Manager's actual cost therefor and (ii) labor at hourly rates established by Manager from time to time (the sum of (i) and (ii), an "Overhaul Fee"). Such hourly rates shall be based upon Manager's direct costs of labor and shall include amounts for Manager's plant or facility overhead based on Manager's job cost system for allocating overhead. 5.7 Insurance. (a) Manager will cause to be carried and maintained, at its sole expense, with respect to each Owner Compressor at all times during the Management Term thereof and for the geographic area in which such Owner Compressor is at any time located physical damage insurance (including theft and collision insurance) insuring against risks of physical loss or damage to the Owner Compressors ("Property Insurance") in an amount no less than the Appraised Value for each Owner Compressor per occurrence except for Manager's customary sub-limits for certain perils, and insurance, and liability insurance in the amount of $50,000,000 per occurrence against liability for bodily injury, death and property damage resulting from the use and operation of the Owner Compressors (including sudden and accidental environmental pollution coverage) ("Liability Insurance") of the types and amounts of coverage equal to or greater than the insurance coverage Manager carries on the Other UCI Compressors. Property Insurance shall not have annual deductibles, in the aggregate, in excess of an amount equal to the product of (x) one half of one percent (.50%) and (y) the then Aggregate Appraised Value, and the Liability Insurance shall have no deductibles. The policies of insurance required under this Section 5.7(a) shall be valid and enforceable policies issued by insurers having an A.M. Best Company rating of "A-" or better or otherwise acceptable to Deal Agent and shall provide coverage with respect to incidents occurring -14- 16 anywhere in the United States. In the event that any of such Liability Insurance policies for an Owner Compressor shall now or hereafter provide coverage on a "claims-made" basis, Manager shall continue to maintain such policies in effect for a period of not less than three (3) years after the expiration of the Management Term of the last Owner Compressor subject to the term of this Agreement. In the event of a Casualty Loss with respect to a Compressor which is either not insured or is excluded from existing coverage by virtue of a deductible or any existing Property Insurance or Liability Insurance policy, then the Manager shall pay to the Owner (without right of indemnification pursuant to the provision of Section 16.1 hereof) the amount of such Casualty Loss but in no event to exceed $15,000 per Casualty Loss. (b) Such Property Insurance policy or policies will name Owner and each Entitled Party as the loss payees. Such Liability Insurance policy or policies will name Owner and each of their shareholders, partners, directors, officers, employees, agents and servants (each an "Additional Insured") as an additional insured. Each such policy shall provide that (i) the insurers waive any claim for premiums and any right of subrogation or setoff against Additional Insureds, (ii) it may not be invalidated against any Additional Insured by reason of any violation of a condition or breach of warranty of the policies or the application therefor by Lessee, (iii) it may be canceled or materially altered or reduced in coverage by the insurer only after no less than ten (10) days' prior written notice from Lessee's insurance broker to Owner and each Entitled Party, and (iv) the insurer will give written notice to Owner and each Entitled Party in the event of nonpayment of premium by Manager when due. (c) On the Closing Date, and thereafter not less than three (3) days prior to the expiration dates of any expiring policies required under this Section 5.7, Manager shall furnish Owner and each Entitled Party with certificates of the insurance or replacement insurance coverage required by this Section 5.7. 5.8 Taxes. Manager shall cause to be paid when due, and will indemnify the Owner and each Entitled Party from and against, all local, state, federal and foreign personal property, sales or use taxes, license fees, assessments, charges, fines, interest and penalties (all such taxes, license fees, assessments, charges, fines, interest and penalties being hereinafter called "Impositions") hereafter levied or imposed upon the Owner or any Entitled Party, in connection with or measured by the possession, rental, use or operation of the Owner Compressors other than any federal, state or local tax calculated based on the taxable income of the Owner or the applicable Entitled Party. Manager will also cause all Owner Compressors to be kept free and clear of all Impositions which might in any way affect the title of Owner, or result in a Lien upon any Owner Compressors; provided, however, that Manager shall not be required to pay any Imposition of any kind so long as it is contesting such Imposition in good faith and by appropriate legal proceedings if the nonpayment thereof does not, in the reasonable opinion of Manager, adversely affect the title, property or rights of Owner. In the event any reports or returns with respect to Impositions are required to be filed, Manager will either cause such reports or returns to be prepared and filed in such manner as to show the interests of Owner in the Owner Compressors. 5.9 Compliance with Law. Manager, at Owner's expense, shall, consistent with the Services Standard, cause the Owner Compressors to comply, and each User Lease entered into or renewed after the date hereof shall require the User thereunder to comply, in all material respects -15- 17 with all Applicable Laws. In the event that such laws, rules or regulations require any alteration of an Owner Compressor, or in the event that any equipment or appliance of an Owner Compressor shall be required to be changed or replaced, or in the event that any additional or other equipment or appliance is required to be installed on an Owner Compressor in order to materially comply with such laws, rules or regulations (a "Mandatory Alteration"), Manager, at Owner's expense, shall make such alteration, change, replacement or addition; provided, however, that Manager, in good faith, shall contest the validity or application of any such law, rule or regulation which it would have contested if the affected Owner Compressor had been an Other UCI Compressor, in any reasonable manner which does not, in the opinion of Manager, adversely affect the property or rights of Owner. 5.10 Records and Information. Manager shall maintain separate, complete and accurate records relating to the Owner Compressors and all matters covered by this Agreement in the same form and to the same extent as Manager customarily maintains records in respect of the Other UCI Compressors and consistent with the Services Standard. Manager shall promptly, upon request of Owner, deliver to Owner or its designee such records. Upon request, Manager shall promptly supply Owner with all information necessary for Owner to prepare all reports required of Owner under the Related Documents. 5.11 Other Services. Manager shall be responsible for the provision of such other services incidental to the foregoing as may from time to time be required under the User Leases or may be reasonably necessary in connection with the ownership, leasing and operation of the Owner Compressors. 6. AUTHORITY AND CONSENTS. 6.1 Owner confers on Manager all such authorities and grants all such consents as may be necessary for Manager's performance of its duties under this Agreement, and will, at the request of Manager, confirm any such authorities and consents to any third parties, execute such other documents and do such other things as Manager may reasonably request for the purpose of giving full effect to this Agreement and enabling Manager to carry out its duties hereunder. 6.2 After the occurrence and during the continuance of a Manager Default, the Manager irrevocably, and by way of security to the Owner for the obligations of the Manager herein, appoints the Owner or the Owner's designee (which shall be the Indenture Trustee so long as any Outstanding Obligations remain unpaid) to be its attorney-in-fact with full power of substitution on behalf of the Manager and in its name or otherwise to execute any documents contemplated by this Agreement, and to give any notice and to do any act or thing which the Manager is obliged to execute or do under this Agreement. The Manager hereby confirms and agrees to ratify and confirm whatever any such attorney shall do or propose to do in the exercise or purported exercise of all or any of the powers, authorities and discretion referred to in this paragraph. -16- 18 7. ACCOUNTS AND PAYMENTS 7.1 Lockbox Accounts. (a) On or prior to the Effective Date each Lockbox Bank shall be instructed by the Manager to transfer to the related Lockbox Account, on a daily basis, all items in the applicable Lockbox. So long as no Trigger Event is continuing, each Lockbox Bank will remit to the Manager on a daily basis (but subject to the Lockbox Bank's customary funds availability schedule), all lease revenues and other amounts received with respect to both the Owner Compressors and the Other UCI Compressors. So long as a Trigger Event is continuing, all collections in the Lockbox Account which are allocable to the Owner Compressors will be segregated from all such amounts that are allocable to the Other UCI Compressors within one (1) Business Day after receipt thereof and, in any event, prior to the release to UCI of any such collateral relating to the UCI Compressors. Immediately after the completion of such daily cash allocation all available cash remittances allocable to the Owner Compressors will be remitted directly to the Head Lessee Collection Account. During the continuation of a Trigger Event, the Manager shall, on a weekly basis, provide to the Owner a copy of each daily cash reconciliation prepared during the preceding week. During the continuation of a Trigger Event, each of the Owners, the Deal Agent and each Entitled Party shall be entitled, at the expense of the Manager, to visit the Manager's office and conduct a review of all backup documentation supporting the daily cash allocation report. The Manager and, upon the occurrence and continuation of a Trigger Event, the Indenture Trustee, are each hereby authorized and empowered, as the Owner's attorney-in-fact, to endorse any item relating to an Owner Compressor deposited in a Lockbox or presented for deposit in any Lockbox Account requiring the endorsement of the Owner, which authorization is coupled with an interest. Such authorization shall continue in effect until revoked by the Owner in writing. 7.2 Deposits to the Head Lessee Collection Account. So long as no Trigger Event is then continuing, by not later than the second Business Day preceding each Payment Date the Manager shall deposit into the Head Lessee Collection Account immediately available funds in an amount equal to all Monthly Lease Payments and Supplemental Rent, if any. So long as a Trigger Event is continuing, all cash remittances allocable to the Owner Compressor will be transferred from the Lockbox Accounts to the Head Lessee Collection Account as set forth in Section 7.1 above. The obligation of the Manager to make such deposit shall constitute a full recourse obligation of the Manager (for which the Manager shall not be entitled to receive indemnification from the Owner) to the extent, but only to the extent, that the Manager actually received Head Lessee Collections during the immediately preceding Collection Period in an amount equal to or greater than such required deposit. 7.3 No Set-Off, Counterclaim, etc. The Manager's obligations under this Agreement and the other Related Documents to make deposits to the Head Lessee Collection Account shall be absolute and unconditional and all payments thereof shall be made free and clear of and without any deduction for or on account of any set-off (except to the extent expressly set forth herein) or counterclaim or any circumstance, recoupment, defense or other right which the Manager may have -17- 19 against the Owner or any other Person for any reason whatsoever (whether in connection with the transactions contemplated hereby or any other transactions), including without limitation, (i) any defect in title, condition, design or fitness for use of, or any damage to or loss or destruction of, any Compressor, (ii) any insolvency, bankruptcy, moratorium, reorganization or similar proceeding by or against the Manager or any other Person, or (iii) any other circumstance, happening or event whatsoever, whether or not unforeseen or similar to any of the foregoing. 7.4 Manner of Payment. All payments hereunder shall be made in Dollars by wire transfer of immediately available funds prior to 3:00 p.m., New York time, on the date of payment. 8. MANAGER ADVANCES 8.1 Manager Advances. (a) On each Determination Date, the Manager may (in its sole discretion) advance funds (each, a "Manager Advance") and remit to the Head Lessee Collection Account, in such manner as will ensure immediately available funds will be on account thereof by 11:00 a.m. New York time on the second Business Day prior to the next succeeding Payment Date, an amount equal to all or any portion of rental payments due on User Leases with respect to the Owner Compressors during the preceding Collection Period for which the related Users have not remitted such payment on or prior to such Determination Date; provided, however, that the aggregate amount of all such Manager Advances outstanding at any point in time may not exceed an amount equal to the product of (x) two percent (2%) and (y) the then Aggregate Appraisal Value. The Manager will be reimbursed for Manager Advances in accordance with the terms of Section 7.2(b) of the Head Lessee Security Agreement. Notwithstanding the foregoing, the Manager will not be obligated to make a Manager Advance with respect to (i) any defaulted User Lease, or (ii) any User Lease if the Manager, in its reasonable good faith judgment, believes that such Manager Advance would not be recoverable from a corresponding remittance from the User on the related User Lease (b) The Manager shall be reimbursed for Manager Advances on each Payment Date pursuant to the terms of the Head Lessee Security Agreement as follows: (i) for any Manager Advance made with respect to a delinquent User Lease, from subsequent collections of such delinquent payments and (ii) for any unpaid Manager Advance which the Manager subsequently determines to be uncollectible from the related User (each, a "Nonrecoverable Advance"). 9. COVENANTS OF THE MANAGER 9.1 Preparation and Delivery of Reports. The Manager shall deliver to the Deal Agent, each Series Enhancer and each Rating Agency: (a) Annual Financial Statements As soon as available and in any event within 120 days after the end of fiscal year of the Manager, the audited consolidated and unaudited consolidating statements of income, stockholders' equity, changes in financial position and cash flow of the Manager and its consolidated subsidiaries for such fiscal year, and the related consolidated and consolidating balance sheet of the Manager and its consolidated subsidiaries as at the end of the fiscal year, and setting forth in each case in comparative form the corresponding figures for the -18- 20 preceding fiscal year, and accompanied by the related opinion of independent public accountants of recognized national standing acceptable to the Deal Agent which opinion shall state that said financial statements fairly present the consolidated and consolidating financial condition and results of operations of the Manager and its consolidated subsidiaries as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP, except for such changes in such principles with which the independent public accountants shall have concurred and such opinion shall not contain a "going concern" or like qualification or exception, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Manager Default; (b) Quarterly Financial Statements As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Manager, consolidated and consolidating statements of income, stockholders' equity, changes in financial position and cash flow of the Manager and its consolidated subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and consolidating balance sheets as at the end of such period, and setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by the certificate of a Responsible Officer, which certificate shall state that said financial statements fairly present the consolidated and consolidating financial condition and result of operations of the Manager and its consolidated subsidiaries in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments); (c) Quarterly Maintenance Report -- within 60 days of the end of each fiscal quarter of the Manager, a report of all maintenance and overhaul work and associated expenses incurred with regard to the Owner Compressors; (d) Monthly Asset Base Certificate -- by not later than each Determination Date, an asset base certificate, substantially in the form of Exhibit E hereto calculated as of the last day of the immediately preceding Collection Period; (e) SEC and Other Reports -- promptly upon their becoming available, one copy of each report (if any), definitive proxy statement, registration statement (upon it becoming effective) and definitive prospectus filed by the Manager with or delivered to any securities exchange, the Securities and Exchange Commission (or any successor agency or any other Governmental Authority); (f) Requested Information -- with reasonable promptness, (A) any data, information and reports regarding the Owner Compressors that is reasonably available and (B) any other publicly available information with respect to the Manager, in each case as may be reasonably requested from time to time by the Owner, Deal Agent, Indenture Trustee or any Series Enhancer; and (g) Underwriting Standards -- not less than ten Business Days prior written notice of any material change in the credit underwriting policies employed by the Manager with respect to the leasing of the UCI Compressors. -19- 21 (h) Updated Policies -- within 60 days of the Manager's fiscal year end, (1) two copies of its current Credit and Collection Policy and (2) two copies of its maintenance and repair policy, a currently effective copy of each of which is attached hereto as Exhibits C and B, respectively. (i) Manager Report -- on each Determination Date, a Manager Report, substantially in the form of Exhibit A hereto, calculated for the immediately preceding Collection Period. (j) Accountant's Report --on or before April 30th of each year (or 120 days after the end of the Manager's fiscal year, if other than December 31st of each year), beginning on April 30, 2001, with respect to the twelve months ended on the preceding December 31 (or other applicable fiscal year-end date) (or such other period as shall have elapsed from the Closing Date to the date of such statement), a statement (the "Accountants' Report") prepared by a firm of Independent Accountants addressed to the Board of Directors of the Manager, the Owner, the Indenture Trustee, the Deal Agent and any Series Enhancer, to the effect that such firm of accountants has audited the books and records of the Manager, and issued its report thereon in connection with the audit report on the consolidated financial statements of the Manager and (1) such audit was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as such firm considered necessary in the circumstances; (2) the firm is independent of the Manager and the Seller within the meaning of the Code of Professional Ethics of the American Institute of Certified Public Accountants; and (3) specifies the results of the application of such agreed upon procedures relating to (A) maintenance of the separateness of the Owner for bankruptcy-remoteness purposes and (B) those procedures described in Schedule 1 hereto regarding a sample of the Manager Reports submitted during the preceding calendar year (k) Monthly Tape -- on or before the tenth day of each month, the Manager shall deliver the Monthly Tape to the Indenture Trustee. (l) Quarterly Tape -- on or before the tenth day following the end of each calendar quarter, the Manager shall deliver to the Indenture Trustee the Quarterly Tape. (m) Material Adverse Change -- with reasonable promptness, notice of any Material Adverse Change. 9.2 Maintenance of Offices. Manager shall maintain, at its office located at 4440 Brittmoore Road, Houston, Texas, such books and records (including computer records) with respect to the Owner Compressors as it maintains for the UCI Compressors and the leasing thereof, including a computer database including the Owner Compressors (containing sufficient information to generate the List of Compressors and the reports required to be delivered pursuant to this Agreement), any User Leases relating thereto, the Users and location, and the Appraised Value of the Owner Compressors. Manager shall notify the Owner and each Entitled Party of any change in the location of Manager's books and records. Manager shall maintain, at its chief executive office, the original counterpart of each User Lease in a locked, fire-proof location, acceptable to Deal Agent. -20- 22 9.3 Inspection. Upon reasonable request, Manager shall make available to Owner, and each Entitled Party, for inspection, its books, records and reports relating to the Owner Compressors and all User Leases or other documents relating thereto, all in the format which Manager uses for the UCI Compressors. Such inspections shall (i) be conducted during normal business hours, (ii) be subject to Manager's customary security procedures and the execution of reasonable and customary confidentiality agreements and (iv) not unreasonably disrupt Manager's business. Owner acknowledges that Manager for purposes of such inspection shall grant Owner, and each Entitled Party access to Manager's computer systems and data relating solely to the Owner Compressors contained therein. Owner, the Indenture Trustee or any Series Enhancer shall have the right, upon reasonable request, to inspect the Owner Compressors at any time, upon reasonable notice and to the extent Manager has access to the Owner Compressors, subject to the User Leases, and provided such inspection does not interfere with utilization of the Owner Compressors in the ordinary course of business. 9.4 Ownership of Owner Compressors. Manager agrees to promptly indicate to all parties with a valid interest inquiring as to the true ownership of the Owner Compressors that the Owner is the owner of the Owner Compressors and the Manager will not claim any ownership interest in the Owner Compressors. 9.5 Separate Bank Accounts. The Manager will maintain separate bank accounts and books of account from those of Owner. Manager shall not conduct business in the name of Owner except when acting in the name of Owner as agent and identifies itself as such. 9.6 Compliance with Organizational Documents. The Manager agrees to comply with all of its company, organizational and managerial procedures required by its formation documents and Applicable Law. 9.7 Financial Statement Disclosures. The annual financial statements of the Manager will disclose the effects of the transactions contemplated by the Related Documents in accordance with GAAP. 9.8 Substantive Consolidation. The Manager will be operated so that the Owner will not be substantively consolidated with any of the Managers or its Affiliates. In connection therewith, the Manager makes herein by this reference each of the representations and warranties made by it to Gardere Wynne Sewell LLP. in support of their opinions issued and delivered in connection with the issuance of the Notes, as if specifically made herein and agrees to comply with each of the factual assumptions contained in such opinions. 9.9 [Reserved] 9.10 Amendment of Credit Policy. The Manager will not make any material modifications to the terms of its Credit and Collection Policy without the prior written consent in each instance of the Owner and each Entitled Party, such consent not to be unreasonably withheld or delayed. 9.11 New Master Lease Agreement with Users. With respect to each Owner Compressor, the Manager shall, within the timeframes set forth below, cause each related User to execute a -21- 23 revised master lease agreement, substantially in the form of Exhibit F hereto. The Manager shall be deemed to be in compliance with this Section if Users representing at least ninety-five percent (95%) of the Aggregate Appraised Value have executed such revised master lease agreement by August 8, 2001 and one hundred percent (100%) of the Aggregate Appraised Value by February 9, 2002. 9.12 Appraisals. (1) By not later than the ninetieth (90th) day following the Closing Date, the Manager shall (at its expense) furnish (or cause to be furnished) to the Owner and to each Entitled Party two (2) additional Appraisals setting forth the Appraised Value of each Lease Pool as of the Closing Date. Upon delivery of such additional Appraisals, the Appraised Value of each Compressor shall be adjusted in accordance with the provisions set forth in the definition of the term "Appraised Value." By not later than the Payment Date in February of each calendar year commencing on the Payment Date occurring in February, 2002, the Manager shall (at its expense) furnish (or cause to be furnished) to the Owner and to each Entitled Party three (3) Appraisals setting forth the Appraised Value of each Lease Pool as of the date of such Appraisal. 9.13 Identification Marks. Within ninety (90) days of the Closing Date, Manager shall affix and thereafter keep and maintain, prominently displayed, a sticker with (i) in the case of Head Lessor Compressors leased to Head Lessee the phrase "OWNED BY BRL UNIVERSAL COMPRESSION FUNDING I LP AND SUBJECT TO A SECURITY INTEREST IN FAVOR OF WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION AS INDENTURE TRUSTEE" and (ii) in the case of Head Lessee Compressors, "OWNED BY UCO COMPRESSION LLC AND SUBJECT TO A SECURITY INTEREST IN FAVOR OF WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION AS INDENTURE TRUSTEE" or in each case other appropriate words designated by the Indenture Trustee, with appropriate changes thereof and additions thereto as from time to time may be required by law in order to protect the Indenture Trustee's interests in such Owner Compressors. Manager shall not allow the name of any Person to be placed upon any Owner Compressor as a designation that might be interpreted as indicating a claim of ownership thereto or a security interest therein by any Person other than Head Lessor or the Indenture Trustee. 10. WARRANTY 10.1 THE OWNER COMPRESSORS ARE BEING DELIVERED BY OWNER TO MANAGER "AS IS". OWNER MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE OWNER COMPRESSORS, THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED. 10.2 MANAGER WARRANTS THAT IT WILL CARRY OUT ITS SERVICES WITH REASONABLE CARE AND SKILL. THIS EXPRESS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED. UNDER NO CIRCUMSTANCES SHALL MANAGER HAVE ANY LIABILITY TO OWNER FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES. -22- 24 11. COMPENSATION AND REIMBURSEMENT OF THE MANAGER 11.1 Compensation of the Manager. As compensation to the Manager for the performance of its services hereunder, the Head Lessee shall pay to the Manager an S&A Fee, an Operating Fee, an Overhaul Fee, an Incentive Management Fee (under certain circumstances) and a charge for Reimbursable Service. Subject to the terms and conditions of the Head Lessee Security Agreement, each of the Incentive Management Fee, the charge for Reimbursable Services, S&A Fee and the Operating Fee shall be payable to the Manager from the Account, to the extent monies are available for the payment thereof, in accordance with Section 7.2(b) of the Head Lessee Security Agreement, as follows: (a) on each Payment Date, an amount equal to the S&A Fee, the Overhaul Fee and the Operations Fee for the calendar month preceding the month in which such Payment Date occurs; and (b) on each Payment Date, the amount of Reimbursable Services submitted by the Manager to the Owner on or prior to the last day of the calendar month immediately preceding the month in which such Payment Date occurs. 11.2 S&A Fee. (a) The selling and administration fee payable to UCI as initial Manager for each Collection Period (or any portion thereof) shall be the product of (i) the Monthly S&A Fee Rate and (ii) Gross Compressor Lease Revenues actually received by the Manager during such Collection Period (such product, the "UCI S&A Fee"). (b) The monthly operations fee rate during the first year following the Closing Date shall be four percent (4%), which percentage shall be adjusted annually thereafter in accordance with the provisions of Section 11.2(c) (the "Monthly S&A Fee Rate"). (c) So long as no Trigger Event is then continuing, the Monthly S&A Fee Rate shall be automatically adjusted on the Annual Appraisal Date to reflect the actual selling and administrative costs incurred by the Manager to manage the UCI Managed Compressor during the calendar year then ended. Any such adjustment shall be accompanied by a certification by Manager that any increase in the Monthly S&A Fee Rate reflects increases in selling and administrative costs which are also being incurred in respect of all of the UCI Compressors and such costs are being similarly charged to others whose compressors are being managed by Manager under agreements pursuant to which the Manager provides substantially similar services utilizing substantially similar payment terms. The reasonableness of the amount of such cost increase will, at the request of any Entitled Party, be verified by a third party consultant selected by the Requisite Global Majority and reasonably satisfactory to the Manager. In addition to the adjustment set forth above, the Monthly S&A Fee Rate may be adjusted with the prior consent of the Manager, the Owner and the Deal Agent to reflect material non-recurring costs incurred in any year. (d) The UCI S&A Fee, as adjusted from time to time under Section 11.2(c), is intended to include all direct selling and administration costs and expenses relating to the -23- 25 performance of the Manager's services, duties and obligations under this Agreement but shall not include the costs and expenses of the Manager which are incurred in connection with the Reimbursable Services. 11.3 Operations Fee. (a) The operations fee (the "UCI Operations Fee") for each calendar month (or any portion thereof) shall be equal to the sum for each Owner Compressor leased for any portion of such calendar month of the product of (i) the Operations Fee Rate per horsepower applicable to such Owner Compressors (ii) the total horsepower for such Compressor and (iii) a fraction the numerator of which is the number of days in each month that such Owner Compressor was on lease and the denominator of which is 30. (b) So long as no Trigger Event is then continuing, the Operations Fee Rate shall be automatically adjusted on the Annual Appraisal Date to reflect the actual operating costs incurred by the Manager to manage the UCI Managed Compressor during the calendar year then ended. Any such adjustment shall be accompanied by a certification by Manager that any increase in the Operations Fee Rate reflects increases in costs which are also being incurred in respect of all of the UCI Compressors and such costs are being similarly charged to others whose compressors are being managed by Manager under agreements pursuant to which the Manager provides substantially similar services utilizing substantially similar payment terms. The reasonableness of the amount of such cost increase will, at the request of any Entitled Party, be verified by a third party consultant selected by the Requisite Global Majority and reasonably satisfactory to the Manager. In addition to the adjustment set forth above, the Monthly S&A Fee Rate may be adjusted with the prior consent of the Manager, the Owner and the Deal Agent to reflect material non-recurring costs incurred in any year. (c) The UCI Operations Fee, as adjusted from time to time under Section 11.3(b), is intended to include all direct operating costs and expenses relating to the performance of the Manager's services, duties and obligations under this Agreement but shall not include the costs and expenses of the Manager which are incurred in connection with the Reimbursable Services. 11.4 Incentive Management Fee . In addition to the Operations Fee and the S&A Fee, any Manager other than UCI or any of its Affiliates shall be entitled to receive on each Payment Date an additional fee in an amount equal to the Incentive Management Fee. 11.5 Reimbursable Services . The Manager shall be separately compensated for the following services rendered on behalf of the Owner under this Agreement (collectively, the "Reimbursable Services") in accordance with the priorities established therefor in Section 7.2(b) of the Head Lessee Security Agreement: (i) enforcement costs in accordance with Section 5.5 hereof, and (ii) the cost of any Mandatory Alterations made in accordance with Section 5.9 hereof. In addition to such Reimbursable Services, the Manager shall be entitled to be reimbursed from Manager Advances in accordance with the provision of Section 8 hereof. -24- 26 12. MANAGER DEFAULT 12.1 Any of the following events or conditions shall constitute a Manager Default: (a) Manager shall fail to (i) deposit to the Head Lessee Collection Account the deposit required pursuant to Section 7.2 hereof, or (ii) deliver either or both of the Manager Report or the monthly Asset Base Certificate on the dates specified in Section 9.1 hereof or (iii) any Manager Report delivered by the Manager shall be inaccurate in any material respect and such inaccuracy shall continue unremedied for a period of thirty (30) days after the earlier to occur of (x) receipt by Manager of written notice thereof from Owner or the Indenture Trustee and (y) the date on which any of the President, Senior Vice President or any Executive Vice President of Manager shall have actual knowledge of such failure; or; (b) If a Trigger Event is continuing, the Manager shall fail to pay the Back-up Manager Fee when due; (c) Manager shall fail to observe or perform any of the covenants, agreements or obligations set forth in any of Sections 9.11, 9.12 and 9.13 hereof; (d) Manager shall fail to perform or observe any other covenant, condition, or agreement to be performed or observed by it under any Related Document (other than those identified in clauses (a), (b) and (c) above), and such failure shall continue unremedied for a period of thirty (30) days after the earlier to occur of (i) receipt by Manager of written notice thereof from Owner or the Indenture Trustee and (ii) the date on which any of the President, Senior Vice President or any Executive Vice President of Manager shall have actual knowledge of such failure; or (e) any representation or warranty made by Manager in any of the Related Documents, or in any certificate delivered pursuant thereto, shall prove to be untrue in any material respect on the date of which made; or (f) the entry of a decree or order for relief by a court having jurisdiction in respect of the Manager in any involuntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, or sequestrator (or other similar official) for the Manager or for any substantial part of its properties, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; (g) the commencement by the Manager of a voluntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or the consent by the Manager to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Manager or any substantial part of its properties, or the making by the Manager of any general assignment for the benefit of creditors, or the failure by the Manager generally to pay its debts as they become due, or the taking of any action by the Manager in furtherance of any such action; -25- 27 (h) UCI shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Indebtedness that is outstanding in a principal or notional amount of at least $20,000,000, either individually or in the aggregate, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, and the holder thereof shall have accelerated the maturity of such Indebtedness or otherwise caused such Indebtedness to mature; or any such Indebtedness shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled prepayment) or redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; (i) A Change of Control shall occur; (j) For any calendar month the Average Rental Rate for the UCI Compressors exceeds the Average Rental Rate for the Owner Compressors by more than ten percentage points; (k) For any calendar month the Monthly Utilization Rate for the UCI Compressors exceeds the Monthly Utilization Rate for the Owner Compressors by more than ten percentage points; (l) As of any Determination Date, the Run-time Credit Ratio exceeds five percent (5%); or (m) UCH shall repudiate the Management Guaranty or the Management Guaranty shall fail to be in full force and effect. 12.2 If a Manager Default shall have occurred and be continuing and the Notes from any Series are then outstanding, the Indenture Trustee (acting at the written direction of the Requisite Global Majority), in Requisite Global Majority's discretion, shall have the right, in addition to any other rights or remedies that Owner or its assignee may have under any applicable law or in equity to: (i) terminate this Agreement, (ii) appoint the Back-up Manager or another Replacement Manager to manage the Owner Compressors, (iii) arrange new User Leases for such Owner Compressors and (iv) exercise such other remedies available under this Agreement, the Head Lessee Security Agreement, the Indenture and the other Related Documents. The Owner shall give notice to the Rating Agencies of any such Manager Default. Notwithstanding anything contained herein to the contrary, this Agreement shall continue in full force and effect with respect to a Compressor, and Manager shall continue to manage such Owner Compressors pursuant to the terms and conditions of this Agreement, until the date on which a Replacement Manager assumes responsibility for managing such Compressor. 12.3 Upon the appointment of the Back-Up Manager or another Replacement Manager, Manager shall cooperate with Owner or its assignee, the Indenture Trustee, the Deal Agent and each Series Enhancer in transferring to the Back-up Manager or another Replacement Manager the -26- 28 management of the Owner Compressors, including, but not limited to making available all books and records (including data contained in Manager's computer systems that relate to Owner Compressors) pertaining to such Owner Compressors, providing access to, and cooperating in the transfer of, information pertaining to such Owner Compressors from Manager's computer system to Back-up Manager's or its designee's system, and taking any other action as may be reasonably requested by Owner or its assignee to ensure the orderly assumption of management of such Owner Compressors by the Back-up Manager or another Replacement Manager. Notwithstanding the foregoing, in no event shall Manager be required to, and the Deal Agent shall not, deliver or disclose to any Replacement Manager any information, data, document or agreement which is proprietary to Manager. 12.4 In no event shall Manager be required to act in any manner inconsistent with the rights of any User under any User Lease to which an Owner Compressor is then subject. 12.5 Termination of this Agreement shall be without prejudice to the rights and obligations of the parties which have accrued prior to such termination; provided, however, that any amount then due to Manager shall be reduced by the reasonable and necessary out-of-pocket costs incurred by Owner (excluding Management Fees and any other costs incurred within the ordinary scope of management and operation of the Owner Compressors that are no longer subject to this Agreement) in connection with the removal and replacement of Manager as manager of the Owner Compressors that are no longer subject to this Agreement. 12.6 The Owner shall give notice to the Rating Agencies in the event of a termination of the Manager. 13. NO PARTNERSHIP The parties hereto also expressly recognize and acknowledge that this Agreement is not intended to create a partnership, joint venture or other entity among any of the Owner and the Manager, and is intended only to provide a sharing of specified income and expenses attributable to the leasing of the Owner Compressors. 14. NO FORCE MAJEURE Owner's and Manager's obligations under this Agreement are unconditional and shall not be subject to suspension, delay or interruption on account of the occurrence of any event, whether or not such event is beyond its control. 15. CURRENCY/BUSINESS DAY 15.1 All sums payable under this Agreement shall be paid in US Dollars. 15.2 Notwithstanding anything to the contrary contained herein, if any date on which a payment becomes due hereunder is not a Business Day, then such payment may be made on the next succeeding Business Day with the same force and effect as if made on such scheduled date. -27- 29 16. INDEMNIFICATION 16.1 Each of Head Lessor (with respect to the Head Lessor Compressors) and Head Lessee (with respect to the Head Lessee Compressors) on a several basis shall defend, indemnify and hold Manager harmless from and against any and all claims, actions, damages, losses, liabilities, costs and expenses (including reasonable legal fees) (each a "Claim") incurred by or asserted against Manager to the extent resulting or arising from Owner's failure to comply with or perform its obligations under this Agreement, except for Claims which arise out of Manager's willful misconduct, negligence or failure to comply with or perform its obligations under this Agreement. Manager subordinates its claims under this Section 16.1 to all claims which have priority in payment under Section 7.2(b) of the Head Lessee Security Agreement, and further agrees that any such claims shall (i) be non-recourse to the Owner, (ii) only be payable at the times and in the amounts for which funds are available for such purpose pursuant to Section 7.2(b) of the Head Lessee Security Agreement and (iii) not constitute a "claim" (as defined in Section 101(5) of the Bankruptcy Code) against the Owner. 16.2 Universal, in its capacity as the Manager, agrees to, and hereby does, indemnify and hold harmless the Owner, each Entitled Party and their respective officers, directors, employees and agents (each of the foregoing, an "Indemnified Party") against any and all liabilities, losses, damages, penalties, costs and expenses (including costs of defense and legal fees and expenses) which may be incurred or suffered by such Indemnified Party (except to the extent caused by the gross negligence or willful misconduct of the Indemnified Party) as a result of claims, actions, suits or judgments asserted or imposed against an Indemnified Party and arising out of (i) an action or inaction by the Manager that is contrary to the terms of this Agreement, (ii) a material breach by the Manager of its representations and covenants set forth in this Agreement or (iii) any information certified in any schedule or report delivered by the Manager, being untrue in any material respect as of the date of such certification, provided that the foregoing indemnity shall in no way be deemed to impose on the Manager any obligation to reimburse an Indemnified Party for losses arising solely from the financial inability of the related User on a User Lease to make rental and other lease-related payments. 16.3 The obligations of the Manager and the Owner under this Section 16 shall survive the resignation or removal of the Manager and the termination of this Agreement. 17. NO BANKRUPTCY PETITION AGAINST OWNER Neither the Manager nor the Back-up Manager will, prior to the date that is one (1) year and one (1) day after the payment in full of all Outstanding obligations under the Indenture and all Supplements, institute against Owner, or join any other Person in instituting an Insolvency Proceeding against any of the Head Lessor, the Head Lessee or the general partner of the Head Lessor. This Section 17 shall survive the termination of this Agreement. -28- 30 18. REPRESENTATIONS AND WARRANTIES Each of the Owner and the Manager hereby makes the following representations and warranties for the benefit of each other and each Entitled Party, which representations and warranties are made as of the Closing Date (unless otherwise indicated). 18.1 Organization and Good Standing. It is duly organized, validly existing and in compliance under the laws of the State of Delaware, with the requisite power and authority to own its properties and to conduct its business as such properties are currently owned and such business is currently conducted, had at all relevant times, and now has, power, authority, and legal right to perform its obligations under this Agreement, and it does not conduct business under any other name. 18.2 Due Qualification. It is qualified to transact business in each jurisdiction and has obtained all necessary licenses and approvals as required under Applicable Law, in each case, where the failure to be so qualified, licensed or approved, could reasonably be expected to materially and adversely affect its ability to perform its obligations under and comply with the terms of this Agreement. 18.3 Power and Authority. It has the requisite power and authority to execute and delivered this Agreement and to carry out its terms, the execution, delivery, and performance of this Agreement has been duly authorized by all necessary action and this Agreement has been duly executed and delivered by it. 18.4 Enforceable Obligations. This Agreement, when duly executed and delivered by the other parties thereto, will constitute a legal, valid, and binding obligation enforceable against it in accordance with its terms subject as to enforceability to applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or other laws affecting creditors' rights generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 18.5 No Violation. The consummation of the transactions contemplated by and the fulfillment of the terms of this Agreement and the Related Documents to which the Manager is a party will not conflict with any of the terms and provisions of, result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, the certificate of incorporation and by-laws of the Manager, or any material term of any indenture, agreement, mortgage, deed of trust, or other instrument to which the Manager is a party or by which it is bound, or result in the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, agreement, mortgage, deed of trust, or other instrument, other than this Agreement and the Indenture, or violate any law or any order, rule, or regulation applicable to the Manager of any court or of any federal or state regulatory body, administrative agency, or other Governmental Authority having jurisdiction over the Manager or any of its properties. 18.6 No Proceedings or Injunctions. There are (i) no litigations, proceedings or investigations pending, or, to its knowledge, threatened, before any court, regulatory body, -29- 31 administrative agency, or other tribunal or Governmental Authority (A) asserting the invalidity of this Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, or (C) seeking any determination or ruling that might materially and adversely affect the performance of its obligations under, or the validity or enforceability of, this Agreement and (ii) no injunctions, writs, restraining orders or other orders in effect against it that would adversely affect its ability to perform under this Agreement. 18.7 Compliance with Law. The Manager: (i) is not in violation of (1) any laws, ordinances, governmental rules or regulations, or (2) court orders to which it is subject, the violation of either of which could reasonably be expected to materially and adversely affect the ability of the Manager to perform its obligations under and comply with the terms of this Agreement and any other Related Document to which it is a party; (ii) has not failed to obtain any licenses, permits, franchises or other governmental authorizations which failure could reasonably be expected to materially and adversely affect the ownership of its property or to the conduct of its business including, without limitation, with respect to transactions contemplated by this Agreement and the other Related Documents to which it is a party; and (iii) is not in violation in any respect of any term of any agreement, certificate of incorporation, by-law or other instrument to which it is a party or by which it may be bound, which violation could reasonably be expected to materially and adversely affect the business or condition (financial or otherwise) of the Manager individually, or the Manager and its subsidiaries taken as a whole, or any User Lease or the interest of the Noteholders or any Series Enhancer in any Transferred Asset; 18.8 Principal Place of Business; Operations in the United States. Its principal place of business and chief executive office is at 4440 Brittmoore Road, Houston, Texas 77041 and has been maintained at such address for the four months immediately preceding the Closing Date. 18.9 Approvals. All approvals, authorizations, consents, orders or other actions of any Person required to be obtained by it in connection with the execution and delivery of this Agreement have been or will be taken or obtained on or prior to the Closing Date. 18.10 Governmental Consent. No consent, approval or authorization of, or filing, registration or qualification with, any Governmental Authority is or will be necessary or required on its part in connection with the execution and delivery of this Agreement, except for any such consents, approval and authorizations that have been obtained, and all filings that have been made, on or prior to the Closing Date. 18.11 Ordinary Course. The transactions contemplated by this Agreement are being consummated in furtherance of its ordinary business purposes and constitute a practical and reasonable course of action by it designed to improve its financial position, with no contemplation of insolvency and with no intent to hinder, delay or defraud any of its present or future creditors. -30- 32 19. GENERAL 19.1 Notices. All notices, demands or requests given pursuant to this Agreement shall be in writing, sent by internationally-recognized, overnight courier service or by telefax or hand delivery to the following addresses: To Manager: Universal Compression, Inc. 4440 Brittmoore Road Houston, Texas 77042 To Issuer/Head Lessor: BRL Universal Compression Funding I, L.P. c/o BRL Universal Compression Management, Inc. 2911 Turtle Creek Boulevard Suite 1240 Dallas, Texas 75219 To Head Lessee: UCO Compression LLC 4440 Brittmoore Road Houston, Texas 77042 To the Indenture Trustee: Wells Fargo Bank Minnesota, National Association MAC N9311 161 Sixth Street and Marquette Avenue Minneapolis, MN 55479 Attention: Corporate Trust Services -- Asset-backed Administration To the Deal Agent: First Union Securities, Inc. 301 S. College St., TW-9 Charlotte, North Carolina Attention: Manoj Kumar To any Series Enhancer: At its address as set forth in the related Enhancement Agreement To the Rating Agencies: At the addresses set forth in the Indenture on any Supplement issued pursuant thereto. Notice shall be effective and deemed received (a) two (2) days after being delivered to the courier service, if sent by courier, (b) upon receipt of confirmation of transmission, if sent by telecopy, or (c) when delivered, if delivered by hand or by certified first class mail, return receipt requested. Each party delivering a notice hereunder shall deliver a copy of such notice to the Deal Agent at the address set forth above. -31- 33 19.2 Attorney Fees. If any proceeding is brought for enforcement of this Agreement or because of an alleged dispute, breach, default, in connection with any provision of this Agreement, the prevailing party shall be entitled to recover, in addition to other relief to which it may be entitled, reasonable attorney fees and other costs incurred in connection therewith. 19.3 Further Assurances. Owner and Manager shall each perform such further acts and execute such further documents as may be reasonably necessary to implement the intent of, and consummate the transactions contemplated by, this Agreement. 19.4 Severability. If any term or provision of this Agreement or the performance thereof shall to any extent be or become invalid or unenforceable, such invalidity or unenforceability shall not affect or render invalid or unenforceable any other provision of this Agreement and this Agreement shall continue to be valid and enforceable to the fullest extent permitted by law. 19.5 Assignability and Successors. This Agreement shall be binding upon and inure to the benefit of, and be enforceable by, Owner and Manager, and their respective successors in interest or permitted assigns; provided, however, that: (a) this Agreement and the rights and duties of Manager hereunder may not be assigned by Manager to any other Person, other than an Affiliate of Manager, without the prior written consent of Owner, the Indenture Trustee and each Series Enhancer; and (b) Owner may charge, assign, pledge or hypothecate its rights (but not its obligations) under this Agreement as provided herein. Manager hereby acknowledges that Owner shall assign all of its rights, title and interest under this Agreement to the Indenture Trustee, and that each Series Enhancer will be a beneficiary of such assignment. Manager hereby consents to such assignment. Manager shall give the Rating Agencies prior notice of any assignment effected pursuant to this Section 19.5. 19.6 Waiver. Waiver of any term or condition of this Agreement (including any extension of time required for performance) shall be effective only if in writing and shall not be construed as a waiver of any subsequent breach or waiver of the same term or condition or a waiver of any other term or condition of this Agreement. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver hereof. 19.7 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 19.8 Entire Agreement; Amendments. This Agreement represents the entire agreement between the parties with respect to the subject matter hereof and may not be amended or modified except by an instrument in writing signed by the parties hereto and approved by the Requisite Global Majority. The Manager shall send prior notice of any amendment or modification to the Rating Agencies. 19.9 Counterparts. This Agreement may be signed in counterparts each of which shall constitute an original instrument, but all of which together shall constitute but one and the same instrument. -32- 34 19.10 Signatures. Any signature required with respect to this Agreement may be provided via facsimile, provided that original of such signatures are supplied by each party to the other party promptly thereafter. 19.11 Governing Law. This Agreement shall be governed by and construed in accordance with the substantive laws of the State of New York without regard to, the State of New York's conflicts of law principles, applicable to agreements made and to be performed therein and the obligations, rights, and remedies of the parties under this Agreement shall be determined in accordance with such laws. 19.12 CONSENT TO JURISDICTION. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE MANAGER OR THE OWNER ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY TRANSACTION CONTEMPLATED HEREBY, MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK AND THE MANAGER AND THE OWNER EACH HEREBY WAIVE ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND, SOLELY FOR THE PURPOSES OF ENFORCING THIS AGREEMENT, UCO COMPRESSION LLC HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. UCO COMPRESSION LLC HEREBY IRREVOCABLY APPOINTS AND DESIGNATES CT CORPORATION SYSTEM, WITH AN ADDRESS AT 1633 BROADWAY, NEW YORK, NEW YORK, ITS TRUE AND LAWFUL ATTORNEY-IN-FACT AND DULY AUTHORIZED AGENT FOR THE LIMITED PURPOSE OF ACCEPTING SERVICE OF LEGAL PROCESS AND EACH OF THE PARTIES HERETO EACH AGREE THAT SERVICE OF PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL SERVICE OF SUCH PROCESS ON SUCH PERSON. EACH OF THE PARTIES HERETO SHALL EACH MAINTAIN THE DESIGNATION AND APPOINTMENT OF SUCH AUTHORIZED AGENT UNTIL ALL AMOUNTS PAYABLE UNDER THIS AGREEMENT AND THE INDENTURE SHALL HAVE BEEN PAID IN FULL. IF SUCH AGENT SHALL CEASE TO SO ACT, EACH OF THE PARTIES HERETO AS THE CASE MAY BE, SHALL IMMEDIATELY DESIGNATE AND APPOINT ANOTHER SUCH AGENT SATISFACTORY TO THE INDENTURE TRUSTEE AND SHALL PROMPTLY DELIVER TO THE INDENTURE TRUSTEE EVIDENCE IN WRITING OF SUCH OTHER AGENT'S ACCEPTANCE OF SUCH APPOINTMENT. 19.13 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AS AGAINST THE OTHER PARTIES HERETO, ANY RIGHTS IT MAY HAVE TO A JURY TRIAL IN RESPECT OF ANY CIVIL ACTION OR PROCEEDING (WHETHER ARISING IN CONTRACT OR TORT OR OTHERWISE), INCLUDING ANY COUNTERCLAIM, ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, INCLUDING IN RESPECT OF THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT HEREOF OR THEREOF. 19.14 Waiver of Immunity. To the extent that any party hereto or any of its property is or becomes entitled at any time to any immunity on the grounds of sovereignty or otherwise from any legal actions, suits or proceedings, from set-off or counterclaim, from the jurisdiction or judgment of any competent court, from service of process, from execution of a judgment, from attachment -33- 35 prior to judgment, from attachment in aid of execution, or from execution prior to judgment, or other legal process in any jurisdiction, such party, for itself and its successors and assigns and its property, does hereby irrevocably and unconditionally waive, and agrees not to plead or claim, any such immunity with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Agreement, the other Related Documents or the subject matter hereof or thereof, subject, in each case, to the provisions of the Related Documents and mandatory requirements of applicable law. 19.15 Judgment Currency. This is a financing transaction in accordance with which the specification of Dollars is of the essence, and Dollars shall be the currency of account in the case of all obligations under the Related Documents. The payment obligations of the Owner, Contributor, Manager, Indenture Trustee and any Series Enhancer under the Related Documents shall not be discharged by an amount paid in a currency, or in a place other than that specified with respect to such obligations, whether pursuant to a judgment or otherwise, to the extent that the amount so paid on prompt conversion to Dollars and transfer to the specified place of payment under normal banking procedures does not yield the amount of Dollars, in such place, due under the governing Related Documents. In the event that any payment, whether pursuant to a judgment or otherwise, upon conversion and transfer does not result in payment of such amount of Dollars in the specified place of payment, the obligee of such payment shall have a separate cause of action against the party making the same for the additional amount necessary to yield the amount due and owing under such Related Documents. If, for the purpose of obtaining a judgment in any court with respect to any obligation of a party under any of the Related Documents or any of the agreements contemplated thereby, it shall be necessary to convert to any other currency any amount in Dollars due thereunder and a change shall occur between the rate of exchange applied in making such conversion and the rate of exchange prevailing on the date of payment of such judgment, the respective judgment debtor agrees to pay such additional amounts (if any) as may be necessary to insure that the amount paid on the date of payment is the amount in such other currency which, when converted into Dollars and transferred to New York, New York, in accordance with normal banking procedures will result in the amount then due under the respective Related Document in Dollars. Any amount due from the respective judgment debtor shall be due as a separate debt and shall not be affected by or merged into any judgment being obtained for any other sum due under or in respect of any Related Document. In no event, however, shall the respective judgment debtor be required to pay a larger amount in such other currency, at the rate of exchange in effect on the date of payment than the amount of Dollars stated to be due under the respective Related Document, so that in any event the obligations of the respective judgment debtor under the Related Document will be effectively maintained as Dollar obligations. [Signatures to follow] -34- 36 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. UNIVERSAL COMPRESSION, INC. By: /s/ RICHARD W. FITZGERALD ----------------------------------------- Name: Richard W. FitzGerald Title: Senior Vice President By: UCO COMPRESSION LLC By: /s/ RICHARD W. FITZGERALD ----------------------------------------- Name: Richard W. FitzGerald Title: Senior Vice President BRL UNIVERSAL COMPRESSION FUNDING I, L.P. By: BRL Universal Compression Management, Inc., its general partner By: /s/ GREGORY C. GREENE ---------------------------------------- Name: Gregory C. Greene Title: President 37 Acknowledged and Agreed: WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION, as indenture trustee By: /s/ EDNA BARBER -------------------------------------------- Title: Assistant Vice President -------------------------------------------- Date: March 20, 2001 -------------------------------------------- MANAGEMENT AGREEMENT EX-10.11 14 h84315ex10-11.txt GUARANTY MADE BY UNIVERSAL COMPRESSION HOLDINGS 1 EXHIBIT 10.11 GUARANTY THIS GUARANTY, dated as of February 9, 2001 (as amended, modified or supplemented from time to time in accordance with its terms, this "Guaranty"), is issued by UNIVERSAL COMPRESSION HOLDINGS, INC., a Delaware corporation (together with its successors and permitted assigns, the "Guarantor"), for the benefit of UCO COMPRESSION LLC, a Delaware limited liability company (together with its successors and permitted assigns, the "Head Lessee"), BRL UNIVERSAL COMPRESSION FUNDING I, L.P., a Delaware limited partnership (together with its successors and permitted assigns, the "Issuer" or the "Head Lessor"), and their respective successors and assigns, including, but not limited to WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as indenture trustee (the "Indenture Trustee"; each of the Head Lessee, the Head Lessor and the Indenture Trustee, a "Beneficiary" and collectively, the "Beneficiaries"). PRELIMINARY STATEMENTS: (1) The Head Lessee and the Head Lessor are entering into that certain Master Equipment Lease Agreement, dated as of February 9, 2001 (as amended, modified or supplemented from time to time in accordance with its terms, the "Head Lease") pursuant to which the Head Lessor will lease certain Compressors to the Head Lessee; (2) The Head Lessee, the Head Lessor and Universal Compression, Inc. ("UCI") will enter into a management agreement, dated as of February 9, 2001 (as amended, modified or supplemented from time to time in accordance with its terms, the "Management Agreement") pursuant to which UCI will agree to manage certain Compressors on behalf of the Head Lessor or the Head Lessee, as the case may be; (3) The Issuer is issuing one or more classes of notes (collectively, the "Notes") pursuant to an indenture (as amended, modified or supplemented from time to time in accordance with its terms, the "Indenture"), dated as of February 9, 2001, between the Issuer and the Indenture Trustee, which Notes will be collateralized by, inter alia, all of the Issuer's right, title and interest in and to the Head Lease and the Management Agreement; (4) UCI is a wholly-owned subsidiary of the Guarantor; (5) Issuer requires that the Guarantor guarantee the payment and performance by UCI under the Management Agreement as a condition to leasing Compressors to Head Lessee under the Head Lease; (6) Guarantor will obtain substantial direct and indirect benefit from the lease of the Compressors to the Head Lessee and the management thereof by UCI, and is willing to provide this guaranty on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and other consideration, the receipt and sufficiency of which is hereby acknowledged by the Guarantor, the Guarantor hereby agrees as follows: 2 SECTION 1. Definitions. Capitalized terms used in this Guaranty, unless otherwise defined herein, shall have the meaning set forth in the Indenture or, if not defined therein, as defined in the Management Agreement. SECTION 2. Guaranty. Guarantor hereby unconditionally guarantees the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, and the full and prompt performance, of the obligations of UCI as the initial Manager under the Management Agreement (UCI in this capacity, the "Guaranteed Party"), whether monetary or otherwise, howsoever created, arising or evidenced, whether direct or indirect, primary or secondary, absolute or contingent, joint or several, now or hereafter existing or due or to become due, which arise out of or in connection with the Management Agreement (all of such obligations being hereinafter collectively called the "Liabilities"); provided that nothing contained herein shall be deemed to constitute credit recourse to the Guarantor for payment of (A) losses arising solely from the financial inability of a User to make rental or other payments under a User Lease, (B) losses arising solely from the failure of the remarketing proceeds of a Compressor to equal or exceed the Appraised Value thereof for reasons other than the Manager's failure to comply with the Services Standard, or (C) the Notes. Guarantor further agrees to pay all expenses (including reasonable attorneys' fees and legal expenses) paid or incurred by any Beneficiary in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this Guaranty. SECTION 3. Continuing Guaranty. This Guaranty shall in all respects be a continuing, absolute and unconditional guaranty, and shall remain in full force and effect (notwithstanding, without limitation, that at any time or from time to time all Liabilities may have been paid in full), subject to discontinuance only upon payment and performance in full of: (i) all Liabilities and (ii) any and all expenses paid or incurred by a Beneficiary in endeavoring to collect the Liabilities and in enforcing this Guaranty; and all of the agreements and obligations under this Guaranty shall remain fully in effect until all such obligations and expenses finally shall have been paid in full. SECTION 4. Rescission. Guarantor further agrees that, if at any time all or any part of any payment theretofore applied by Beneficiary to any of the Liabilities is or must be rescinded or returned by Beneficiary for any reason whatsoever, such Liabilities shall, for the purposes of this Guaranty, to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence, notwithstanding such application by Beneficiary, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by Beneficiary had not been made. SECTION 5. Certain Actions. Each Beneficiary may, from time to time at its sole discretion and without notice to Guarantor, take any or all of the following actions without affecting the obligations of Guarantor hereunder: (a) retain or obtain a lien upon or a security interest in any property to secure any of the Liabilities or any obligation hereunder; (b) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to Guarantor, with respect to any of the Liabilities or any obligation hereunder; (c) extend or renew for one or more periods (regardless of whether longer than the original period), alter or exchange any of the Liabilities, or release or compromise any obligation of Guarantor hereunder or any obligation of any nature of any other obligor including UCI with respect to any of the Liabilities; (d) release or fail to perfect its lien upon or security interest in, or impair, surrender, release or permit any substitution or exchange for, all or -2- 3 any part of any property securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (regardless of whether longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and (e) resort to Guarantor for payment of any of the Liabilities, regardless of whether Beneficiary shall have resorted to any property securing any of the Liabilities or any obligation hereunder or shall have proceeded against any other obligor primarily or secondarily obligated with respect to any of the Liabilities. SECTION 6. Subrogation. Any amounts received by a Beneficiary from whatsoever source on account of the Liabilities may be applied by it toward the payment of such of the Liabilities, and in such order of application, as Beneficiary may from time to time elect. Until one year and one day after payment of the full amount of all Liabilities and performance of all of Guarantor's obligations hereunder, no payment made by or for the account of Guarantor pursuant to this Guaranty shall entitle Guarantor by subrogation, indemnity or otherwise to any payment by UCI or from or out of any property of UCI and Guarantor shall not exercise any right or remedy against UCI or any property of UCI by reason of any performance by Guarantor of this Guaranty. SECTION 7. Waiver. Guarantor hereby expressly waives: (a) notice of any Beneficiary's acceptance of this Guaranty; (b) notice of the existence or creation or non-payment of all or any of the Liabilities; (c) presentment, demand, notice of dishonor, protest, and all other notices whatsoever (provided that nothing contained in this clause (c) shall affect any obligations to give notice or make demand as set forth in the Management Agreement); and (d) all diligence in collection or protection of or realization upon the Liabilities or any thereof, any obligation hereunder, or any security for or guaranty of any of the foregoing. SECTION 8. Unconditional Nature of Guaranty. This Guaranty shall constitute a guaranty of payment or of performance and not of collection, and the Guarantor specifically agrees that it shall not be necessary, and that the Guarantor shall not be entitled to require, before or as a condition of enforcing the liability of the Guarantor under this Guaranty or requiring payment or performance of the Liabilities by the Guarantor hereunder, or at any time thereafter, that any Person: (a) file suit or proceed to obtain or assert a claim for personal judgment against UCI or any other Person that may be liable for any Liabilities; (b) make any other effort to obtain payment or performance of any Liabilities from UCI or any other Person that may be liable for such Liabilities; (c) foreclose against or seek to realize upon any security now or hereafter existing for such Liabilities; (d) exercise or assert any other right or remedy to which such Person is or may be entitled in connection with any Liabilities or any security or other guaranty therefor; or (e) assert or file any claim against the assets of UCI or any other Person liable for any Liabilities. Notwithstanding anything herein to the contrary, no provision of this Guaranty shall require the Guarantor to pay, perform or discharge any Liabilities prior to the time such Liabilities is due and payable. No delay on any Beneficiary's part in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by any Beneficiary of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon Beneficiary except as expressly set forth in a writing duly signed by each Beneficiary. No action of Beneficiary permitted hereunder shall in any way affect or impair any Beneficiary's rights or Guarantor's obligations under this Guaranty. For the purposes of this Guaranty, Liabilities shall include all of UCI's obligations under the Management -3- 4 Agreement, notwithstanding any right or power of UCI or anyone else to assert any claim or defense as to the invalidity or unenforceability of any such obligation, and no such claim or defense shall affect or impair the obligations of Guarantor hereunder. Guarantor's obligations under this Guaranty shall be absolute and unconditional irrespective of any circumstance whatsoever which might constitute a legal or equitable discharge or defense of Guarantor. Guarantor hereby acknowledges that there are no conditions to the effectiveness of this Guaranty. SECTION 9. Information. Guarantor has and will continue to have independent means of obtaining information concerning UCI's affairs, financial condition and business. Beneficiary shall not have any duty or responsibility to provide Guarantor with any credit or other information concerning UCI's affairs, financial condition or business which may come into Beneficiary's possession. SECTION 10. Representations and Warranties. Guarantor represents and warrants as follows: (a) Organization and Good Standing. It has been duly organized and is validly existing as a corporation in good standing under the laws of its state of incorporation, with corporate power and authority to own its properties and to conduct its business as such properties are presently owned and such business is presently conducted. (b) Due Qualification. It is duly licensed, qualified and authorized to do business and is in good standing in each jurisdiction where the ownership, leasing or operation of its property or the conduct of its business requires such licensure or qualification except for failures to be so qualified which, individually or in the aggregate, could not reasonably be expected to have a material adverse effect on the business, operations, property, assets, liabilities, condition (financial or otherwise) or prospects of Guarantor. (c) Power and Authority; Due Authorization. It has (i) all necessary power, authority and legal right to execute, deliver and perform its obligations under this Guaranty and (ii) duly authorized by all necessary corporate action such execution, delivery and performance of this Guaranty. (d) Binding Obligations. This Guaranty constitutes the legal, valid and binding obligation of Guarantor, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. (e) No Violation. The execution, delivery and performance of this Guaranty will not (i) conflict with, or result in any breach of any of the terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under (A) the certificate of incorporation or by-laws of Guarantor or (B) any indenture, lease, loan agreement, receivables purchase agreement, mortgage, deed of trust, or other agreement or instrument to which Guarantor is a party or by which it or its property is bound, (ii) result in or require the creation or imposition of any Lien upon any of its properties pursuant to the terms of any such indenture, lease, loan agreement, receivables purchase agreement, mortgage, deed of trust, or -4- 5 other agreement or instrument or (iii) violate any law or any order, rule, regulation applicable to Guarantor of any court or of any federal, state or foreign regulatory body, administrative agency or other governmental instrumentality having jurisdiction over Guarantor or any of its properties. (f) Solvency. The execution, delivery and performance by the Guarantor of this Guaranty will not render the Guarantor insolvent, nor is it being made in contemplation of the Guarantor's insolvency; the Guarantor does not, in its reasonable judgment, have an unreasonably small capital for conducting its business as presently contemplated by it. SECTION 11. Successors and Assigns; Amendment. This Guaranty shall be binding upon Guarantor and upon Guarantor's successors and assigns and all references herein to Guarantor or UCI shall be deemed to include any successor or successors whether immediate or remote, to such Person. Guarantor shall not assign any of its obligations hereunder without the prior written consent of each Beneficiary. (a) This Guaranty shall inure to the benefit of each Beneficiary and respective its successors and assigns and all references herein to Beneficiary shall be deemed to include any successors and assigns of Beneficiary (whether or not reference in a particular provision is made to such successors and assigns). Without limiting the foregoing, Guarantor acknowledges and agrees that each Beneficiary's rights to receive payment and exercise rights and pursue remedies under this Guaranty are being assigned to the Issuer which will further assign such rights to the Indenture Trustee, for the benefit of the persons set forth in the Indenture. (b) No amendment or waiver of any provision of this Guaranty, and no consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Guarantor and each Beneficiary and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 12. GOVERNING LAW. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 13. Consent to Jurisdiction; Waiver of Jury Trial. Each Beneficiary may enforce any claim arising out of this Guaranty in any state or federal court having subject matter jurisdiction and located in New York, New York and with respect to any such claim, Guarantor hereby irrevocably submits to the jurisdiction of such courts. Guarantor irrevocably consents to the service of process out of said courts by mailing a copy thereof, by registered mail, postage prepaid, to Guarantor, and agrees that such service, to the fullest extent permitted by law, (i) shall be deemed in every respect effective service of process upon it in any such suit, action or proceeding and (ii) -5- 6 shall be taken and held to be valid personal service upon and personal delivery to it. Nothing herein contained shall preclude Beneficiary from bringing an action or proceeding in respect hereof in any other country, state or place having jurisdiction over such action. Guarantor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court located in New York, New York and any claim that any such suit, action or proceeding brought in such court has been brought in an inconvenient forum. GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS GUARANTY, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. SECTION 14. Notices. All notices, demands or requests given pursuant to this Agreement shall be in writing, sent by overnight courier service or by telefax or hand delivery to the following addresses: To Manager: Universal Compression, Inc. 4440 Brittmoore Road Houston, Texas 77042 To Issuer: BRL Universal Compression Management, Inc. 2911 Turtle Creek Boulevard, Suite 1240 Dallas, Texas 75219 Attn: Gregory C. Greene To Lessee: UCO Compression LLC 4440 Brittmoore Road Houston, Texas 77042 To the Indenture Trustee: Wells Fargo Bank, National Association Sixth & Marquette Avenue MAC N9311-161 Minneapolis, MN 55479 Notice shall be effective and deemed received (a) one (1) day after being delivered to the courier service, if sent by courier, (b) upon receipt of confirmation of transmission, if sent by telecopy, or (c) when delivered, if delivered by hand. Copies of each such notice shall be sent to the Administrative Agent: First Union Securities, Inc., 301 S. College St., TW-9, Charlotte, North Carolina 28288, Attention: Manoj Kumar. [SIGNATURE PAGE FOLLOWS] -6- 7 IN WITNESS WHEREOF, this Guaranty has been executed and delivered by Guarantor's duly authorized officer as of the date first written above. UNIVERSAL COMPRESSION HOLDINGS, INC. By: /s/ RICHARD W. FITZGERALD ------------------------------------------- Name: Richard W. FitzGerald Title: Senior Vice President GUARANTY EX-12.1 15 h84315ex12-1.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 UNIVERSAL COMPRESSION HOLDINGS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS) EXHIBIT 12.1
PERIOD FROM APRIL 1, 1997 PERIOD FROM YEAR ENDED YEAR ENDED THROUGH DECEMBER 12, MARCH 31, MARCH 31, FEBRUARY 20, 1997 THROUGH 1996 1997 1998 MARCH 31, 1998 ---------- ---------- ------------- -------------- Fixed Charges as Defined: Interest expense, including amortization of deferred financing charges $ 3,706 $ -- $ -- $ 3,203 Interest component of rental expense on operating leases 159 143 130 14 Operating lease expense 0 0 0 0 ------- ------- ------- ------- Total Fixed Charges $ 3,865 $ 143 $ 130 $ 3,217 ======= ======= ======= ======= Earnings as Defined: Income (loss) before extraordinary items $ 5,972 $ 7,842 $10,759 $ 430 Income taxes (benefit) 3,745 4,724 6,271 409 Total Fixed Charges 3,865 143 130 3,217 ------- ------- ------- ------- Total Earnings as Defined $13,582 $12,709 $17,160 $ 4,056 ======= ======= ======= ======= Ratio of Earnings to Fixed Charges 3.5x 88.9x 132.0x 1.3x
YEAR YEAR PRO FORMA 9 MONTHS PRO FORMA 9 ENDED ENDED YEAR ENDED ENDED MONTHS ENDED MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1999 2000 2000 2000 2000 --------- --------- ---------- ------------ ------------ Fixed Charges as Defined: Interest expense, including amortization of deferred financing charges $ 29,313 $ 34,327 $ 5,622 $ 18,597 $ 10,775 Interest component of rental expense on operating leases 142 138 5,749 4,761 4,761 Operating lease expense 0 0 41,121 6,223 35,185 -------- -------- -------- -------- -------- Total Fixed Charges $ 29,455 $ 34,465 $ 52,492 $ 29,581 $ 50,721 ======== ======== ======== ======== ======== Earnings as Defined: Income (loss) before extraordinary items $ (2,361) $ (5,982) $ 22,212 $ 382 $ 14,600 Income taxes (benefit) (1,031) (1,994) 16,589 163 9,203 Total Fixed Charges 29,455 34,465 52,492 29,581 50,721 -------- -------- -------- -------- -------- Total Earnings as Defined $ 26,063 $ 26,489 $ 91,293 $ 30,126 $ 74,524 ======== ======== ======== ======== ======== Ratio of Earnings to Fixed Charges 0.9x 0.8x 1.7x 1.0x 1.5x
EX-21.1 16 h84315ex21-1.txt LIST OF SUBSIDIARIES 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. AND BRL UNIVERSAL EQUIPMENT CORP. SUBSIDIARIES OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P.: BRL Universal Equipment Corp. SUBSIDIARIES OF BRL UNIVERSAL EQUIPMENT CORP: None. EX-23.3 17 h84315ex23-3.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated March 16, 2001 on the consolidated financial statements of Enterra Compression Company and subsidiaries as of and for the year ended December 31, 2000 and our reports dated November 17, 2000 on the consolidated financial statements of Enterra Compression Company and subsidiaries as of and for the year ended December 31, 1999 and the combined financial statements of Weatherford Compression as of and for the year ended December 31, 1998, and to all references to our Firm, included in this Registration Statement. ARTHUR ANDERSEN LLP Houston, Texas March 20, 2001 EX-23.4 18 h84315ex23-4.txt CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of BRL Universal Equipment 2001 A, L.P., BRL Universal Equipment Corp., Universal Compression Holdings, Inc. and Universal Compression, Inc. on Form S-4 of our report dated February 5, 2001 (relating to the consolidated balance sheet of BRL Universal Equipment 2001 A, L.P.), appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Dallas, Texas March 19, 2001 EX-23.5 19 h84315ex23-5.txt CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.5 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of BRL Universal Equipment 2001 A, L.P., BRL Universal Equipment Corp., Universal Compression Holdings, Inc. and Universal Compression, Inc. on Form S-4 of our reports on the consolidated financial statements of Universal Compression Holdings, Inc. and subsidiaries and Universal Compression, Inc. and subsidiaries for the years ended March 31, 2000 and 1999 and for the period from December 12, 1997 (inception) through March 31, 1998 dated April 28, 2000 (October 24, 2000 as to Notes 1, 7 and 9 and February 28, 2001 as to Note 13 for Universal Compression Holdings, Inc.) (February 28, 2001 as to Note 12 for Universal Compression, Inc.) and our report on the financial statements of Tidewater Compression Services, Inc. for the period from April 1, 1997 through February 20, 1998 dated June 1, 1998, which reports are part of the Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Houston, Texas March 20, 2001 EX-23.6 20 h84315ex23-6.txt CONSENT OF KPMG LLP 1 EXHIBIT 23.6 INDEPENDENT AUDITORS' CONSENT We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP Dallas, Texas March 19, 2001 EX-23.7 21 h84315ex23-7.txt CONSENT OF AMERICAN APPRAISAL ASSOCIATES, INC. 1 EXHIBIT 23.7 CONSENT OF APPRAISER We hereby consent to the references made to us and/or our appraisal by BRL Universal Equipment 2001 A, L.P.; BRL Universal Equipment Corp.; Universal Compression Holdings, Inc.; and Universal Compression, Inc. under the captions "Summary," "Risk Factors," "Description of other Financings," "Description of the Notes" and "The Equipment" in the Prospectus constituting a part of this Registration Statement on Form S-4. In addition, we consent to the filing of our summarization letter of the appraisal report referred to therein as an exhibit to the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. AMERICAN APPRAISAL ASSOCIATES, INC. By: /s/ PAULA D. BOST ---------------------------------------- Name: Paula D. Bost Title: Corporate Secretary Milwaukee, Wisconsin March 19, 2001 EX-25.1 22 h84315ex25-1.txt STATEMENT OF ELIGIBILITY OF TRUSTEE ON FORM T-1 1 EXHIBIT 25.1 ================================================================================ FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) [ ] ---------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ---------- BRL UNIVERSAL EQUIPMENT 2001 A, L.P. (Exact name of obligor as specified in its charter) Delaware 75-2918461 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o 2911 Turtle Creek Blvd., Suite 1240 Dallas, Texas 75219 (Address of principal executive offices) (Zip code) BRL UNIVERSAL EQUIPMENT CORP. (Exact name of obligor as specified in its charter) Delaware 75-2918448 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o 2911 Turtle Creek Blvd., Suite 1240 Dallas, Texas 75219 (Address of principal executive offices) (Zip code) 2 UNIVERSAL COMPRESSION HOLDINGS, INC. (Exact name of obligor as specified in its charter) Delaware 13-3989167 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o 4440 Brittmoore Road Houston, Texas 77041 (Address of principal executive offices) (Zip code) UNIVERSAL COMPRESSION, INC. (Exact name of obligor as specified in its charter) Texas 74-1282680 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) c/o 4440 Brittmoore Road Houston, Texas 77041 (Address of principal executive offices) (Zip code) ---------- 8-7/8% Senior Secured Notes due 2008 (Title of the indenture securities) ================================================================================ -2- 3 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
- ------------------------------------------------------------------------------------------------- Name Address - ------------------------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -3- 4 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 9th day of March, 2001. THE BANK OF NEW YORK By: /s/ MING SHIANG ------------------------------- Name: MING SHIANG Title: VICE PRESIDENT -4- 5 - -------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business December 31, 2000, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts In Thousands -------------- ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin.. $ 3,083,720 Interest-bearing balances........................... 4,949,333 Securities: Held-to-maturity securities......................... 740,315 Available-for-sale securities....................... 5,328,981 Federal funds sold and Securities purchased under agreements to resell................................ 5,695,708 Loans and lease financing receivables: Loans and leases, net of unearned income........................................... 36,590,456 LESS: Allowance for loan and lease losses..................................... 598,536 LESS: Allocated transfer risk reserve.......................................... 12,575 Loans and leases, net of unearned income, allowance, and reserve............................ 35,979,345 Trading Assets......................................... 11,912,448 Premises and fixed assets (including capitalized leases)............................................. 763,241 Other real estate owned................................ 2,925 Investments in unconsolidated subsidiaries and associated companies................................ 183,836 Customers' liability to this bank on acceptances outstanding......................................... 424,303 Intangible assets...................................... 1,378,477 Other assets........................................... 3,823,797 ----------- Total assets........................................... $74,266,429 ===========
6
Dollar Amounts In Thousands -------------- LIABILITIES Deposits: In domestic offices................................. $28,328,548 Noninterest-bearing................................. 12,637,384 Interest-bearing.................................... 15,691,164 In foreign offices, Edge and Agreement subsidiaries, and IBFs............................ 27,920,690 Noninterest-bearing................................. 470,130 Interest-bearing.................................... 27,450,560 Federal funds purchased and Securities sold under agreements to repurchase............................ 1,437,916 Demand notes issued to the U.S.Treasury................ 100,000 Trading liabilities.................................... 2,049,818 Other borrowed money: With remaining maturity of one year or less......... 1,279,125 With remaining maturity of more than one year through three years............................... 0 With remaining maturity of more than three years.... 31,080 Bank's liability on acceptances executed and outstanding......................................... 427,110 Subordinated notes and debentures...................... 1,646,000 Other liabilities...................................... 4,604,478 ----------- Total liabilities...................................... 67,824,765 =========== EQUITY CAPITAL Common stock........................................... 1,135,285 Surplus................................................ 1,008,775 Undivided profits and capital reserves................. 4,308,492 Net unrealized holding gains (losses) on available-for-sale securities....................... 27,768 Accumulated net gains (losses) on cash flow hedges 0 Cumulative foreign currency translation adjustments.... (38,656) Total equity capital................................... 6,441,664 ----------- Total liabilities and equity capital................... $74,266,429 ===========
7 I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Renyi ) Alan R. Griffith ) Directors Gerald L. Hassell ) - -------------------------------------------------------------------------------- EX-99.1 23 h84315ex99-1.txt FORM OF LETTER OF TRANSMITTAL FOR 8 7/8% NOTES 1 EXHIBIT 99.1 BRL UNIVERSAL EQUIPMENT 2001 A, L.P. BRL UNIVERSAL EQUIPMENT CORP. LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 8 7/8% SENIOR SECURED NOTES DUE 2008 THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR 8 7/8% SENIOR SECURED NOTES DUE 2008 THAT WERE ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT - -------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________ , 2001 UNLESS EXTENDED (THE "EXPIRATION DATE "). - -------------------------------------------------------------------------------- PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS IF YOU DESIRE TO ACCEPT THE EXCHANGE OFFER, THIS LETTER OF TRANSMITTAL SHOULD BE COMPLETED, SIGNED AND SUBMITTED TO THE EXCHANGE AGENT: THE BANK OF NEW YORK By Overnight Delivery or by Hand: By Registered or Certified Mail: The Bank of New York The Bank of New York 101 Barclay Street 101 Barclay Street, 7E Corporate Trust Services Window New York, New York 10286 Ground Level Attention: William Buckley New York, New York 10286 Reorganization Section Attention: William Buckley Reorganization Section By Facsimile (for Eligible Institutions Only): (212) 815-6339 To Confirm by Telephone: (212) 815-5788 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL INFORMATION, PLEASE CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (212) 815-5788 (ATTENTION: WILLIAM BUCKLEY), OR BY FACSIMILE AT (212) 815-6339. 2 The undersigned hereby acknowledges receipt of (1) the Prospectus dated __________, 2001 (the "Prospectus") of BRL Universal Equipment, L.P., a Delaware limited partnership, and BRL Universal Equipment Corp., a Delaware corporation, as issuers of the notes (collectively, the "Issuers"), and of Universal Corporation, Inc., a Texas corporation ("UCI"), as issuer of the lease obligations that will be used to fund the principal and interest payments on the notes, and Universal Compression Holdings, Inc., a Delaware corporation and the parent of UCI, as issuer of the guarantee obligations with respect to the lease obligations of UCI, and (2) this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Issuers' offer (the "Exchange Offer") to exchange their 8 7/8% Senior Secured Notes due 2008 (the "New Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for their outstanding 8 7/8% Senior Secured Notes due 2008 that were issued and sold in a transaction exempt from registration under the Securities Act (the "Old Notes"), of which $350,000,000 aggregate principal amount is outstanding. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from February 9, 2001. Accordingly, registered holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from February 9, 2001. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. This Letter of Transmittal is to be completed by a holder of Old Notes either if certificates are to be forwarded herewith or if a tender of certificates for Old Notes, if available, is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC") pursuant to the procedures set forth in the section of the Prospectus entitled "The Exchange Offer--Procedures for Tendering Old Notes." Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Old Notes into the Exchange Agent's account at DTC (a "Book-Entry Confirmation") and all other documents required by this Letter to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in the section of the Prospectus entitled "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The undersigned hereby tenders the Old Notes described in Box 1 below pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all of the tendered Old Notes, and represents that it has received from each beneficial owner of the tendered Old Notes (collectively, the "Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. Subject to, and effective upon, the acceptance for exchange of the tendered Old Notes, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Issuers, all right, title and interest in, to and under such Old Notes. 2 3 The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of the undersigned with respect to the tendered Old Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (1) deliver the tendered Old Notes to the Issuers or cause ownership of the tendered Old Notes to be transferred to, or upon the order of, the Issuers, on the books of the registrar for the Old Notes and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuers upon receipt by the Exchange Agent, as the undersigned's agent, of the New Notes to which the undersigned is entitled upon acceptance by the Issuers of the tendered Old Notes pursuant to the Exchange Offer, and (2) receive all benefits and otherwise exercise all rights of beneficial ownership of the tendered Old Notes, all in accordance with the terms of the Exchange Offer. Unless otherwise indicated under "Special Issuance Instructions" below (Box 2), please issue the New Notes exchanged for tendered Old Notes in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions" below (Box 3), please send or cause to be sent the certificates for the New Notes (and accompanying documents, as appropriate) to the undersigned at the address shown below in Box 1. The undersigned understands that tenders of Old Notes pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Issuers upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders of Old Notes." All authority herein conferred or agreed to be conferred shall survive the death, bankruptcy or incapacity of the undersigned and any Beneficial Owner(s), and every obligation of the undersigned or any Beneficial Owners hereunder shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned and such Beneficial Owner(s). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Old Notes being tendered and to acquire the New Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange as contemplated herein, the Issuers will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances and adverse claims. The undersigned and each Beneficial Owner will, upon request, execute and deliver any additional documents reasonably requested by the Issuers or the Exchange Agent as necessary or desirable to complete and give effect to the transactions contemplated hereby. By accepting the Exchange Offer, the undersigned hereby represents and warrants that (1) the New Notes to be acquired by the undersigned and any Beneficial Owner(s) pursuant to the Exchange Offer are being acquired by the undersigned and any Beneficial Owner(s) in the ordinary course of business of the undersigned and any Beneficial Owner(s), (2) neither the undersigned nor any Beneficial Owner is participating in, or intends to participate in, or has an arrangement or understanding with any person to participate in the distribution of the New Notes, (3) except as otherwise disclosed in writing herewith, neither the undersigned nor any Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities Act, of the Issuers and, if the undersigned or any Beneficial Owner is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (4) if neither the undersigned nor any Beneficial Owner is a broker-dealer, that neither the undersigned nor any such Beneficial Owner is engaged in or intends to engage in the distribution of any New Notes, or (5) if any of the undersigned or any Beneficial Owner(s) is a broker-dealer that will receive New Notes for its own account in exchange for tendered Old Notes, that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making activities or 3 4 other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such New Notes. The undersigned, by agreeing to so deliver any such prospectus, shall not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. PLEASE CHECK THE APPROPRIATE BOX: [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED WITH THIS LETTER OF TRANSMITTAL. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE BOX 4 BELOW. [ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE BOX 5 BELOW. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS TO THE PROSPECTUS. Name: ---------------------------------------------------------------------- Address: ------------------------------------------------------------------- PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES ALL TENDERING HOLDERS COMPLETE THIS BOX:
- ----------------------------------------------------------------------------------------------------------------------- BOX 1 DESCRIPTION OF OLD NOTES TENDERED (ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY) - ----------------------------------------------------------------------------------------------------------------------- AGGREGATE NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), CERTIFICATE PRINCIPAL AMOUNT AGGREGATE EXACTLY AS NAME(S) APPEAR(S) ON NOTE CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY PRINCIPAL AMOUNT (PLEASE FILL IN, IF BLANK) OLD NOTES* CERTIFICATE(S) TENDERED** - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- TOTAL: - -----------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of Old Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the aggregate principal amount of the Old Notes represented by the certificates identified in this Box 1 or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. 4 5 - -------------------------------------------------------------------------------- BOX 2 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) TO BE COMPLETED ONLY IF CERTIFICATES FOR OLD NOTES NOT EXCHANGED AND/OR NEW NOTES ARE TO BE ISSUED IN THE NAME OF AND SENT TO SOMEONE OTHER THAN THE UNDERSIGNED OR IF OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER WHICH ARE NOT ACCEPTED FOR EXCHANGE ARE TO BE RETURNED BY CREDIT TO AN ACCOUNT MAINTAINED AT DTC OTHER THAN THE ACCOUNT SET FORTH IN BOX 5. Issue New Note(s) and/or Old Notes to: Name(s): ------------------------------------------------------------------------ (PLEASE TYPE OR PRINT) Address: ------------------------------------------------------------------------ ------------------------------------------------------------------------ (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) [ ] Credit unexchanged Old Notes delivered by book-entry transfer to the DTC account set forth below: - -------------------------------------------------------------------------------- (DTC ACCOUNT NUMBER) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BOX 3 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) TO BE COMPLETED ONLY IF CERTIFICATES FOR OLD NOTES NOT EXCHANGED AND/OR NEW NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE. Mail New Note(s) and any untendered Old Notes to: Name(s): ------------------------------------------------------------------------ (PLEASE TYPE OR PRINT) Address: ------------------------------------------------------------------------ ------------------------------------------------------------------------ (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- 5 6 - -------------------------------------------------------------------------------- BOX 4 USE OF GUARANTEED DELIVERY (SEE INSTRUCTION 2) TO BE COMPLETED ONLY IF OLD NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY. NAME(S) OF REGISTERED HOLDER(S): ------------------------------------------------ DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY: ----------------------------- NAME OF ELIGIBLE INSTITUTION THAT GUARANTEED DELIVERY: -------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BOX 5 USE OF BOOK-ENTRY TRANSFER (SEE INSTRUCTION 1) TO BE COMPLETED ONLY IF DELIVERY OF OLD NOTES IS TO BE MADE BY BOOK-ENTRY TRANSFER. NAME(S) OF TENDERING HOLDER(S): ------------------------------------------------- NAME OF DTC PARTICIPANT: -------------------------------------------------------- DTC PARTICIPANT NUMBER: --------------------------------------------------------- CONTACT AT DTC PARTICIPANT: ----------------------------------------------------- TRANSACTION CODE NUMBER: -------------------------------------------------------- - -------------------------------------------------------------------------------- 6 7 PAYER'S NAME: THE BANK OF NEW YORK =============================================================================================================== SUBSTITUTE FORM W-9 NAME (IF JOINT NAMES, LIST FIRST AND CIRCLE THE NAME OF THE PERSON OR DEPARTMENT OF THE TREASURY ENTITY WHOSE NUMBER YOU ENTER IN PART 1 BELOW. SEE INSTRUCTIONS IF YOUR INTERNAL REVENUE SERVICE NAME HAS CHANGED.) PAYERS' REQUEST FOR TAXPAYER ADDRESS: IDENTIFICATION NUMBER (TIN) ------------------------------------------------------------------ CITY, STATE AND ZIP CODE: ------------------------------------------------- LIST ACCOUNT NUMBER(S) HERE (OPTIONAL): ----------------------------------- -------------------------------------------------------------------------- PART 1--PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER ("TIN") AND CERTIFY BY SIGNING AND DATING BELOW: TIN: ---------------------------------------------------------------------- -------------------------------------------------------------------------- PART 2-- TIN APPLIED FOR: [ ] - --------------------------------------------------------------------------------------------------------------- PART 3--CHECK THE BOX IF YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING UNDER THE PROVISIONS OF SECTION 3406(a)(1)(c) OF THE INTERNAL REVENUE CODE BECAUSE (1) YOU HAVE NOT BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR (2) THE INTERNAL REVENUE SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING. [ ] ===============================================================================================================
================================================================================ CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE. SIGNATURE: ---------------------------------------------------------------------- NAME: DATE: -------------------------------- ------------------------------------- ================================================================================ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. ================================================================================ CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (2) I intend to mail or deliver an application in the near future. I understand that, if I do not provide a taxpayer identification number to the Exchange Agent, 31% of all reportable payments made to me will be withheld, but will be refunded if I provide a certified taxpayer identification number within 60 days. - ---------------------------------------- --------------------------------- SIGNATURE DATE - ---------------------------------------- NAME (PLEASE PRINT) ================================================================================ 8 8 INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. A properly completed and duly executed copy of this Letter of Transmittal, including Substitute Form W-9, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein, and either certificates for tendered Old Notes must be received by the Exchange Agent at its address set forth herein or such tendered Old Notes must be transferred pursuant to the procedures for book-entry transfer described in the Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old Notes" (and a confirmation of such transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of certificates for tendered Old Notes, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the tendering holder and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Old Notes should be sent to the Issuers. Neither the Issuers nor the registrar is under any obligation to notify any tendering holder of the Issuers' acceptance of tendered Old Notes prior to the closing of the Exchange Offer. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old Notes but whose Old Notes are not immediately available or who cannot deliver their Old Notes, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedures set forth below, including completion of Box 4. Pursuant to such procedures: (1) such tender must be made through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" as defined by Rule 17Ad-15 under the Exchange Act (in any such case, an "Eligible Institution"), (2) prior to the Expiration Date, the Exchange Agent must have received from an Eligible Institution a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery (by facsimile, transmission, mail or hand delivery) setting forth the name and address of the tendering holder, the certificate number(s) of the tendered Old Notes and the principal amount of the Old Notes tendered, and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery, this Letter of Transmittal, together with the certificate(s) representing the tendered Old Notes and any other required documents, will be deposited by the Eligible Institution with the Exchange Agent; and (3) the certificate(s) representing all tendered Old Notes in proper form for transfer, or a confirmation of book-entry transfer of such tendered Old Notes into the Exchange Agent's account at DTC, as the case may be, and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of the Notice of Guaranteed Delivery. Any holder who wishes to tender Old Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery within the time period prescribed above. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by a holder who attempted to use the guaranteed delivery process. 3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in whose name tendered Old Notes are registered on the books of the registrar (or the legal representative or attorney-in-fact of such registered holder), or whose name appears on a DTC security position listing as a holder of 9 9 Old Notes, may execute and deliver this Letter of Transmittal. Any Beneficial Owner of tendered Old Notes who is not the registered holder must arrange promptly with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf through the execution and delivery to the registered holder of the Instructions of Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner form accompanying this Letter of Transmittal. 4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Old Notes held by the holder is tendered, the tendering holder should fill in the principal amount tendered in the column labeled "Aggregate Principal Amount Tendered" of Box 1 above. The entire principal amount of Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Old Notes held by the holder is not tendered, then Old Notes for the principal amount of Old Notes not tendered and New Notes issued in exchange for any Old Notes tendered and accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the tendered Old Notes, the signature must correspond with the name(s) as written on the face of the tendered Old Notes, or whose name appears on a security position listing with DTC as the owner of the tendered Old Notes, in each case without any change whatsoever. If any of the tendered Old Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Notes are held in different names, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different names in which tendered Notes are held. If this Letter of Transmittal is signed by the registered holder(s) of tendered Old Notes, and New Notes issued in exchange therefor are to be issued (and any untendered principal amount of Old Notes is to be reissued) in the name of the registered holder(s), then such registered holder(s) need not and should not endorse any tendered Old Notes, nor provide a separate bond power. In any other case, such registered holder(s) must either properly endorse the tendered Old Notes or transmit a properly completed separate bond power with this Letter of Transmittal, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of any tendered Old Notes, such tendered Old Notes must be endorsed or accompanied by appropriate bond powers, in each case signed exactly as the name(s) of the registered holder(s) appear(s) on the tendered Old Notes, with the signature(s) on the endorsement or bond power guaranteed by an Eligible Institution. If this Letter of Transmittal or any tendered Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Issuers, evidence satisfactory to the Issuers of their authority to so act must be submitted with this Letter of Transmittal. Endorsements on tendered Old Notes or signatures on bond powers required by this Instruction 5 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the tendered Old Notes are tendered (1) by a registered holder who has not completed Box 2 set forth herein 10 10 (entitled "Special Issuance Instructions"), (2) by a registered holder who has not completed Box 3 set forth herein (entitled "Special Delivery Instructions") or (3) by an Eligible Institution. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the appropriate box (Box 2 or Box 3), the name and address to which the New Notes and/or substitute certificates evidencing Old Notes for principal amounts not tendered or not accepted for exchange are to be sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. Holders of Old Notes tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at DTC as such Holder may designate hereon. If no such instructions are given, such Old Notes not exchanged will be returned to the name or address of the person signing this Letter of Transmittal. 7. TRANSFER TAXES. The Issuers will pay all transfer taxes, if any, applicable to the exchange of tendered Old Notes pursuant to the Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged or to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Old Notes tendered hereby, or if tendered Old Notes tendered hereby, or if tendered Old Notes are registered in the name of any person other than the person signing this Letter of Transmittal, a transfer tax is imposed for any reason other than the transfer and exchange of tendered Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder and/or withheld from any payment due with respect to the Old Notes tendered by such holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the tendered Old Notes listed in this Letter of Transmittal. 8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the holder(s) of any tendered Old Notes that are accepted for exchange must provide the Exchange Agent (as payor) with its correct taxpayer identification number ("TIN") which, in the case of a holder who is an individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to backup withholding and a $50 penalty imposed by the Internal Revenue Service. (If withholding results in an overpayment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each holder of tendered Old Notes must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN) and that (1) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the tendered Old Notes are registered in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Issuers reserve the right in their sole discretion to take whatever steps are necessary to comply with the Issuers' obligation regarding backup withholding. 11 11 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Notes will be determined by the Issuers, which determination will be final and binding. The Issuers reserve the absolute right to reject any and all tenders of Old Notes not in proper form or the acceptance of which for exchange may, in the opinion of the Issuers' counsel, be unlawful. The Issuers also reserve the absolute right to waive any conditions of the Exchange Offer or any defect or irregularity in the tender of Old Notes. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Issuers shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Issuers shall determine. Neither the Issuers, the Exchange Agent, nor any other person shall be under any duty to give notification of defects or irregularities to holders of Old Notes or incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived, or if Old Notes are submitted in principal amount greater than the principal amount of Old Notes being tendered, such unaccepted or non-exchanged Old Notes will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to waive any of the conditions in the Exchange Offer in the case of any tendered Old Notes. 11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular, or contingent tender of Old Notes or transmittal of this Letter of Transmittal will be accepted. 12. MUTILATED, LOST, STOLE OR DESTROYED OLD NOTES. Any holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address and telephone number indicated herein. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF OLD NOTES; RETURN OF OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the Issuers will accept for exchange all validly tendered Old Notes as soon as practicable after the Expiration Date and will issue New Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Issuers shall be deemed to have accepted tendered Old Notes when, as and if the Issuers have given written or oral notice (immediately followed in writing) thereof to the Exchange Agent. If any tendered Old Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Old Notes will be returned, without expense, to the undersigned at the address shown in Box 1 or at such different address as may be indicated herein under "Special Delivery Instructions" (Box 3). 15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders of Old Notes." 12 EX-99.2 24 h84315ex99-2.txt FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR 8 7/8% SENIOR SECURED NOTES DUE 2008 OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. AND BRL UNIVERSAL EQUIPMENT CORP. PURSUANT TO THE PROSPECTUS DATED __________________ , 2001 This form must be used by a holder of 8 7/8% Senior Secured Notes due 2008 (the "Old Notes") of BRL Universal Equipment 2001 A, L.P., a Delaware limited partnership ("BRL"), and BRL Universal Equipment Corp., a Delaware corporation ("BRL Corp." and, together with BRL, the "Issuers"), who wishes to tender Old Notes to the Exchange Agent pursuant to the guaranteed delivery procedures described in the section entitled "The Exchange Offer -- Guaranteed Delivery Procedures" of the Issuers' Prospectus dated __________________ , 2001 (the "Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Old Notes pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. _________________________________ THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ______________ , 2001 UNLESS EXTENDED (THE "EXPIRATION DATE"). _________________________________ THE BANK OF NEW YORK (THE "EXCHANGE AGENT") By Overnight Carrier or by Hand: By Registered or Certified Mail: The Bank of New York The Bank of New York 101 Barclay Street 101 Barclay Street, 7E Corporate Trust Services Window New York, New York 10286 Ground Level Attention: William Buckley New York, New York 10286 Reorganization Section Attention: William Buckley Reorganization Section By Facsimile (for Eligible Institutions Only): (212) 815-6339 To Confirm by Telephone: (212) 815-5788 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 1 2 Ladies and Gentlemen: Upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, the undersigned hereby tenders to the Issuers the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned hereby tenders the Old Notes listed below:
- ----------------------------------------------------------------------------------------------------------- AGGREGATE PRINCIPAL AMOUNT REPRESENTED CERTIFICATE NUMBER(S) (IF KNOWN) OF OLD BY OLD NOTES AGGREGATE PRINCIPAL NOTES OR ACCOUNT NUMBER AT THE DTC CERTIFICATE(S) AMOUNT TENDERED - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------- PLEASE SIGN AND COMPLETE - ----------------------------------------------------------------------------------------------------------- SIGNATURES OF REGISTERED HOLDER(S) OR DATE: ______________________________, 2001 AUTHORIZED SIGNATORY: ADDRESS: __________________________________________ NAME(S) OF REGISTERED HOLDER(S): AREA CODE AND TELEPHONE NO. _______________________ - -----------------------------------------------------------------------------------------------------------
2 3 - ------------------------------------------------------------------------------- THIS NOTICE OF GUARANTEED DELIVERY MUST BE SIGNED BY THE HOLDER(S) EXACTLY AS THEIR NAME(S) APPEAR ON CERTIFICATES FOR OLD NOTES OR ON A SECURITY POSITION LISTING AS THE OWNER OF OLD NOTES, OR BY PERSON(S) AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY ENDORSEMENTS AND DOCUMENTS TRANSMITTED WITH THIS NOTICE OF GUARANTEED DELIVERY. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, SUCH PERSON MUST PROVIDE THE FOLLOWING INFORMATION. PLEASE PRINT NAME(S) AND ADDRESS(ES) NAME(S): ______________________________________________________________________ _____________________________________________________________________________ CAPACITY: _____________________________________________________________________ _____________________________________________________________________________ ADDRESS(ES): __________________________________________________________________ _____________________________________________________________________________ - ------------------------------------------------------------------------------- 3 4 - ------------------------------------------------------------------------------- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) - ------------------------------------------------------------------------------- THE UNDERSIGNED, A FIRM WHICH IS A MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC., OR IS A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES, OR IS OTHERWISE AN "ELIGIBLE GUARANTOR INSTITUTION" WITHIN THE MEANING OF RULE 17Ad-15 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, GUARANTEES DEPOSIT WITH THE EXCHANGE AGENT OF THE LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), TOGETHER WITH THE OLD NOTES TENDERED HEREBY IN PROPER FORM FOR TRANSFER (OR CONFIRMATION OF THE BOOK-ENTRY TRANSFER OF SUCH OLD NOTES INTO THE EXCHANGE AGENT'S ACCOUNT AT DTC DESCRIBED IN THE PROSPECTUS UNDER THE CAPTION "THE EXCHANGE OFFER--GUARANTEED DELIVERY PROCEDURES" AND IN THE LETTER OF TRANSMITTAL) AND ANY OTHER REQUIRED DOCUMENTS, ALL BY 5:00 P.M., NEW YORK CITY TIME, ON THE THIRD NEW YORK STOCK EXCHANGE TRADING DAY FOLLOWING THE DATE OF EXECUTION HEREOF. - ------------------------------------------------------------------------------- NAME OF FIRM ------------------------- ---------------------------------- (AUTHORIZED SIGNATURE) ADDRESS NAME ------------------------------ ------------------------------ (PLEASE PRINT) - -------------------------------------- TITLE (INCLUDE ZIP CODE) ---------------------------- AREA CODE AND TEL. NO. DATED , 2001 --------------- --------------------- - -------------------------------------------------------------------------------
DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF CERTIFICATES FOR OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. 4 5 BRL UNIVERSAL EQUIPMENT 2001 A, L.P. BRL UNIVERSAL EQUIPMENT CORP. INSTRUCTIONS TO REGISTERED HOLDER AND/OR DTC PARTICIPANT FROM BENEFICIAL OWNER OF 8 7/8% SENIOR SECURED NOTES DUE 2008 To Registered Holder and/or DTC Participant: The undersigned hereby acknowledge receipt of the Prospectus, dated ________, 2001 (the "Prospectus), of BRL Universal Equipment 2001 A, L.P., a Delaware limited partnership ("BRL"), and BRL Universal Equipment Corp., a Delaware corporation ("BRL Corp." and, together with BRL, the "Issuers"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Issuers' offer (the "Exchange Offer") to exchange 8 7/8% Senior Secured Notes due 2008 (the "New Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for their outstanding 8 7/8% Senior Secured Notes due 2008 (the "Old Notes"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or DTC participant, as to action to be taken by you relating to the Exchange Offer with respect to the Old Notes held by you for the account of the undersigned. The aggregate face amount of the Old Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $ of the 8 7/8% Senior Secured Notes due 2008; With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): - TO TENDER the following aggregate principal amount of Old Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED, IF ANY): $___________ - NOT TO TENDER any Old Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Old Notes held by you for the account of the undersigned, it is understood that you are authorized (a) to make on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (1) the undersigned's principal residence is in the state of _______________ (FILL IN STATE), (2) the undersigned is acquiring the New Notes in the ordinary course of business of the undersigned, (3) the undersigned has no arrangement or understanding with any person to participate in the distribution of the New Notes, (4) except as otherwise disclosed in writing herewith, the undersigned is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Issuers and, if the undersigned is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (5) if the undersigned is not a broker-dealer, that the undersigned is not engaged in and does not intend to engage in the distribution of any New Notes, or (6) if the undersigned is a broker-dealer, that it will receive New Notes for its own account in exchange for tendered Old Notes that were acquired as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Old Notes. 5 6 - ------------------------------------------------------------------------------- SIGN HERE NAME(S) OF BENEFICIAL OWNER(S):________________________________________________ SIGNATURE(S):__________________________________________________________________ NAME (PLEASE PRINT):___________________________________________________________ ADDRESS:_______________________________________________________________________ TELEPHONE NUMBER:______________________________________________________________ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER:_____________________________ DATE:__________________________________________________________________________ - ------------------------------------------------------------------------------- 6 7 TENDER FOR ALL OUTSTANDING 8 7/8% SENIOR SECURED NOTES DUE 2008 IN EXCHANGE FOR 8 7/8% SENIOR SECURED NOTES DUE 2008 THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OF BRL UNIVERSAL EQUIPMENT 2001 A, L.P. AND BRL UNIVERSAL EQUIPMENT CORP. To Registered Holders: We are enclosing herewith the material listed below relating to the offer (the "Exchange Offer") by BRL Universal Equipment 2001 A, L.P., a Delaware limited partnership ("BRL"), and BRL Universal Equipment Corp., a Delaware corporation ("BRL Corp." and, together with BRL, the "Issuers"), to exchange their 8 7/8% Senior Secured Notes Due 2008 (the "New Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of their issued and outstanding 8 7/8% Senior Secured Notes Due 2008 (the "Old Notes") upon the terms and subject to the conditions set forth in the Prospectus dated ______________, 2001 and the related Letter of Transmittal. Enclosed herewith are copies of the following documents: 1. Prospectus dated ______________, 2001; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; and 4. Instruction to Registered Holder and/or DTC Participant from Beneficial Owner. We urge you to contact your clients promptly. Please note that the Exchange Offer will expire at 5:00 p.m., New York City time, on ____________, 2001, unless extended. The Exchange Offer is not conditioned upon any minimum number of Old Notes being tendered. Pursuant to the Letter of Transmittal, each holder of Old Notes will represent to the Issuers that (1) the New Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is such holder, (2) neither the holder of the Old Notes nor any such other person is participating in, intends to participate in or has an arrangement or understanding with any person to participate in the distribution of such Notes, (3) neither the holder nor any such other person is an "affiliate" of the Issuers as defined in Rule 405 under the Securities Act or, if such holder is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Security Act to the extent applicable, (4) if the holder is not a broker-dealer, that neither the holder nor such other person is engaged in or intends to engage in the distribution of any New Notes, and (5) if the holder is a broker-dealer, that it will receive New Notes for its own account in exchange for tendered Old Notes that were required as a result of market-making activities or other trading activities and that it will deliver a prospectus in connection with any resale of such New Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the 7 8 requirements of the Securities Act in connection with any resale of such New Notes, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The enclosed Instruction to Registered Holder and/or DTC Participant from Beneficial Owner contains an authorization by the beneficial owners of the Old Notes for you to make the foregoing representations. The Issuers will not pay any fee or commission to any broker or dealer to any other persons (other than the exchange agent for the Exchange Offer) in connection with the solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Issuers will pay or cause to be paid any transfer taxes payable on the transfer of Old Notes to them, except as otherwise provided in Instruction 7 of the enclosed Letter of Transmittal. Additional copies of the enclosed material may be obtained from the undersigned. Very truly yours, The Bank of New York NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF THE ISSUERS OR THE EXCHANGE AGENT OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 8 EX-99.3 25 h84315ex99-3.txt GUIDLINES FOR CERT. OF TAXPAYER INDENTIFICATION 1 EXHIBIT 99.3 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU) TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service.
- --------------------------------------------------------- ---------------------------------------------------------- GIVE THE GIVE THE EMPLOYER SOCIAL SECURITY IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - --------------------------------------------------------- ---------------------------------------------------------- 1. Individual The individual 6. Sole proprietorship The owner(3) 2. Two or more The actual owner of 7. A valid trust, estate The legal entity(4) individuals (joint the account or, if or pension trust account) combined funds, the first individual on the account(1) 3. Custodian account of The minor(2) 8. Corporate The corporation a minor (Uniform Gift to Minors Act) 4. a. The usual The grantor-trustee(1) 9. Association, club, The organization revocable religious, charitable, educational, or other b. So-called trust The actual owner(1) tax-exempt account that is not organization a legal or valid trust under state law 5. Sole proprietorship The owner(3) 10. Partnership The partnership 11. A broker or The broker or nominee registered nominee 12. Account with the The public entity Department of agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - --------------------------------------------------------- ----------------------------------------------------------
(1) List first circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number of your employer identification number (if you have one). (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title). NOTE: If no name is circled when there is more than one name listed, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number, obtain Form SS-5, Application for a Social Security Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from the withholding include o An organization exempt from tax under Section 501(a), a individual retirement account (IRA), or a custodian account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). o The United States or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly-owned agency or instrumentality of any of the foregoing. o An international organization or any agency or instrumentality thereof. o A foreign government an any political subdivision, agency or instrumentality thereof. Payees that may be exempt from backup withholding include: o A corporation. o A financial institution. o A dealer of securities or commodities required to register in the United States, the District of Columbia, a possession of the United States. o A real estate investment trust. o A common trust fund operated by a bank under Section 584(a). o An entity registered at all times during the tax year under the Investment Company Act of 1940. o A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc. Nominee List. o A futures commission merchant registered with the Commodity Futures Trading Commission. o A foreign central bank. Payees of dividends and patronage dividends generally exempt from backup withholding include: o Payments to nonresident aliens subject to withholding under Section 1441. o Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. o Payments of patronage dividends not paid in money. o Payments made by certain foreign organizations. o Section 404(k) payments made by an ESOP. Payments of interest generally exempt from backup withholding include: o Payments of tax-exempt interest (including exempt-interest dividends under Section 852). o Payments described in Section 6049(b)(5) to nonresident aliens. o Payments on tax-free covenant bonds under Section 1451. o Payments made by certain foreign organizations. Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A AND 6050N and the regulations thereunder. EXEMPT PAYEES SHOULD COMPLETE A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. Furnish your taxpayer identification number, write "EXEMPT" on the form, sign and date the form and return it to the payer. PRIVATE ACT NOTICE.--Section 6019 requires you to provide your correct taxpayer identification number to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your return and may also provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. -----END PRIVACY-ENHANCED MESSAGE-----